Select Energy Services Inc

NYSE:WTTR

Earnings Call Analysis

Select Water Solutions Optimizes Cash Flow

Select Water Solutions reported robust third-quarter results marked by significant cash generation and growth in their Water Infrastructure segment. The quarter saw diligent efforts to minimize working capital, subsequently reaping $118 million in operational cash flow and pulling through about $85 million in free cash flow, $85 million, surpassing adjusted EBITDA. The strong cash position allowed full repayment of sustainability-linked credit facility borrowings and setting aside $25 million in cash reserves. Evidencing strategic growth, Water Infrastructure's revenues amplified by 86% in the past year, with gross profit before D&A soaring 113%. Additionally, the company has successfully increased shareholder dividends by 20% and is keenly navigating operational efficiencies, aiming for mid-to-high 20% gross margins. With impressive sequential revenue and volume growth across its segment and a commitment to operational excellence, Select Water Solutions is poised for continued success in providing integrated water and chemical solutions.

Positive Financial Outlook Amid a Transition

In the most recent earnings call, the company presented an encouraging financial outlook, despite being in a period of significant change. The management is confident due to a robust cash balance and the fact that they are fully funded for their strategic growth plan until 2025 without the need for additional external capital. This places it in a strong position to navigate economic fluctuations while remaining focused on long-term growth strategies.

Growth Strategy and Innovation Investments

A key component of the company's strategy is to capitalize on its existing strengths while exploring new opportunities for innovation. To leverage the power of its brand and customer base, the company has been investing in two interconnected areas: enhancing user experience and advancing technological capabilities. These initiatives are expected to contribute to improved competitive positioning and facilitate sustained growth.

Financial Performance Indicators

The specifics of the company's financial performance are of paramount importance to investors. In the recent quarter, revenue is reported on an upward trajectory, showing a 3% rise from the corresponding period last year. Notably, it is a positive indicator combined with the growth margin which has increased to 56%, representing an uptick of 2%. Operationally, the company has achieved a higher adjustable operating income, highlighting strong control over expenses and an effective business model.

Forward-Looking Statements and Guidance

From a forward-looking perspective, the company's guidance for the next quarter projects continued growth. Revenue is forecasted to grow between 3% and 4%. The growth margin is anticipated to remain strong, ranging from 55% to 57%, which suggests a consistent operational performance. Management's focus remains on executing against its growth strategy, while maintaining operational efficiency.

Cost Management and Efficiency

The company's adept cost management is demonstrated through reducing rebranding costs which impacted the previous quarters. Cost discipline is crucial as it allows the company to reinvest in its strategic growth initiatives while maintaining healthy financial metrics – a balancing act the company appears to be managing well.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to Select Water Solutions Third 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, Senior Vice President, Corporate Development, Investor Relations and Sustainability. Thank you. Mr. George, you may begin.

[Chris George, executive]

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 third quarter of 2023. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer, Nick Swyka, Senior Vice President and Chief Financial Officer and Michael Skarke, Executive Vice President and Chief Operating Officer.Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until November 15, 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, November 1, 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's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to read our annual report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand those risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures.As a reminder, the company made certain changes to its segment reporting structure during the second quarter of 2023. These changes were driven by several operational and strategic factors. However, the changes in segment reporting have no impact on the company's historical consolidated financial position, results of operations or cash flows. Prior periods have been recast to include the water sourcing and temporary water logistics operations within the Water Services segment and remove the results of those operations from the Water Infrastructure segment.Historical segment information re-casted and conform to the new reporting structure is available as supplemental financial information in the Investors section of the company's website at investors.selectwater.com. Please refer to the company's current report on Form 8-K filed with the SEC concurrent with our earnings release for additional information.Now I'd like to turn the call over to our Founder, Chairman, President and CEO, John Schmitz.

[John Schmitz, executive]

Thanks, Chris. Good morning and thank you for joining us. I'm pleased to be discussing Select Water Solutions again with you today. During the third quarter, we delivered substantial operating and free cash flow and continued to see steady growth in our Water Infrastructure segment. On the free cash flow side of things, I'm very pleased with the progress we made during the third quarter. Nick will touch on the components in a bit more detail, but our focused effort to reduce our working capital are paying off and helped deliver $118 million of cash flow from operations during the third quarter. After accounting for the $34 million of net CapEx spent during the quarter, we were able to pull through about $85 million of free cash flow, well exceeding our adjusted EBITDA for the period. We made tremendous strides in our working capital reduction efforts during the quarter, substantially outpacing our full year performance targets a quarter early.Strong third quarter free cash flow enabled us to execute on a number of capital allocation priorities, including repaying all the outstanding borrowings on our sustainability linked credit facility, increasing shareholder returns by raising our upcoming quarterly dividend payment by 20% and funding more than $35 million of capital expenditures, heavily weighted toward our water infrastructure growth capital projects supported by long-term contracts with attractive returns.Having now repaid our remaining outstanding borrowings during the third quarter, I expect to see a growing cash position building towards year-end. Replenishing our cash war chest provides us with ample opportunities to review our capital allocation priorities, including continuing to weigh incremental shareholder returns against additional organic growth projects and bolt-on and strategic M&A opportunities.We remain steadfast in our vision to be the recognized leader and trusted partner in sustainable water management solutions and believe our continued dedication to achieving operational excellence across the entire organization will further enhance that vision. Our focus for 2023 has been on acquisition integration, improving efficiencies and operational margins across the organization and executing on infrastructure projects and free cash flow generation.While we have made great progress in many of these focus areas, especially around integration, infrastructure growth and free cash flow, there is still more work to be done around the efficiency and operational excellence. While we did see some downward impact to the consolidated revenue of the business from more than a 10% decline in U.S. onshore completions activity according to industry data, our water services and Chemical Technology segments both outperformed the activity levels overall with revenue declines well inside of the overall activity levels. Although we were able to hold Chemical Technology margins relatively steady during the third quarter, we took a modest step back in Water Services margins during the quarter. We can and must find continuing margin improvements in this segment, and I am firmly committed to getting to both our near-term and long-term targets of mid- to high 20% gross margins before D&A, respectively.We continue to look closely at the entire scope and scale of the company where appropriate, make the continuing determination to consolidate facilities or relocate assets across our areas of operation for certain nonperforming service locations, particularly around our Water Services segment. We remain attentive to every dollar of capital we deploy, and we'll prioritize capital allocation to the most strategic areas of our business, especially where we have the most opportunity to add proprietary application of automation, chemistry or recycling technology and integrate full lifecycle water infrastructure and chemistry solutions around our existing asset base.Our recent organic recycling and disposal infrastructure projects have delivered strong performance, including driving water infrastructure to 6% sequential revenue growth and 40% gross margins in the third quarter. We saw growth across all areas of Water Infrastructure segment during the third quarter of 2023, with recycling volumes increasing by 5%, pipeline volumes up nearly 12% and disposal volumes growing by 2% as compared to the second quarter of 2023.By boosting network utilization across our high operating leverage systems, we were able to drive incremental gross margins of more than 80% on every incremental revenue dollar during the third quarter. I expect to see this momentum continue in the fourth quarter and beyond into 2024.In the past 12 months, the Water Infrastructure segment has seen revenues grow 86% and gross profit before D&A more than double in size, growing by 113% year-over-year. Water Infrastructure now accounts for more than 25% of the gross profitability of the company, and I expect to see this segment continue to grow as a contribution percentage of the company's overall profitability in 2024. Even with the recent activity volatility, we continue to experience increased demand for our new infrastructure development opportunities across all basins as water infrastructure constraints remain to be a significant challenge for our customers. With our strategic infrastructure footprint, we are well positioned to strengthen the contractual relationship we have with our customers and expand the scope of integrated water and chemical solutions that we're able to provide around the infrastructure base.I believe our latest infrastructure project announcements demonstrate the value of our asset base and the continued opportunity to create long-term value for both our brownfield and greenfield investment projects across multiple basins. And as you saw in our recent Haynesville contracts, we also have a great opportunity to incorporate contractual service capture through these relationships as well. I am excited about what the future holds for Select and look forward to further executing on this vision through additional profitability growth and cash flow generations in the quarters ahead. Ultimately, these profits and cash flows will provide us with the further opportunity for incremental shareholder returns and opportunistic M&A execution in the coming quarters. And importantly, Select is uniquely positioned to continue to deploy technology and chemistry solutions around our growing contracted infrastructure footprint. We are firmly focused on these initiatives, as I discussed, and I look forward to unlocking more cash and enhanced profitability in the quarters ahead.At this time, I'll let Nick speak to our third quarter results and outlook in a bit more detail. Nick?

[Nicholas Swyka, executive]

Thank you, John, and good morning, everyone. I'm pleased to report that our intensified focus on generating cash out of both the business and working capital produced operating cash flow of $118 million during the third quarter, which after adjusting for net CapEx yielded free cash flow of $85 million. With this sum, we completely retired the balance on our credit facility while leaving us with $25 million cash on hand. In this era of rising interest rates and capital markets volatility Selects pristine balance sheet and abundant liquidity through our undrawn sustainability-linked credit facility enables us to both advance shareholder returns as well as expand our water gathering, recycling and distribution systems across multiple basins.We're excited to announce new dedicated acreage and pipeline volume additions to our Northern Delaware and Haynesville systems this quarter as well as a 20% increase to our regular quarterly dividend. Growing both our infrastructure footprint and shareholder returns within annual cash flow from a solid balance sheet is the model we expect to deliver for 2023 and the years ahead. While the Water Infrastructure segment met our expectations of a solid quarterly step-up in both revenue and margin, the industry's activity backdrop softened over the summer and into the third quarter, impacting our Water Services and Chemical Technologies segments.Overall, consolidated revenues declined just under 4% to $389 million during the third quarter from $405 million in the second, with net income of $15.3 million and adjusted EBITDA of $63 million during the third quarter. With drilling and completions activity appearing to be bottoming, along with the benefit of a more robust commodity price environment than we saw over the last couple of quarters, we believe that 2024 will resume upward momentum in other parts of the business in tandem with the continued positive secular growth of our Water Infrastructure segment. In the interim, the near-term remainder of 2023 should see some customer budget and seasonal constraints. Our priority for the water services side will be a continued focus on operational excellence, closely evaluating peripheral or low-performing locations, driving down costs through procurement and operational efficiency initiatives and working closely with customers to deliver advanced solutions with technology and automation.Industry data suggests that the third quarter saw average rig count and completions activity each declined by about 10%. Against this backdrop, our Water Services segment's revenue declined by a little under 5%, with a portion of this decline coming from closed yard operations to $252 million in the third quarter from $265 million in the second. Gross margins, which we customarily speak of in terms of before depreciation and amortization, declined from 21.9% to 20.5%. We expect the fourth quarter to bring mid-single-digit percentage revenue declines with stable margins, which are poised to positively inflect in 2024, back towards our near-term target of mid-20s, with high 20s remaining our longer-term target for this segment.Chemical Technologies was also affected by the macro environment, with revenue declining a bit over 6% to $79 million sequentially. So, manufactured volumes in our plants were down about 10% sequentially. Our higher dollar proprietary product demand held revenues inside of that volumetric decline and our efficient manufacturing process held margins essentially flat, just above 20%. We anticipate modest low to mid-single-digit percentage seasonal declines to revenue and margins of 19% to 20% in Q4, with continued product research and development at our laboratory facilities, along with a stable to improving activity environment in 2024, should support the resumption of the segment's growth beyond next quarter's results.Our Water Infrastructure segment delivered to our forecast, growing revenue just under 6% or $3.1 million quarter-over-quarter, cresting just beyond our targeted gross margins of 40%. The backlog of development opportunities for this segment remains very strong. In addition to the multiple new contracts announced yesterday, we are actively evaluating well over a dozen additional organic opportunities in partnership with customers as well as other growth avenues. We expect this segment to grow sequential revenue by mid-single digits again during the fourth quarter and to advance margins another 200 to 300 basis points on higher utilization and continued system build-outs.I previously outlined a couple of 2023 targets related to cash flow and working capital. First, we targeted to reduce accounts receivable by $100 million between the end of Q1 and 2023 year-end; and second, we plan to exit the year with a debt-free balance sheet. I'm pleased to report that we exceeded both of those goals a quarter in advance, with accounts receivable declining by $137 million since Q1 and us having paid down the remainder of our credit facility balance during the third quarter with $25 million of cash on hand left over.As our systems integration efforts progress, our consolidated accounts receivable days sales outstanding reduced to a level not seen since the third quarter of 2021 before we began our recent M&A acceleration. Select now has ample liquidity to capitalize on a range of potential strategic opportunities, and we expect to continue making additional progress on the cash flow and working capital front to finish the year. And while I'm pleased with the progress we've made, I do believe there is continued opportunity to improve DSO further in 2024.Additionally, with the investments we've made, the company is in a much better position to manage and absorb future acquisition integrations. SG&A increased sequentially to $39 million, up $4.7 million from Q2, due primarily to an approximately $3 million increase in transaction and rebranding costs. We will be finishing the current rebranding initiative and related costs by year-end, which should provide for a modest reduction in SG&A from current levels by early 2024.Our third quarter net CapEx of $34 million was similar to the previous quarter's $36 million with new infrastructure development representing the majority of that number. We are actively investing in our strategic infrastructure development in multiple basins where we feel we have strong advantages such as our established Permian and Haynesville systems. Accelerating the buildout pace of our systems were backed by long-term contract opportunities is a core priority for 2024. Our 2023 net CapEx forecast remains within its previous range with a tightening to $120 million to $130 million after giving effect to roughly $15 million in expected full year asset sales. We expect depreciation and amortization expense to continue at around $35 million per quarter, and both tax and interest expense to remain minimal through 2023. We added more than $55 million of liquidity during the quarter to finish with approximately $250 million of total liquidity.Coming one year after its initiation, we recently announced an increase in the regular quarterly dividend by 20% to $0.06 a share. We plan to continue to evaluate our dividend on an annual basis at a minimum. In addition to the dividend, we have about $12.5 million remaining capacity on our stock buyback program and may seek to utilize or add to that capacity as we monitor operating and capital market conditions. With shareholder returns at our core and substantial infrastructure growth investment opportunities ahead, we believe our blended model of growing both committed and tactical shareholder returns while deploying enhanced cash flow into long-lived contracted water solutions networks across multiple basins, all accomplished from a solid balance sheet will deliver substantial value to investors over the long term.Thank you. And with that, we'll open it up to questions. Operator?

[Operator]

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). One moment, please, while we poll for questions. The first question comes from the line of Jim Rollyson with Raymond James.

[James Rollyson, analyst]

Nice to see the -- beating the targets ahead of schedule on the free cash flow and AR working capital stuff. Nick, you mentioned a little teaser about evaluating more than a dozen new contract opportunities in the Water Infrastructure segment. Any way to just kind of frame up what the maybe total size or CapEx kind of associated with that is so we can think about that what the future revenue opportunity might look like?

[Nicholas Swyka, executive]

Sure, Jim. And as you've seen from this press release and then earlier ones, there is a fair amount of variation in the total capital investment in these projects. We've done projects pipeline as high as $40 million. We have a $2 million minimum announced for this quarter. And so, you're kind of working within that window there. So, when we're talking about a dozen, those do vary. There's some in the kind of mid-single digits there, and there are some that are well into the double digits. So, I'd say on average, putting those together that could reach triple digits. Obviously, we probably won't have all of those reach fruition. At the same time, we have some very early stage discussions at some of which may lead to projects in 2024.So great opportunity set in front of us. The more we're adding on to our networks across multiple basins, the more opportunities we have, and we're looking to take advantage of our first-mover status in a lot of these basins.

[Michael Skarke, executive]

This is Michael Skarke. I think it's fair to say that infrastructure CapEx, we're going to see growth in that relative to what we had this year and it's an area where, as we've mentioned in the past, we think a vast majority of our growth CapEx will go there because of the opportunity set that Nick mentioned and the backlog that we continue to see developing behind it.

[James Rollyson, analyst]

Yes, and the margins aren't exactly terrible either. On the DSOs, Nick, you mentioned, obviously, you've made great strides this year, and you mentioned more potential progress next year. Where do you think DSOs should normalize here over the next few quarters?

[Nicholas Swyka, executive]

Sure. So, as you noted, we've achieved those goals faster than we anticipated. A lot of hard work across the organization to do that. And so, we're effectively back where we were before M&A. Now I think we do have some opportunity ahead of us. It's not the same size of the opportunity that we've successfully taken advantage of this year. But I think we can get that down into the mid-70s. Our customers do customarily have some terms and conditions that we have to live by as far as waiting for invoices. And so, I think that will effectively bottom us out there in the mid-70 days of DSOs. But if we're successfully firing on all cylinders here, I think we can get to that mid-70s figure, which would put us with another $30 million or so off of AR from where we currently stand.

[James Rollyson, analyst]

Very helpful, fantastic. And one last question. On the two other business lines, Water Services and the Chemical Technologies, obviously, kind of market headwinds didn't help margins this quarter go to maybe where you were hoping or where you're ultimately long-term goals are. But as we think about getting both those divisions back on track to move to the mid-20s or higher margins as you guys are kind of targeting. Is this all something that can happen from internal moves that you're doing? Or do you also need kind of the market to bounce back a bit to get there? I'm just trying to think about how this unpacks over the next few quarters as you guys strive to get to mid-20s margins?

[Michael Skarke, executive]

Yes, Jim, this is Michael Skarke. Chemicals, I think we've guided the kind of 20s, which is really where we are. We think that we can kind of hold in that despite some seasonality in Q4 and have upside to it over the near or medium term as we look at manufacturing processes and reformulations of our technologies. On the services side, we have guided to mid or high 20s, and we think that where the market is today, that's still very achievable through kind of just organic kind of grinding and operational efficiencies. We're very focused on implementing further automation on yard rationalization, on leveraging strategic relationships with infrastructure contracts and just gets down to doing what we do but doing it a little better. And so, we're focused on it. There's going to be some near-term friction. There's going to be a little bit of a top line disruption as we look to rationalize yards, but we think the gross margin will follow and trend upwards after that.

[James Rollyson, analyst]

And then any tailwind you get from the recovery kind of outlook for next year is just bonus points, I presume?

[Michael Skarke, executive]

Correct.

[Operator]

Next question comes from the line of Luke Lemoine with Piper Sandler.

[Luke Lemoine, analyst]

Just a follow-up on Jim's first question. Water Infrastructure, you've had pretty explosive year-on-year growth this year, and you signed up a number of notable projects this year and talked about kind of the dozen projects you're evaluating both brownfield and greenfield that could be coming in the coming months. I guess kind of with these current and future investments, how should we start thinking about the outlook for 2024 within this segment?

[Michael Skarke, executive]

From a margin perspective, I mean, we're at 40%, which is where we kind of said we'd be. We've guided kind of medium term to 50%. I don't know that we're going to hit 50% for the full year. That would obviously be a big jump on where we are today. But we've got a lot of projects that are coming online, some this quarter that are going to be accretive to that margin. We still plan on Infrastructure and Chemicals being a majority of our gross profit for next year with infrastructure really being the lion's share of the increase. So, we're pretty aggressive in terms of what we think we can do both top line and from a gross profit standpoint and infrastructure just because of the asset base we've put together and the opportunity set that we've seen in front of us.

[Nicholas Swyka, executive]

And Luke, I'd add that this quarter between the revenue increase in that segment and the margin increase, we grew gross profit about 12% quarter-on-quarter. And that was done, as I mentioned, with a not so favorable macro backdrop. And so, you see that I think we'll see similar steps forward here as we get quarter-over-quarter, add these new projects and continue to work that margin higher and grow that, as Michael mentioned, to that 50%. And we're in the early stages of pulling together our thoughts for 2024, but I don't think it's unreasonable to think that infrastructure could be a third of the gross profit for next year.

[Operator]

Thank you. Next question comes from the line of Tom Curran with Seaport Research Partners.

[Thomas Patrick Curran, analyst]

For the Water Services division, Nick and Michael, when it comes to these three main levers you expect to pull internally to expand the division's gross margin first to the mid-20s next year and then beyond that to the high 20s. You've got technology enhancements like the pump and manifold automation efficiency initiatives such as centralizing procurement, moving third-party support internally and then leveraging the growing infrastructure network. For each of those three, could you expound on how far along do you think you are? And just if Phase 1 is getting to the mid-20s, how should each of the three contribute to the mid-20s? And then as we look from the mid-20s to the high 20s, should there be a shift in terms of the weightings of the three?

[Michael Skarke, executive]

No, it's a great question, Tom. And I couldn't have articulated it better. I would add that there's a fourth lever there, which is really yard consolidation and rationalization. So, we've put a lot of assets together in a lot of yards together, and there is some overlap and there's frankly some underperforming. And so that is going to be a material lever that we're just now really starting to get into. We had a few that occurred this quarter, but we're expecting more. And I think that one is going to be material, and we're very early innings in addressing it.In terms of leveraging infrastructure, contracts and relationships, that's also one that's relatively early in terms of us addressing. I would point that in the announcement yesterday, we had the announcement in the Haynesville, where we secured a long-term service contract at the customer's request off of the infrastructure contract that we put in place. And so, we think those kind of opportunities exist and that's going to be market share but also margin accretive for both for both segments.Supply chain, that was something we put in place this year, really centralizing supply chain, moving to something that's more formalized in structure. Nick, I'd probably look to you as to where you think we are in that development.

[Nicholas Swyka, executive]

I think as far as getting the contracts in place and the procurement centralized, we're in early innings. I think in terms of seeing the results financially very, very early there. So, I think the bulk of that will come in 2024. That's probably contributing just a few basis points in the current service margin.

[Michael Skarke, executive]

And then the final one you mentioned, Tom, was automation. And that's the one that I would say that we're furthest along. We've really been a pioneer in terms of water solution automation, something that we think is a differentiator. It's something that a way that we can do something safer, more cost-effective and more reliable than relying on sometimes lower skilled labor. And so, it's something that we're -- while we're further along than the other initiatives, it's one that you're never done it. There's always more. And so that one will be later innings, but still a pretty good runway.

[Thomas Patrick Curran, analyst]

Got it. Helpful breakdown and additional color there. And then, Nick, I realize you are still finalizing the plan and expectations to provide formal 2024 guidance, but maybe just some preliminary metrics here for cash flow in 2024. Are you still targeting a conversion rate for EBITDA to free cash flow of about two-thirds and expecting maintenance CapEx to run about $50 million per quarter, give or take, $5 million to $10 million?

[Nicholas Swyka, executive]

Tom, I'd see maintenance CapEx as lower than that. I'd say, again, preliminary basis, I'll talk more about it next quarter, but we're probably looking at $60 million for the full year maintenance CapEx, but for now, give me $10 million on either side of that, and we'll get a little more direct next year. I think the two-thirds free cash flow of EBITDA, that was partially driven by the working capital opportunity we had for this year. So, I think for next year, it's probably going to be a little lower. But as I think about our free cash flow for this year, we had $75 million debt outstanding in the first quarter. We've taken that to 0 with $25 million cash on hand. We've paid out over $65 million of shareholder returns this year on top of that. And then we've executed on our CapEx budget and stayed within that budget, while adding some really critical projects. So, this is a strong cash flow generating business here. It will be strong next year. I think we do probably have initial growth infrastructure projects, as Michael mentioned, that are likely to come in higher than this number, this year's number. So, I'm excited about that, and we're going to do that, as always, with a very conservative solid balance sheet and look at all the opportunities, both organic and potentially M&A related as well.

[Michael Skarke, executive]

And one point, just to reiterate on the growth infrastructure projects for next year, those projects have strong contractual long-term contracts around them. They're generally production weighted or being driven by secular trends such as recycling so we feel really good about those investments in a flat or even slightly down market because of the contractual support and because of the production and secular trends that exist there.

[Thomas Patrick Curran, analyst]

Got it. And just to be clear, I was saying $15 million per quarter or $60 million for the year. So, it does sound as if that's unchanged, Nick.

[Nicholas Swyka, executive]

Sorry, I misheard you there, Tom. So that 15% per quarter maintenance CapEx sounds like a good number there, not 5, 0 -- 52.

[Thomas Patrick Curran, analyst]

Right. Yes. Exactly.

[Operator]

Thank you. Next question comes from the line of Don Crist with Johnson Rice.

[Donald Crist, analyst]

I wanted to ask about Specialty Chemicals. I know it's been a couple of quarters now since you've been doing the tailored solutions per formation and you're getting more data back, flowback data, etc. Any kind of updates there? And is the demand increasing still in that Specialty Chemicals segment?

[Michael Skarke, executive]

Yes. A couple of things on that, Don. First, we're seeing operators continue to be more and more focused on chemistry and its compatibility with produced water and just well results. And so, we're getting really good reception as we have those conversations with our customers. In terms of the results that we've seen, I mean, we're pretty happy with the improvement in market share and margins we've seen with chemistry over the last few quarters. And we really contributed to what we're doing in terms of creating more water tolerant solutions designed for produced water. And so, we've gotten some pretty good feedback with the customer -- with our customers on that. We've got direct open dialogue with both operators and pressure pumpers. And additionally, as you know, the more produced water you have, the harder it is on chemistry, the more the need is for specialty chemistry. And frankly, one of our bigger customers is internal. We're providing the chemistry for all of our recycling. And so, there's been a number of kind of tailwinds around that special chemistry that's delivered the returns where we are. We took a step back this quarter. It is completion driven, but we're still pretty excited about it.

[Donald Crist, analyst]

I appreciate the color there. And John, maybe one for you. Obviously, there's been some large M&A in the basin or in the Permian Basin, in particular. Any thoughts on that consolidation and how that may benefit Select going forward? Is it better for you given your larger company [buys]?

[John Schmitz, executive]

Yes. Don, we think it is. A lot of those transactions you're seeing we're on both sides because we are sizable, and we do have a good customer base. But just as important, we're also integrated a lot with a lot of our customer infrastructure now. So, we have integrations to take our asset bases, our different wells, pipes, recycling facilities and put them in a system. And that system just got larger with this.I'll also say that the acquirers here that we keep saying are very good customers for us with alignment because of the size of our either automation, the technology, the sources, the movement within it, and they're doing this primarily with produced water, and we all know produced water has a different environmental effect to it, and we're very focused on whether it's hose development, automation, control, leak detection, that environmental application risk profile is favorable to the buyers here.

[Michael Skarke, executive]

And John, if I may add. I mean, Don, I'd point you to the release we had in August with Endeavor, where we announced 300,000 barrels a day recycled water delivering almost 8.5 million barrels to a single location. I mean that's a really sophisticated technical, highly engineered solution, moving produced water from multiple sources. And there's just not a lot of companies. I don't know that there's another company that can pull off a job like that. And so, it's going to be the larger companies that are going to do things at that kind of scale. And in doing that, they're going to look to a trusted partner that can accomplish a project like that, and I think that's Select Water.

[Operator]

Thank you. Next question comes from the line of John Daniel with Daniel Energy.

[John Daniel, analyst]

I'm away from my computer so I don't have all the data in front of me, but I'm curious, can you remind me what your recycling capacity is today, sort of what the utilization of that capacity is? And then just a reasonable growth rate that you would expect over the next couple of years?

[Michael Skarke, executive]

We've got about three million barrels or so of daily capacity. Roughly half of that is going to be fixed facilities, Half of that is going to be mobile facilities. We're adding to both, but really focused on the fixed facilities because those are going to be the ones that are supported by long-term contracts. A majority of those facilities are in the Permian, as you're aware, John. There's one in the DJ where a majority of the current opportunities that we're looking at are in the Permian, but there are several that are outside of the Permian. And as those other basins transition, the opportunity for recycling just continues to expand.In terms of where we can take it, we're pretty ambitious. We think that the market is going to continue to transition. It's going to need an industry leader. And I think that's us. I'd probably stop short on saying where we're going to be this time next year. But if it's not materially higher, everyone in this room would be very disappointed.

[John Daniel, analyst]

Yes. Fair enough. And a little bit of an add-on or a follow on to Dan's question. Like when you all start building out the recycling capabilities, is it safe to assume that the larger, I'm going to say, more sophisticated operators, or are they clients and not the small guys, or am I mistaken on that?

[Michael Skarke, executive]

It's actually kind of interesting because we really -- we have interest in our recycling solutions from the largest operators to some that I really honestly wasn't aware of until the conversations took off. I think there's more opportunity on the larger because the economies of scale that exist but there's certainly the ability to pull together a couple of smaller opportunities and still underwrite a commercial recycling facility and move forward and further integrate it into other solutions. So, I wouldn't ignore the small ones, but it's a definitely heavier weighted to midsize and larger.

[Nicholas Swyka, executive]

And I'd add really there, it demonstrates that the value this brings. It's great for the environment. It's more sustainable. It's leaving freshwater in the ground, addressing seismicity, but it's also reducing costs for our customers. And we do this at scale economically and whether you're a small operator or a large operator, we can help your wells be more productive at a lower cost.

[Michael Skarke, executive]

And I think that's a good point, Nick. The larger and mid-sized operators are generally those that are more focused on the stewardship and the environmental component, so that would be a bias towards them as well.

[John Daniel, analyst]

So, in this case, the consolidation is actually a positive for you simplistically, right?

[John Schmitz, executive]

John, it's very big positive, and you can point to one of the past ones that we actually announced and that's one of the acquired companies that just got announced. And as that acquired company got announced, we added two more deals to that recycling facility because of the scale and scope of the surrounding acreage that got put in the deal.

[John Daniel, analyst]

Got it. A final question. I think you mentioned in response to a question was a portion of your customers are, in fact, the pressure pumping companies. Did I hear that correctly?

[Michael Skarke, executive]

On the chemical side. So, Chemical Technologies works for both pressure pumpers as well as direct operators.

[John Daniel, analyst]

Okay. Are you having or seeing any signs of payment issues with any of the smaller pressure pumping companies?

[Nicholas Swyka, executive]

No, John, we're not. Part of the -- I circle back to an earlier question there and how low can our DSO get. When we do sell to pressure pumpers that are in turn paid by operators through Chemical Technologies division, which has both operators and pressure pumpers as customers, that dynamic there is one of the things that keeps us from getting, call it, below 75 days eventually. However, the payment issues we're having the same performance that we've typically had there. No sign of deterioration. We do work for a lot of very large successful pressure pumpers and they're paying on schedule.

[John Daniel, analyst]

Yes. I mean I would expect it them, but you've seen the sort of the carnage in the spot frac market. I just didn't know if those super, super small frac players were having any issues, so that's the question.

[Michael Skarke, executive]

We really don't do a whole lot with the super small frac players. We have a hard time on that side with the chemistry just given the size of those tickets.

[John Schmitz, executive]

I think it's fair to say, John, we also don't do a lot of business with even larger companies that are heavily weighted the spot. We don't.

[Operator]

Thank you. Next question comes from the line of Jeff Robertson with Water Tower Research.

[Thomas Patrick Curran, analyst]

About the revenue split is about 70% completion and 30% production. Michael, do you see that changing over time as companies drill longer laterals? And maybe even if they're drilling bigger pads, do you see the amount of water that they'll have to move off locations increasing? And is that an area that will drive your margin opportunity in the water infrastructure business?

[Michael Skarke, executive]

Yes, I think that's a good question, Jeff. And there's really two parts. So, we do see continued longer laterals and more water per pad, as I mentioned, with the Endeavour job that we released a couple of months ago. And so that's certainly an opportunity for us as a water management company and providing the water and managing the water and taking it away.In terms of the split between completion and production, I really look at that a little differently. I do see the production weighting continue to increase, and that's largely as a result of our focus around infrastructure. I mean that's really where -- as I mentioned, that's where we're going to spend a majority of our growth capital for next year. And a good portion of that is going to be related or really derived from production revenue. And so, I think that's what's going to drive a split something more towards a 60-40 in the near term.

[Thomas Patrick Curran, analyst]

Michael, as that increases, I think you alluded to earlier that also could help drag up margins in the water services and maybe even the chemicals business. Is that right?

[Michael Skarke, executive]

That's exactly right. We're really looking to leverage those infrastructure relationships and long-term contracts to provide more opportunities for services and chemistry. And it's not really a bundling and bundling is usually a cost-based approach. This is a service logistics-based approach where we can provide the complete solution at the correct price for the customer. I'd refer everyone to what we did in the Haynesville. I mean, we were asked to provide that solution by our customer. It wasn't a bundled offer. It was the answer they needed, and we were grateful to be able to do it for them.

[Thomas Patrick Curran, analyst]

My last question kind of is a take on that, as you see consolidation in the industry, are you seeing some of your customers who only want to deal with one water company and allow you to put more of your offerings in front of them at a better margin opportunity for Select?

[Michael Skarke, executive]

Yes. I think John really nailed the question about consolidation and how we think about it. I mean, to your point, there -- when you're working for the largest operators out there, safety, environmental, automation, size, scale, reputation, all of these really matter. And there's only a few companies that can check those boxes. And fortunately, we're one of them. And so, we're not afraid of consolidation. We're embracing it. We're proactive. We think it creates opportunities for us on really all three segments, services, infrastructure and chemistry.

[John Schmitz, executive]

And I would add on to that. I mean, Nick talked about our efforts in the procurement area for this company. One of the focuses with centralized procurement is to do more with less on the vendor side for us. Our customers are doing the same thing. They're very much focused on more of a partnership approach, especially in the infrastructure piece. But as it relates to chemicals and water services, they look at that as a value as well to doing business with fewer companies and more strategic value add as we move forward in the area that we're in, which is this water solutions business.

[Operator]

There are no further questions at this time. I would like to turn the floor over to John Schmitz for closing comments.

[John Schmitz, executive]

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

[Operator]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.