Title

Presentation

XPEL, Inc. beats earnings expectations. Reported EPS is $0.37, expectations were $0.33.

Operator: Greetings, and welcome to XPEL, Inc. First Quarter 2026 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 press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Garrett Williams, vice president of finance and investor relations. Thank you, Mr. Williams. You may begin.

Garrett Williams: Thank you, operator, and good morning, everyone. We appreciate you joining us for 2026. With me today are John Smith, our Founder, Chairman, President, and Chief Executive Officer, and Chris George, Executive Vice President and Chief Financial 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 05/20/2026. 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, 05/06/2026, and therefore, time-sensitive information may no longer be accurate at 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 XPEL, Inc. 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. Listeners are encouraged to read our annual report on Form 10-Ks, 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 would like to turn the call over to John.

John Smith: Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing XPEL, Inc. again with you today. The 2026 was a strong start to the year for XPEL, Inc. I would like to start with some of the key first quarter highlights and other strategic and market updates, then I will hand it to Chris to discuss the first quarter financial results and forward outlook in more detail. The first quarter was a great start for the year for us. We executed within or ahead of our expectations across all parts of our business, continued to add new contracts to the portfolio, and are well positioned for a strong rest of the year. During the first quarter, on a consolidated basis, we increased revenue by $19.5 million, increased adjusted EBITDA by $13.5 million, and increased net income by $11.5 million as compared to 2025.

Our water infrastructure segment performed very well in the first quarter, meaningfully outpacing our guidance for the period. During the first quarter, we increased our water infrastructure revenues by 19% relative to 2025. Additionally, water infrastructure gross margins before D&A increased to 56%, driving consolidated gross margins before D&A above 30% for the first time and to a new all-time high for the company. Across our water infrastructure network, we managed approximately 1.4 million barrels per day of produced water during 2026, with increases to both our recycling and disposal volumes. This resulted in a record quarterly segment revenue of approximately $97 million. Supported by the strong outperformance during the first quarter, our water infrastructure segment is well on track to exceed the high end of our previous full-year guidance.

We continue to focus on the value-add of our invested capital across the system with increased commercialization and contracted service offering expansion. Since year-end, we have executed several new contracts across multiple basins, leveraging our existing networks to provide incremental committed volumes, tie-in opportunities, or increased produced water flows and utilization throughout our system. For example, during 2026, we leveraged our market-leading disposal position in the Northeast Region to sign a new multiyear disposal dedication agreement with a core customer while concurrently becoming the preferred water transfer provider for this customer. In total, since the start of 2026, we have added three new MVCs, two additional acreage dedications, two new ROFR dedications, and eight new interruptible agreements to our network across the Permian, the Northeast, Bakken, and Mid-Con regions.

While we still have another number of sizable growth capital expansion opportunities that we are targeting around our core network, I am very excited to see the progress in adding these low-to-no-capital-required commercial opportunities. These opportunities leverage the strength of the expanding networks we already have in place, add incremental revenue through enhanced utilization, and further bolster the flexibility and the water-balancing capabilities of the network overall. More recently, here in May, we also closed on multiple acquisitions in the Northern Delaware Basin, adding approximately 4 thousand acres of surface and minerals, 30 thousand barrels per day of disposal capacity, 1.8 thousand acre-feet of annual water rights, and 500 thousand barrels of storage across Texas and New Mexico.

We expect these acquisitions to integrate efficiently and bolster the operational and economic development potential of our Northern Delaware network, and we will continue to look for opportunities to tactically add to our footprint in the region. Elsewhere, in our water services segment, we outperformed our expectation in the first quarter with a 7% top-line revenue increase compared to the fourth quarter and remain very well positioned to capitalize on any activity uplift in the market associated with the current commodity price environment. Our chemical technology segments continue to see strong demand for new product development, both in our core friction reducer product lines as well as our specialty surfactant product offering, which should drive strong double-digit percent revenue growth and margin uplift for the second quarter ahead.

On the macro side of things, the recent geopolitical tension in the Middle East has changed the commodity outlook in a big way since the start of the year. While it is not yet clear what the long-term impacts are for the energy markets, what is very clear is that the U.S. energy industry will remain a critical stabilizer of a diversified global energy supply chain for many years to come. While we have yet to see any major behavioral changes from our customers’ activity or pricing perspective, we are closely monitoring the commodity and the activity outlook with our customers and are well positioned to support any uplift in demand, whether over the short term or the long term. In the meantime, on the revenue side, we expect to benefit from higher skim oil pricing within our water infrastructure segment.

Separately, on the cost side, we will work to mitigate any impacts from higher commodity prices or supply chain disruptions. Overall, I am very pleased with the performance of the business year-to-date, and I believe we are well positioned to drive incremental growth in the quarters ahead. At this point, I will hand it over to Chris to speak to our financial results and outlook in a bit more detail. Chris?

Chris George: Thank you, John, and good morning, everyone. XPEL, Inc. made great strides in the first quarter, which included strong consolidated revenue, net income, and adjusted EBITDA growth; record consolidated gross margins before D&A; record water infrastructure revenue; and continued commercialization wins across our water infrastructure platform, strong outperformance in water services, and a successful equity offering enhancing the company’s liquidity and balance sheet flexibility. Looking at our first quarter segment performance in more detail, as I mentioned earlier, Water Infrastructure posted a great first quarter. We grew both our recycled and disposed volumes in the first quarter, driving revenue growth of 19% compared to 2025, and more than 33% growth on a year-over-year basis relative to 2025.

This led to record revenues of $97 million and very strong 56% gross margins before D&A, meaningfully outpacing our guided expectations. While we expect a relatively steady second quarter for the segment, with the strength of the first quarter growth and with additional projects coming online over the course of the second and third quarters, we are well positioned to exceed our original full-year guidance for the segment. Accordingly, we are increasing our full-year guidance to 25% to 30% year-over-year growth for the segment in 2026, up from the 20% to 25% growth previously forecasted. We still have a strong organic business development backlog for this segment, and I am confident in our ability to add additional contract wins across the year, both for greenfield expansion and ongoing commercialization opportunities.

Switching over to Water Services, this segment saw revenues grow by about 7% sequentially, outpacing our guidance of steady revenues, driven by improved activity levels, strong gains in our water transfer business unit, and increased spot market water sales. Gross margins before D&A in Services increased to 21.8% during Q1, a solid improvement compared to 19.6% in the fourth quarter and our guided margins in the 19% to 21% range. While we forecast a modest low single-digit percentage revenue decline in the second quarter for Q1, we anticipate margins to remain relatively steady at the 20% to 22% range in Q2. Overall, this segment is well positioned to participate in any activity upside and pricing opportunities that may arise with elevated commodity prices in the near term.

In the Chemical Technology segment, both revenue and gross margins in the first quarter of $78 million and 19% were in line with our guided expectations. Looking ahead to the second quarter, we expect strong sequential revenue growth of 10% to 15% as the business continues to see increased demand for both its core friction and specialty surfactant product offering. Additionally, margins for the segment should move upwards into the 20% to 21% range as well. We are excited about the initial results of a number of our surfactant projects, and looking at full-year 2026, we do see the potential for upside to our original full-year guidance for the segment. Looking back on a consolidated basis, in the first quarter we decreased SG&A by more than 6% to $40.6 million, or approximately 11% of revenue, showing good progress on our cost reduction efforts.

Altogether, we saw a consolidated adjusted EBITDA of $77.6 million during 2026, significantly above the high end of our guidance, largely resulting from the stronger-than-expected performance in our Water Infrastructure and Water Service segments. Looking forward into the second quarter, we expect continued strong performance across the business, resulting in adjusted EBITDA of $77 million to $80 million. Overall, we are very pleased with how our business has performed year-to-date in 2026, and with the current commodity price levels, we are encouraged by the potential tailwinds that could benefit our business as we look ahead to the remainder of the year. We continue to advance the commercialization and earnings potential of our water infrastructure business, and with the additional projects slated to come online in late Q2 and Q3, we expect to drive continued growth in 2026 and well into 2027 for the Water Infrastructure segment, which should support continued improvement in consolidated revenue and margin profile for the company.

Looking at our other costs, D&A expense should remain fairly steady in Q2 at approximately $47 million to $50 million, before modestly ticking up throughout the year into the low fifties as new capital projects are completed. Following the recent equity offering, we were able to fully repay our outstanding borrowings on the revolver and ended the quarter with $196 million of net debt outstanding and more than $300 million of total available liquidity. Relatedly, net interest expense decreased sequentially in conjunction with reduced borrowings, and we expect interest to remain in the $4 million to $6 million range per quarter in the near term. On the operating cash flow side, we had a relatively meaningful short-term drag on operating cash flow driven by increased accounts receivable; however, we expect this to largely cycle through during the year and convert back into cash in the near term.

On the investing side, we spent $78 million of CapEx in the first quarter, primarily in support of infrastructure projects, with an expectation that CapEx spend accelerates during the second quarter as the bulk of our ongoing capital projects target late Q2 and early Q3 completion. As John mentioned, we also closed on multiple acquisitions subsequent to quarter end, totaling approximately $29 million. These acquisitions can be integrated into our existing networks while adding accretive cash flows, attractive asset diversification, and enhanced future development potential. Following the recent project wins and acquisition integration expectations, we now expect $200 million to $250 million of net CapEx in 2026, up from $175–$225 million.

We maintain our expectation of $50 million to $60 million of this CapEx going towards ongoing maintenance and margin improvement initiatives this year. While we continue to capitalize on the growth opportunities in front of us, we believe we are setting the stage for strong long-term free cash flow generation as we look into 2027 and beyond. Outside of the sizable growth capital outlays, our business maintains a very maintenance-like capital model, and we have significant free cash flow generating capabilities and flexibility to manage this maintenance spend in accordance with market conditions without impacting our operational performance. In summary, the financial, operational, and strategic results of 2026 demonstrated significant progress in our ongoing business evolution, and we are excited to continue building on these financial results and strategic success.

We will now open the call for questions.

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Operator: Thank you. We will now begin conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question from the line of Jim Rollison with Raymond James. Please go ahead.

Analyst: Hey, good morning, guys, and congrats on a really nice quarter. I guess not to take the spotlight away from Water Infrastructure, but as we have seen this oil market kind of turn pretty remarkably post-Iran conflict here, obviously I have heard a lot of commentary from other U.S. land OFS providers about prospects for getting things getting better. You guys have kind of suffered through going on four years of impact there, especially in Water Services and to some extent, Chemical Technology. So we would kind of love to hear your thoughts about what you see out there for prospects of that ramping up over the back half of this year just kind of given the market shift here?

John Smith: Yes, Jim, this is John Smith. Logically, most of Water Services now have a big exposure to completion activity. It really relates to our Water Infrastructure. Moving water to the completion job is a big piece of our capture as well as the friction reducers or surfactants that we are building for the frac chemistry in the Chemical side. We are having conversations now, and we are hearing from the market that the commodity price that we all watched ramp and the effects of that—they are pulling both intensity of which they are completing the wells or bringing new oil online. We are starting to have those conversations or see that effect, as well as we would also say that we are also seeing customers that, let us say they had four frac crews running, were going to drop one in the second quarter.

They are not dropping it now; they are keeping four running. Or, whether it is through the horsepower of the frac company or through our customer base in the E&P side, we are hearing of adding more frac crews. So we do believe we will have some intensity from the macro, probably first to see something pull forward, get it to market faster, or the intensity of adding to the volume or repairing the volume and refracking, or just making sure the oil is still being produced and sold.

Chris George: And maybe to just add on top of that, Jim, I would say from a financial perspective, we are certainly going to be looking for a close dialogue with our customers on an ongoing basis here to see what the outlook looks like and whether activity gets pulled forward, whether it stabilizes on a through-cycle basis through the end of the year, and what the impact is on customer budgets and the outlook. I would say for the Chemicals business, we are guiding pretty strong double-digit growth in the second quarter here, and that is absent any material uplift in activity. It is really driven by intensity of what is going on in that business. So, based on the numbers we are putting out in front of you, we are not taking an aggressive outlook on the activity framework here.

But whether it is Services, whether it is Chemicals, or whether it is the pull-forward of volumes getting onto the Infrastructure side, we are taking a pretty sober approach to what the macro outlook looks like. But we are well positioned to capitalize on any uplift in activity or any pull-forward or hopefully also the potential to stabilize or look at pricing opportunities as well, particularly on the Services side.

Analyst: Yeah, it would certainly be amazing to see everything move in the same direction for a change. Maybe, Chris, this is a follow-up. I do not want to get too far ahead of things here, but if I kind of take your first quarter numbers, your second quarter guidance, and obviously, the implied pickup from incremental projects that start up in the second half, it kind of seems like you are on a pace to maybe have an exit run-rate EBITDA somewhere approaching the mid-$300 million range. Am I doing my math right there?

Chris George: Well, we are certainly not putting in any formal guidance out yet on the back half or into 2027. But what I would say, Jim, is that with the strength of Q1, the opportunity set in front of us, we certainly see growth in the second half of the year. It would be good to see how some of the macro settles out—every day is a new day right now, as you see this morning. But the projects that are going to come online in late Q2 and Q3 are definitely going to provide uplift into the third quarter. A little unclear what Q4 is going to look like, but as we put a run rate on that heading into 2027, you are well positioned to see good, solid, additional double-digit growth on an Infrastructure basis looking into 2027. And depending upon the outlook on the Services and Chem side, we are going to be well positioned to see that EBITDA push towards levels like you are describing.

The earnings capacity of the business is certainly pushing towards that, and we continue to hopefully add to that with new contracted opportunities over the next couple of quarters as well.

Analyst: Appreciate all your thoughts.

Operator: Thank you. Next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Analyst: Hey, morning, guys, and thank you for taking my question. First, I wanted to ask on the new Northern Delaware water supply and takeaway agreement. Reading the presser and listening to the prepared remarks, it sounds like a highly accretive bolt-on opportunity that you probably won given your footprint that you already had existing there. Am I thinking of that right? And if so, could you just give some more framework of how to think about how accretive this could be and maybe a little bit more color on how that win came about?

Chris George: Yeah, certainly. Good read-through on that, Bobby. I think about the first quarter as most of the commercial opportunities we brought to bear around the Infrastructure side of the business are pretty low-capital to, some of them, even no-capital opportunities in terms of adding incremental volume flow through the system over time, whether it is on an MVC basis, a dedication basis, or just adding additional commercial potential around interruptible. So from a capital deployment perspective, we are talking about something less than likely $5 million on an aggregate basis across all of those commercial arrangements. So it is very much leveraging the existing invested capital or ongoing buildout that has already been underwritten for that footprint.

And we are pretty excited about adding on to that with these additional commercial development opportunities. There still are some larger capital projects that are in the backlog and some on a more greenfield basis. To the extent we can start rolling into the ROFR cycle here or adding on a brownfield basis or a tie-in basis and underwrite those with committed capacity, it is a great outcome from an accretive add-on to the system.

Analyst: Got it. And then just one follow-up there is I think you guys have talked about the cash-on-cash returns of kind of greenfield opportunities like three to five years maybe is the number you set, I think what you put out before. Is that excel or is that a shorter timeline on these more tie-in opportunities?

Chris George: I would say on the tie-in side, Bobby, it can certainly have an accelerated timeline given the strength of the existing footprint and the capital we have already invested. From a greenfield project underwriting framework, you are correct, generally targeting that four-year cash-on-cash is still the base framework. We do still have some of those chunkier opportunities ahead of us that we are looking to get to the finish line. But as we continue to roll new capacity onto the system or new volumes onto the system, every barrel is an incremental accretive barrel from a margin standpoint and a return on capital standpoint. And so some of these ROFR executions could look like something more in between what you are describing, Bobby, and a traditional greenfield buildout—where you are adding capital to the system to build out, grab new geography, but doing it under a base dedication or base ROFR dedication within the current footprint.

Analyst: Got it. That is super helpful. And just one last for me is, obviously, there has been a ton of news and movement about data developments in West Texas and those facilities. And if those facilities use evaporative cooling, they are going to need a ton of water, which is obviously a specialty of yours, and so with that in mind, was just curious to hear your thoughts about how your business and expertise might lead to opportunities within that buildout in West Texas and if that is something on your radar and just general thoughts there. Thank you.

Chris George: Yes, it is a great question, Bobby. It is very much something on our radar. I do not have anything specific to convey today, but we do have a number of active and ongoing dialogues in that space, both on a water solution side in terms of the source water needs for some of these projects as you described. But there is also application of support around services, rentals, power—other things that all are part of the core business or ancillary to the business. There is a waste stream application of management as well. So we are pretty active and engaged in understanding the marketplace, and there will be, I would say, a critical need for water solutions because water can be a gatekeeping item to getting some of these projects to the finish line. And so, yes, I think folks are pretty focused on it.

John Smith: Thanks, Bobby.

Operator: Thank you. Next question comes from the line of Derek Podhaser with Piper Sandler. Please go ahead.

Analyst: Maybe to kind of keep going on that line of questioning, just coming at it from a different angle overall and looking at your portfolio and thinking about optimization. First off, Peak Rentals, right? You kind of mentioned power in your response, and I know you stood this thing up, you ring-fenced it, you are feeding in a bit of capital. So first, maybe let us start there on an update of how we should think about Peak Rentals moving ahead. And then maybe just separately, the portfolio optimization and feeding growth projects like your friction reducers and surfactants. And if you have the right footprint today to capture those growth tailwinds? Or could we see some potential bolt-on opportunities for that as well?

John Smith: This is John. I appreciate the conversation around Peak and the question, but what we would say is there is really no material change yet that we are ready to express here, but we are still very actively evaluating all opportunities around it. The course of direction has not changed. The efforts in which we are applying have not changed. And so that is still very much like the last time is where it would be. On the opportunity set, I think some of the acquisitions we just announced tell you the opportunity set in some sort, which is really what asset base is out there that is an enhanced value to that asset base if it is part of this network. And the network is very different than any other network because it is really built around recycling first.

So if you just think of the ability to have dual lines—so a distributing line to be able to get frac fluids to where it is going to be needed or a gathering system to bring barrel into the recycling facility or expose it to the ability to dispose of that barrel—there are assets that really fit that network in a meaningful way, and the way that thing is dual purposed and built of size, it really enhances the value of that asset when we bring it into our network. It has got a big effect.

Chris George: And I would add to that, you look over the last year, we have continued to focus on what adds value, what helps us drive incremental return profile to the footprint. So we have looked at things that might have historically been a bit more tangential around the solids management side with the landfill opportunities and solids treatment opportunities last year—looking at the surface application of what is underneath the infrastructure we are deploying and building out; looking to add disposal capacity to both risk management profile and additional growth and committed capacity potential to the system. So anything that fits the profile of how we are approaching growth around the asset, full life cycle and waste stream management, supporting the customers on their needed solutions—we are going to focus on all of those things.

And I think there is still a good opportunity set around them. To your question on the Chemical side, there is, I would say, a very good opportunity set in front of us, and we can execute and act upon that in a pretty meaningful way with what we have got—whether that is the existing manufacturing base that we have in-basin in the Permian, the existing R&D and lab capabilities, the product lines, the pilot efforts that are already underway, and some of these new projects and product development wins we have had. And I think we feel pretty good about the opportunity set to drive further growth there. And even if we get to the point where capacity becomes a consideration, we have got ability to flex up and add capacity to our existing footprint out in the Permian or, alternatively, supplement out in East Texas and do so in a way that is pretty capital efficient given the current footprint we have already got in place.

John Smith: The thing that I would add to the Chemical side of it is, as Chris expressed, we can expand the throughput in a meaningful way in our plant capacity, but we also have a very unique position to be able to service the customer in the delivery of that chemistry and the management of that chemistry throughout the fracking process. And that is localized. It is a very good footprint around a local manufacturing plant. So it really gives value to the customer or a leverage to us to be able to win more business or expand that throughput capacity that Chris talked about.

Analyst: Got it. Really appreciate the color, guys. Maybe switching to the capital outlook here for the business. You upped CapEx this year—completely understand, just given some of the acquisitions you made and some of the needs for capital. But, Chris, I think in your prepared remarks, you talked about the company really being set up for free cash flow generation 2027 and beyond just given the growth outlook. So maybe just help us understand the interplay of the equity raise. You have, I think, $300 million of total liquidity. You are getting pretty good free cash flow generation out of Services and Chemicals. Just how should us and investors really think about the long-term free cash flow generation of the business thinking about capital and maybe conversion down from EBITDA? Just help us understand that a little bit more, just given that is an exciting growth outlook for you guys.

Chris George: Sure. It is a great question, and obviously something we think about every day from a capital allocation framework perspective. I think, importantly, the base maintenance needs on the business are pretty light. So looking at something like $60 million of maintenance capital on the system, with a solid weighting towards the Services side of the business there, is a pretty effective position for us to be able to reinvest in the business efficiently. Obviously, last year and this year, we are focused more on the reinvestment side. We continue to have a good profile of backlog opportunities that we are excited about getting to the finish line. So we think that the build cycle is ongoing and has an opportunity to continue.

We would be excited to add to that. So the base CapEx guide and the uptick here this quarter—could that translate into something that looks more like last year from a capital deployment profile than that current guide if we sign additional contracts? That is very well a possibility here. As we look forward into 2027, we think we are driving solid incremental growth, as Jim questioned on, and what that earnings power is going to also do to drive incremental free cash flow generation. So, as we look forward into 2027, we think the opportunity set still has some backlog opportunity to it. The growth of the earnings profile continues to move upwards as well. So both of those moving in tandem are still going to generate excess free cash flow opportunities.

The margin profile of that Infrastructure business is very well suited to generate very strong free cash flow on a through-cycle basis over the longevity of these contracts we are putting in place. And so as we look forward to the back half of this year, I think it is more likely than not we continue to get opportunities to the finish line. As we look forward into 2027, we think that capital deployment program is probably going to have a bit more maturation to it, particularly in New Mexico. But even if we are able to continue to add on opportunities, you are going to grow the earnings profile, grow the free cash flow profile, and start to generate those incremental dollars that you can make good discrete choices with. But, as we have said before, the Services and Chemicals businesses generate solid 70% to 80% free cash flow generation out of the gross profit in those businesses.

And Infrastructure, on a stable, low-growth basis, should provide something similarly competitive. Right now, we are just focused on how to continue to reinvest and drive that growth like we saw in Q1 and we are expecting to see in the back half of the year.

Analyst: Great. Appreciate all the comments. I will turn it back.

Operator: Thank you. Next question comes from the line of Don Crist with Johnson Rice. Please go ahead.

Analyst: Good morning, guys. I know you have answered this in a couple different ways, but I am hearing specifically in New Mexico that the E&P operators were going to drop frac crews because of natural gas takeaway issues and the lack of flaring opportunities. And I just wanted to explore that a little bit and see if, number one, you are hearing that; but number two, if those operators are now keeping those frac crews because of higher oil prices and that could set up a significant uplift in volumes across your system once the natural gas takeaway pipelines come on in the fourth quarter or first quarter of next year, and that could drive significantly higher volumes across your system. Just any comments around that, because I am hearing that more and more lately over the past couple weeks.

Chris George: Don, obviously, we are all looking at the new capacity coming online later this year, looking into next year, as a needed solution. I would say based on the customer dialogues we are having, nothing has given us any indication that we have any meaningful change in outlook expected due to nat gas takeaway concerns. The capital programs that we are talking to our customers about, the schedules that we have that we are building into to bring assets online over the next couple of quarters—there is nothing that gives us any indication there is any change expected there. If anything, there is probably more of a question around what the commodity profile looks like and how you address the opportunity to maximize potential around that current commodity outlook. So not to say that we are not thinking about it and focused on it and paying attention to what the customers are looking at out there, but that is the current lay of the land. But, John, anything to add?

John Smith: Don, I would mention a few things. One is those interruptible opportunities that keep ringing the phone—that is in that area. So that has really turned into a strategic ability to capture that work because of this network we put together. We thought it would show—it would show now, and it is pretty meaningful. The other one I would tell you that we do get out of the operators is, what can they do with that gas differently than what they are doing today? Whether it is in movement, whether it is in heat-related application, whether it is in power generation application, it is “help us think about what we can do with it differently than what we are challenged with as it sits,” but not to the tune that we are hearing from our operators that they are going to slow down their programs.

Analyst: I appreciate that. And I know you do not like to talk about things before they are fully baked and ready to go into guidance. But on this data center opportunity, obviously, some of your main competitors are talking about how big it could be. Do you see the data center opportunity on the water side being a significant opportunity for many years to come—sign long-term contracts, etcetera—like some of your competitors are seeing?

John Smith: What we do see is our position in the Permian we think is a very unique position. And our relationship between our Service business units and our Infrastructure business unit is a very positive way to address what they are asking us to address. And, yes, we are having the conversations around water, but we would also tell you that we are having conversations that this company was really built on—the skill set and the knowledge base of how you procure water, treat water, move water, store water, recycle water—but it is also built on doing intense operations in remote areas. We have been pulling off stuff in meaningful ways in remote areas for a long time. Well, Pampa is not much different. It just really came to the forefront that we can support the efforts in a different manner because of the way this company was built and the skill set that is in it, Don.

Analyst: I appreciate all the color. I will turn it back. Thanks, John and Chris.

John Smith: Thanks, Don.

Operator: Thank you. Next question comes from the line of Nick Armato with Texas Capital. Please go ahead.

Analyst: Good morning, all, and congrats on the strong quarter.

John Smith: Good morning, Nick.

Analyst: On the disposal and service agreements in the North, can you provide some color on the structure of the agreement and potential revenue uplift you are expecting? Additionally, could you provide maybe a brief overview of water handling needs in the basin and how they compare with the broader Permian complex as well as the potential for additional agreements similar to this going forward?

Chris George: I will jump on that, Nick. Very good question. We are actually quite excited about the opportunity set in the Northeast. We are the largest traditional disposal provider in the basin. It is a challenging market environment to operate in just given the regulatory complexities across multiple states and the geography. That contract that you mentioned was a very good one for us on the back of one that we executed on late last year where we added a large transfer dedication on top of an Infrastructure relationship. This was another great one to add on that Water Transfer relationship scope in tandem with negotiating a commercial framework around a sizable disposal dedication. So we were pretty excited to get that one to the finish line and able to leverage the strength of that leading disposal position and the asset and market share capacity we have in that basin to continue to engage in dialogues like that.

We are pretty excited about the opportunity to continue to add that relationship between Services and Infrastructure in any of these areas where we have got strength of service and infrastructure scope overlapping. I would say in the Northeast more broadly, that is a basin we really like the potential around. We have talked about the gas markets a little bit in the Permian, but I think more traditionally our leading footprint in both the Haynesville and the Northeast provide pretty meaningful upside to us for gas market demand over time. And so we feel very good about that Northeast position. We have added assets to the basin over the last year as well, and it is one that we think there is good opportunity set on to continue to grow and enhance that already market-leading position.

Similarly, in the Haynesville, I would say from a market dynamics perspective relative to the Permian, it is a different type of need of solution versus the Permian. The scale of the problem in the Permian is just fundamentally different, given the size of the production scope, the size of the water problem in terms of the volumes and the intensity of the fracs and the bench depths and everything else that comes with the Permian. But we very much are going to continue to focus on the opportunity set across all of our footprint. And as you saw here, we added new contract scope across four basins. And so we continue to see our capital priorities weighed toward the Permian, but we think there is a good opportunity set elsewhere. John, anything to add?

John Smith: Just a couple. It is not necessarily just directly to the Northeast. But if you look at the history of XPEL, Inc., where we have been able to apply the last-mile logistics or Water Transfer along with our Water Infrastructure through quite a few years now, we have always gotten better margins out of the service side of it. And the reason is because those two things together bring real value to our customers. And the ability to share some of that value is meaningful to us in the service side. The other side I would tell you, if you ask the relationship to the Permian that Chris was talking about, the Permian is really very focused on recycle first—the value-add, how can they balance water. And if you are recycling produced water, that means your Water Transfer has to be built around transferring that produced water to the frac site.

And that is a different skill set than transferring freshwater to the frac site. And XPEL, Inc. Tideline, XPEL, Inc. Automation, XPEL, Inc. interaction with that Infrastructure brings meaningful value to our customers, and we should be able to pull a portion of that value as we bring that along by bringing those two segments together.

Analyst: Perfect. Maybe shifting over to the municipal business. Could you offer some color on how that project is progressing? And then also in light of the stronger commodity environment, how do you think about opportunities like this relative to some of the more traditional oil and gas related ones?

Chris George: On the base project up in Colorado on the municipal space, no material updates at this point other than we continue to see good progress in marching that towards the original expectation of getting contracts in hand by 2027 and putting that incremental capital to work. So we still feel like we are moving the right direction. It is a slower development cycle working with municipal counterparties than traditional oilfield counterparties, and similarly with some of the other industrial opportunities in the region as well, but still feel very good about the position and the potential to get something moving by 2027, and we will keep working on that. As it relates to capital allocation choice between that diversification opportunity set versus the core potential in the energy industry, I do not think our view has really changed.

We want to continue to focus on the right return profile, how we add stability and contracted stability to the business over time. We are going to focus on the competitive return profile amongst all of our growth opportunities, but we are definitely focused on getting this one done. There definitely are other opportunities that we are going to be spending time on along the way, but we are not going to have them conflict or limit our ability to develop what is a very attractive opportunity set in the core business today. And we are continuing to see that, as you saw here in Q1 and in some of the larger opportunities we are looking to get to the finish line over the course of the next couple of quarters this year. So, very much a growing opportunity set across the business, whether that is industrial or municipal opportunities around that Colorado project, data centers, or elsewhere.

As we look at beneficial reuse as another technology application that is going to bring freshwater to market over time, that is something that lends itself towards a diversity of potential consumers—whether that is the base industrial demand around the oilfield or whether that is other opportunities. So either way, they should move in tandem, particularly as beneficial reuse progresses over the next couple of years. And we will be focused on the right return profile across that full opportunity set.

Analyst: Perfect. Thanks for taking my questions. I will turn it back to the operator.

Operator: Thanks, Nick. Thank you. Next question comes from the line of Jeff Robertson with Watertower Research. Please go ahead.

Analyst: Thank you. John, given some of the comments around free cash flow growing into 2027, can you just talk a little bit about your thought process around returning cash to shareholders through the repurchase program and the common stock dividend?

John Smith: I do believe, and I think Chris leaned into this, what we are building is really a low-maintenance capital-required business, and as the growth capital matures, the systems, the network, the growth show—we do have a very strong opinion that we are building a company that is built around repeatable, predictable, and dividends will be a part of the capital allocation and the growth of that dividend. We are probably, by nature, more of value takers when it comes to stock buybacks. If you look at when we really spent the money, it is when the stock got affected by the banking crisis out on the West Coast, and we took advantage of that. But we do believe we are building a company that will be able to focus on a regular way dividend and capital allocation decisions.

We also believe that the Infrastructure growth that we are building in Eddy and Lea and different places across the United States, as we come up with opportunities that are very attractive in building these networks in the oil and gas space—we actually believe that our skill sets in and around water really open up opportunities in addition to that. So I do not think the growth is going to disappear on us. I think those opportunities are still going to be there. And, you know, the contractual nature and the high gross margin and the good rate of return, I believe, will show up within our skill sets around water.

Chris George: And I would maybe just wrap on that, Jeff. Whether it is looking at the base dividend and the potential to grow that over time, whether it is adding stability through cycle in a historically cyclical industry, or whether it is thinking about diversification of industry scope, all of those things lend themselves towards more repeatable, predictable cash flows over time. Whether that is looking at the balance sheet structure or shareholder returns, either way, you are going to have different choices as we continue along this strategic transition, and we are focused on what that right structure looks like over time. As John said, we will continue to be tactical in our view around the ability to repurchase shares in and out of excess free cash flow.

But as we look forward to generating incremental free cash, we are going to make the right choices and have the right balance between growth and shareholder returns. But, obviously, for now, we have got a great growth opportunity set in front of us—that is what we are on in the immediate term.

Analyst: Chris, one question on the assets—the Black River Ranch and the surface acreage bought in New Mexico. Can you talk about how that fits into your Delaware Basin system, John or Chris?

Chris George: I will start, and, John, feel free to add on top. When we are looking at the full footprint buildout of what we are doing in New Mexico, we look at all the opportunities to get value out of that footprint. So that surface position is effectively overlapping with our existing Infrastructure buildout. So the ability to utilize right-of-way and easement access across a piece of owned surface is obviously accretive to the cost structure of the business. The ability to utilize that surface to develop incremental capacity—whether it is storage, whether it is disposal, whether it is recycling—all provides opportunity to the footprint. If we can add accretive returns through some royalty structures or mineral structures along with that surface, that is a good high-margin opportunity for us as well.

So when we are looking at what best fits the profile of the buildout of the system, we are looking at all these opportunities, and we are going to continue to find these along the way. And if we can do so in a manner that provides very clear strategic benefit to the buildout of the core strategy or gives us leverage and opportunity to develop something new, we will continue to look at opportunities like that. John, anything to add?

John Smith: The one thing I would add is that, whether it is in opportunities that we are finding by buying surface and being able to harvest royalty or position out of that surface, what we are for sure finding in a meaningful way is that the asset base of the company—whether it is the water itself, whether it is the location, whether it is surface owned, whether it is a network of pipe—we are finding ways now that we can take repeatable high gross margin or full gross margin royalty-type revenue into our existing company today to increase the margins or have a different type of income stream than a typical service company had. And it is becoming more and more apparent as we build out this network or buy this surface or create the relationship between waste stream management and fluids management.

Operator: Thank you. Next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.

Analyst: Hey, John and Chris. Not sure this has been addressed or not, but I am just curious—with the market heating up a bit, what are the opportunities right now for you guys to talk to customers about incremental pricing opportunities? Are you having those yet?

John Smith: First of all, John, as you know very well, there are certain conversations that you have to have because there is an effect on your business as it relates to the procurement side. And some of that is built in, some of it is not. But I would say those conversations are very active, they are not lagging, and they are well received. I would not say they are getting a lot of pushback. As it relates to price, what we find is that where we can bring value and we can demonstrate value, the price conversations with the customers that are trying to do more with less with better results are conversations they love to have, and they will give you price, and they will share in that value that you bring. And we find very good success there, John.

Chris George: And I would add to that, as John mentioned earlier, when you can integrate that service capability with the Infrastructure relationship around the contracted barrel, it is always a more productive outcome for us on a margin profile basis. And it can also have a benefit on the revenue basis as well. And then, furthermore, if you are thinking about something like Chemicals, the push into some of the higher-margin specialty application of products—whether it is on the FR side around the intensity of what is demanded right now, or whether it is the more specialty application of surfactant development around the reservoir rock, the matching of that with the chemistry and the quality of the water along with it—that is just a fundamentally different solution, and we are going to be able to price that in a manner that is more effective.

Because at the end of the day, it is helping the customer create more oil production out of their reservoir, and we can share in the benefit of that uplift.

Analyst: Can you remind me, roughly what percent of your business you would characterize as spot and therefore opportunities to incremental pricing later this year?

Chris George: On the Services side, John, you are going to have some integrated pricing relationships with your Infrastructure contracts. You are going to have some relationships that are more medium or pad- or well-program-defined. But I would not say there is any expectation that there is not going to be an ability to be responsive to the market conditions and the need of the industry’s application for service. So nothing that is going to be limiting in our ability to capitalize on the market opportunity set in any meaningful respect. And so, obviously, on the Infrastructure side of the business, you have more defined long-term contracted structures there with frameworks that get us great outcome and great return profile regardless of market conditions. But, John, anything to add to that?

John Smith: I guess the one thing I would say, John, is we have experienced—the market has become such intensity in 24-hour operations that schedule and planning and engineering of jobs have become more and more important. So even our call-out business, one, it is probably going to have pricing arrangements around it. It is going to have MSAs around it. It is going to have contractual relations to our Infrastructure around it. That has changed some, but I would tell you the biggest thing that changed in the industry—it has just become mission critical in what we do and how we do it. Now, that brings value to the customer. The ability to take the phone call and execute a job inside this business is still very much intact, John.

And if it torques up, we can take the call, and we can make the money. But, boy, it really changed in planning and engineering and execution and the ability of not having that downtime. And one thing I might add further on the Infrastructure side of the business—the real mover there in this type of market environment is something like skim oil. We generate a good amount of skim oil out of that Infrastructure footprint. And so any uplift in the commodity price in the short term or medium term, if it becomes more stabilized, is something that gives us upside opportunity as we continue to extract incremental oil barrels out of that footprint, whether it is through recycling, disposal, or solids. Either way, you are in a position to catch your oil, and that is a good opportunity set for us to move up with the spot market oil pricing.

And then I would say, furthermore, the ability to be responsive to the market’s need for reuse barrels versus dispose—yeah, the more we can reuse that barrel versus put it downhole and get rid of it, the more opportunity we have to maximize the revenue and the value stream out of that barrel potential. And so, obviously, it is a good market environment to potentially do that.

Analyst: Got it. Okay. Well, thank you for including me.

John Smith: Thank you. Thanks, John.

Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to John Smith for closing comments.

John Smith: Sure. Thanks to everyone for joining the call. We appreciate your continued support and interest in learning more about Water Solutions. We look forward to speaking to you again next quarter.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines.

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