So we’re making those decisions now and should see the benefits in relatively short order.
John Schmitz: Yes, this is John. I want to add one thing to this. I mean, anytime you have technology moving around activity, moving around the type of equipment, it never stops Tom, right? You keep busy all the time and trying to figure out what you need to be doing and what you need to not be doing. But in our business, margin enhancement is not just on the elimination side. If we can really pull value to our customers through our water transfer, through those infrastructure or above ground containment there’s pieces that really enhance margins because of the value we can bring that are not necessarily elimination margin value.
Tom Curran : Got it. And then chemical technologies, could you give us an idea of what percentage of CT’s sales are being generated as part of water infrastructure’s produced water related operations? Could you give us an idea of sort of where that’s at today versus say a year ago?
Chris George: Yes, so it’s increased from a year ago for sure, because our recycling has increased materially from over the last year, Tom, but it’s still a relatively small portion of chemical technologies revenue. It is an important portion for us because it’s stable and we’re able to get attractive rates to support our infrastructure. But the vast majority of chemical technologies is to the operator and with a lesser extent directly to the pressure pump.
Michael Skarke: I think the important nuance to that is that that chemical technology that’s being distributed to the operator now has transitioned from a more commoditized application to a more specialty application around that benefit or around that recycling reuse application of produced water. So it’s become a bit more of a complex application of decision for the operator when they’re reusing produced water. You’re not only treating that barrel of water to make it usable, but you’re matching that with more specialty chemical application in that completion fluid system that’s going down hold to complete the well.
Chris George: And this is something we’ve talked about in the past. I mean, it was really a big part of the driver we experienced in the second half of ’22 and in ’23, that transition is fully underway and largely taking place in the Permian. We haven’t seen that really unfold in the other basins yet. We’ve seen it start, but not unfold. So as that continues to materialize in the DJ or the Bakken or elsewhere, we do think that our custom chemistry will be more competitive in that market.
Michael Skarke: And I think it’s also important that as you talk about the application of recycling and growth there and the transition towards more advanced treatment over time around beneficiary et cetera, we do view our chemicals application as a competitive advantage relative to the overall landscape as really the only integrated water and chemistry platform. So we do think that our R&D capabilities and specialty application of chemicals does continue to benefit us as we transition more towards advanced chemical reuse.
Operator: Our next question is from Don Crist with Johnson Rice.
Don Crist : I just wanted to ask about the ramp up in water infrastructure. I mean, obviously you have a lot of projects going on, and we’re going to see somewhere in the neighborhood of 10% uplift in the second quarter, but as we look towards the back half and into ’25, do you see a kind of linear ramp up or is it going to be kind of lumpy as we kind of move towards your goal of being over 50% in that segment?
Chris George: Yes, you’ll certainly see a pretty steady trajectory of growth done over the next couple of quarters. There could be some stair step benefit of some of the larger projects like the Thompson Pipeline that we spoke about last quarter, should be coming online during the third quarter as a very large Greenfield project that has a chance to provide a bit of a stair step benefit once that comes online. The remaining projects we announced this quarter a little bit smaller on an individual basis starting to benefit in Q3 and Q4, and we should see a continued backlog of execution, smaller and potentially larger projects coming online over the next handful of quarters. But we’ll certainly see a fairly steady growth application, particularly as we get the acquired assets integrated and start to enhance the utilization of those assets over time as well.
Michael Skarke: Yes, I think the stair step approach is the right way to think about it, Don. I guess what I’d say is between the acquisitions and the project backlog and the ones that we have — shouldn’t say backlog, opportunity that we have, and then the construction projects currently that we have coming online over the next 6 months, we feel really good about our ability to have 50% or more of our gross profit before depreciation in ’25 coming from infrastructure. And we feel really pretty good about hitting our target margin and infrastructure of 50%.
Don Crist : I appreciate that color. And just one further one from me, if I heard correctly, it sounds like the free cash flow is kind of be dedicated more towards future M&A and debt payback possibly, and not towards share buybacks at least initially. Is that the right way to think about it, or can you expand on that any?
Chris George: Yes, good question. Certainly, the first half of the year here, the capital allocation was certainly weighted towards these acquisitions. We do still have the open authorization of $21 million today for share repurchases, and we’ll continue to look at a tactical application of that as part of our overall shareholder return strategy. Obviously with the recently increased dividend, we’re strongly committed to shareholder returns over time here. And we do think that we’ve got a strong organic investment backlog that will be well within free cash. And then what we do with that remaining cash will be a continued decision on a quarter-by-quarter basis here. So we certainly view it as part of the overall allocation strategy, Don, but certainly the first half of the year here, we were focused on M&A back half of the year, probably going to be more heavily focused on investing in the organic growth.
But that should still leave ample free cash over the back half of the year to make some decisions around.
Operator: Our next question is from Jeff Robertson with Water Tower Research.
Jeff Robertson : John, you talked a little bit about the systems in water infrastructure, and I’m curious as to whether you continue to build out infrastructure systems that can offer more solutions to your customers. Is that really what’s driving the margin uptick in water infrastructure, or is it adding contracts to existing systems?
