Q2 2020 ProPetro Holding Corp Earnings Call

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Good morning.

Welcome.

Holdings Corporation second quarter 2020 conference call.

All participants will be in listen only mode.

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After today's presentation, I mean opportunity to ask questions.

Please note that this event is being recorded.

Now I'd like to turn the conference over to Mr., Sam Sledge Chief strategy and administrative officer. Please go ahead Sir.

Thanks, and good morning, everyone. We appreciate your participation in today's call.

With me today is Chief Executive Officer, Philip go Chief Financial Officer, Darrin Holderness.

Senior Vice President of operations, Adam Yes.

Yesterday afternoon, we released our earnings announcement for the second quarter 2020.

Please note any comments you make on todays call regarding projections or expectations.

Future events are forward looking statements covered by the private Securities Litigation Reform Act.

Forward looking statements are subject to several risks and uncertainties many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations.

Advise listeners to review our earnings release and their risk factors discussed in our filings with the FCC.

Also during today's call will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.

Finally, after our prepared remarks, we will hold a question and answer session with that I'd like to turn the call over to Philip Thank.

Thank you Sam and good morning, everyone.

We were pleased with overall results for the second quarter, given the unprecedented demand and supply disruptions the oil and gas industry faced primarily as a result of the global Cobot 19 pandemic.

On behalf of the entire pro Petro team I want to thank all the first responders and medical professionals for their selfless and tireless efforts, ensuring the wellbeing for all of those live and our work in the Permian Basin.

I continue to be amazed at our employees collective resiliency given the current environment.

And I want to express my deep gratitude once again for their hard work and dedication.

As always the health and safety of our employees customers supply chain partners and other stakeholders remain the top priority of the company.

And we will continue to implement best practices. According to CDC guidelines and never got another governmental agencies to ensure safe and efficient operations for the duration of the pandemic.

During the second quarter, we saw activity levels decreased rapidly in April and May as customers responded to a continued deterioration in market conditions that began in mid March.

As such we took swift and decisive measures to help us proactively shrink the core of our operations.

Type costs through collaboration.

Focus on innovation, we considered critical to enable a recovery.

In addition to safeguarding the long term health of our balance sheet.

Another key tenants in our decision, making process was ensuring we protected the core competencies of our business.

These capabilities support pro Petros Claire reputation as an industry leader that provides its customers unmatched execution.

And then environment or its employees can flourish.

As such we took the necessary steps to streamline our operations without sacrificing our ability to respond quickly as market conditions improve which we began to see in June.

More specifically our cost saving initiatives have included.

Right sizing our workforce, while maintaining our core talent.

Significantly, reducing matlick maintenance capital expenditures and field level consumables.

Go shedding lower pricing for expendable items materials used in day to day operations.

And large component replacement parts.

Internalizing certain support functions that were previously outsourced.

And reducing compensation of all officers executives and directors.

Complementing these efforts during the second quarter.

Its continued operational and safety excellence in support of our customers drive to stay is active and as profitable as possible.

We are working closely with our customers to ensure our collective success remains at the core of our DNA.

Want to thank the entire pro Petro team for weathering the storm to the most turbulent environment and our company's 15 year history.

Finally, a significant highlight of the second quarter was completion of our previously announced audit Committee internal review process.

And the filing of our 10-Q's for the second third quarter of 2019, and our 10-K for 2019.

But the filing of our 10-Q for the first quarter 2020 on July 2nd.

We became current with our filing obligations with the FCC.

I want to thank all involved for their assistance over the last year.

The successful completion of these activities allow us to fully focus our efforts on the future of our business in an environment of stronger processes and controls.

Enhance our competitiveness, Kevin Tentativeness with that I'll turn call over to sand Skus, our financial performance Sam.

Thanks, Philip we were pleased with our overall performance for the second quarter, given the unprecedented volatile environment.

This includes generating free cash flow and positive adjusted EBITDA during the period, despite a 73% decrease in revenue from the first quarter.

That said I would like to point you to our press release and form 10-Q, which will be filed in the coming days for more detailed financial commentary concerning our quarterly sequential results.

As Philip discuss driving our success for the second quarter was our ability to balance the need for substantial cost reductions to immediately address the financial implications of the crisis without going so far as to negatively impact our competitive advantages in the marketplace.

As important was our focus on protecting the health of our balance sheet and capital structure, which along with performance at the well site will be a key differentiator as customers determine who they will partner with as market conditions and activity levels continue to improve.

As discussed in our press release.

Our second quarter revenues included $32.6 million of compensatory idle fees.

These stemmed from a purchase of assets assets, which included contractual provisions with one of our largest customers and were intended to supplement our financial health during times of depressed activity.

We did exactly that during the second quarter by using a portion of these fees during to ensure we could retain the necessary talent and core competencies to support our operations until conditions began to improve in June.

During the second quarter, we also paid off $110 million of debt and ended the period debt free.

As a result as of June Thirtyth, we had a net cash balance of $37.3 million as compared to the $33.7 million at the end of the first quarter.

Fast forward to July 30, Onest and total cash was $22.6 million with no outstanding debt total liquidity as of July 31st was $43.1 million, including cash and $20.5 million of available capacity under our revolving credit facility.

We would also note that the July 30, Onest cash balance is not inclusive of approximately $32 million an idle fees that we expect to collect sometime in the third quarter.

Based on accounts receivable less customary reserves, our borrowing base is impacted by our customers activity levels as as well as certain customer concentrations.

With the increase in activity levels, we have seen since June and expect to see through the remainder of the year, we expect to see growth in our borrowing capacity, having said that we view, having no debt outstanding while the market recovers as a significant competitive advantage and we remain committed to executing projects with positive returns and allow.

I want to protect that capital structure.

To support the expected continued increase in customer activity levels.

We now have a view of total capex spending for the full year 2020 of less than $100 million of which $54.7 million was spent during the first six months.

The vast majority of capital spending for the full year will be for maintenance Capex.

I would also note that we expect virtually no spending on growth capital in the second half of this year.

Finally, the steady improvement and customer activity, we have seen since June supports our current view of effective utilization between seven and eight fleets during the third quarter of 2020 with that I'll turn it back to Philip.

Sam Thanks.

While the backdrop for the oil and gas industry, both globally and in the US has improved from the lows, saying only a few months ago.

Activity levels rising remain historically low.

In this environment, we will continue to leverage and blueprint for success, but as guided us through the many cycles of our past 15 years as account.

Our mantra has always been and still remains to take the Longview.

No matter, where are you on the cycle. The kiestra remain close in close contact and squarely focused on the needs of your customer.

This includes helping your customer solve their technical problems at the well site.

Providing them with unmatched execution.

The remaining disciplined with pricing and continue to continually assessing your internal cost structure and capabilities.

While it currently appears the worst is behind US we're not rely on the substantial recovery and all demand.

The future of our success.

As in the past, we view our performance at the well site to be Paramount.

This will help drive improved free fleet level returns without the necessity of increased pricing.

Having said that as Sam discussed will only execute projects with a positive returns that allow us to protect our capital structure, regardless of where we are in a particular cycle.

Another contributor to our future success.

The commitment to the continued evolution of pressure pumping technology that minimizes the environmental at impact of operations through reduce greenhouse gas emissions and other considerations off the same time promoting overall safety and well site throughput.

In sum, we continue to hold a strong belief that pressure pumping equipment must significantly evolve.

Our industry to remain competitive on a global scale.

Clear example of our commitment is our substantial investment and the electric fleet technology of duress down.

We are continuing to test and developed technology by working alongside conventional equipment and the failed to allow the company ample time to collect data and various operating condition.

Although the development timeline has been longer than we initially expected.

We along with our customers expect to redeploy the verastem equipment on a larger scale when testing is complete.

In conclusion, we anticipate a meaningful improvement in fleet utilizations for the third quarter as compared to the second quarter.

Having said that remain very selective in redeploying assets Incruse and will only per se it projects meet our economic targets.

Most of which are likely to be with existing customers.

Clearly the macroeconomic environment remains uncertain and substantially dependent on the bottom potential spread of cobot 19 and related impact on the global economy.

And desk and disciplined within OPEC plus.

This backdrop does not change a focus that has served us well over many years and we'll continue to guide our success well into the future.

This includes leveraging our Permian basin focus and relationships with customers through best in class collaboration.

And sharing we provide customers with innovative solutions that solve their problems with unrivaled execution at the well side.

And proactively seeking additional ways to redeploy technology to reduced implication and streamline processes to foster innovation.

Bottom line, we clearly understand the value of unmatched execution in the marketplace.

Our customer focus remains clear regardless of market conditions.

Focus on fostering the long term relationship.

Solve their problems and leverage and economic structure the benefits both parties.

That I'd like to turn it over to the operator for questions Nick.

Well now begin the question answer session.

Last quick question you May Press Star then one on your Touchtone phone.

For using the speakerphone, please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then too.

This time, we'll pause momentarily to assemble a roster.

First question comes from Scott Gruber of Citigroup. Please go ahead.

Yes, good morning.

Morning, Scott.

So.

Sounds like a nice step up here.

We utilized in Threeq you what did you entered the quarter.

What do you think you'll you'll exit in terms of fleets deployed.

The asking because I'm trying to assess we think there's sufficient momentum here such that for key Liza up again on three key even with.

The typical seasonality see towards the end of year.

Yes, Scott this is Sam I'm not sure we'll give much more detail other than in second quarter. We we obviously as we quoted in the release averaged four quarters for fleets 4.0 fleets in the second quarter.

The trough was below that be exit was above that that might be an obvious statement, but the same.

Seems to be true about third quarter as well that.

Our guide to the seven to eight weeks was that we came in the quarter below that and we do expect to exit the quarter above the top into that range.

Gotcha.

And then how should we think about.

Yeah, just speaking to three Q.

In the mixes high calorie were well within that 70 seats versus low calorie work.

We think about the revenue per fleet trend.

X and keys in Threeq, you until we had assumed that translate.

EBITDA per fully.

Thank you.

I I think the biggest hit the revenue.

You know from Q1, Q2, Q3 is probably more of a pricing.

Thing than than than any other factor, we we view the work.

That we're getting back to you right now is as you said high calorie work. This is this is all still.

Multi well pad 24.

Seven or so it's it's just kind of right back to the usual pace is what it seems.

Okay. So good place how should we think about the the fourth quarter impact pricing women the revenue per fleet.

Okay and EBITDA.

I don't know if I heard the first part of your question Scott well, how do you think about the the full quarter intact pricing will present this will be no.

And in the three Q.

We think about the revenue trends in EBITDA trend done that 17 working.

I don't know differs from customer to customer I'm not sure we're willing to quote.

But kind of full net effective pricing at this point.

Can you frame in terms of.

Okay.

We are getting.

Exceeds that we.

You are kind of 10% lower than the one Q averages.

Let us start.

More than that with that.

Okay.

Very good we continue a offline I will turn it back thanks.

Thank you next question from George O'leary, TPH and company. Please go ahead.

Good morning hammering Philip.

Good morning.

As with.

Anyway, you could frame underlying fleet profitability for the second quarter ex the the shortfall payments just to think about that as a starting point for the next quarter.

And or add.

How much we can expect and shortfall payments as we look to the to the third quarter you guys framed kind of a back half range on your previous call, but just curious what the outlook is there for the third quarter on <unk> on the shortfall side.

Well I mean, sorry.

Yeah, I think we put we put out a range of 12 to 16 million for the second half.

2020, and now I would say, we're currently looking at probably the lower end to that range.

Second half.

And George on the than on the kind of the profitability point in second quarter.

Not to state the obvious, but if if 100% of the idle fees were to.