Q4 2023 ProPetro Holding Corp Earnings Call

Good day and welcome to the pro petrol holding Corp, fourth quarter 2023 conference call.

Operator: Good day, and welcome to the Propetro Holding Corp. fourth quarter 2023 conference call. All participants will be in listen-only mode.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone.

After todays presentation, there will be an opportunity to ask questions.

To ask a question.

You May press Star then one on a touchtone phone to withdraw your question. Please press Star then two.

Operator: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the call over to Matt Augustine, Director of Corporate Development and Investor Relations for Propetro Holding Corp.

Please note. This event is being recorded I would now like to turn the call over to Matt Augustine director of corporate development and Investor Relations for probe Petro holding Corp. Please.

Matt Augustine: Please go ahead.

Matt Augustine: Thank you and good morning, we appreciate your participation in today's call with me today is Chief Executive Officer, Sam Sledge, Chief Financial Officer, David <unk>, Our President and Chief operating Officer, Adam Munoz.

Matt Augustine: Thank you and good morning. We appreciate your participation in today's call. With me today is Chief Executive Officer Sam Sledge, Chief Financial Officer David Schorlemer, and President and Chief Operating Officer Adam Munoz. This morning, we released our earnings results for the fourth quarter and full year of 2023. Please note that any comments we make on today's call regarding projections or our expectations for 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.

Matt Augustine: We released our earnings results for the fourth quarter and full year of 2023. Please note that any comments, we make on today's call regarding projections or our expectations for 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.

Matt Augustine: These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC also during today's call. We will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measure.

Matt Augustine: We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, during today's call, we 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. Lastly, after our prepared remarks, we will hold a question and answer session. With that, I would like to turn the call over to Sam. Thanks, Matt. Good morning, everyone.

Matt Augustine: Yours are included in our earnings release lastly, after our prepared remarks, we will hold a question and answer session with that I would like to turn the call over to Sam.

Sam Sledge: Thanks, Matt and good morning, everyone.

Samuel D. Sledge: 2023 was another transformational year for Propetro, and we're pleased to be entering 2024 with a strong foundation. Before David walks through our financial results for the fourth quarter and the full year of 2023, I'd like to highlight some of our key accomplishments. Over the last two years, we have worked to create a next-generation fleet to meet the needs of an evolving industry both today and into the future. We've invested approximately $1 billion to recapitalize our fleet with state-of-the-art technologies and services. Our results in 2023 and our start to 2024 are a clear indicator that our strategy is and will continue to work. Supporting the resiliency of our business are three primary strategic areas of focus that I'd like to take a moment to walk through.

Sam Sledge: 2023 was another transformational year for pro petrol and we're pleased to be entering 2024 with a strong foundation.

Sam Sledge: Well, David walks through our financial results for the fourth quarter and the full year of 2023 I'd like to highlight some of our key accomplishments.

Sam Sledge: The last two years, we have worked to create the next generation fleet to meet the needs of an evolving industry, both today and into the future.

Sam Sledge: Sure.

We've invested approximately $1 billion to recapitalize, our fleet for state of the art technologies and services.

Sam Sledge: Also in 2023, and our start to 2024 are a clear indicator that our strategy is and will continue to work.

Sam Sledge: Supporting the resiliency of our business, our three primary strategic areas of focus so I'd like to take a moment to walk through.

Sam Sledge: First is our ongoing fleet transition from legacy equipment to next generation offerings.

Samuel D. Sledge: First, is our ongoing fleet transition from legacy equipment to next-generation offerings. If we continue to transition our fleet in a manner that minimizes our overall capital cost, demand for our next-generation offering remains strong, and our outlook is positive. Our Force Electric fleet offering is uniquely positioned to bring state-of-the-art technology and service to the Permian Basin and to create value for our customers.

Sam Sledge: We continue to transition our fleet in a manner that minimizes our overall capital cost.

Sam Sledge: And for our next generation offerings remains strong and our outlook positive.

Sam Sledge: Our fourth electric fleet offering is uniquely positioned to bring state of the art technology and service to the Permian basin and to create value for our customers.

Samuel D. Sledge: We now have two force electric fleets and seven tier 4 DGB dual fuel fleets operating, with outstanding diesel displacement performance. Building on the success of our force offering, we deployed our second force electric fleet in early November. Our first force electric fleet has been in the field since August of 2023, and both fleets are producing strong results with efficient performance and customer satisfaction. Both electric fleets are on contract, and we're excited to build upon this success. To that end, we expect our third and fourth force electric fleets to head into the field on contract over the next few months. Second, I want to discuss another core element supporting our results. Value Enhancing Acquisition. Our Silver Tip Wireline business continues to be a strong tailwind for earnings, power, and free cash flow generation. Building on our successful track record of accretive M&A, during the fourth quarter of 2023, we acquired Par 5 Energy Services, which adds additional scale to our cementing business. The acquisition also expanded our operations to better serve both the Midland and Delaware Basin areas of the Permian.

Sam Sledge: We now have to force electric fleets and seven tier four DGB dual fuel fleets operating with outstanding diesel displacement performance.

Sam Sledge: Building on the success of our force offering we deployed our second fourth electric fleet in early November our first force Electric fleet has been in the field since August of 2023, and both fleets are producing strong results with efficient performance and customer satisfaction.

Sam Sledge: Both electric fleets are on contract and we're excited to build upon this success to that end, we expect our third and fourth force electric fleets to head into the field on contract over the next few months.

Sam Sledge: Second I want to discuss another core element supporting our results value enhancing acquisitions, our silvertip wireline business continues to be a strong tailwind for earnings power and free cash flow generation.

Building on our successful track record of accretive M&A during the fourth quarter of 2023, we acquired par five energy services, which adds additional scale to our cementing business.

Sam Sledge: The acquisition also expanded our operations to better serve Boston, Midland and Delaware basin areas of the Permian.

Sam Sledge: Additionally, perpetual is well positioned to capitalize on potential revenue synergies.

Samuel D. Sledge: Additionally, Propetro is well positioned to capitalize on potential revenue centers, leveraging Par5's capacity in tandem with the strong commercial architecture and established customer relationships of Propetro. We are pleased that the accretive earnings and expected revenue synergies are already coming to fruition. Value-enhancing acquisitions like Silver Kip and Par 5 are evidence of our ability to capitalize on accretive growth opportunities that increase our free cash flow generation. Moving forward, we will continue to be disciplined and opportunistic in pursuing value-creative M&A opportunities as they arise. Finally, another key element of our strategic focus is our capital allocation philosophy.

Sam Sledge: Bridging power five capacity in tandem with a strong commercial architecture and established customer relationships a perpetual.

Sam Sledge: We are pleased that the accretive earnings and expected revenue synergies are already coming to fruition.

Sam Sledge: Value enhancing acquisitions like silvertip and par five are evidence of our ability to capitalize on accretive growth opportunities that increase our free cash flow generation.

Sam Sledge: Moving forward, we will continue to be disciplined and opportunistic in pursuing value accretive M&A opportunities as they arise.

Sam Sledge: Finally, another key element of our strategic focus is our capital allocation philosophy, we continue to execute on our $100 million share repurchase program, which our board authorized last night we've.

Samuel D. Sledge: We continue to execute on our $100 million dollar share repurchase program which our board authorized last May. We view share purchases and the overall return of capital to shareholders as an important part of our strategy showing our conviction in the future of the company while creating value for our shareholders and a key pillar of our value proposition for investors. Our financial results over the past year are a direct result of the continued execution of our strategic initiatives with the ultimate goal of generating strong returns and value for our shareholders. The results also demonstrate that our strategy and our business are resilient as we navigated a turbulent fourth quarter. In the fourth quarter, like other industry participants, Propetro's utilization was hindered by increased seasonality and holiday breaks, as well as budget exhaustion amongst certain of our customers.

Sam Sledge: We do share repurchases and the overall return of capital to shareholders is an important part of our strategy showing our conviction and the future of the company, while creating value for our shareholders and a key pillar of our value proposition for investors.

Sam Sledge: Our financial results over the past year are a direct result of the continued execution of our strategic initiatives with the ultimate goal of generating strong returns and value for our shareholders.

Sam Sledge: The results also demonstrate that our strategy and our business are resilient as we navigate a turbulent fourth quarter.

Sam Sledge: The fourth quarter like other industry participants perpetuals utilization was hindered by increased seasonality and holiday breaks as well as budget exhaustion amongst certain of our customers.

Samuel D. Sledge: We previewed these challenges last quarter, but the impact on our activity in the fourth quarter was greater than we had expected. David will provide more color on our guidance in a moment, but I would like to say a few words about the activity we have seen as we have entered the new year. And importantly, we believe the seasonal impact we discussed has no impact on our long-term outcomes.

Sam Sledge: We previewed these challenges last quarter, but the impact on our activity in the fourth quarter was more than we had expected.

Sam Sledge: David will provide more color on our guidance in a moment.

David: I'd like to say a few words about the activity. We have seen is maybe I entered the new year.

David: Importantly, we believe the seasonal impacts we discussed has no impact on our long term outlook.

Samuel D. Sledge: Despite short-term activity drawbacks during the holiday season, as we moved into the first quarter, we are picking up right where we left off and remain focused on the long term. We continue to believe that Propetro's stock represents a unique investment opportunity given the discrepancy between our equity value and our financial results and strong outlays. With our share repurchase plan, we are showcasing our conviction in this opportunity. Lastly, and moving more to our macro outlook, we believe Propetro is uniquely positioned to capitalize on the recent transactions in the EMP space. These transactions reinforce our disciplined approach to capital deployment as the right strategy for Propetro. We offer differentiated service quality and equipment and have an outstanding customer portfolio and operational density in the Permian. All of which insulates us from the uncertainties outside the Permian and in the spot market.

David: Despite short term activity drop back during the holiday season, as we've moved into the first quarter. We are picking up right, where we left off and remain focused on the long term.

David: We continue to believe the perpetual stock represents a unique investment opportunity given the discrepancy between our equity value in our financial results and strong outlook.

David: With our share repurchase plan, we are showcasing our conviction in this opportunity.

David: Lastly, moving more to our macro outlook, we believe perpetual is uniquely positioned to capitalize off the recent transactions in the E&P space.

David: These transactions reinforce our disciplined approach to capital deployment is the right strategy for perpetual we offer differentiated service quality and equipment and have an outstanding customer portfolio and operational density in the Permian all of which Insulates us from uncertainties outside the Permian and in the spot market.

David: Our goal is to be the service provider of choice for a consolidating Permian E&P space and we are well on our way to achieving that goal.

David: We remain optimistic on the strength of the North American land in the oilfield service sector potential over the next several years.

Samuel D. Sledge: Our goal is to be the service provider of choice for the consolidating Pyramid EMP space, and we are well on our way to achieving that goal. We remain optimistic about the strength of North American land and the oil field service sector potential over the next several years. We continue to believe we are in the early stages of a sustainable upcycle that will be supported by the industrialization of the frac space, which is now more resilient than in previous cycles. We are confident that we have the right strategy in place to benefit from our position as a sophisticated quality service provider.

David: We continue to believe we are in the early stages of a sustainable up cycle that will be supported by the industrialization of the Frac space, which is now more resilient than in previous cycles.

David: We are confident that we have the right strategy in place to benefit from our position as a sophisticated quality service provider.

David: Our proven disciplined and transformed bifurcated fleet give us confidence in our strategy and earnings potential.

David: So we continue to industrialize, we're creating durable and repeatable results industrialized model that pro Petro has implemented we will continue to pay off and produce benefits for years to come.

David Scott Schorlemer: Our proven discipline and transformed, bifurcated fleet give us confidence in our strategy and the company's potential. As we continue to industrialize, we're creating durable and repeatable results. The industrialized model that Propetro has implemented will continue to pay off and produce benefits for years to come. I'll now turn the call over to David to discuss our full year and fourth quarter financial results. Thanks, Sam, and good morning, everyone.

David: I'll now turn the call over to David to discuss our full year and fourth quarter financial results David.

David: Thanks, Sam and good morning, everyone.

David: <unk> performance in 2023 showcased continued improvement over 2022 revenue for the full year 2023 was $1 6, billion% to 27% increase year over year comp.

David: The company posted net income of $86 million, which is a significant improvement as compared to net income of $2 million in 2022.

David: Equally impressive adjusted EBITDA for 2023 increased 28% year over year to $404 million.

David Scott Schorlemer: Propetro's performance in 2023 showcased continued improvement over 2022. Revenue for the full year 2023 was $1.6 billion, a 27% increase year over year. The company posted net income of $86 million, which is a significant improvement as compared to net income of $2 million in 2022. Equally impressive, Adjusted EBITDA for 2023 increased 28% year-over-year to $404 million. Our strong financial profile enabled us to return significant capital to shareholders, totaling approximately $52 million in only eight months in 2023 through our share repurchase program, the first time in our company's history to do so. Since the plan's inception in May 2023, we repurchased and retired approximately 5.8 million shares in 2023. Subsequent to year end.

David: Our strong financial profile enabled us to return significant capital to shareholders totaling approximately $52 million and only eight months in 2023 through our share repurchase program. The first time in our company's history to do so.

David: Since the plan's inception in May 2023, we repurchased and retired approximately five 8 million shares in 2023 subs.

David: Subsequent to year end.

David: Through February 16, 2024, the company repurchased an additional 8 million shares, bringing the total repurchases to $6 6 million shares representing approximately 6% of our outstanding common stock since planned inception in may of 'twenty three.

David: In addition to share repurchases in 2023, we began to see the benefits of the investments we made to recapitalize our fleet transitioning from majority diesel only to natural gas burning equipment and.

David Scott Schorlemer: Through February 16, 2024, the company repurchased an additional 0.8 million shares, bringing the total repurchases to 6.6 million shares, representing approximately 6% of our outstanding common stock since our planned inception in May of 23. In addition to share repurchases, in 2023, we began to see the benefits of the investments we made to recapitalize our fleet, transitioning from majority diesel only to natural gas burning equipment and executed an accre We accomplished all of this while protecting the company's strong balance sheet and liquidity. As Sam mentioned, over the last two years, we have invested over $1 billion in transitioning our fleet and bringing next-generation technologies and services to Propetro. We are confident these investments will continue to accelerate the cash-on-cash return profile of our business and create meaningful value for our customers and shareholders. Moving on to our fourth quarter financial results. We reported $348 million in revenue for the quarter. The net loss for the quarter was $17 million, or $0.16 per diluted share.

David: <unk> executed an accretive acquisition with par five.

David: We accomplished all of this while protecting the company's strong balance sheet and liquidity.

David: As Sam mentioned over the last two years, we have invested over $1 billion transitioning our fleet and bringing next generation technologies and services to probe Petra.

David: We are confident these investments will continue to accelerate the cash on cash return profile of our business and create meaningful value for our customers and shareholders.

David: Moving on to our fourth quarter financial results.

David: We reported $348 million of revenues for the quarter.

David: Net loss for the quarter was $17 million or <unk> 16 per diluted share.

Net loss for the fourth quarter of 'twenty three included $8 million of true up depreciation related to change in the useful lives of certain equipment.

David: Adjusted EBITDA was $64 million at.

David: As Sam mentioned, our financial performance for the fourth quarter was impacted by lower utilization, resulting from higher than expected white space from deferred customer activity, primarily later in the quarter.

David: Our desire to maintain crude continuity and ongoing fleet performance led us to retain our crews and associated labor costs. Despite the temporary decline in utilization as our customers were starting back in earnest in early January.

David: This recovery has transpired as expected.

David: Additionally, an important to note when comparing to previous quarters, we incurred in lease expense related to our fourth electric fleets of $4 3 million for the fourth quarter.

David Scott Schorlemer: The net loss for the fourth quarter of twenty-three included $8 million of true-up depreciation related to changing the useful lives of certain equipment. Adjusted EBITDA was $64 million. As Sam mentioned, our financial performance for the fourth quarter was impacted by lower utilization resulting from higher than expected white space from deferred customer activity, primarily later in the quarter. However, our desire to maintain crew continuity and ongoing fleet performance led us to retain our crews and associated labor costs despite a temporary decline in utilization, as our customers were starting back in earnest in early January. This recovery has transpired as expected. Additionally, and important to note in comparing to previous quarters, we incurred a lease expense related to our forced electric fleets of $4.3 million in the fourth quarter.

David: Our effective Frac fleet utilization in the fourth quarter was $12 nine fleets, which was slightly below our guidance due to reasons noted earlier.

Our first quarter 2024 guidance for Frac fleet utilization is 14% to 15 fleets and we have 14 fleets active today.

David: Moving to our capital spending we incurred $39 million in Capex in the fourth quarter.

David: 35% decrease from $59 million last quarter.

David: That $25 million decrease in Capex essentially paid for our <unk> acquisition, which we expect to yield consistent free cash flow well into the future.

David: This is another example of high grading our capital allocations for the company's long term benefit.

David Scott Schorlemer: Our effective practical utilization in the fourth quarter was 12.9 fleets, which was slightly below our guidance due to reasons noted earlier. Our first quarter 2024 guidance for fracked fleet utilization is 14 to 15 fleets, and we have 14 fleets active today. Moving to our capital spending, we incurred $39 million in CapEx in the fourth quarter, a 35% decrease from $59 million last quarter.

David: Our incurred capex for the year was $310 million.

David: Which also compares favorably to $365 million in 2022.

David: However, and this is an important item to understand.

David: The cash utilized for capital expenditures and our cash flow statement was 371 million, which included $82 million from our accounts payable balance at year end 2022.

David: This contrast to only $22 million in Capex at the end of 'twenty, three which is a significant unwind of liabilities.

David Scott Schorlemer: That $20.5 million decrease in CapEx essentially paid for our Par 5 acquisition, which we expect to yield consistent free cash flow well into the future. This is another example of focusing our capital allocations for the company's long-term benefits. Our incurred CapEx for the year was $310 million, which also compares favorably to $365 million in 2022. However, and this is an important item to understand, the cash utilized for capital expenditures in our cash flow statement was $371 million, which included $82 million from our accounts payable balance at year-end 2022.

David: What this demonstrates is that we're in a much healthier working capital position and then our capital spending is trending significantly lower as we exit 2023.

David: Given that we completed our large reinvestment cycle and are realizing the benefits of our optimization efforts undertaken over the last 18 months, we anticipate our 2020 for 24 incurred capex will be between $200 million and $250 million.

David: The range is largely a function of activity potentially ramping higher as we head through the year.

David: We expect a lower capital intensity relative to prior recent years will support our ability to direct more capital to higher quality and longer term investments and capital returns in the form of opportunistic M&A and share repurchases.

David: Our liquidity has remained strong and we ended the fourth quarter with $134 million of total liquidity.

David Scott Schorlemer: This contrasts to only $22 million in CapEx AP at the end of 2023, which is a significant unwind of liabilities. What this demonstrates is that we are in a much healthier working capital position and that our capital spending is trending significantly lower as we exit 2023. Given that we completed our large reinvestment cycle and are realizing the benefits of our optimization efforts undertaken over the last 18 months, we anticipate our 2024 incurred CapEx will be between $200 million and $250 million. The range is largely a function of activity potentially ramping higher as we head through the year. We expect a lower capital intensity relative to recent years will support our ability to direct more capital to higher quality and longer-term investments and capital returns in the form of opportunistic M&A and share repurchases. Our liquidity has remained strong, and we ended the fourth quarter with $134 million of total liquidity.

David: With the anticipated decline in capital spending and our much improved working capital position, we expect our company's liquidity to remain strong in 2024, allowing for a more dynamic capital allocation strategy.

Speaker Change: I'd also like to reiterate that <unk> balance sheet remains strong and we are committed to disciplined capital allocation for the long term.

Speaker Change: Finally.

Speaker Change: We believe we are in a low to no growth environment with customers that will remain disciplined in our own capital spending.

Speaker Change: The industry continues its consolidation and the large Permian producers are pursuing strategies that require equipment like our force fleets that are compatible with their desire to pursue further electrification lower completion costs and lower emissions.

Speaker Change: We believe our business is built for more durable earnings and cash flows in the current flat market environment and we are confident our perpetual will continue to deliver for our customers with shareholders through the market cycles.

David Scott Schorlemer: With the anticipated decline in capital spending and our much-improved working capital position, we expect our company's liquidity to remain strong in 2024, allowing for a more dynamic capital allocation strategy. I'd also like to reiterate that Propetro's balance sheet remains strong, and we are committed to disciplined capital allocation for the long term. Finally, we believe we're in a low to no growth environment with customers that will remain disciplined in their own capital spending.

Speaker Change: I'll now turn the call back to Sam for some closing remarks.

Sam Sledge: Before turning it over to Q&A I'd like to summarize pro Petros 2023 performance. Our go forward strategy and while we are confident in the future of our company and our industry.

Sam Sledge: Our differentiated and top tier offering is generating durable and repeatable results. Despite headwinds in the energy service space for Petro is ideally positioned to showcase its earnings power and free cash flow potential in 2024 and beyond.

David Scott Schorlemer: The industry continues its consolidation, and the large premium producers are pursuing strategies that require equipment like our fleets that are compatible with their desires to pursue further electrification, lower completion costs, and lower emissions. We believe our business is built for more durable earnings and cash flows in the current flat market environment, and we are confident Propetro will continue to deliver for our customers and shareholders through market cycles. I'll now turn the call back to Sam for some closing remarks.

Sam Sledge: For bifurcation with our service quality and equipment.

Sam Sledge: And with our top notch customer portfolio and operational density in the Permian.

Sam Sledge: We are well insulated from the uncertainties outside the Permian and in the spot market.

Sam Sledge: We've been successfully optimizing our operations and industrializing our business as we execute the transformation of our fleet buyback shares and Opportunistically pursue accretive M&A.

Sam Sledge: We are successfully advancing our strategy of strengthening the business for the long term, while maintaining a strong balance sheet and healthy liquidity profile.

Sam Sledge: Looking ahead, we are excited to capitalize on pro Petros improved performance and realize the benefits of our strategy the results of which became evident in 2023.

Samuel D. Sledge: Before turning it over to Q&A, I'd like to summarize Propetro's 2023 performance, our go-forward strategy, and why we are confident in the future of our company and our industry. Our differentiated and top-tier offering is generating durable and repeatable results. Despite headwinds in the energy service space, Propetro is ideally positioned to showcase its earnings power and free cash flow potential in 2024 and beyond. Thank you all for bifurcation with our service quality and equipment, and with our top-notch customer portfolio and operational density in the Permian. We are well insulated from the uncertainties outside the permit and in the spot market.

Sam Sledge: Our key priorities continue to be optimizing our operations and industrializing our business.

Sam Sledge: While remaining opportunistic or value creative value accretive transactions to accelerate our free cash flow all while continuing to return capital to shareholders through our share repurchase program.

Sam Sledge: Everything we do from operating safely and sustainably growing our business in a disciplined manner to deploying capital to buy back stock enabled strong returns for shareholders.

Speaker Change: I'd like to end by thanking all of our teammates across per Petro for their outstanding performance as we continue to lead in the Permian Basin play an integral role in the overall energy industry.

Samuel D. Sledge: We've been successfully optimizing our operations and industrializing our business as we execute the transformation of our fleet, buy back shares, and opportunistically pursue accretive M&A. We are successfully advancing our strategy and strengthening the business for the long term while maintaining a strong balance sheet and healthy liquidity profile. Looking ahead, we are excited to capitalize on Propetro's improved performance and realize the benefits of our strategy, the results of which will become evident in 2023. Our key priorities continue to be optimizing our operations and industrializing our business, while remaining opportunistic on value-creative transactions to accelerate our free cash flow, all while continuing to return capital to shareholders through our share purchase program. Everything we do, from operating safely and sustainably, to growing our business in a disciplined manner, to deploying capital to buy back stock, enables strong returns for shareholders. I'd like to end by thanking all of our teammates across Propetro for their outstanding performance, as we continue to lead in the Permian Basin and play an integral role in the overall energy industry.

Speaker Change: With that I'd like to now open up for questions operator.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question comes from Luke Lemoine with Piper Sandler. Please go ahead.

Hey, good morning.

Speaker Change: Sam.

Luke Lemoine: You've had the first two fourths fleets in the field for several months now can you just talk about some of the.

Luke Lemoine: Operational milestones and how these fleets have been performing relative to your expectations.

Luke Lemoine: And then possibly future for suites beyond three and four how do you think about that at this point.

Speaker Change: Sure I guess tier to your to your first question.

Speaker Change: My simple answer is better than expected you know this is a learning curve that we knew that we needed to get up pretty quickly to maintain our quality service reputation.

Speaker Change: And where these first two fleets have landed the customer not only the customers that they've landed with them, but how they performed with those customers has been.

Operator: With that, I'd like to now open up the line for questions. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key.

Speaker Change: It's been great I think we're learning some things around maintenance cycles, and how to just optimize.

Speaker Change: But to be just this many months in in and kind of already working towards the optimization point and not the.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Luke Lemoine with Piper Sandler. Please go ahead. Hey, good morning. Um, Sam, Sam, you've had the first two force fleets in the field for several months now. Can you just talk about some of the operational milestones and how these fleets have been performing relative to your expectations and then possibly, you know, future force fleets beyond three and four, how you're thinking about that. Sure, I guess to your first question... My simple answer is better than expected. It was a learning curve that we knew that we needed to get up pretty quickly to maintain our quality service reputation and where these first two fleets have landed. The customers, not only the customers that they've landed with but how they've performed with those customers.

Speaker Change: Off the learning curve and onto the optimization point is.

Speaker Change: Pretty big deal that I think our team has been really really pleased with.

Speaker Change: So as it pertains to future force fleets, we've got three and four number three and four coming here in the coming months.

Speaker Change: Standby on on kind of where and how those land, but we've got a lot of good things going as it pertains to those and beyond a number four look demand is really strong. This is really continuing to convict us about our strategy to continue to transition our fleet in this manner, because the customers kind of <unk>.

Speaker Change: To inquire and lineup.

Speaker Change: And come to the table for a contractual negotiations and talks and so.

Speaker Change: It would be a very positive sign if you see more force fleets from us in the future and that's definitely our intent as we sit here today, there's no there's no additional orders beyond number four.

Speaker Change: Okay.

Samuel D. Sledge: Great. I think we're learning some things around maintenance cycles and how to just optimize. But to be just this many months in and kind of already working towards the optimization point and not, you know, off the learning curve and on to the optimization point.

Speaker Change: And then David you gave us a fleet count guidance for <unk>.

Speaker Change: Rebounds, pretty nicely versus <unk>, and almost I got through Q levels on.

David: And at <unk>, you had some white space.

The cruise so you have that kind of fixed cost that you are hearing there can you kind of help us frame, maybe <unk> profitability a bit relative to <unk> or how we should think about it.

Samuel D. Sledge: This is a pretty big deal, and I think our team's been really. As for future force fleets, we've got three and four, numbers three and four, coming here in the coming months. Standby on kind of where and how those land.

Speaker Change: Well I think I think we want to be careful about.

Given too much guidance, there, but what I would say as activity levels.

Samuel D. Sledge: We've got a lot of good things going. And beyond number four, look, demand is really strong, is really continuing to convince us about our strategy. Transition our fleet in this manner because the customers kind of continue to inquire and line up and come to the table for, and Traxel talks, would be a very positive sign if you see more force fleets from us. Okay, and then David, you gave us a fleet count guidance for 1Q that rebounded pretty nicely versus 4Q and almost back to 3Q levels. But in 4Q, you had some white space; you retained the crew, so you had that kind of fixed cost that you were carrying there.

Speaker Change: Or similar to what we saw back in the third quarter.

Speaker Change: And.

Speaker Change: Still a lot of.

Speaker Change: Decision, making being made by our customers a lot of consolidation happening. So I think I think we feel very good about the first quarter, but.

Speaker Change: I think just speaking to some of that comparison to the third quarter may give you.

Speaker Change: Some perspective of what we're seeing so far.

Okay perfect.

Speaker Change: Thanks, so much.

Speaker Change: The next question is from Derek pod Hiser with Barclays. Please go ahead.

Speaker Change: Hey, good morning, guys I just wanted to ask about the level of free cash flow generation in 2020 for how we should think about shareholder returns. So in your deck you talked about you had $42 million remaining on the buyback program I mean, the free cash flow generates youre talking about doesn't feel too hard to reach that so should we expect you to up the authorization maybe.

David Scott Schorlemer: Can you kind of help us frame maybe 1Q profitability a bit, you know, relative to 3Q or 4Q, or however we should think about it? Well, I think I think we want to be careful about, you know, giving too much guidance there. But what I would say is activity levels were similar to what we saw back in the third quarter. And, you know, there's still a lot.

Speaker Change: Layer in a dividend or both.

Speaker Change: How should we think about that framework in 2024 with shareholder returns and the level of free cash flow you expect to generate.

Speaker Change: Sure Great Great Great question, Derik, and I think kind of a key.

David Scott Schorlemer: Decisions being made by our customers, a lot of consolidation happening, so I think we feel very good about the first quarter. I think just speaking to some of that comparison to the third quarter might be helpful. Okay, perfect. Thanks so much.

Speaker Change: A key theme to our value proposition going forward before I talk about necessarily shareholder returns and just talk about zoom out a little bit more and talk about capital allocation in general.

Speaker Change: We've said this a number of times here recently, but we're really really proud of the fact.

Samuel D. Sledge: The next question is from Derek Podhaizer with Barclays. Please go ahead. Hey, good morning, guys. I just wanted to ask about the level of free cash regeneration in 2024 and how we should think about shareholder returns. So in your deck, you talked about having 42 million remaining on the buyback program. I mean, with the free cash regeneration you're talking about, it doesn't feel too hard to reach that.

Speaker Change: That here recently in the fourth quarter back half of last year, we've invested heavily in our fleet transition through a force and dual fuel.

Speaker Change: We have returned capital to shareholders through our buyback program and we participated in accretive M&A all three within the same quarter in the fourth quarter.

Speaker Change: So I think it's really important to point that out that a company of our size in the business that we're in.

Speaker Change: Is isn't can multitask through all three of those categories and will likely continue to do so going forward.

Samuel D. Sledge: So should we expect you to increase the authorization, maybe layer a dividend, or both? Just how should we think about that framework in 2024 with shareholder returns and the level of free cash that you expect to generate? Sure. Great, great, great question, Derek, and I think kind of a We've got a few themes to our value proposition going forward. Before I talk about necessarily shareholder returns, I'll just zoom out a little bit more and talk about capital allocation in general.

Speaker Change: We've operated our buyback program relatively opportunistically.

Speaker Change: To try and take advantage of of what we've stated is a disconnect between our value proposition in the current equity value. We will continue to do that.

Speaker Change: And you're probably correct that if our kind of our equity values valuation stay where they are we'll continue to hammer away at those share buybacks I'll stop short of giving you guidance of if it renews and when and how much in all of that those are just decisions that we'll make in the boardroom here over the next couple of quarters.

Samuel D. Sledge: We've said this a number of times here recently, but we're really, really proud of the fact that in the fourth quarter and back half of last year, we've invested heavily in our fleet transition through force and dual fuel. We have returned capital to shareholders through our Buy Back Program, and we've participated in accretive M&A. So I think it's really important to point that out, that a company of our size and the business it is, and can multitask through all three of those categories and will likely continue to do so going forward. We've operated our buyback program relatively opportunistically, uh... to try and take advantage of the value proposition we've stated. We will. And you're probably correct.

Speaker Change: And report back with that progress but.

Speaker Change: We're pleased to be in the market buying what we think is the best deal in the oilfield services space from them from a valuation standpoint.

Speaker Change: And just to add.

Speaker Change: I've made.

Speaker Change: Our remarks around kind of the 2020 Capex hangover that we had in the balance sheet.

Speaker Change: This is also not just a story about our performance.

Speaker Change: Being being more durable, but also our balance sheet.

Speaker Change: We're in a significantly better position from a working capital perspective than we were at the end of 2022, So I think thats something to really take a look at.

Speaker Change: To see how we will be able to really high grade our capital allocations going forward.

Samuel D. Sledge: You know, if our equity values and valuations stay where they are, we'll do share buybacks. I'll stop short of giving you guidance on whether it renews and when, and how much, and all of that, will come back with progress in the boardroom here over the next couple of quarters. You know, we're pleased to be in the market buying what we think is the best. And Derek, just to add a little bit, I've made some remarks around kind of the 2022 CapEx hangover that we had on the balance sheet. This is also not just a story about our performance.

Speaker Change: Got it that's very helpful.

Speaker Change: Also I wanted to ask about the displacement of diesel and the dual fuel fleets you had a chart in there.

Speaker Change: Increased through 2023, I guess, maybe just talk about what are the what are the drivers behind that I'm, bringing you that 60% to 70% and where can it go beyond that and then separately is there areas of M&A.

Speaker Change: For you as far as the diesel displacement or see new delivery field gas as anything around another potential bolt on for you.

Speaker Change: Yes, good good good.

Speaker Change: Good question and I think as you.

Speaker Change: You know diesel displacement inside of the dual fuel offering.

Speaker Change:

Speaker Change: As likely times hard for public investor someone like yourself to see.

David Scott Schorlemer: We're in a significantly better position from a working capital perspective than we were at the end of 2010, so I think that's something to really take a look at to see how we'll be able to really improve our capital allocations going forward. Also, I wanted to ask about the displacement of diesel in the dual fuel fleet.

Speaker Change: What type of benefits those bring not only what type of benefits that will bring but what I think the question you're asking is how do you do that.

Speaker Change: I mean to put it plainly.

Speaker Change: It's just operational excellence.

Speaker Change: What we began a learned when we were deploying dual fuel equipment is that you don't just flip these things on it flipped the gas on and expect there to be high displacement rates you have to make operational decisions.

Samuel D. Sledge: You had a chart in there that showed a 20% increase through 2023. I guess they would just talk about what the drivers behind that are, bringing you to that 60 to 70%, and where it could go beyond that. And then separately, are there areas of M&A for you as far as diesel displacement or C&U delivery, fuel gas, just anything around another potential bolt-on for you? Yeah, good, good. A good question, I think, is... Diesel displacement inside of the dual fuel offering. Likely times, hard for a public investor or someone like yourself. What type of benefits does it bring? Not only what type of benefits does it bring, but I think the question you're asking is, how do you do that?

Speaker Change: Almost in a real time basis 24 hours a day to ensure high displacement you also have to have.

Speaker Change: Uh huh.

Speaker Change: Gas value chain, which I think is your kind of your second question there that they can supply and the appropriate.

Speaker Change: Tight and condition of fuel on an ongoing basis that also enables high displacement.

Speaker Change: So it's a combination of a few things but for us it starts with operational excellence being able to work in.

Speaker Change: Inside of our team to make it operational decisions.

Speaker Change: And work with suppliers vendors customers.

Speaker Change: To get the right gas to the location to get the right kind of gas the location and the right amounts at the right time.

Speaker Change: We've talked a lot about in the past our interest in <unk>.

Speaker Change: Integrating more of the wealth side, our first step to do that was with soar tip getting into the wireline services, a little more than a year ago. We've stayed inquisitive about things like the gas value chain.

Samuel D. Sledge: I mean, to put it plainly, it's just operational. I think what we began to learn when we were deploying dual-fuel equipment is that you don't just flip these things on and turn on the gas. We expect there to be high displacement rates. You have to make operational decisions, almost on a real-time basis, 24 hours a day, to ensure high... You also have to have... you know, a gas value chain, which I... Your second question, Derek, and Supply the appropriate type and condition of fuel on an ongoing basis. Hi. So it's a combination of a few things, but for us, it starts with operational excellence, being able to work. We work within our team to make good operational decisions and work with suppliers, vendors, and customers to get the right gas to the right place and the right kind of gas to the right place and the right amount at the right time.

Speaker Change: I think where.

Speaker Change: You've not seen any movement from us on that yet because we've seen movement within our customer base as it pertains to the preference for CMG versus field gas.

Speaker Change: And you know.

Speaker Change: The different acreage positions that our customers have and their ability to move around.

Speaker Change: Get the right kind of gas to the well side, so a little bit of a learning curve there, but its something that were you.

Speaker Change: It's on our radar that we continue.

Speaker Change: T launch.

Speaker Change: As it pertains to the gas the gas value chain.

Speaker Change: Got it great.

Speaker Change: I'll turn it back thank you.

Speaker Change: Thanks Stuart.

Speaker Change: Okay.

Speaker Change: Next question is from John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel: Sam Thanks for having me on the call.

John Daniel: One question can you I know you.

Samuel D. Sledge: You know, we've talked a lot about in the past our interest in... Integrating more of the well site; our first step to do that was with Solar Tip, getting into wireline services a little more than a year ago. We've stayed inquisitive about things like... I think we're, You know, you've not seen any movement from us on that yet because we've seen movement within our customer base as it pertains. Preference for C&G.

John Daniel: You said this in the prepared remarks, I apologize, but what's the quoting activity right now for.

John Daniel: More travel Frac work and how do you see that the evolution of that and just the impact to your business.

John Daniel: Yes, I tried to triangle frac.

John Daniel: John feels like a pretty small niche right now.

John Daniel: It's something that we're watching.

John Daniel: <unk>, but it's nothing that we're participating in.

Speaker Change: Right I know, we talked a lot about the industrialization of our business and that's that's a pretty evident example of where things could go.

Samuel D. Sledge: Yeah. The different acreage positions that our customers have, and they're, The Bulletproof Executive 2013, get the right kind of gas. A little bit of a learning curve there, but it's something that we're.., you know, that's on our radar. P1.

Speaker Change: And we'll we'll we'll pick that as it comes and we had a very successful transition.

Speaker Change: Zipper frac into simulcast <unk>, a few years ago and.

David Scott Schorlemer: Got it. Very helpful. I'll turn it back.

Speaker Change: Operated very successfully so I have no doubt and have all the confidence in our team that if something like that comes in the future that will be we'll be a player and we'll we'll we'll prove out our operational excellence in operations.

John Daniel: Thank you. The next question is from John Daniel with Daniel Energy Partners. Please go ahead. Hey, Sam.

Samuel D. Sledge: Thanks for having me on the call. There is just one question. Can you, and if you said this in the prepared remarks, I apologize, but what's the quoting activity right now for, you know, more trimal frac work, and how do you see the evolution of that and just the impact of your business? Yeah, trimal frac, John, feels like a pretty small niche right now, something that we're watching. www.propetroholding.com We talk a lot about the industrialization of Right. And we'll take that as it comes. We had a very successful transition from zipper frack to simul frack a few years ago and operated very successfully, so I have no doubt and have all the confidence.

Speaker Change: Right.

Speaker Change: Well, that's all I got thanks for including me got.

Speaker Change: Thanks Chuck.

Speaker Change: The next question is from Arun.

Arun: <unk> with J P. Morgan Chase. Please go ahead.

Arun: Yeah. Good morning, gentlemen, Sam My first question is.

Arun: A question regarding seasonality.

Arun: And.

Arun: Comparing your results to some of your North American Frac peers it.

Speaker Change: It appears that your business had a little bit more seasonality related to holidays and other things I was wondering if you could just help us sort through.

Speaker Change: Why do you think your business had that level of seasonality is it just the customers youre working with but anything.

Speaker Change: More nuanced than that.

Speaker Change: Yes.

Speaker Change: Good question Arun I think.

What makes us unique is.

Samuel D. Sledge: If something like that comes up in the future, [inaudible] We'll prove our operational excellence in an operation like that at the office. Cool, that's all I have, thanks for including me, guys. Thanks, John. The next question is from Arun Jayaram with JP Morgan Chase. Please go ahead.

Speaker Change: Our geographic focus in the Permian Basin.

Speaker Change: And our fairly consolidated customer portfolio, you know it's really.

Speaker Change: If you can count all of them are kind of chunky customers on one hand.

Speaker Change: So comparatively I would say our larger peers that you've heard report over the last couple of weeks or in <unk>.

Arun Jayaram: Good morning, gentlemen. Sam, my first question is... a question regarding seasonality. In comparing your results to some of your North American frac peers, it appears that your business just had a little bit more seasonality related to holidays and other things. I was wondering if you could just help us sort through why you think your business has that level of seasonality. Is it just the customers you're working with, or is there something more nuanced than that? Here are the answers to your good question, Arun.

Speaker Change: Multiple basins across the U S and probably have a more diverse customer profile than us.

Speaker Change: But I think we said a couple of different times in our in our in our prepared remarks that we do not think this is indicative at all of our strategy. We think it is just something that hit us from a external circumstances standpoint that was unexpected and obviously unfavorable.

Speaker Change: But where we are here in January February this year and what our outlook is.

Speaker Change: For 2024, we're pretty we're pretty pleased with how we're positioned.

Got it got it fair enough and then just thinking about as we look through the fourth quarter numbers or revenue was pretty consistent with the street. I think you mentioned that that you held on to some costs just to get ready for 2024, but as we think about fine tuning our numbers for 2024 are there any.

Samuel D. Sledge: I think what makes us unique is... [inaudible] of the Permian Basin and our fairly consolidated customer portfolio. You know, it's really, we count all of our kind of chunky customers. So comparatively, I would say our larger peers that you've heard reports about over the last couple weeks are in multiple basins across the U.S. and probably have a, I think we said a couple different times in our prepared remarks, we do not think this is indicative at all of our strategy, in us from an external source, where we are here in January and February this year and where I'll... We're pretty pleased with how we're doing I got it. I got it.

Speaker Change: Knock knock on.

Speaker Change: Impacts from <unk> that we think about for the full year in 2024 or is this just an anomaly as we think about it.

Speaker Change: Go forward earnings impacts.

Speaker Change: To 2024, I see that the street.

Speaker Change: Is today modeling I think just under $400 million of EBITDA. So just just some general thoughts on 'twenty 'twenty four would be helpful.

Speaker Change: Yes, Arun this is David.

David: I think that as we mentioned we had a crewed up a certain level.

Arun Jayaram: Fair enough. And then, you know, thinking about how as we look through the fourth quarter numbers, your revenue is pretty consistent with the street. I think you mentioned that you held on to some costs just to get ready for 2024. But as we think about, you know, fine-tuning our numbers for 2024, are there any knock-on impacts from 4Q that we should think about for the full year in 2024? Or is this just an anomaly as we think about, you know, the go forward earnings impact?

David: And we wanted to maintain crude continuity because we did believe our customers are going to be.

David: Starting back up early in January which they did.

Speaker Change: So I think that.

Speaker Change: Those costs will essentially come forward now in addition to that we've got additional operating leases as we deploy the electric fleets those will start being blended into our financial results, we had a little over $4 million in the fourth quarter. There that number is going to go up and.

Arun Jayaram: to 2024. I see that the street is today modeling, I think, just under $400 million of EBITDA. So just some general thoughts on 2024 would be helpful. Arun, this is David.

Speaker Change: So I think that's something that we'll need to be modeled in but.

Speaker Change: We've got some additional work that we're doing to address our cost structure and optimized some things that we're doing strategic.

Speaker Change: Strategic supply chain work.

David Scott Schorlemer: You know, I think that, as we mentioned, we had crewed up to a certain level, and we wanted to maintain crew continuity because we did believe our customers were going to be starting back up early in January, which they did. So I think that those costs will essentially come forward. Now, in addition to that, we've got additional operating leases as we deploy the electric fleets, and those will start being blended into our financial results. We had a little over $4 million in the fourth quarter there.

Speaker Change: <unk> operational optimization.

Speaker Change: But.

Speaker Change: We'll look at that as we go throughout the year.

Speaker Change: Sam I'll, just add to that I think the one lever might be one of the biggest levers.

Speaker Change:

Speaker Change: And the oilfield service business that we haven't really talked a ton about yet I'm kind of surprised about where four questions in and we haven't gotten the pricing question.

Speaker Change: Uh huh.

Speaker Change: But.

Speaker Change: We feel that we feel really good about pricing. This year. We do we you know it's definitely not peak pricing what maybe we saw in the first half of 'twenty three it's down a little bit we've talked about that in the last couple of calls.

David Scott Schorlemer: That number is going to go up, and so I think that's something that will need to be modeled. But we've got some additional work that we're doing to address our cost structure and optimize some things that we're doing. Strategic Supply Chain work, ongoing operational optimization, but, You know, we'll look at that as we go. Hey, Arun, Sam, I'll just add to that. I think the one lever might be one of the biggest levers, and the whole field service business that we haven't really talked a ton about yet. I'm kind of surprised that we're four questions in and we haven't gotten a price yet.

Speaker Change: But the the part of the bifurcated market of which we're operating in which we believe is the top end with Ah.

Speaker Change: You know natural gas burning solutions in the form of dual fuel.

Speaker Change: Electric.

Speaker Change: And also just the high quality service offering that's the pricing mode today.

Speaker Change: So we're not you know, we're not going to get picked out on the fringes by spot diesel market like.

Speaker Change: No.

Speaker Change: A good portion of our sector.

Speaker Change: So I think I think that's really that might be one of the most important things.

Speaker Change: Kind of our go forward strategy is.

Speaker Change: How confident we are.

Speaker Change: In the pricing and also how much more disciplined we're seeing around us from our peers and our competitors.

Samuel D. Sledge: [inaudible] All right. We feel really good about Price. It's definitely not peak price, down a little bit.

Speaker Change: I've been I've been in the <unk>.

Samuel D. Sledge: We've talked about that. But the part of the bifurcated market in which we're operating, which is for Natural Gas Burning, and also just a high quality service, that's the price, or not.

Speaker Change: <unk> been working on this sector for 13 years.

Speaker Change: Kind of through these mini cycles that we're seeing today. This is the most disciplined I've ever seen in my career.

Speaker Change: And that gives us a lot of confidence to go forward with with our strategy and a lot of things in development.

Samuel D. Sledge: We're not going to get picked at on the fringes by a spot diesel. I've got to get more, I've got to get more. I think that's really, that might be one of the most... and ArgoPort, how confident we are about pricing, and also how much more discipline we're seeing around. I've been working in the sector for 13 years, and the many cycles that we're seeing today are the most... That gives us a lot of confidence. Go to, http://TheBusinessProfessor.com and drink alcohol.

Speaker Change: I think pricing is pretty important.

Speaker Change: How the whole market is behaving as really healthy.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Okay.

The next question is from Scott Gruber with Citigroup. Please go ahead.

Scott A. Gruber: Yes, good morning.

Scott A. Gruber: Morning, Scott.

Scott A. Gruber: Look I know, it's always difficult to forecast beyond the quarter, but I'm. Just curious you know based upon your conversations that you're having with customers today.

Scott A. Gruber: Do you see a path to activity improvement.

Arun Jayaram: Great, thanks a lot. The next question is from Scott Gruber with Citigroup. Please go ahead. Yes, good morning.

Scott A. Gruber: Thank you.

Scott A. Gruber: Can you can you get above that kind of 14 to 15 level or is that.

Scott A. Gruber: That kind of level.

Speaker Change: This is what we should expect.

Scott Andrew Gruber: Hi Scott. Hi. Look, I know it's always difficult to forecast beyond a quarter, but I'm just curious, based upon your conversations that you're having with customers today. Sam, do you see a path to activity improvement in 2Q and 3Q? Can you get above that kind of 14 to 15 level, or is that kind of level what we should expect?

Speaker Change: The base case for <unk>.

Speaker Change: Good question I think that I think the earliest opportunity we could see activity improving is probably second half of the year that's awesome.

Speaker Change: It's an opportunity that's not anything we're sitting here, saying is going to happen, where we're looking at pretty flattish activity through the year as far as we know it right now but.

Speaker Change: The way the majority of the operators I think.

Samuel D. Sledge: That's kind of the base case. Good question. I think the earliest thought...

Speaker Change: Begin to operate over the last year or two years.

Samuel D. Sledge: Improving is probably the second half. Yeah, that's an opportunity, that's not a... flash activity through the years as far as we know it right now.

Speaker Change: From our rigs to Frac crew standpoint, it feels like much more of a just in time inventory management, it's not.

Speaker Change: But there's this big load of uncompleted wells lying out there where frac activity could snap back quickly.

Samuel D. Sledge: The way the majority of the operators began to operate over the last year or two years, from a rigs to frat crew standpoint, feels like much more of just there's this big load of uncompleted wells lying out there where frack activity could snap. I'll just say that more plainly, I guess, rig counts are flat and have you'll have to see a re-cannon flexion. He started to see a big recount inflection today and got it.

Speaker Change: Say that more more plainly I guess.

Speaker Change: Rig counts are flat and Hampton.

Speaker Change: Last several months.

Speaker Change: So youll have to see a rig count inflection before you see it.

Speaker Change: Where do you see a frac activity.

Speaker Change: Inflection.

I don't know, what's the what's the kind of delay on that maybe 90 days or something like that.

Speaker Change: So if you started to see a big rig count inflection today, it might be three or four months before you see that show up in Frac activity.

Speaker Change: Got it.

Speaker Change: And then just thinking about the budget.

Scott Andrew Gruber: And I'm just thinking about the budget. It sounds like it doesn't contemplate an additional EFRAC. Are you able to provide some kind of broad strokes split of the budget between base maintenance on the active frack fleet and what's allocated to the ancillary services, and is there... You know, some growth capex in there for ancillaries? Yeah, I'll make just kind of a general comment on the, on the, on your force electrode comment, and I'll let David talk about that and CapExPi. We got it at 200 to 250 that we could deploy.

Speaker Change: It sounds like it doesn't contemplate additional E. Frac are you able to provide some kind of broad strokes split.

Speaker Change: The budget would be kind of between.

Speaker Change: <unk>.

Speaker Change: Base maintenance on the active Frac fleet and whats allocated the ancillary services.

Speaker Change: There.

Speaker Change: You know some are some growth capex in there for ancillary services.

Speaker Change: Yes, Amit.

Amit: A general comment on the on the on your force electric comment and I'll, let David talk about puts and takes there.

David: On the Capex Pi.

David: We guided to 200 to 250, and we could we could deploy.

Yes force fleet inside of that range.

David Scott Schorlemer: That's part of the reason why we're coming at this point because, one, there are some unknowns about BAC-Cath, and activity always has a heavy impact on our capital. Given our confidence, which I've expressed, and we've expressed multiple times on the call today in our electric office, the likelihood of a fifth. The Bulletproof Executive 2013, Fits. Yes, Scott, just to give you a little more granularity around the CAPEX guidance, I think, you know, we've talked about $67 million per fleet, that, along with other refurbishments and our other service lines, get you to, you know, call it $150 million to $160 million. And then we've got about $60 million of growth capital expenditure, the majority of which is allocated toward our electric fleet deployments, but also other very long-term investments that will enhance the business.

David: So that's part of the reason why we're coming forward with the range that wide.

David: At this point.

David: Because one there's some unknowns about back half activity activity always has a heavy impact on our on our capex spend through maintenance capex.

David: But given our confidence that which I've expressed we've expressed multiple times on the call today are electric offering we do think that there's a decent likelihood of fifth we just don't have any commitments or orders right now.

David: But if it fits within that that range that we've quoted I don't know if David wants to add to that.

Speaker Change: The Capex commentary, yes, Scott just give you a little more granularity around the Capex guidance I think.

David: We've talked about $6 million to $7 million per fleet.

David: That along with other Refurbishments and our other service lines.

Speaker Change: Call it $150 million to $160 million and then we've got about $60 million of growth Capex.

Speaker Change: The majority of which is allocated toward our electric fleet deployments, but also other very long term investments that will enhance the business. So.

Speaker Change: That we believe along with our balance sheet position is really.

David Scott Schorlemer: So that, along with our balance sheet position, is really how we are able to increase free cash flow this year in an otherwise, call it, somewhat stagnant, top-line environment. Got it. I appreciate the call. I'll turn it back. Thank you. Again, if you have a question, you may press star then 1. Next is a follow-up question from Luke Lemoine with Piper Sandler. Please go ahead.

Speaker Change: How we are able to increase free cash flow this year in an otherwise call it somewhat stagnant.

Speaker Change: Top line environment.

Speaker Change: Got it I appreciate the color I'll turn it back thank you.

Speaker Change: Again, if you have a question you May press Star then one.

Speaker Change: Next is a follow up question from Luke Lemoine with Piper Sandler. Please go ahead.

Luke Lemoine: Yeah, Hey, Sam you talked about being Pearsons learning curve on the ports fleets and being more optimization.

Luke Michael Lemoine: Hey, Sam, you talked about being past the learning curve on the force fleets and being more in optimization, you know, maybe for you or David. You talked about, um... Operational cost savings could be 30 or 40 percent for the force fleets.

Luke Lemoine: Maybe for you or David.

Luke Lemoine: You talked about.

Luke Lemoine: Operational cost savings could be 30 or 40% for the fourth suites, just wanted to see kind of what youre seeing there and you just don't think that's a good range.

Samuel D. Sledge: Just want to see kind of what you're seeing there and if you still think that's a good idea, Yeah, I'll say, I'll make just a general comment on David's microphone. These units don't even really come into the shop. We can do all of them. It's a traditional frack business of our size, and the shop maintenance infrastructure you have to have is pretty significant for a company our size or bigger, will continue to evolve. Director, GolfBudget. Go to www.golfband.com to learn more.

Luke Lemoine: Yes.

Speaker Change: I'll say I'll make just a general comment David talk about specific numbers.

Speaker Change: Hey, <unk>.

Speaker Change: Units don't even really come into the shop.

Speaker Change: We can do all the maintenance and field like if you look at a traditional frac business of our size.

Speaker Change: All the diesel engines in the amount of technical engine work that has to happen the type of.

Speaker Change: Shop maintenance infrastructure, you have to have is pretty significant for company our size or bigger.

Speaker Change: As we continue to evolve into this electric offering.

David Scott Schorlemer: This is a production of the U.S. Department of State, begins to change our mindset and our approach, a lot of the fixed costs. If you walked out into a maintenance shop this morning, there's no.., such as. © The Bulletproof Executive 2013. Yeah, Sam, you've brought up exactly one of the things that we've been we've been looking at, you know, just, I shot a message to our Director of Maintenance yesterday and asked him how many force units are in the building, in the maintenance shop, and he said, he said, So that's just an anecdote, but I think what we're looking toward is, you know, 30 to 40 percent improvement in OPEX with a similar impact related to our maintenance CAPEX.

Speaker Change: It begins to change our mindset and our approach to it.

Speaker Change: You know a lot of the fixed cost support functions within within our business. So.

Speaker Change:

Speaker Change: If you walk out and our maintenance shops more than theres not enforce units out there it's hub conventional or single family units.

Speaker Change: So that's just a really early.

Speaker Change: A really positive sign on bonuses.

Speaker Change: Sam.

Speaker Change: You brought up exactly one of the things that we've been we've been looking at just the.

Speaker Change: A shot a message to our director of maintenance yesterday and asked them how many foreshadowed during the.

Speaker Change: The maintenance shop, and he said he said none.

Speaker Change: So that's just an anecdote, but I think what we're what we're looking toward us.

Speaker Change: 30% to 40% improvement in Opex.

Speaker Change: With a similar.

Speaker Change: Impact related to our maintenance capex so.

David Scott Schorlemer: So, you know, again, you think about what's on the front of our conventional trailers, and it's a, you know, 2,500 horsepower diesel or dual fuel engine. What's on the front of our electric equipment is a variable frequency drive box and a transformer. There are really no meaningful moving parts in those two units, and they really should be low to no touch.

Speaker Change: Can you think about what's on the front of our conventional trailers.

Speaker Change: 2500 horsepower diesel or dual fuel engine.

Speaker Change: <unk> on the front of our electric equipment as a variable frequency drive box and a transformer.

Speaker Change: There's really no meaningful moving parts in those two units and they really should be low to no touch. So I think we're looking forward to realizing those benefits over time.

David Scott Schorlemer: So I think we're looking forward to realizing those benefits over time. I don't think we're going to be able to give you specifics on that just yet, but give us a few more quarters to see how that pans out over time, but we like what we're seeing so, Okay, and then David, just to follow up, I mean, once you optimize kind of the cost structure, on the force fleets, the cost savings should offset the operating loss payment, correct? I think that's certainly something that we would expect, and we're seeing some pretty positive results so far. But again, this is a new product launch phase that we're still in. You know, we've had a force fleet operating since September. We got enough, We've had a lot of experience under our belts to realize that the customer is very pleased. Our operations management is able to operate well with very strong performance in the field. But look, we're still new into this. We like what we're seeing, but... Still fresh.

Speaker Change: I don't think we're going to be able to give you.

Speaker Change: Specifics on that just yet, but give us a few more quarters to to see how that pans out over time, but we like what we're seeing so far.

Speaker Change: Okay, and then David just a follow up I mean, once you optimize the cost structure.

David: On the four suites, the cost savings should offset the operating lease payments correct.

David: I think thats, certainly something that we would expect.

Speaker Change: And we're seeing some pretty positive results, so far but again we're.

Speaker Change: This is a new product launch.

Speaker Change: Phase that we're still and we've added a fourth fleet operating system September.

Speaker Change: We've got enough.

Speaker Change: <unk> under our belts to realize that the customers very pleased.

Speaker Change: Our operations management is able to.

Speaker Change: Operate well with very strong performance in the field, but look we're still new into this so well.

Speaker Change: We like what we're seeing but but.

Speaker Change: Still fresh stay tuned.

Luke Michael Lemoine: Okay. All right. Thanks David, and thanks Sam. This concludes our question and answer session. I would now like to turn the conference back over to Sam Sledge, Chief Executive Officer, for any closing remarks. Thank you everybody for joining us today. I hope to talk to you again soon. And I'd like to thank all of our Propetro teammates again for all their hard work throughout our business. Making This All Possible, to talk to you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Okay Alright.

Speaker Change: Alright, Thanks, David Thanks, Sam.

Speaker Change: This concludes our question and answer session.

Speaker Change: I would now like to turn the conference back over to Sam Sledge, Chief Executive Officer for any closing remarks.

Sam Sledge: And thanks, everybody for joining us today.

Sam Sledge: Talk to you again soon and I'd like to thank all of our <unk> metric teammates again for all their hard work.

Sam Sledge: Throughout our business.

Sam Sledge: And making this all possible so hope to talk to you again soon.

Sam Sledge: Okay.

Speaker Change: The conference has now concluded.

Speaker Change: You for attending today's presentation you may now disconnect.