Q3 2024 ProPetro Holding Corp Earnings Call

Speaker Change: Good day and welcome to the Pro Petra Holding Court, 3rd quarter 2024 Conference Call. Please note this event is being recorded. If you require an operator assistance, please press star then zero.

Speaker Change: I would now like to turn the call over to Matt Augustine, Director of Corporate Development and Investor Relations. Please go ahead.

Matt Augustine: Thank you, and good morning. We appreciate your participation in today's call. With me today, our Chief Executive Officer, Sam Slides, Chief Financial Officer, David Schorlemer, and President Chief Operating Officer Adam Nugues.

Matt Augustine: This morning we released our earnings results for the third quarter of 2024. Please note that any comments we make on today's Call of Guarding Projections or our expectations for future events are forward-looking statements covered by the private security and litigation reform act.

Matt Augustine: 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 advise listeners to review our earnings release and risk factors discussed in our filings with the SEC.

Matt Augustine: 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. Finally, 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 Slides: Thanks Matt and good morning everyone. I'm pleased to report that thanks to the hard work and discipline execution of our team, ProPicture delivered strong results in the third quarter.

Sam Slides: Despite the challenging market environment for our industry, our free cash flow generation has been resilient thanks to our clear strategy anchored by next-generation investments and our focus on an industrialized operating model.

Sam Slides: Without question, we are seeing some of the same market softness as many of our peers. However, due to the strategic actions we've taken, we are generating strong, sustainable, free cash flow while also taking market share.

Sam Slides: Over the last year, you have heard us state that 2024 is a prove-it year for ProPetro, and we are doing exactly that. Let me walk you through how we are doing exactly that before turning it over to David to review our financial results.

Sam Slides: Fundamentally, we prioritize cash flow generation and remain well positioned to deliver positive cash flow going forward. Demand for our next generation services is strong as we manage our portfolio to meet the needs of the industry of today and into the future.

Sam Slides: Currently, ProPetro has seven Tier 4 DGB dual-fuel fleets, each bringing industry-leading diesel displacement.

Sam Slides: Simultaneously, we continue to execute on the rollout of our forced electric track fleets, an effort that began with the deployment of our first forced fleet in August of 2023.

Sam Slides: Earlier this year we commenced our three-year contract with ExxonMobil under which we are providing hydraulic fracturing, wireline, and pump-down services with two committed force electric fleets and an option for a third force fleet also with bundled and wireline pump-down services.

Sam Slides: Looking ahead to the deployment of ProPetro's 4th and 5th force fleets. We expect the 4th fleet to be deployed under contract by year-end, with the 5th fleet active in early 2025.

Sam Slides: We intend to continue the transition of our fleet by winding down investment in Tier 2 diesel-only equipment and instead prioritizing investment to more force electric equipment.

Sam Slides: Not only do we fundamentally believe this is the way of the future and a clear path to sustainable success.

Sam Slides: But we are also de-risking future earnings by leveraging the contracts this equipment demands.

Sam Slides: At ProPetro, we believe that a dynamic market requires a dynamic strategy, and when it comes to capital allocation, that is exactly our approach.

Sam Slides: Our capital allocation strategy has three main tenets. Fleet transition to electrification, value enhancing M&A, and shareholder returns. And I'm pleased with our execution on all three fronts.

Sam Slides: Our dynamic capital allocation strategy is what has allowed us to opportunistically pursue acquisitions such as Silvertip in the waterline market, PAR5 in cementing, and AquaProp in last mile sand solutions, which have all meaningfully contributed to our top and bottom line results.

Sam Slides: Our recent investments have also allowed us to stay ahead of the curve in transitioning to our force electric equipment, all while delivering attractive returns.

Sam Slides: We've also mentioned before that deploying capital towards value-creative acquisition remains a strength at ProPetro and a key component of our strategy for growth and value creation. Moving forward, we will remain opportunistic as we pursue strategic transactions to profitably grow our business and better meet the needs of our customers.

Sam Slides: As I mentioned a moment ago our electric fleet transition is well underway and we look forward to continuing that transition in 2025 and beyond.

Sam Slides: David will go into more detail about our share repurchase program in a moment, but I want to reaffirm to you our commitment to returning capital to shareholders.

Speaker Change: Earlier this year, we announced that our board approved an increase and extension of our share repurchase program through May 31st of 2025 with an additional hundred million dollars authorized for a total two hundred million dollars in the plan.

Speaker Change: Since the program's inception, the company has acquired and retired 12.6 million shares, representing approximately 11% of our outstanding shares. We are incredibly proud of our ability to allocate capital to the highest return opportunities while consistently returning capital to our shareholders.

Speaker Change: Our recent successes demonstrate the strength of ProPetro's business. Our strong performance reinforces our belief that ProPetro shares are a unique investment opportunity and that the investment thesis is apparent in the discrepancy between our equity value and the strong financial performance evident in our results.

Speaker Change: Well, we are proud of the quarter we put together and our ability to continue generating strong profitability. The quarter was not without its challenges.

Speaker Change: Our wireline business continued to see some softness, and proxying across the conventional diesel-only frac market remains competitive, putting pressures on that part of our portfolio.

Speaker Change: While the second quarter saw some bad storms roll through the Permian, the third quarter actually uncharacteristically had more weather events, particularly in July and August. This resulted in a greater impact than anticipated.

Speaker Change: Although we did see softness across our sector, I'm pleased to report that, much like in the second quarter, our bifurcated offering proved to be resilient.

Speaker Change: Our Tier 4 dual-fuel and electric equipment buoyed our business, remaining highly utilized and high-performing in the face of a softer market. Moreover, our cementing business continues to excel and capture market share as rig activity has declined.

Speaker Change: Another achievement in the quarter I want to highlight is another reduction relative to guidance of our capital expenditures. A few years ago, we were very clear about our CapEx strategy, and I'm proud of our success in achieving and surpassing those objectives.

Speaker Change: We expect to reduce capital spending to support strong free cash flow generation well into the future.

Speaker Change: Looking ahead, we remain confident in our ability to deliver strong financial results through the balance of this year and well into the future.

Speaker Change: I'd now like to briefly touch on our broader industry outlook and how we at ProPetro fit into that outlook.

Speaker Change: We are, of course, not immune to the macro headwinds facing our industry.

Speaker Change: Therefore, we are focused on controlling what we can, which includes taking decisive action to protect service quality while ensuring that we maintain capital discipline and a strong balance sheet. Everything else flows just from that.

Speaker Change: Our goal is to become the go-to completions provider that works for the consolidators of the EMP sector. So, looking at future M&A, as I mentioned earlier, we will always keep an open mind.

Speaker Change: Our focus in this area will be on value-creative M&A that provides opportunities to scale our business through additional offerings.

Speaker Change: that increase our commercial competitiveness without sacrificing free cash flow generation. Moving forward, we also remain optimistic about the strength and potential of the North American onshore oilfield services over the next several years, particularly as the market moves in the direction of providers like ProPetro.

Speaker Change: which offer lower costs to customers through things like fuel savings while also providing enhanced efficiencies.

Speaker Change: Before I turn it over to David, if I can distill where we are today and why we are confident about the future into three key points, it's this.

Speaker Change: First, with our best-in-class team, we are pursuing and achieving operational excellence and have a strong, deep, blue-chip customer base to match.

Speaker Change: Second, with an eye towards the future, our electric transformation is well underway and garnering resilient contracts.

Speaker Change: in a high-demand environment. And finally, with healthy liquidity, a clean balance sheet, and a strategy to de-risk future earnings, we are positioned to deliver value for our shareholders while opportunistically pursuing accretive, organic, and inorganic growth.

Speaker Change: With that, I'll turn the call over to David to discuss our third quarter financial results. David?

David Schorlemer: Thanks Sam, and good morning everyone. You may hear a few things repeated this morning, but they are important to understand what has transpired at Pro Petra.

David Schorlemer: As Sam mentioned, we continue to showcase the industrialized nature of our business in the third quarter, and although market headwinds persisted, sequentially we generated strong returns and increased adjusted EBITDA while continuing to advance our strategy.

David Schorlemer: In the third quarter, we grew market share despite softness across our conventional Tier 2 diesel-only equipment and wireline offerings, along with meaningful weather impacts in the Permian.

David Schorlemer: Adjusted net income, excluding the non-cash impairment expense, was $13 million compared to an adjusted net loss of $4 million in the second quarter of 2014.

David Schorlemer: Additionally, we incurred an operating lease expense related to our electric fleets of $13 million for the quarter as compared to $12 million in the prior quarter.

David Schorlemer: During the quarter, we incurred a non-cash impairment expense of $189 million related to our conventional Tier 2 diesel-only pumping units and associated equipment.

David Schorlemer: This decision was driven by a significant shift in customer preference away from Tier 2 diesel-only assets, which represent the lower end of the FRAC services market.

David Schorlemer: After thorough analysis, we concluded that an impairment was necessary, resulting in assets being written down to fair value.

David Schorlemer: Moving forward, we plan to cease capital investment in Tier 2 diesel-only assets and gradually phase them out over the next few years.

David Schorlemer: These assets, which represent approximately 25% of our active fleets, will be decommissioned in the normal course in favor of our more environmentally friendly alternative technologies.

David Schorlemer: During the third quarter, a total of 14 hydraulic fracturing fleets were active, which was in line with our prior guidance. We expect to run 14 active fleets in the fourth quarter of 2024.

David Schorlemer: For the last 18 months, we've continued to operate at this fleet level, plus or minus one fleet, which reflects the resilience in our business and the demand for our fleets relative to the market.

David Schorlemer: Moving to our capital program, capital expenditures incurred during the third quarter of 24 were 37 million, which were primarily related to maintenance and support equipment for our force electric hydraulic fracturing fleet deployments.

David Schorlemer: Net cash used in investing activities as shown on the statement of cash flows was 40 million for the quarter.

David Schorlemer: As we have demonstrated this year, reduced capital spend is a strong tailwind for cash generation and a testament to the success of our fleet transition and optimization of our business.

David Schorlemer: In fact, year-to-date cash capex is down 65% versus the prior year-to-date period.

David Schorlemer: Due to the outstanding work by our team, we are reducing our full year guidance for the second time this year with a lower range of between $150 million to $175 million.

David Schorlemer: down from our most recent prior guidance of $175 million to $200 million.

David Schorlemer: On the last call I mentioned the strategic supply chain initiative that was beginning to yield results in OPEX and CAPEX savings.

David Schorlemer: Today, we're benefiting from the combination of improved operational discipline and these more discreet strategic supply chain processes, which have so far exceeded our expectations.

David Schorlemer: What we're seeing play out at ProPetro with our reduced costs and lower capital spending intensity is a case study on what a committed team can achieve with the right mindset and resources.

David Schorlemer: We are now integrating these efforts with our best-in-class enterprise system deployments to drive even greater efficiencies in our business processes.

David Schorlemer: Given industry stagnation, we continue to face a challenging environment. However, ProPetro's cash and liquidity position remains strong.

David Schorlemer: As of September 30, 2024, total cash was $47 million and our borrowings under the ABL credit facility were $45 million.

David Schorlemer: Total liquidity at the end of the third quarter of 24 was $127 million including cash and $80 million of available capacity under the ADL credit facility.

David Schorlemer: We expect the ongoing transformation of our assets to more force electric fleets to drive further declines in associated OPEX intensity and maintenance capital spending resulting in increased free cash flow in the coming years.

David Schorlemer: ProPetro's improved cash generation profile allows us to more effectively execute our dynamic capital allocation strategy of continuing our fleet transition while also participating in accretive M&A and maintaining a strong balance sheet.

David Schorlemer: Importantly, it also provides optionality to return capital to shareholders.

David Schorlemer: In the third quarter, we remained active in our share repurchase program, retiring another 1.3 million shares.

David Schorlemer: This brings our total number of retired shares to 12.6 million, which equates to approximately 11% of shares outstanding since the inception of the program in May 2023.

David Schorlemer: This translates to the return of $107 million to shareholders.

David Schorlemer: We have $93 million remaining under the current authorization, which extends to May 2025.

David Schorlemer: As mentioned earlier, we recorded a non-cash impairment charge of $189 million of our Tier 2 diesel-only pumping units and related equipment. We view this impairment as a validation of the fleet transition strategy we began a few years back.

David Schorlemer: We now expect that at year end we will have approximately 75% of our fleets comprised of next generation technologies that are natural gas burning, lower emissions equipment.

David Schorlemer: This significant investment has enabled our commercial and operations teams to engage our customers with confidence, knowing we bring best-in-class technologies along with ProPetro's superior field service to deliver the consistent industrial solutions they expect.

David Schorlemer: We believe this is a winning strategy to drive durable earnings and cash flows.

Speaker Change: With that, I'll turn the call back to Sam.

Sam Slides: Thank you, David. To build on what David just said and before turning to Q&A, I'd like to again reinforce ProPetro's compelling investment thesis and the recent actions we have taken to sustain meaningful cash flow generation while limiting our capital spend to further accelerate our true earnings growth trajectory.

Sam Slides: Despite headwinds impacting the energy services space, we believe our company is uniquely and favorably positioned.

Sam Slides: The results you are seeing today are just the beginning and we look forward to building on our progress long into the future.

Sam Slides: We've been successfully growing our market share in the Permian Basin with our sophisticated, bifurcated service offering that includes our next generation frac assets, silver tip wireline services, and our aquaprop wet sand solutions.

Sam Slides: Having these assets coupled with our top-notch customer portfolio and operational density in the Permian, it differentiates us and helps us maintain stable frack activity and increase free cash flows through this cycle, even when overall activity in the market is falling.

Sam Slides: Again, to reiterate, while market pressures persist, we are confident that we have the right assets and the right team to navigate the turbulence.

Sam Slides: Our best-in-class commercial architecture and discipline pricing approach also support our strategy, and we believe that ProPetro is optimally positioned for the remainder of 2024 and beyond.

Sam Slides: We are also confident in our ability to capitalize on the evolution of the E&P industry as we see increasing consolidation.

Sam Slides: This upstream consolidation underscored the need for consistent service quality and seamless integration of next generation industrial technologies directly aligning with our strategy.

Sam Slides: Finally, I couldn't be prouder to lead this incredible ProTectro team.

Sam Slides: It is because of their dedication that we are able to confidently present and execute on this roadmap. To the whole ProPetro team, I thank you for your commitment. You are why we are winning and will continue to win here in the Permian Basin, the most prolific and important natural resource on this side of the world.

Sam Slides: With that, operator, I'd ask that you now open the line for questions.

Speaker Change: And our first question comes from Eddie Kim with Barclays. Please go ahead.

Speaker Change: Your line may be muted.

Eddie Kim: Good morning. You noted that you expect your active fleet to hold flat at around 14 fleets in the fourth quarter. Could you give us some more color on the utilization of those fleets? Some of your peers are guiding to fairly steep third quarter to fourth quarter activity declines in their completion businesses. Just curious what you're seeing in terms of, or what you expect in terms of utilization.

Speaker Change: Thanks, Eddie. Good question. Good morning. It's, as we stated in our materials, we do expect to hold sleep count flat. That said, I think the additional variable in there is just the usual.

Speaker Change: holiday time off around Thanksgiving and Christmas. We do expect

Speaker Change: a good bit of our customers to take off a few days around each one of those holidays.

Speaker Change: where there might be a day or two added to a handful of crews. So, 14 crews active and really all we'll be dealing with is just the normal holiday seasonality around those specific holidays.

Speaker Change: Okay, so it doesn't sound like you expect, I mean, meaningful utilization declines just based on those comments. Is that fair to say?

Speaker Change: a small step down. Look, I mean, I think one thing that I should add to that because I think it was in your first question

Speaker Change: is, that's a total testament to the operating performance of our team and the customers that we work with, right? Where we've positioned our fleets within the portfolios of each one of our customers puts us in a position to stay that active.

Speaker Change: in the fourth quarter because we're technically the baseload for many, if not all, of our larger customers.

Speaker Change: Could you just remind us what the contract duration is on the fourth and the fifth force fleet you expect to deploy here in the coming months? And are those two force fleets with different operators?

Speaker Change: So by the time you deploy that fifth force fleet early next year, is it correct to say that you'll have four different operators across those five force fleets?

Speaker Change: Yeah, I think once we deploy the fifth, that'll be across four different customers.

Speaker Change: We'll probably hold the detail on contract term. I think some of that is competitive information. That said, we are regularly aiming for multi-year agreements. I think I can say that.

Speaker Change: But we, on an individual customer basis, we definitely do our best to zoom in on that customer's specific needs.

Speaker Change: to address what's what's best for them and do our best to fit those needs.

Speaker Change: The electric operation is, from my personal viewpoint, going far better than expected. Operating efficiencies are...

Speaker Change: as high as we've ever seen, and our customers are very happy, and we look to do much more of that in the years to come.

Speaker Change: Got it. Great. Thanks for all that color. I'll turn it back.

Speaker Change: And our next question comes from Makar Syed with ATB Capital Markets. Please go ahead.

Speaker Change: Well, great quarter. Congrats, Sam.

Makar Syed: Just wanted to maybe get some more clarification on the prior question, so some of your peers expect revenues to decline kind of double digits, quarter over quarter, in Q4. Where do you expect, you know, what do you mean by normal seasonality and there's some weather impacts in Q2, maybe, you know, you may not see that in Q4.

Makar Syed: So where do you expect kind of quarter over quarter revenue change?

Speaker Change: I might let David speak to some of the detail there.

Speaker Change: Yeah, Carl, this is David. We're expecting just into the double-digit range

David Schorlemer: on the low end there, and I think, again, as Sam mentioned, this is mostly driven by the normal seasonality that you're going to get, but overall, we've got active fleets operating consistently through the quarter.

David Schorlemer: David Schorlemer.

David Schorlemer: Okay.

Speaker Change: In terms of your working capital, we saw some cash outflows and especially we see that your payables sharply declined, days payable came down quite a bit.

Speaker Change: What was the rationale for that and how do you see that tracking in Q4 and beyond?

Speaker Change: Yeah, you know, as I mentioned, we've been working on some strategic supply chain initiatives, some of which have included building in a bit more goodwill into our working capital position. If you look at our balance sheet,

Speaker Change: over the last 18 months, not only has our asset base improved dramatically, but also our working capital position. And so, that's something that we did see during the quarter. I think that we're in a good spot where we are today.

Speaker Change: and don't see any further declines in that, call it AR-AP spread, but that's something that

Speaker Change: that we did, we felt was appropriate and are benefiting from that in other ways in the form of discounts and other improvements in our cost structure.

Speaker Change: Okay, and the, you know, your fourth and fifth lease and beyond, how do the economics of those compare to the, you know, first three that you built and any future construction that happens in, let's say, 2025, do you think that's going to be still in terms of leases or do you expect to buy them outright?

Speaker Change: I've said in the past that

Speaker Change: If we looked at this very technically in our own book, we could make the comment that electric fleet pricing has gone up over the last year.

Speaker Change: adds to our conviction about the future.

Speaker Change: The current and future opportunity of electrified equipment, specifically our force equipment and the way we're operating and performing.

Speaker Change: Profitability is very good. I would say, without giving too much detail on that, it is good enough for us to continue investing in this and not investing in equipment that burns diesel, as we stated in some of our

Speaker Change: some of our scripted remarks. I forgot what your second question was, Wilcar. Yeah, Wilcar, this is David. Regarding the lease or buy, I mean, that's something that we're going to be looking at.

Speaker Change: anytime we are deploying capital.

Speaker Change: and we'll take, in our view, the most favorable option that exists. We believe that there is some...

Speaker Change: additional appetite there that can facilitate some additional leases.

Speaker Change: But we're going to be mindful of our total capital structure there going forward and I think we're in a really good spot to have that option. Yeah, and to just add on what David said about lease versus buy on the eFleet, so for me, from my perspective, a lot of that depends on what does the rest of our business need.

Speaker Change: and what are our plans from a capital investment standpoint.

Speaker Change: It's just a kind of a continual balancing and juggling act to put our investment dollars in the right spot.

Speaker Change: Sounds good. Well, thank you very much. Appreciate the color.

Speaker Change: Thanks, Ricardo.

Speaker Change: And the next question comes from John Daniel with Daniel Energy Partners. Please go ahead.

Speaker Change: trend we should expect going forward.

Speaker Change: and given the state of the market.

Speaker Change: I think that the bid and the ask range kind of closing in, I think it's closed in up and down the value chain. I think you've seen the same thing in the EMP space.

Speaker Change: We're just keeping our eyes open in general, but to your point, to your specific question, we have been very curious and very inquisitive about what else is on the FRAC location with us.

Speaker Change: With the exception of the Part V deal, which was more of a geographic expansion for our cementing service line, which has been performing extremely well, better than expected.

Speaker Change: with the extension of the Part 5 deal, the strategy has been exactly that, to try and spread out on location, capitalize on some of the less capital intensive services that we that we work alongside.

Speaker Change: John, this is David. One thing I'd just like to add there is...

Speaker Change: I think to Sam's point, looking at other areas probably is the preference. We don't see any other assets in our primary service line of the quality of ours.

Speaker Change: Fair enough. And then on to that end, David, with the Tier 2 impairments, I'm just doing my dumb guy math, if there's 14 active fleets, 7 are DGB, 3 electric, that means 4 are Tier 2. Were those 4 that are working part of that impairment?

David Schorlemer: Yeah, the entire Tier 2 asset base that we own today was impaired, and so some of those assets are not working. Some of them are in circulation, but the entire Tier 2 asset base was impaired.

Speaker Change: Okay, and then just one final one for me. Not sure if you would answer, but I'll try anyways. You got the electric fleet coming in 2025. Your press release suggests more could be ordered. Is the working plan today to just use those fleets to...

Speaker Change: you know, swap them out with the other tier twos that are working or, given that it's probably a contracted fleet, and given that I'm guessing the person using your tier two is not someone who'd be buying electric, do you keep those tier two running, if that makes any sense?

Speaker Change: Yeah, I mean just for reference, I look back over the last approximately three years, we've retired in excess of 300,000 horsepower.

Speaker Change: So there's there's a lot of attrition happening outside of our business and many of our small competitors But we experience every day attrition

Speaker Change: because you can only run these engines and these units for so long. That said, as we look into next year, opportunities to deploy a fifth, likely a sixth, possibly a seventh e-fleet next year will all be in line with some of our regular attrition. We don't necessarily see the market expanding.

Speaker Change: I think a really good outcome for us would be to bump up to maybe 16 fleets at the end of next year.

Speaker Change: but our realistic view is operating between 14 and 15 fleets next year so as we bring in the additional you know one to two electrics those those will most likely be replacement of conventional assets that will be retired.

Speaker Change: Okay.

Speaker Change: That's all I've got. Thanks for including me. See you next week.

Speaker Change: And the next question comes from Scott Gruber with Citigroup. Please go ahead.

Scott Gruber: Yes, good morning. You know, with your fleet high-grading and ending of investment on the legacy Tier 2 pumps, how should we think about your frack maintenance expense, you know, going forward? Kind of what, where is that trending to on a per-fleet basis?

Speaker Change: down significantly.

Speaker Change: down so much so that we've had to right-size our maintenance organization just this year as we've deployed.

Speaker Change: multiple electric fleets, they don't come into the shop.

Speaker Change: We're doing almost all the maintenance on these on these electric fleets in the field so it really changes our

Speaker Change: mindset and our approach to the support structure that that operation will need as it grows in the future. I don't know if Adam or David want to provide any additional detail there without saying any numbers, it's just down significantly.

Speaker Change: That kind of speaks to the paradigm shift that we're experiencing here at ProPetro.

Speaker Change: and also providing the continuous pumping out on location that I think customers are quite surprised at the capabilities. And so the team's doing a lot more with

Speaker Change: less maintenance intensity, and I think that's going to continue to trend favorably. Another thing I think, you know, as I think about it a little bit more, Scott, that's important to add, we've for a couple years now

Speaker Change: Ben

Speaker Change: very intentionally trying to optimize many areas of our operation. We've had a lot of people across our organization participate in that effort, and we've seen a lot of success as it pertains to many of the large components on these conventional units, engines, power ins, fluid ins.

Speaker Change: But with a lot of the work we're doing internally, optimization not only operationally, but with our supply chain as well, how we purchase and who we buy from.

Speaker Change: A huge tailwind to us being able to lower our CapEx guidance for the second time this year as well. Just a lot of different variables going on, a lot of credit to the team here in Midland internally for creating those ones.

Speaker Change: That's great. Obviously, part of the original investment thesis was around reducing that capital intensity, so glad to hear it's playing out. Even if you guys don't want to provide a kind of per-fleet number, would you be able to provide a kind of maintenance, kind of ballpark number for the...

Speaker Change: the fleet as a whole given the mix and you know layering in the cementing wire line just kind of you think about 25 and running the 14-15 fleets with the makeup you have.

Speaker Change: kind of what's an all-in maintenance CapEx number for ProPetro.

Speaker Change: Thank you. Thank you. Thank you.

Speaker Change: Well, I think, look, we're working on our budgeting process right now. You can see what's going on in our P&L and cash flow statement today. So I think that can provide.

Speaker Change: pretty good guidance for the maintenance spend for next year. The things that we'll be evaluating as we get into our budgeting season will be, you know, what type of growth initiatives do we build into that.

Speaker Change: versus which ones we might be able to finance. So, I think, you know, give us some time. I'll provide some more context, but generally speaking.

Speaker Change: You know, we're seeing improvements of 25 to 30, 40% relative to the new fleets that are being deployed. So we'll give you some more context on the next call.

Speaker Change: Got it. We'll wait for that call. I appreciate it. Thank you. Thanks Scott.

Speaker Change: And the next question comes from Kurt Halit with Benchmark. Please go ahead. Hey, good morning guys.

Speaker Change: Monica Holkhurst

Kurt Halit: I just wanted to maybe tie up a loose end here in the context of you indicated your revenues to be down sequentially about 10%. So that'd be what about 30 whatever $35 million. So what do you what do you think the decrementals on that decline in revenue would be?

Kurt Halit: from an EBITDA perspective.

Speaker Change: You know, Decrementals, probably in the neighborhood of

Speaker Change: 26% to 30% and and so you can you can

Speaker Change: We saw over 100% incrementals this quarter, largely attributable to the cost management. That's not something that you can sustain, right? But I think on the downside, we would expect.

Speaker Change: somewhere in that neighborhood.

Speaker Change: That's great. That's great. And then, just follow up on...

Speaker Change: Sam, you kind of referenced, you know, electric fleet pricing has gone up slightly over the past year.

Speaker Change: When you kind of look at your, you know, revenue per crew over the last couple of quarters and EBITDA per crew Kind of held pretty constant in a tough market environment. So obviously it speaks to elements of

Speaker Change: of your E-Fleet. Can the same be said with respect to the DGB? Can you give us some context on how pricing is shaping up for that asset class?

Speaker Change: I think everything kind of sits on a continuum, and you and I both explained it, I mean, here on this call.

Speaker Change: The Fleet Pricing is the most resilient.

Speaker Change: The dual fuel pricing is next most resilient and the diesel pricing is least resilient. So, it kind of depends on our application, as it pertains to the dual fuel equipment, it kind of depends on our specific application, customer, geography, all of that. It's not been as resilient as the E-fleet pricing, but it has hung in there much, much better than the diesel equipment.

Speaker Change: Okay, and then you guys got heavy, heavy emphasis as you have continually on free cash flow generation. So just kind of curious, I know you're still kind of setting your budgets and everything else, but if we were to use a proxy for free cash flow conversion, where do you think that would land?

Speaker Change: Well, you know, this year we'll be over 50%. We had been targeting kind of getting up to 30 to 50%. Next year I think that range ought to be pretty good. So, you know, let us do our work.

Speaker Change: on the budget process and we'll provide some more context on the next call.

Speaker Change: That's awesome. Thanks, guys.

Speaker Change: And the next question comes from Jeff LeBlanc with TPH. Please go ahead.

Jeff LeBlanc: Good morning, Sam and team. Thank you for taking my question. I just wanted to see if you could give us an update on AquaProp and how the integration efforts are going into your frack loops. Thank you.

Speaker Change: as much as expected this point in the year. That said, we've seen the sand market really change quite a bit. We've seen prices fall in dry and wet across the board. And what that does...

Speaker Change: From my perspective, what that does when the sand market moves that hard, it creates a lot of noise.

Speaker Change: So, it takes some time for us and our EMP partners and customers to double back and figure out what the most economic solutions are.

Speaker Change: It just creates a little bit more time, therefore, you know, creating an obstacle or two for us as it pertains to growing that business. We do still believe that...

Speaker Change: That particular wet sand solution and the pile storage on location is going to be the most industrial, most cost-effective way.

Speaker Change: to move and store sand on location, so in the long term we feel very confident about our ability to continue to fold that in commercially as we move into next year and into the future.

Speaker Change: Thank you very much. I'll turn the call back to the operator.

Speaker Change: Our next question comes from Steven Jangiro with Stiefel. Please go ahead.

Steven Jangiro: Thanks. Good morning, everybody.

Steven Jangiro: I guess two things for me, if you don't mind, and the first is probably a kind of a medium-term question, but as the world, you know, evolves and most of the fleets that are active and marketed are electric, or at least, you know, high-quality dual-fuel assets, how do you maintain differentiation?

Steven Jangiro: Yeah.

Speaker Change: equipment is changing. This has been happening for several years now, but we're, I'd say we're in the mid to late innings of a transition into a frack market that is going to be

Speaker Change: almost totally natural gas burning.

Speaker Change: So, early on in a transition like that, you could easily differentiate with equipment.

Speaker Change: As a transition like that matures, it all comes back to people, just like it always has.

Speaker Change: So our ability to

Speaker Change: guarantee a customer a certain operating performance with, say, an E-fleet or a dual fuel fleet, and that's not just pumping hours per day, but that's safety, that's fuel displacement, it's really all the above to, you know, fold that into our agreements and then go do it, not just do it, but exceed it.

Speaker Change: is what we think our key differentiator is. We're not shy about that. We don't think that it's something that's that easy to copy or rip off because you have to be on the ground with your people pushing a mindset that wants to compete and perform every day. Just as an anecdote,

Speaker Change: Recently, we had one of our E-fleets pump continuously for over 11 days straight.

Speaker Change: We don't know what's more differentiated than that. We want to continue to push the bar higher and work with customers that expect that of us and almost create an entirely new market. We think we're doing just that and I think for the next few years we're going to keep differentiating in that manner.

Speaker Change: Now great that's that's helpful and I just did the math so it's it's a large number

Speaker Change: The other quick one, just as it pertains to 2025, and I know it's...

Speaker Change: just at a kind of a high level. The general commentary that we've heard from your peers and some others has been, you know, kind of expect flat from here through next year from kind of an activity level perspective. Is that in the ballpark of how you're thinking about it?

Speaker Change: I think that's likely how we go into the year, Stephen. We do, given some of the differentiation that I just talked about, some other things that we've talked about on the call today, we do think there's going to be opportunity for us to continue to grab market share.

Speaker Change: next year. So is it 14, 15 fleets going into next year? Yes, you know highly likely. I think if you're building a model on us you should start the year with that level of activity.

Speaker Change: Does the market expand a little bit in the back half of the year? I think there's a lot of people hoping that. We'll see. We'll see what comes. That said, I don't think we here at ProPetro to continue to create

Speaker Change: A lot of financial value for our stakeholders necessarily need that. You know, one thing that we haven't...

Speaker Change: mentioned yet that I think should be noted is, you know, on top of just general activity, as we deploy additional eFleets,

Speaker Change: You know we're creating

Speaker Change: We're creating a significant amount of accretion in our earnings. I think you saw some of that here in the third quarter as we had another full quarter effect of an additional E-Fleet.

Speaker Change: from a margin cash flow profile standpoint, I think that's going to be a really important part of our 2025 story. Yeah, and Steven, just to add to that, you know, we entered 2024.

Speaker Change: really as a company that had, you know, one or two ETH leads.

Speaker Change: going into the market. We were a new company as it relates to electric frack.

Speaker Change: Today we're going to be X-ing 24.

Speaker Change: really at the top of the market. I think our customers have realized that we're delivering industry-leading performance with the best technology in the marketplace combined with that field service that really enabled us to make that transition over the last couple of years because of the people. So

Speaker Change: That's going to be a differentiating factor for, we think, some time to come because of that combination of technology and people and what ProPetro is known for. And that's not going to be new going into 2025, it's going to be proven.

Speaker Change: Okay, great. Now, thank you for the call, gentlemen.

Speaker Change: Thanks, Steve.

Speaker Change: Hello, John. Can you hear me?

Speaker Change: Hey guys, sorry.

Speaker Change: Can you hear me? Good morning. We got you.

Speaker Change: My question has been answered. Sorry, that was a misprint on my part. Sorry about that.

Speaker Change: See you next week.

Speaker Change: Yeah, we'll see you next week.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Sam Sledge for any closing remarks.

Sam Sledge: Thanks everybody for joining us today. Thanks for your interest in the company. Hope to meet with you soon.