ProPetro Holding Corp. (NYSE:PUMP) Q1 2023 Earnings Call Transcript

ProPetro Holding Corp. (NYSE:PUMP) Q1 2023 Earnings Call Transcript May 4, 2023

Operator: Good day and welcome to ProPetro Holdings Corporation First Quarter 2023 Conference Call. Please note that this event is being recorded. Now I’d like to turn the call over to Mr. Matt Augustine, Director, 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 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 first quarter 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.

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 measures are included in our earnings release. Finally, after our prepared remarks, we will hold a question-and-answer session. With that, I’d like to turn the call over to Sam.

Sam Sledge: Thanks, Matt and good morning everyone. The first quarter of 2023 was an exciting start to the year for ProPetro. Before David walks you through our financial results, I’d like to begin by covering some recent key accomplishments. To start off the year, we both repriced and repositioned a substantial percentage of our active frac fleets. As we mentioned during our last earnings call just a few months ago, this was already showing through in our January numbers. We believe this more diversified blue chip customer portfolio has set a great foundation for success in 2023 and beyond. We continue to see great results from our acquisition of Silvertip in November of 2022, which is now fully integrated and has provided significant tailwinds for our company’s earning power.

While we were confident about our acquisition of Silvertip, this move is exceeding our initial expectations, delivering more operational synergies between our two companies than we initially anticipated. This was evident in the first quarter as Silvertip delivered record revenues and profitability. At the same time, we continue to make significant progress with the transition of our legacy diesel equipment to dual fuel and electric offerings. We took delivery of our sixth Tier 4 DGB dual fuel fleet in the first quarter and expect to have the seventh operating in the coming months. We also expect to take delivery of our first two electric fleets in the third quarter and are working to secure contracts for the second, third and fourth e-fleets.

Additionally, while we are still in the early stages of our optimization program that we have talked about on prior calls, we have achieved several big wins, including extending the life and therefore, reducing expenses on key equipment components while also reducing maintenance turn time. These improvements will give us the foundation to sustain and improve efficiencies into the second half of this year. It has been a truly rewarding quarter for us here at ProPetro as we began to realize the tremendous benefits of our strategy. Over the last year, we have taken an intentional approach to building a strategy that will strengthen the resilience of our business for the long-term. While we are pleased with the progress we have made, we are not stopping here.

We will continue to advance on our goal of building a company that reduces volatility and competes for years to come to the benefit of our customers, our shareholders, our employees and our community. I would like to now take a step back and discuss the broader energy and completions environment. Despite recent headwinds, including natural gas price weakness and the fear of near-term oil and gas demand uncertainty, we still believe that hydrocarbons remain in structural under supply, especially globally and will likely remain so for multiple years, creating a longer-than-normal cycle. This belief further underscores why the investments we have made in our assets to-date are so important to our future success. By the end of this year, approximately two-thirds of our frac fleet will use next-generation equipment that burns natural gas as a primary fuel source with all of this equipment under 2 years of age.

The bifurcation of our offering, coupled with the experience and success in the Permian Basin gives us a clear competitive advantage from our peers and competitors of all sizes that don’t share these capabilities. This allows us to meet the demand we are experiencing from customers across the basin. That said the combination of ongoing equipment attrition, supply chain constraints and more pricing and equipment discipline in the OFS space that has existed in recent history. This gives us confidence in a strong market that puts a premium on a bifurcated next-generation service offering. Accordingly, and in conjunction with our fleet transition strategy, we are actively taking steps to protect and improve efficiencies across the business. As you have heard us say before, we are focused on the industrialization of our business and we are confident that leaning into this shift in operating mindset will propel us forward as we adapt to the fundamental needs of the service space.

This industrialization will manifest through many different operating methods, several of which are already happening today, therefore, providing the next set of opportunities for our industry to push efficiencies even higher. The future result of this industrialization will be lower operating costs for service companies and their customers, making the Permian Basin and American Energy even more competitive than it already is. Of course, none of this would be possible without our talented ProPetro team who continue to deliver tremendous results for our company, time and time again. A major thanks to our team for all the continued hard work and dedication. With that, I will turn the call over to David to discuss our first quarter results. David?

David Schorlemer: Thanks, Sam and good morning, everyone. Before I dive in, I would also like to emphasize the appreciation of our team members’ hard work and commitment to ProPetro. The work our team is doing in the field and throughout our support services is enabling the pursuit of our strategic priorities. We believe our first quarter financial performance, the best in over 3 years for adjusted EBITDA margin and net income is a catalyst to improved cash flow generation through the remainder of this year and into the future and is evidence of our new strategy at work. Now, let’s move on to our first quarter financial results. During the first quarter of 2023, we generated $424 million of revenue, a 21% increase from the $349 million generated in the fourth quarter of 2022.

This increase was largely attributable to increased utilization, improved net pricing across our service lines, the full quarter effect of Silvertip’s revenue contribution and the frac fleet repositioning effort we undertook in the fourth quarter of 2022. Our effective frac fleet utilization of 15.5 fleets for the first quarter of ‘23 was at the top end of our prior guidance of 14.5 to 15.5 fleets. We expect steady fleet utilization through the second quarter of ‘23. And as Sam mentioned, our frac fleet remains effectively sold out and strategically positioned and committed completions programs with efficient customers who value and appreciate our industry leading field performance. Our guidance for second quarter frac fleet utilization is 15 to 16 fleets with steady activity in our wireline and cementing businesses as well.

Additionally and in accordance with the company’s fleet transition and replacement strategy that does not expand net capacity in the market we plan to retire approximately 140,000 hydraulic horsepower of Tier 2 conventional diesel frac equipment during 2023. These retirements will be scrapped and will not return to service. Before we discuss costs and earnings, I would like to note that effective January 1, 2023, the company began to record utilization of fluid ends as an operating expense rather than capital expenditure. This change to fluid ends expensing was made after an analysis of the useful life for these components and was implemented prospectively, numbers that we discuss or present for periods prior to 2023 do not include the impact of expensing fluid ends.

Moving on, cost of services, excluding depreciation and amortization for the first quarter of 2023, was $280 million versus $243 million in the fourth quarter of 2022, with the increase driven by a higher level of activity across our service lines and the full quarter effect of Silvertip. First quarter general and administrative expense was $29 million compared to $27 million in the prior quarter. G&A expense, excluding non-recurring and non-cash items, including stock-based compensation of $4 million and other items totaling $1 million, including insurance reimbursements, legal settlements, transaction expenses, retention bonuses and severance expenses was $24 million or 5.6% of revenue as compared to 6.4% of revenue in the prior quarter. Depreciation and amortization was $51 million in the first quarter and we expect D&A to be in this range going forward.

The increase in depreciation is related to changes in the depreciable lives of certain of our assets. Loss on disposal was $22 million for the quarter, of which $8 million was attributable to the fire and resulting equipment damage we reported earlier in the quarter, along with equipment decommissioning and other normal course disposals. Loss on disposal will not include impact from fluid end cost, which will now be expensed in cost of services, as mentioned earlier. The company posted net income of $29 million or $0.25 per diluted share, the company’s highest in over 3 years compared to net income of $13 million or $0.12 per diluted share in the prior quarter. Adjusted EBITDA performance was also very strong with margins expanding sequentially by approximately 400 basis points, with adjusted EBITDA of $119 million or just over 28% of revenue, again, the company’s highest adjusted EBITDA and margin in over 3 years.

Adjusted EBITDA increased 42% sequentially compared to $84 million in the fourth quarter and incremental adjusted EBITDA margins were nearly 50%, showing our powerful earnings potential when executing a disciplined asset deployment strategy. To reiterate what Sam talked about earlier, our results this quarter reflect the focus on our strategic pillars, including optimizing our business, our fleet and capital-light equipment transition and the returns from our recent Silvertip acquisition. Additionally, this strategic focus, coupled with our disciplined repricing efforts led to enhanced margins, driving strong profitability. During the quarter, we incurred $97 million of capital expenditures. Actual cash used in investing activities, as shown in the statement of cash flows for capital expenditures, net of proceeds in the first quarter was $114 million, with free cash flow of negative $41 million.

This figure differs from our incurred CapEx number due to the differences in timing of receipts and disbursements. We are reaffirming our previously provided CapEx guidance as we pursue our strategy of developing a more capital-light asset profile, coupled with the winding down of our substantial reinvestment cycle and our ongoing fleet conversion program. We continue to anticipate our 2023 cash CapEx to be between $250 million and $300 million weighted towards the front half of this year. In turn, we expect this to contribute to meaningful free cash flow in the second half of 2023. Our capital investment plan, along with continued excellence in the field are driving the bifurcation Sam discussed earlier and laying the groundwork for years of ongoing leading performance at ProPetro.

By making these investments in equipment reliability and next generation fleet technology, our customers value our assets and services more to deliver for their completions programs. Regarding our capital structure, while we experienced some working capital expansion during the quarter, our balance sheet and liquidity position remains strong to support execution of our strategy. As of March 31, 2023, total cash was $45 million and our borrowings under the ABL credit facility were $30 million. Total liquidity at the end of the first quarter of ‘23 was $149 million, including cash and $104 million of available capacity under the ABL credit facility. As of May 1, 2023, our cash balance was $82 million and we had $60 million of borrowings under our ABL and $166 million of total liquidity.

We expect our liquidity to continue to improve, along with our enhanced profitability and lower capital spend as we move into the second half of this year. Looking ahead, the strength of our balance sheet and our commitment to capital discipline has enabled us to develop and install certain commercial architecture that will benefit the company for years to come. This includes a capital-light long-term lease agreement accelerating our fleet transition strategy to electric and natural gas-powered equipment, coupled with long-term customer contracts that share capital costs for these value-enhancing assets. Additionally, we continue to pursue a strategy to identify, evaluate, execute and integrate accretive transactions and strategic partnerships.

The acquisition last year and subsequent successful integration of Silvertip are evidence of this capability. Together, these attributes will strengthen our strategic capabilities and accelerate our free cash flow performance. And with that, I will turn the call back to Sam.

Sam Sledge: Thank you, David. With a strong first quarter behind us, we remain highly focused on executing our strategy, and I can assure you that we are just getting started. We will continue to transition our fleet, although at a slower pace to electric and natural gas burning equipment. This allows us to continue to play and compete at the top end of the bifurcated frac market. At the same time, we are evaluating accretive M&A opportunities to strengthen our position as a leading completions focused oilfield services company. As we’ve said before, we are continuing to effectively manage the headwinds of potential near-term uncertainty and volatility, including weaker natural gas prices and industry-wide challenges brought on by the broader macroeconomic environment.

Importantly, at the same time, we remain optimistic that the more disciplined approach of the entire oilfield services sector will allow us to create a more industrialized and predictable space that can better sustain through economic cycles and volatility. We are confident that ProPetro is well positioned to take advantage of this ongoing industry evolution in the Permian Basin, and we continue to take the necessary steps to achieve this industrialization within our own business, especially through moves like our e-fleet transition. Supported by our bifurcated and disciplined approach that I mentioned earlier, our strategy is what separates us from our peers, and we look forward to executing on the tremendous opportunities we see for ProPetro in the near and the long-term.

At ProPetro, we also take great pride in our role as a key contributor to the American Energy System. Our company and our community in the Permian Basin is dedicated to producing safe and dependable fossil fuels that power the world. As we grow and invest in our communities, we continue to build upon a deep appreciation for the critical role our industry plays in supporting national security and economic growth. We believe it is important for others in the oil and gas value chain to join us in promoting the vital role our industry plays in everyday life. Fossil fuels have been an integral part to human progress and innovation. And thanks to the ongoing advancements in our industry, they will continue to be essential to meeting the world’s energy needs for the foreseeable future.

As we move forward, we are committed to advocating for our industry and educating others about its critical contributions to society. By working together to promote the importance of our industry, we can ensure a bright and sustainable future for our local communities, our country and for the world. Lastly, I’d like to once again thank the entire ProPetro team for their continued hard work and commitment to safety and performance continuing to give our leadership team the confidence to move forward with our strategy. Let’s keep pushing. With that, I’d now like to hand it to the operator to open up for questions.

Q&A Session

Operator: Thank you. First question will be from Derek Podhaizer, Barclays. Please go ahead.

Derek Podhaizer: Hi, good morning, guys.

Sam Sledge: Good morning, Derek.

Derek Podhaizer: So I just – I wanted to get your thoughts on the North America bear case today. So rig counts are declining, which would lead to resulting in well completion activity drying up in the back half of the year. Investors view some of the management teams might be overconfident in their results and back half estimates on the sell side are too high. Just wanted to get your take on all this and how you view your level of insulation from the rig count decline that we’re seeing and maybe just your position in the frac market of why the a, you’re not overestimating in the back half of the year?

Sam Sledge: Sure, Derek, it’s Sam. Great question. A few things there. One, there is not a lot we can control in terms of the broader rig frac fleet activity across North America. As you know, and as many people know that follow us closely, over 99% of our business – excuse me – is focused right here in the Permian Basin where we’re sitting today. That said, on top of that, we’re also focused with some of the best blue chip operators that have the most consistent activity outlooks. So maybe the most clean data point to talk about is what we saw happen in the first quarter with crude and natural gas prices reeling in for a good amount of time. And we really didn’t see any changes to our activity nor our customers’ activity portfolios that we operate within.

So will there be more volatility or downside to the second half of the year? That’s not necessarily our job to predict. We do follow the same information you do pretty closely to help plan and forecast our business. That said, we think we are maybe one of the most well insulated completion services companies in North America in that type of scenario.

Derek Podhaizer: Got it. No, that’s helpful color. And then I guess just some of the dynamics that we’re hearing about these e-fleets coming into the Permian, more on the spot market basis, I know you guys are pretty much all dedicated. But have you had some of your customers come to you talking about some of the pricing dislocation that they are seeing and maybe trying to pressure some of your pricing? Just maybe some color around the conversations you have with your customers to make it more of a win-win situation, just given this near-term air pocket that we’re seeing, at least on the supply side?

Sam Sledge: Sure. What we saw in the first quarter in that lull that I mentioned earlier was really very minimal. We have customers that are operating large, complex operations. And our – most of our customers, if not all of our customers, they don’t even operate in the spot market. So the data in which they gather, say, from a pricing or fleet availability standpoint is rather limited because they are so laser-focused on the consistency and continuity of their own operations. Next to that, there has been quite a hit to the spot market. I think you’ve seen it in some of the results of our peers that are more spot market focused. And that’s what happens when the cycle matures like it has here recently that that may be a spot market that ran out in front of the rest of the activity in the Permian and in the U.S. was relatively overpriced and much of the pricing changes that maybe you’ve seen across the second half of the first quarter going into the second quarter from a lot of our peers or profitability kind of coming in a little bit is absolutely a spot market data point, of which you haven’t seen from us nor have you seen in any of our materials or our scripted remarks that we think that, that bleeds into what we’re doing here in the near-term.

David Schorlemer: Derek, this is David. The thing I would just add as well is some of our fleet repositioning was based on customers that were utilizing some of these other frac providers and they were wanting to upgrade their fleets. So the bifurcation that we talk about, Sam’s comments, my comments, as we’ve talked with investors, this is something that plays into ProPetro’s hands because we do provide such great efficiency in the field. And I can tell you another example or anecdote to that, as the Silvertip crews, what frac fleets they want to operate on. And they are going to tell you ProPetro because they know they are going to be putting a lot more stages into the ground, and that benefits not only them, but us and our customers. So a lot of value we are delivering – customers see that and that’s where that bifurcation plays out for ProPetro.

Derek Podhaizer: Great. Thank you, Sam. Thank you, David. Appreciate the color. I will turn it back.

Operator: Thank you. Next question will be from Kurt Hallead at Benchmark. Please go ahead.

Kurt Hallead: Hey, Sam, you laid out a really interesting case here with respect to the bifurcation, the upgrading and transition of your asset base, and in particular, the customers that you have. Maybe kind of following on to that initial question, right? The – clearly, for the bulk of this year, the investment community has been anticipating a rapid and significant decline in frac activity overall. But I guess, my understanding and you tell me, do you see things differently, the economics in the Permian can still be supported at an oil price that’s probably roughly half of where it is today, give or take. So – what are you hearing from your customer base now? Are they starting to get skittish? Or are they being pretty consistent on what they expect to happen going forward? And I don’t know what – can you give us some insights on the psychology of your customer base, given what’s going on with a lot of these macro headwinds?

Sam Sledge: Yes. Great question. I think I can answer this kind of on the back of some of David’s comments about bifurcation here, and I’ll try and take a few different parts of your question. Are our customers skittish? No, No, not at all. And that goes back to kind of the blue chip large sophisticated type of customer that we like to work with, and that really almost all of our activity is with as we sit here today. Most of these customers have some of the lowest operating costs lowest cost to produce Tier 1 acreage type of portfolio across the Permian Basin. So that fits really well for us in terms of being able to protect our pricing and our activity. I’m not sure you might know better than me what oil price a lot of the Permian can continue to produce that if the oil price goes lower.

What I can say due to the acreage positions and just the premier operations of most of our customers, they – our customer portfolio will be a group that probably stays more consistent than most because of some things that I’ve already mentioned. The other thing on this bifurcation theme that is really, really a big deal. We’ve mentioned it time and time again for probably more than a year now, it’s scattered throughout of all – it’s scattered through all of our materials this morning is this equipment offering and this transition into more frac equipment that burns natural gas. That’s a whole another lever to pull to keep producing operating costs lower and lower. The more natural gas you burn, the more money you save. And it also puts us in a position to make a higher return.

So as evidenced by what we’ve done and what we’ve invested in here recently, we’re headed towards having a majority of our fleet back half of this year going into next year, being able to burn natural gas, and that makes us more cost and price competitive in these more volatile and uncertain environment.

Adam Munoz: Yes. Kurt, this is Adam. I would just add to Sam’s comments, a majority of our conversations with our customers have been focused just around that of how can we continue to work more safely together, create more value together as we move into the future months of the year. So that’s really what we’ve been hearing and focused on with our customers.

Kurt Hallead: Great. That’s great color. So I was kind of curious, right, you referenced you’re going to be adding a seventh dual fuel fleet here as well as soup of a couple of your e-fleets and then comments about three more potential e-fleet contracts coming. So with that commentary, that kind of answers the question, too, because if your customers were skittish, you wouldn’t be having those discussions. But in the context of the e-fleets, what are you looking at in terms of timing? And you referenced here that your customer contracts are sharing the capital cost for these assets. I wonder if you could give us some insights on that, too.

Sam Sledge: Sure. A couple of things there. I think the two e-fleets, you look for those to be revenue producing late in the third quarter. E-fleets three and four more of a Q1 story from a revenue-producing standpoint. When we make comments about our customers and kind of our commercial architecture sharing some of the upfront capital costs, that’s mainly a comment towards the capital-light leasing program that we have executed on for these e-fleets, so what we’ve done is we’ve moved what traditionally has been a slug of upfront capital when a company like ProPetro buys equipment into this leasing and expensing structure where our cost to own or operate the fleet is running parallel with the revenue and the earnings that we’re producing for that fleet.

It also incentivizes our manufacturing partner to come alongside us, make sure that the equipment is operating efficiently and then it’s well taken care of. It just creates more alignment across the value chain that we’re honestly really, really excited about with this commercial model going into the future. We think that it provides a bit more of a steady, smooth out capital spend that should hopefully allow us to do more of this fleet transition in the future beyond 2024.

Kurt Hallead: That’s great. Thanks, Sam. Appreciate it.

Operator: Thank you. Next question will be from Sean Mitchell, Daniel Energy Partners. Please go ahead.

Sean Mitchell: Good morning, guys. Thanks for taking my question. Sam, if you can, you talked about earlier in the call, Silvertip kind of outperforming your expectations. Any color around kind of what is driving that maybe, number one? And then the second one is the retirement of fleets you’re talking or horsepower you’re talking about later this year, can you just maybe expand on that? I think you mentioned this stuff’s going to kind of scrap or whatever, but I just want to make sure that equipment is not going back in the market to be sold. So it’s in someone else’s hands, potentially going back to work is really what I want to know.

Sam Sledge: Yes. Easy answer on your second question there on the fleet retirements. That’s virtually three fleets. And I would just add on to that inside of that is a little over 20,000 horsepower that we lost in the fire that we previously announced this year.

Sean Mitchell: Okay.

Sam Sledge: But yes, you are exactly right, Sean. This is basically going to get parted out and cut up and you won’t see any of this equipment on the auction block or anywhere else in the market. So this is a pure retirement on the horsepower amount.

Sean Mitchell: Good. Good to hear.

Sam Sledge: Which we think is healthy for the market, and we would encourage others to obviously do the same thing. The value that it produces or doesn’t produce if it reappears is frankly just not worth it. On the Silvertip question, I would say some of the near-term outperformance that we have seen has been what we call operational synergies pairing a few more Silvertip units with more ProPetro frac fleets. So, we get those Silvertip units away from maybe some of our inefficient peers on the frac side, and we get them paired with a more efficient ProPetro operation. We have also found that we didn’t necessarily forecast for upfront some synergies on the wireline pump down side, where Silvertip and ProPetro are able to share equipment to provide more high-quality pump-down services alongside some of our wireline crews. So, that was also part of the outperformance.

Sean Mitchell: Got it. Thanks for the color.

Operator: Thank you. Next question will be from Waqar Syed, ATB Capital Markets. Please go ahead.

Waqar Syed: Yes. Thank you for taking my questions. The guidance for CapEx hasn’t changed, even though you have changed the accounting practice. Why is that, could you comment on that? And then the loss on disposal of assets been running around $20 million a quarter, do you expect it to come down now substantially with the change in accounting?

David Schorlemer: Yes. Waqar, this is David. The loss on disposal, we do expect to come down going forward. And part of our analysis, we were wanting to clean up our income statement a bit. So, that’s why we made that comment in our remarks. I think that should be somewhere inside of $10 million and it will coincide with the retirements as they play out and any other dispositions we have of assets. Regarding our CapEx, the guidance that we provided is our best estimate at this time based on a revised accounting for fluid ends, and we would just suggest using that number going forward.

Waqar Syed: Are you increasing spending somewhere else that you were not previously planning with the change in accounting, or when you set this CapEx budget, it was – you already knew that you are going to be changing accounting?

David Schorlemer: We had been continuing to analyze the process and our accounting determination. So, we had not nailed that down at that particular time. But I think what we would suggest is sticking with the guidance we are providing today going forward for your models.

Waqar Syed: Sure. And then do you have any crews on spots right now everything is on a dedicated basis.

Sam Sledge: Well, Waqar, this is Sam. I would say technically, there is maybe one crew that you could say semi spot, but it’s basically full with private operators that are going to share a dedicated fleet. So, I wouldn’t even – I would hesitate to even call that spot. So, I think we could confidently say this is 100% dedicated portfolio.

Waqar Syed: Okay. And do you have a sense of how many crews have kind of come in from other basins in the last like couple of months and are in the spot market right now?

Sam Sledge: Hard to say. I mean like we said earlier in some of our previous answers, we have not seen any significant pressure that knocks us off of our kind of guidance and outlook, positive guidance and outlook that we have given. That said, we watch our peers and what they are doing of our larger peers, it’s hard to even count on one hand – maybe you need just a couple of fingers on the secondhand to count how many fleets some of our larger peers combined are moving basin-to-basin, not even sure if they are coming to the Permian. And we think that’s a really healthy data point, right. We have many of our larger peers talking about specific numbers of fleets that are moving from maybe gas basins to oilier basins, and it’s in the single digits for the entire frac market that’s probably over 250 fleets. So, it feels like there is a lot more disciplined behavior around asset allocation and pricing across the country right now.

Waqar Syed: Okay. Well, thank you very much. Thanks for taking my questions.

Sam Sledge: Thanks Waqar.

Operator: Thank you. Next question will be from Don Crist of Johnson Rice. Please go ahead.

Don Crist: Good morning gentlemen. Sam, I wanted to ask a question about gas supplies as you kind of move into the DGB space. A couple of your larger peers have secured businesses where they deliver in gas to their fleets because the other supplies are fairly unreliable. Can you talk about the deliveries of gas to your fleets and if you need to kind of move into your own kind of delivery system, are you okay there?

Sam Sledge: Great question. And this definitely plays to the broader industrialization theme that you hear us talk about just our sector being more effective at sourcing things like fuel to do it more operationally efficiency, operationally efficient and at a lower cost. We pressed pretty hard here in recent months around our abilities to displace more diesel with natural gas. And a lot of that has been just operationally how we work our equipment on location, how we maintenance our equipment. A big, big part of that is adequate, timely quality fuel supply and the ability to distribute that fuel effectively to each individual piece of equipment. So, that’s something I am really, really proud of the work that our team has done there.

We think that we are on the leading edge of diesel displacement on individual locations. To answer your question more directly, is this something that we have looked at from an integration standpoint, I would say, yes. Our eyes are wide open to what we need to do to continue to protect that operational performance and that opportunity to create value financially. I don’t know if we figured out yet if that’s something that we need to own or just partner more closely with. But we are doing a lot of work in that arena to understand that value chain and its importance to one, things like DGB it will also be of vital importance to our electric offering as well. And once you bring electric fleet online, it consumes a very considerable amount of natural gas.

So, it’s even more important to have a good natural gas fueling value chain behind those e-fleets. So, stay tuned there. We are doing a lot of work in that arena, but we don’t know exactly what it looks like quite yet for us.

Don Crist: I appreciate that color. And just one for you, David, obviously, the CapEx in the first quarter was pretty stout as you did the conversions. Is there any way you can kind of walk us through the progression of CapEx as we move through the back half of the year? Is it going to fall – is it going to be still kind of high in the second quarter and then fall a lot in the back half? Any color around that?

David Schorlemer: Yes. Don, that’s about right. I mean I think when you look at our numbers, the incurred CapEx actually came in below our forecast pretty significantly at around $97 million. We have, as you recall, had significant CapEx last year to the tune of $356 million of incurred CapEx. And so some of that was paying off that during the quarter, I think that as we go forward, second quarter through the fourth quarter, it will begin to diminish over time. The Tier 4 DGB deliveries will begin to diminish as we finish out the second quarter. And so that will definitely taper off is our expectation.

Don Crist: Okay. I appreciate the color. I will turn it back. Thanks.

Operator: Next question will be from Stephen Gengaro of Stifel. Please go ahead.

Stephen Gengaro: Good morning everybody. Two things I was curious, one, and I know you have talked a bit about the pricing discussions, etcetera. Are you seeing anything in basin as far as just conversations with customers about there being maybe some idle assets or some assets moving from other basins or anything along those lines that suggest pricing is on shaky ground – or you are fairly confident it’s pretty stable at these levels. And maybe if you don’t mind, I don’t know if you can add any detail on this, but where do we stand? I know it’s hard to sort of specifically talk to a number, but where do we stand on current pressure pumping prices versus prior troughs and prior peaks?

Sam Sledge: I will answer that last one pretty simply. We are still below 2019 pricing on a pumping hour basis. So, there is that. On your first question, pricing stability, customer conversations, is there more equipment in the system. I would say yes, because of some of the spot market comments we made earlier about the spot market weakening. There is a little bit more equipment floating around. It’s not a lot. It is enough to hear and there hear from a customer about, hey, there is a fleet available over here. It’s not yet been nearly enough for any of our customers to take on the risk of that switch and risk the consistency or the safety of their operation and put their own numbers and forecast at risk. And that goes to part of the insulation that we think that we feel.

And look, we have got really great relationships with most of our customers where they will openly talk to us about things like that, even if it’s just in a very small volume. And thankfully, that we are working with a blue-chip customer base that puts an extremely high value on things like safety and operational efficiency. And as evidenced by our financial performance, I think we have done a great job of operating safely, efficiently at a good price. And we still feel like notwithstanding any shocks to the grinder macro system that we feel confident about continuing to operate at this level into the back half of this year. Yes.

David Schorlemer: And Steven, this is David. Just to add to that complement Sam’s comments, I mean there are still customers that we are not able to get to at this time. And so I think that speaks to the bifurcation. There are companies that want ProPetro crews that can’t get them still. And I think our performance in the field is something that creates that backlog of demand, and we are going to continue to protect that with what we are doing not only to optimize our business, but also basically transition our fleet to assets that customers’ value. And when the customers value your assets more than the competition and you have a service differential that puts you in a really strong position, which is where we are.

Stephen Gengaro: Great. Thank you. And then one follow-up, the – I know you guys were – have one or two fleets this way. And you think one of your competitors does where you have taken on new electric fleets on basically a lease as opposed to purchase. And just curious, do you have a sense either from your perspective or…

Sam Sledge: Stephen, you cut out there.

Stephen Gengaro: What you have done to try to prove their technology. I am just curious what you see on that one…?

Sam Sledge: Hi Stephen, you cut out there a little bit in the back half of your question there. Can you ask it again?

Stephen Gengaro: I am sorry. Yes, I am sorry, I am traveling. Just the sale-leaseback arrangement you are affecting or the leasing arrangement you have for the newer assets, do you have the manufacturers still pushing that model or if they are, just if you would kind of prove their technology or assets. Thank you. Just curious what you are seeing on that front?

Sam Sledge: Yes. I don’t think we will comment on what our manufacturers doing commercially with other customers of theirs. I can say that our ability to do this with them is based on the strength of our company, our balance sheet, our company’s reputation and maybe our manufacturers’ belief and confidence in their technology and their ability to operate alongside of us or with us in the field. So, those are just kind of a couple of things that we think are – we are motivating for both sides to get to this type of arrangement.

Stephen Gengaro: Great. That’s fair. Thank you for the color.

Sam Sledge: Thanks Stephen.

Operator: Thank you. This concludes our question-and-answer session. Now, I would like to turn the conference back over to Mr. Sam Sledge for closing remarks. Please go ahead.

Sam Sledge: Sure. Thanks Nick, and thanks everyone, for joining us on today’s call. As always, we are proud to play a part in an innovative energy industry where oil and gas remain critical to everyday life across the globe. We hope to either speak with you soon or see you on our next quarterly call. Have a great day.

Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.