Greetings, and welcome to the ProFrac Holding Corp. First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Michael Messina, Director of Finance for ProFrac Holding Corp. Thank you. You may begin.

Thank you, operator. Good morning, everyone. We appreciate you joining us for ProFrac Holding Corp's conference call and webcast to review our first quarter 2024 results. With me today are Matt Wilks, Executive Chairman; Ladd Wilks, Chief Executive Officer; and Lance Turner, Chief Financial Officer. Following my remarks, management will provide a high-level commentary on the operational and financial highlights of the first quarter, before opening the call up to your questions. There will be a replay of today's call available by webcast on the company's website at pfholdingscorp.com, as well as the telephonic recording available until May 16 2024. More information on how to access these replay features is included in the company's earnings release. Please note that information reported on this call speaks only as of today May 9, 2024 and therefore, you are advised that any time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also comments on this call may contain forward-looking statements within the meaning of the United States federal securities laws, including management's expectations of future financial and business performance. These forward-looking statements reflect the current views of ProFrac's management and are not guarantees of future performance. Various risks, uncertainties and contingencies could cause actual results, performance or achievements to differ materially from those expressed in management's forward-looking statements. The listener or reader is encouraged to read ProFrac's Form 10-K and other filings with the Securities and Exchange Commission, which can be found at sec.gov or on the company's Investor Relations website section under the SEC Filings tab to understand those risks, uncertainties and contingencies. The comments today also include certain non-GAAP financial measures, as well as other adjusted figures to exclude the contribution of Flotek. Additional details and reconciliations to the most directly comparable consolidated and GAAP financial measures are included in the quarterly earnings release, which can be found on the company's website. And now, I would like to turn the call over to ProFrac's Executive Chairman Mr. Matt Wilks.

Thanks, Michael and good morning, everyone. After my prepared remarks, Ladd will comment further on the performance of our subsidiaries and Lance will go through our financial performance. We are very pleased with our first quarter results. We made progress on what we told you last quarter and are now seeing the results. We are focused on getting back to our foundations to provide an incredible customer experience, increased utilization throughout all of our subsidiaries and better cost control to ensure we are the lowest cost operator in the industry. In the first quarter, we generated $160 million of adjusted EBITDA and $582 million of revenue. Our costs were down and our efficiencies were up. We deployed nine fleets since our most recent low in the fourth quarter. As we scale, we were able to absorb costs and deliver greater returns personally and we saw a benefit of that in the first quarter. In addition, ProFrac has expanded its portfolio of highly efficient customers. In the quarter, we generated substantial cash flow that we used to fund the growth of fleets and working capital. The underlying results demonstrate the earnings capabilities of our assets and our people. We believe our cash conversion is the best in the industry. Looking forward, we continue to see opportunity in this market. Our average lead count for the second quarter will grow based on the timing of activations during the first quarter. We continue to pursue opportunities to increase our fleet count in a disciplined manner. Similar to the activity outlook for the industry we also expect pricing to remain relatively stable. Overall, we remain on track with what we laid out for pressure pumping last quarter and I am confident we will continue to have wins as the year progresses even in a…

Thank you, Matt. I'll begin with an overview of our performance in each segment, starting with Pressure Pumping. I'm proud to report we achieved record efficiency levels in the first quarter for our Pressure Pumping segment. We generated roughly an 11% sequential improvement in pumping hours per fleet and that makes Q1 a most efficient quarter in ProFrac's history. We continue to set numerous records for our customers. One of the most recent examples occurred in March, when one of our fleets hit an all-time record for a customer by pumping 675 hours. Efficiency across all our fleet was up nearly 30% in March, over Q1 of 2023. A large portion of this is a product of the focus on efficiency for the entire industry, but this really demonstrates the commercial strategy that we employed, by focusing on dedicated thru-cycle customers. This also highlights how amazing our team is. We have the best crews in the industry and are consistently putting up the best numbers for our customers. In the first quarter, we activated nine fleets, increasing our scale considerably. I'd like to reiterate that, at scale, we believe we have the lowest cost in the industry. On our last call we laid out a path to generate mid-to-high-teens EBITDA per fleet, exclusive of the Proppant division. And we achieved that. More importantly, in Q2, we expect to continue at that level. And our average fleet count should be higher due to the full quarter impact of activated fleets. We believe this will lead to incremental improvement in adjusted EBITDA quarter-over-quarter. We have a unique vertically integrated business that benefits from lower cost of scale, yielding superior returns, and we will continue to demonstrate that in our results. The Proppant segment is also making progress. We are a little behind…

Thank you, Ladd. Our first quarter revenues of $582 million represent a 19% sequential increase. We generated $160 million of adjusted EBITDA in the first quarter for an overall EBITDA margin of 27%. First quarter EBITDA represents a 46% improvement sequentially and with incrementals of approximately 54%. The cash we generated in the quarter went primarily toward working capital and CapEx in conjunction with the scale-up of our fleets and mine improvements as well as to pay down approximately $23 million of outstanding debt. Simulation Services revenues were up 28% to $517 million in the first quarter, driven primarily by the higher number of active fleets and improved efficiencies, partially offset by a single-digit reduction in pricing as we migrated toward highly efficient three-cycle customers. Adjusted EBITDA for the segment was $125 million, which was up approximately 116% sequentially. Margins also improved to the segment's highest levels seen since the first quarter of last year. The results of the Simulation segment in particular stands as evidence that our strategy and cost structure are working for us with incrementals in excess of 50% demonstrated in the quarter. This segment was also impacted by approximately $5 million of reactivation costs and approximately $9 million in shortfall expense related to our supply agreement with Flotek. The profit production segment generated revenues of $78 million during the quarter. Total revenue was down sequentially due to lower tonnage sold on the heels of weaker natural gas activity and the impacts of weather and certain operational limitations. Average pricing per ton also came down slightly but pricing appears to be stable going forward. Approximately 70% of the volumes in the profit segment were sold to third-party customers during the first quarter which is in line with our commercial strategy to focus on customers where we can…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Blake McLean with Daniel Energy Partners. Please proceed with your question. Q – Blake McLean : Hi, good morning. Thank you for taking my call.

Good morning.

Thank you. Q – Blake McLean : Yes. I was hoping maybe you guys could just speak to, maybe some of the market dynamics on the frac side. I mean obviously you guys saw, a really nice sequential improvement in EBITDA per fleet. How do you see that progressing over the course of the year? Maybe any more color, you can provide on that increase in profitability and the split between cost cuts and absorption? Just any more color, you could share around that and on the market sort of generally.

Definitely. So when you look at the -- when the gas market was falling off. You had budgets reset on the early side. And so, we saw a nice migration there and a relatively stable fleet count for the industry, and we expect it to be relatively stable for the remaining part of the year, with the exception to that being a bounce back in natural gas prices. If we see that, then you'll see fleet count grow. Q – Blake McLean : Right. And then on the profitability side, the improvements there. You talked about absorption you talked about cost cuts. How should we think about the weight of each of those, and the additional opportunities for kind of Q2 Q3 and Q4 on that front?

Definitely. Yes, most of it was through the absorbing the costs. The operating leverage that we have in this business is, tremendous. Vertical integration gives us a very more fixed nature to our cost structure relative to our peers, that -- some of them have more variable cost structure. So when we put more efficient and we have more fleets out there running, we're able to absorb those costs in a much broader way. And I think Q1 shows -- showcases that. Q – Blake McLean : Yes and then maybe. Thank you. And maybe just one more, I was hoping to ask, you guys have obviously, a lot of insight into the gas for basin. And I was wondering if you could share any color on conversations you have with operators, things are focused on things they're looking at. Anything that might give us some more insight into how to think about the world in the back half of this year into 2025?

Yeah, certainly. So there are several operators that we're talking to where we see some opportunities in Q3, Q4. It's still early on, but what we're seeing on the forward curve is encouraging. But we're remaining very conservative with it, sticking to our guns. And we don't want to get overly bullish and lean into it too much or too soon. But we're in constant communication with these operators and think that they're doing a phenomenal job of being disciplined with the market that they have. and we look forward to their activity picking up towards the back half of this year.

Okay. Thank you guys very much for the time morning.

Thank you.

Thank you. Our next question comes from the line of Stephen Gengaro with Stifel. Please proceed with your question.

Thanks. Good morning, everybody. Just two things from me. One is on the fleet count. Are we right that it's probably in the low to mid-30s right now? Is that approximately how many active fleet you have?

Yeah.

Okay. Thanks. And when we look at the current makeup of your fleet between electric dual fuel and two older diesel. Can you give us a rough breakdown and maybe even sort of talk about, I assume it's lower emission assets, which are basically close to fully utilized. Can you give us any details around that?

We won't get too detailed with it, but without a doubt, customers prefer fuel efficiency. I think that the value that's provided by dual fuel fleets as well as e-fleets and the overall fuel savings. I mean, it just places a lot of diesel. And this is an area that we focused on because this allows us to lower the cost for our customers. But without having a detrimental impact to our financials. So, this is a trend that we expect to continue seeing. However, there are many customers that prefer people on diesel fleet. And that's really driven by the associated gas associated with some of the lily basins and the costs of bringing these other options to fill. I think you really see that across the industry as well. This is where the majority of the growth capital in this space is going. And it's almost all of it's going to upgrading equipment to a more fuel-efficient configuration.

Great. And then just one final for me. You've been involved in this in the past but when we think about industry dynamics and potential for future consolidation, how do you think about allocating capital between building new assets to placeholder assets or potentially M&A?

We're in the market. We see things that are out there, and we're interested in value, but that value is few and far between. And I think the best way to think about us is just we take a very patient approach to the market. And if we generally avoid a transaction unless we see a tremendous amount of value coming with it.

Great. Thanks for the color.

Thank you.

Our next question comes from the line of Saurabh Pant with Bank of America. Please proceed with your question.

Hi, Good morning, Matt, Ladd, and Lance. Maybe I'll start with a follow-up. I think, Matt, you said in your prepared remarks, you expanded your portfolio with the highly efficient customers, which is obviously commendable and that's what you should be doing. Can you give us a little color, Matt or Ladd, maybe on how much visibility do you have as we look forward for the next three to six months? I'm especially thinking in light of the completion deferrals that we are seeing in the gas basins. How much should we worry about the potential white space in the gas basins in the next three to six months?

Yes, there's a lot to unpack there and good morning and thank you for joining our call. Yes, we've got some availability, but we look at the market in a very disciplined way and won't put fleet to work unless it fits in our overall strategy. There's certainly benefits to scale and our ability to absorb costs. And so when we look at opportunities, we want to make sure that when we deploy these, we deploy it in a very disciplined way. And one of the things that also comes with our vertical integration is that, if we get into a situation where there's no fleets available, it becomes tight, really tight from gas markets coming back, we can respond to that quickly too and solve any issues and meet the needs of our customers even if that means that we end up with an undersupplied market in 2025.

Okay. I got it. And just a quick clarification. I think Lance, you mentioned I think you said $9 million in shortfall cost payable to Flotek. Should we expect that to continue in the second quarter and in the foreseeable future just given the volume expectations that you have right now?

So we're working to expand our chemical profile with our customers and get back to where we need to be. And so we expect to reduce it, but it takes a little bit of time as we ramp that up.

Okay. Perfect. And then just one last one for me. I think this was Matt, you said in your prepared remarks that you expect to have all fleets deployed by I think you said later in '24 or you said by the end of '24, but just a quick clarification on that. Is that a comment on your deployed electric fleets? Because I think you have a couple of electric fleets that were partially completed. Are you talking about those as well?

Yes. We're talking about those as well. So when we look at the remainder of this year and the recent success that -- we said the most efficient fleet we had in West Texas was in the city limits of Midland where there's a great deal of sensitivity towards noise. And it's quite there in front of everybody's offices. So it was on full display for the industry. And so I think what we're seeing from that is a great deal of excitement and really showcasing for the overall market to what these things are capable of that you should expect the same efficiencies from the e-fleet with fuel savings and that there's not really any compromises. These are as good or better than a conditional fleet and they'll deliver the results that you need that skill settings and a quieter profile so that you can work in these sensitive areas where people are trying to sleep and live. So, we're very excited about that. We're seeing a lot of inbounds and expect to have every e-pump that we have in an active status working for customers.

Yes. And I'll just add to that when we're talking about fleet growth, it will not come from pricing reductions. It's going to come from the differentiated offerings that we have like whether it's e-fleet, hybrid fleets or duel fuels. It's not going to come from slugging it out of pricing over conventional diesel fleets. That's going to come from these offerings that the market wants.

Yes, essentially creating value and offering value to our customers where our customers see savings, but it comes from the value proposition that we bring.

Right. No that's very helpful. Always good to see demand pull versus just a pricing-based supply push. So fantastic. Okay. Matt, Ladd and Lance, thank you. I'll turn it back.

Thank you. Our next question comes from the line of Don Crist with Johnson Rice. Please proceed with your question.

Good morning guys. I wanted to ask a more macro question. Given the horsepower requirements of today to pump 20-plus hours, a traditional fleet is no longer 45,000 or 50,000 horsepower. And Matt I'm curious just your opinion as to that. If that premise is through where you're needing 500-plus thousand horsepower just to service and pump those amount of hours per day, where we are from a macro perspective? Are we pretty balanced in the fleet today just given those extra horsepower requirements?

Yes. So I mean it really depends what spacing you're in. I think the higher pressure puts a – higher requirement on your fleet, where you need more redundancy and because this is about managing around equipment failures. And when they fail how do we solve for that. So there's not an interruption in the service quality at all. And so typically you would see anywhere to pump 100 barrels a minute you really only need 14 pumps but one of your pumps is going to fail while you're pumping. So you should probably have 18 in line and then two on stand by and then four in the maintenance rotation. So that's on typical zipper work. And you should be able to pump 21, 22 hours a day doing that with that configuration. But when you get into higher pressure you're going to need a little bit more redundancy or when you see simul fracs. Some of these simul fracs are 180 barrels a minute, if you've got both sides running. And so that puts a higher requirement on the number of pumps. The number of pumps you have in line has more to do with how many barrels in a you're pumping. And then the pressure has to do with how much redundancy you need to keep that number of pumps pumping. So I think you'll hear – you probably see a pretty wide scale of how much horsepower is required. Some people have higher failure rates. But when you take care of your equipment and you have maintenance, redundancy, incredible cycle times. We run our business like – our maintenance team like it's pit road. If you can get your cycle times down really quick and see a pit stop in two seconds. We love looking at the Indica in the '90s it took almost 10 seconds for a pit stop to get a full set of tires and fuel. But nowadays they're under two seconds in some instances. So that's what we focus on. We want to get the highest utilization out of our assets. We want the tightest cycle times in maintenance and consistently deliver the best performance without cutting corners or putting ourselves in a bind. Under no circumstance do we want to see rates fall below, the design, design rate for our customers. It's not just pump time, it's service quality and delivering the customer the spec that they require.

I appreciate that. And just from a macro perspective, given the excess horsepower that's required to swap pumps out for valves and seats replacement, et cetera, do you think we're fairly balanced today? And I expect in the terms of if we get a 15 or 20 fleet uplift in demand from gas basins, could we see a significant tightening across the industry in a matter of a couple of fleets going back to work? Or is there enough slack horsepower in the industry today to where we can absorb an uplift of a few fleets but not maybe 15 or 20?

I definitely think that's fair. It's pretty nasty out there if you don't have scale and if you don't have the vertical integration that we do. I think our vertical integration allows us to absorb costs, dilute costs on a per compounder basis. It also means that we don't have to cut corners or defer maintenance CapEx or anything like that. And I think this is the type of environment where you'll see that with various players across the space where they're deferring maintenance and potentially seeing a higher level of attrition than the historical norm. You add to that a bounce back in gas prices, and you could see a tightening of the market that goes beyond -- a bit beyond the available horsepower. And with that, you do also see more simul fracs. When you look at the fleet count on a year-over-year basis, how many of those fleets are simul-frac pumping at higher rates, requiring more redundancy. And I think your line of questioning is exactly right. It's set up for a tighter market. But what we focus on is working with customers to make sure that they don't fill that squeeze and making sure that they're able to accommodate any issues that come along and that they're not on the wrong end of that trend.

I appreciate the color. I agree. I think if we had a minimal amount of fleet here, we could see a significant uplift in pricing going forward. But I'll turn it back into the queue.

Yes. I'll say one thing to that as well. What we focused on and what's so important for our customers is that they see some certainty to their CapEx and some -- that they're working with partners that can deliver them a reliable product at a great price with no surprises. And when you see supply constraints, it's easy for us to look at that and get really excited about prices going up. But like our customers, stability and reliable cash flows are the most important thing for us. And so when we look at the path forward, DCD as opportunities to create long-lasting partnerships with our customers and deliver them reliable pricing that they can count on. And maybe that takes some of the spike out of the upswing, but it certainly takes a little bit of the bite out of any pullbacks in the cycle.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Wilks for any final comments.

Thank you, everybody. We appreciate your time today. Very excited about this quarter, but more excited about what this year brings. And we just thank you for your time, and we look forward to carrying on and continuing these results. So thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.