Greetings and welcome to the ProPetro Holdings 2017 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sam Sledge, Director of Investor Relations for ProPetro. You may begin.

Thanks, and good morning, everyone. We appreciate your participation in today's call. With me today our Chief Executive Officer, Dale Redman; and Chief Financial Officer, Jeff Smith. Yesterday afternoon, we released our earnings announcement for the period ended March 31, 2017, which is available on our website at www.propetroservices.com. In addition, we expect to file our 10-Q by Monday, May 15. 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 a number of 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 the risk factors discussed in our filings with the SEC. In addition, 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 answer any questions you may have. So with these formalities out of the way, I will turn the call over to Dale.

Thanks, Sam. We appreciate everyone joining us today. We were very pleased with our results in the first quarter as a public company. These results have validated what we shared with the financial community about 60 days ago, when we were on the road for the IPO. Before we get to far into today's discussion about our first quarter results, I wanted to take this opportunity to thank a number of folks. Our people have done an outstanding job to put ProPetro in the position it is in today. I want to personally thank all of you for your commitment to being the best. Our customers have been outstanding throughout the history of the company's existence. We will continue to strive to exceed your expectations, each and every day. Our supply chain partners continue to be unbelievably supportive as we continue to grow our footprint. Our financial partners have been incredible throughout the cyclicality of the last several years. Thank you for believing and backing us every step of the way. We also want to take this opportunity to publicly thank our IPO syndicate for a job well done. Finally, to our new shareholders. We look forward to growing and building ProPetro with you for many years to come. We appreciate the trust and confidence you have placed in us. The 2017 first quarter was significant on several friends. Our March 16, we priced our successful Initiative Public Offering on the New York Stock Exchange. The proceeds that were raised allow ProPetro to pay down all of its outstanding debt on our term loan and revolver, fully fund our announced 2017 fleet expansion initiatives and put some additional cash on the balance sheet for the future corporate needs. With ample liquidity as of quarter-end, we're in a strong financial position…

Thanks, and I also appreciate everyone joining us today. Echoing Dale's remarks, I'm pleased to report ProPetro had an outstanding 2017 first quarter. Comparing year-over-year results in more detail, revenues increased 95.5% or $84 million to $171.9 million for the first quarter of 2017 as compared to $87.9 million for the first quarter of 2016. The increase was primarily attributable to expanded customer activity and demand for our services, which led to higher pricing for our hydraulic fracturing and other services. On a segment basis, pressure pumping revenues increased to $84.3 million year-over-year, while revenue from other services were relatively flat. Cost of services increased 86.3%, or $69 million -- $69.3 million to $149.6 million for the first quarter 2017, from $80.3 million for the prior-year period. Cost of services in our pressure pumping segment increased $70 million year-over-year, primarily due to higher activity levels. As a percentage of segment revenues, pressure pumping cost of services decreased to 87.5% for the first quarter of 2017 as compared to 92.2% for last year's first quarter. The decrease was associated with approved pricing as demand for our services increased without a substantial corresponding increase in costs. General administrative expenses increased $14.1 million to $19.9 million for the first quarter of 2017 versus $5.8 million for the similar period in 2016. The increase was primarily attributable to $13.2 million of nonrecurring expenses associated with the IPO. Excluding these nonrecurring expenses, G&A as a percentage of total revenues decreased to 3.9% for 2017 first quarter as compared to 6.6% for last year. Interest expense was $5.2 million in this year's first quarter versus $5.4 million in the first quarter of 2016. The decrease was primarily driven by a reduction in our average debt balance during 2017, due to the early retirement of our term…

Thanks, Jeff. Following our success of the first quarter, we have a positive outlook for the balance of the year. The timeline for bringing on our newbuild spreads is on track and increasing customer demand for our services supports our view that our fleet will continue to be fully utilized. We also look forward to further expanding into the Delaware Basin, which should help drive further growth beyond 2017. We will continue to work with our customers to improve margins. However, improvements will be dependent on a number of theme, mainly, the stabilization of oil prices and input cost volatility. I truly believe that ProPetro is uniquely positioned to thrive moving forward. Over the last 12 years, we have built a business known for its superior fleet, service quality and safety record, supported by an exceptional theme. The vast majority of us in the company grew up in the Permian; as such, we don't just have business relationships with our customers, we have personal ones. Our customers are the best in the region and we pride ourselves on working closely with them and understanding their needs. Our word is our bond and we do business based on fostering deep, long-standing customer relationships. This is the lifeblood of the company. This view has served us well for many cycles of the business and will continue to be our guiding principle as we move forward. You stay fully utilized by taking a long-term view. This means balancing the needs of your customers and their evolving job mixes with our desire to maximize the efficiency of our fleet operations. The bottom line is that if our customers succeed, we do as well. I want to once again thank the ProPetro team as well as our customers, suppliers and financial partners for our success today. In addition, again, I want to thank our new shareholders for their support and confidence in our efforts to further build a thriving business that will drive value over the long term. So with that, we will open it up for questions.

[Operator Instructions] The first question comes from Jim Wicklund of Crédit Suisse.

And Dale, your comments about your customers being your neighbors and the qualitative comments. We hear that from time to time to companies, but when 90% of your fleet is 24/7 and you're 100% utilized, it means a whole lot more. So congratulations.

Jim, thank you, and thank you for joining us and your kind words. We appreciate that.

It's going to be a fun ride. Dale, what do you have to -- you talk about entry into the Delaware Basin, assuming oil prices at some point stabilize somewhere around $50, which is, of course, big leap today. What will it take for you to add more capacity in '18 in terms of activity, commitment and price? And I say commitment because I know nobody's signing long-term contracts or anything. Investors are spooked that commitments and handshakes can go away with oil price. So can you talk about what you'd have to see, know, feel, have for you to spend more money and expand the fleet in '18?

Obviously, Jim. I mean, the volatility of oil price has everybody's attention today. But taking a long-term approach and having the history that we have, you sure better know the economics that your customers are stared in the face with. And we are interfacing with them on a daily basis. They know their economics. Obviously, we don't know what oil prices are going to be tomorrow, much less next year. But it's with great confidence, being in the low-cost basin and the history we have with this customer base, and with others somewhat in the queue that, there's no doubt in our mind that, that capacity and that demand is going to increase in the Delaware. It's not that far from where we operate right now. So it's not a Herculean effort to be prepared for that add. But I guess to answer your question directly, it will evolve. We are a very nimble, very quick to respond in both directions and it's with great confidence as we look at that opportunity and the economics of this basin, that we'll be a net winner in that expansion. I hope that answers your question.

It does. I'm going to drill down one point, though, Dale, and that is pricing. We understand from the companies that have reported and that have been asked on conference calls and it seems that so far, everybody's gotten somewhere around a 25% price hike in pressure pumping since the beginning of the year, as the incentive to reactivate equipment, which we're seeing a lot of people doing. And you noted that you've had pricing improvement in the first quarter. When and how much is going to be the next leg of pricing in your opinion?

Well, I don't -- again, we don't do anything without input from our customers. And so you're not going to hear anything from us that we're going to drive pricing.

Understand that. Understand that. That's why I'm asking, what do you think it will see from an industry perspective? I mean, I understand you're fully utilized, you're going to have reactivation cost, you're buying new stuff. But what will the industry have to see in '18 in terms of a price improvement to be able to justify -- you said before, you needed 20% margin new equipment.

Yes.

So I know you'll follow. But when do you think we'll get to the point where that will be economic and broadly happen in the industry in terms of price?

Jim, this is Jeff. Just as -- we had kind of given guidance previously to the market, that the -- even the evaluation that we did on these 4 fleets we're routing in 2017. That was based upon estimating midpoint 2018 pricing, where we would think that margins would be in the upper-teens. And if you presume that for pricing in midpoint 2018, that generated paybacks for us based on the cost of all our equipment for the newbuilds of payback metrics that were sub-3 years, even after including maintenance CapEx and probably closer to 2 years, based upon adjusted EBITDA.

Excellent, Jim [indiscernible].

So anything that we would add in 2018 would be following that same type of metric.

Next question is from Daniel Burke of Johnson Rice.

Just wanted to start with the actual Q1 results. Look like pretty strong implied sequential incremental margins. Could you offer any further diagnostics on whether we're really seeing net pricing there or mix effects flowing through the P&L?

Well, I mean, since we were fully utilized in Q4 of '16 and as well in Q1 of '17, ROIs -- and didn't change the horsepower that we had out there, the increase in revenue was entirely driven by the increase in pricing.

Okay, that's nicely succinct. And then, I guess as my follow-up. In terms of the fleet you started up last week, you guys are practiced hands over last year in terms of ramping back up. But I mean, can we infer that that fleet will be operating at effectively full utilization for about half the second quarter? And how do we think about the op cost that you guys did incur as you activated that newbuild fleet?

Yes, I mean, you can presume that it's active for 50% to 2/3 of the second quarter. As Dale has already told you, it went to work on the second and we don't anticipate that its utilization will differ at all from many of the fleets. I mean, it's fully booked.

Okay.

And it's -- as far as the cost, the costs that we -- with newbuilds, the costs that we incur in order to put a new fleet out primarily relates to the personnel that we add 30 to 60 days in advance. We will hire them and train them up, and so everything is ready to go when the fleet hits the ground. So it's minimal, limited to that.

And the next question is from Waqar Syed of Goldman Sachs.

Dale, in terms of stages per month per crew, in the past, you've been running -- you've been targeting 125 stages per month. Is that close to where you ended up in the first quarter as well? Or...

Yes, very close to that number and feel comfortable going forward with that number, Waqar.

Okay. And then in terms of the contribution of this hydraulic fracturing business or fracking business to the overall revenues. What would you say that, that contribution was in the first quarter?

Waqar, I can tell you that we've already disclosed the pressure pumping revenue was $163.8 million. I can tell you that fracking revenue was 95.1% of that total.

Okay, great. That helps. And then what was the cost of the fluid ends in the quarter that you capitalized? And then we've heard in the past, there was some backlog in buying those stainless steel fluid ends. How does that market look now?

I guess the best way I can answer that is as far as the fluid ends is, the loss on sale that we reflect on our books, of the $10.4 million, I can tell you $9 million of that $10.4 million were related to the write-off of fluid ends. Now having said that, I will also tell you that the expenses that we incur for all maintenance CapEx, and fluid ends is no different, is extremely inconsistent and for lack of a better term, it's lumpy. And I would -- we were still give guidance, as we have previously, that from a modeling standpoint, I would still project maintenance CapEx at 6% to 7% of our total revenue. And historically, fluid ends have been 2/3 of that number. Now with the conversion from carbon to stainless steel fluid ends, that number, as a percent of total maintenance CapEx, could actually decline slightly, but I couldn't lead you to a specific percentage. But the -- our conversion from carbon to fluid continues, continued throughout the first quarter. I can tell you that we ended the first quarter with about 25% of our fleet having stainless steel fluid ends. And we would think that, that percentage would continue to escalate through the second quarter. And we would hope to be 100% stainless by sometime in the third quarter of '17.

[Operator Instructions] The next question comes from Will Thompson of Barclays.

Just in terms of the initial guidance you gave earlier this year in terms of revenue per stage. Should we still think about the projection or that trajectory? Has anything changed there, just maybe some color on that?

No. I mean, I think that, obviously, we ended up with a little better EBITDA margin than what we had actually projected for the first quarter. But given the volatility in the markets, we would not probably actually change our guidance for the total year of 2017, which puts us finishing the year with margins somewhere in the low-teens.

And then in terms of -- you alluded to the volatility and input cost. Can you just talk about the strategy of managing that cost? Some of your peers have indicated, they think that the sand cost inflation may abate in the second half of this year. Obviously, you guys in the Permian are probably tracking closely to the in-basin Permian sand deposit potential there. Just can you give us some color there?

Yes, I think the guidance others have given, is probably on point. There are always going to be bottlenecks in this business, as far as sand. I don't want to spend a lot of time on sand this morning. But the conversion or the job mix, the finder mess size, actually has put a pretty good strain and it's an industry problem that will work itself out. Those bottlenecks always do. I think the regional sand is absolutely going to have a major impact as people get comfortable with the prop tester and Stim-Lab results of that regional sand. And that probably will help on a lot of fronts, both pricing and availability. So we're watching that real time and making sure we put our company in a very good, light position to take advantage of that opportunity, should it be available.

And just a last quick one here. Just in terms of the contracting strategy. How often are you having pricing conversations with your clients? Is that kind of the beginning of the quarter, is that a closed base? I'm just trying to get a sense on how frequent those conversations are as you try to sort of mark-to-market pricing and -- on your fleets?

Yes, we -- the guidance we gave to everybody when we were on the Street, we had started those conversations way back with our customer base. And I think you've heard me speak to several times that, we -- the last thing our customers are going to have are surprises from us. And they've given guidance to the Street on their budget. So we feel very comfortable with the margin guidance we've given you for '17 and that continues to be embraced by our customer base and we don't see any deviation from that.

The next question is from John Watson of Simmons & Company.

John Daniel here calling in for John. I got a real quick one. I apologize, I jumped on late. I guess, the first one, Dale, is just given your guys' proximity to customers living over there Midland, how would you just characterize the leading edge customer sentiment, sort of what their thoughts are, given with oil where it is today?

Very confident. These guys aren't living their life day-to-day on oil price. I think they put things in place. They've made some big bets on acreage and that's a smart group of folks. And so I don't see any sentiment change. I don't see anything that would change that view of where they're going with those assets and what they plan on doing here in '17.

Okay. On the fleets that you're deploying now, are you guys supplying sand or would those just be straight pumping charges, just so we can think of revenue?

The -- to be specific on that fleet, those were talks that were put in place in '16, and it's with Pioneer. And obviously, they self-source, they have their own mine. And so that will speak to that fleet.

That's Fleet 11.

Fleet 11.

Given the destination for the other 3 fleets, we don't have any reason to believe that they will self-source, that we will probably be providing sand for those as far as we know today.

Okay. But that does temper the revenue expectations a tad just given the...

That's correct, John.

Okay. Fair enough. Just 2 other questions, quick ones, from me and then I'll let others jump in. If you could speak to your other services, the drilling rigs, the coil units, just what the relative utilization is there, outlook going into the rest of the year?

Yes, that demand continues to be strong. Pretty much 100% utilized on all fronts there, John, and lots of opportunity within that product offering, as well in the different places that we operate those. So very -- we're in the same position there as we are on our pressure pumping side.

Yes, John, to give you, I guess, just one more tidbit of clarity on that. I can tell you that the absolute dollar value of revenue quarter-over-quarter from Q4 of '16, Q1 of '17, increased in every one of those business segments, with the exception of acidizing. That was relatively flat. But every other segment showed an increase.

Fair enough. And the very last one from me. Just any -- are these regional sands, or finer sands, whatever you want -- are they having any greater impact in terms of wear and tear on the fluid ends and pumps? Or is it the same?

The finer -- John, the finer mess size, obviously, probably is a little harder on the equipment, no doubt about it. But that's not going to change anytime soon. So the industry adapts and we will adapt to it. And I think the good news is the majority of our customers know and the majority of our customers will help us navigate that and give us margin help to make sure we show up on location with the type of equipment they expect. So but very good point and that trend will continue to be the smaller mess size. I don't see any changes there on the horizon.

Sounds like a nice way of saying you're putting a surcharge on for fluid ends or something like that for this.

Well, what I'm saying is, we'll ask our customers for help and we're pretty sure they understand and they'll help us.

[Operator Instructions] The next question comes from Sean Meakim of JPMorgan.

So just taking a little bit further out on the cost side, it seems like not much of a challenge to date. But just think about any pain points on the horizon, I'm thinking about that increase in the Delaware mix over time. Any issues to watch out for with respect to putting your fleets to work? Or even just hiccups from your customer side in terms of water or power, just kind of the lack of infrastructure in the Delaware? Just curious how you see that unfolding as we get later into '17 and eventually into '18?

Sean, probably the best way to handle that -- the good news for us and how we ran our business, aligning ourselves with folks that are really, really, really good operationally. And we're not hearing of any of those issues with our current customer base that gives us pause of concern. And I think the folks and the customers we serve that have jumped from the Midland Basin to the Delaware will continue on that same path of great execution in the field and that's why we work with them. So yes, I don't see any pinch points there in the Delaware of concern that will hinder our ability to perform and in the manner we have in the Midland Basin.

Okay, that's always good to hear. Just thinking about labor, in the Permian. Some of your competitors had to ship in folks, just given the lack of available bodies in Midland. And seems that you guys have been able to add folks without too much inflation or other challenges. But just given how well connected you are to the region, just curious how you see things out there in terms of the competition's ability to crew up and just how that could eventually impact the fleets you have to crew up in the second half of the year?

Yes, that really is -- thank goodness it's an easy answer. It's a testament to our people, Sean, and the fact that we grew up here and the managers in place that are managing that process, training, retaining, motivating. We've got a really nice history here with the folks that are leading that charge. But it's been seamless since we got into this space in Q4 of '10. And I don't see anything changing there in our ability to attract and retain the customer base to man out our expansion. And again, kudos to our people and attracting the right folks and retaining them. And we just -- we're not having those issues others probably are having.

Do you see any shift in terms of being able -- or is there preference in terms of bringing in green hats versus now as more people are kind of -- as industry gets back on its feet, bringing in folks from other competitors? Just how you think about that dynamic of the folks you bring onto your crews?

Yes, we mix -- that's a mix as we bring in our cruise and part of the secret sauce is being able to mix in trained, longer-tenured folks within each fleet, sprinkled in with green hats and that's been a great recipe of success.

Your next question is from James West of Evercore ISI.

This is Alex on for James. I was curious whether, as the Eagle Ford and the Haynesville and Mid-Con kind of continue to ramp, whether you've seen any crews, who came into the Permian in, call it '16 and returned back to their home basins?

Alex, we haven't seen that. Obviously, our focus is the Permian. And to give you a little bit of history, when we got here in Q4, there were like 8 pressure pumpers. Q4 of '10. We looked up and Q4 of '11, Q1 of '12 and there were 36 entrants. So folks come and go in this basin. Keeping track of that, this is not something we do. I think human nature is, you bring people into this basin that aren't from here, they really would like to be where they're from and where their families are. So as those places pickup, they're going to go back home. And that's part of our success. This is where we're from and this is where we're committed and where we're going to be. So I don't know if that answers your question, but we're not dealing with a lot of those issues that others may have.

No, it's helpful. Second question was more so on second quarter. Should we expect any -- on the top line, beyond just the incremental activity from the '11 spread? Have your, I guess pricing conversations indicated any pricing increases of magnitude for second quarter?

No, we -- no, I think the guidance that we gave and Jeff has laid out, we're going to stay on that same trajectory and price strategy with these customers and we're very confident. So no we're not -- you're not going to see a big price push from ProPetro to the market.

The next question is a follow-up from Will Thompson of Barclays.

Your comment around Permian being undersupplied currently. Can you just comment, what is -- what do you think is the lead time right now, if I were to ask for a pressure pumping crew? Or how far are your customers looking out in terms of their completion jobs and making sure they have availability of supply?

Yes, I think the best -- well, I think the best way to answer that is when you look at -- maybe this will help your -- answer your question, that we're roughly at 350 rig . Takes 1 fleet or 1 spread to take care of 2.5 rigs. So you're looking at roughly 140 frac spreads to take care of this situation out here. And that's roughly, what, 6 to -- between 6 million and 7 million horsepower. It's going to be quite a challenge if we're going to continue to add rigs at the pace we are. To get into a big macro discussion of where a lot of these customers -- where that's going to come from, I don't know. And I think it'll continue to be a big issue as this -- especially if we stay at a $50 to $55 commodity price. So I don't know what the lead time is. I know we can't get the equipment here fast enough with just our current customer base. So it's going to be a real challenge for the industry, no doubt about it. And so I guess that's -- I don't know that I answered your question. But it's going to be a challenge for a lot of folks.

Okay. And just to avoid any confusion, the low-teens margin by year-end, we're referring to EBITDA margins, correct?

That's correct.

The next question comes from Marshall Adkins of Raymond James.

We've seen a kind of reactivations, in the frac industry in general here over the past 6 to 9 months. Are you all seeing that? How far along are we, on the competitive landscape? I know you drive by everyone's yards out there and you see the equipment. Just give me some sense of how far along we are in getting the equipment that was stacked back and working for the industry as a whole?

Marshall, is this a trick question?

Yes. But answer as you wish.

Marshall, what -- obviously, there's been a very -- everybody's talking about a macro story and lots of that going around. I think you guys, when you hear Analyst Day, we talked about what's going to differentiate a lot of this equipment and companies, so to speak, is the micro side of this equation. And when I say micro, the closer you get to the wellhead and running these spreads 24/7 at the intensity and the rate at which you're going to have to run to take care of your customers, I think you're already hearing a lot of information being sent out that this -- the cost of redeployment, seems to be creeping up. And I think all that points to, I guess, there was a lot of idle equipment on the fence, but we got to do some more work on that equipment, and I think that's going to continue. The good news is we're going to need it all here to take care of these customers. So there's a plenty of room for everybody. But you've heard us say, not all horsepower is created equal. So I don't have a number for you of how much of that is here. I would say, all of it that can get here is here. And how fast all that comes to light and answers to your trick question, I can't answer. But it's going to be a real challenge for the industry. Marshall, if you could tell me what oil price is going to be in 6 months, I may could even give you more detail. Would you -- can I ask a question with your question?

Yes, our core -- actually, oil's going to be a lot higher, I assure you, in 6 months. And it's going to be at least $15, that's an easy one. The hard one is figuring out actually how much horsepower is out there, so.

Well, I like your answer. You may not like mine. But you rest assured, if you're right on your price, the bottleneck's not going to be sand or hydrochloric acid or other things, it's going to be horsepower.

Well, that leads to my next one. I keep hearing on job sizes, these crazy numbers in terms of amount of sand and the size of the job going higher and higher. Give us the latest trends on what you're seeing there? I mean, is that job size trend where you're pumping the unit train plus, still just marching up and higher and higher?

Yes, I think it's -- I think, it continues to march up. I think one of the things that it will dictate that is, if sand kind of subsides on a price situation. That's going to limit some of that, pound per stage metric. But I don't see it continuing to get too crazy, Marshall. I think it'll plateau. But obviously, there's still a lot of science in this development out here and with all the different benches. And there's a lot going on out of here in the Permian that people are still trying to maximize and figure out in these reservoirs. So I don't think it's crazy as maybe the market can make it. And working with the folks that we do, they've come to a pretty good place that they're very confident in the job mix and procedures. So I think it's -- but it is crazy and it is a challenge on this side of the table.

Intuitive, we all know it's -- I mean, there's a limit, right. It should plateau. But are you seeing that plateau yet? It sounds kind of like just from your tone that we're not at the plateau yet. But intuitively, it should be on the horizon.

I would say close. Yes, Marshall, I can give you some specific information with regards to where we were quarter-over-quarter from fourth quarter of '16 to first quarter of '17 and that the stages per well that we pump, it actually increased 6.3% quarter-over-quarter. And the sand per well pump actually increased 3.5% quarter-over-quarter.

That's a great metric. I have still one last one, I'm probably the last guy on the call. So this tightening as everyone has reactivated, and we know the costs are going up. Are you seeing bottlenecks in getting different types of equipment? And I know this has been asked in a different way earlier, but are you seeing meaningful bottlenecks on the equipment side at all?

Yes, Marshall, let -- I think, the best -- speaking of that specifically to us, no. Do we hear others? I think there will be bottlenecks, yes, that will push delivery times out in some instances. I don't have a lot of detail on that. But specific to us, we are very fortunate that we have a lot of smart people in this company and have prepared for this uptick. And the ability that everything we have on the pressure pumping side is here or the frac operations are here. And knowing this market has sure given us a leg up to prepare for this time. So I think there -- to answer your question directly, yes, there are going to be equipment bottlenecks in the industry as this ramps up.

This concludes our question-and-answer session. I would like to turn the conference back over to Dale Redman for any closing remarks.

Thank you, ma'am. I just want to again, thank everybody for tuning in today and look forward to our next visit and have a great week.

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