Good day and welcome to the ProPetro Holding Corp. fourth quarter and full year 2019 earnings release conference call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to, Sam Sledge, Chief Strategy and Administrative Officer. Please go ahead.

Thanks and good morning everyone. We appreciate your participation in today's call. With me today is Chief Executive Officer, Phillip Gobe, Interim Chief Financial Officer, Darin Holderness and Senior Vice President of Operations, Adam Muñoz. Yesterday afternoon, we released our earnings announcement for the fourth quarter and year ended December 31, 2019. Additionally, last week, we announced a number of strategic actions to align our cost structure to better reflect current expected lower activity levels. These press releases are available on our website at www.propetroservices.com. 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 the risk factors discussed in our filings with the SEC. Also, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Additionally, management continues to provide information to its independent registered public accounting firm in order to allow it to evaluate the sufficiency and scope of the audit committee's internal review and associated findings, as well as the company's proposed remediation plan. Management is working to complete its preparation of quarterly and annual financial statements to allow its independent registered public accounting firm to perform quarterly reviews and an audit of the financial statements as of and for the year ended December 31, 2019. The company cannot currently predict when this process will be completed. The company also continues to work diligently to become current in its filing obligations with the Securities and Exchange Commission as soon as reasonably practicable and it currently expects to do so prior to the expiration of the additional trading period granted by the NYSE on July 15, 2020. Finally, after our prepared remarks, we will answer any questions related to our results and operations. However, we will not answer any questions with respect to the internal review, the SEC investigation or our outstanding litigation. With that, I would like to turn the call over to Phil.

Okay. Thanks Sam and good morning everyone. We appreciate you joining us for today's call. Given the timing of our call as well as recent developments with the COVID-19 pandemic and the depressed commodity price environment, we plan to focus the majority of today's commentary around the market and operational update. But I would first like to congratulate the ProPetro team on yet another strong finish to closeout a solid year in 2019. Our team proved throughout 2019 that our strong employee-led operation and blue-chip customer base continue to foster a truly differentiated service offering. We will leverage these differentiating factors to compete and protect our balance sheet in today's rapidly changing market. With that, I would like to turn it back to Sam for a quick financial overview.

Thanks Philip. I would also like to thank our team and our customers for their continued efforts in the field. Without our employees' daily service to our customers, none of what we do is possible. As Philip mentioned, we would like to spend as much time as possible today speaking with you about more recent developments. So, I would like to refer you to our press release that we published yesterday for quarter-over-quarter and full year financial commentary. That said, I would also like to highlight what a solid start to 2020 we have had with effective utilization in the first quarter of 18.6 fleets with strong efficiencies and a favorable job mix. Although due to declining activity in March, we no longer expect our first quarter financial performance to meet current consensus expectations. I would also like to take a moment to reiterate ProPetro's strong balance sheet and capital structure. As we announced yesterday, as of March 30, 2020, we had total liquidity of $193.4 million, including cash of $143 million and $50.4 million of available capacity under the company's revolving credit facility which had an outstanding balance of $110 million at March 30, 2020. Although our borrowing base will be adversely impacted by the expected decline in our customer's activity, our discipline and commitment to executing projects with positive returns will also allow us to protect our capital structure. With that said, we continuously look for ways, both internally and externally, to protect the financial health of our company moving forward. I will now turn it back to Philip.

Okay. Sam, thanks. I would like to turn and take a chance to give you a brief update on our DuraStim project. As we have previously announced, our first electrically powered DuraStim fleet began its first pad on January 5. The fleet successfully completed multiple stages on one pad with some limited assistance from conventional fleets that were supporting the operation. During this acclimation process, our team saw promising developments from the DuraStim system. Through close collaboration with our manufacturer, we have made improvements to certain parts of the system. Upstream of the DuraStim pumps themselves, we witnessed outstanding performance from the electric motors, the electric distribution equipment, the turbine powering the fleet and the gas delivery system. In February our team along with AFGlobal decided it would be best to remove the fleet from our customer's location and return the fleet back to the manufacturing facility so some modifications could be made to things like the software and the calibration to pump cylinders. At the time, we believe this was the most effective way to allow our manufacturing partners the opportunity to make the adjustments to the equipment in a controlled environment so we did not risk interruption to our customer's operations. We also believe these modifications to be vital to allow us to provide an efficient service to our customers going forward. As I mentioned earlier, along with our first DuraStim customer, we remain encouraged by what we have seen thus far from the system in the field. Although we are still early in the process of proving this technology, we have already seen early signs of prolonged life of certain expendable parts that we believe will eventually lead to a more efficient and cost-effective operation. We also continue to evaluate and improve the system and its operation…

[Operator Instructions]. Our first question comes from Praveen Narra with Raymond James. Please go ahead.

Hi. Good morning guys. Hope everything is okay otherwise. I guess I had a question, maybe if you can give us a little bit more color on the number of crews maybe that are working today or what you have line of sight to? Or any color you can give us? Obviously, it's a fluid situation and so not holding it to you, but just any color you can give on activity today?

Yes. Praveen, this is Sam. Obviously, you are exactly right. It's a very fluid situation and it tends to change on a daily basis and sometimes multiple times within a single day. I can tell you, from an effective utilization standpoint, we did enter into the first quarter right around 20 fleets and it looks like we are exiting March just under 17 fleets, 16 fleets, sorry, from a monthly average. We do think it goes lower from there. Like I said, it's changing on a on a daily basis almost, but that's kind of the trend that we saw throughout the first quarter with the last couple weeks of March taking a significant step down.

That's helpful. And then I guess maybe can you talk about the threshold on cash flow or EBITDA per fleet that you guys are seeing as necessary to keep a fleet working? And what are you seeing from your competitors as your customers are asking for what seems like pretty steep pricing requests?

Yes. I mean it's hard to see what the competitive environment is in general right now because of how quickly things are changing and how quickly most of our customers are reevaluating their plans. We can tell you, our goal moving forward is to remain cash positive, right. There might be some more extreme measures that we are willing to go to from a pricing standpoint that we haven't gone to in the past. But not knowing the longevity of this downturn and just really not being able to have very much visibility across our customer base, we are going to do whatever we can to remain cash positive and keep as many members on our team through keeping as much activity as we can in this environment.

Okay. Thank you very much guys.

Our next question comes from Sean Meakim with JPMorgan. Please go ahead.

Thank you. Good morning.

Good morning.

Can we maybe put some more parameters around expectations for your cost reduction targets? And so if we talked to variable versus fixed costs? Just trying to get a little more of a handle of how you think that progresses as we go through 2020?

Well, I think right now as we look at that, obviously we have cut out the growth CapEx and new technology CapEx, reevaluating maintenance CapEx. As you are probably well aware of, our overhead is extremely low, so not a lot of money to be stripped out there. We have got our vendors working in coordination with us on lowering prices of certain equipment and services we got. We have eliminated a lot of the work we outsourced and bringing that in-house. So there are a number of levers we are pulling right now at this time. And again, we are very concentrated. We are able to react quickly to the environment we are in and we have got a plan that looks at the activity of various levels and the various levers we can pull.

Yes. And Sean, I think I will add to that is that, it is both variable and fixed in terms of savings we are seeking or we have already executed on. Just as we were very effective in years like 2017 and 2018 scaling up, we think that experience across our operating team is very helpful in an interesting way in scaling down as well. Our operating team is very effective at rightsizing the operation to whatever activity level that we are experiencing. So we are reacting as quickly as we can and we are seeking savings across the entire region.

Okay. Fair enough. I appreciate that feedback. And then, could you maybe just reaffirm the contracts with Pioneer as well as to the three DuraStim fleets? Are those as firm as they were three or six months ago? Is there anything else you can elaborate on with respect to the context around those contracts?

Yes. I will speak to the Pioneer contract quickly and I will let Philip talk about the DuraStim options. Really at the heart of our agreement with Pioneer was to make our business may be a little more structural and a little less cyclical and to plan for times of both looseness and tightness within the market. That contract has been functioning as we hoped it would add to this point to allow Pioneer to adjust their activity as they see fit. So we feel good about working with Pioneer through this time. We think we have got a great relationship there. And I think both sides are willing to be as collaborative as possible.

As it relates to the DuraStim, we are working with a great partner with AFGlobal. They have been very responsive to our concerns and needs. As you will recall, I think the first DuraStim fleet was deployed lighter than we expected. So we didn't get the amount of time we wanted to evaluate it. They recognized that and told us they would be willing to think about extending the option periods given the time we needed. I talked to him again last week, given the current pricing environment and the macro picture right now in oil. And they understand the issue is growth capital is pretty much cut out and right now you are down to maintenance. And they told me that they would push our options out and work with us so that we both end up in a place that works for both of us. But they are very cooperative with us. They understand the situation and they are working with us closely on it.

Well, thanks Philip. Just to clarify, my question was really directed with the customers for the three committed fleets?

Well, I would say this, where we are deployed now, given the environment we are ion and the reduction in net customers, particularly in the number of fleets that were running and at what they are at running now, I think it's a big tribute to DuraStim that they agreed with us that they wanted that fleet on location. They believe in the technology. I think they believe that going forward, we are going to be in a lower priced world. They need new technology that's more efficient, less people, less cost to run and they are willing to let us bring it out and continue. So we are now deployed for the second time. As far as the other commitments, I don't have enough knowledge. I don't know if they were ever firm commitments. But at this point, we have got extensions on the three options and one in service. And we will see where it goes from there.

Our next question comes from Tommy Moll with Stephens. Please go ahead.

Good morning and thanks for taking my questions.

Good morning.

I just wanted to follow-up with one more on DuraStim. So for what you have paid for and taken delivery of versus what you have got options on, are there three fleets that you have already got paid for? Or is it just the one? And then you have referenced options a few times. Any detail you could give us on how many that applies to would be helpful. Thank you.

Yes. We have essentially paid for the three DuraStim fleets we committed for. Virtually all of that capital has been paid. As far as the options, it is for three additional DuraStim units. And as I mentioned earlier, those options were due to play out through this year when we have got the an understanding with AFGlobal that we can push those options out which we will do.

Got it. That's exactly what I was expecting you would say and that's helpful. And on the power-gen side, obviously you have got one power-gen set that you have taken possession of and are deploying in the field. Do you own the power-gen for the other two DuraStim fleets that you already have? Or that a TBD item just based on demand at some point in the future?

I would say it's a TBD item. There is a dialogue going on, on who is going to own that power. Is it going to be the operator? Is it going to be the customer? To your specific question, we have the one turbine that is currently in operation on the pad where our DuraStim fleet is. And we have another turbine that is paid for that's available. But where we go from there on power, I think is still an open question. And whether it's going to be a turbine or another power source still remains to be seen.

Yes. And Tommy, I will just add to that. We are seeing some pretty rapid innovation on the mobile power side of many different types. So I think we are all, us and our customers that are interested in DuraStim, are just fine, kind of letting a little bit of this play out to see that if a more creative, cost effective solution comes to market here over the coming months. So that is obviously something we are watching very closely. There is a lot of innovation going on in that arena that is only going to make those systems better.

Yes. That makes sense. Pivoting to another topic here, dedicated agreements. For the customers that you have really got the close relationships with or have had historically under the dedicated type arrangements, how much visibility do you have in terms of the type of work that they are going to have for you? Even at a much reduced utilization, which we all expect and you have indicated as much today, just in terms of the fleet that you have laid down, but for those where you do expect to have work, let's just say in the second quarter or even one month ahead, if that's all the visibility you have, is it still a dedicated type of arrangement where you have got pretty good insight? And what pads, how efficient you can be, all that? Or is it really just, like you said earlier, Sam, evolving on a daily basis and hard to really predict? Adam Muñoz: Tommy, this is Adam Munoz. I would say the relationships we have and the fleet that we currently still have deployed, are definitely of that dedicated model. It's still with customers that have been with us for long periods of time and assured commitment from the operation field level to the office level. But like Philip and Sam were saying, this is a real fluid time we live in and things are changing day-by-day, sometimes multiple times a day, like Sam said. So visibility, it's really tough to judge right now, just like I guess our operators are being at the flap of the theater fans, I guess and just operate as well they can in this tough environment that we are living in and basically be focused on day-by-day operation.

I think events are moving so quickly that there is talk of proration, there is talk of oil storage filling up. That seems to be the general consensus. I am not sure that our operators know what their activity level is going to be. So at this point, I think it's amazing how much the world has changed in 30 days and I think at one point we thought we had some pretty good idea of visibility into the activity. We had some confidence around it. But I have to say, in the last two weeks, things are evolving so quickly that it is very difficult to anticipate what activity level any operator is going to be have going forward, just given what's going on, on the macro level.

All right. Thank you guys. I will turn it back.

Our next question comes from Scott Gruber with Citi. Please go ahead.

Yes. Good morning.

Good morning.

I wanted to touch on maintenance CapEx. I assume with lower utilization, you can defer some external purchases and there should be some deflation on parts as well. How should we think about maintenance CapEx per fleet going forward?

Yes. Scott, that's a great question. We had some learnings from the fourth quarter of last year when we saw our utilization come down off of 100%. We used a lot of that extra equipment to kind of redeploy it to the active fleets. We saw efficiencies go up, downtime go down. And that's basically what we think produced those profitability numbers for us in the fourth quarter. We also think that using that extra equipment to, say, increase the size of the active fleets is only going to prolong equipment life for our large component items that fall into our maintenance CapEx, engines, fluid ends, power-gens transmissions. So we think that we will have a lot of opportunities with some extra equipment to manage the per fleet maintenance CapEx spend down. I think our most recent guidance in 2019 was when we are very active we expect to spend about $7 million per crew per year in maintenance CapEx. We think we can take a pretty good cut to that number. We are still working through internally what we think that number might be. But there is no reason why that number shouldn't come down pretty significantly as our activity comes down. It's still, in essence, is an activity-based spend, right, because we will minimize if not totally cut maintenance CapEx spending on equipment that is parked and only spend maintenance CapEx dollars on equipment that is supporting the operation.

But it is fair to assume that you would be able to defer some external purchases and maybe cannibalize some parts on what's inactive in addition to some deflation as well. And any color on the deflation potential?

Yes. I think things like cannibalization are kind of a last resort. We wouldn't want to do that unless we had to. But you are right. If we use this excess equipment on our active fleets, prolong the life of these large components then we are, in essence, deferring maintenance indirectly by prolong equipment life.

Got it. And then just circling back on DuraStim, just to clarify, assuming the first DuraStim fleet hits the required milestones, are the customers committed to taking fleets two and three at this point? Or is that at their discretion?

No. We don't have any hard commitments for those, Scott. But I mean just the market in general right now, there is just not visibility for anything, right. And I don't know if it matters what type of equipment you have right now. Activity is declining so rapidly and I think the economics, our customers economics are so threatened that it just might not matter. Are we still very encouraged by DuraStim and do we still believe that it's going to take a different type of equipment to play the game that we play? Yes. Will we keep searching for those tools? No doubt about it. But right now, it's much more of a fight.

That's good. If I can just slip one more and sorry if I missed this earlier. What's a reasonable adjustment EBITDA per fleet for 1Q on the 18.6 active fleets?

Really, all we can say right now is, because we haven't seen data for March, is that it is down. It is a good step-down off of Q4 levels. And that's about all we can say at this point. Okay. I appreciate it. I will turn it back.

Our next question comes from George O'Leary with TPH & Company. Please go ahead.

Good morning guys.

Good morning.

Good morning.

I just wanted to piggy back on Scott's question to make sure I am understanding the kind of maintenance question correctly. So I wonder if you could frame maybe the average size of your active fleets, point in time today or in March? And then it sounds like, as you beef up the fleets with some of the idle equipment or you guys are maybe just going to run more pumps, but pump at lower rates to defer that maintenance. Is there any of that horsepower that's also being used as rotational or backup horsepower on the pads? I just kind of want to understand all those moving parts. Adam Muñoz: Yes. George, this is Adam. Currently, I mean if you are talking current fleet out there, we are probably at 50,000 horsepower, hydraulic horsepower per fleet on location which already allows us the additional equipment to operate at a more efficient and with less wear and tear on the equipment. But to answer your question, yes, we are working closely with our maintenance division and the rest the operations team as far as developing, per se, you can just call it like a leapfrog system with the spare equipment that we are going to have here at the yard. And I think Sam led to this on the last question, but to kind of extend the calendar life of this equipment by rotating it from pad to pad on the active fleets and reducing the amount of wear that each piece of equipment endures on a job-to-job basis.

Okay. That's very helpful, Adam. And then you guys mentioned you want to stay cash positive if things get kind of as bloody as it seems in this, I guess macro backdrop. So does that mean, in your eyes, is that keeping annualized EBITDA per fleet above wherever that maintenance CapEx level settles out? Or do you think about that through different strategic lens? Just curious how you think about cash flow positive?

Yes. George, I think when you hear us say cash positive, that's EBITDA minus maintenance CapEx at the fleet level. We obviously have overhead to account for outside of the fleet level as well. We are doing our best to account for that kind of more fixed cost. Yet as activity fluctuates, that calculation continues to be a bit of a moving target. But in essence, the end goal is to remain cash positive, right. We don't have much interest in burning cash just to keep equipment to work. I mean that said, we think that in times like these, it will be more efficient pressure pumpers that will really show the best because efficiency on location gives you the best opportunity to make EBITDA and therefore make cash with the fleet. So we come from a pretty good starting point on a relative basis across our peer group and we are trying to take advantage of that right now to not only allow ourselves to produce a positive return at the fleet level, but to stay active and to pose a very strong value proposition to the customers that are going to stay active.

All right. That's helpful. I will sneak one more in, if I could. You guys have, to your point, a blue-chip customer base but also a good mix of public and private operators as customers. I was just curious if there are any notable differences in behavior between the public customer base versus the private customer base? Or are we just all kind of in the boat at this point?

All on the same boat, going upstream.

I think that was the answer, but I thought I would ask anyway. Thanks Philip.

Thank you.

Our next question comes from Chris Voie with Wells Fargo. Please go ahead.

Thanks. Good morning.

Good morning.

So just to follow up on some of the activity questions. I totally understand the lack of visibility, but I am sure you are tracking your customers' announcements on activity and having conversations. I am sure you are aware of some incremental jobs that are likely to come. If you were to only add up the incremental fleet drops that you do have visibility for, can you give a sense of how much that might be compared to the 2016?

You are talking about what else do we have visibility for that might drop?

Yes. Based on their public announcements of your customers or conversations you have had?

Yes. It's just too fluid to quantify that right now. There is a significant downside to the 2016 number. I can tell you that. But quantifying that is fairly difficult at this time.

I guess --

Several of them have come out with multiple press releases on capital reductions. So it kind of give you an idea of just how fluid it is and how sentiments are changing, you know, if not weekly, it's getting to be daily right now. So it's very hard to get visibility, especially as stories fills up, that could change our whole outlook again.

Fair enough. And then on the pricing side, so obviously EBITDA per fleet and whether you can cover your pad cost is a function of efficiency as well and you guys are generally at the high end of the efficiency spectrum. But if we just think about the price level itself, can you give some color on where the leading edge is evolving to as the change quarter-over-quarter or where it stands compared to 2016 level?

It's a pretty wide ranges. As you know, Chris, we do our best to treat every customer on an individual basis. So given that we had a range of pricing and profitability within our own customer group to start with, you know I would hate to just oversimplify and stick and average on it. Everything is definitely moving down. And I can tell you from, just say, I mean we have taken a few steps in pricing here. We had some small steps in Q4 of 2019 down and we had some couple more small steps in Q1 of this year down. So as we have said before, it's a very fluid situation and we continue to work those numbers on a daily basis as we continue to alter our cost structure and pass as much of that along as possible to our customers.

Okay. And maybe just one more. In the release and on the call, you mentioned your borrowing rates were probably adversely impacted partly due to receivables. Can you quantify the extent that you expect it to be impacted? Is there a range you can give us?

The borrowing base is just basically tied to receivable, roughly 5% of receivable. And as activity goes down, the borrowing base will follow that.

Yes. It's going to be a direct function of activity, Chris. I mean, we are going to work with our lenders as best we can on this process.

All right. That's it for me. Thank you.

Our next question comes from Chase Mulvehill with Bank of America Securities. Please go ahead.

Hi. Good morning. I guess maybe a follow-up on a few questions we have kind of had about the current environment. We have seen some press releases from a few E&Ps about basically halting completions for a month. There are some through the end of the year. So I don't know if you can maybe just kind of characterize what you are seeing from your customer base about the potential for them to halt completions? Do you think that these are more one-offs? It's going to be more widespread? Just your general thoughts because you are having conversations with the E&Ps and we are not.

We are already seeing probably all the above. Obviously, one of our customers is out with a press release talking about a holiday on completion activity. And that's changed more than once. We are getting signals that given that the pipelines are now starting to at least signal that maybe oil isn't to flow, that it would be likely that completion activity will continue to go down. But it's all over the map right now. One thing you can say, as a general rule, everybody's activity is down. Who is going to go lower or who is going to stop is just no way to determine at this point.

Okay. All right. I appreciate the color there. Coming back to the DuraStim fleets. I guess when you took the one DuraStim fleet out in 1Q and did some modifications, were the modifications related more to cost, emissions or efficiency? Like what were you trying to improve? Adam Muñoz: This is Adam, Chase. It is primarily on increasing the efficiency of how efficient the equipment ran on location, more so like adjustments. The big one was adjustments to the software and how efficient it caused the pumping mechanisms or cylinder to pump on location. There was also some minor mechanical changes to the units as far as helping that unit perform and achieve its maximum performance.

And Chase, one thing I will add to that, aside from ProPetro, AFGlobal and our customer, they are working extremely well together, upstream of the pumping units themselves, right. If you work back upstream from the pump trailers to the electric motors to the electrical distribution equipment, the turbine, these things that Philip mentioned in his remarks, we saw outstanding performance in that area of the system. There were some minor tweaks that we had to make along the way. But just the electrical system itself performed very well.

Okay. Great. And one quick follow-up on the DuraStim. One of your competitors put out a paper and talked about electric frac versus Tier 4 DGB and kind of argued that the emissions profile for Tier 4 DGB was better when they looked at greenhouse gas emissions. I guess maybe, this is the first public conference call that we have really heard from anybody with electric fleet since that's come out. So I don't know if you have any comments about Tier 4 DGB versus electric? And whether you are looking at converting any Tier 4 DGB down the road? Or you are going to just go all electric?

Yes. I mean, there is something to the Tier 4 DGB conversation. And I think everything in that paper was factually correct. And is that something that we are looking at as well? Yes. We think you are going to need multiple tools because at the end of the day, we are providing a service to a customer and most of our equipment decisions to-date have been fairly customer-led or demand-driven. So if something like a Tier 4 DGB is something that's asked of us by customers that we have a good working relationship with, then no doubt that will be something that we will work towards. Our move with DuraStim and mainly electric was very customer-driven in itself and we think has benefits is in its own way.

Yes. I don't think I would link a turbine as the power source for DuraStim. That was just our election at that point for that power source. As I appreciate, AFGlobal will soon have a power generation system that will actually have a emissions profile equivalent to or lower than the Tier 4 Dual Fuel. So there are multiple options to generate power. But I think that paper was probably referring to the turbine generating the power. That's independent of the DuraStim product.

Got it. Okay. All right. It makes sense. I will turn it back over. Thanks gentlemen.

Our next question comes from Stephen Gengaro with Stifel. Please go ahead.

Thanks and good morning, gentlemen.

Good morning.

Two things I wanted to just touch on. And the first, you have rightly or wrongly, I think a lot of investors sort of think about ProPetro and they think about Dale and the relationships in the market, et cetera. As you go forward here, how do you manage the relationships? And how are customer discussions gone at this point? And can you give us some color and comfort around that?

Yes. I will take that. And Adam might have something to add. We contacted all of our customers the day of the release about Dale. The one thing I can say about Dale is, he founded a great company, took great people and then put in the work with some great customers. And through that process, the interaction with our customers happens at multiple levels right now. And while Dale was integral in getting the customer, keeping the job has been the efficiency and the effectiveness of the ProPetro employees on-site and on location. You can only get a job and keep it if you are performing. So I think our customers were very sad and disappointed to see Dale leave. They had great relationships with him. But first and foremost, they focus on the business and there they see no change in terms of morale, attitude and execution. Adam, I don't know if you have anything else. Adam Muñoz: I mean I think you hit it on the head right there, Philip. We definitely developed a great culture here at ProPetro that continues to survive even through these tough times. But I would second what Philip had mentioned, the relationships are up and throughout every customer we have at the field site as well as in the offices and at the higher levels. So the safety and the operational efficiencies that our crews perform out there have just been key to be able to keep those customer relations strong and moving forward.

Great and I thank you. I appreciate the color. And I guess as a follow-up, how are you managing the personnel in the field? I mean, obviously activity is coming down, you are working to keep your cost structure low. But it does seem like the efficiency of the crews is tied to the experienced employee base. And I think if I remember correctly, your retention rates are very, very high. How are you managing that process?

Yes. Stephen, it's tough, right. I mean we truly believe that our biggest assets are our people, right. We can all, at the end of the day, all the pressure pumpers, we can all go find the same type of equipment if we want to. But it is the people on location at the wellsite that make us different on a daily basis. So as activity changes, our focus on who those key players are within our operating teams almost intensifies, right. So if our personnel offering has to shrink with activity, it's not as simple as the crew that parks that those people aren't needed anymore. There is a constant analysis across the entire company of who are our best teammates, who helps us protect our culture and our operation. And it's an ongoing iterative process as we learn more and more about our activity levels.

Great. And I thank you for the answers. I appreciate it.

Our next question comes from Kurt Hallead with RBC. Please go ahead.

Good morning everyone. Good morning, Philip and welcome to the conference call. And hope everybody is well and healthy. Excuse me for my hoarse voice this morning. I just had a couple of questions here. So in the context of the dynamics at play in the market, we all know that it is very difficult to predict exactly what's going to happen with activity. But if we were to say, let's say, frac activity declined by 50% on a year-on-year basis in the Permian, is there any superpowers that pump has to offset that kind of decline?

Just their outstanding efficiency on the location. I think as activity goes down, you are looking for the most efficient pumpers. We are not the cheapest and we are still working. So I think people that look at the full value stream and not just price appreciate what we are doing. And we can do it with fewer people and fewer fleets. So I think we do have a differential advantage there.

Yes. And I mean, Kurt, just to add to that, you mentioned superpowers. Nobody in this environment has superpowers. What we develop from operational efficiency standpoint is a total testament to our operating team and our people. That is hard-earned. And we are going to be leaning on that hard to try and post as great a value as we can to our customers.

Okay. Thanks for that. The second follow-up was, you talked about some of your pricing pressure and that obviously you are not the cheapest in the marketplace. We are aware of these letters that have been sent around by varying E&P companies asking 25% discount. I am assuming that you had received those letters as well. So is that the kind of magnitude of pricing pressure you guys are facing?

I mean those are the type of asks, yes. I mean those rumors and those letters are true. They are looking for collective savings across their projects, I think. So to say that there is a lot of pressure pumpers out there that were even making 25% margins coming into this, is quite a stretch, right. So we plan to stay as disciplined as possible to stay cash positive like we said multiple times earlier. How low we will go or where we will go with individual customers kind of remains to be seen and it's still a bit of a moving target.

Got you. And then I know you guys mentioned you are very lean on overhead. But we have seen a number of companies furlough employees and we have seen executives take pay cuts and so on and so forth. So what kind of flexibility do you have on SG&A?

Yes. All of the above. And we are talking about all of it. We will be implementing measures, I am sure in the near term. But everything is on the table. The first and foremost, we have got to size correctly with the activity that we think we are facing and we need to anticipate various activity levels and be ready to respond. I think that's one of the unique attributes. We don't have to figure out what district to close down, what facilities to shut down, what employees to move around. We have got it all right here. We can respond very quickly. We have been thoughtful about how we have done it. And you will probably see more activity in the future as things continue to evolve. But everything is on the table.

That's great. And I have one more, just on the maintenance CapEx. Sam, you mentioned historically about $7 million per active crew per year and you are looking to reduce that. To what magnitude do you think you can reduce that maintenance CapEx? Is it 20%, 25%? Can give us some general sense as to where you are looking to target?

I think 20% would be the starting point. We think there is some things we can do to do that near term. And where it goes from there will be, we will have to dig a little deeper and maybe get a little more creative to go from there. But I think the number you quoted there, I think 20% is a good starting point.

And then cash, positive is that adjusted EBITDA less maintenance CapEx? Or is that the EBITDA when you account for the fluid ends minus CapEx?

It would be adjusted EBITDA minus maintenance CapEx. Fluid ends are in the maintenance CapEx. So it's kind of, you would be getting to the same number kind of either way.

Got you. Okay. Thanks for that. I appreciate your answers.

No problem. Thanks Kurt.

Our next question comes from Waqar Syed with AltaCorp Capital. Please go ahead.

Thank you. And a couple of questions here. Number one, the turbine that you ran for the first fleet were using fleet gas? Or was it CNG or LNG? Adam Muñoz: This is Adam. Yes. The first DuraStim was actually supplied by flare capture with a customer we have that's out there with compressed into CNG and delivered to location.

Okay. Great. Secondly, of your fleets, active fleet, let's say, around February, how many of them were doing 100%, meeting 100% of your customers' pumping needs? Adam Muñoz: Small, it was a pretty small number. Obviously, we are a sole provider to Pioneer. And it's maybe two or three other fleets with small customers.

Okay. And then what was the Q1 CapEx?

I don't have that number in front of me right now. Waqar, we can follow-up on that later. We will have that number for you in another six weeks or so.

Okay. Fair enough. And what is your current or last number of manned fleets that you had?

How many fleets down are we? I just think that the only number I quoted that we are comfortable with quoting was that the exit rates for Q1, March average was in the ballpark of 16 fleets average, right. So it was already below that at the end of March.

Fair enough. But it is the number of manned fleets, the number is higher than that? Is that 16 the fully utilized number? Or both of it is virtually same?

We are rightsizing in real-time. So hard to say.

Okay. Fair enough. And how many active cementing units do you have today?

I think in Q1, sometime in February we were around 25 total.

Okay. Are the cementing units going to follow the rig count pretty closely as well? Or is there something unique about on the cementing side as well?

I think you will see that that run in parallel of the Permian rig count.

Okay. That's all I have. Thanks.

Thanks, Waqar.

Our next question comes from Blake Gendron with Wolfe Research. Please go ahead.

Hi. Thanks for squeezing me in here. I wanted circle back on working capital. It was a source of cash in 2015 and 2016. I am wondering if you expect that this year? And then do you anticipate any major collections issues or potentially bad debt risk as you move forward here, just given your customer base?

I would just say, with the blue-chip customer base, I think that takes our bad debt down to a relatively low level. And as we do move through this period of time, we are managing our working capital smartly. It will be definitely something one of the tools in our kit.

Got it. So if we assume that operating cash flow doesn't go to zero here, deleveraging, is that the primary focus at this point?

Deleveraging, yes, I mean I think you will find that our debt balance will go down, maintain and stay within our borrowing base. We are going to try to, not by the covenants of our agreement. So we will use cash to pay down debt to a certain level to stay within the borrowing base.

Okay. And I know you are taking the CapEx question offline. I would assume there was some gross CapEx that was in first quarter. Do you have a target for 2020 for total gross CapEx at this point?

For total growth?

Gross. Sorry, gross.

A lot of it is variable because of the maintenance aspect of it. So that will be hard to pinpoint.

Okay. Just to frame my --

It might, I mean probably by the time we host another call, Blake, we will have some hard fast gross CapEx numbers and will have better estimation to gross CapEx at that point. It's just early right now. Down significantly is all we can say at this point.

I got you. Okay. Just to finish up, you had some pretty interesting commentary on the workforce moving around. I would imagine your workforce reductions most recently, you are having a mix-and-match maybe some of the legacy crews. I was wondering if you could give us a breakdown of how much of your field crew is legacy ProPetro versus Pioneer? And then maybe some of the considerations with respect to how you are approaching workforce reductions moving forward? Are you trying to keep crews together as best you can? Or are you trying to mix-and-match just given potentially on the upswing it will be easier to attract some folks back? Also, with your agreement with Pioneer, there are certain specific crew members or crew configuration that you have to maintain to keep working with those guys?

Blake, no, I would just say that like Sam mentioned earlier in the call, we are keeping the personnel that best fits our organization and the culture, that provides the best service to our customers out there in the field, whether that's Pioneer or legacy ProPetro guys. I mean I would say, it's a mixture of both. We have got a lot of great people that work for us. But no, I don't think there is any number you could say for each one that one's higher than the other.

Got it. Thanks.

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

Okay. Everybody, thanks for calling in. But I would like to end the call with the thought that we are very differentially positioned. We start with the people. Many of these people started with the company when it began. They know how to scale up. They know how to scale down. We have got concentration which is working for us in terms of, we are quick to react, we don't have to do a lot of evaluation of different operating areas in what's going to survive and what's not likely to make it and we are in the Permian basin. And while it may be going down, it will probably continue to be the most active basin. And when things come back, it's probably the basin that's going to respond the fastest after that. We are going to be positioned to take advantage of that. So thank you everybody and we look forward to the next quarter call.

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