Good morning and welcome to the ProPetro Holding Corp. first quarter 2020 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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; Chief Financial Officer, Darin Holderness; and Senior Vice President of Operations, Adam Muñoz. Yesterday afternoon we released our earnings announcement for the first quarter of 2020. Please note that any comments we make on today’s call regarding projections or our expectations of 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 to allow it to evaluate the sufficiency of the 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 annual filings of the financial statements for all of our delinquent 2019 filings and for the quarter ended March 31, 2020. The company 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’d like to turn the call over to Phillip.

Thanks Sam. Good morning everyone. Looking at the first quarter, our results were driven by a strong first 10 weeks of the quarter. Operational efficiencies were at an all-time high and we enjoyed strong financial results until the rapid declines in oilfield activity in late March. Our team’s unmatched ability to execute for our customers during the first quarter is a compelling example of our unique competitive advantages which we expect to maintain throughout this downturn into an eventual recovery. I would like to personally thank our entire team for their focus and dedication to their work. Our fleets reached new heights working in lockstep with our customers and partners at the wellhead, surpassing records of pump time per day and upholding our strong safety standards. Looking forward, rather than ride the tide amid unprecedented volatility, our leadership decided to take a firm stance and act decisively to protect the core competencies in our business. Steps taken include proactively shrinking the core of our operations, saving costs through collaboration, and focusing on innovation critical to enable a recovery. With no expectation of a near-term pricing driven profitability ramp, ProPetro is looking within our own operations and doing what is necessary to enhance the earnings power of our business over the long term. A lot of unsung heroes rose to the occasion when the COVID-19 pandemic struck, and I’d like to take this opportunity to thank the first responders, medical professionals, teachers, and researchers on their selfless efforts to safeguard the health of our community. In addition, I’ve been impressed with how our employees have responded like true professionals. These high standards of quality allow our team to safely get the job done for our teammates and customers. We continue to implement best practices according to the CDC guidelines and other governmental agencies to ensure safe and efficient operations for the duration of this pandemic. Unfortunately in late March and throughout April and May, deteriorating market conditions resulted in the necessary reductions to our workforce. We are grateful to all of our impacted team members for their hard work and dedication in serving our customers over the years. While we found it prudent to make these reductions, we prioritized retaining the key critical skills to deliver efficient and safe services while protecting our capacity to respond to a market that will eventually improve. Importantly, the core pieces of our team stand ready to respond to any market condition. With that, I’d like to turn this call over to Sam to discuss our financial performance. Sam?

Thanks Phillip. Today we’d like to spend as much time as possible speaking with you about more recent developments, so I would like to refer you to our press release that was published yesterday for quarter-over-quarter financial commentary. That said, I would also like to take time to highlight what a solid start to 2020 we had with effective utilization in the first quarter of 18.6 fleets with strong efficiencies and financial performance. Along with our track record of execution capabilities, ProPetro’s strong balance sheet, and capital structure are proving to be valuable attributes to have in a low activity environment. As we announced yesterday, as of March 31, 2020 we had total liquidity of $194.1 million, including cash of $143.7 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 31, 2020. As of May 29, 2020, total cash was $135.9 million and total debt was $70 million. Total liquidity as of May 29, 2020 was $159.7 million, including cash and $23.8 million of available capacity under ProPetro’s revolving credit facility. Although our borrowing base will be adversely impacted by the expected decline in our customers’ activity, our disciplined commitment to executing projects with positive returns will also allow us to protect our capital structure. Accordingly, given our current activity forecast, we have reduced our total capex expectations to less than $85 million for the full year 2020, of which $40.1 million was spent in the first quarter. The vast majority of capital spending in 2020 will be on maintenance capex. Our historically lean capital structure has proven beneficial as we continue to maintain stable level of working capital as well as positive net cash balance for the remainder of 2020. Our efficient G&A structure and blue chip customer base favorably position us to preserve our liquidity and capital structure during these times of depressed activity. In the near term, we will lean on all of these advantages that we have outlined as we currently expect to average between three and four effectively utilized crews in the second quarter of 2020. Finally, we would also like to note that we expect a significant portion of our near term revenue to consist of compensatory idle fees stemming from contractual provisions with Pioneer Natural Resources intended to supplement our financial health during times of depressed activity. These fees will provide critical support during periods of unprecedented declines in activity as intended. With that, I would like to turn it back to Phillip.

All right, Sam, thanks. As we have previously announced, our team continues to focus on ways to streamline our operating cost structure, and we have already executed on many cost saving initiatives, including the following: right-sizing our labor footprint while maintaining our core talent - to date, we have reduced our workforce by over 65% since mid-March; significantly reducing maintenance capital expenditures and field-level consumables; negotiating lower pricing for expendable items, materials used in day-to-day operations, and large component replacement parts; internalizing certain support functions that were previously outsourced; and reducing compensation of all officers, executives, and directors. We will undoubtedly continue to look for ways to streamline our cost structure but believe that our swift and decisive actions have put the company in a position to maintain our competitive advantages without risking our financial stability. As activity recovers over the medium term, we expect to retain our core competency of labor talent and retention. Our people and customers have driven our outperformance in the past, and we expect that to continue beyond this downturn in activity. Now for a brief update on our DuraStim project. Due to rapidly declining oilfield activity in the second half of March, management decided to reevaluate deployment of the first DuraStim fleet and delayed further operations. However, moving forward, individual DuraStim pumping units will continue to be tested and developed by working alongside conventional equipment to allow the company ample time to collect data in various operating conditions. Our manufacturing partners will also continue to test and run the DuraStim units in a more controlled environment at the manufacturing and testing facilities. We, along with our customers, fully intend to redeploy the DuraStim equipment on a larger scale when market conditions improve. As we have said many times previously, our team and many of…

[Operator instructions] Our first question is from George O’Leary from TPH & Company. Go ahead. George O’Leary: Morning guys.

Morning George. George O’Leary: Just curious on the PXD contract and the idle payments, obviously a nice buffer for you guys to have. Most folks don’t have contracts in your end market or contracts with any teeth. Just curious how the payments work, if it’s just kind of a cost coverage mechanism, if there’s any margin embedded in there, and then how many fleets you guys get idle payments for if there’s an upper bound to that.

Thanks George, this is Sam. As you can imagine, when we were putting this contract into place to, I think, smooth out the curves and the volatility of our sector and our industry, we never could have imagined a time like this one where activity would drop so violently, so quickly. That said, given that we do have eight fleets committed to Pioneer as we outlined in some information we released last night, these idle fees come into play when they are working fewer than those eight committed crews and we don’t have work elsewhere for those eight crews. There are some fine points and technicalities that we don’t necessarily want to get into today on the particular pricing in those idle fees and how exactly they work, but given how low activity was going to be in the second quarter, we thought it was appropriate to just outline the dollar value that we were looking at there in the second quarter and the back half of the year. George O’Leary: Okay, that’s helpful. Then, the outlook commentary makes sense to me not expecting much to have a rebound in the back half, but there have been some rumblings as crude oil has moved above $30 and then WTI has reached $35 and has kind of hung in all right at those levels, that some players are mulling over adding activity back. Is there any dialog that you’re having with customers that suggest that Q2, or maybe May, may actually be the trough or does it appear everyone is still remaining fairly disciplined on the capital deployment front even at these crude oil prices?

Yes, I believe it’s a little bit of both. I think yes, our E&P partners are also remaining capital disciplined as well as initiating talks again as far as what our ability is to redeploy fleets as they get ready to pick up activity on their side. All in all, since it’s been--you know, the talk has been negative for the most part, but the end of first quarter and beginning of second quarter seems like there are some more bright spots that we are seeing with our talks with our customers.

George, this is Phillip. My view is we’re probably at the trough. We don’t have a feel if this optimism is a soft tooth recovery. It’s going to go up and it’s going to go down. If you kind of read everything, there’s probably more things weighing against a big recovery, more on the downside, but I would caution everyone activity could pick up but it may not be profitable activity, it may not be cost effective activity. So to some extent, if you see others’ activity picking up ahead of us, it might be more of how they’re pricing their equipment to go to work. As we said, we plan to maintain cash flow positive at the fleet level. George O’Leary: All right, that’s very helpful, guys. I’ll turn it back over. Thanks Phillip.

Our next question is from Sean Meakim from JP Morgan. Go ahead.

Thank you, good morning.

Morning Sean.

So three to four crews fully utilized in the second quarter. Could you talk about the exit rate versus the average, maybe how many crews are still active, and what that profit per fleet can look like once you’ve been able to adjust your cost structure?

Great question, Sean. This is Sam. I think the three to four effectively utilized fleet number that we called out in the scripted remarks earlier is probably about as far as we’re going to go. There are certain time periods within the second quarter where we’ve seen activity obviously come down pretty sharply in the beginning of the quarter, bounce around a little bit, exit the quarter lower than we entered the quarter, but we’re not sure if just a snapshot of a working fleet at any given point in the quarter is necessarily a useful data point. But we will say that obviously we came into the quarter with more fleets active than will be leaving the quarter.

And then number of active fleets currently?

Yes, given that the number’s bounced around so much in the last six weeks, we’re just-- I don’t think we’re in a place to quote an active fleet number today.

Got it, I appreciate that. Then on the PXD fleets, just a couple clarifying points there. Curious if there are any costs associated that are being embedded in those numbers, and in the commentary last night you noted that the number is going down into the back half of the year. Is that because you’re expecting more fleets to go back to work or is there something contractual there? Could you maybe just elaborate on that change from the second quarter into the third quarter?

The idle fees, as we’ve outlined previously, are meant to just dampen the blows of some of this volatility for us, so given that Pioneer chooses to idle a fleet at any given point in time and we’re in lockstep with them and in close contact with them on an ongoing basis of their plans moving forward, so we’re kind of making our own decisions internally as if we want to carry any additional costs that would make those idle fees not cost-free, I guess, to bridge to the deployment of another fleet. That being said, that’s not necessarily what we’re doing right now. We think that we’ve shrunk our operations to fit today’s activity, and from a Pioneer standpoint, we would simply just reiterate the guide that they’ve given in terms of fleet activity being two to three fleets for the balance of the year.

Got it. Okay, thank you.

Our next question is from Tommy Moll from Stephens. Go ahead.

Good morning, and thanks for taking my questions.

Morning.

Sam, just to clarify the last comment you made regarding the Pioneer guide, and how it may impact you guys, should we think of the three to four crews that you mentioned being effectively utilized as inclusive of whatever you’re running for PXD or in addition to?

No, that would be inclusive, so the three to four number we quoted this morning, that’s our total fleet count. (Audtit End)

Okay, got it. Thank you. Then I wanted to follow upon DuraStim. The decision to modify the deployment of the first fleet is certainly understandable in this macro environment. I’m curious, are there also aspects of the technology that you’re still needing to refine, specifically when it’s configured to run as an all-electric fleet? What’s the status there, and what are you guys doing to tweak any of those configurations for when the market does recover and you may want to go to market with the fully electric fleet? Adam Muñoz : Yes Tommy, this is Adam. Especially during these times when we have a more controlled environment, we’ll continue to make adjustments to both the physical attributes of the pressure pumping on the unit itself and then as well to the software. As far as all the stuff leading up to the pumper as far as the transformers, the turbine, the PDM, the electrical delivery component of it, that has pretty much worked pretty flawlessly, so the only things right now that we’re focusing on is being able to just make small adjustments to the equipment and being able to redeploy it on a smaller scale and continue to perfect the DuraStim technology during these depressed times.

Tommy, it’s Sam. Again, I’ll add to that, that I think part of your question was getting at if we’re maybe forfeiting some of the benefits of the electrical system by not having the entire fleet together. I guess the short answer to that is yes, you’re not going to capitalize as much on things like fuel savings if, say, you’ve deployed one DuraStim pump into a conventional diesel fleet, but by doing that, it allows us to continue to gather data and fine tune and optimize DuraStim pumps themselves, so that when we are ready to redeploy an entire fleet all together, that we’ve continued to learn throughout this lull in activity.

I’d just add our customers are still very anxious to deploy the equipment. They understand in this scenario why it makes sense for both us and the customer not to be proving out the technology in times like this. There’s little tolerance for those types of things to work through, but there’s incoming queries now on potential use of DuraStim from a couple customers.

Okay. Thank you gentlemen. I’ll turn it back.

Our next question is from Ian MacPherson from Simmons. Go ahead.

Thanks, good morning gentlemen. I just wanted to clarify, I’m sorry if I missed this, but you did report a positive cash progression from the end of the quarter through the end of May. Did that include the Q2 idle payments from Pioneer already in that new balance?

This is Darin. It did not.

Okay, so thanks for clarifying that. More structurally, with ProPetro being an unbridled growth story for the past few years, what do you think are going to be the biggest challenges retrenching now and preparing for a normalized future that will be better than today? You’re not accustomed to stacking so much equipment and reducing so much of your workforce. Where do you think the biggest pain points are that you need to manage towards to be able to get back in the saddle next year, anticipating some form of a better normalized market, and how do you preserve the quality given so much contraction in the short term on the equipment and labor side?

Great question, Ian. This is Sam. I think it’s fairly simple. I don’t think any of us would say it’s easy, but the focus for us has to continue to be on our execution at the well site. safety and wellbeing of our employees that are enabling that execution. Efficiency is going to continue to be an increasing value-add for our partners upstream. If we can continue to help them create value through efficiency in our operation, then we think we will remain extremely competitive. We will couple that with our continued focus on what we think is the premier resource play on this side of the world. Density in this area is going to be very important, and if we can keep our focus on the Permian and keep our execution at industry-leading levels, then I think we’ll be very competitive. Adam Muñoz: Ian, this is Adam. To add to Sam’s comments, I would say even in this unprecedented time, we remain confident that we retained the part of our employees that are able to recruit and call back the needed workforce as we ramp back up as times improve. We’ve also implemented certain strategies on rotating the equipment to be able to keep the equipment in good health through this downturn and to be able to deploy it when needed.

So we’ll see quite a large expansion in useful life estimates across the entire fleet, not simply some fleets working and some fleets parked? Adam Muñoz: Correct.

Thank you gentlemen.

Thanks Ian.

Our next question is from Marc Bianchi from Cowen. Go ahead.

Thank you. I wanted to go back to the idle fleet discussion--or idle fees discussion quickly and just think about it in the context of overall gross profit. It sounds like you’re really not going to have any associated costs, at least for now, with those idle payments. What about the rest of the business? Is it maybe safe to say that the rest of the business can be gross profit breakeven or better, even during second quarter?

This is Sam. That’s definitely the intention. I don’t think we have, at the fleet level of our operating fleets, have any intention of operating below gross profit levels.

Yes, not using it as a subsidy.

Yes. Then as I think about the G&A here, you announced the plans to lower some costs there, and I suspect whatever you’re doing is ongoing. Is there a level, a quarterly level we should see that trend towards through ’20, and then how do we think about what that looks like as activity ramps back up? Is there a certain savings that you think could be retained as activity comes back?

That’s a great question on G&A. We’ve traditionally operated a very lean--operated in a very lean manner at the G&A level. We’d also note because of how lean we are within our current G&A structure that not all of our G&A is people - in fact, it’s far from that. It’s made up of other components of which we do think there will be savings, but they don’t come as quickly as, say, some of the variable cost savings that come with stacking a frac fleet. So we’re working through all those right now and I don’t know if we can quote you a number. I think our near term goal would be to get it below what you saw in Q1.

Okay, thanks for that. Maybe if I could ask just one more question for Phillip, how should investors think about your tenure in the CEO position? Is this expected to be a permanent role for you, or is it a matter of getting the filings wrapped up and maybe getting things back in order, and then perhaps looking for a replacement on a more permanent basis?

I don’t think it’s any different than probably any other CEO serving right now. The main thing is to get current. The operation is running fine and obviously the biggest objective of the board and myself is to get succession planning up and underway. I’m not the youngest guy in the world, probably most of these guys are half my age, so there’s a lot of development going on and succession planning, and at some point it will make sense for me to step out of the CEO role and have the next person ready to go. I don’t view it any different, my situation, than any CEO in the business right now, honestly.

Okay, thanks very much. I’ll turn it back.

Our next question is from Waqar Syed from AltaCorp Capital. Go ahead.

All right, thank you. Just one clarification question. The idle revenues for the Pioneer contract, that’s going to be incremental to the three and a half active crews that you would have in the second quarter, is that correct?

That is correct.

Okay, good. Secondly, do you have a view on how many fleets are currently active in the Permian for the industry?

We think right now we’re probably somewhere around 20. It’s been lower recently, but it’s probably--I think our shop view is 20, or just under 20 fleets in the Permian.

Okay. Then in terms of your coil tubing fleet and cementing trucks, how many are currently active or currently manned?

This is Sam. Again, for our cementing operation, we’ve seen our deployed units trend down basically in line with rig count. We have every indication that we’ve protected our market share there. To quote you a specific number of cementing units, I don’t know if I have that in front of me right now. We would say that our coil tubing operation has trended fairly concurrently with our frac operation, as we share a lot of the same customers there.

Sure. Now in terms of your revolver, it’s linked to your accounts receivable. Receivables [indiscernible] shrink. That could bring the size of the revolver down as well. What steps are you taking, and is there something that you’re looking at to maintain or grow the capacity or the size of the revolver?

We’ll take a look at all options out there, but right now the revolver we have is sort of the industry standard. There’s a lot of potential options that we could look at that are somewhat off the table right now with not being current, so getting current is definitely a priority to help further think about that as we move forward.

Okay, but right now you have $24 million or so of revolver capacity available. Are there any concerns around that? Is that a size that you’re comfortable with, and any comments on that?

I mean, as you say, it’s tied to the balance of receivables. As our activity trends down, so will our receivables. It’s just an unfortunate part of the downturn. Would I love to have more capacity? Yes, I would, but in the current scenario that may not be afforded to me at the moment.

And Waqar--

[Indiscernible] cash, net cash positive, so.

Exactly.

Sure, yes.

[Indiscernible] unlike a lot of our peers out there.

Absolutely, yes. Thank you very much.

Our next question is from Chase Mulvehill from Bank of America. Go ahead.

Hey, good morning everybody. I guess I wanted to come back to the PXD, I guess maybe just starting, I guess, 2Q. Maybe if we can split the conversation up between you’re going to have three to four fully utilized fleets and then you’ve got effectively four to five effective idled fleets that you’re going to get some form of revenue from. I guess first on the three to four active fleets or fully utilized fleets, how should we think about the profitability of that? Do you think that your adjusted EBITDA will remain positive for those fleets? Then for the four to five, which gets you to eight - I think you said eight earlier in the conference call, so four to five effective idled fleets, how should e think about revenue and profitability of that? Regarding the four to five, I think Pioneer, I think they actually talked about $20 million to $30 million of other revenue in their presentation that was associated with idled fleets, rigs, etc. If you said significant portion of revenues are associated with the PXD contract, I would think that it would be more than $20 million to $30 million, so just add some context to that if you can.

This is Sam. There’s a lot in that one, Chase, so I’ll take my best shot at it. The idle fees are--like I think I said earlier, it’s not a simple straight line for one unit of time. There are a few more intricacies involved in the idle fees that we don’t necessarily--details that we don’t necessarily care to get into today, given the confidential nature of parts of that contract. With our fleets that we are working in the second quarter, we, just like we outlined earlier, expect to stay cash positive at the crew level, so that would be EBITDA positive--you know, EBITDA minus maintenance capex would get us to our crew-level cash flow. That’s how we’re calculating that number. I think you’re familiar with that. Can we pinpoint exactly where those numbers will come out for the second quarter right now? No, not necessarily. There were a pretty significant amount of moving parts as we shrunk our operation and sought some cost savings in the first part of the quarter that we’re still kind of gathering data and looking through the outcomes of some of those movements. As we get into June here, as the dust has settled a little bit, we’re hoping to see some more indicative data of that strategy to keep EBITDA positive and cash flow positive at the fleet level. I’m not sure necessarily how helpful that answer is, but it’s just hard to give detail on some of those areas right now.

Okay. Can I have you talk to the $20 million to $30 million that’s disclosed in PXD’s most recent presentation? Can we assume that your significant portion of revenues, that it has to be more than that?

Well, we outlined in our 8-K that we filed yesterday exactly a range of what we think our revenue from Pioneer idle fees will be in the second quarter. I don’t know if we’re in a position to speak to numbers that they’ve disclosed in their releases or information.

This is Darin. There’s a period of time, Chase, between when they put that out and when we put this out. The environment changes, so.

Understood. One quick follow-up, if we can just come back to DuraStim and talk to how you expect your electric fleet configuration to evolve over time. I guess I want to specifically ask about turbine sizes. I know there’s an aftermarket if you decided that maybe you wanted to go with some smaller turbines or anything. Are you looking into this, about potentially using smaller turbines, or are you guys still going to use the larger one-turbine option when you think about the electric fleets?

There’s open questions on that, right - does ProPetro provide the power, does our customer provide the power, does a third party provide the power? Right now, we’ve got the two turbines. I think I mentioned on the last call that our desire is--the turbine has been flawless, it’s performed extremely well. Unfortunately when you’re cycling up and down on turbines, the greenhouse gas emissions probably are not where we would like them to be. There could be some control technology, don’t know what that would be in terms of cost and availability. You’ll see us run the DuraStim pumps and single pumps in the field with a durapack, which is a different power generation source, more of a reset than a turbine, and we’ll obviously evaluate that. I think the emissions profile on that looks pretty good as it relates to greenhouse gas. There’s a number of open questions out there, so it’s a broader question than size of turbine, I believe.

Chase, this is Sam. I’ll just add to that a little bit. I think what we’ve said previously before is that it probably won’t be a uniform approach to every fleet. It very well could be in the future, but as we see it today and we look at the needs of our customers that are interested in electric technology, it very well could be various different tools that we deploy to execute on our electric offering - you know, big turbines, small turbines, more conventional generation, probably all of the above in the near term.

All right, appreciate all the color. I’ll turn it back over.

Our next question is from Scott Gruber from Citigroup. Go ahead.

Yes, good morning.

Morning.

Sorry if you answered this earlier, but how low should we think maintenance capex goes on a per-fleet basis for the remainder of the year?

Historically, we’ve quoted that number around $7 million annualized per crew. I think on our last conference call, we quoted a number that would be less than that, maybe trending towards $5 million on an annualized basis in the back half of this year. I don’t think we would necessarily change that guide today, but we’re working very hard to drive our maintenance capex down, as Adam mentioned earlier, through various strategies of rotating equipment, extending the calendar life of all of our equipment. I think there is some savings to be had there near term, and we’re going to keep working on that and hope to update you guys over the next couple quarters of our initiatives there.

And that $5 million or so, is that fully loaded? That doesn’t include borrowing components off of other pumps, Sam?

No, we don’t have any plans to cannibalize any equipment near term right now. That would be a last resort option. It’s more around the rotation of equipment and increasing the average fleet size on location that’s going to allow us to drive that number down.

Got you. Then there was a comment that when activity starts to pick up, it’s probably not going to be profitable work, and it’s pretty obvious, just given where utilization is at. But the question is would you guys be satisfied with putting fleets back to work at something just above cash breakeven when activity growth starts to resume? When do you think about demanding a price bump to cover corporate overhead and restart costs? While you’re working on reducing maintenance capex, I imagine there eventually could be some pressure upwards on maintenance capex as well. Do you guys, are you willing to demand a price bump early on to become more corporate cash breakeven, even if you end up sacrificing share for a couple quarters? It just seems like if there’s no movement on price because utilization is so low, you and the industry could just be in a position where at the corporate level, you’re burning cash for a couple years, which is a big challenge for everybody. So in the early innings of recovery, I guess is the question, would you demand a price bump early on, even if you end up sacrificing share for a little while?

Scott, this is Sam. I’ll take a shot at that. I think the short answer is it depends. We have the luxury of having a customer base that we’ve worked with for quite some time, in some instances some of these more active customers well in excess of five years, so our working relationships and the transparency that we’ve shown to basically all of these dedicated customers that we service is going to be extremely helpful, we think, as activity begins to pick back up. That said, we’re going to be more apt to be more flexible and more willing to redeploy equipment with customers that we have a very good history with. Coming out of 2016, I think we showed a pretty great ability to redeploy equipment around market rates and continue to grind efficiencies and pricing higher together, where we were winning alongside our customers. Does pricing need to move higher for our services and our sector to be more profitable? I think everybody would agree yes. We think that’s a two-way street and we’ll collaborate with our customers as much as possible to help them with their needs, as well as produce value to the extent we can.

Yes, I think in the long term, pricing has to get to a point where you get a return on your investment, because you’re going to have to reinvest in your equipment and services over time. Near term is a different story. Just my observation on the big problems in the service industry is they’re too quick to go back to work at negative margins and only create bigger problems for themselves down the road - poorer equipment, less efficient operations. We don’t plan to take that path, but near term cash flow breakeven at the fleet level is a good goal for us, and when we pick it up, it’s got to get beyond covering corporate. You’ve got to get a return sometime on your equipment to continue to invest.

I think you hit the nail on the head - the industry needs to be disciplined, even at low utilization levels, to start demanding better returns. Good luck to you guys. Appreciate the color.

Thanks.

Our next question is from Vaibhav Vaishnav from Scotiabank. Go ahead.

Hey guys, good morning. I wanted to understand the math of this maintenance capex versus fleet. If I think about $40 million of maintenance capex for the remaining nine months and think $5 million to $7 million of maintenance capex, it implies about eight to 10 working fleets, and we know second quarter could be three to four fleets, so is the implication that in second half, it could be you’re thinking about 10 to 12 fleets working?

Vaibhav, I don’t know if we’re in a position to get into any additional detail in terms of fleet count numbers. As we look at our capex for the rest of the year and look at just the near term activity expectations that we have, that seems like an appropriate number, maybe with some slight conservatism baked into that. But just as we know, things can change very quickly to the upside or the downside. I think for the remainder of the year, that will be a number that we’ll continue to get you updates on as we report in additional quarters this year.

Understandable. The idle fleets, do they have any maintenance capex associated or embedded in your guidance?

Not any significant portion. Part of what those idle fees could be used for could be warm stacking equipment or keeping things ready, but not to any significant extent, no.

Our next question is from Jacob Lundberg from Credit Suisse. Go ahead.

Just thinking about the contract structure that you guys have with Pioneer, obviously it helps you protect the invested capital base in downtimes like this. How do you think about the ability to make that contract structure more widespread through your business, or are there any other mechanisms you might be able to use to reduce some of the cash flow cyclicality in your business?

Great question, Jake. This is Sam again. Our sector undoubtedly needs a little more consistency, and we know that. We’ve been trying to provide that consistency through having very efficient operations and partnering with blue chip customers, just like Pioneer. We’re not sure if there’s another opportunity just like the one that we’ve executed on with Pioneer out there, given that we purchased a good amount of assets from them and set up this contract, but are there going to be small opportunities to possibly get more contractual in the future? Yes, we think there are. What that will look like, I think we’re trying to figure that out as we go here. Would we like more contracts like this? Yes, but it would be hard given that the opportunities, like the one we had with Pioneer, just don’t necessarily exist.

Okay, and just to follow up on that, just curious if you’ve had any--maybe in the current environment it’s more difficult, but if you’ve had any conversations with customers about some sort of a--maybe not exactly what you have with Pioneer, but some sort of a contract structure that would deliver a little more stability in your business, and how you’d characterize appetite in any of those conversations you’ve had in the past.

I mean, in this environment there is really not any right now, as you could imagine. In the past, I think it’s been an idea at certain points in time, and maybe just been socialized with certain customers. Like I said, we’re hoping that there’s opportunities for that, but right now we’re more focused on our internal operation and taking care of our team and our customers that do have activity right now.

Understood. Then just on Q1, I was wondering if you could just touch on how efficiencies trended in the quarter relative to Q4, and how should we think about that outlook for 2Q and second half of the year, operating at very low levels of activity?

Yes, if you just look at the numbers of certain operating metrics, the efficiencies were off the charts again, comparable to Q4 in many ways. Q4 was kind of an internal record setting quarter for us, flat to up and slightly up in some of the most important operating metrics. I think the one that personally stuck out to me was how much quarter-over-quarter Q4 to Q1 that we cut back on downtime yet again, kind of ProPetro-specific downtime mostly to do with equipment downtime. Everything kind of continues to trend in the right direction there.

Any commentary on how you think that could look in Q2 and the second half, just thinking about maybe some inefficiencies that might come through the system just given the low level of activity? Adam Muñoz: Yes Jacob, this is Adam. Yes, so far efficiencies have remained extremely high, like Sam mentioned. I think those efficiencies can remain there just because of the access, the additional access to the equipment that we have, the way we’re rotating it, the availability to put more equipment during these low activity times on locations to make sure that we are remaining up and running for longer periods of the day as far as less downtime, like Sam mentioned, and that’s kind of what’s helped us in that aspect, is being able to have the additional equipment out there on location and rotated. But as far as the personnel, those guys out there in the field have been performing at a high level even through these tough times.

All right, I appreciate the commentary. Thanks guys.

Our next question is from Blake Gendron from Wolfe Research. Go ahead.

Thanks, good morning. Don’t mean to beat a dead horse here on the Pioneer fleets, I’m just wondering--you know, I think it states somewhere that the idling payments are contingent on your ability to go out and market those fleets for other opportunities. Theoretically you’d want to market the non-Pioneer fleets first, and there are a lot of unutilized fleets in that category. Is it conceivable that moving forward, maybe next year or the year after that, that Pioneer runs fewer than eight spreads and you’re able to market at least one or two of those spreads to other customers. Does that remove those spreads and those assets from the agreement, and is there any recourse that Pioneer can then come back and bring those spreads back into the agreement?

Blake, the short answer to that is that the eight fleets exist in the agreement to the specific checkpoints and the term the duration of the agreement. We’ll simply do our best to deploy that equipment, work with Pioneer on their plans to mitigate any excess fees in the future.

Got you. Then you may have touched on it in another question, but the strategic outlook for the other services segment, it’s been a segment that’s been challenged in terms of generating EBITDA. I’m just wondering, now that some of these auxiliary service lines in U.S. land are structurally oversupplied, whether or not you would be asked to wind those down in any capacity.

The revenue associated with our other services segment is totally in part due to our coil tubing operations. We’ve said this in the past, but the main reason why that segment gets drawn negative is because that’s also where our corporate overhead costs are housed. Could we possibly get that positive in the future? Possibly, but coil tubing in most recent times has been profitable at the division level, there’s just a little noise in that segment. Like I said earlier, we overlap quite a bit between coil tubing and frac in terms of customer base. Technically we’re not packaging those things together, but we are using our coil operations in lockstep with multiple of our frac crews. We think that provides value and efficiency to our customers’ operation as well, so as long as there’s still a decent demand there and we are able to make a return at the division level at coil tubing, then we will continue to operate in that manner.

That’s totally fair. One more, it seems like you’re going to be cash positive here through the worst of the downturn. I’m just wondering what your preference is for building cash on the balance sheet versus paying down debt, and if you have a target absolute amount of debt to keep on the balance sheet moving forward.

This is Darin. Just following how our revolver works, our borrowing base is re-determined monthly and I need to stay within the guidelines of that, so as that goes down, I think you will see us further paying down debt to stay within the bounds of our agreement.

Got it, thanks.

Our next question is from John Daniel from Daniel Energy Partners. Go ahead.

Hey guys, thanks for fitting me in. Sam, you mentioned your guesstimate of 20 fleets running in the basin today. Obviously you’re not going to give guidance on where you’ll be at the end of the year, but based off of the quoting activity you’re seeing, what would be your guess for the basin’s fleet count by year-end, or somewhere in the fourth quarter?

Great question, John. I’m not sure we have a shop view on that right now. Our focus is a little bit more near term than that. We just hope it’s higher than it is today.

Fair enough, okay. How about this - how would you characterize the level of inbound calls from customers getting quotes in the last week or two versus where you were when oil was completely collapsing?

Well, I think we’ve been giving quotes all along, and when oil was completely collapsing we were giving them for what we thought were different reasons at that time than we are today. As you know, we stay in pretty close contact with most of our customers as we’ve had quite a long working relationship with our dedicated customer base, so the conversations are different but I don’t think the frequency of them is much different.

Okay. All right. I’ve just got two more quick ones. Ian asked, I thought, a very good question. I want to piggyback on that. I know when you’re in a crisis right now, it’s hard to think big picture strategically, but as you sit back as a management team, what’s the optimal size for ProPetro? Do you try to get back to 20-plus fleets or are you better off being a 12 to 14-fleet company once the market recovers? Just your thoughts there.

Great question. I think through having a little bit more slack in the system from an equipment standpoint that we are able to justify a larger average fleet size in terms of downtime and efficiencies and productivity, all those things. We will continue to look at that. Hard to say that it would ever be in the mid-20s again or that it would ever need to be in the mid-20s again in terms of our total capacity, but we’re looking for that balance in terms of how much equipment is the right amount of equipment to put on location to maximize operational efficiencies.

Okay, so it sounds like the more equipment on location is probably permanent, as opposed to you’re just doing it now because there’s a lot of available equipment? Adam Muñoz: John, this is Adam. I wouldn’t say it’s permanent, but definitely it is a big part of what we’re doing now to extend the calendar life of the equipment. I would say going forward, like we’ve always done, we’d lean on our blue chip customer base to dictate where we need to be, but a motto here we’ve always had is to ensure that as we increase activity level and add crews, that we do it at a pace where we add them when the last is just as good as the--or the next is just as good as the last that we’ve added. We definitely don’t want to have any decline in performance or safety measures as we ramp up activity levels, so we’ll do that at a pace that we’ve always, like I said, internally here we’ve made sure that we can perform at that same high level for each fleet we add.

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

Thank you, and thank everyone for joining us this morning. I’d like to just reiterate a few important points before we close out. First, we truly believe that we have the best people in the pressure pumping business. This is evidenced by many years of execution excellence, and we expect to maintain this competitive advantage going forward. Second, we expect to maintain our strong net cash position and expect it to be an asset when activity recovers. Third, in the near term we will focus even more intensely than we ever have on execution at the well site, and we believe this will continue to differentiate our service. Finally, our blue chip customer base that holds some of the best acreage and economics in the upstream energy industry will continue to be a foundational difference for us. Thanks again for joining us, and we’ll catch up on the next quarter. Thank you.

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