Good morning and welcome to the ProPetro Holding Corp's Third Quarter 2020 Conference Call. [Operator Instructions] Please note, this event is being recorded. I’d now like to turn the conference over to Sam Sledge, Chief Strategy and Administrative Officer. Please go ahead.

Thanks Brandon 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 third quarter 2020. Please note that any comments we make on today’s call regarding projections or our expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC. Also, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will hold a question-and-answer session. With that, I’d like to turn the call over to Phillip.

Thanks Sam, and good morning, everyone. Past several months have been difficult for everyone given the impact of the global COVID-19 pandemic on our personal and professional lives. I want to first thank all of our employees for their continued efforts and following CDC guidelines and other governmental agencies promote a healthy and safe work environment not only for themselves but for our customers, supply chain partners and other stakeholders. As important, I want to once again say how much we appreciate our medical workers and first responders here in the Permian Basin with the selfless sacrifices they make day in and day out to ensure our well-being. Before we begin to discuss our results of the third quarter, I'd like to take the opportunity to welcome David Schorlemer to ProPetro's team. David knows all field service space very well and most recently served as Executive Vice President, Chief Financial Officer, Treasurer and Secretary of Basic Energy Services. He brings with him more than 25 years of broad-based experience and senior-level positions in finance, technology,, business process integration, strategic and organizational planning, M&A and capital markets transactions as well as a proven track record of ensuring strong corporate governance. We look forward to David's immediate and long-term contributions to ProPetro's success. I also want to take the opportunity to thank Darin Holderness for his dedication and hard work over the past year. Darin stepped in to provide critical leadership in our efforts to strengthen our finance and accounting operations, which has been critical in our abilities to successfully navigate the impact of the global 19 pandemic to date. As important, Darin's many contributions including his guidance and process that returned us to current filing status with the SEC have helped lay a strong financial foundation for ProPetro as we move…

Thanks Phillip. I want to say -- I want to first say how excited I am to join the ProPetro team. I've seen the team operate in the field and it is an impressive organization. ProPetro is well recognized as an industry leader that is respected by all parties in the value chain and I look forward to working closely with our Board, Phillip, other members of executive management and the entire ProPetro team as we continue to strive for excellence. Turning attention to the financial results of the third quarter, we were pleased to post higher revenue sequentially and generate free cash flow for the third quarter. More specifically, effective utilization for the third quarter was 8.5 fleets compared to four fleets in this year's second quarter. We currently expect fourth-quarter effective utilization levels to remain flat with our third quarter exit rate therefore, yielding effective utilization in the fourth quarter between nine and 10 fleets. Total revenue was $133.7 million versus $106.1 million for the second quarter with the increase primarily attributable to increased activity levels. Partially offsetting the overall increase was increased direct sourcing of select consumables by certain customers. In addition, we saw a $25.7 million decrease in idle fee revenue as we recorded $6.9 million in fees in the third quarter compared to $32.6 million in the preceding quarter. Excluding idle fees are revenues increased 73% sequentially on improved fleet utilization. We expect fourth-quarter idle fee revenue will be fairly flat with third quarter based on our current view of fourth-quarter effective fleet utilization levels. Cost of services excluding depreciation and amortization for the third quarter was $99.6 million versus $68.2 million in the second quarter with the increase driven by higher activity levels in the third quarter. Third quarter general and administrative expense was…

Thanks David. While we've seen a meaningful recovery in activity from the low levels seen in the second quarter of the year, our expectations of volatility and uncertainty were unchanged until there are some material increase in all demand. We are encouraged to see continued substantial progress in both COVID-19 treatment programs and vaccine development, both of which are critical to returning to a more normal environment that will more substantially stimulate all consumption. This in turn will hopefully drive crude prices higher and promote increased development by BMPs both here in the US and abroad. As we navigate our course until that time, we will remain laser focused on what we can control. This includes retaining the cost structure that is not dependent on price increases from customers to maintain or increase our return. Over the years, we've taken pride in running a lean organization and will continue to do exactly that. Faced with the onset of the pandemic in the first half of the year, we escalated our efforts to ensure we not only survived, but also positioned ourselves to thrive as activity levels improved over time. ProPetro is clearly recognized for its ability to provide customers unmatched execution at the wellsite. Key to our success in remaining in close communication with our customers to better understand and anticipate their needs by helping them solve their technical problems at the wellsite. This approach has served us well over the past 15 years and we believe is now more important than ever. As we've discussed in the past, pressure pumping services and the equipment used to execute these services must continue to evolve if you want the industry to remain globally competitive. Because we fully expect to operate in the price environment that will continue to be challenged, it…

Thank you. We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Sean Meakim with JPMorgan please go ahead.

To start off, given the idle fees in the fourth quarter, it will be comparable to 3Q, active fleets look comparable. So it sounds like margins should be fairly comparable as well. So is that fair and can you maybe just elaborate on October's activity levels versus the 4Q average and how you see the monthly cadence in November and December?

Hey Sean, this is Sam. I'll take that one. Activity exit out of 3Q is right around 10 fleets. So we expect to work those 10 fleets basically totally through the fourth quarter. So the guidance of 9 to 10 effectively utilized fleets is probably calculating in a little bit of what we're seeing is just holiday seasonality around Thanksgiving and Christmas, which will to your margin comment probably provide a slight drag to profitability margins. We're still waiting through some of that with a few of our customers to see exactly what's that going to look like, but right now we're expecting to be taking enough -- a few days off around each holiday that will affect margin and utilization.

And then looking ahead to '21, your customers are aiming a stabilized production off of 4Q '20 levels. Looks like to no need to ramp activity off of where they're going to exit the year. Do you broadly agree with that assessment and just curious within the visibility you have on activity from your customers early in '21?

I'll start and maybe pass it over to Adam. I do believe that the customer's activity will continue at least stable maybe with a slight nod towards increasing. Obviously, a lot depends on pricing right now given our quality of customers that we deal with. I believe most of them are primarily hedged. So if they believe it's a short term downtick in pricing, it won't affect the activity at all. So bottom line, we see steady to maybe slightly increasing activity going into '21. Adam? Adam Muñoz: Yeah I'd just add to Phillip's comments that we have a number of RFPs out with different operators and we feel very positive that we'll be able to win a couple of those. So that could lead to a slight increase.

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

The free cash flow generation during the quarter was impressive and it seems like October has been a good month for you all as well. I wondered if given the higher CapEx level, if you guys expect cash flow to be positive in the fourth quarter and maybe you can walk us just through some of the moving pieces, working capital, CapEx those items to help us kind of think about free cash flow can settle out for the fourth?

Yeah I think when you look into the fourth quarter, we think as we've spoke about our fleet utilization being essentially flat from the x-ray to the third quarter that working capital should be pretty neutral, I think we also spoke about the CapEx increasing in the fourth quarter and that's going to be in anticipation of what Adam referred to some potential increases as we move into the first quarter. So I think that it's going to be -- could be below where we had seen the third quarter free cash flow, but I think we're going to try to continue to be neutral as we make those investments and it's going to be dependent on our customer's performance and activity levels expected going into the first quarter.

And then Sam just following up on Sean's question, Sean he mentioned and your response indicated that profitability could be flattish and I appreciate that there will be some holiday downtime and you potentially carrying costs as you added fleets back during the quarter that you weren’t necessarily caring the entirety of Q3, but I just want to make sure I understood the response right. Given the higher fleet out and you likely get some fixed absorption plus you should have higher revenues if you have more fleets active and pricing kind of flat lined at the bottom here, is there the potential for annualized EBITDA preferably if you will, it's increase quarter-on-quarter or when you were talking about margins being flattish, was that flattish with those September level that changed. Just frame that profitability for us a little bit more I think that would be helpful.

George, this is Sam. I think quite simply it's going to be a little bit of a challenge to hold or beat Q3 EBITDA levels and it's not really in particular due to any one thing, kind of a mix of a few things. Holiday seasonality is obviously a drag on profitability whenever that happens and as we are pretty confident that we'll have the opportunity to add a fleet or two sometime in Q1 depending on the timing of those potential 2021 fleet as you could have some of that preparation work bleed into the back half of Q4, which could prove to be another drag from a CapEx standpoint that David talked about in OpEx standpoint. So our goal would be beat or exceed the same EBITDA levels on a per fleet basis, but it's going to be -- we have some headwinds I think around that.

I want to just sneak in one more if I could. Just on that fitting behavior front it seems like you're seeing a lot of bids in and around a similar number from the competition and you have a few bad actors that would come in well below that tight spread of bids. Is that still the case or is some of that bad bidding behavior abated at all. How would you describe kind of that when you put in a bid? What that scatter plot a bit looks like? Adam Muñoz: I would say yeah, you probably still have some of that going on some of that bad bidding behaviors just given the fact of the time market we're in right now, as far as work available and being bid out for, but we stay pretty confident on bid number work on potential operators still value the high-performance of the factors that we can offers and the safety, efficiency that we've been providing to our current customers.

Our next question comes from Ian Macpherson with Simmons. Please go ahead.

Thank you. Good morning, The PXE Parsley in theory should be accretive for your share. Could you remind us your work you’ve done with Parson [ph] in the past and I don't think we're talking large ads based on why for 2021, but what you think your opportunity is to grow share as you're well aligned with at least, more than one operator who are consolidating the basin.

Yeah Ian, this is Sam. Interestingly enough, we probably have a longer operating history with Parsley thank we do pioneer our relationship with Parsley dates back quite a ways. We are not currently working for Parsley today, but if we continue to satisfy Pioneer's needs, we think that might be an opportunity to work on that acreage moving forward, but that is kind of remains to be seen, but we feel confident about that. Obviously, very confident in our ability to operate under the kind of the Pioneer planning and day-to-day operations that's been a great partnership for us is Pioneers provided a lot of value in their ability to be very efficient and I think that we've been efficient as well. It’s been a true win-win for the last couple years.

And I assume if and when activity does resume on acquired assets, that activity is not defined by your current or minimum volume agreement with Pioneer on a legacy basis that would be incremental of is that no necessarily the case?

I'm not sure I totally understand your question Ian.

Do your minimum utilization -- your minimum framework with Pioneer contemplate activity on additional subsequently acquired assets acreage?

I don't know if there's a minimum threshold. It's just a number of fleets that we are required to provide to Pioneer at any given time. So it will be mostly just dependent on their activity as it moves up and down underneath the acreage that they're operating. Adam Muñoz: Follow-up for me, I was going to ask also there's a well reasoned thesis for pressure pumping that pricing will move when warm stack capacity is exhausted and we move into more expensive deployments of cold stacks equipment that will require that higher pricing. Do you have a view on where we are in that regard and how much wellside capacity needs to absorbed for you guys get a pricing catalyst whether that's middle of next year or plus or minus around that timeframe?

As far as active fleet counts getting up and people are not redeploying unused equipment, I can't give you an exact number what each of our competitors still have sitting on the potential warm stacked, we're just going to continue to attack that just by being just sound on our performance and continue to attract work that gives us a red return at the current pricing we have and just see where that leads us.

Ian this is Sam. I'll just add to that. I think what's hard to pinpoint an accurate answer to that question as we sit here today is because we watch our competitors and our peers employ various techniques to keep cost down and keep efficiencies high. You see deferred maintenance, you see cannibalization and on the other end of the spectrum, you see players that are continually reinvesting and keeping their equipment ready at all times and you're usually on average bidding against somebody different with every customer. So a little bit of a mixed bag there but no news to you more. The more activity either is, the more utilization there is, the more of a potential tailwind that is the pricing just overall.

Little note is the RFQ's that we are participating in right now do not have a shortage of better seeking network side. Don't believe we're at that point yet, but hopefully we're getting there soon.

Understood Phillip and Sam, that's not a black-and-white question and I think your answer was very helpful. So I'll pass it over, thanks.

Our next question comes from Cameron Lochridge with Stephens, Inc. Please go ahead.

So I was hoping we could circle back and talk about DuraStim and the EST related movement call for EST related equipment at the wellsite. Great to hear the plans you guys have in place for DuraStim going forward. I think we're all happy to hear about that. How should we think about ProPetro's equipment as it stand today ex DuraStim and in order to stay competitive going forward, do you think any further investments in whether it's efrac of dual-fuel will be necessary just given where the market is headed?

Cameron this is Phillip. Obviously we're seeing more and more RFQs come out asking for our electric fleet, EST friendly fleet. The answer is there will be investment made. I think the real question is timing of that investment. Right now I think we feel relatively confident that most of that equipment is fully utilized and so therefore, there will have to be new equipment coming on. We're just not -- I think we're in one of the better positions to make an investment and maybe we will, but I don't think it's an environment that's going to be easy for the pressure pumpers to step up at least in this price environment to meet the demand unless they get some type of contractual commitment to help pay for some of that cost or some pricing relief. But again, I don't want to say that EST is not here. It's here, it's common and investment is just a timing issue and right now the timing doesn’t look good in my opinion for anyone to make those investments.

Cameron this is Sam, the only I'll add on top of that is just from a like a competitive perspective having a debt-free balance sheet and the ability to generate free cash flow even in these depressed activity levels is going to be vital to having the opportunity to reinvest in the future. We are firm believers that equipment offerings are changing today and they'll continue to change as we move forward for ESG reasons, for cost reasons, efficiency reasons kind of all the above. So we think that it's going to be almost your ticket to admission to be able to reinvest and having the ability to generate cash flow with a debt-free balance sheet.

Okay. And then for my next question, I just wanted to ask maybe going back to the commentary around E&P consolidation that all the dues that have been announced this past quarter. I think it begs the question what happens at the service level particularly in pressure pumping with supply and demand sitting where it's at right now. Whether or not ProPetro participate I guess, that's part of my question, but really just in general how do you guys seeing that playing out going forward? Do you see a commensurate increase in M&A at the service level or will it be more muted? Just how do you see that going forward?

Will I think consolidation or just taking capacity out of the market is key. How that happens, consolidation isn't the only way that happens. We're seeing a flood of bankruptcies and distressed assets, that's one way to thin out the market. I think from my perspective, the most difficult thing as ProPetro looks at whether consolidation makes sense for us is there just aren't that many healthy pumpers out there and for us to consolidate just for the sake of consolidation does not make sense. Somewhere along the way, our shareholders have to benefit for that. Having said that, there are some things that can make sense. We have looked at a number of things that we'll continue to look at them, but at the end of the day, I don't think it feels the same to me EMP. There is a lot more distressed companies on the oil field service side.

Cameron, this is David. Just to add to that you, we're definitely seeing consolidation on the E&P side and allow the conversation as about relevance of companies with certain markets cap greater than $10 billion has been referenced and they do have benefits of scale. There is no question about it, but they also want to have options and so there's a little bit of a different dynamic that's in play for service companies. We are currently a service company that in our position we're a very strong operator in the Permian basin with very strong customer relationships and we're generating free cash flow. So we're going to protect that position. We're going to protect our balance sheet, but we're also going to take a look at opportunities as they arise and meet those conditions.

Our next question comes from John Daniel with Daniel Energy Partners. Please go ahead.

Question for Adam. You mentioned that you're participating in some RFQs now, which could be to incremental work. not trying to pretend this lot, but I will, can you say if the quoting that you're providing for those quotes is below or at or above spot pricing ex your Pioneer work? Adam Muñoz: It's probably just kind of stayed the same. Stayed flat of all our level definitely amongst all the crudes that we have just to know that we can generate the return that we need to probably deploy that best fleet or the additional fleet and hire additional personnel. So definitely not chasing anything out there at spot type pricing. That doesn't put us in a win-win there.

Let's assume you guys are blessed and have another call it a two fleet opportunity in Q1, what type of fleet make ready expenses whatever we want to call them, what would you anticipate that being on a per fleet basis? That's all I got.

John, this is David. We've spoken in the past about annual maintenance CapEx for fleets of between $6 million and $8 million on an annualized basis. The number that we referenced regarding fourth quarter CapEx of about $25 million does have some anticipation of the potential of being awarded sine if these RFPs. So I think that, that it anticipates the potential opportunity there.

Our next question comes from Marc Bianchi with Cowen. Please go ahead.

Thanks. Following on to John's question about couple fleet increase in the first quarter, if that is in fact kind of the opportunity that you guys have. How sensitive are those RFPs to their current commodity price? We've seen a lot of swing in futures here in the last couple weeks and I'm getting some questions for investors, if some of the guidance that companies have sort of put out there and some of the plans that some of the E&Ps have in terms of getting to this sort of maintaining fourth quarter production levels works with where the commodity is. So can you can talk to how you guys see that just in terms of sensitivity?

The way I would look at that more is what your customer base look like and for hours. I understand your question whether people will or operators will start to get tentative about continued the activity levels we're at given that pricing doesn't seem to be able to stabilize at 40 or above, but again I'll say I think if the operators we're working for view it as a short-term issue then I wouldn’t expect activity change at all and it might actually ramp mainly because their hedge through that period of time, but that's speaking of our customer base. But if they view it as a long-term trend that price is not going to get back into the 40s or the European shutdown on pandemic is going to lead to a further slowing of the US and then I think we'll see some activity start to drop off but the way premature to tell you either way on that right now, but I don't think we're getting any indications from any of our customers that there is a potential knockdown in activity.

I guess maybe related to that, the rig count increase that we've seen lately in the Permian has been largely privates. Is the opportunity set you're looking at, is it skewed more towards privates or public and do you see any difference in the way either of those cohorts would behave?

Marc, this is Sam. I think it's probably a little bit a mix of both. We've had a healthy mix of both for the last few years, probably a little more tilted towards the public just from a scale standpoint, but many of the privates that we work for are larger than a lot of publics in the Permian in terms of acreage positions and activity levels. So they are operating very similar to public companies. So I wouldn't say it's necessarily more one or the other at this point from our perspective.

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

So just to checkbox here, but obviously you're very committed to the Permian especially the Midland, but just want to check do you have any pull from customers or maybe pull related to M&A for expansion outside of the Permian or maybe more so in the Delaware. Just curious If there's any shift in strategy and focus especially considering that growth in fleet in '21 doesn't look like it's going to be too huge. Just curious if you would shift and entertaining entry into different basins?

Well Delaware is part of the Permian and we deftly have worked there, but Delaware's not off our view of where the Permian Basin. We have on occasion done work outside the Permian Basin been down in the South Texas, but that's highly dependent on what the customer is willing to do in terms of commitment to activity and pricing. So we're not opposed to taking work out of the Permian. If you're talking about trying to go out and establish a presence in a new basin at this point in time, I think that's a heavy left to try to go in, spend incremental dollars and try to wrestle work away from a person's been established in the basin in this pricing environment where we sit. I don't view it as productive for us to do that at this time. If we had a customer that operated in one of the basin that had a large acreage position and had work that we can make sense to establish a base of operations up there, we would definitely consider it, but that at this point, I don’t think we have any plans to get outside of the Permian basin.

And then my follow-up being on the CapEx side, I guess you called out the $58 million for fleet and then technology SG type investment depending on demand and visibility, but just curious if we think that 2021 should we just take the fleet count that we have in mind [indiscernible] just something like that multiple it by the $6 million to $8 million or do you have visibility for an additional chunk of CapEx related to corporate or other projects that you already have planned for of some kind.

Chris, this is Sam. I probably just plug $8 million on maintenance CapEx times your activity assumptions just like you mentioned and until we see the market shift in a way where our economics change and it makes sense for us to make some of these different equipment investments that's really all that we can plan for at this time.

And Chris, this is David. Just to add to that, just keep in mind the significant investment that we've already made in DuraStim. As we mentioned, we're testing those units assuming those tests prove out or we're going have a significant amount of capacity of ESG equipment that we'll be able to utilize with customers and so just want to make sure we remind everybody the potential capacity that we would have there to access ESG customers.

[Operator instructions] Our next question comes from Stephen Gengaro with Stifel. Please go ahead.

Two quick ones. One you may have touched on a bit, but first one you mentioned the increased outsourcing in the quarter of some of the consumables. Is that a trend or is that you think that one-off issue in the fourth quarter?

Stephen this is Sam. It was probably in the third quarter more of just a customer mix as activity ramped back up between customers that we have sourced for traditionally and customers that have been sourcing something like sand for themselves. As everyone is well aware, the sand market nationwide has been very depressed and you have spot prices that have moved well below contract pricing in most instances not just for us, but for many of our peers as well and we see a lot of our customers and operators in the Permian taking advantage of this depressed spot pricing environment in the Permian regional sand market. There is probably some of that could persist over the medium term, but as activity comes back up and spot sand prices just start to grind even ever so slightly higher will probably have the opportunity to begin to source a little bit more sand. So hard to say if it's just a short-term blip or a long-term trend. I can tell you that as we communicate collaborate with our customers, our goal is to preserve the bottom line on a fleet level basis. So our customers are well aware as we stay in front of them when sourcing changes whether it's more sourcing going our way or our customer's way, we still have a return to make on our people and our equipment other consumables that we are sourcing. So although it is something to navigate, I think our operations sales teams done a great job educating the customer in terms of what we require on the bottom line.

The other thing I might add on that it's in terms of customer self sourcing is think with the pressure on for cost for the operators quite often they look to their supply chain, they look at that and they look at the price of sand and what they can get it for and then they make that decision to self source, but the critical part of that is the logistics of it and we have seen customers go down that path and find out that the sand itself is not really the critical element of the self sourcing. It's whether you can get it to location on time when it's ready and whether or not companies factor that into their equation when they decide to self source is kind of a critical issue. So is it a trend? Yeah, I think it's a trend, but is it a long-term trend, that I don't know?

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

All right, Brandon thank you and thanks again everyone. We appreciate you joining us this morning. Despite a continue challenging backdrop driven by the impact of COVID-19 ProPetro remains very focused on ensuring we remain ideally positioned for the current environment as all demand materially recovers in the future. Given this backdrop as in the past, we will leverage the best team in the industry as we continue to work closely with our customer, supply chain partners and other stakeholders to ensure our collective long-term success. And finally in the spirit of Election Day, we would encourage all of you to get out and vote if you haven’t already done so. Thanks again for joining us and we look for to speaking with everybody again at the fourth quarter call. Thank you

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