Good morning and welcome to the ProPetro Holding Corp. Fourth Quarter 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Josh Jones, Director of Finance. Please go ahead.

Thank you and good morning. We appreciate your participation in today's call. With me today is Chief Executive Officer, Sam Sledge; Chief Financial Officer, David Schorlemer; and President and Chief Operating Officer, Adam Munoz. Yesterday afternoon we released our earnings announcement for the fourth quarter of 2021. 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 would like to turn the call over to Sam.

Thanks Josh and good morning everyone. Firstly, I'd like to congratulate the entire ProPetro team on successfully navigating the challenges of 2021. Beginning in late 2020 and throughout the entirety of 2021, our team dedicated themselves to helping our business recover while at the same time maintaining or even improving our level of operational and safety execution. I'm proud of our team's resilience and I'm excited to see more great things come from the ProPetro team in 2022 and beyond. Moving to the fourth quarter, we were pleased with our operating performance and fleet repositioning which reflects our intent to set the conditions for and pivot to the optimal path for profitability and value creation in 2022. As we prepared our fleets for this new year, our activity levels decreased slightly in the fourth quarter resulting in a 2% decrease in revenue and a 12% decrease in adjusted EBITDA. Despite the operational inefficiency created in repositioning assets along with normal seasonality, our team executed well and continued to differentiate our wellsite performance from our peers. Again I want to thank our team for all the hard work that went into preparing the company for the year to come. As demand for oil and gas continues to increase across the world and certain countries fall behind their respective oil production quotas, the call on short cycle crude from the US is growing louder with WTI pricing above $90 per barrel. While we foresee many US producers taking a capital-disciplined approach to activity additions, others are seeing new areas of leasehold become economically viable for the first time in years. Incremental services demand from these non-core areas of the North American oil and gas basins is expected to cause further tightening in the US pressure pumping market during 2022. We also anticipate…

Thanks, Sam and good morning, everyone. During the fourth quarter, we generated $246 million of revenue a 2% decrease from the $250 million of revenue generated in the third quarter. Effective utilization was 12.5 fleets which decreased 9.4% from 13.8 fleets during the prior quarter. The lower revenue was a function of lower fleet activity and seasonality. Notably the drop in activity, was partially offset by some limited higher pricing. Our guidance for the first quarter average effective fleet utilization, is 12 to 13 fleets with visibility to some downtime due to winter storms in February, sand supply and logistical constraints, and continuing repositioning of fleets included in that range. In January, our effective fleet utilization was 13.4 fleets. Cost of services, excluding depreciation and amortization for the fourth quarter was $187 million versus $189 million in the third quarter with the decrease driven by lower activity levels. The fourth-quarter G&A expense was $24 million compared to $21 million in the third quarter. G&A exclusive of $2.3 million relating to non-recurring and non-cash items was $22 million consistent with the third quarter of 2021. We expect first quarter G&A exclusive of non-recurring and non-cash charges to decrease to approximately $18 million to $19 million. Depreciation was $33 million in the fourth quarter consistent with the third quarter. Our net loss for the fourth quarter was $20 million compared to a third quarter net loss of $5 million. The fourth quarter was a transitional quarter for our team and we believe ProPetro's ability to execute on its financial goals this year, will partially be a function of how the stage was set at the end of 2021. To add to the preparatory work Sam mentioned, our team continued to dedicate efforts on managing costs and supply chain inflationary pressures, which we…

Thanks, David. We're excited to see where margins are landing early in the year, and as a result, it's nice to be in a position where we can take advantage of an opportunity-rich environment in 2022. On that note, I do want to take a moment, to provide an update on our ESG-related service offerings, and how we are viewing it going forward. To date, all of our previously announced Tier 4 DGB dual fuel investments are sold out and are expected to be put into service, with dedicated customers, as they are delivered throughout the first half of 2022. We continue to see demand for lower emissions natural gas burning equipment, particularly when that offering is coupled with an efficient operation like ProPetro. We believe our operations like simul-frac, coupled with our ESG friendly services are delivering the solutions that the most efficient operators are needing. Our dual gas offering is most important to aid in supporting our customers emissions goals, but it's equally a financial benefit to ProPetro as these units and the pricing associated with them allow our company to effectively scale without placing additional net supply of horsepower on the pressure pumping market. Moreover, conversions provide scale in a way that is asset and margin accretive to ProPetro. When considering all investment options whether organic or inorganic, we believe asset and margin accretion is the most risk-mitigated strategy toward improving our bottom line. We do not believe that scale for the sake of scale is pragmatic in this business. But as long as demand warrants and a healthy balance sheet allows, we will continue to transition our fleet to more natural gas burning and lower emissions equipment with premium pricing and strong economic returns. As we turn the page to 2022 focus for ProPetro is the…

[Operator Instructions] And the first question will come from Stephen Gengaro with Stifel. Please go ahead.

Thanks. Good morning gentleman.

Good morning Stephen.

Two things for me. I wanted to start with -- you mentioned the sand issues that are out there. Can you talk a little bit about what you guys are doing as far as delivering sand for customers maybe on a percentage of fleet basis? And is there a profit opportunity there for you guys to manage delivered sand given what has happened with spot prices in the primary as well?

Yes Stephen, this is David. Regarding sand we provide that to just a small percentage of our fleets today. Many of our customers provide that directly. One of the things that we've been working on is the discipline of passing through the actual cost on jobs. And so, I don't think that's going to be a significant driver of profitability. I think we're getting that through our primary pricing mechanisms, but it's certainly something for us to be disciplined around.

Yes. And Stephen, this is Sam. Just to add on top of that. In times of volatility in the market much less volatility in a more focused area like sand this effort and discipline of actually passing through all your costs much less trying to capture margin on top of those costs is a real task. We struggled with it at times in the past we know that a lot of our peers have struggled with it as well. We feel really good about how we're transacting in that part of our business now and our ability to protect ourselves and even capture some value from that volatile market that is the sand market today.

Great. Thank you. And then, the second question was, you mentioned on the call and also in the press release about -- I think you used the word, repositioning assets. And I was curious and maybe you could tie this into price. But is that -- when you say that, is that to customers with more visibility and less white space? Is it a pricing move? Is it just a strategic alignment with the customer? Can you kind of shed some light on what you exactly mean by that and how it pertains to pricing and profitability?

Sure. I think, the simple answer is that, it's a little bit of all of that. Really, it's mostly around our pursuit of increased margins in this more healthy cash-on-cash return that David and I both mentioned in our scripted remarks. And repositioning fleets and assets can be a significant part of that at certain points in the cycle. But with that repositioning also comes pricing, I don't think we would be moving assets if there weren't differentiated pricing with the opportunity that you're moving them to. You're also looking for more consistent work schedule. You're looking for an ability to transact and manage and cover your costs better, really, kind of all of the above. That repositioning results in just a better value proposition, overall. It can also differ a little bit on a customer-by-customer basis, how many of those opportunities are available with that repositioning.

And, Stephen, just to add to that, this is David. I think, the way we're thinking about it is, every fleet needs to generate full cycle cash-on-cash returns independently of itself. We're not looking for incremental contribution that is not meeting that objective. So that's where the discipline around our fleet deployment plays in and moving some of these fleets around, getting them in a position to be priced correctly, to generate those full cycle cash-on-cash returns is a priority for us.

Great. Thank you, gentleman.

And the next question will come from Taylor Zurcher with Tudor Pickering & Holt. Please go ahead.

Hey, good morning. Thanks, everyone, for taking my questions. My first one for Q1, I think you said in January, the monthly run rate from an adjusted EBITDA perspective was close to just north of $24 million, if I heard you correctly. And, obviously, there are some issues you're encountering here in February and likely next month as well, with respect to sand and other sort of transitory -- hopefully, transitory issues. But I was wondering if you could help us think about just EBITDA margins over the balance of 2022. You're talking about 25% margins for January. That's almost 1,000 bps higher than what you were doing in Q4 of 2021. So should we take that comment to mean that at some point, whether it's Q2, Q3 or Q4, you should start generating 25% EBITDA margins on a consolidated basis for the company in 2022?

I think that, we want to be careful given some of the weather-related impacts in February. But I think, certainly, given that we've reset pricing across our entire fleet and we still have some yet to bake in that has already been achieved. I think, certainly, being able to get back to that 25% level is an objective for us and certainly possible.

Okay. Good to hear. And just a follow-up there. So on the CapEx budget $250 million to $300 million. If I assume you did get back to 25% margins or close to it. It seems like you could maybe say a free cash flow positive for 2022. I just wanted to clarify or ask you to help us think about cash flow for 2022. Do you think on the budget you've outlined you can stay positive at the free cash flow line for 2022?

Yes. Taylor, this is Sam. I do think that opportunity is there this year. There's kind of a few things that need to shake out for us to talk a little bit more confidently about that. But given what you saw -- what we're seeing in January from a profitability standpoint as a direct result of the work we did at the end of the year last year and the work that we're going to continue to do from a pricing and repositioning standpoint, that opportunity is very real.

Awesome. Thanks, Sam and David.

You bet.

[Operator Instructions] The next question is from Evan Mapes [ph] with ATB Capital Markets. Please go ahead.

Yes. Good morning guys. Thanks for taking my questions. Just around the DuraStim fleet, can you just comment on, are they working and how are they running operationally kind of what's the outlook there?

Yes. Evan, this is Adam. Currently there is no DuraStim trial scheduled. As you might have heard throughout the script, the team towards the end of last year -- or back half of last year -- made the decision to be focused going into 2022 and repositioning our fleets to more profitable work to achieve these full cycle, cash on cash returns and also put in focus and mitigating any supply chain issues that could help or prevent us from doing so. So that's where our focus lies right now.

Okay. Then just one quick follow-up then. As you guys look to upgrade your fleets, are you guys looking at different kind of e-fleet technology in 2023, or are you just focusing on Tier four DGB for the time being?

Great question Evan. This is Sam. We're looking at everything right now. You've known us long enough to know that our operating model is usually very customer-focused and customer-driven. Our move into the dual-fuel DGB space is largely a product of what our customers are asking for. We're going to continue down that road as you've seen. But we're also in various conversations across almost our entire customer portfolio about, what can be in addition to that in the form of more gas burning equipment. I think that's what most of our customers are after from both a cost and a mission standpoint is to pursue more gas burning equipment. And that can be in a lot of different -- that can come in a lot of different ways. So yes, we are analyzing multiple opportunities across the equipment space, as it relates to the end of this year and next year.

Okay. Thanks guys. I'll turn it back.

Thank you. [Operator Instructions] The next question is a follow-up from Stephen Gengaro with Stifel. Please go ahead.

Thanks. Actually, I have two more things if you don't mind. The first -- you talked in the press release and you also highlighted on the call sort of the desire to really focus on capturing value as opposed to market share. Can you give us a sense for how the competitive landscape is acting? Are you seeing a price discipline approach for most of your bigger competitors? And I'm just kind of curious, what you're seeing on the competitive front given how tight the market is?

Yes Stephen, I'll take a shot at that one. This is Sam, again. At this point in the cycle, when utilization is trending up, pricing is trending up. It's a little bit harder to grab on to consistent data points given there's just so much movement in the market. You hear us talking about repositioning of our fleets. You've heard competitors of ours talk about repositioning of fleets. There's going to be marginal incremental activity adds, that are coming throughout the year, so a lot of noise. That said, I do feel like there is more pricing discipline in the system than there has been in quite some time. I think everyone in the pressure pumping sector is coming to the realization of how much equipment we're using and how efficiently we're using it and what the return profile needs to look like to meet that operating model. And although, it can be a bit bifurcated at times in terms of pressure pumpers that are working in kind of this uber-efficient simul-frac type multi-well pad environment, that's the game we're playing and competing in. And we do feel like, there is decent discipline in that arena. That said, we're much more focused on the economics we can generate -- ProPetro can generate, rather than what's going on around us and partnering our quality operation with E&Ps that put a high value on consistent operations.

Okay. Thank you. That's good color. And then just the one final. You talked about the simul-fracs and the impact it's having kind of on maintenance CapEx per fleet. Are you thinking that's a reasonable range going forward on the maintenance CapEx on even as we get into next year, or is there something about fleet configurations being larger that's driving that number higher, or is it just inflationary pressures?

Yes, Stephen, this is David. I think certainly we've got inflationary pressures that will persist. But I also think that we're continuing to transition our fleet as well. But I wouldn't be able to give you an estimate on how that moves. I think that we definitely moved it up from our prior range given the state of our fleet today and how it's being used. And that's – we'll give you further guidance going forward.

Yes. Stephen, this is Sam. Just to add on top of that. I think just fundamentally for the sector I think that might be a data point or example of just how much equipment is in the system on a per fleet basis sector-wide – a couple of our peers have done a good job talking about this. We've tried our best to do the same. There is just a significant amount of equipment on each one of these locations. And I think that's why we're seeing earlier tightening of the market this cycle, as you look at utilization on like a fleet-by-fleet basis across North America, operators don't want to give these efficiencies back. Therefore, we're trying to work with them to find a way to make the right return on these larger fleets as they exist today. So that obviously comes down through something like maintenance CapEx just because you naturally whether it's simul-frac or regular zipper operation you have significantly more equipment on location across the board.

Great, thank you for the color.

And the next question will come from Waqar Syed with ATB Capital Markets. Please go ahead.

Thank you. So Evan asked all the good questions, Sam. Just one question for me. On these bigger simul-fracs, it looks like you may have about $100 million worth of equipment at the well site to incorporating maintenance CapEx, you think you need somewhere in the range of $30 million of EBITDA per crew to make attractive returns on that investment?

Yes. Waqar the 100 seems high. In fact it is high significantly high. But fundamentally what we're trying to do is earn a cash-on-cash return on the value of the assets that we have deployed to any set location. So the math is very similar for us whether it's zipper or simul-frac, the amount – the dollar amount of assets that we're deploying needs a specific return in a specific time.

Yes. So is it like in excess of 100,000 horsepower at the well site for simul-frac, or is that number too high?

That's a little high. And my comment was off of – I think you said $100 million worth of equipment.

I am sorry, I was just doing the rough math if you do like 100,000 and then like let's say $1,000 per horsepower. And the number may be a little bit lower maybe $80 million but broadly within that kind of range we could also have 120,000 horsepower at the well site as well right with simul-fracs.

Yes maybe the math you're doing is just doubling a traditional zipper operation which is a little too healthy I think. We're seeing a little less than that on our simul-frac locations.

Fair enough. And then so for simul-frac what would be the kind of right number for including the maintenance CapEx the right EBITDA book crew to get your return hurdle?

Yes. Syed, we don't provide that information. I think as Sam mentioned with respect to our deployment of assets we look at full cycle cash-on-cash return. And so we know what those numbers are. And quite frankly simul-frac locations vary between customers and job types. So we may have some simul-frac locations that are – look like a zipper. So it's really just – I think that's proprietary and we'll leave it at that.

Sounds good. Thank you.

And the next question is from Arun Jayaram with JPMorgan. Please go ahead.

Yes. I wanted to get a sense of how you're thinking about the pace of upgrades towards Tier 4 GGBs. I know Sam in September you placed for 125,000 hydraulic horsepower. You currently have about 1.25 million horsepower of conventional Tier 2 equipment, a little over $100,000 of DuraStim. But I wanted to get a sense of how do you see the pace of upgrade capital over the next few years. Is that a good run rate as we think about 2023 and beyond?

Sure, Arun. Good question. As it sits today, I think we're somewhere in the ballpark of halfway through taking the delivery on the previously announced Tier IV DGB plans. We do have -- as we stated in our script, we do plan to take delivery on that entire investment program by about midyear this year. And what that will equate to in terms of fleet is probably just a little more than four fleets four operating fleets of dual-fuel equipment. As we look forward, I think part of what we are trying to analyze right now from an opportunity standpoint is how much more of that needs to happen and at what pace. We haven't made any specific decisions around continuing that program in a sizable way right now. What we can tell you is that the pricing for those assets is different -- the demand is different. And the math does make sense at this point. So we're working hard with certain customers to run the ground decisions those opportunities here in the near-term.

Yeah. Arun, this is David. I would just add to that that. We're not necessarily locked into a particular technology here as Adam and Sam have both mentioned. We're evaluating a variety of technologies as there's innovation that comes to the marketplace. So, we've communicated our conversions for this year. We'll see how the market goes, if we continue to extend that beyond this year and/or what other technologies we might incorporate into the mix.

Great. And my follow-up question is obviously rising activity by the privates has been a theme over the last several quarters. And I was wondering to get a sense of, if you could give us a sense of your mix between public and private operators that you work with today? And are you seeing any deltas in margins or EBITDA per fleet between those two different customer groups?

Well, we're not going to talk about the profitability across customers. But I think what we can see is demand definitely strengthening from privates as their balance sheets are repaired and as they consolidate. I think steady demand coming from the public and the majors -- and really at this point, it's almost coming from every segment majors, large independents, publics and privates quite frankly.

Yeah. Arun. It's Sam. Just to add on to that. I think as evidence you saw in our early January numbers and really historically with the company, we are highly interested in these booked-up calendars that give us an opportunity at the most efficient work that is in the market. Private or public, I don't know if we have a preference like David said, we're aiming for a cash-on-cash return on a fleet-by-fleet basis, thankfully, operating basically solely in the Permian Basin. There's a lot of large sophisticated private companies that can meet that need of ours that has a very full calendar and very efficient planning and operating. We have obviously some sizable public customers as well. So I think it's a little bit less about private versus public. It's a little bit more about what the operating opportunity is for us on a customer-by-customer basis.

Great, thanks a lot.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Sam Sledge, for any closing remarks.

Thanks everyone. We look forward to working with all of our stakeholders in 2022, as Perpetual in the Permian Basin helped meet the global call on oil and gas and more importantly, dependable and cost-effective energy. We hope to speak with all of you again soon. Thanks for joining us.

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