Good day, and welcome to the ProPetro Holding Corp. Second Quarter 2025 Conference Call. Please note, this event is being recorded. [Operator Instructions] I would now like to turn the conference back over to Matt Augustine, Vice President of Finance and Investor Relations for ProPetro Holding Corp. Please go ahead.

Thank you, and good morning. We appreciate your participation in today's call. With me are Chief Executive Officer, Sam Sledge; President and Chief Operating Officer, Adam Munoz; Chief Accounting Officer and Principal Financial Officer, Celina Davila; and our new Chief Financial Officer, Caleb Weatherl. Caleb will introduce himself later in the call. But given he's new to the company and wasn't with us for the second quarter, he will not be participating in the question-and-answer session today. This morning, we released our earnings results for the second quarter of 2025. 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, Matt, and good morning, everyone. Thanks for joining us today. Before I discuss our results this quarter, I'd like to take a moment and introduce you to Caleb Weatherl, our new Chief Financial Officer. We're excited to have him on board as his wealth of experience in the energy and financial sectors is a perfect match for us here at ProPetro. We are confident that he will be instrumental in helping us drive long-term shareholder value, and I look forward to having him as part of the team. Caleb, would you like to say a few words?

Thanks, Sam, for the warm welcome. I am truly thrilled to join the incredible team at ProPetro. Having grown up and built my career in Midland, I've long admired ProPetro's reputation for excellence and its deep roots in the community. It's an honor to join such a respected first-class organization. While I just joined the company a few weeks ago, I've hit the ground running and I'm enjoying working closely with Sam and the rest of the leadership team. With a clear focus on capital discipline and efficiency, I'm excited to help advance ProPetro's next chapter of success as we build on its strong financial and operational foundation. I want to assure you that the company's disciplined approach to capital allocation and commitment to maintaining a strong balance sheet while investing for growth will not change. I'm looking forward to getting to know you all better in the coming quarters. And with that, I'll turn it back to Sam.

Thanks, Caleb. Now I'd like to share some thoughts on the environment we're operating in and provide an overview of our performance in the second quarter. Despite recent macroeconomic uncertainty, ProPetro delivered a resilient quarter, both operationally and financially. Our strategy is proving effective, driven by our emphasis on capital-light assets and disciplined investments as well as our continued implementation of our industrialized business model. Our legacy completions business continues to generate sustainable free cash flow, supported by ongoing cost optimization and targeted capital programs. These efforts are fueling our growth trajectory, including new initiatives like PROPWR, which I'll discuss further in a moment. With regard to the current operating environment, both the broader energy markets and more specifically, the completions market in the Permian Basin continue to face challenges. We believe the Permian frac fleet counts are likely approaching 70 compared to approximately 90 to 100 fleets operating at the start of this year. Increased market uncertainty driven by tariffs and rising OPEC+ production has resulted in more idle capacity than anticipated. Furthermore, price discipline has weakened at the lower end of the market, particularly among subscale frac providers. While we've had the opportunity to keep virtually all of our fleets active, we have proactively chosen to idle certain fleets rather than run our fleets at subeconomic levels, therefore, preserving them for more favorable market conditions in the future. That said, we are prepared to navigate this market by controlling what we can control, our everyday behaviors inside of ProPetro. Our strategic investments, including past M&A activity, PROPWR growth and FORCE electric fleet transition have strengthened the company's foundation so that we can withstand market turbulence. ProPetro is a strong business, led and operated by an experienced team with low debt and first-class customers in one of the world's…

Thanks, Sam, and good morning, all. In terms of the numbers, ProPetro generated total revenue of $326 million, a decrease of 9% as compared to the prior quarter. Net loss totaled $7 million or $0.07 loss per diluted share compared to net income of $10 million or $0.09 income per diluted share for the first quarter of 2025. Adjusted EBITDA totaled $50 million was 15% of revenue and decreased 32% compared to the prior quarter. This includes the lease expense related to our electric fleets of $14 million. Importantly, one attributable factor for lower financial performance this quarter was and is our strategic decision to maintain our idle fleets in optimal working conditions. This ensures preparation for rapid deployment once market conditions improve and that we are best positioned to capitalize on future opportunities as they arise. Net cash provided by operating activities and net cash used in investing activities, as shown on the statement of cash flows were $54 million and $36 million, respectively. Free cash flow for our Completions business was $26 million. As Sam mentioned, our legacy Completions business continues to generate sustainable free cash flow. Even in today's challenging market environment, we are operating with the consistency and reliability of a mature industrialized enterprise. Capital expenditures paid were $37 million and capital expenditures incurred were $73 million, including $30 million primarily supporting maintenance in our completions business and $43 million supporting our PROPWR orders. The difference between incurred and paid capital expenditures is primarily comprised of PROPWR-related capital expenditures that have been financed and paid directly by our financing partner and unpaid capital expenditures included in accounts payable and accrued liabilities. In terms of CapEx incurred guidance, we will continue to evaluate the market and scale CapEx with activity realizations. But as we sit here today,…

Thanks, Celina. I'm proud of how our company and team have navigated recent market volatility and position ProPetro to thrive in any environment. Our resilience is a direct result of several things, namely a legacy completions business that is profitable through various cycles and will continue to fuel our growth in PROPWR, as well as our investments, including FORCE electric fleets, PROPWR and a thoughtful M&A approach that together provide us with a rock-solid foundation to withstand market turbulence. And lastly, our core strengths of our strong balance sheet with low debt, first-class customers and a first-class team, a team that's proactive and quick on its feet, for which I'm immensely thankful. At the end of the day, we're well prepared for what lies ahead and remain confident in both our strategy and the future of our company. We've built significant momentum and a strong foundation, and I'm certain we will continue to build on this progress. None of our achievements would be possible without the dedication and hard work of our ProPetro teammates. Your commitment to operating safely, efficiently and responsibly inspires confidence in our ability to navigate this dynamic environment. Thanks for everything you do. With that, operator, we'd now like to open the line to questions.

[Operator Instructions] The first question comes from Derek Podhaizer, Piper Sandler.

I just wanted to start off with more of a bigger picture question on the Permian Basin. So we talked about approaching 70 fleets from the 90 to 100 at the start of the year. This means 20 to 30 idle fleets, and you talked about potential for persistent uncertainty moving into 2026. just how much of an overhang do you think this will be on the Permian Basin? How can we think about the industry working through this big oversupply with the frac equipment and how it will impact ProPetro going forward?

It's a great question, Derek. I think it's -- I mean, it kind of boils down to traditional supply and demand. And you've heard us talk a lot about the kind of tiering or stacking of frac supply with electric and all gas offerings at the top and all diesel offerings at the bottom. It's very obvious that the most disrupted part of that supply stack is the diesel equipment. That's been exactly what's happened to us as well. We think because of the looseness in the market and some of the lack of disciplined pricing we've seen at that lower end of the market, it likely is a long-term tailwind via attrition. So we're just choosing not to play in that loose part of the market right now. All the meanwhile, the top end of our stack, several of our dual fuel fleets as well as all of our electric fleets are humming along nicely with absolutely no disruptions to pricing or activity. So I'd hate to be a player in the market that hasn't invested in some of this next- generation equipment and it's just sitting on the lower end of that stack. How long does the looseness last? Hard to see. But as you could see by our guidance and kind of our outlook in the back half of the year, we think that, that kind of looseness in the market is here to stay for at least 2025, possibly into the first part of 2026. Beyond that, if and when the market does turn up a little bit, we're -- I don't know if there's going to be anybody better positioned in the Permian Basin than us to play into a recovering market sometime next year.

Got it. That makes sense. I guess turning over to PROPWR, excited to see the inaugural contract there. You mentioned you're kind of honing in on your next equipment orders. I'm just curious if you'll -- any thoughts around continue to go with the recips or the smaller turbines or maybe you step into the larger turbines? And also, are you still going to be focused in on the oil and gas industry? Or do you think we'll see any potential to expand in more industrial applications and potentially even data centers?

Yes. Look, I mean, we're really happy with the flexibility of the gas recips and the smaller turbines that we have on order right now. It's giving us a lot of optionality in the market from a contracting standpoint and the type of work. So beyond the 220 megawatts that we've ordered, you'll likely see some of the same. But beyond that, we're probably going to hold kind of our cards pretty tight to the best in terms of any other types of power sources that we're getting into, given that that's pretty competitive from a supply chain standpoint. Remind me of the second part of your question?

Just the end markets staying in oil and gas or potentially looking into industrial, yes.

Really strong demand pull in oil and gas right now, mainly production and midstream. We -- in our scripted remarks in our press release, hinted at more announcements coming in the near future, things that we have in the pipeline that are very close to the finish line. Those deals are likely very similar, maybe varying in size, but very similar in structure to what you saw with the first contract that we recently announced. And demand is really good in oil and gas. So here initially, we're really going to stick to and hammer what we know right here in our backyard. Beyond that, look, we're having some really interesting exploratory conversations about non-oil and gas opportunities. Remains to be seen how quickly some of those can materialize. But look, if you're in the power supply chain and you're an operator of megawatts of scale, which we are, your opportunities, frankly, just show up at your doorstep. So we're sifting through a lot of different things from a long-term strategic standpoint that leave us really, really excited about the future prospects of PROPWR.

The next question comes from Eddie Kim, Barclays.

Thanks for all the commentary about the market conditions. Just wanted to ask about how we should think about the trajectory for 4Q. You mentioned in prepared remarks kind of normal seasonal patterns. But looking at the past 2 years, your revenue in 4Q had a double-digit sequential decline. Is that the level of decline sort of consistent with how you typically think about normal 4Q seasonality? And just -- I mean, in particular, this year, should we potentially expect maybe some incremental softness on top of normal seasonality, just given the market conditions currently? Any thoughts there would be great.

Yes. Look, I mean, to be honest, it's a little bit hard to see into 4Q right now. We're very confident about our 3Q guide that we gave, 10 to 11 fleet. That said, I mean, look, there's -- your numbers are correct on the last year or 2 from like a 3Q to 4Q, but we've also seen quarters that have gone the opposite direction as well. So I think it kind of all depends on what the commodity price does and what the forward look looks like for the E&P space if they can gain more certainty around their plans going into 2026 and do they want to secure some of that work earlier rather than later. Also, when we talk about seasonality, just to clarify, it's usually off of that 3Q mark. So our 10 to 11 fleet guide -- so would there be regular holiday white space on top of the 10 to 11 fleets, which we expect to be active through the end of the year. I think we just right now are being conservative with some holiday white space. But look, we're also -- here we sit with a pretty pessimistic near-term market view. But at the same time, we continue to have conversations with our customers and prospective customers about projects that could change that outlook pretty drastically and pretty quickly. We just don't have any certainty of that right now. So we're going to be pretty conservative and realistic as we look into the back half of the year.

Got it. Great. That's helpful. Just shifting to PROPWR. It's great to hear your confidence in securing long-term contracts for that entire 220 megawatts by year-end. I'm a little surprised just given the challenging market conditions in oil and gas currently. But I mean, does that just suggest that power demand even for microgrids is almost independent of, I guess, drilling and completions activity and I guess it's more tied to midstream and production. Or are operators kind of looking past kind of near-term weakness maybe in anticipation of market conditions kind of rebounding next year? Any thoughts there would be great.

Yes. These first few steps from a power standpoint for us as it pertains to our entrance into the market are noncompletions related. So production in midstream, like you mentioned and like we've mentioned in the last couple of calls here. So that is -- that's quite bifurcated or maybe disconnected from some of the volatility that we see in the drilling and completions market. And it's really aimed at, at the end of the day, cost savings for our customers. So even if they cycle down, overall, the space cycles down on the drilling and completion side, it doesn't mean that they quit producing their wells and that they're not continuing to look for ways to lift that production and move it in a less expensive manner. And that's right what we're aimed at right now. So as the Permian continues to have power demand needs, then on the -- mainly on the production side, we think we're really well positioned to create quite a bit of stability in our business long term by being a bit separated from the completions and drilling space with our power offering.

The next question comes from Grant Hynes, JPMorgan.

So you guys messaged 10 to 11 fleets kind of in 3Q, down about 20% from the 13, 14 in the second quarter. But in your prepared remarks, highlighted some of the simul-frac work, particularly on the FORCE fleet side. Could you maybe give us some color, I guess, on how much more simul-frac might be working kind of in the second half versus the first half and perhaps utilization on a horsepower basis when we just think about sequential change kind of versus the 20% reduction in fleet count?

Yes. I don't know how much we want to detail we want to give there. I'd say proportionally, it's pretty similar. Simul-frac continues to be a big part of our business, especially on the electric side. We don't think there's any better safety, cost efficiency way to approach completing your wells other than with an electric simul-frac setup. So more of that probably going into next year as we continue to expand our FORCE offering. But kind of quarter-over-quarter, it's pretty proportional from a simul zipper standpoint.

Got you. And then maybe transitioning to power. You mentioned sort of the initial deployment for that 80-megawatt contract starting in 3Q of '25 and into 2026. How should we think about sort of the lead time on the asset deployment and anything in terms of sort of start-up costs and the deployment there?

Yes. I mean you'll see a little bit of start-up costs that are being beared in our numbers that we disclosed in our press release information. So there will be a little bit of that. It's really not much. I mean this business is much more personnel light than our legacy completions businesses. And that equipment will deploy in a pretty linear manner from 3Q through midyear next year. As I -- as we mentioned in our remarks, we mentioned earlier, we're also in very developed discussions with our suppliers on our next orders that likely we could take delivery of in 2026 -- inside of 2026 as well if those orders are placed fairly soon. So that could even be a tailwind to estimates and expectations as it pertains to our power business in 2026. I'll also say as it pertains to whatever that next order may look like, we'll be pretty quiet on what type of equipment that's going to be. But in terms of size, we think each one of our orders in the power space will likely be very meaningful. We don't have any interest in kind of trickling out the size of PROPWR. We have every interest in multiplying the size of this business as quickly as possible given the pipeline of opportunities that we're seeing. So we're quite serious and focused about scaling that business as quickly as possible into the opportunity set that we're seeing.

[Operator Instructions] The next question comes from Waqar Syed, ATB Capital Markets.

Sam, a big picture question. We're all trying to figure out like how this decline in completion activity in the Permian, how it's going to impact the production in the basin. But from your perspective, as this activity declines in the number of crews decline, it is likely -- a lot of that is being offset by the simul-fracs. So do you have a sense that if activity -- your completion crews is down like by 25%, then in terms of the total footage that is fracked, how much lower that is?

Yes. Hard to say, Waqar, I can tell you just -- and this is my personal opinion, viewpoint on this. It's been quite surprising to me that we haven't seen production, at least in the Permian Basin, but domestically in the U.S. roll more than it has. I think it's starting to plateau and show signs of potentially developing an early downward trend. But I -- as we sit here boots on the ground, counting every crew that we know of working and counting up the simul-frac crews that we know of here in the Permian Basin across the whole space, it's really, really hard for me to believe that we are at an activity level that's going to sustain Permian production today. There has -- as you mentioned, there's been several efficiency developments over the last few years, things like simul-frac that have increased maybe completed footage per crew. I do not think at all that we are outrunning that right now. So I would expect sometime in the future Permian production to roll just from our point of view, kind of in the completion services space.

Great. And then by my calculations, you've got like 7 Tier IV DGB fleets, let's say, 4 FORCE fleets. So should we assume that everything that's working is for you, those 11 fleets, all of them are the next-generation fleets? Or do you have any one of the Tier IV DGB fleets being down and a Tier 2 working?

There's a little bit of diesel still in the system right now. But as I mentioned earlier, when I kind of described the supply stack, the dual fuel and electric have been far more resilient.

So you do have a Tier IV DGB fleet down?

We have some Tier IV DGB equipment down right now. We'll not say much more than that.

Okay. And like if I look at your quarter-over-quarter EBITDA progression for the different business lines, it seems like wireline is tracking the fracking business relatively closely. So as we look into Q3, again, does it track -- wireline track has the same trajectory as fracking?

Yes. it's going to track pretty closely with everything else as is cementing has tracked kind of rig count -- kind of the changes in rig count fairly closely as well.

No, I noticed that in cementing, EBITDA quarter-over-quarter was down about almost 42%, 43% versus 24%, 25% declines for wireline and cementing. It's just -- is there anything in particular going on with cementing? Or it's just the scale thing small -- so a small change makes a bigger difference?

That and a full quarter effect of drilling rigs, parking, that always happens ahead of frac fleets and wireline units. So we started to see cementing deteriorate in really towards the end of the first quarter. So you're seeing a full quarter effect of some of that.

The next question comes from Jeff Leblanc, TPH.

Regarding your contracting capacity long term, should we be aware of any price reopeners? Or I guess, more broadly, how should we think about the stability of the pricing given that historically, you've expressed a willingness to work with your long-term customers?

Yes. The contracts are pretty set on the contracts that we've talked about that we have on the dual fuel and electric side. There's -- on average, there's some semiannual adjustments to those prices, but they're pretty formulaic and passive, usually resulting in low single- digit changes that are pretty hard to see probably from the outside point of view. So pretty stable.

The next question comes from Don Crist, Johnson Rice.

Most of my questions have been answered, but I did want to ask one kind of more macro question, and it relates to just the broader equipment out in the space today. You've seen some of your smaller competitors sell their equipment and that equipment is going overseas. And then NOV talked about 5 or 6 different countries around the world that are exporting unconventional technology to go frac their wells. And just a broader question as to are you seeing demands for the sale of your kind of diesel stuff to go overseas? And do you think that can more balance the market as we kind of look out a year or 2 as more of this equipment moves overseas?

Look, I think the demand is there. And I think there's a lot of different places globally that are taking notice of how we do what we do over here as an industry. No surprise, but America innovates and works harder to figure out how to do more with less than any other country of the world, and that is maybe more evident in the energy space than any other place. And we have fielded inquiries from other countries about not only equipment, but expertise and services as well. It's hard to say if that's like a meaningful variable in what happens domestically to supply and demand, but I think it definitely helps. So we'll watch that closely. And we've been a pure Permian pressure pumping frac provider for the history of our company. But it doesn't mean that we don't answer some of those phone calls and entertain some of those ideas because there are some instances where that could make a lot of economic sense because of some of these other areas across the globe being so interested in what we do and how we do what we do. So I think it could be a help, Don. I think it will likely improve the supply and demand equation a little bit. Hard to say how much.

I appreciate that color. And if I could sneak in one more. If you were going to order some new solar turbines today, what would the lead time on that be? We're hearing it's extended out pretty far.

It's not getting any shorter. And I'll probably stop quoting an exact number, but we've got a great relationship in that part of the supply chain, and we're pretty confident that we'll be utilizing those relationships to continue to scale our power business in a meaningful way.

[Operator Instructions] The next question comes from John Daniel, Daniel Energy Partners.

Sam, sort of a big picture question. Your -- on the release, you note the market in the Permian has gone from, call it, 90 to 100 and maybe down to the 70 range. I'm just curious like -- if no one had reduced pricing 6 to 9 months ago, would the frac fleet be 60? Or would it still be 70? What do you think it would be?

I don't know. I mean, I don't -- 6 to 9 months ago, I don't know if there was a ton of pricing change in the market. I think the activity disruptions we at ProPetro have seen most recently have been due to pricing movements in the last 30 to 60 days.

And that's fine. call it, 90 days ago. I just -- my question is, what's the right level of demand you follow me? And is service pricing really having an influence on whether they keep or release the fleet? I guess that's what I'm getting at.

I don't know. There's probably 10 to 20 fleets in the market that are doing what I just frankly call stupid stuff right now. So could it be lower? And look, I have to commonly remind ourselves and remind others discipline in the frac space is either saying no to work that doesn't make a return or saying no to building the next piece of equipment in a way, we're doing both right now. It would encourage others at the bottom end of the market to do the same because it doesn't turn out well when you're making decisions that don't cover your cash cost to operate your fleets. Another thing, I think, in this that maybe has lost a little bit that we've recently talked about is if fleets have moved from, say, 90 to 70, and we've moved from 15 fleets to 10.5 fleets at the midpoint of our guidance, we've not lost any market share at all. And that's the same market share of the activity that exists in the Permian right now. And we're prioritizing protecting our margins and protecting our equipment because we think that, that's the rational right business decision for us.

Fair enough. And then, Sam, I guess another one, if you'll entertain this one, but like the guys that -- when you go from, say, 15 down to 10.5%, the customers that are using those 4 fleets, do you have any indication from them whether this is budget related, just pure price competition? Do they come back next year? Just some thoughts on maybe where the Permian frac market might be normalized if there's ever a word in this business, but for next year.

Yes. This is an interesting question, John. I'm glad you asked that. It's -- to be candid with you, this is mainly one customer of ours that we're talking about that's had a fairly frantic response to changes in commodity prices and outlook. So we then -- back to my kind of description of what discipline looks like, we then have to make our own voluntary decisions. Do we want to help them with that issue? Or do we want to save our equipment and our margins for a better day? We've chosen the latter.

The next question comes from Stephen Gengaro, Stifel.

I joined late, so I apologize, Sam, if you answered this. But when we think about the efficiency gains across the drilling and completion life cycle of a well. Is there a way -- or have you guys thought about how do we get the fair value we're extracting, right? So to the extent you're more efficient than you were a year or 2 ago, like is it just not possible? Or is there a way to drive value for you or the high-end pressure pumpers for the efficiencies you bring to the table?

I can tell you this much pretty plainly. When you have next-generation equipment, you're able to contract that equipment. We're doing that inside of those contracts. I don't want to say too much more about kind of our commercial model and architecture because we're pretty proud of how creative and innovative we've been on that end. But there is light at the end of that tunnel, Stephen, and we are doing that in some instances. It's mainly around our electric equipment. That's another reason why given kind of our bullish long-term outlook and our confidence in things like our electric equipment, we start to discuss should we accelerate investment and deployment of more equipment like that. We really like that idea, and we're kind of working through how we can do that going into next year so that we can capitalize on those efficiency gains and the other benefits that things like electric equipment bring to bear.

Ladies and gentlemen, this was our last question, and this concludes our Q&A session. I would now like to turn the conference back over to CEO, Sam Sledge, for closing remarks.

Thanks, everyone, for joining us today. Thanks for your interest in ProPetro. We look forward to talking to you again soon. Have a great day.

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