ProPetro Holding Corp (PUMP) 2024 Q4 法說會逐字稿

Good day, and welcome to the ProPetro Holding Corp Fourth Quarter and full fiscal year 2024 Conference Call. Please note, this event is being recorded. I would now like to turn the call over to Matt Augustine, Director of Corporate Development, 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 today are Chief Executive Officer, Sam Sledge; Chief Financial Officer, David Schorlemer; and President & Chief Operating Officer, Adam Munoz.

This morning, we released our earnings results for the fourth quarter and full fiscal year of 2024. 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. Good morning, everyone, and thank you for joining us today.

I'm proud to report another strong quarter and a great year for Propetro. Despite the challenging operating environment for our entire industry, Propetro closed out the year strong with a clear path ahead for future growth.

Our strategy continues to yield results, and we continue to demonstrate how our industrialized approach to the oil field service business is both sustainable and profitable through cycle.

While the 4th quarter was impacted by typical seasonality and extended customer holiday shutdowns, our ability to generate free cash flow remained intact.

Proving once again that our capital li high efficiency model is working as designed.

Our strategic focus on next generation service offerings, operational efficiency, and disciplined capital allocation has made Propetro stronger and more resilient company, which in turn has spurred the ongoing transformation of our business over the past year to better align with macro trends and the evolving needs of our customers here in the Permian Basin.

Today, approximately 75% of our fleet consists of next generation gas burning equipment, including our tier 4 dual fuel and electric fleets. These assets continue to be highly utilized and in strong demand as customers prioritize efficiency, fuel cost savings, and emissions reductions.

Looking ahead, our FORCE electric fleet remains a key area of growth for us. We have four FORCE electric fleets operating under long-term contracts, and we expect to deploy a fifth FORCE fleet in 2025 under a similar structure. These contracts are designed to de-risk our future earnings and provide stability in what remains an uncertain market environment.

Additionally, our cementing, Silvertip wireline, and AquaProp sand logistics businesses continue to succeed, contributing to our company’s overall financial strength. While utilization across all service lines was impacted by seasonality in the fourth quarter, we are encouraged by the resilience of our bifurcated service offering. Our high-quality service, strong customer relationships, and best-in-class equipment continue to differentiate us from our peers.

Moving forward into 2025 and as I mentioned on our last earnings call, we remain optimistic about the strength and potential of North American onshore oilfield services over the next several years, particularly as the market moves in the direction of quality providers like ProPetro, which offer lower overall costs to customers through avenues such as fuel savings while also providing enhanced efficiencies. We are confident that ProPetro is positioned as a leader in this arena.

Moreover, according to our internal estimates, the Permian Basin has approximately 85 fulltime active frac fleets. We believe that around 90% of this activity is held and operated by the top seven largest pressure pumping brands. This demonstrates the healthy and consolidated state of the market. Our capital discipline over the past several years has contributed to this stability, providing operational and commercial leverage for top-tier pressure pumpers like ProPetro.

One of the most exciting developments for ProPetro in 2024 was the launch of our newest business line, ProPWR. We firmly believe that ProPWR represents a transformational growth opportunity for our company, allowing us to expand beyond traditional oilfield services and establish ourselves as a premier energy solutions provider.

In December, we announced an initial order of over 110 megawatts of natural gas-fueled power generation equipment. Since then, we have entered into a contractual agreement with another equipment manufacturer to purchase an additional 30 megawatts of power generation equipment, totaling 140 megawatts currently on order.

We plan to place orders for additional power generation capacity in the coming weeks and months as we finalize customer contracts and assess future demand from our customers. The majority of these assets are anticipated for delivery in the second half of 2025 and early 2026, bringing our total capacity to between approximately 150 and 200 megawatts in early 2026.

We have made progress in obtaining customer commitments and are actively negotiating longterm contracts for our incoming equipment. We believe the demand for reliable low-emission power solutions is vast and increasing, and we are positioning PROPWR to capitalize on multiple high-growth verticals. While our initial focus on both proving the concept and establishing commercial momentum for the business is based on tried-and-true oilfield applications, including drilling, completions, production, and midstream operations, we also see significant potential in industrial power applications.

Looking even further ahead, we see a unique opportunity in the data center space, particularly in the Permian Basin. As demand for power-intensive computing infrastructure continues to grow, our existing relationships with leading E&P operators, deep knowledge of the region, and ability to deploy scalable, low-cost natural gas-powered energy solutions make us a natural partner for data center developers looking to establish low-cost operations right here in West Texas.

At ProPetro we are constantly evaluating how we can best meet the evolving needs of current and prospective customers and capitalize on our core strengths. That’s why we’re moving decisively to capitalize on growth opportunities with ProPWR. Looking ahead, we will continue to scale PROPWR, leveraging a combination of cash on hand and targeted financing structures.

This is just the beginning for ProPWR. We are aggressively expanding this business and believe that, over time, it will significantly contribute to our earnings profile and further diversify ProPetro’s revenue streams while creating added stability in our overall business. At the same time, it’s important to note that we are acutely aware of where our core business lies. We will continue to focus on what makes our company a successful partner to major E&P producers in our country’s most prolific basin, providing the high quality service and support for which we are known.

Before I turn it over to David, I want to highlight that the opportunity to even pursue these prospects and to be in the position we are in despite a challenging macro environment, is a result of our ability to generate strong free cash flow and maintain a sturdy balance sheet. The discipline reflected in those characteristics is what has afforded us the flexibility to pursue a dynamic capital allocation strategy that we anticipate will generate healthy returns.

To that end, I want to reaffirm our commitment to our capital allocation strategy. There are 4 key elements on which we are focused.

First, launching and scaling ProPWR, which we believe will be a key pillar of our future earnings growth. Second, investing in our next-generation fleet transition, ensuring we remain the premier provider of low-emission, high-efficiency pressure pumping services. Third, executing on accretive M&A transactions and optimizing our portfolio.

This includes our recent divestiture of the Vernal, Utah cementing operations during the fourth quarter, which aligned with our Permian-focused strategy. In terms of M&A we are equal opportunists between PROPWR and our completion businesses, focused on prudently pursuing value-enhancing growth. And fourth, returning capital to shareholders through our share repurchase program, under which we have retired approximately 13 million shares, or approximately 11% of ProPetro’s shares outstanding, since inception.

In short, we will remain opportunistic yet disciplined in our capital deployment, consistent with our focus on maximizing long-term value for shareholders.

I’ll now turn it over to David to discuss our full year and fourth quarter financial results a bit deeper.

Thanks, Sam and good morning, everyone.

ProPetro’s performance in 2024 showcased the results of our strategy at work. Despite Revenue declining 11% from 2023, we reduced capital expenditures by 57% and increased Free Cash Flow adjusted for Acquisition Consideration over 9 times to USD 118 million. The year-over-year improvement is a direct result of our more industrialized and capital-light investments, our ongoing operational optimization, and our operational excellence that provides us the opportunity to work with the best customers in the Permian Basin.

Additionally, since the inception of our share repurchase program in May 2023, we have returned 111 million of capital to our shareholders. Simultaneously, we have significantly improved our working capital position year over year. Our efficient capital management and strategic growth funding underscore our company's unique strengths and unwavering commitment to financial and operational discipline, which were particularly evident in 2024.

Moving to the fourth quarter. While financial results for the fourth quarter decreased relative to the third quarter, we were still able to generate strong free cash flow, particularly when considering Adjusted EBITDA less incurred capital expenditures. We also continue to take market share across our services lines, most notably in frac and cement. Moreover, despite the headwinds we faced as a result of typical seasonality and general market softness, we generated strong free cash flow and continued to execute on our strategy further illustrating the industrialized nature of our business.

Fourth quarter revenues decreased 11% versus the third quarter to USD 321 million. Net loss was USD 17 million and adjusted EBITDA decreased 26% sequentially to USD 53 million. Notably, the net loss for the 4th quarter included a non-cash impairment expense of USD 24 million related to full impairment of the goodwill in our wireline reporting unit. Additionally, we incurred an operating lease expense related to our electric fleets of USD 15 million for the quarter.

In the 4th quarter of 2024, we had 14 active hydraulic fracturing fleets in line with our prior guidance, although there was some white space, particularly in December. We expect to run between 14 and 15 frac fleets in the first quarter of 2025.

Moving to capital allocation, capital expenditures incurred during the 4th quarter of 2024 were USD 25 million. Net cash used in investing activities as shown on the statement of cash flows during the fourth quarter of 24 was USD 24 million. The company's reduced capital expenditures are a strong tailwind for Pro Petro's free cash flow generation. Again, highlighting the benefits of our decision to transition our fleet to electrification and industrialize our business segments.

The company anticipates full year 2025 capital expenditures to range between USD 300 million and USD 400 million. Of this, the completion businesses, including hydraulic fracturing, wireline, and cement, are expected to account for USD 150 million to USD 200 million.

An additional USD 150 million to USD 200 million will be allocated for growth capital expenditures in our pro power business with approximately USD 104 million of financing already secured for these pro power investments.

Petro's cash and liquidity position remains strong. As of December 31, 2024, total cash was USD 50 million and our borrowings under the ABL credit facility were USD 45 million. Total liquidity at the end of the fourth quarter of 24 was USD 161 million including cash and USD 111 million of available capacity under the ABL credit facility.

Thanks to our dynamic capital allocation plan, we have been successful in simultaneously transforming our fleet, buying back shares, pursuing accretive acquisitions, and launching new service lines, all while maintaining a healthy balance sheet and liquidity profile.

Although it is still early in the year, 2025 is showing promising signs as utilization rates continue to trend upward and our frac fleet calendars fill up. While these developments are encouraging, we remain committed to maintaining the rigorous level of capital discipline we have practiced over the past several years effectively creating a free cash flow machine in our completions business.

Simultaneously, we are focused on re-deploying some of those resources to pursue strategic growth, particularly in our ProPWR business, giving us exposure to an industry sector which has a more dynamic growth profile. Understanding the different strategies necessary to drive value for the long-term success of our company is critical. Our dynamic capital allocation methodology and strong balance sheet position enables our ability to pivot to pursue these opportunities. We believe our strategy is ideally suited for the current market environment in both the completions and power markets, and that our shareholders have much to look forward to in 2025 and beyond.

I'll now turn the call back over to Sam.

Thank you, David.

Before we wrap up, I want to reiterate my enthusiasm and confidence about the future of our business. Demand remains strong and we continue to grow our presence in the Permian Basin with our sophisticated, bifurcated service offerings that now include PROPWR along with next generation frac assets, cementing services, wireline services, and wet sand solutions.

Much like 2024, we expect 2025 to be another year filled with growth and success for the Company. We have industrialized more of our business, built a strong free cash flow profile, and expanded into a transformational new market with ProPWR. And, despite recent and ongoing headwinds, ProPetro is nonetheless uniquely positioned to capitalize on opportunities, just as we did in 2024. As we move through 2025, we will continue to execute on our strategy, grow our FORCE fleet presence, scale PROPWR, and maintain a disciplined approach to capital allocation. Always with an eye on operating safely, efficiently, and responsibly.

Lastly, before we open it up to Q&A, I want to take a minute to thank our ProPetro teammates for their hard work and dedication to our Company, our mission and each other. It is because of you that our success is possible. Regrettably and sadly, we were recently reminded of the inherent risks faced by the brave men and women working on our locations every day. Late last month, a ProPetro employee tragically lost their life, and another was seriously injured at a job site.

Our hearts are with both of those teammates, their families and loved ones at this very difficult time. Safety is of paramount importance to ProPetro, and we continue to work diligently to determine the cause of the incident and ensure that it never happens again. I ask that you keep our fallen teammate, all of our teammates, and everyone working in the field that helps provide the energy we all rely on, in your thoughts and prayers. Thank you.

With that operator, we'd now like to open the call to questions.

(Operator Instructions) Kurt Hallead, Benchmark.

Hey, good morning, everybody.

Good morning, Kurt.

Sam and team, honestly want to applaud your dynamics here in pursuing an emerging growth opportunity and being creative on how to go about doing it, see how the market kind of plays it out over time. But let me start on the power front, if I may, right? So, you guys have obviously started the process back in December with that 110 megawatts of power, increasing that somewhere between potentially 150 to 200. Can you just give us a quick refresher on how we can start thinking about what kind of incremental revenue and EBITDA generation, say 150 to 200 megawatts of power could provide and maybe just in conjunction with that, right? I'm just thinking about it on an annualized run rate, not a specific year.

Sure. Yes, I'll let David kind of chime in maybe with some numbers and timing on all of that. But, yeah, thanks for asking about Power business. We're super excited about that. Given kind of the cycles that we've played through the last several years, it's definitely exciting to have something that we can grow and kind of move back to our entrepreneurial roots and growing things organically.

We believe that that's the best the lowest cost and the highest value way to do something like this. Doesn't mean that we're out doesn't mean that we're not out in the market exploring other options to possibly accelerate that. But we're really excited to put this together with what we believe is great leadership for the business and to make it sturdy and very competitive in the future. David, I don't know if you want to talk about timing of earnings and revenue and things like that a little bit.

Sure, yeah, Kurt, I think the way to look at this on the Power side is really it's going to be a 2026 impact. We're spending 2025, placing orders, getting our commercial architecture put in place. And I think the impact is going to show up then. And if you think about our guidance of 150 to 200 megawatts, apply about a 300,000 to 400,000 per EBITDA per megawatt per year to that business.

And I think you can start getting to the range of returns that we would expect. These assets have longer lives than some of our older conventional equipment. The return on invested capital there is on the higher teens. So, three-to-four-year payback is going to give you I think what should be a reasonable expectation there.

Yeah, Kurt, only thing I'd add to what David just said is that we expect these first deliveries to start trickling in around mid-year this year. That said, it doesn't show up all at once. So, we'll be taking deliveries over time of what we've announced starting midyear this year into Q1 next year.

Okay. Appreciate that timing update. And then just follow-up question for me is on the frac business. Obviously, some of the other larger companies have already reported and the dynamic at play there was talk of some pricing pressures. And clearly these companies do operate in the higher end frac business.

So, it kind of struck me that you referenced that pricing was relatively stable. So, I'm just trying to kind of educate myself and connect the dots as to how you see things going on, see how you think going through your business and how the market is evolving from a pricing standpoint?

And I think it's always important to make sure we aren't trying to compare apples and oranges too much when we're thinking about the market that way. This is all Permian, and this is all blue-chip E&P for us. So, it is we're very proud to have a very consistent and sturdy outlook because of the customers that we work for with the type of equipment and agreements that we have with those customers.

It will be more of the same from us as it pertains to those things this year. And to state the obvious, we can't speak about basins or customer types that aren't the Permian and aren't these larger, more sophisticated E&Ps

Got it. Appreciate the color. Thank you.

John Daniel, Simmons.

Hey guys, thanks for including me.

Hey John.

Sam, I think you mentioned in the prepared remarks, you guys are estimating 85 full time fleets in the Permian today. As you think about continued completion efficiencies and all of that good stuff, can you maybe provide a range of where you think the Permian Basin could be four to five quarters from now and the all else being equal scenario other than efficiencies?

I think it's pretty flat, John, but I think it's flat is the simple way to say it. But as you know, the nuance inside of that is how big are some of these fleets, what type of work are they doing. If you look back four or five years, the average fleet size in the Permian from a horsepower standpoint is as much as 50% larger than it was five years ago. I'm not telling you anything you don't know. So, to make that comparable number, if you were going to try and compare that to five years ago, it'd be 50% more fleets active right today because of the.

So, efficiencies continue to go up. And look, I mean, I think a lot of people can make that kind of a bad or a bear story as it pertains to pressure pumping. But if you play at the high end of the efficiency game, you'll always have work, you'll always have a great value proposition, and that's where we think we stand today.

Okay, fair enough. Just one quick follow-up for me on the CapEx. I think if I remember the press release correctly, 150 million to 200 million would be dedicated towards the completion segment. would be dedicated towards the completion segment. And I think your CapEx in 2024 was like 140 million-ish ballpark.

And I know there's some leases in the 24 number, but I'm curious, is that 150 to 200, does that include anything above and beyond fleet five?

No, it doesn't, but what it does include is some refurbishment of our tier 4 DGB equipment. So we, we've got a little bit more of that in 205 than we did in 24.

Got it. Okay. Thanks for including me, guys.

Eddie Kim, Barclays.

Hi, good morning. Just wanted to ask if you could talk about your general outlook for '25 this year in the frac business. Most have been calling for kind of a flattish activity environment in North America this year. Is that how you're seeing the market as well? And kind of related to that, you said you expect to run 14 to 15 active fleets in the first quarter.

Is that a good run rate to use through the end of the year? Or what's the right way to think about that progression?

Yes, I mean, the question is yes, that's probably pretty good. That would go along with our comments of that we just made to John about market being relatively flat throughout the year. That said, as I think about kind of the market outlook in general a little bit more and something that I think is underappreciated is the attrition that continues to happen that we continue to see firsthand as we get inbounds from other customers about maybe some of our smaller, less sophisticated customers that have priced towards the lower end of the market, and are starting to really see issues with maintaining their equipment and their efficiencies and things like that due to not having the equipment that they need to do the job at the highest level that's expected these days on frac locations.

Look, I think a flat market is really good for a company like ProPetro with pricing in a very balanced place where you have to fight for what you have and you have to fight to keep what you have, especially on the efficiency side. But in that market, there will likely continue to be more and more attrition at the lower end that will naturally tighten things over time.

So that's what we're hopeful for in the back half of the year going into next year, is that that kind of story continues to play out that even in a flat activity market that the frac market could tighten up quite a bit.

Got it. And my follow-up is just on the Pro Power business. You mentioned that the initial focus of this business will be on oil and gas applications, but that you do see opportunity in data centers somewhere down the line. So, is it fair to say that nearly all the negotiations you're having currently on that initial 140 megawatts on order are with oil and gas operators or service companies? Or are you having conversations with data centers now as well?

Or maybe put another way, should we assume that the vast majority of that initial 140 megawatts will go towards oil and gas?

Yeah, I think you should assume that for now. And our initial strategy is to work through many of the customers that we already have. That's one of the main reasons why we even started this business and did it the way we did is because we could hardly pass through a customer's office without hearing about electricity needs.

So, we're really excited about some of the projects that we're working on right now, highly confident that, you know, you'll see more from us in the future about specific contracts and commitments. That said kind of an interesting an interesting thing that's happening is and that I want to make sure everyone understands is that it's highly likely that almost all of these initial orders are non frac applications, which speaks I think to the opportunity we see in diversifying our business and adding more consistency to our business.

I think the first few things we're working on are very related to production midstream things like that. We are entertaining opportunities to possibly power some or many of our existing frac fleets or our growing electric capacity, but the demand on the production midstream non frac side is quite large.

Eddie, this is David. I would encourage you to take a look at Page 19 in our IR deck. I think one of the things that is so striking here is that we're expecting 2.5 gigawatts of growth of load growth just in the Oil and Gas sector over the next three years for Power. When you then add on to that the additional load growth for the entire Permian Basin over the next 10/13 years, it's just significant. It's a different growth trajectory than the business that we're in.

So, a lot of opportunities there. Certainly, as Sam has mentioned, we're leveraging on our oil and gas routes and the connectivity that we have with our customers, and we see that as an infusion right now.

Got it. Great. Yeah, definitely sounds like a lot of viable in markets here. So, thank you for all that color and I will turn it back.

(Operator Instructions) Waqar Syed, ATB Capital Markets.

Good morning, Sam, David. A couple of questions. Just wanted a little bit more specific guidance for Q1 and for 2025. And how do you see the revenues and EBITDA maybe tracking quarter over quarter in Q1?

This is David, Waqar. I think we'd like to stick with the guidance that we gave. We believe our fleet activity is going to be between fourteen and fifteen fleets. I think we've seen some positive activity so far early on in the year, but I think we want to be mindful of providing too much guidance there. I think we are benefiting significantly from the cost management efforts over the last couple of years and those are really beginning to play out.

But that's about the guidance that we'd like to give at this point.

Well, Carl, I'll just pile on top of that. We think 1Q is headed back in the direction of 2Q and 3Q last year, looks something similar to that.

Okay, great. Okay. And then how is the Equaprop acquisition coming along? Are you seeing penetration into additional fleets?

Yeah, I mean, AquaProp has been great. That said, the timing of when we acquired that was quite a peculiar time in the sand market in general, where we saw sand prices dry and wet crash across the market, which probably hindered some of our growth opportunities. But we're excited about what's to come with that and we're continuing to push certain customers to consider that as more of an integrated option with what we're doing. I can tell you where we do have fleets where we do have AquaProp and Silvertip wireline services, we're seeing some of the best efficiencies in our entire portfolio.

So that story is definitely proving out and is helpful as we go into customers' offices to promote and talk about that.

And could you maybe talk about the pricing environment for your cementing and wireline business?

the cementing I think our cementing business here recently and our outlook throughout this year might be one of the brightest spots in the entire company. You saw that we announced the divestiture of our Vernal, Utah operation, which was our only it was very small in terms of significance compared to our Permian business, but was our only non-Permian business and that's helped kind of bolster focus in the Permian. So, we've evolved our team. The Par five edition is continuing to pay dividends with a better outpost on the West Side of the Permian Basin. We're super excited about Spring Lake.

Wireline has been a little loose here in the back half of last year, rebounded a little bit first part of this year, but that pricing environment is definitely weaker. And I'd say similar approach to Aqua Prop this year, we're going to be looking to try and push that service more as an integrated service along with our frac fleets this year.

And Sam, there was a major acquisition announcement made recently in the E and P side with Diamondback acquiring planning to acquire Double Eagle. How does that affect ProPetro, if any? How could it potentially?

Look, we're on I mean, we're on both sides of that deal right now. So, we like deals like that. It's not been uncommon for us to be on both sides of a deal. Back to kind of some of the efficiency and operational performance comments I made earlier, we let that speak for itself really. I mean, companies like Diamondback are looking for consistency, reliability and great performance at a great value in price and we think we're providing that on both sides of that deal.

So overall, look, we're not fair to consolidation in the Permian. We think it's really healthy. We think it creates more rational behavior. I mean upstream and downstream of us. Maybe every now and then it causes some turbulence in the near term, but we're not building a business for the next month or the next quarter, we're building a business for the next decade.

So, the more rational long-term behavior that exists upstream of us, the better and we'll be here to serve those sophisticated large E&Ps.

Great. And then what's the timing of the fifth eFleet?

Mid-year, mid-year third quarter.

Okay, and just my last question, Sam, you're entering into a new business, the Pro Power business. It's certainly new business can have operational risks. How do you see those operational risks? How are you trying to mitigate those?

How would you kind of give the investors confidence that there won't be any growing pains or hiccups or things like operational hiccups as you build that business?

Yeah, two things. Great question. It's something that we're talking about a lot. We're very focused on given that we kind of have we've already met our entrance into the supply chain with these orders. Next focus of that business is obtaining commitments and contracts and then executing once we get it.

But I think the two things that leave us confident are one, the leadership that we already have for that business in Travis and Dave and the team that they are currently building. It's really fun to have the opportunity to build a team from scratch and to bring in the expertise and the culture that you want to build without inheriting issues from somebody else. So, we're hard at work building that team, really excited about that. And then after that, you've got to go execute, you've got to go execute in the field. And another thing that we're really confident about is going to be our ability to use the existing ProPetro infrastructure.

We believe and can confidently say this that we think we are one of the best organizations at managing personnel, equipment and logistics. We already have the infrastructure, we already have the customers, we already have the supply chain, the maintenance systems and we're going to rely heavily on what already exists within our company to make sure that we're able to execute at just as high or higher of a level that you see all of our other business lines currently executing today.

Well, this is David, the other example here is, 18 months ago we did not have electric frac operating in the field. Today, we've got four fleets on contract. We believe that we are at the top of the technology stack there. And I'd call out another slide in our IR deck, slide 20, which talks about the commercial rationale that Sam just eloquently described.

But it really is it shows you that it's a natural extension of what we've already been doing from a strategic standpoint, bringing in equipment that has longer lives, lower capital intensity going forward and leveraging on ProPetro strengths

Great, well thank you very much. That's all from me.

Derek Podhaizer, Piper Sandler.

Hey, good morning, guys.

Just wanted to maybe if you could expand on the type of equipment you're ordering for Pro Power. So, you obviously had the initial 110 megawatts, you had this follow-up 30 megawatts. Can you provide more color around whether these are turbines, resets, maybe kit size, whether it's 2.5 megs, the 5.7 to 16, just maybe some more color around the type of kit that you're using to build up Pro Power?

Yes, it's a little bit of both. Our initial order was turbines, five megawatts and up and our most recent order is resips that's three megawatts and up.

Got it. Okay. That's helpful. And then just a question on switching over to the e frac side. I mean, like David just said, you've had them in the field for eighteen months now, four of them.

How's the evolution on the maintenance CapEx been moving from conventional to e frac? Maybe just some color around what maintenance CapEx per fleet looks like? How often are you bringing these things in the shop? What are your major CapEx cycles look like now? Just maybe some more color on the overall maintenance CapEx cycle for these e fleets now that you had them in the field for a while?

Yeah, David can share some particulars, but I'd say in general it's been phenomenal. It's better than I personally expected. And I think what we're seeing is that things like maintenance CapEx and just day to day operational efficiencies kind of run hand in hand parallel. The more you can keep that equipment on location, the more you can operate efficiently.

With it. So generally, it's been great, which leaves us high conviction. In my prepared remarks, we kind of listed out the stack of capital allocation priorities that we've been pivoting between dynamically in the last couple of years. I'd say that stack is relatively in order today pertaining to what competes for capital in our business. It can change as the market changes and it has definitely changed a little bit in the last couple of years, but that's up first or second on that stack because of the successes that we've seen operationally and economically with that equipment.

I don't know if David would want to add a little bit of color on the maintenance CapEx.

Sure. Derek, this is such a positive aspect of what's been going on. On. We decreased our CapEx guidance three times last year and we went from having two electric fleets at the beginning of the year to having four by the end of it and we saw such a dramatic impact in the CapEx intensity that we had previously experienced in prior years.

So just the complexion of the fleet changing and continuing to evolve toward electric is going to be impacting our maintenance CapEx going forward.

I think we are seeing 30% or 50% lower CapEx intensity. And when you think about it, one of the major components on a conventional frac asset is a diesel or a Tier two, Tier four dual fuel engine, which has 3,500 parts in it, many of which are moving. The electric fleets replaced that with a transformer and a variable frequency drive box. The moving part is the door handle. So, it just kind of shows you the significance and the paradigm shift there.

And when we think about the electric equipment, now we're moving even further toward lower capital intensity because they don't have the power ends on the back that are pumping harsh water and sand at high pressure downhole. You just got a generator spinning a crankshaft or some type of generator. So, we think that’s going to continue to play out and pull our maintenance CapEx down over time, and we're seeing that already.

Great, appreciate the color guys. I'll turn it back.

Don Crist, Johnson Rice.

Morning guys. Sam, one quick question on the power side, Contract wise, are you ordering these assets with firm indications and working on contracts, or do you actually have contracts in place? Any kind of color you can give around there?

Great question. We don't have any contracts in place today. That said, we are looking at this very similarly to the way we've looked at our existing business, especially our frac business where you might not have a contract in hand when you place the order, but you might be talking to three to five customers for any single asset or any fleet. And it's the same thing here. With 140 megawatts on order today, I'd say our opportunity set exceeds that.

And we're just kind of in the early days of marketing and commercializing this and kind of making known what we're going to be capable of. So, we'd expect that demand to grow, and we'll be balancing being competitive in the supply chain as many of these items are rather long lead with how many opportunities kind of, we're seeing out in the future to do it in a disciplined manner where we're not obtaining assets that don't have work on day number one when they're delivered.

I'll kind of add on there. We do expect to obtain long term contracts for all of this equipment. I'd say everything we are negotiating or conversating about right now is three years plus, three years at the minimum, if not five years or more. And that's I mean for old frac guys like us to be able to get that kind of visibility and consistency in our business, we think that's transformational from a value proposition standpoint to create much more consistency in our outlook.

Well, and Don, this is David. Just to add to that, I think when we look at the value proposition that we might provide a customer for our conventional or completions businesses, it's certainly compelling. But when we look at the Pro Power opportunities and the value proposition for our customers there, that is really exciting, because it's the significance of that value is materially greater. So, as Sam mentioned, there's a lot of confidence in what we're doing right now. But as we did before, remember, we ordered four electric fleets before we had any contracts, right?

We had confidence in the equipment. This was not unproven technology. We're doing the same thing here on the Pro Power side and we've got the expertise to support that deployment. And so, I think the confidence is very high.

Don, sorry, you really got us going here because this is exciting stuff. But I think another thing to consider, which is not I don't think this is at the forefront of our strategy but will likely play a significant role in our power deployment in the future is our growing eFleet demand and just the growing power demand for eFleets in general. I think we're consuming about 160 megawatts of power on our four fleets today, two of which are simul fracs. These are big these are going to be big operations that are going to need more and more power. Like David mentioned earlier, we outlined that and the demand for that in our investor deck.

And back to the contract story, I mean, this all of this equipment comes with contracts. And we're headed towards possibly even contracting almost half of our frac business later this year between what we're doing in the dual fuel in the eFleet market. So if you kind of look out over the hill as it pertains to the contract story and the consistency of what this power business could bring, you pair that with the eFleet and dual fuel progress that we've seen in our business in the last couple of years, we could be going into 2026 and beyond with a majority of our asset base under long term contracts, which we think is game changing in the oilfield service market. Super excited about that.

I appreciate. All the color. It's going to be fun to watch. Thanks guys.

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

Thanks everybody for joining us today, letting us tell you a little bit about our company and our story. I look forward to talking to you again soon.

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