ProPetro Holding Corp (PUMP) 2022 Q1 法說會逐字稿

Good morning, and welcome to the ProPetro Holding First Quarter 2022 Conference Call. (Operator Instructions) Please note that this event is being recorded.

I'd like to turn the conference over to Mr. Josh Jones, Director of Finance for ProPetro Holdings Corp. 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 first quarter of 2022. 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 direct 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. Our first quarter operating and financial results reflect the culmination of strategic preparation that the ProPetro team completed in the months leading in to 2022. Momentum around our returns focused strategy was achieved in the quarter and our pursuit of margin over market share led to improved capital efficiency across our asset base. Though no additional fleets were marketed in the first quarter, our team experienced a 15% increase in revenues and an 81% increase in adjusted EBITDA. These results not only provide proof that our capital disciplined approach is paying off, but they also suggest that our team is focusing its efforts in the areas that maximize shareholder returns.

Execution of our strategy in the first quarter was more difficult than the results may suggest. Weather and sand-related issues negatively impacted our operations in February and March with downtime experience by multiple fleets. These obstacles endured in the first quarter remind us of the volatility and operational risk we assume daily, both on location and in the geopolitical realm, such as the heartbreaking war in Ukraine. Moreover, they remind us that it's vital to target economic returns, that account for the risk that we bear on behalf of our shareholders. If not for our team's willingness and our customers desire to go the extra mile to find ways to execute around logistical issues on a daily basis, our results would've certainly differed.

That said, I would also like to thank all of the members of the ProPetro team for turning a very challenging quarter into one that reduced risk and limited downtime for our customers while also generating strong financial results for ProPetro. As we look at how the geopolitical landscape has affected global crude oil markets in the first quarter, we see a tight energy market becoming tighter in a call on short cycle production growing louder. The continued rising drilling rate count in North America, coupled with high energy prices suggest our initial estimates from earlier this year of 15 to 20 industrywide fleet ads in North America into 2022 may prove to be too conservative.

While also considering the equipment attrition rates in pressure pumping and continued supply chain issues, it's possible that demand will outpace effective horsepower supply well into next year. While we expect the backdrop to continue to be positive tailwind for an effectively sold out North American pressure pumping market, failing to capture a proper return in a favorable macro environment is futile. We remain steadfast in our belief that focusing on margin expansion while simultaneously providing the highest level of service and efficiencies to our customers is the optimal approach in the early stages of the cycle. Over the most recent quarters we have successfully re-priced and repositioned a significant amount of our portfolio.

As a result, we hydrated our operations, resulting in a more efficient and dedicated service offering with more reliable profitability. In addition, as part of our fleet transition program to lower emissions natural gas burning equipment, we began taking delivery of our Tier 4 dual fuel units and accordingly transitioned one of our operating Tier 2 fleets to a Tier 4 dual fuel fleet. We now have 2 Tier 4 dual fuel fleet operating in the field today with a third fleet expected to be converted and in service by the end of the second quarter. As a reminder, those conversions support existing capacity and do not add effective horsepower to our fleet.

With that, I'll turn it over to David to discuss our first quarter financial performance capital resources. David?

Thanks, Sam, and good morning, everyone. During the first quarter, we generated $283 million of revenue, a 15% increase from the $246 million of revenue generated in the fourth quarter of last year. The increase was largely due to improved pricing and higher activity levels, including a company record 600 pumping hours for a Simul-Frac fleet in the month of March. Effectively, utilization was above our prior guidance of 12 to 13 fleets coming in at 13.7 fleets, which increased 9.6% from the 12.5 fleets during the prior quarter. And as Sam noted, this was achieved without deploying additional fleets. We effectively scaled our business without adding operations over head and the investments we made in forced ranking projects and fleet repositioning during the fourth quarter and year-to-date continue to compress white space and improve our price deck and fleet profitability. This requires discipline and our team delivered in a big way.

Our guidance for second quarter average to fleet utilization is a range of 13.5 to 14.5 fleets, which assumes no additional fleet deployments and accounts for impacts related to the continued repositioning of our currently operated fleets. Cost of services, excluding depreciation and amortization for the first quarter was $197 million versus $187 million in the fourth quarter with the increase driven by higher activity levels, inflationary impacts, including sand and logistics costs. First quarter general and administrative expense was $32 million compared to $24 million in the fourth quarter.

Adjusted G&A was within our prior guidance at $19 million and excludes $13 million related to nonrecurring and non-cash items, namely stock-based compensation of $11 million. Depreciation was $32 million in the first quarter. The company posted net income of $12 million or $0.11 of income per diluted share compared to a fourth quarter net loss of $20 million and a $0.20 loss per diluted share. Included in those figures is a net benefit of $6 million from a nonrecurring state tax refund of approximately $11 million offset by a onetime $5 million expense of non-cash stock compensation.

Finally, as we described in our prior call adjusted EBITDA margins expanded significantly with adjusted EBITDA coming in at $67 million or 24% of revenues for the first quarter, which increased 81% sequentially compared to $37 million for the fourth quarter. The sequential increase with is primarily attributable to improved pricing, increased activity and additional cost recovery on jobs while also being partially offset by weather and sand-related issues. Adjusted EBITDA margins improved almost 900 basis points sequentially, and we experienced 82% sequential incremental margins.

We achieved these more normalized margins. Well ahead of plan, due to careful planning by the team late last year with strategic investments and through our disciplined fleet deployment strategy. I would like to congratulate ProPetro team for its accomplishments in expanding margins in the pursuit of full cycle cash-on-cash returns across our operating footprint. The improvements provide our company with momentum as we move a strengthening upcycle.

That said, it will not get any easier from this point forward. Our challenge will be to continue to stay ahead of supply chain constraints, inflation, and other issues that pose risks to our ability to further expand our margins and provide premium service to our customers. We expect the use areas of our business to remain extremely volatile. Given the lagging impacts from the war on Ukraine and the continuing effects of the COVID-19 pandemic, particularly in China. We will not put further strain on our business by marketing any additional horsepower, unless we believe we can achieve returns at compensate for these risks, particularly at this point in the cycle.

During the quarter, we encourage $72 million of capital expenditures. Of that amount, $28 million was related to Tier 4 dual fuel conversions with the remaining balance being predominantly related to other routine maintenance capex. We continue to redirect capital to support the transitioning of our fleet to lower emissions and natural gas burning alternatives that not only further our ESG goals and the goals of our customers, but also generate improved profitability. Actual cash used in investing activities as shown on the statement of cash flows for capital expenditures in the first quarter was $64 million with negative cash flow of $39 million.

This figure differs from our incurred capex due to differences in timing of receipts and disbursements. Based on our current plan and projected activity levels, our outlook for full-year capex spending remains unchanged with the current bias toward the upper end of the range, given the pace of market improvement and compression of white space from our calendar. However, as you are aware, market conditions remain dynamic and our full-year capital spending will ultimately depend on a number of factors, including changes from our projected activity levels, the worsening of inflation or supply chain impacts, or if we have identify new opportunities to invest in next generation equipment in a manner that meets our financial objectives. Notably, we have been investing in Tier 4 dual fuel conversions to support the strong demand and higher relative pricing from our customers. As of March 31, 2022, total cash was $71 million, and the company remained debt free.

Total liquidity at the end of the first quarter of 2022 was $127 million in including cash and $56 million of available capacity under the company's revolving credit facility. While our cash position decreased $41 million during the quarter, which is consistent with our prior guidance, this decrease was offset by a $43 million increase in networking capital through an increase in our receivables balances.

We believe our AR balance and networking capital will normalize in the coming quarters. And as noted in our recent press release, we extended the term of our ABL facility into 2027 and improves certain terms and pricing, which enhances availability. As of April 30, 2022. Our liquidity was $145 million.

As Sam alluded to in his opening comments, the commitment to capital discipline is critical to our success, and we are firmly committed to ensuring we maintain a solid financial position that provides maximum financial and operating flexibility pricing and fleet deployment discipline will also be critical in enhancing our earnings power going forward as we continue to deliver top tier pressure pumping services to the marketplace.

With that, I'll turn the call back to Sam.

Thank you, David. As David mentioned, capital discipline and a focus on returns are pillars of our business strategy today and moving forward. Our team spent significant time in the down cycle working to understand what variables will support the creation of a through cycle return in pressure pumping during this cycle and in future cycles, given the high intensity manufacturing environment in which we now operate. We believe we are measuring our business properly. As a result of that endeavor and our strong profitability, this quarter validates our work. One of the most important changes noted by our team coming out of the pandemic was how the evolving needs of our customers were creating a wide range of equipment profiles on location, built in the form of capabilities and fleet configurations.

This rapid change suggested that we could no longer simply look at EBITDA per fleet to determine if we were being profitable through cycle. As a result, we began focusing on the replacement cost of all the assets required to support customers' wealth site and the cost to maintain a high level of efficiencies our fleets create. We not only evaluated assets in frack services, but also in our ancillary services, such as pump down cementing and other asset heavy operations. The rationale here is that those business units have their own respective replacement costs that need to be accounted for with their own returns profiles. It's simply not reasonable to allow those services to subsidize the EBITDA of our working frack fleets.

We also considered this for our cold stacked equipment. Historically decisions to activate and redeploy equipment have typically been based on the marginal investment to reactivate rather than the full replacement cost of that equipment. Additionally, our sharpen focused on through cycle returns requires us to address the realities that our equipment does not last forever, and energy cycles always come and go. We began accounting for the new attrition rates and volatility impacts to determine the level of profitability required to operate in this business.

So, as we combine those factors and move forward into the early days of this returns-focused strategy, we've had to accept that our approach will at times result in missed opportunities with certain customers as it already has. Although passing on work, when the expected return profiles do not meet our threshold has tested our mettle. Particularly as we saw peers, deploy equipment more rapidly, the results we in the 4 in the first quarter only strengthen our resolve that we are on the right path, a path that ultimately has driven a transformation of our asset base that has not only become more capital efficient and supportive of higher margins, but one that seemingly has runway to continue to improve.

While our team is excited about the road ahead, we are not yet satisfied with our current profitability levels, particularly given that the pressure pumping markets are working at effectively sold-out levels. We applaud the rate of change in our company's financial performance, but the bar ProPetro measures itself against will not be set comparative to prior cycles or pandemic lows. We believe that it's not only but required for will field service companies to produce sustainable returns, particularly for those reducing risk and increasing uptime and efficiencies for our EMP customers. With that in mind, I'd like to once again, thank all of my ProPetro teammates and our customers for another fantastic quarter with best-in-class safety and operational performance. We'd now like to open it up for question and answers. Operator?

(Operator Instructions) First question comes from Stephen Gengaro of Stifel.

Two things for me, if you don't mind. Maybe I'll start with from a pricing perspective, you talked about the impact of positive pricing in the first quarter. Can you give us a sense for kind of where your fleet stands relative to leading edge prices and how we should think about that and the impact on profitability over the next couple of quarters?

Yes, Stephen, this is Sam. I'll take a shot at that. David might want to chime in as well. It's a range right now and I think that's why you hear us continue to talk about an analyzing where our fleet is and how it's priced. So I think we do have a number of fleets that we would qualify as on the leading edge from a pricing and profitability standpoint. We have a number of fleets that are maybe lagging what our current goals are. So near-term, our objective is to kind of bring up the bottom end of our portfolio, whether it be through pricing or repositioning or better our cost controls internally. These are things that we've been doing here over the last number of months. We'll just take a continued effort to get into the through cycle pricing and closer to leading edge with more and more of our fleet.

Yes, I think, Stephen, this David. Just to add to Sam's comments, I think when we look at pricing, we also are looking at customer efficiency which can impact that. So what I would say is that we've probably got 30% of our pricing at headline leading edge numbers. Customer efficiency is not always the same. We've got maybe half of our fleets that are at improved pricing with high customer efficiency. So it's really a combination of factors when we think about ultimate profitability per fleet. But the goal, as we've mentioned in our commentary, is to try to increase the levels of profitability across our fleets regardless necessarily of pricing.

Okay, great. Now, thank you for the color. And then just the second thing I want to ask about was when, when you're thinking about capex and how your fleet profile evolves, do you have -- money that you've sort of earmarked for this year I think it's 250-300? By year end, where do you think your fleet profile stands?

I think the goal is to be pushing towards to be in excess of 4 dual fuel fleets with the remainder being just the conventional Tier 2 fleets. And we look to continue to push into that, to the dual fuel arenas. We've seen, continue to see and have seen differentiated pricing for those assets, but I'd say at least 4 dual fuel fleets by the end of the year.

The next question comes from Taylor Zurcher, Tudor, Pickering & Holt.

My first one's on the strategy, not to market any additional horsepower in Q2. Sam, I think you said it's testing your mettle a little bit and having to pass on some customer opportunities, but at the same time really strong margin improvement in Q1. So what I'm just curious on is how much demand incremental demand you see out there in the Permian, maybe over a 6 month time horizon. What's the sort of magnitude of opportunities you're having to pass up on and where could we see demand in the Permian shakeout in the quarters ahead?

Yes. Taylor, great question. I think maybe to give a little bit more context to the comment that it's kind of tested our mettle or tested our resolve is that in prior cycles like this when you see demand increasing and capacity in the Permian frack sector being virtually sold, ProPetro and other companies like us have traditionally grown fleet capacity into that environment. And for many reasons in prior cycles, it was probably a bit easier to do that. As we look at the circumstances that exist today, one, we're having to take into account what it takes to achieve what we're calling a through cycle cash-on-cash return and couple those opportunities with the right customers and the right timelines. We are pretty confident that that demand here pretty soon, if it hasn't already, is going to outstrip just overall frack supply, especially in the Permian market.

And I think we're looking at that as an opportunity to continue to hire our portfolio as it exists today, without pushing more risk into ProPetro’s system and really continuing to hang our hat on that operational execution that we feel like we've been known for, and that we feel like is a competitive advantage of ours. So really, it is just a laser focus on maximizing returns through coupling our teams and our assets with the right people, the right customers at the right pricing and generating a return that is probably more incremental and more incrementally influential to our profile than just adding fleets.

And Taylor, this is David. Adam may want to add to this, but some of the anecdotes from the market that we're getting are things like, look maybe this isn't a blank check, but just tell us what you need to, to come frack our well, or things like can you at least send over a bad crew? We'll take anything. So Adam may want to mention some of that, but in terms of just customer sensitivity and urgency, it continues to escalate. And I think that's consistent with what we're hearing from other folks in the market.

Yes. I would just add an echo of what David and Sam both said. I mean, just to make a comment on some of those customer requests, in the past, we probably would've jumped at opportunities like that. But as Sam said, we're really watching those more closely now. And if it's going to put risk in our business in what we're trying to do as far as accomplish in creating value in a return then yes, we're just having to say no to those opportunities.

Yes. Understood, and good to hear. Follow up just on margin. So last call, you pointed to really strong start to January, and then obviously you dealt with some winter weather and supply chain constraints over the back half of really final 2 months of Q1. So I'm curious. I mean, are we back to the sort of profitability levels here in April, or maybe exiting March on a run rate basis that you saw in January, or are you still having to fight through some of these supply chain challenges and not quite all the way back there yet?

Yes. First of all, I just wanted I think I think it's more than fair to talk a little bit about some of the headwinds we face specifically in February. I can't say enough about how our team navigated through that internally here and how many of our customers navigated through that as well. Being a really quality executor on location is a dance. It's not just what we do. It's what our customers do as well. So working together with our customers through a month, like February and part of March is just really impressive. And I just like to congratulate our team, our operations and logistics team and our customers for what I think is working through that maybe in a very differentiated way. That said, yes, you're right. We called out the January EBITDA margin and numbers on our Q4 call on purpose, because we thought that that could be a sustainable level of profitability and something that we could actually build on. So I'd say yes, here in here in April going into May, we're back in that zip code, if not exceeding it.

Yes. Taylor, and this is David. Just to give you a little bit of color, during the quarter we actually saw EBITDA performance drop off about 40% month over month before recovering. So that just kind of gives you a sense at how strong the overall pace of what was going on a normalized basis, excluding the weather impacts and some of the logistics impacts. So we're seeing good market activity and beginning to see some normalizing of supply chain activity as well. So we're hopeful that we see that play out through the rest of the quarter and the rest of the year.

The next question will be from John Daniel with Simmons.

Congrats on the quarter. Sam or Adam, with the engine lead times continuing to extend, can you say when you would place them next order for Tier 4 DGB engines and assuming you placed it today, if you haven't already placed it, when would you realistically be able to have that fifth fleet deployed?

Yes, John, I mean, quantitatively, that's, as you could appreciate, a bit of competitive information because part of competing and supplying the quality service and getting our customers the right products and services is our ability and our competitor's ability to access supply chains and in timely and cost effectively manner. We started this DGB conversion program basically this time last year. We did a really thorough analysis to ensure that we were working with the right partners and the right suppliers to help us execute on that conversion program. Although there's been challenges, we've been quite pleased with our ability and our supply chain partner's ability to execute in that arena.

Without quantifying specific numbers, we really like our position in the supply chain right now, and our ability to make a good on some of these conversions that we've promised our customers and to continue to provide the products and services that our customers are asking of us here, here in the near future. Going into beyond say the 4 to 5 fleets of dual fuel conversions that we spoke about earlier, hard to say if there's more beyond that right now. We can say that that lead times are not getting any shorter for things like DGB engines. So the competitive of companies like us and others that do have good access to the supply chains will only become greater because of those lead times extending,

Would you say that your customers are asking for it more frequently today than 3 to 4 months ago?

No doubt about it.

Yes. John, this is Adam. I would just add that, like Sam said, we delivered roughly 90,000 hydraulic horsepower at the end of 2021, which is already in the field, working at the higher relative pricing. And then we plan on additional 120,000 hydraulic horsepower to hit us, hit our fleet and get, get to work first half of this 2022. So yes, it's definitely going to be a priority for us to continue that fleet conversion of our diesel burning quick into more gas burning.

And just to clarify what Adam said right there, all of that horsepower he's talking about is dual fuel, Tier 4 dual fuel horsepower that is conversion. No net addition to our fleet capacity.

Fair enough. And then I guess the last one for me. I think in the prepared remarks, you mentioned that a view that frack crew activity would rise 15 to 20 crews over the course of the year. That would be I'm assuming across the us, not just the Permian, but that a bias hire. Let's assume that plays out. If you wanted to reactivate your 15 fleet whether it's Tier 1 or Tier 4, I don't really care what it is, but just how long would it take you to bring that back to market?

Yes, that's a good question, John. I don't know if I'm ready to answer that here. I would just probably point back to what our focus and our strategy is right now and that’s to get all of our fleets above what we would call a mid-cycle or through cycle cash on cash return. We're not there yet. I think in my prepared remarks, I noted that we're not yet satisfied with how we're positioned from a profitability standpoint. That said, we do have some leaders in the pack from a fleet basis that are performing signal significantly. So that is something that we continue to analyze. I don't have a timeframe for you right now. It's a little bit down the priority list in terms of what our focus is.

Our next question will be from Ian MacPherson of Simmons.

You've been pretty purposeful and clarifying, we're not out of the woods yet with all the operational challenges. Even if you're not trying to grow activity fast, you're not necessarily seeing total relief in all of your pinch points. So I wanted to dig in on that a little bit and ask, are you seeing this play out more with regards to the high churn components on your fleets, your power-end influence and things like that? Are you speaking more to toward the labor side or maybe your customers consumables and sand and chemicals, et cetera, or is it just everything? And do you still have prescribed fixes coming on the way that could help you elevate your margin improvement as you sort through these?

Yes. Ian, fantastic questions. This is Sam again. I guess I'll take a shot at talking about your question in a little bit more of a holistic manner. And I don't think I can appropriately answer your question without reiterating how hard this business is. This is the front lines of the oil and gas operation today labor materials operational challenges. This business is tough. That said, we think we have the best team to execute in the best basin. I think it's a bit of a combination of excitement about our ability to continue to differentiate competitively because of our team, our asset base, our customers. But also, an appreciation for the headwinds and crosswinds that still exist in the system. We're trying to be as realistic as possible about how we're looking at the future. That said, are there going to be opportunities for continued pricing relief? Yes. At the same time, are there going to continue to be cost inflation pressures? Yes.

So it's quite of a broad sweeping set of circumstances that have to be balanced and managed all the time. So we think there's upside to go from here. We just want to be realistic about how hard this business is, and also you know, I don't think I can say all that without saying, we think we're a little bit ahead of the curve as well. We're traditionally at the top end of the pricing scale, and I think from a profitability per fleet perspective, you could factually say that we're a quarter, if not 2 quarters ahead of some of our competition from a trend standpoint.

Okay. That's helpful. Then with that, and maybe following in a little bit more pointedly on prior question, for Q2, it seems to me that it would not be out of bound to think that you could, again, get to mid-teens revenue growth over Q1. And I would assume that based on the EBITDA margin hit that you experienced with the transient factors in Q1 that getting towards mid-twenties EBITDA margin and Q2 would not be beyond possible. Would you agree with that?

I think that given what I would call differentiated strategy around fleet deployment, I think that we're not looking so much around top line as we are margin expansion and improvement. So I think that I might be more a bit more biased to a number inside of what you mentioned regarding top line. I think as far as margin expansion, I think that we do have some room to run there as were position fleets, as we continue to see the price deck lead and increase. Much of our business still has price openers where we can go back and recapture some inflationary impacts. So I think that we've got some room to run there.

Next question would be from Waqar Syed, ATB Capital Markets.

So Sam, your pumping up productivity is about 70 to 76%. I think Q4 was 76% higher than Q1 ’19. Are we going to kind of start flatlining around that level? You think there's a lot more still to gain from productivity? Could you maybe comment on that?

Great, great question, Waqar. We've been asked this I don’t know how many times in the past, and to sound just like a broken record. As soon as I personally think we can't push it any higher, our operations team in combination with our customers prove me wrong yet again. So are there opportunities to continue to increase pumping our productivity? Sure. I think it's more along in the zip code of the bottom end of our operating portfolio. I think the top end of our operating portfolio is best in class. So I think there will be continued gains, Waqar. I think it'll be at a slower rate and I hesitate to call that a plateau because I've been proven wrong by our team so many times before. But I think it will continue to grind higher.

Yes. And this is David. Just to highlight, one of the call outs on our earnings release and what we mentioned earlier one of ours Simul-Frac fleets hitting 600 hours pumping hours in a month and that's not something that other folks have been talking about. I think that is reflective of the fact that we've continued to see improvement even as much as in March. I think Sam makes a good point that we've seen significant improvements and you got to think how much blood can you squeeze out that turnip? But we seem to be surprising ourselves each month as we continue.

Great. Sam, another question. We hear from some of your competitors that there are some kits to upgrade Tier 2 equipment into kind of dual fuel, but that system may have the same kind of emissions profile if not better than Tier 4. DGB have you heard anything to that effect? Do you think that there’s some mettle to that?

Yes, I think that may be a little bit debatable, Waqar. We are we're through testing that we've done directly and what a lot of the engine manufacturers would say, Tier 4 is a better emissions profile. I think that's why it was government mandated. Also, a big part of this is the diesel displacement. These Tier 4 DGB engines were purposefully designed to displace more diesel. And we are seeing with our own fleet, I think against some of the anecdotes we're hearing from customers and competitors that these caterpillar Tier 4 DGB dual fuel engines have quite a bit higher displacement rate. And we've been really pushing the envelope with some of these new units we have, which is an emissions improvement as well as a significant cost savings to us and our customers.

Yes. We're seeing, I think in the neighborhood of 50 to 60% displacement on the Tier 2 DGB kits, whereas we're getting in some cases in excess of 70 even upwards of 80% and displacement.

And Waqar, just to add one more thing. I think it's fair to note that all of these conversions also have an effect on engine life or asset life. So you have to maximize the tradeoffs of how much diesel can we displace and how long will that conversion or modification last. And could it be detrimental to a large component of our fleet?

Yes. Good point. David, just one last question, could you maybe talk about what the working capital cash inflow outflow could be for Q2 and then for the remainder of the year, and then any comments on free cash flow for the year?

Sure. Networking capital will increase during the quarter related to some delays in getting some tickets signed. We resolve that very, very quickly. And so I think that there'll be some unwinding of that to our benefit going into the second quarter. And generally, we've been able to maintain a fairly, fairly flat changes in working capital as we progress and again, keeping in mind what I would call our more capital efficient approach to the market again, not looking for top line, but rather focusing on bottom line, we don't see dramatic changes on the revenue side and therefore working capital.

So as it relates to free cashflow, we had guided last quarter that we would in the near-term have some negative cash as we invested in our fleet and in the conversions. That will think begin to moderate as we work through the year. Although we underspent our original plan in the first quarter due to supply chain constraints. Some of that's going to show up we hope in the second quarter so that we continue to get the equipment that we need. But then we'll be looking to 2023 to determine what type of spending profile we'll have in the second half of the year. So I think it's still hard to say but I would be biased toward neutral or even negative for the year. And again, it's just going to be dependent on, on how out to the market plays out.

Next question comes Arun Jayaram from JPMorgan.

Arun Jayaram with JPMorgan. Sam, I had a bigger strategic question for you. As you're aware, your primary peers are pursuing a bit more of a vertical integrated strategy regarding stimulation and you guys have generally held firm to just being a pure pressure pumping company. So I wanted to get your thoughts on some of the pros and cons of a more integrated or vertically integrated offering to customers if that makes sense, just given how we're seeing a much higher mix of privates in the market who maybe could benefit from that more integrated offering. So I was wondering if you could talk a little bit about that in any future plans that you may have to do some things outside of just pure frack, maybe in terms of sand logistics, wire line, et cetera.

Sure. Great question. I think this is something that we ask ourselves quite a bit internally here, as we analyze market opportunities to improve our service and product offering as well as what, what our customers may or may not be asking of us in combination with making sure that we're continuing to focus on what the core of our business is. And I guess I would say from afar, my perspective is a few of our competitors that are more integrated in into things like wireline per se, that is offering a more integrated well site service, I would say that the core of their business from a profitability and a spending perspective is still pressure pumping. Same as us.

So we look at that and say, if we were to add ancillary services, that would integrate us better into the completions well site, can they compete for capital in the same way as our core business? Can they bring through cycle cash on cash returns that we're targeting with our core business? I don't think we have all the answers to that yet.

But I think, just to give you some context in terms of how we're looking at that, and we continue to analyze opportunities on an ongoing basis. We have a high bar, and we want those, those things. If those opportunities materialized to be accretive to our offering, not dilutive in any way. And we want to put ourselves in a position in whatever service line that may or may not be added to our current core business, that we can also be the best in the Permian basin from an operational perspective. That's maybe of utmost important to us is being able to for provide a differentiated quality service to our customers. So those opportunities have been few and far between over the years, but we continue to keep our heads up and our eyes open and look at opportunities on an ongoing basis that might meet all of that criteria that I outlined.

Great. And my follow-up, Sam, is you guys have been repositioning you know, fleets over the last -- in a couple, 2, 3 quarters. And I was wondering if you could maybe just elaborate on some of the benefits from that repositioning as we start trying to think about our forward expectations in our model. So maybe give us a sense of how many fleets have been repositioning and some of the benefits from a margin perspective from these moves.

Yes. Arun, quantifying that is a bit on the competitive side in terms of information, but qualitatively, I can say that we've done a good bit of that. And that's been challenging. It's easy for guys like David and Adam and myself to get on the call and talk about that. Very difficult on our marketing business development and operations teams to really execute on that type of strategy. And that's a bit differentiated or different than how we have conducted ourselves in prior cycles.

We don't get the pleasure to expose our revenue stream to a global index crude market like our customers do. So we have to expose ourselves to better earnings opportunities, not only through pricing, but also through putting our teams and our assets with better earning opportunities and with better customers. So I could not say enough about how our team has worked together to execute on say repositioning fleets. There's probably less of that to do moving forward. We've done quite a bit of it. But it's always an option as we continue to chase this through cycle return.

(Operator Instructions). Next question comes from Don Crist with Johnson Rice.

I just wanted to ask a couple questions about Simul-Fracs. I know that's moving towards the future of the industry, and I wanted to know what your thoughts are or where you see your fleet moving from a Simul-Frac perspective versus a kind of one pad completion going forward.

Yes, Don, this is Adam. I would just comment on that. Simul-Frac, we would, I think collectively as a management team, what we've had to experience all of last year and coming into this year, makes a lot of sense for both sides, as long as the terms are correct as far as pricing and as well as the operation of the EMP as well. That's a tough job. I think Sam noted earlier how tough this business is just simply on the zipper frack side, but as you throw Simul-Frac into the picture and the amount of equipment and personnel and logistics that need to be hitting on all cylinders to make that operation meaningful to both sides is far and few. So I would just say that there's definitely just like in the pressure program, there's people that do it better than others and aligning yourselves with those that have the infrastructure and the logistic capability to continue an operation like that is probably what we would focus on as we look to Simul-Frac for the business.

And Don, this is Sam. Just to add one piece of information on top of that, my personal belief is that there say heading into 2023, sector wide, there will be more Simul-frac, not less. That said, I don't think we are of the belief that it's going to be much more, I mean, it's going to be very marginal growth. This type of operation is not for everybody. You have to have very sizeable acreage positions. You have to have very, very good water infrastructure and the ability to move that water around. We're happy to work with some customers that do that very well. But it won't be for everybody. And I think more growth in the Simul-Frac will be very slow.

Okay. And just one follow up on that. How do you account for the fleets that you have doing Simul-Fracs now? Were they counted as one fleet or one and a half fleet or 2 fleets? How do y’all normally do that when you're reporting today?

They're still counted as one fleet. When we quote utilization, it's on a working day measure. So one working day for a Simul-Frac fleet is measured similarly as one working day for zipper fleet. That said, how we account for it financially is quite different because the replacement cost of the equipment on location for something like a Simul-Frac operation is far different than say a Midland basin standard zipper job. So the returns profile needed to meet that replacement cost and that intensive operation is significantly different. So similar on the utilization when we're quoting you things like effectively utilize fleets quite a bit different as we measure our economics for that type of operation.

This concludes our question-and-answer session. I'd like to turn the conference back over Mr. Sam Sledge for closing remarks. Please go ahead.

Thank you. And thank you everyone for joining us on today's call. We here at ProPetro are proud to play a part in an innovative energy industry where oil and gas remains critical to everyday life across the globe. We hope to talk to you soon, and we hope that you join us for our next quarterly call. Have a great day.

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