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Operator: Good day, and welcome to the ProPetro Holding Corp Fourth Quarter 2022 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.

Matt Augustine: 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 results for the fourth quarter and full-year 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 directly comparable GAAP measures are included in our earnings release. Additionally, during today’s call we will discuss January 2023 results. Of note, these results are preliminary and based upon information available to management as of the date hereof. These results are subject to change and may differ materially from our reported results for the three months ended March 31, 2023. Lastly, after our prepared remarks, we will hold a question-and-answer session. With that, I would like to turn the call over to Sam.

Sam Sledge: Thanks, Matt, and good morning, everyone. 2022 was a transformational year for ProPetro and we are pleased to be off to an even stronger start in 2023. David will speak to our financial results for the fourth quarter and full-year of 2022 in a moment, but before that, I’d like to take a step back and acknowledge some of the key achievements and milestones from our team in 2022. As you know, in November we closed our acquisition of Silvertip Completion Services, a step that positioned ProPetro not just as a leading pressure pumping company, but now as a leading completions-focused oilfield services company. Integration of Silvertip into ProPetro has been successful, and since closing, we have begun to capitalize on the strategic vision that drove this transaction.

With Silvertip, we’ve expanded our portfolio to include a best-in-class wireline company that enables us to pursue accretive growth opportunities, and positions us to further expand our margins and increase free cash flow generation. As previously announced in December, shortly after the closing of Silvertip, to meet the increasing demand for next generation hydraulic fracturing services, we were pleased to announce our first contract for one of our electric fleets, order two additional e-fleets under the master lease agreement used for our first two electric fleet orders, and deploy our fifth Tier IV Dynamic Gas Blending or DGB fleet, with our sixth to come online in the coming weeks. We expect that ProPetro will have at least seven Tier IV DGB fleets and four electric fleets by the end of 2023, making approximately two thirds of our frac offering natural gas capable.

These recent actions significantly advanced our strategy to industrialize our business, and we are confident that we are well-positioned to execute on the many value-enhancing opportunities ahead in 2023 and beyond. The fourth quarter was also a significant transition period for ProPetro. As we noted during our third quarter call, we laid the ground work and prepared a significant portion of our portfolio for repricing and repositioning effort that occurred in early January. This repositioning of fleets has enabled us to pursue opportunities with other customers under accretive terms, and we’re very excited to renew some prior relationships and expand others. Our operating team’s excellence at the wellsite along with a very intentional approach by our business development team has enabled this part of our strategy to be a success.

Ahead of the repricing of our fleets in January, we decided to temporarily curtail one of our active fleets in the second-half of the fourth quarter to prioritize our overall fleet health in order to position us to best capitalize on the pricing uplift we were able to capture in January. In the fourth quarter we also experienced an increased amount of seasonality and holiday impact, along with impacts from the winter storm that occurred throughout the U.S. leading up to the holidays, with the storm ultimately affecting several of our customers focused here in the Permian Basin. At ProPetro, we pride ourselves on our commitment to best-in-class corporate governance, including the Board’s focus on director refreshment and building a strong bench of outstanding leaders and employees at ProPetro.

To that end, recently we were pleased to welcome Mary Ricciardello to our Board of Directors and look forward to benefiting from her expertise. Additionally, the new year also saw the appointment of Jody Mitchell as ProPetro’s new General Counsel and Corporate Secretary. Jody is an industry veteran, and has quickly become an integral member of our core leadership team. Another important element of good governance is enhanced sustainability practices. We are pleased to announce that in 2023, we will be issuing our first ever sustainability report, which will provide an in-depth look at the work underway to deliver on our commitment to transition our fleet in support of more efficient operations with reduced emissions while also leading efforts in the community to promote a cleaner and safer environment across the Permian Basin and for our teammates at ProPetro.

Being a Midland-based and Permian Basin focused oilfield services company that serves leading upstream oil and gas operators gives us a unique vantage point into the market and current trends. To that end, before I turn it over to David, I’d like to take a few moments to discuss the broader oil and gas market and what we are seeing. Despite recent pressure on the price of natural gas, we believe that both oil and natural gas remain in structural undersupply, especially globally, and may remain so for the foreseeable future. As it pertains to the recent decline in natural gas prices, being 100% located in the Permian with customers that have large drilling programs and full calendars does insulate us from some of the risk that our peers working in gas-focused basins may face.

Furthermore, if demand for frac services temporarily declines in gas-focused basins, and a few competitor fleets subsequently move to the Permian, we believe the demand gap is large enough to absorb the new fleets without disruption, especially when considering the bifurcation in service quality and equipment offerings, as small privates and other subscale competitors do not have the next generation capabilities that ProPetro has compiled. Notably, the continued spread between diesel and natural gas prices bolsters our fleet transition strategy. Diesel displacement in our customers’ completions programs will continue to become more and more valuable for the foreseeable future. As we move forward, we remain acutely focused on taking our business to the next level and executing on our strategic goals to drive meaningful returns.

To achieve this, first, we are actively optimizing our operations through a more industrialized approach to our business, which we expect will unlock additional free cash flow generation into the future. Second, we are continuing to transition our fleet in a way that minimizes our overall capital costs while delivering next generation services that are in high demand from our customers. And third, we are continuing to pursue opportunistic strategic acquisitions that increase our competitiveness and are in the best interests of all of our stakeholders. All of this is being done with the ultimate goal of generating strong returns and value for our shareholders, and we are already beginning to realize a portion of the tremendous value that we are confident this strategy will deliver.

I’ll now turn it over, but before I do, I’d be remiss if I did not take a moment to thank the ProPetro team for their outstanding work in 2022. Without them, we would not have been able to achieve all that we did during this incredible year and just as importantly, we would not have been able to lay the groundwork for all that is to come in 2023 and beyond. With that, I’ll turn the call over to David to discuss our fourth quarter and full-year financial performance. David?

David Schorlemer: Thanks, Sam, and good morning, everyone. Before I dive in, I would also like to echo Sam’s thanks for our team members and their continued hard work and dedication to ProPetro. Now, let’s move on to our financial results. Our performance in 2022 showed continued improvement over 2021 with our financial discipline and pricing strategy generating excellent results. Revenue for the full-year 2022 was $1.3 billion, a 46% increase year-over-year. Adjusted EBITDA increased 134% year-over-year to $317 million, which was driven by our disciplined commitment to improved pricing, responsive repositioning, and cost management. Equally impressive was our adjusted EBITDA margins that increased 930 basis points to 25%. We were able to achieve this in the midst of significant inflationary pressures, a constrained supply chain, and a dynamic pricing environment.

The company also posted a net income of $2 million for 2022, which is a significant turnaround compared to a $54 million net loss in 2021. During the fourth quarter, we generated $349 million of revenue, a 5% increase from the third quarter. The increase is largely attributable to the acquisition of and inclusion of November and December activity of Silvertip. Our Effective Frac Fleet Utilization was 14.5 fleets for the fourth quarter, which was in line with our prior guidance of 14 to 15 fleets. Our guidance for the first quarter is 14.5 to 15.5 fleets. Cost of services, excluding depreciation and amortization, for the fourth quarter was $243 million versus $224 million in the third quarter with the increase driven by the Silvertip acquisition, additional strategic supply chain purchases, and cost inflation across all of our service lines.

Fourth quarter general and administrative expense was $27 million compared to $28 million in the third quarter. Adjusted G&A was $22 million and excludes $5 million relating to non-recurring and non-cash items. Depreciation was $34 million in the fourth quarter. The Company posted Net Income of $13 million or $0.12 cents per diluted share, compared to net income of $10 million or $0.10 cents per diluted share in the prior quarter. As Sam mentioned, the fourth quarter was a transitional one for ProPetro. Looking back at the full-year, we posted strong performance while undergoing a significant recapitalization of our fleet. Moving to 2023, we’re off to a great start to the year, and we’d like to share some selected preliminary financial results that we are encouraged by so far.

Due to the repositioning and repricing efforts we undertook for our businesses in the fourth quarter of 2022, our January performance was extraordinarily strong despite experiencing some weather impacts during the month and operating only 14 active fleets for the majority of the month. Revenues came in at $136 million and we incurred cost of services of $88 million, with general and administrative costs of $8 million exclusive of stock-based compensation and other non-recurring items of approximately $2 million. Doing the math, you can see it was a good month. Of note, in February, our 15th fleet that we had reactivated late last year is now back on a committed calendar and we’re expecting a more fulsome contribution of our 15 active fleets going forward.

I’d also like to point out that Silvertip posted $20 million of revenue for January, which is the highest monthly total in its history. We are excited about the contribution this business is already making. As we have discussed, we expect that demand for our services will remain robust as we proceed into 2023. Therefore, we believe our performance in January was a strong baseline and expect to build upon that momentum as we progress into the balance of 2023. Turning back to 2022 results, our full-year 2022 cash CapEx was $320 million, or slightly below the midpoint of our prior guidance and our incurred CapEx was $365 million, which is slightly above the high end of our prior guidance, and included approximately $18 million of strategic purchases of critical inventory items to get ahead of certain supply chain constraints of major components.

As we pursue and realize the benefits of our strategy to develop a more capital light asset profile and realize the benefits from our ongoing optimization program, coupled with the ending of our large reinvestment cycle, we anticipate our 2023 cash CapEx to be between $250 million and $300 million with the majority of the spending in the first-half of the year. As of December 31, 2022, total cash was $89 million and our borrowings under our ABL Credit Facility were $30 million. Total liquidity at the end of the fourth quarter of 2022 was $155 million including cash and $66 million of available capacity under the company’s ABL credit facility. We anticipate meaningful positive free cash flow in the second-half of 2023 with some working capital investment and a front-loaded CapEx program in the near-term.

To reiterate, 2022 was a significant investment year in which we recapitalized our fleet while transitioning to over 35% natural gas-burning equipment, completed the accretive transaction with Silvertip to accelerate free cash flow and earnings, and enhanced adjusted EBITDA margins by over 930 basis points, all while protecting our liquidity. This was accomplished by maintaining a disciplined pricing and capital allocation framework. 2022 was a transitional year in executing our strategic plan and we are excited for these opportunities to continue fueling our growth in 2023. And with that, I’ll turn it back over to Sam.

Sam Sledge: Thank you, David. As we take stock of where we are today and look ahead to where we are going, I am proud of the work we have done to effect a significant transformation since 2019 and the onset of COVID. We have met significant obstacles and challenges head on over the last few years, and have continued to compete at the highest level while positioning our Company for the long-run. We’ve recently taken significant steps in reducing our maintenance CapEx and increasing our capital and logistical efficiency across our portfolio of assets while ensuring we have less equipment in rotation at the maintenance shop and are therefore more efficient with our asset base. Now, our future is stronger than ever and we are confident in our ability to execute on strategic growth opportunities into this sustained multi-year up-cycle.

By the end of 2023, and as I mentioned earlier, we will have transitioned two thirds of our fleet to natural gas-burning and electric capabilities, offering us a unique competitive advantage, and one of the youngest next generation fleets in the country. Moreover, we have a disciplined and intentional approach to capital deployment, which will allow us to strategically pursue M&A opportunities to advance our position as a leading completions-focused services company. At the same time, with a nearly debt free balance sheet, we are prepared for any broader industry or macroeconomic headwinds and volatility that may arise. While we recognize that the space is consolidated and E&P’s are not expected to meaningfully grow production in the near-term, our business is now built for the long-run and ProPetro will continue to be a major contributor to energy production for the world for the next several decades.

Accordingly, we are optimistic that we will begin to see valuation improvement across the OFS space. I once again want to thank our ProPetro teammates for their tremendous performance and for giving the management team the confidence to move forward with executing our strategy. We continue to build on our strong track record of safety and performance and I am so proud of all that we have accomplished. Let’s continue to keep up the great work and deliver for our customers. Lastly, we’d like to take a moment to talk about how honored we are here at ProPetro to be such a critical part of the American energy system. I was born and raised right here in Midland, Texas, the energy capital of this side of the world. Even as a third-generation oilfield services operator and leader, it has taken me decades to fully appreciate the value this area and the oil and gas industry brings to our country and to our globe.

The Permian Basin community, which includes ProPetro, works hard, usually in harsh environments, without complaint. Our safe, clean production here in the Permian exports a dependable commodity that can be consumed locally or abroad. These fossil fuels power our world in our homes, our businesses, and in our schools and hospitals. One would be hard-pressed to find any item in our possession that isn’t made from or tied directly to an oil and gas product. In the 15 plus year history of our company we have not appreciated our far-reaching impact enough. Today, we do. Life experiences have helped us gain perspective as we find ourselves growing families, leading teams and investing in our communities, all of which sit on a foundation of affordable, clean, and reliable energy.

As our respect continues to grow for the work that happens in our sector and the energy it produces we feel emboldened to help others understand just how vital the Permian Basin and our oil and gas production are to the overall economic health and global security of the United States of America, the greatest republic in the history of the world. We would like to encourage others in our community and the oil and gas value chain, big and small, to join us in the promotion of what our industry makes possible for everyday life around the world. Fossil fuels have been a cornerstone in the advancement of humanity and, thanks to our industry’s long track record of innovation; they will continue to be indispensable. It’s because of our crucial contributions that we should be proud, internally and externally, to educate and advocate for our industry.

With that, I’d like to open up the line for questions. Operator?

Operator: Thank you. We will now begin the question-and-answer session. And the first question will be from Derek Podhaizer from Barclays. Please go ahead.

Derek Podhaizer: Hey, good morning, guys.

Sam Sledge: Good morning.

David Schorlemer: Morning, Derek.

Derek Podhaizer: So, the biggest unknown facing the industry today is how many fleets could be released from the gas basins. We’ve seen a few E&Ps announce their plans to reduce activity. So, could you expand on the undersupply of the oil basins, specifically the Permian? One of your peers described oil basins being 20 to 25 fleets undersupplied. I mean, what’s your view on this number, do you agree? What indicators do you look at to calculate the undersupply for fracked fleet market? Do you have a Permian-specific number that you’re thinking about? Just more color under this undersupply argument would be helpful.

Sam Sledge: Sure. And great questions, Derek. It’s obviously very topical right now with what’s happening with natural gas prices. As we stated here earlier today, we do believe that, just generally, the world is in undersupply of the product that our subsector helps produce. Overall, that definitely ripples into things like the frac market, of which we think is still relatively undersupplied in — right here in the Permian Basin. That said, there’s more than one market at play, we believe, here today. And that has a lot to do with this equipment transition that you’ve heard us and some of our peers talk so much about. That’s why it’s vitally important to have the right tools for the job of today, i.e., things like gas-burning equipment DG, DGB, and electric equipment.

Given our transition very heavily into those types of equipment, that remains at the highest demand. That’s why I think we have not seen any activity weakness in our own offering, nor have we really seen in that offering systematically in the Permian. And to make a comment on the 20 to 25 fleet number, I’m not going to necessarily endorse that number, but we do think that the system is still structurally undersupplied for the right tools that customers are demanding most highly.

Derek Podhaizer: Okay, great. Appreciate that. Second question, I want to talk about fleet attrition. Just thinking about you guys recapitalizing your fleet, you have the 6 and 7 Tier IV DGB coming out. You have the four e-fleets coming out. I know we didn’t get a specific timing, but you guided the full-year fleet utilization be 15 to 16. Can you give us an update on are any of these fleets going towards replacing your legacy Tier II diesel equipment as they age out, just to be helpful because I think that’s another big topic that investors are trying to wrestle with, with how much attrition is going to leave the market, how many fleets will exit as you bring in these new fleets, and just trying to reconcile your guide to the number of fleets that are coming in.

Sam Sledge: Sure, great question. This is Sam again. I think attrition is a topic that is not understood enough. I know we have talked about it quite a bit in prior quarters, as have many of our peers. Yet, we’re not sure that the investment community and the E&P community totally understands how hard this conventional equipment is working today, and how much it shortens the operating life of certain assets. That said, if you look at what we’ve done just in the last 18 months with out DGB program, basically all of that has been replacement of existing horsepower. And that will continue to be the case with DGB. So, none of that has been net additive. Now, as e-fleets come on it’ll be a bit more nuanced, but you’ll look for almost all of that to be replacement as well.

I think in some of our materials, we guided full-year activity to 15 to 16 fleets. Here we are running 15 today. So, we’ll add two e-fleets probably in the third quarter of this year, and you’ll look for that to be mostly replacement as well. Obviously, we can’t tell you exactly what market opportunities look like in the back-half of this year today. We have a pretty good feeling under certain commodity prices what that might look like. So, we’ll remain nimble there. But really this is a replacement-refurbishment transition story; this is not a fleet growth story.

Derek Podhaizer: Great, appreciate that, Sam. I’ll turn it back. Thanks.

Operator: Thank you. And the next question is from Stephen Gengaro from Stifel. Please go ahead.

Stephen Gengaro: Thanks. Good morning, guys.

Sam Sledge: Morning.

Stephen Gengaro: Just to clarify, the four e-fleets, two in the third quarter and then the other two, when?

Sam Sledge: Probably right at the end of the year, beginning of ’24.

Stephen Gengaro: Okay, thank you. The January commentary you gave in connect build and on the full-year, it suggests that the consensus, which is about $500 million of EBITDA this year is a pretty reasonable number based on January and what you see in the market. Given if that’s a reasonable starting point and given your CapEx, should — you mentioned free cash flow in the second-half of the year. Should you be free cash flow for the full-year as well? It seems that way, but just wanted to get your thoughts around that?

David Schorlemer: Yes. Yes, Stephen, this is David. We certainly believe that we will definitely make a big turnaround from last year, which was a capitalization — recapitalization of our fleet year to be significantly free cash flow positive in 2023.

Stephen Gengaro: Okay, great. That’s what I assumed. I just wanted to check. And then just the final thing for me is, when you think about the current leading edge pricing dynamic, can you just give us an update on what you’re seeing in the market conversation with customers, and obviously things still appear very tight. But where does pricing stand, and how have the pricing discussions gone recently?

Sam Sledge: Sure, great question. This is Sam again. We alluded to in our materials and in our prepared remarks that we did see a pretty significant pricing uplift in January. We’ve been working hard on the pricing front really for probably five or six quarters now. But I’ve been really pleased with the work that our team has done to continue to march forward to pricing that helps us more sustainably support our business. That said, going forward, we’re not — we’re trying to be realistic about what the pricing opportunities are. And will there be pricing opportunities? Sure, there may be. Will they be at the speed, the magnitude that you’ve seen us and our peers over the last year? Likely, no. But that comment I just made is recent — is mainly directed at what we’re seeing with recent commodity prices, mainly what’s happening in the gas market.

So, we remain conservative. That said, I think pricing of our fleet today is in a relatively healthy spot. It can bolster some really meaningful return to free cash flow for us in the future if we continue to execute in the field and in the shop the way we are today, and improve on that. So, I feel really good about where we sit from a pricing perspective. We’ll continue to be very tactical to push where we can and to collaborate with our customers where we can. Lastly, there’s also a lot of accretion to our numbers, and just getting better at what we do, and almost creating economic uplift by just being more efficient internally, and being a lot more intentional about how we spend our money and how we operate our assets. So, there’s — that’s the first pillar of our strategy as we’ve outlined here the last few quarters, those optimization efforts.

And we’ve got a lot of good stuff going on there that we’re really excited about that should aid us in creating some more value without having to look outside for things like pricing.

Stephen Gengaro: Great, thanks. And just one quick one for David. David, with Silvertip, is the D&A for the first quarter running like 35 million to 36 million now, is that right?

David Schorlemer: No, it’s — we gave the guidance for January at 8 or the preliminary results at 8 —

Sam Sledge: D&A or G&A?

David Schorlemer: Are you talking about D&A?

Stephen Gengaro: Yes.

David Schorlemer: Yes, let me pull that up real quick. But it’s — yes, we’ll get back to you on that.

Stephen Gengaro: Okay, thanks.

Operator: The next question is from Waqar Syed from ATB Capital Markets. Please go ahead.

Waqar Syed: And thanks for taking my question. Sam, this — the fleet movement that was taking on and customer shift, is that largely been done? And the reason I’m asking is there’s been some volatility in earnings and some investor concerns about earnings not coming in, in line with expectations. And so, is that variability now over as we look forward or we still have maybe some noise through May?

Sam Sledge: Yes, Waqar, great question. And this has been very important part of our story this year, probably different from how — from ProPetro has operated maybe in the prior 10 years leading up to, say, early 2022. We’ve probably repositioned over half of our fleet, from a customer standpoint, in the last year — maybe a little bit more than a year inside of one basin. I don’t know if it can be overstated how much of a feat that is, and to do it without losing the operational excellence that we kind of pride ourselves on. Yes, I would say, for the most part, other than one fleet here and there, I would say that that massive repositioning effort is basically over. A big of the tail end of that repositioning was the rolling off of part of our contract with Pioneer.

And we think we have those fleets that have come off some of those contracts in really, really good places with blue-chip customers and that are operating very efficiently and value-additive pricing to ProPetro. So, it should be much more steady from a customer standpoint as it pertains to this year. I can’t say that without saying how big of a deal it is what we’ve accomplished over the last year.

Waqar Syed: Okay. And then in terms of your total active hydraulic horsepower with this 15 fleet now, could you give us a number? And then as you’ve guided to 15 to 16 fleets for the year, is the fleet mix changing whether you’re going to be doing more simul-frac or less simul-frac with that 15 to 16 fleet guidance from 14, in January?

Sam Sledge: I’ll take your last question first. It’s basically the same amount of simul-frac, one to two fleets on the simul-frac side. And I don’t know from where we — if we are where we can make a comment on what the active total horsepower is. We still quote the — what is it, 1.3 number in all of our materials. But we’re technically, under today’s operating circumstances, operating basically full utilization today.

Waqar Syed: Okay, that’s great. And then question you comment on the effective tax rate for the year and what the cash taxes would be?

David Schorlemer: Yes, this is David. We’re not going to have any cash taxes. We have in excess of $400 million of net operating losses remaining.

Waqar Syed: Okay, great —

David Schorlemer: Just to answer the prior question from Stephen. D&A, we’re expecting will be in the 33 to 35 range per quarter.

Waqar Syed: Hey, David, one other question, what is the total shares outstanding at the end of the year?

David Schorlemer: 115 million for the quarter was the fully — fully diluted was 116 million.

Waqar Syed: Okay. All right, thank you very much.

Operator: Thank you. And the next question is from Arun Jayaram from J.P. Morgan. Please go ahead.

Arun Jayaram: Yes, good morning. Sam, I was wondering if you could give us perhaps the timeline for what do you expect the e-fleets to be working in the field, as well as the timing of that — of the next, I think it’s the 6th Tier IV DGB unit?

Sam Sledge: Sure. We’re putting that 6th DGB unit to work today right now. We’ve got the 7th coming in April-May timeframe, May-June possibly. And then you’re looking at July-August for e-fleets 1 and 2, they should come in, in pretty close succession in July and August.

Arun Jayaram: Okay. And then for 3 and 4?

Sam Sledge: End of this year, beginning of next year.

David Schorlemer: Yes, I would expect activity for those to really show up in Q1.

Sam Sledge: Yes, revenue generating in Q1.

Arun Jayaram: Okay. And just my follow-up, I know you guys are leasing the e-fleets. Can you give us a sense of how much of the capital — is some of this going to be accounted for in your CapEx? And could you give us a sense of —

David Schorlemer: Yes, —

Arun Jayaram: Go ahead.

David Schorlemer: Yes, there will be about 15% that will be outfitting customer-supplied equipment. And so, we’ll be doing that this year, that’s part of our CapEx guide plan.

Arun Jayaram: Okay. And can you give us some goalposts around what the capital lease obligation would be when you finish all four, ballpark?

David Schorlemer: Well, you’re representing close to $180 million of total lease obligation. The minimum leases, that’s over a three-year period once those are initiated — or once those are delivered and active. But the minimum lease obligations are materially less than that. So, hopefully, that gives you a little bit of guidance.

Arun Jayaram: Fair enough. And to just understand, are you saying, on top of that there is 50% that’s allocated in your CapEx?

David Schorlemer: Fifteen.

Arun Jayaram: Fifteen, okay, thank you for clarifying. I know that that didn’t feel right to me. Appreciate. That’s super helpful for our model. Thanks.

David Schorlemer: You bet.

Operator: And the next question is a follow-up question from Stephen Gengaro from Stifel. Please go ahead.

Stephen Gengaro: Thanks. Arun actually covered most of this. But, just quickly the CapEx on a per fleet basis from maintenance perspective, can you just sort of do update us on where that stands? And how that may evolve as a larger percentage of your fleet is new and electric?

David Schorlemer: Sure, Steve. This is David. And we’ve been guiding up a little bit on that $9 million to $10 million per fleet on annualized basis. I think that based on our optimization efforts that Sam mentioned earlier in his comments we are hoping to see that trend down. Particularly, as the age of our fleet is well over 50% of it less than two years old. So, as we begin to weave-in the electric fleets, we are going to be — we are not going to be doing the type of maintenance that you would expect in an internal combustion engine that we had in the past. So, we expect to see between 30% and 40% improvement in not only the capital but also the maintenance cost associated with those assets. So, I think over time as the fleet profile begins to transition more to electric, we’ll see those things play out. But, it’s going to take some time.

Sam Sledge: Yes, Stephen, this is Sam. Just to pile on top of what David said there. This is electric e-fleet story is very significant for us. And I think for others as well that are pursuing this type of equipment. The cost of ownership over a longer period of time is just significantly lower. Lower maintenance CapEx and assets that are just going to last significantly longer, and they are going to need less attention, less maintenance, and zero people to operate them as well. Time will tell. And you will be able to see much more easily after we get those fleets in the field how differentiated that is. But, we remain really excited about that. And do believe that’s probably the long-term future of our business here for ProPetro probably of the frac sector as the whole, more and more equipment like electric equipment.

And I guess lastly, when you hear us use the word like — use words like industrialized, to me that word kind of takes on a two-fold meaning that’s kind of note to what’s happening in the Permian Basin in general. This is very densely operated resource. But secondly it’s a note to the tools and equipments that we use on a day-in and day-out basis. Unfortunately, it’s probably taken our sub-sector a little bit too long to migrate to the right tools for the job of today. We have seen completion intensity kind of outrun the tools that we use to do our job. So, I am — as a young leader in this business, I am really confident about where we are going for ProPetro. And as a sector from an equipment standpoint that we are starting to bring in technologies and tools that are going to help industrialize and create more value and more consistent value.

Stephen Gengaro: Great, thank you, gentlemen.

Operator: Thank you. And the next question is a follow-up from Derek Podhaizer from Barclays. Please go ahead.

Derek Podhaizer: I am going to stick on that industrialization approach. You mentioned in your opening comment, Sam, about that type of approach to generate increased cash flow. Can you give us some examples of what you are talking about exactly? What new strategies are you looking at to unlock increased cash flow to the business?

Sam Sledge: Sure. First thing that comes to mind is just I think how we have operated traditionally is more through typically growth company for the past say decade, which I think you will find is very common place for an oilfield services company like ProPetro. Over the last couple of cycles, it’s experienced a significant amount of growth. So, to that growth, we’ve created scale. But, we are yet to really operate at scale for a significant period of time. And I think that’s what we are working on doing today. Not just operating as a means to grow and create value by adding the additional, the marginal set of equipment team. But to create value through how we operate. So, being more intentional about standard operating procedures around the more high dollar components and capital intensive components, and spreading kind of that operating culture across our business.

Those operating cultures might have been kind of fragmented in the past. So, when I say large components, it’s not guys like you Derek, you know that things like engines, transmissions, power, fluids, right, the main modular components of our asset base today. So, it’s creating consistent first-in-class practices around pieces of equipment where we can make our maintenance spend lower and more predictable over time. That’s what our team is working really hard on right now. Look, that’s — it’s easy for me to sit here and say that and describe those things. It’s really hard to do and execute on. And that’s why we are so intentionally trying to approach that in — with a bit of different mindset than we have in the past. That should all accrete to the bottom line over time.

Derek Podhaizer: Got it. I appreciate the comments there. I wanted to touch on shareholder returns. You’ve obviously made significant process in recapitalizing the fleet. You have your CapEx coming down year-over-year. You talked about positive free cash flow generation for the full-year more back-half weighted. You don’t really have any leverage at all. You peers are announcing free cash flow program. Shareholder trends program as a percentage of free cash flow split between buybacks and dividend. Just wanted to get an update on your thinking of shareholder returns, when we may see a program initiated here? What you are looking for? Just a more color on this will be helpful.

Sam Sledge: Yes, great question. And just to kind of set the table on that topic the goal here at ProPetro is to build a very competitive firm that can distribute value. That is the goal. If you look at how we have allocated capital over the past 18 months, it’s been a major equipment transition story for us. And, that has taken priority over everything. And we believe that that was the right thing to do to protect the long-term competitiveness for our company and to our team in situations to succeed. We are winding down somewhat that transition story. And we are using things like a leasing program with our e-fleet offering to try and lighten the capital load so that we can do two things. We can look at tools that can help us distribute that value through things like dividends and buybacks, and if we can also create a playing field where we can be opportunistic on the M&A front like we did with Silvertip.

So, I would say that our capital allocation focus is beginning to pivot somewhat away from the equipment transition story and towards the shareholder returns and strategic transactions territory.

Derek Podhaizer: All right. Then, one more from me, just say hypothetically you see potentials in the ways of the e-fleet to deployment. Maybe some of the first two gets pushed in the fourth quarter. The next two get pushed into 2024. What would you expect would cause that? Would that be supply chain components being delayed like we have heard from some of your peers? Or potentially the power generation side? Obviously, a lot of e-fleets are coming in grid turbine, natural gas resets. There is not that many third power party solutions out there. Just would like you hear your thoughts around if we were to see some of those delivery slip, would it be more on the supply chain component side? Or, would it just be lighting up the right power solution and go out with that e-fleet?

Sam Sledge: Yes, I don’t know if I want to speculate on that, Derek. We feel pretty good about our value chain partners that help us execute on this. I’ll just make one brief comment. E-fleet power is tight today and will remain tight as there are definitely some long lead items, not sure there’s so much more than that.

Derek Podhaizer: Got it. Fair enough. Thanks.

David Schorlemer: And just to add to that we did announce our most recent electric contract for the fleet starting in Q3. And we have secured power for that. So, we are set for our first deployment.

Derek Podhaizer: Great. That’s helpful. Thanks, guys.

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

Sam Sledge: Sure, thanks, and thanks everybody for joining us for today’s call. We are really excited here at ProPetro about the prospects of 2023 and the future in general. We like where we sit, and we are going to be excited to come back and continue to report on the company’s success. Thanks again for joining us, and we will talk to you soon.

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