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

Thank you and good morning. We appreciate your participation in today's call. With me today is Chief Executive Officer, Sam Sledge; Chief Financial Officer, David Schorlemer; and President and Chief Operating Officer, Adam Munoz. Yesterday afternoon we released our earnings announcement for the fourth quarter of 2021. Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC. Also during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will hold a question-and-answer session. With that, I would like to turn the call over to Sam.

Thanks Josh and good morning everyone. Firstly, I'd like to congratulate the entire ProPetro team on successfully navigating the challenges of 2021. Beginning in late 2020 and throughout the entirety of 2021, our team dedicated themselves to helping our business recover while at the same time maintaining or even improving our level of operational and safety execution. I'm proud of our team's resilience and I'm excited to see more great things come from the ProPetro team in 2022 and beyond. Moving to the fourth quarter, we were pleased with our operating performance and fleet repositioning, which reflects our intent to set the conditions for and pivot to the optimal path for profitability and value creation in 2022. As we prepared our fleets for this new year, our activity levels decreased slightly in the fourth quarter resulting in a 2% decrease in revenue and a 12% decrease in adjusted EBITDA. Despite the operational inefficiency created in repositioning assets along with normal seasonality, our team executed well and continued to differentiate our wellsite performance from our peers. Again, I want to thank our team for all the hard work that went into preparing the company for the year to come. As demand for oil and gas continues to increase across the world and certain countries fall behind their respective oil production quotas, the call on short cycle crude from the US is growing louder with WTI pricing above $90 per barrel. While we foresee many US producers taking a capital-disciplined approach to activity additions, others are seeing new areas of leasehold become economically viable for the first time in years. Incremental services demand from these non-core areas of the North American oil and gas basins is expected to cause further tightening in the US pressure pumping market during 2022. We also anticipate rig productivity from these non-core areas to be lower requiring incremental drilling and completions activity for the US to meet the call on short-cycle barrels. Higher aggregate drilling activity will cause all tides to rise in oilfield services, particularly in pressure pumping, where utilization began the year at extremely elevated levels. As a result, we believe higher demand for pressure pumping, continued equipment attrition, and the risk of supply chain issues on equipment deliveries sets up an environment where the North American pressure pumping market could be effectively 100% utilized during the third quarter of this year. Our recent focus has been to prepare for the supply/demand imbalance in pressure pumping that we anticipate later this year. As I already mentioned, we repositioned a portion of our assets to more profitable work during the fourth quarter. While this caused lower utilization in the interim, we believe the opportunity costs experienced in the fourth quarter will improve our financial and operational performance in the first quarter of 2022 and beyond. During the quarter, our team also took the opportunity to conduct certain preparatory maintenance repairs on our equipment. We felt that the fourth quarter was a more appropriate time to conduct this time-intensive work given our forward view of pressure pumping and pressure pumping pricing. That said, the reliability of our equipment in 2022 will be to the benefit of our customers and our shareholders. Lastly, we continue to make strategic investments and stock certain supplies and equipment that we believe will be at risk of deliverability in future months. This includes the continued deliveries of additional Tier IV DGB dual-fuel units which I'll speak to more later during this call.

Thanks, Sam and good morning, everyone. During the fourth quarter, we generated $246 million of revenue, a 2% decrease from the $250 million of revenue generated in the third quarter. Effective utilization was 12.5 fleets which decreased 9.4% from 13.8 fleets during the prior quarter. The lower revenue was a function of lower fleet activity and seasonality. Notably, the drop in activity was partially offset by some limited higher pricing. Our guidance for the first quarter average effective fleet utilization is 12 to 13 fleets with visibility to some downtime due to winter storms in February, sand supply, logistical constraints, and continuing repositioning of fleets included in that range. In January, our effective fleet utilization was 13.4 fleets. Cost of services, excluding depreciation and amortization for the fourth quarter was $187 million versus $189 million in the third quarter with the decrease driven by lower activity levels. The fourth-quarter G&A expense was $24 million compared to $21 million in the third quarter. G&A exclusive of $2.3 million relating to non-recurring and non-cash items was $22 million consistent with the third quarter of 2021. We expect first quarter G&A exclusive of non-recurring and non-cash charges to decrease to approximately $18 million to $19 million. Depreciation was $33 million in the fourth quarter consistent with the third quarter. Our net loss for the fourth quarter was $20 million compared to a third quarter net loss of $5 million. The fourth quarter was a transitional quarter for our team and we believe ProPetro's ability to execute on its financial goals this year will partially be a function of how the stage was set at the end of 2021. To add to the preparatory work Sam mentioned, our team continued to dedicate efforts on managing costs and supply chain inflationary pressures, which we anticipate continuing this year. We believe our emphasis on proactively managing these items will play a significant role in margin expansion in 2022. Finally, adjusted EBITDA of $37 million for the fourth quarter decreased 12% sequentially compared to $42 million for the third quarter. The sequential decrease was primarily attributable to seasonality and a conscious effort to reposition assets to more profitable work. Although these factors are expected to diminish in 2022, the first quarter will be negatively impacted by sand availability and logistics issues in the Permian Basin. However, we expect significant margin expansion sequentially, with our net price increases effective in January and others achieved during this quarter. Our challenge going forward is to achieve economics supportive of reasonable full-cycle cash-on-cash returns for all our working fleets. So margin expansion is a priority over marketing additional horsepower. We call it the pursuit of margin over market share, which is our most capital-efficient way to improve profitability. We've made substantial progress in this area over the last two months and look forward to making additional improvements throughout the year. For the fourth quarter, we incurred $49 million of capital expenditures, which included approximately $15 million of accelerated 2022 CapEx largely in connection with the previously announced Tier IV DGB conversions. Actual cash used in investing activities was $19 million, as shown on the statement of cash flows, which is derived from capital expenditures of $56 million less proceeds of $37 million largely related to the sale of our underutilized turbine generators in the fourth quarter. This opportunistic disposition resulted in cash proceeds received in December of $36 million. The capital expenditure figure differs from our incurred CapEx, due to differences in timing of receipts and disbursements. Free cash flow for the fourth quarter was $26 million. While we remain debt-free, we increased our cash position and liquidity by $27 million and $16 million respectively during the quarter, with cash of $112 million and total liquidity of $169 million. Total availability on our asset-based revolving credit facility decreased to $57 million due to the seasonality of our revenues, but has since increased to $75 million at the end of January. Our outlook for full year 2022 CapEx spending is a range between $250 million and $300 million, with the spend weighted in the first half of the year as we take delivery of our previously announced Tier 4 DGB conversions. The wider range is largely a function of the variance in expected and potential activity levels, and potential CapEx spend related to 2023 customer demand and activity for our ESG-friendly offerings. While we expect liquidity will decrease in the near term, we believe the strength of our debt-free balance sheet, strong cash position, availability on our ABL credit facility, and the strong generation of cash from operations will be adequate to support our investment cadence through the remainder of the year. Within this guidance range, routine annualized maintenance CapEx per fleet is expected to be approximately $9 million, which reflects expanded increases in our simul-frac service offering, where we provide significantly more equipment on location, and where we currently anticipate supply chain and inflationary pressures on materials and services. In addition, the full year guidance range includes approximately $100 million of fleet refurbishments and upgrades, including $50 million related to our previously announced Tier 4 DGB conversions, to be delivered in the first half of this year and the remainder to other opportunities. As we make decisions in this opportunity-rich environment, we reiterate a commitment to maintaining a solid financial position that provides maximum financial and operating flexibility. With that said, our ability to maintain a healthy balance sheet and capitalize on potential opportunities will largely be a function of the success of our priority of margin over market share. In January, with our more comprehensive net pricing increases across our fleets, preliminary adjusted EBITDA margin was approximately 25% with total monthly adjusted EBITDA landing at just over $24 million. This is a significant improvement and a direct example of our recent progress. However, we caution that January's results are not likely to be indicative of the full quarter, as sand supply constraints and winter weather in February have created downtime that has disrupted our operations.

Thanks, David. We're excited to see where margins are landing early in the year, and as a result, it's nice to be in a position where we can take advantage of an opportunity-rich environment in 2022. On that note, I do want to take a moment to provide an update on our ESG-related service offerings, and how we are viewing it going forward. To date, all of our previously announced Tier 4 DGB dual fuel investments are sold out and are expected to be put into service, with dedicated customers, as they are delivered throughout the first half of 2022. We continue to see demand for lower emissions natural gas burning equipment, particularly when that offering is coupled with an efficient operation like ProPetro. We believe our operations like simul-frac, coupled with our ESG-friendly services are delivering the solutions that the most efficient operators are needing. Our dual gas offering is most important to aid in supporting our customers' emissions goals, but it's equally a financial benefit to ProPetro as these units and the pricing associated with them allow our company to effectively scale without placing additional net supply of horsepower on the pressure pumping market. Moreover, conversions provide scale in a way that is asset and margin accretive to ProPetro. When considering all investment options, whether organic or inorganic, we believe asset and margin accretion is the most risk-mitigated strategy toward improving our bottom line. We do not believe that scale for the sake of scale is pragmatic in this business. But as long as demand warrants and a healthy balance sheet allows, we will continue to transition our fleet to more natural gas burning and lower emissions equipment with premium pricing and strong economic returns. As we turn the page to 2022, focus for ProPetro is the generation of economic supportive of a reasonable full-cycle cash-on-cash returns for all working fleets, as David mentioned earlier. Even though we have additional assets to put to work, we see very little upside in marketing more capacity prior to achieving proper economics on all active fleets. As a result, our team is improving the respective return profiles of our currently operating fleets prior to adding working capacity to the market. This requires discipline in force-ranking projects every day along with the balance of continued willingness to collaborate with E&Ps that value consistent and high-quality services. As mentioned during our previous call, disruptions related to supply chain issues and labor shortages in the Permian Basin should be anticipated in 2022. And even with the year just beginning, ProPetro has experienced negative impacts related to sand and sand logistics. While these disruptions appear to be transitory in nature, we expect no shortage of challenges like this in 2022. The team remains prepared and we'll continue to provide efficient services and industry-leading performance that our customers expect from ProPetro. Lastly, as you all know, safety is paramount at ProPetro. Adam, David, and I want to congratulate our customers and our teammates on outstanding safety performance in 2021 and year-to-date in 2022. No words can describe how proud I am of our team for executing at the highest level of operational and safety performance during this transitional period. From all of us in the room today, congratulations and keep up the great work. With that, I'd like to turn the call back over to the operator for Q&A.

And the first question will come from Stephen Gengaro with Stifel. Please go ahead.

Thanks. Good morning gentleman.

Good morning, Stephen.

I wanted to start by discussing the sand issues you mentioned. Can you explain what you are doing to deliver sand for customers, perhaps in terms of fleet percentage? Additionally, is there an opportunity for profit in managing delivered sand considering the recent changes in spot prices?

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

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

Thank you. Regarding your second question, you mentioned repositioning assets in the call and the press release. I'm curious if this relates to customers with more visibility and less white space, or if it's a pricing strategy, or perhaps a way to align more strategically with the customer. Can you clarify what you mean by that and its connection to pricing and profitability?

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

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

Great. Thank you, gentleman.

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

Good morning. Thank you all for taking my questions. For Q1, you mentioned in January that the monthly run rate from an adjusted EBITDA perspective was just above $24 million, if I heard correctly. There are some challenges you are facing in February and likely next month regarding sand and other temporary issues. I was hoping you could provide insight into EBITDA margins for the rest of 2022. You indicated 25% margins for January, which is nearly 1,000 basis points higher than Q4 of 2021. Should we interpret this to mean that at some point in Q2, Q3, or Q4, you expect to achieve 25% EBITDA margins on a consolidated basis for the company in 2022?

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

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

Yes, Taylor, this is Sam. I believe that opportunity exists for us this year. There are a few factors that need to align before we can speak more definitively about it. However, based on what we're observing in January regarding profitability, which stems from the efforts we made at the end of last year and the ongoing initiatives related to pricing and repositioning, that opportunity is indeed tangible.

Awesome. Thanks, Sam and David.

You bet.

The next question is from Evan Mapes with ATB Capital Markets. Please go ahead.

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

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

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

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

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

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

Thank you. I have two additional questions, if that's alright. First, you mentioned in the press release and highlighted on the call the intention to focus on capturing value rather than market share. Can you provide some insight into how the competitive landscape is behaving? Are you observing a price discipline approach from most of your larger competitors? I'm curious about your observations regarding competition given the tight market conditions.

Yes Stephen, I'll take a shot at that one. This is Sam again. At this point in the cycle, with utilization and pricing trending up, it's a bit challenging to find consistent data points due to the significant market fluctuations. We frequently discuss the repositioning of our fleets, and our competitors are also addressing this. There's going to be some additional activity throughout the year, creating a lot of noise. However, I believe there is more pricing discipline in the system than we have seen in a long time. Everyone in the pressure pumping sector is realizing the amount of equipment we have and how efficiently we are using it, along with what the return profile needs to be to align with that operational model. Although there can be differences in how pressure pumpers operate in an ultra-efficient simul-frac environment on multi-well pads, that is the landscape we are navigating. We sense that there is good discipline in that area. That being said, we are much more focused on the economics that ProPetro can generate, rather than what is happening around us, and we aim to partner with E&Ps that prioritize consistent operations.

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

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

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

Great, thank you for the color.

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

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

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

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

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

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

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

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

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

Sounds good. Thank you.

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

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

Sure, Arun. That's a good question. Currently, we're about halfway through the delivery of our previously announced Tier IV DGB plans. As we mentioned in our script, we aim to complete the entire investment program by midyear this year. This will amount to just over four operating fleets of dual-fuel equipment. Moving forward, we are analyzing how much more needs to be done and at what pace. While we haven't made any specific decisions about significantly continuing the program at this time, we can share that asset pricing and demand have changed, and the financials are favorable right now. We are actively engaging with certain customers to finalize decisions and explore opportunities in the near term.

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

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

We are not going to discuss profitability across our customers. However, we can observe that demand is definitely increasing from private operators as their financial situations improve and they consolidate. We also see steady demand from public companies and major players, and at this point, it appears to be coming from nearly every segment, including majors, large independents, public companies, and private operators.

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

Great, thanks a lot.

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

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

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