Greetings and welcome to the ProFrac Holding Corp's 2022 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Rick Black with Investor Relations. Thank you, Rick, you may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for ProFrac Holding Corp's conference call and webcast to review third quarter 2022 results. With me today are Matt Wilks, Executive Chairman; Ladd Wilks, Chief Executive Officer; Lance Turner, Chief Financial Officer; and Coy Randle, Chief Operating Officer. Following my remarks, management will provide high-level commentary on the financial highlights of the third quarter and outlook. Before opening the call up to your questions, there will be a replay of today's call available by webcast on the company's website at pfholdingscorp.com, as well as the telephonic recording available until November 17, 2022. More information on how to access these replay features is included in the company's earnings release. Please note that information reported on this call speaks only as of today, November 11, 2022, and therefore you're advised that any time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also comments on this call may contain forward-looking statements within the meaning of the United States Federal Securities laws, including management's expectations of future financial and business performance. These forward-looking statements reflect the current views of ProFrac's management and are not guarantees of performance. Various risks and uncertainties and contingencies could also cause actual results, performance, or achievements to differ materially from those expressed in management's forward-looking statements. The listener or reader is encouraged to read ProFrac's Form 10-Q and other filings with the Securities and Exchange Commission which can be found at sec.gov or on the company's Investor Relations website section under the SEC filings tab to understand those risks and uncertainties and contingencies. The comments today also include certain non-GAAP financial measures, as well as other adjusted figures to exclude the contribution of Flotek. Additional details and reconciliations to the most directly comparable consolidated and GAAP financial measures are included in the quarterly earnings press release that was issued yesterday, which can also be found on the company's website. And now I would like to turn the call over to ProFrac's Chief Executive Officer, Mr. Ladd Wilks. Ladd?

Thank you, Rick. To begin, I'd like to say how excited I am having completed our acquisition of U.S. Well Services. I wanted to welcome their team to the ProFrac Family. We believe electric tracking represents the future of the industry and we are excited to leverage our scale and capabilities along with the Clean Fleet technology as the largest provider of electric fracturing services in the world. And by changing our ticker symbol to ACDC after closing the U.S. Well Services acquisition, we wanted to communicate to investors that not only are we the market leader in e-fleets, but we also have a strong commitment to an ESG strategy of reducing fuel costs and minimizing emissions. In addition, we just think the ticker is really cool. So as of today, after factoring in the acquired fleets, we have 39 fleets active and 8 of which are electric. Included in this fleet count is the deployment of ProFrac's first internally manufactured electric fleet. We're pleased to report that this fleet performed extremely well in its initial customer field tests and was fully deployed this month. We continue to be impressed by the technical performance of these electric fleets. They have demonstrated the ability to pump at a high rate, high pressure consistently and reliably with very little fluctuation. Just as important, the economics are unmatched given the e-fleets 100% use the cheaper and cleaner burning natural gas. We look forward to this first fleet generating significant revenue and profitability in the back half of the fourth quarter. Going forward and after U.S. Well Services fleets are brought closer to market rates, we expect to generate higher profitability on e-fleets due to their lower maintenance needs, smaller footprint, and the tremendous value proposition to our customer. In the meantime, we are…

Thank you, Ladd. We're pleased to announce the improved results and the progress we made during the third quarter. On a consolidated basis, revenue for the third quarter totaled $696 million, up nearly 20% compared to the second quarter. Fleet count remained constant at 31 fleets for the quarter. The increased revenue was driven by higher average pricing, higher material sales, and increased efficiencies of our fleets. We really saw improvements in every area during the quarter. Net income was $143 million for the quarter compared to $70 million in the second quarter. Earnings per Class A share was $1.09. Adjusted EBITDA was $256 million or $267 million when excluding the EBITDA loss attributable to our other business activities or Flotek. This resulted in $34.5 million of adjusted EBITDA per fleet on an annualized basis excluding Flotek, which represents a 23% improvement from the prior quarter. Selling, general, and administrative costs totaled $70 million and included approximately $12.9 million in stock-based compensation, $9.7 million related to Flotek, and $5.8 million in transaction-related expenses. When excluding these items, SG&A was relatively flat from the prior quarter. The increase in Flotek was primarily due to the third quarter having a full quarter of activity compared to the second quarter that only had a partial quarter of Flotek results. Turning to our business segments, stimulation services segment generated revenues of $669 million in the third quarter, up 16% from the second quarter. Adjusted EBITDA for stimulation services was $250 million compared to $196 million in the prior quarter. As mentioned, the increase from the prior quarter was driven by increased pricing, a greater amount of materials provided during the quarter, and increased utilization of our equipment. The manufacturing segment generated revenues of $49 million in the third quarter, up 40% from the second…

Thank you, Lance. I'm extremely pleased with our company's commitment and hard work that continues to generate improved operational efficiencies and financial growth as we continue to scale the business. I believe our employees are the best in the industry and are the key to our success. Our view of the macro environment in oil field services remained bullish and we believe we are extremely well positioned for the current U.S. frac market, where supply of pressure pumping horsepower is limited and incremental horsepower is bottlenecked. Our two-pronged growth strategy is acquire retire and replace on the equipment side and enhance scale through vertical integration on the operation side. This is gathering significant momentum, demonstrating its potential to generate strong and lasting returns for all of our stakeholders. The dynamics in the marketplace that we have been speaking about since our IPO have not changed. Many competitors are completely sold out, most have legacy footprints and need of upgrade and the supply chain for maintaining and upgrading existing fleets remains extremely strained with a limited ability to build new capacity. On top of that, capital is even more expensive than it was just six months ago. Taken together, these dynamics bolster our confidence that there is a great deal of link left in this cycle and margin expansion will continue throughout. We continue to believe this is the best backdrop that we've seen since we started in the shell industry and we see this lasting for quite some time. In just the past six months, we have grown the scale and scope of our business tremendously by acquiring FTSI, acquiring the Monahans West Texas sand operations last quarter, and now the acquisition of U.S. Well services. I would like to reiterate how excited I am for the U.S. Well acquisition,…

Hi, Matt, wait a second, with today being Veterans Day, I would just like to express my gratitude to all the men and women that have served this country. We will get the opportunity to work with so many veterans here at ProFrac and they have shaped the industry and they shape ProFrac, and I just wanted to say a special thank you to every one of them, thank you for your service. Thank you. Yes, go ahead operator.

Thanks for saying that Ladd.

[Operator Instructions] Our first question comes from the line of Stephen Gengaro with Stifel. Please proceed with your questions.

Thank you and good morning, everybody. So two things for me, the first is around the U.S. Well Service assets, we were a few people who are still covering the stock near the end of its life as a separate company and clearly the contract terms seemed under market, but also they suffered I think from a lot of under-absorption because overhead sort of stayed in place for the e-fleets for delivery, can you give us a sense for the drag and then obviously we've built some seasonality into your existing assets, but I know it's - I think it's seven active fleets, but are we talking about assets which are making $20 million of EBITDA per fleet or less than that ProFrac and how should we think about the timing of those rolling?

Yes, I think the best way to answer that is looking at the individual KPIs, where we would expect to see somewhere from 10% to 15% per fleet dilution across our entire fleet. However, when you look at the legacy ProFrac and what we have with our new e-fleet that's been deployed in Q4, the exit rate in Q3 was phenomenal and we expect to see that carry on as well as the addition of additional bundled fleets. So I think that Q4 is going to be a phenomenal quarter for us over Q3. However, we need to highlight that as we integrate U.S. Well you will see a slight dilution on our per-fleet metrics. However, when we look at these acquisitions, we pride ourselves in our ability to integrate quickly and we're very excited about the opportunity to work with our new customers.

If you were syncing in 12 months before in 3Q 2023 at all of the fleets working, plus the new ones, would you be surprised if the EBITDA per fleet was below what you just reported?

Can you ask that again?

Your EBITDA per fleet this quarter, if you fold in these fleets and you have the new assets in place and you're sitting here 12 months from now and it's 3Q 2023 results, would you be surprised if your EBITDA per fleet wasn't equal to what you just did?

I would not be surprised.

Okay, right. Just one final one, I mean you guys have been acquisitive...

Just to clarify that that's kind of a loaded question, I would not be surprised if it's equal to or greater.

Okay. I would, but I was just hoping you clear that. Your acquisition strategy is obviously proven to be very positive so far, can you talk about the kinds of things you're looking at, the fleets or the other things out there that you think could be value-enhancing to the ProFrac franchise?

So we're incredibly critical and we watch everything in the market, we try to stay up with what's going on, but we won't do a transaction that we don't see as highly accretive and that doesn't fit just right into our overall business. When we look at the vertical integration that we have in place, whether we're looking at pressure pumping equipment or supply chain assets, it needs to be something that fits right in like a puzzle piece and allows us to execute on immediate commercial synergies, whether that's through better operational performance or from bringing a higher contribution margin across the bundling of these fleets.

Okay, thank you. Thank you for the details.

Thank you.

Thank you. Our next question comes from the line of Dan Kutz with Morgan Stanley. Please proceed with your questions.

Hi, thanks, good morning, everyone. So just wanted to ask on shareholder returns, what do you guys latest thinking is, your latest strategy is there, I appreciate that there is that it seems like a dividend is probably what you guys have messaged has been the most attractive but there is some more float out there with U.S. Well Services acquisition, so just wondering If buybacks would be contemplated at any point, but just wondering if we could hear your latest thoughts on your shareholder return strategy?

Certainly, so we don't expect to see any buybacks just because we want to make sure that we have a very high quality float that provides the liquidity that our shareholders look for. As far as shareholder returns, of course, this is a controlled company and so what we hope is that everybody appreciates and recognizes just how it aligns the interests and being able to return capital to stakeholders quicker or sooner than later. At this time, can't guidance on that, only that we continued to perform exceptionally well, generating exceptional results and we expect that to continue in a way that would allow us to provide better guidance in a much more material way. And along those lines, look, everything we do is about rightsizing the business, scaling the vertical integration so that we can increase the total returns on a per-asset basis. And so with that respect, this is all about expanding the business so that we can deliver distributable cash flow and then return it to our stakeholders. This is a very high commitment that we have with this organization and we look forward to providing further guidance in the near future.

Great, that all makes a lot of sense. And then I just wanted to ask on - appreciate putting out the slide kind of outlining the economics, especially with respect to, fuel costs, between the diesel fleet and four dual fuel fleets and an electric fleet, I just wanted to ask or get you guys thoughts on the extent to which you're actually seeing the disparity that you're highlighting kind of materialize out in the market, is - to me, can we kind of take that illustrative example and kind of apply to what the earnings power of those different Tiers of fleets actually is or is that something that you think kind of - there's still needs to be a transition process before that's kind of fully realized in the market, just wondering if you could kind of expand on that illustration a little bit more?

Certainly, it's really all of those and I'm not going to provide any specific detail on one fleet to the next, only that the total savings and the arbitrage between diesel and natural gas has only increased, it continues to increase, and the way that factors in commercially as well as with the decisions that our customers make on how they plan their budgets is increasingly a part of that calculus, it's increasingly a part of the decision that they have to make and how they treat their vendors when they're making these decisions. So we highlight that specifically so that we can show just how material this transition is. We can provide guidance on how long that transition will take, but we believe that it is certainly an element that should be factored in associated with this upgrade cycle and how you think about the availability of horsepower on a go-forward basis. This is an upgrade cycle and certainly not a new build cycle. The displacement that you see from fuel-efficient NextGen fleets is real and it's highlighted by the excessive cost of diesel relative to the natural gas that is being replaced with.

Great, that's all really helpful. Thanks a lot, guys, I'll turn it back.

Thank you.

Thank you. Our next questions comes from the line of Don Crist with Johnson Rice. Please proceed with your questions.

Good morning, gentlemen, and thank you for the lively whole music, it's very appropriate with your change in ticker. I wanted to talk about maintenance and maintenance overall but in specifics, the $30 million that you're spending to streamline operations and get your fleets back out quicker, can you contrast that to what the rest of the kind of pressure pumping industry does, i.e., if they're going [indiscernible] and cat or something like that, can you talk about the difference in time between them repaired and their fleets in yours and just how you differentiate it there?

Certainly, certainly, I'm glad you asked, so when you look at having third parties come in and rebuild your engines or rebuild your transmissions, you're looking at a very long lead time, where you could see that that equipment gone for anywhere from eight weeks or more before you see it again and before you're able to pump again, and with our in-house resources, we were able to get that down to around three to four-week timeframe, but with this new growth initiative that we put in place, we're able to keep swing units in the district on engines, transmissions, and power ends, so that we can turn those pumps back to service within a 72 hour timeframe. So when we look at this, it's basically the equivalent of reducing pit crews - pit stop from 2 minutes and 40 seconds to 10 seconds. It's just - it is incredible, but the best part is, our maintenance CapEx on a per unit basis is relatively unchanged. It's relatively consistent and so when you look at how that race car goes around the track, those tires wear out at the same pace - at the same rate on the miles driven, and the fuel consumption, it consumes the same amount of fuel going around that track and so the wear and tear with this program that we put in place keeps everything relatively consistent, however, this is a true improvement on our pit crew that reduces the downtime if any of that equipment and a product of that is a significant reduction in the amount of horsepower that is tied up in that static state, waiting to be repaired and put back into service.

It's very impressive. And on the sand mines, West Munger seems to be a little bit delayed versus prior expectations, but it seems like it's going to come on later this month, can you just talk about the ramp-up there and any guidance around sand volumes as we go into the fourth quarter, obviously, I believe that will ramp up a little bit, but it's little hard for us to model what contribution sand they have in the overall going forward?

Typically with a new mine, you'll have a ramp-up period that can range anywhere from two to four months. Obviously, our expectation and our goal is to certainly beat that and beat the better bookend that I just provided, but for modeling purposes, I think it's safe to use the two to four months, and then - hi, I got to give us something that we can beat so that we look good every quarter.

Yes, Don, I would also add that we're running - we just started running wet sand out there now, so we should be starting up very soon. Our plan is to be shipping sand by the 20th of this month.

Okay, that's good to hear. And just one more quick one maybe for Lance, as you roll in U.S. Well Services, any guidance around SG&A, I'm sure that it's going to go up some, but is that going to be like a couple of million dollars a quarter or is it a little bit more than that?

It will be a little bit more than that, I think they were running about $20 million per year, and I think that it will take us a little bit of time to kind of realize the synergies that we laid out when we announced the transaction, but we feel good about realizing those over the next, call it six months.

Okay. So probably just under $5 million or so. Okay, I appreciate it. I'll turn it back.

Thank you. Our next question comes from the line of Saurabh Pant with Bank of America. Please proceed with your questions.

Hi, good morning, Matt, Ladd, and Lance. I wanted to start on I think a comment you made in your prepared remarks that the 2023 book of work the strongest in 14 years, which is obviously very impressive, can you talk to that a little bit what kind of visibility do you have, what are you seeing across public and private E&Ps and maybe the majors, can you just speak to that a little bit?

Certainly, so when we look at the environment, the strength of the commodities and the outlook for each of our customers we see our backlog filling up in the strongest way that we have in any previous year for 2023. We think that this carries over into a very strong year-over-year increase of activity; however, when we look at our peer class and the current state of the oilfield services market with the challenging supply chain, what we're looking at is a fully sold-out market with a difficult outlook in the industry's ability to respond to that higher spinning level and higher activity levels that the customers are demanding. So this positions us incredibly well with our vertical integration, our superior supply chain management, and the next-gen fleets that we have that allows us to get higher utilization at a lower total cost to the customer, while also providing industry-leading service and utilization.

Okay, okay perfect. And then maybe, I don't know if you're in a position to speak to 2023 CapEx right now, but if you can give us some directional guidance or walk us through the moving pieces that would be helpful?

Yes, we're still going through the process, specifically you kind of absorbing U.S. Well and getting that set for next year, but I wouldn't expect it to be all different from this year. We'll have more maintenance because of the higher fleets. I think we're looking at around, call it $3 million per fleet per year, $3 million, $3.5 million, but then the growth initiatives we're outlining now and so we'll have - we'll have bottoms up build as we look forward, but I wouldn't expect it to be that different.

Okay, okay, so broad strokes you're thinking $330 million to $350 million.

Probably a broader range somewhere, $275 million to $330 million range.

Okay, I get it. And just one last one quickly for me. I think you said in your prepared remarks you're going from upgrading five to 10 engines per month to now 10 to 20 engines per month, obviously, it looks like that's backed by demand from your customers, but how should we read into that from a supply chain perspective, is supply chain easing such that you are able to get more engines per month, just for the broader read-through on the market - on the supply chain front?

Yes, so it's difficult to say what this does to the overall market. We've got incredible relationships with our vendors, with the OEMs, and so when it comes to our scale, I think that it gives us a unique relationship and contact with those vendors and so. We've been working with them. We've had programs in place and really even through the COVID years, we were switching to Tier 4 and maintained that relationship with these vendors, and I think that encouraged through really well in times like these when we're putting orders to expand or accelerate or upgrade programs.

Okay, I get that. Okay, guys, thank you. I'll turn it back.

Thanks, Saurabh.

Thank you. I would now like to turn the floor back over to management for any closing comments.

Q3 was incredible and - but it's behind us, and we're right in the middle of Q4 and we're very excited about what we're seeing, how our crews are working, the utilization of our equipment, and the quality of our customers. We're very excited to be where we are and to continue improving and pushing the industry forward. And we especially look forward to 2023 and what we can deliver on distributable cash flow for our stakeholders. And unless anyone else has anything to say, I'd just like say, thank you to all the veterans, and have a good day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great weekend.