Ladies and gentlemen, greetings and welcome to the ProFrac Holding Corp. Third Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Michael Messina, Director of Finance. Please go ahead.

Thank you, operator. Good morning, everyone. We appreciate you joining us for ProFrac Holding Corp's conference call and webcast to review our third quarter 2024 results. With me today are Matt Wilks, Executive Chairman; Ladd Wilks, Chief Executive Officer; and Austin Harbour, Chief Financial Officer. Following my remarks, management will provide high level commentary on the operational and financial highlights of the third quarter, before opening the call up to your questions. A replay of today's call will be available by webcast on the company's website at pfholdingscorp.com, and a telephonic recording will be available until November 12, 2024. 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 05, 2024, and therefore you are 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 future performance. Various risks, uncertainties and contingencies could 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-K 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, 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, which can be found on the company's website. And now I would like to turn the call over to ProFrac's Executive Chairman, Mr. Matt Wilks.

Thank you, Michael, and good morning everyone. After my prepared remarks, Ladd will comment further on the performance of our subsidiaries and Austin will walk through our financial performance. In the third quarter, ProFrac delivered strong results with revenue of $575 million and adjusted EBITDA of $135 million. We continued our recent quarterly trend of setting new operating efficiency records and delivering leading performance for our customers amidst challenging market dynamics. As we have previously highlighted, ProFrac's leading position throughout the completions value chain enables us to deliver robust financial and operational performance through the cycle. Further, we continue to execute on our commercial strategy to partner with operators that value integrated, highly efficient solutions at scale. ProFrac's third quarter performance is underpinned by our record-setting efficiency per active fleet, a testament to the quality of our people and our commitment to safety, efficiency and leading customer service. In addition to consistent improvement in service quality at the wellhead, I'm also proud of the team's commitment to servicing, maintaining and upgrading fleets. The company's internal R&D, manufacturing and maintenance capabilities are an integral element of our strategy. Simply put, we are able to repair, service and redeploy fleets rapidly as the market ebbs and flows. Our internal research, design and development capabilities provide a comprehensive platform to drive commercial innovation. Of note, we are pleased to report that we have successfully tested our newest generation of electric pumps, which was internally designed and developed. ProFrac is also testing a novel software platform, providing unique insights into not only pumping performance, but also well performance during live completion operations. While this solution remains subject to further refinement, initial feedback from potential enhancements in operational and maintenance performance, are promising. We expect to have more details to share in the future. We…

Thank you, Matt. I'll begin with an overview of our performance in each segment, starting with pressure pumping. I'm proud to report that we continued our quarterly trend of delivering record efficiencies for our customers. Although, the market environment was characterized by decreased activity and budget exhaustion, ProFrac achieved a record for pumping hours per fleet for the third consecutive quarter. ProFrac's best-performing fleets exceeded 22hours per day. We continue to strive for excellence every day. Our performance is made possible through the operational improvements we've made internally and the emphasis we placed on our commercial strategy. Our asset management program has enabled us to not only turn around and rapidly redeploy fleets, but also positions us to respond as the market improves with well-maintained assets that are ready to pump. We're strategically investing in our fleets and purposely holding back assets in this market on a ready line so that we're able to fill incremental demand as we progress through 2025. Our asset management program has also enabled us to reduce costs via more streamlined repair, maintenance and make-ready procedures without sacrificing asset quality. Additionally, this program has also gained us deeper insight into the lifespan of our equipment. As Matt mentioned, we have recently conducted a preliminary review of our equipment and are proactively retiring approximately 400,000 horsepower of legacy diesel burning equipment. Asset quality dovetails with our commercial strategy. We continue to emphasize and partner with operators that value fulsome solutions versus ad hoc services. We are uniquely capable to tailor bespoke integrated completion solutions across the value chain that enable our customers to improve well economics and productivity at scale. With respect to activity, we were able to improve efficiencies, although operators began to slow drilling and completion activity through the quarter. Although our average active…

Thanks, Ladd. With respect to our third quarter results, revenues were slightly down sequentially to $575 million. We generated $135 million of adjusted EBITDA with an adjusted EBITDA margin of 23%. Third quarter adjusted EBITDA was essentially flat with Q2. Margins were negatively impacted by pricing pressures, albeit offset by operating cost reductions realized through the quarter. Free cash flow was $31 million in the third quarter, a decrease from the second quarter, largely driven by a more muted impact from asset sales. We continue to utilize cash to invest in our fleet, particularly next-generation technologies, bespoke sand mine improvements and debt service obligations. Turning to our segments. Stimulation Services revenues were up sequentially to $507 million in the third quarter. Average active fleet count increased slightly. However, pricing on equipment and materials partially offset some of those gains, resulting in a slight increase versus Q2. Adjusted EBITDA was $113 million for the third quarter, an improvement of approximately 5% versus Q2. Margins remained flat sequentially at 22%, which reflects cost management in response to pricing pressures and lower anticipated demand. This segment was impacted by approximately $6.7 million in shortfall expense related to our supply agreement with Flotek compared to $8.4 million in the prior quarter. Of note, we achieved mid-teens EBITDA per fleet and allocated capital both to maintain and to upgrade our fleet. Although, our stimulation services results reflect sequential improvement, we anticipate a softer fourth quarter driven by an outsized impact from budget exhaustion and lower activity levels due to operator efficiency gains. The Proppant Production segment generated $53 million of revenue in the third quarter, representing a 24% sequential decline. The decline in revenue was primarily attributable to lower demand in natural gas regions, coupled with a highly competitive market in West Texas, impacting both…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Saurabh Pant with Bank of America. Please go ahead.

Hi. Good morning, Matt and Ladd and Austin.

Good morning.

Good morning.

Matt and Ladd, maybe I'll start with a question on maybe if you can share a little more color on your 2025 outlook because it was interesting, you were calling for a recovery and especially on the oil side of things, I think you noted both West Texas and South Texas in your prepared remarks. Can you share a little more color, Matt, on this? What exactly are you seeing? What are your customers telling and what brings that confidence, especially on the oil side of things?

Definitely. We look at South Texas as well as West Texas, we see Q1 picking up from Q4 and Q3 levels and definitely a good start to the year, but on a year-over-year basis, it will be flat to slightly down.

Okay, okay. I got it. I got it. So part of it, it sounds like it's seasonal, right? The seasonal weakness late in the third quarter, fourth quarter reverses early next year; at least part of it is that?

That's right.

Okay. Perfect. And then one more on the interplay between pricing and cost management right now, because you've clearly done a good job in managing your cost, rightsizing your cost structure, and it sounded like you continue to do that, both on the stimulation and I think particularly on the proppant side. Can you talk to that dynamic, Matt, where pricing is going? It sounds like pricing continues to go down at least directionally, but you have -- it sounds like more levers on the cost side. If you can talk about pricing and cost, what's in your control at this point?

Certainly. Our vertical integration allows us much more control over our fixed costs, where utilization brings our cost structure down tremendously as we dilute it just through operating leverage. This is an advantage that we have in this market, in this industry and certainly comes in big help in environments like this. Pricing, it's very competitive out there. But when we go in and we look at what we can do from operating leverage and the overall footprint that we have, we certainly are seeing a benefit from it.

Yeah. And I would add, Saurabh, just the ability to control what we can control when we think about controllable costs and when we think about operating leverage and leveraging efficiencies throughout the value chain. I echo what Matt said, we're uniquely capable of doing that because of our integrated model and because of the positions that we have throughout the value chain. So that's what we're focused on in a market environment like we have today and with what we see in Q4 is let's control what we can control, be as efficient as possible. Not only does that help us in this market, but it also helps us on the operating leverage side as activity starts to come back next year.

Right, right. No, that all makes sense. And Austin, a quick one for you, if you don't mind. On the CapEx side of things for 2025, I know you're not giving a firm guidance right now, but how should we think about CapEx for 2025 between maintenance and some of the other upgrade and growth efforts that you might have for next year?

Yeah. I think really too early to tell right now, Saurabh. It's still early in the RFP season, and we don't really even have any preliminary guidance to provide on the CapEx front. We'll have certainly a lot more color and detail on our next call.

Okay. No, that's reasonable, Austin. Okay. Matt, Ladd, Austin thank you. I’ll turn it back.

Thank you. The next question comes from Stephen Gengaro with Stifel. Please go ahead.

Thanks. Good morning everybody.

Good morning.

Thanks. A couple for me. Can you talk about -- I mean, you talked about being strategic in your allocation of assets. And I think you mentioned a mid-teens EBITDA for the frac business in the quarter. That seems to indicate 28 or 29 fleets working in the third quarter. Just curious if you could give us a sense for that, and how are you currently balancing pricing versus fleet deployments?

Yes. We typically don't lean in and disclose exactly what our fleet count is, but that's not too materially off. But if we look at fleet deployments, look, whenever you've got something that's on the fence, you definitely want to see some -- a little bit better pricing to reactivate it. And so our focus is to keep what we have working, keeping customers close and benefit from that operating leverage. However, as we see the market pick up, we think that supply and demand is a little bit tighter than people realize just because of the attrition. When you have a market that drops from around 280, 290 fleets a little over a year ago to around the 200 to 210 range that it is now, everybody looks like heroes because you've consolidated the best equipment in the business and that stuff is still working. It's when you start adding fleets back that you start running into equipment issues because you've already consolidated the best assets in your business. This is also why we've gone in and taken a focused approach to our asset management and reorganized that part of the business to make sure that our next plus one fleet is the best fleet in the business because we want to make sure that the cyclical nature of this industry that we typically see from our peers isn't a characteristic that ProFrac has going forward.

Okay. Thank you. Your peers have all kind of suggested kind of a 10%-ish reduction in the fourth quarter. I think last year, you guys were -- it was a little softer for you. Should we think about that kind of a top line drop with sort of 30% decrementals as a starting point?

Yes, I think, look, as you think about Q4 versus Q3, I think we'll see relatively consistent seasonality with respect to both SEM services and from the Proppant business. I think on the decremental side, I'd say that's from a preliminary perspective kind of in the ballpark. I mean, as you know, we don't give formal guidance, but I think you're in the realm of possible outcomes there.

Thank you. That's helpful. And two other quick ones. One, on the Proppant side, do you think the activation and the impact of Dune Express will have any material impact on your business next year?

No, not at all. No, we think that this is a very competitive environment, and we probably have the most surprise or upside on that side of the business and look forward to increasing scale on that as well as benefiting from the operating leverage. The portion of the same businesses, the way they operate has a much higher fixed cost nature to them with very little variable expense. And so we're looking forward to growing our customer base and increasing our volumes. And it doesn't take much to take to make a significant impact to the consolidated results. And so we're pretty excited about what we're doing with Alpine and the opportunities that are provided there.

Thanks for the color. And if I could just slide in one more. You mentioned the power generation business, and that's obviously a hugely hot topic these days. Where -- can you give any more color kind of on where exactly you play there? Is it just going to be in the oil patch? Are you looking at other opportunities? And kind of what are the assets you're using to get in that business aggressively? A –Ladd Wilks: Certainly. When we look at our e-fleet business, we've got a built-in customer and believe we can derisk that business in ordinary course. But it obviously offers some opportunities to get into microgrid solutions for operators, for customers as well as potentially pursuing the wider market outside of oil and gas. But right now, we just focus on derisking that business and satisfying our own internal needs and look forward to opportunities way outside of that as they are presented.

Great. Thanks for the color gentlemen. A –Ladd Wilks: Thank you. A –Matt Wilks: Thanks.

Thank you. [Operator Instructions] The next question is from the line of Sean Mitchell with Daniel Energy Partners. Please go ahead. Q – Sean Mitchell: Hi, guys. Thanks for taking the question. It would seem as if Haynesville operators will resume completions and start working through some of their DUC sometime next year. How much of an uplift in activity would you expect to see in the Haynesville? And as a follow-up, maybe given your large sand operation in that basin, tell us how we should think about localized volumes and localized sand prices this time next year versus today? What do you -- kind of what are your thoughts around that? A –Ladd Wilks: Yes, it's difficult to say. I mean, I think so much plays on weather as well as construction schedules and timelines for LNG offtake. Certainly would love to see gas rebound and see healthier customers on that side that are a little bit more comfortable with increased activities. But we've settled in. We're defending our footprint in these markets and think that commitment will pay off in the long term and certainly believe that this is the catalyst that I think will bring the OFS market back. But look, we don't want to jump the gun and get too early build in too many expectations for what the gas market is going to do. But I think being patient and working with our customers, focusing on creating value for them. And we see a recovery in gas, we'll be really, really happy to see that. As for how many DUCs, it's hard to say. I'd hope that they would increase activity. But right now, we're settled in for as long as it takes to just hunker down and stick with these markets. A –Matt Wilks: Yes. I think the important thing, Sean, is that ProFrac is committed to being a balanced portfolio between liquids and natural gas. And we've made real investments there. And not only that, I mean, the company has a strong history and competitive advantages operating on HPHT wells going back for many years. And we're highly efficient in those markets. We're committed to those markets, and we're going to be there when the recovery comes. Q – Sean Mitchell: Got it. Thanks, guys. Happy election, folks.

Thank you. This concludes the question-and-answer session. I would now like to hand the conference over to Matt Wilks for closing comments.

We appreciate everybody joining our call today and look forward to delivering another good quarter and look forward to 2025. Thanks for joining this call and get out and go.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.