ProFrac Holding Corp.

Greetings and welcome to the ProFRAC Holding Corp 2023 year end and fourth 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Messina. Thank you, Mr. Messina. You may begin.

Thank you, operator. Good morning, everyone. We appreciate you joining us for ProFrac Holding Corp's conference call and webcast to review our fourth quarter and 2023 year-end results. With me today are Matt Wilkes, Executive Chairman, Ladd Wilkes, Chief Executive Officer, Lance Turner, Chief Financial Officer, and Matt Zinn, CEO of The Prop and Business. Following my remarks, management will provide high-level commentary on the financial highlights of the fourth quarter and full year 2023. as well as the business 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 a telephonic recording available until March 20, 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, March 13, 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 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 Flowtech. 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 Profract's Executive Chairman, Mr. Matt Wilkes.

Thanks, Michael, and good morning, everyone. After my prepared remarks, Ladd and Matt Zinn will take a deeper dive into the performance of our subsidiaries, and Lance will provide additional insight into our financial performance. While fourth quarter results were challenged, We continue to take strategic actions to better position ProFract for growth in 2024, and we are already seeing improved results in the first quarter. Despite the industry headwinds that persisted in the second half of 2023, we meaningfully grew free cash flow for the year to 293 million, an increase of 173% over 2022. This substantial cash flow generation demonstrates the earnings capabilities of our vertically integrated operating structure and the resiliency and differentiation of our services in the face of market softness. We were hindered a bit in 2023 by our exposure to the spot market and our strategy to hold prices steady when activity flattened. But we have adjusted and now enter 2024 with positive momentum. I'd also like to highlight that in 2023, we grew our asset base and improved our capital structure, a strategy that we believe will pay dividends for years to come. We completed the acquisition of REV Energy Holdings and Producer Services Holdings, which added fixed frac fleets and expanded ProFrac's geographic footprint to include the Rockies and Bakken. We also completed the acquisition of Performance Profits, which demonstrated our commitment to the Hainesville, greatly enhanced our vertical integration strategy, and made ProPract the largest provider of in-basin sand in North America with a multi-basin footprint. Then, in October, we announced our intent to maximize the full value of our profit production segment, which operates through the wholly owned subsidiary, Alpine Silica, and confidentially filed a registration statement on form S-1 with the SEC. Finally, in December, we refinanced our senior secured term loan through two new financing, which will both mature in January of 2029. This recapitalization provides a bifurcated capital structure to allow for future optionality designed to realize the full value potential of the profit segment, as well as enhance Profract's overall financial flexibility. The common theme of all these achievements and strategic initiatives is that they demonstrate how highly motivated we are to enhance Profract's position as a leader in the oilfield services industry. and these items were executed with a very targeted approach. We will remain steadfast in our pursuit of enhancing value and strive to navigate the market accordingly with the end goal of being the industry's best of breed. Moving forward, I am pleased to report on the transformative progress we are making, as well as the improving visibility we see approaching in the current market. We remain hyper-focused on the operational performance that we have discussed over the past few quarters, which includes vertical integration, benefits of scale, enhancing utilization and cost control across all of our subsidiaries. In addition, today we are working even more closely with each customer to ensure strong working relationships, providing valued solutions, and maintaining long-lasting partnerships. We are constantly evaluating all of our efforts in evolving these key priorities in 2024. Before I get to that, however, I do want to comment on the challenges of 2023, both externally and internally. As the market flattened out, our position of holding the line on price caused us to miss out on the large efficiency gains experienced throughout the industry. This, combined with the ongoing integration, led to lower market share as we reduced costs to accommodate. This was a mistake. We fully appreciate the negative impact this had on our financial performance in the back half of the year. We are committing to correcting that in 2024 and getting back to our foundation. The foundation we were built on, which is maximizing vertical integration and high asset utilization, is core to restoring our per unit operating costs to the lowest in the industry. Prior to 2023, we were a profit leader in our industry. When comparing our metrics, we surpassed the overall peer group each year. In 2020, we were one of the few that had positive EBITDA. In 2022, we were the first in our peer group to reach record level profitability metrics. Cofrac expects to outperform in 2024 and gain market share regardless of whether activity rises falls, or remains at constant levels. To achieve our goals, we are focused on three primary things. First, our customers. What we do best is pump. We always have and always will. This year, we are doubling down on our efforts to ensure the entire team's focus on providing tailored solutions for the customer, partnering with the customer to achieve long-term results, and generate long-term value with constant improvement is our value proposition. This also means that we are partnering with the right customers that set us up for success to also achieve our next goal, utilization. We have expanded our targets for the benefits of utilization across the entire organization. Today, our utilization focus is not only on total fleet count and how many fleets are deployed, but also on the efficiency of active fleets and how many hours they are able to complete. We want to improve utilization of labor hours, utilization of our manufacturing facilities, our sand mines, as well as every single asset and team at ProFrac. We are measuring it all. And we plan to improve at each and every level. This is taking one of our foundational building blocks and ingraining it across the entire organization. We have 45 high-quality fleets, and we are not satisfied until they are all pumping stages. Finally, our focus will continue to be on cost. We believe that we have the lowest operating costs in the industry, and we are going to keep it that way. In addition, if there is a strong value proposition to improve our capabilities, our utilization, or our customer offering, we are prepared to deploy capital to meet that need. However, we are going to ensure that we remain lean and effective. With these priorities front and center for all of our teams, we expect our business to lead the industry. As we grew through acquisitions and scaled up our stimulation segment, we have adapted with a multi-pronged strategy suited for all customer types, and it built a more dedicated business model to deliver full cycle resiliency. This year, we expect to generate a significant amount of cash that will be focused on the balance sheet. And we intend to de-lever to a point that will put us in a position to talk about returning cash to shareholders. Our focus in 2022 and 2023 was to build the business that we have today, exploit the cash generation capability of that business, and pass these rewards on to our shareholders. We will continue to execute upon our strategic goals and maintain focus on our key priorities to create long-term value for our stakeholders and provide best-in-class services to our customers. We believe we are well positioned in 2024 for profitable growth.