ProPetro Holding Corp.

Good day and welcome to the ProPetro Holding Corp. second quarter of 2026 conference call. Please note that this event is being recorded. I would now like to turn the call over to Matt Augustine, ProPetro's Vice President of Finance and Investor Relations. Please go ahead.

Thank you and good morning. We appreciate your participation in today's call. With me are Chief Executive Officer Sam Sledge, Chief Financial Officer Caleb Weatherl, President and Chief Operating Officer Adam Munoz, and President of Pro Power, Travis Simmering. This morning, we released our earnings results for the second quarter of 2026. 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 ACRA results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filing with the SEC. Also during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures, 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, Matt, and good morning, everyone. Our second quarter 2026 financial results once again demonstrated the strength of our business model. While our reported results were negatively impacted by a few items during the quarter, the underlying performance of the business remains strong, giving us confidence as we move through the third quarter. Our completion business generated resilient free cash flow again in the second quarter, which we believe is one of the clearest demonstrations that the industrialized model we've built is working. Our disciplined approach to capital deployment, operational efficiency, and cost management, paired with strategic actions we've taken over the past several years to optimize our asset base, continue to produce attractive cash flow in positions as well as the market conditions improve. We will continue leveraging the industrialized nature of our completions business to support the expansion of Pro Power while maintaining disciplined capital allocation across the enterprise. Now let me quickly touch on some of the headwinds that impacted the quarter. During the second quarter, we increased our active fleet count from 11 to 12. As we've discussed previously, standing up a new fleet requires upfront maintenance and deployment costs before the full earnings benefit is realized. We also temporarily deployed an existing fleet outside of the Permian to support a limited scope FRAC program for a longstanding customer. The program experienced significant unexpected downtime before the fleet recently returned That work, together with severe weather across the Permian in June, created unexpected operational disruptions across a portion of our fleet and impacted our quarterly financial results. As we look into the third quarter and beyond, we're encouraged by what we are seeing from both our customers and the broader market. This is reinforced by increased drilling activity, with the Permian Basin rig count up nearly 10% off of its first quarter low, according to Baker Hughes. a leading indicator that supports the strength we're seeing across the market. That confidence is also reflected in our decision to activate a 13th fleet, which we expect to begin contributing toward the end of the third quarter. We've remained disciplined throughout this cycle and our capital allocation philosophy hasn't changed. We will only deploy additional horsepower when we see durable customer demand in an economic environment in which we can generate attractive long-term returns on our investments. Turning to the broader market environment, we acknowledge the significant macroeconomic uncertainty given the ongoing conflict in the Middle East. That said, these recent events have emphasized something that was already taking place across the North American completions market even before the Iran war started. We talked for several quarters about how market cycles create opportunity for discipline operators. And after several years of depressed returns, Many smaller and less disciplined competitors were unable to sustain their operations through a prolonged downturn. As a result, the industry has consolidated through attrition, and much of the excess frack capacity that once weighed on the market has largely disappeared. As activity has stabilized, customers are increasingly recognizing just how many frack cleats have exited the market, and that's leading to increasingly constructive conversations around demand and pricing. While it's still too soon to know the full implications that the conflict in the Middle East ultimately have on the global energy markets, early observations appear positive for our business. The floor appears to have risen for commodity prices, and that's translating into a more constructive operating environment. As a result, we're beginning to see positive pricing momentum across our completions business, particularly for our next generation natural gas burning fleet. where demand remains exceptionally strong given today's diesel versus natural gas prices. Industry-wide, next-generation natural gas burning fleets are effectively sold out, while available Tier 2 diesel equipment has also become increasingly limited. Today, the majority of our active frac horsepower is contracted, with most of these contracts scheduled to renew over the next six to nine months. because a significant portion of that contracted horsepower consists of natural gas burning equipment, we're optimistic about the pricing and recontracting opportunities as the market fundamentals continue to move in our favor. We're also seeing improving economics for our diesel fleets as the overall market tightens. Finally, we still estimate that the Permian Basin is currently operating at roughly a mid-70s frac fleet count. Importantly, We believe it would be very challenging to see the active fleet count return above the mid-80s without meaningful reinvestment and growth rather than replacement capacity. At this time, we do not expect that growth reinvestment to materialize. In our view, the industry is structurally tighter than many appreciate. The barriers to adding meaningful new supply remain high, and we expect that environment to persist. Now moving to pro-power. We've continued to make meaningful progress across the business since our last update, both commercially and operationally. Most notably, we've increased our contract to power generation capacity since our last earnings call, growing from approximately 240 megawatts to 350 megawatts committed under contract today. We believe that's a significant milestone and further validates both the demand environment and the commercial momentum we're seeing across the business. Those incremental awards include approximately 110 megawatts of power generation capacity committed under contract across two separate projects, one supporting a leading integrated upstream operator in the Permian Basin and another supporting a separate industrial customer. We're also engaged in advanced contract negotiations for an additional over 100 megawatts to support other oil and gas operations. These awards validate that Demand for reliable lower emission power solution extends well beyond data centers. We're seeing meaningful opportunities across the oil and gas and industrial markets as well. Importantly, while contract terms on these agreements are generally a little shorter in duration than those Pro Power is pursuing in the data center arena, the pricing and expected annual returns are highly attractive and accretive to the overall return profile of the ProPower business as it continues to scale. That being said, we still continue to expect the majority of our future power capacity to be deployed within the data center market. As a reminder, a significant portion of our strategic framework agreement with Caterpillar includes highly efficient, stationary, large natural gas engines purpose-built for data center and similar high-density applications. a meaningful differentiator that supports our commercial and operational advantages in this market. Importantly, we have pro power assets currently deployed and operating live on a data center project and meeting all performance obligations, making us one of the few behind the meter power providers currently operating in this market, providing prime power to a data center at scale. That's a meaningful milestone that reinforces what we've been saying for several quarters. We're executing in the field, not just talking about opportunities. Having assets successfully operating in the field strengthens our commercial position and provides customers with tangible examples of our execution capabilities as we continue pursuing additional opportunities. This operational progress is already translating into financial results. ProPower generated positive EBITDA in each of the final two months of the quarter, a notable achievement this early in the company's life. This is an exciting milestone as we scale deployments across multiple sites through the end of the year and into next year. Accordingly, we've also continued to make meaningful progress across our data center commercial pipeline, which includes a subset of several hundred megawatts currently in advanced negotiations. We also want to acknowledge that some of our discussions with data center developers and operators are taking longer than we originally anticipated. and frankly, it's not surprising now knowing the given size and duration of these agreements. These are generally very long-term commitments involving significant capital on both sides. So both the customers and ProPetro are spending considerable time evaluating contract structures, project timing and risk allocation, but demand has not waned. Interestingly, the strong demand we're seeing for assets can actually lengthen the contracting process. because we're focused on matching available capacity with the right long-term customers rather than simply signing the next available agreement. As project timing evolves across multiple opportunities, available capacity then shifts as well, creating new opportunities in some cases while extending timelines in others. We will remain disciplined throughout this process, prioritizing real, actionable opportunities and agreements, whether they're shovel-ready or already have shovels in the ground. that create the most long-term value for our shareholders. That said, we continue to see near-term momentum across our pipeline, including the contracts announced this quarter, and expect that momentum to continue through 2026. As we deploy capital to grow at ProPower, we're proud of the work we've done to position ProPetro's capital structure to support that growth. From a financing perspective, we've now raised approximately $1.5 billion over the past 18 months to help fund Pro Power's growth, including our highly successful offering of $690 million aggregate principal amount of convertible notes completed in May, which resulted in 0% coupon notes with no dilution for shareholders until the stock price reaches $29.49 per share after taking the effect of the associated cap call transaction into account. Going forward, we'll approach future capital decisions opportunistically as we continue expanding our commercial footprint and executing against our strategy. Most importantly, we're excited to pair this capital with a well-defined plan to grow our asset base under our long-term Caterpillar Framework Agreement, giving us clear visibility into both costs and Timeline of our equipment deliveries and deployments. We're extremely excited about the direction of the Pro Power business. The progress we've made commercially, operationally, and strategically continues to validate our long-term vision, and we look forward to sharing additional milestones soon. I'll wrap up now with a quick summary and then hand it off to Caleb. First, in the completions market, we like what we're seeing across our active track fleets, and we're excited to activate our 13th fleet later this quarter. We have strong visibility through the remainder of 2026 for these fleets, and we're pleased with the improving fundamentals we're seeing across the market. On the other side of our business, ProPower continues to build meaningful momentum as we focus on discipline execution, successful deployments, and continued de-risking of our operations. We believe this approach is building a strong foundation to support sustainable, profitable, long-term growth. We continue to expect ProPower to begin generating increasingly meaningful earnings during the second half of 2026 and into 2027 as deployments accelerate. Stepping back, the strategy we've been executing over the past several years continues to gain traction. Our completions business generates strong free cash flow and provides the financial foundation to help fund ProPower's expansion. While ProPower represents a differentiated growth platform well-positioned to capitalize on rapidly growing demand for reliable low-emissions power solutions. Importantly, Propetro is executing from a position of strength, pursuing value-enhancing growth opportunities backed by a demonstrated business model. We maintain a healthy balance sheet capable of funding Propower's continued expansion while preserving financial flexibility. At the same time, tailwinds are materializing across our completions business as supply tightens and demand for our distributed power solution continues to accelerate. Despite the operational headwinds experienced in our completions business during the second quarter, we're encouraged by what we're seeing as we move into the back half of the year. With a first-class customer base, a first-class team, and a disciplined strategy that continues to deliver results, we believe ProPetro is exceptionally well-positioned to create meaningful long-term value for our shareholders. With that, I'll turn it over to Caleb.

Thanks, Sam, and good morning, everyone. As Sam mentioned, we once again demonstrated the resiliency of our business in the second quarter. Despite a few operational headwinds, our completions business generated strong free cash flow. We continued to make meaningful progress across ProPower. During the second quarter, ProPetro generated total revenue of $3 This includes approximately $16 million of lease expense related to our electric foods. As Sam discussed, quarterly results were impacted by a few items, including weather disruptions, lead deployment costs, and a temporary customer project outside the Permian Basin with unexpected downtime. Net cash provided by operating activities was $66 million as compared to $3 million in the prior quarter. The increase is primarily attributable to higher adjusted EBITDA and working capital tailwinds in the second quarter. which were an approximately $20 million source of cash, and Working Capital Headwinds in the prior quarter, which consumed approximately $32 million in cash. During the second quarter, capital expenditures paid were $61 million, while capital expenditures incurred were $71 million, including approximately $24 million supporting our completions business and approximately ProPower Equipment Orders. As we've discussed over the past several quarters, the lower ongoing capital intensity of our completion business continues to be an important driver of the company's free cash flow generation and reflects the benefits of our fleet transition and industrialized operating model. Turning to our outlook, we now expect full year 2026 capital expenditures incurred to be between $525 million and $595 million. Down from the $540 million to $610 million range highlighted in our first quarter earnings report. Of this, the completions business is expected to account for approximately $125 million to $145 million, down from the prior $140 million to $160 million range. The reduction in expected completions capital expenditures is primarily attributable to the timing of our planned force electric fleet buyouts. Prior guidance contemplated at least two fleet buyouts during 2026. We now expect to complete the first planned buyout this year at a cost of between $15 million and $20 million, with the second shifting into early 2027. This timing change does not alter our long-term capital allocation strategy or our intent to ultimately purchase all five force electric fleets. Also, as a reminder, the completions business guidance range includes capital reserved for refurbishing a portion of the existing Tier 4 DGV fleet, investments in fleet automation technology, as well as measured investments in direct-drive gas rack units. We continue to see strong customer demand for our next-generation gas-burning fleet portfolio and believe these investments further strengthen our long-term competitive position. Additionally, we anticipate incurring capital expenditures of approximately $400 million to $450 million for our Pro Power business in 2026, consistent with prior guidance. This guidance includes equipment deliveries as well as down payments associated with the Strategic Framework Agreement with Caterpillar. Notably, the company's previous guidance of approximately $1.4 million to $1.5 million per megawatt, inclusive of balance of plant, remains unchanged. While these pro-power capital expenditure estimates reflect the total cost of equipment, they do not reflect the impact of financing arrangements, which have and are expected to continue reducing the near-term actual cash outflows required from ProPetro. Importantly, our balance sheet remains a significant source of strength As of June 30, 2026, cash and cash equivalents were $784 million, including proceeds from issuance of $690 million aggregate principal amount of convertible senior notes. Borrowings under our financing agreement with Caterpillar Financial Services Corporation were $130 million. This financing agreement was recently upsized to $167 million held by Caterpillar with any amounts they are able to syndicate to other lenders not counting against $167 million cap. Total liquidity at the end of the second quarter of 2026 was $905 million, which included cash and cash equivalents, and $121 million of available borrowing capacity under the ABL credit facility. We currently have no outstanding borrowings under the APL credit facility. Finally, as Sam mentioned, we continue to approach current power funding opportunistically, which gives us confidence in our ability to execute on future capital needs as we expand our commercial footprint and drive our strategy forward. Sam, back over to you.

Thanks, Caleb.

As we wrap up our prepared remarks, I want to reiterate a few points. Over the past several years, we've built ProPetro into a strong company that has continued to perform through challenging markets. Today, we're encouraged by the improving backdrop in our completions business, where a tighter supply environment and early pricing momentum gives us confidence as we move into the second half of the year. At the same time, ProPower continues to build momentum. We're making meaningful commercial and operational progress across data centers, oil and gas, and industrial markets. and we're excited to continue expanding our operating footprint through the back half of 2026 into 2027 and beyond. Most importantly, ProPetro is well positioned with a healthy balance sheet, first-class customers and above all, a first-class team. I'd like to thank all of our employees for their continued hard work and dedication. Their execution gives us confidence in our strategy and in our ability to continue creating long-term value for our shareholders. With that, operator, we'll now open the call for questions.

Thank you. If you have a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you wish to remove yourself from the queue, simply press star 1 again. One moment, please, for your first question. Your first question comes from Sarabh Pant of Bank of America. Your line is open.

Hi, good morning, Sam and Caleb. Morning, Sara.

Sam, Caleb, I think just given everything that has happened in the market over the last one week, in this space, maybe I would like to start with getting perhaps a little more color on your liquidity position. I know you talked about that a little bit, but maybe touch on that and the financing agreements. And then to the extent you can, maybe give us a little bit more color on the cash needs for ProPower over the next 12 months. I know you gave 26 guidance, which is which is helpful, but just a little beyond that. And then related to that, I know you've got the Caterpillar Strategic Free Work Agreement, which I'm sure gives you more certainty and some flexibility on the whole timing of it and related cash progress payments. But maybe touch all of that a little bit and just give us some color on how you were thinking about matching your cash inflows and outflows.

All right. A lot there. Great lead-off questions. I'll try and kind of address a couple of things at a high level. Caleb will probably want to talk about CapEx liquidity, maybe some of the details. Look, I think you're right. There's obviously been a lot of noise in the market here recently. Nothing's changed here. I think what we're trying to do today is to reiterate from an equipment and capital and outlook standpoint, especially as it pertains to pro power, very much of the same that we've said. previously. I think we've done a pretty good job and we're really happy with the strategy that, you know, communication strategy that we pursued almost a year ago to give really clear guidance and a really clear and transparent fight in your outlook around how this power business would grow and scale, how much the equipment would cost, how we're going to finance it, and what we think our returns are going to be. I think maybe we've been more transparent than anybody else in the space. I think a big part of that too is procuring what we think is best-in-class equipment with a best-in-class supplier and then matching financing with that equipment and its timing and deployment plan. So look, there's no really near to medium-term financing or funding need. That said, I think we're always in the market assessing the circumstances and the environment around us and making sure that we're being opportunistic to raise capital and funds to ensure the long-term execution of the business. So I guess before Caleb chimes in, this is more of the same from us. We're really, really proud of the communications plan that we pursued for almost a year now. And we think the plan is well at work right now. Caleb, you want to add to that?

Yeah, thanks, Sam. Good morning, Saurabh. Thanks for the question. So the way I think about liquidity is very simply, if you look at our whole year CapEx guide of And then you factor in that our expanded cap finance facility, as well as free cash flow from completions, should cover a significant portion of that funding. And then look at our liquidity of over $900 million or even just cash of $784 million. You can see that exceeds the cash we need for the CapEx this year for what we've announced by hundreds of millions of dollars. So we have a lot of running room. Over the past 18 months, we've raised approximately a billion and a half dollars to support Pro Power's growth, including our highly successful $690 million convert in May. And so we're really proud of the work we've done to position Pro Petro's capital structure to support Pro Power's growth. Like Sam mentioned, going forward, we are going to continue to approach future capital decisions opportunistically and try our best to come from a position of strength as we continue expanding our commercial footprint and executing against our strategy. So to sum up the liquidity point, lots of running room currently, and we'll just continue to try to approach those capital decisions opportunistically and thoughtfully. On the CapEx point, importantly, we've not changed We have a lot of visibility to the cost and timeline of equipment deliveries and deployments under our CAP framework agreement. And we've already ordered or have delivered 1.1 gigawatts of equipment. And so I think we're in really good shape from a liquidity and CapEx standpoint and have a lot of visibility to the cost and timeline. into what that's going to look like going forward.

Yeah, and I guess just one last thing before we get off of this. Our long-term future plan and guidance that we've given, especially the numbers that Caleb just gave on the cost per megawatt, earnings per megawatt, we've made all the best efforts to make sure that that includes inflation going forward as well. We'll obviously update the market Over the long run, if any of that changes, but we feel really good about these numbers that we've been sharing really for almost a year now, and we expect those to be pretty sturdy in the future.

No, that's very helpful, Carlos, Sam, Caleb. More of the same is good, right? So I'm glad there are no surprises. So just keep doing what you're doing. Just related to that, by the way, on the operations side of things, I don't know, maybe Travis wants to pitch in on this one. but it was really great to see the successful startup of the 60 megawatt data center project you've talked about and again maybe give us a little more color on that project just any early feedback learnings working on your first data center project any early surprises good bad anything you've seen on the project I think it's been barely a month maybe a little more than a month or so but any early feedback any learnings on that data center project yeah thanks for the question Saurabh

There is always learnings on these projects, but I think for us to hit the timelines we set out on our first appointment was really important. Our customer recognized that. I think the market recognizes that and it's helping us build commercial momentum because we're one of the few that can point to some of the hiccups maybe we have seen, but got through to be able to successfully hit our deadlines and now be operational for a period of time really ahead of schedule, quite honestly. We're really excited about how that has turned out. Certainly learned some things that we can do differently in the future on some of these larger scale projects, but 60 megawatts helps us set up ourselves for a really strong platform to grow into these several hundred megawatt type sites.

Yeah, sorry, but I'll just add to that. I think most pleasing to me is learning about our team through a project like this to see The life cycle of a deal from introducing yourself to a customer, negotiating a contract, finalizing a contract, project planning, going to work, and executing. We've already been doing that in the oil and gas space, but to see our team do that outside the Permian Basin, at scale, on a hyperscaler data center campus, it's almost kind of like going into that first game of the year as a sports team. You might be really confident. You might think you know what you have, but until you get on the field and run around and score some points, you don't really know what you have yet. We've put some points on the scoreboard, and I'm super proud of our team and really excited for the next play and the next game.

Yeah, no, it's always easier said than done. So great to see that progress, and good luck. I'll turn it back to Tom.

Your next question comes from a man of Iran. J.R.M. of J.P. Morgan. Your line is open.

Good morning, Sam and team. I was wondering if you could maybe elaborate on how your commercial discussions are with data center customers. You mentioned that there's several hundred megawatts currently in advanced negotiations. would you view these call it at the one yard line or maybe just give us an update on how that's going and perhaps you could also discuss maybe how you view oil and gas customers versus data center customers you did mention maybe a little bit more contract term on the data center side but are you relatively agnostic between you know deploying power for each of those call it broader segments

Sure, I'll make a couple maybe broad comments, and Travis, please feel free to add on here. I made some comments for Saurabh's question around that nothing's really changed here from a plan and execution outlook standpoint as it pertained to our funding and our acquisition of equipment, things like that. I think it's very much the same from a commercial standpoint as well. These larger, more long-term data center deals have taken a few twists and turns that were unexpected. That said, the demand is still there. The counterparties are still elbows on the table. We still feel very confident, as we've mentioned in our scripted materials here, that we think the overwhelming majority of our capacity as we grow the pro-power business is going to end up on data center sites providing prime power. still very much believe that's the case. So I think the team's being very diligent and intentional about how we finalize what are the first couple marquee data center contracts that we're in extended negotiations with right now. And we're gonna make sure we take our time and get it right and position our business to execute really well with customers that place a high value on our services.

Yeah, the only thing I'd add there on just the contracting front is if you look at what we've laid out, 350 megawatts today, headed towards 450 very soon, and several hundred megawatts at the data center. All of that comes together to really round down almost all of middle of 28, maybe all of 28. And I think just piecing that together with these large data center customers and maintaining the contracts we have with the oil and gas customers, it's a big puzzle piece that we're just excited to be able to kind of evaluate all of it. But we're certainly not taking oil and gas fuels and not able to still execute on the data center contracts that we've been negotiating. So we're super mindful of all of the deployment schedules and how they come together and really excited to be able to piece that together and get contracted backlog out into 28. Yeah, look, I know you hear us talk a lot about execution.

We're really proud of what the team's done today, like we've already mentioned. Our ability to go perform on this data center site that we're currently on and deployed to today was highly enabled by our ability to go get some reps in on a lot of oil and gas locations as well. So there's a lot of benefits to being able to play in a couple of different of these verticals. And I've mentioned this previously, but I think it's worth mentioning again that these These oil and gas opportunities are in most instances more lucrative and higher return than some of the longer data center deals. So, I mean, Travis and his team, you know, as you heard in our scripted remarks, they're paying their bills right now. This is a positive business, you know, 18 months into standing it up. So we think that's really cool and that's going to be a part of, you know, the sturdiness and the ability of the business to execute in the future.

Okay, great. I want to maybe shift gears, talk a little bit about your completions business. Talk us through kind of the decision to stand up the 13th fleet and how do you just generalize pricing trends, call it at the top end of the food chain in terms of some of the force units, the higher-end natural gas burning equipment versus maybe some of the more legacy fleets within the overall portfolio?

Yeah, I think the 13th fleet for us is kind of an interesting story. I think if you stood back and you guessed, you might think, oh, that's with a private operator that just fired up a new rig program or is increasing their rigs, and that's not the case. This 13th fleet... is going to a blue chip top tier E&T that is just looking to make some high grades within their program. And because of the timing of that and the equipment that we're able to provide that customer and the performance obligations that we're confident to hold ourselves to, the price and the returns are really good there because of the ability of that counterparty and that customer to execute and operate. It's also a new customer for us. So I think it's a little bit less of like a market growing story and a little bit more of a testament to kind of the, you know, ProPetro's execution prowess and our ability to provide a portfolio of technologies and equipment types to our customers. It might be worth mentioning just again, we talked about this on the last call, but that 12th fleet that we stood up right after kind of the Iran conflict outbreak, that was already pre-planned. earlier this year. We have a pretty good line of sight to 12. So this 13th fleet is really the first net add above our expectations coming into this year. And like I said, it's with a top tier E&P at a great price. It's going to be a great mutual win for both sides, I think.

Thanks, Sam. Your next question comes from the line of Derek Podhazer of Piper Sandler.

Your line is open.

Hey, good morning, guys. I'm going to go back to power, maybe talk a little bit more about the economics here, just thinking about the 110 megawatts you contracted. If you could expand more, add some color on, talk about pricing, term, the return profile here. These sound a little bit shorter term, but just wanted to hear more about the longer-term goal for these projects. I mean, will the grid come into play? Or given it's probably a more isolated area, is microgrid the right solution going forward? And if that's correct, When would you expect to really extend these contracts into that 10-year plus range? So just a little bit more on the economics and then maybe some more long-term thinking on these projects. Thanks.

Yeah, thanks, Derek. Yeah, as we mentioned, I mean, oil and gas deals in general are shorter term, but higher economics. I think a lot of these oil and gas operators are maybe still waiting to see on the grid or really trying out a microgrid for The term of these contracts, but we see a real opportunity to grow and expand with these customers. I think the market's telling you that the grid availability is likely pushed out. And in general, these types of operators are used to signing these deals pretty quickly. And so maybe don't want to go out that far and maintain optionality, which means higher economics for us. And we're okay with that to keep optionality on our side as well. So we like these oil and gas deals. We think it only progresses in a positive way for us, either giving us higher economics down the road on deals that we really like or shifting assets down the road to the data center growth story. So we think this really fits into our story today of large-scale sites, which is great in getting execution ready for these data center sites in the short term, creating earnings.

Okay, great. No, thanks, Travis. Maybe switching over to FRAC. Maybe just some expectations around, you know, the pricing power that you're seeing, and everything sounds very positive, but obviously, you know, results are a little bit challenged. I understand you have some temporary headwinds. with the out-of-basin move on the FRAC spread. You have some weather standing up at 12th Fleet, but some clear momentum with pricing given the tight environment here. So how do we think about the earnings power for completions next quarter, third quarter, maybe beyond? Just looking at the model, where's the path to get back to 25% segment EBITDA margins for FRAC?

Yeah, Caleb, please add to this if you need to, but I think I think near term, I'll kind of split this up, but think about it kind of near term and long term perspective or near term and medium term. From a near term perspective, as we stated in our prepared remarks, that 13th fleet doesn't really stand up toward the very end of Q3. So the revenue contribution will be very low for that additional fleet in 3Q. That said, you know, our kind of fleet stand up and maintenance cost We'll see those in Q3, so that'll be a little bit of a drag. And we're kind of in, as we operate here, kind of in between 12 and 13, we're a bit in an overutilized state from an equipment standpoint. We've been, you know, over the last couple years, really, been running only, you know, just the right equipment we need for the jobs that we have, and that still persists today. So the bigger the system gets and the more fleets that you get ready to deploy, the more that gets stretched on a short run. That may be a little bit of a drag too. There's always still weather in the summer. It's hard to predict what that might be. Hopefully it's less than what we just saw in June. But look, over the long term, which I think speaks to why we're confident to stand up an additional fleet right now, is that the visibility we're getting with our customers and the confidence we're getting in pricing continuing to inflect is very strong. And those are very informed views from direct conversations with customers and their understanding of the market and how much equipment is or isn't out there. So we don't ever manage the business for the next quarter. We definitely do for the long run, and we think these are the right long run decisions to make to increase our returns and our profitability.

Great. Appreciate the call, Sam. I'll turn it back.

Your next question comes from Alexa Breno of Goldman Sachs. Your line is open.

Hey, good morning, team, and thanks for taking our question. With the addition of the new contracted capacity this quarter, can you provide some color on what the average contract duration looks like and the pricing structure, and then specifically maybe for the oil and gas and industrial contracts?

Yeah, I think we're at a point right now in the life cycle of Pro Power where some of that's just a little bit too competitive to disclose. That said, I think we would classify almost all these deals as long-term in nature. Most of them multi-year, almost all of them with extension options. So the initial term might be a little shorter, but the overall opportunity we think is very long-term. And as we start to ink some of these data-centered meals, the average duration of a contracted megawatt in our business jumps significantly. And I think as it pertains to the data center, I think most of those conversations are starting at 10 years. Many of them are well in excess of 10 years. So we think a balance is good, and we think getting this equipment to work, making a return, and getting our reps in from an execution standpoint is definitely the right thing to do. Travis, I don't know if you can add to that.

Yeah, just reiterating that the earnings obviously are more attractive in shorter-term oil and gas deals, which really helps. Hey, this is Caleb. The only other thing I'd add is

We haven't changed our guidance around the portfolio. Targeted paybacks of four to six years.

So still targeting those economics.

Awesome. That's all really helpful, Culler. Maybe as a follow-up, as you look to scale the power business toward that 2.6 gigawatt target, can you talk about the cadence of capital spend, maybe around timing of down payments for equipment and any other capital requirements, just as we look out longer term?

Yeah, I would just direct you back to our investor slide where we've laid out pretty clearly our expectation around deployments. And we expect, obviously, to receive the equipment before it's deployed. And so, like we talked about earlier in the call, we have a very clear picture of when that equipment is going to be delivered. And yes, there are certainly some down payments associated with that. but then a significant amount of the capex hits when the equipment is delivered.

I think just to add to that, I think using kind of 20, 26 capex relative to megawatts is a pretty good way to do that moving forward. Obviously, we've got continued orders we'll be placing as part of the frame agreement that will have down payments. And so, you know, for this foreseeable future, we have a combination of down payments and delivered assets that, you know, 2026 Supreme would guide.

Yeah, and Alexa, just for clarity, that's page nine in our IR deck. That guidance, you can multiply those megawatt gigawatt numbers by our cost per megawatt guidance that we've been giving is unchanged.

We don't expect that to change.

Thank you all very much. I'll turn it back.

Your next question comes from the line of John Daniel of Daniel Energy Partners. Your line is open.

Hey, guys. Sam, quick question on the 13th fleet. Can you tell us from the time you guys decided to reactivate to the time it's actually going to have to field what that timeline is?

Yeah, I'm looking around the room.

Roughly 60.

This is Adam.

Roughly 60 to 90 days. Okay. Is there enough demand today or any visibility that would give you confidence that a 14th fleet would be potentially going out? And if so, would it be a similar 60 to 90-day timeframe to bring that back?

I think there's likely portfolio optimization before there's a 14th fleet. I think every additional fleet for us gets meaningfully more expensive to redeploy. We're basically at the end of the road there with 13. And the amount of simulfrac that we run and the slack that we need in the maintenance system. I think there's portfolio optimization, which we've been doing here in the background as well. There's more of that to come along with more probably pricing that we would need to see. And then you might need to see... You know, interesting contracts come back to before you do something like that. But today, with all the circumstances that exist today, there's no interest to do that on our side.

Fair enough. And if you'd be willing, could you provide a little bit of just high-level commentary on what you're seeing in both the cementing and wireline markets? Thank you.

Yeah, thanks for asking. These have been, I think, Bright spots in both places. Cementing is inflecting as we speak with the rig count. We talked about the rig count being up pretty meaningfully off of its lows earlier this year. We've had new leadership in the mix. We're adding some new high spec equipment, albeit in a very small way, to our cementing operation. There's a lot of really good momentum there. Silver Tip, our wireline business has been probably the most sturdy from a utilization and margin standpoint across all the OFS business lines. Remains almost full utilization, very strong pricing, great customers. So those are definitely bright spots.

Okay.

Thank you very much. Your next question comes from the line of Scott Gruber of Citigroup. Your line is open.

Yes, good morning. So as part of the CAT agreement, you'll start receiving, you know, larger capacity units, specs for data centers. How much of the 2.1 megawatts of the CAT capacity are the larger capacity units? And I think I heard 1.1 megawatts ordered. So curious kind of, you know, how much of that slug is the larger capacity? And when do you start taking delivery of the larger capacity units? I'm just trying to get a sense of when you need to sign a data center contract to deploy that capacity to avoid having any idle upon delivery.

Yeah, Scott. Over half the portfolio is going to be these higher density, high efficiency units. And really, when we start receiving those units, you know we have to put them into service so it takes a little time to install them but we are well positioned to utilize our smaller units to get sites started and actually we kind of see a mix of those two types of assets on these data centers providing a really good technical solution to be able to manage the load so I would say we're not really in a position to have idle assets for a while say 18 months which gives us a lot of time to really get You know, these contracts in the right place and stage the assets we're going to use for these data center contracts.

Yeah, the bigger block equipment is going to match up really well with the data center opportunities that we're really close on. And timing to deploy those.

Yeah. So are the early deliveries from CAT not the larger block units? Those come kind of middle of the range? Is that fair?

Yeah, I think that's fair. I wouldn't say it's middle. It's near term, but like 27 is going to be a lot of more of the same for us, highly efficient, smaller modular units that we've already deployed. We know how to go do that. It allows us to get sites up and running while we install these larger units.

Okay, okay. And then I want to turn back to the buyouts on the four-seat fleet leases. You mentioned that you're kicking one into 27, so you'll execute on one this year. Can you just update us on the remaining four, how those spread across 27 and early 28?

Yeah, so like you mentioned, we have one towards the very end of this year. We expect roughly three in 27 and then roughly one in 28. and our intention to execute all of those buyout options hasn't changed. It's really just a timing change that one of those buyouts, which was scheduled to be at the very end of this year, kicked to the very beginning of next year.

Okay. I appreciate the comment.

Thank you.

Your next question comes from the line of Eddie Kim of Barclays. Your line is open.

Hi, good morning. You said you signed up another Permian microgrid contract here. I understand the sensitivity about providing too many details, but could you talk about roughly how many megawatts are contracted for that microgrid, and how many FRAC fleets is that going to support? Just in general, is there sort of a rule of thumb on how many fleets that, let's say, a 50-megawatt Permian microgrid will support? and do you still see a lot more opportunities for these microgrids beyond the ones you signed up already?

Thank you. Yeah, I'd say it's close to 100. It's a large microgrid. It's really a production application. So, you know, connected distribution for production in field, not necessarily supporting tracks of very consistent power output application. We see continued momentum with the really large operators that are able to create these connected microgrids and then also midstream operators. So that's an area that we're really excited about continuing to explore as there's no grid connectivity. So I think both of those provide really highly dense applications that kind of pair with what we've been deploying already on a larger scale between 50, 100 megawatts.

Got it.

Thank you.

And just shifting over to Sprack, just trying to get a sense of how many fleets are left across the Permian to bring back. You mentioned that you estimate about mid-70s fleet count in the Permian today, but that it's very difficult to see an increase above the mid-80s without meaningful capital investment. So around 10 fleets in the Permian that are maybe relatively easy to bring back. Is that how we should think about it?

Yeah, maybe I need to clarify that mid-80s comment that we made earlier. That's going to require meaningful capital to get to mid-80s. I mean, we look around at the comments that I just made earlier about a potential 14th for us. That's not capital we're willing to spend at this point, at least to that magnitude. We expect that to be the same across the space, especially for our larger are larger competitors. As we sit here today, in terms of like hot or warm equipment, it's probably less than one hand's worth. It's very, very few, and those fleets are likely not necessarily parked. They might just be in rotation from one customer to the next, getting ready for the next appointment. So I think the Permian's basically spoken for from a frack equipment standpoint. You know, a little bit of tightness in the first half of this year in the gas basins, I think bolstered that as well, that there's not really any good reason for companies to be rolling equipment to the Permian from other basins right now. So, you know, we talked a lot. We have been beating the attrition drum for several quarters and maybe what feels like years now. And we think that, you know, we're on the front end of that really starting to show through. which also ties back to my comments earlier about our positive outlook going into 27.

Got it. That's great to hear. Thanks for the clarification and the call out. I'll turn it back.

Your next question comes from a line of Jeffrey LeBlanc of TPH. Your line is open.

Good morning, Sam and team. Thank you for taking my question. Good morning. Given the volatility, Given the volatility concerning the commodity prices, I wanted to see if you could just talk about customer conversations between public and private operators, how they've evolved over the past quarter. Thank you.

Yeah, I think in the first couple of months post the outbreak of the Iran conflict, I'd say in general, on average, private or public, The average operator in the Permian was pretty disciplined. There really weren't going to be any knee jerk reactions or anything like that. But once you got a couple months past that conflict beginning, I think the private operators were probably the most interested in analyzing the opportunity, not necessarily acting on it, but trying to figure out how long is it going to take to stand up a drilling rig? What's a frack fleet going to cost if I need another one? I'd say a very small number of those have materialized across the space. But I think overall, both private and public, there's still a really good amount of discipline across the space. There's just no knee-jerk reactions. There's a lot of skepticism of, you know, not what's the oil price going to be tomorrow, but what's the oil price going to be the middle of the year next year once I do potentially stand up some of this equipment. That said, as we said in our scripted remarks, we think the floor is rising as we speak. We're not macro experts by any mean, but there's been a lot of oil come off the market that we think generally raises the floor on prices and gives operators in places like the Permian Basin more confidence over the long term. over the long term to potentially look at adding activity. All the meanwhile, you know, we're sitting here talking about adding added a 12th and adding a 13th fleet with the market really not expanding. You know, a lot of this is us, you know, taking the place of one of our competitors at a price that's higher than, you know, The lower end or the average price in our portfolio. So we still have the ability even in a fairly captive market to compete to increase prices and increase profitability. So it's an interesting time. I think I said last call, nobody likes war and all the kind of bad things that it creates. but it is creating opportunity and it is structurally changing some things as it pertains to outlook for us and our customers.

So we're pretty confident about the long-term value proposition here given what's happened.

Thank you very much for the color. I'll hand the call back to the operator. Thank you.

And your next question comes from the line of Don Christ of Johnson Rice. Your line is open.

Thanks for letting me in right at the end here. But Sam, just one question for me. We've heard some antidotes that people are pulling forward RFPs into mid-year from the traditional September, October timeframe. Are you seeing any of that right now?

Yes. Yes, we are. I think in March, April, like I just mentioned, it was people just kind of getting their feelers out. But I feel like the larger, more public operators are kind of using this conflict as an opportunity to pull forward 27 planning. I probably should have mentioned that earlier, but that's a variable that's playing into our decisions to stand up another fleet as well.

Okay, and just one follow on to that, do you expect in the next six months or so to have all your contract renegotiations done or do you think it's, are you gonna have some kind of in the spot market?

We definitely like the dedicated contract model when we can get it. That said, we like a portfolio and we like to preserve optionality to be able to act opportunistically. The fact that most of those contracts are rolling, all of them are on natural gas burning equipment with where diesel prices are right now and where they likely stay. We think that's a really good setup that we're really excited about. Not only is this good technology that burns gas, but it's paired with great teams that are executing at some of the highest levels in the Permian Basin from an operational efficiency standpoint. We know when those contract repricings or check-ins are, our customers know when they are, and we're constantly in dialogue with our customers to try and manage that to both of our benefit in the future.

I appreciate the call.

I'll turn it back to the quarter, guys.

With no further questions, that concludes our Q&A session. I would now like to turn the call back over to CEO Sam Sledge for closing remarks.

Yeah, thanks everybody for joining us today. Thanks for your interest and support in our business. Look forward to talking to you again soon.

That concludes today's conference call. You may now disconnect.