ProFrac Holding Corp. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Market Volatility: Q3 began with modest market improvements but September saw sharp deterioration due to customer program deferrals. The U.S. onshore completions market faces operator cautious capital deployment.
• Strategic Adjustments: Prioritizing dedicated fleets with robust operators, optimizing cost structure for operational and capital efficiency. Identified $100 million annualized cost savings by end of Q2 2026, including $35M-$45M from labor reductions, $30M-$40M from nonlabor items, and $20M-$30M from reduced CapEx.
• Capital Raises: Completed an equity offering netting ~$80M, deployed funds to pay down ABL and for general corporate purposes. Sold $40M Flotek seller note, plan to issue remaining $40M of senior secured notes in Dec, and pursue up to $40M in additional debt, aiming for ~$200M in total capital raises.
• Technology Partnerships: ProPilot 2.0 delivers fuel economy improvements and cost optimization. Strategic partnership with Seismos introduces closed-loop fracturing capabilities for operational control and performance optimization.
• Vertical Integration: In-house manufacturing provides cost advantages, asset management program improves equipment reliability and deployment flexibility.

Segment Performance

• Stimulation Services: Q3 2025 revenues were $343 million, down from $432 million in Q2. Adjusted EBITDA was $20 million, down from $51 million in Q2, with margins at 6% compared to 12% in Q2. Operational disruptions and unabsorbed costs compressed margins, and the segment incurred shortfall expenses of $9 million related to the supply agreement with Flotek.
• Proppant Production: Q3 revenues were $76 million, effectively flat from $78 million in Q2. Approximately 44% of volumes were sold to third-party customers in Q3 vs. 48% in Q2. Adjusted EBITDA was $8 million in Q3 vs. $15 million in Q2, with margins at 10% vs. 19% in Q2. The decline in margins reflected customer and geographic mix shifts and a slow start to the quarter.
• Manufacturing: Q3 revenues were $48 million, down from $56 million in Q2. Approximately 82% of segment revenues were generated via intercompany sales compared with 78% in Q2. Segment adjusted EBITDA was $4 million compared with $7 million in Q2.

Guidance

• Capital Expenditures: Expect capital expenditures to be $160 million to $190 million for 2025, a ~$25 million reduction from previous guidance, reflecting current activity levels and financial discipline.
• Market Outlook: Believes global supply imbalances will normalize in 2026 as operators accelerate completion activity. Natural gas sector outlook favorable due to expanding LNG export capacity and rising power demand. Hydraulic fracturing market has potential for supply-demand tightening with sustained capital discipline and limited new equipment additions.

Risks

• Volatile Market Conditions: Customer program deferrals and market volatility can lead to operational inefficiencies and margin compression.
• Cost Creep: Potential for costs to creep back if business ramps up without proper control.
• Macroeconomic Uncertainties: Broader macroeconomic backdrop could impact operator capital deployment and market recovery timelines.

Question and Answer

Q: Thanks. Good morning, everybody. I think the first question and one of the things we hear a lot about is just the various pressure pumpers and their pricing strategy in the market. And when we hear from some of the bigger players, they complain about some others who are more aggressive on the spot pricing side. How do you approach? And I know you talked a little bit about this in your business optimization discussion, but how do you approach the pricing side? And what do you see in the overall market as far as the way the market is behaving right now?

A: So it's been relatively consistent. But whenever you look at spot pricing compared to longer programs, they've been pretty in line relative to each other for about the last year. But I think with the availability of equipment and as we look out into 2026, our approach has been to focus more on reliable, consistent programs. And as we continue to fill out our entire schedule and our outlook on 2026, we would expect to see spot work and its pricing to start returning to where it was historically where typically you would see spot pricing higher than committed dedicated work.

Q: I might violate protocol and ask a bunch of questions, so I apologize in advance, you can always kick me off. But the dedicated versus spot math, that's interesting. You mentioned mid-20s today active. Would you be willing to share what portion of those are dedicated right now?

A: Let's see, about 80%. And it's quickly shifting to where we think we'll be in the high 90s as we roll into 2026.

Q: the cost savings are significant. If we have a steady state environment over the next several quarters, would you then characterize all these cost cuts is permanent, if you will. I mean I know how costs can creep back if the business is ramping, but how would you characterize that?

A: Now these -- every one of these cuts are sustainable. So we went in and we looked at historical levels where we had Q1 of each year and then also going back in and looking at 2022, what was our headcount, what was our utilization on assets, and how tightly did we manage that? So we went back in and looked at what are the sustainable levels where we know that where our cost structure should be, where should our head count be and making sure that we don't come in and bring these to a level that's unsustainable. We wanted to make sure that we had the right number of people on location that we didn't have extras, but we didn't have too few. Also, going in and looking at the cycle counts and the efficiency of our maintenance programs on how quickly we turn assets when they do go down, so that we can get them back in line and getting higher utilization rates. And so it's going to a fixed number of fleets and maintaining that level improves our ability to go through and look at every single discipline, every vertical in our business to really refine our cost structure and our processes so that the equipment on location is more reliable. It's in better condition. And if you take care of it on the back side, then when it's at the wellhead, it performs much, much better. And because of the utilization, you get to dilute any associated costs in a much more reliable way.

Q: I was hoping maybe somewhat similar line of questions to the last two, but just focusing on the Pro Production segment. Just thinking about your outlook, I was hoping maybe we could kind of unpack the comments. So higher volumes and throughput but still some pricing pressure. Is -- are you guys kind of thinking about flat revenues in the fourth quarter for Proppant production? And I guess, specifically on the higher volumes comment, could you kind of unpack where that's coming from? Is it internal or external? Or is it? It would be great if you could just give us figure out a little bit deeper on those comments.

A: Yes. So on the Proppant Segment, we've been more exposed to the spot environment, more so than what some of our peers have experienced. I think when you look at the spot environment, it's been relatively consistent. Haven't really seen pricing pressures as much within individual markets. Where we saw a reduction in ASP was more so from a mix shift as we had an increase of volumes in West Texas and a dip in volumes in South Texas. When we look at the South Texas and the Haynesville and then also the Haynesville market, pricing is much stronger than what we see in West Texas. And so as we look into Q4, we're seeing an increase in volumes in those areas where we see better pricing. But we also see an improvement going into 2026, where increase in volumes in South Texas as well as in the Haynesville will have a material impact to our ASP and the revenue for our Proppant Segment.

Q: Thanks for letting me Matt, I wanted to get your thoughts on the Haynesville kind of as we go into '26. I mean, obviously, there's a lot of industry chatter on LNG and all the things. And given your position, surrounding that basin. Kind of what are customer conversations from your standpoint around the Haynesville as we kind of move through '26?

A: There's a great deal of excitement. We're seeing activity increase. We're seeing the number of players, the number of operators starting to round out operators that have been have had slower programs or no program have started bringing activity back and putting plans together. The overall chatter around the gas market is very encouraging as well as. We're just seeing a lot more conversations and a lot more certainty to the programs. And it's good to see, it's good to see. We're pretty encouraged by what we're hearing from operators and how much more sticky their programs look?

Q: And do you think that the timing is kind of earlier or later in the year or kind of a steady ramp-up through the year?

A: A great start to 2026. Some of that stuff is getting pulled into December. And then as we roll through the year, it's I think what we start the year with will carry on throughout the year with potential option to increase activity. Everybody is watching it real closely to see really how it plays out. But nobody wants to ramp up and grow into a head fake. And so, so far, what everybody is seeing they love it, they want to see more of it. But I think, yes, it's been a tricky commodity in previous years. So everybody is cautiously optimistic.

Q: I appreciate that. And my last question and obviously, through my coverage list, I cover Flotek, I fully appreciate the opportunity set there. But have you considered peeling off a few shares there? Because overall, it may help with the liquidity of Flotek in the end and actually boost the share price. Just any curiosity if you've explored selling any shares just to kind of help both companies out?

A: Look, we evaluate all of our assets, and we think that Flotek is an incredible company with huge prospects, very excited about their data services business. And look, we a healthy ProFrac is a healthy Flotek. And so we watch that real close. Our caution is if you did look at that, how do you do it in a way where it provides a book in so that we're not perceived as a continued seller.