PUMP - NYSE

Good day, and welcome to the ProPetro Holding Corp. Third Quarter 2024 Conference Call. Please note, this event is being recorded. [Operator Instructions] I would now like to turn the call over to Matt Augustine, Director of Corporate Development and Investor Relations. Please go ahead.

Thank you and good morning. We appreciate your participation in today's call. With me today are Chief Executive Officer, Sam Sledge; Chief Financial Officer, David Schorlemer; and President and Chief Operating Officer, Adam Munoz. This morning, we released our earnings results for the third quarter of 2024. 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 actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC. Also, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to 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. I'm pleased to report that, thanks to the hard work and disciplined execution of our team, ProPetro delivered strong results in the third quarter. Despite the challenging market environment for our industry, our free cash flow generation has been resilient, thanks to our clear strategy anchored by next generation investments and our focus on an industrialized operating model. Without question, we are seeing some of the same market softness as many of our peers, however, due to the strategic actions we have taken, we are generating strong, sustainable free cash flow while also taking market share. Over the last year you have heard us state that 2024 is a prove it year for ProPetro and we are doing exactly that. Let me walk you through how we are doing exactly that before turning it over to David to review our financial results. Fundamentally, we prioritize cash flow generation and remain well positioned to deliver positive cash flow going forward. Demand for our next-generation services is strong as we manage our portfolio to meet the needs of the industry of today and into the future. Currently, ProPetro has 7 Tier IV DGB dual-fuel fleets, each bringing industry-leading diesel displacement. Simultaneously, we continue to execute on the rollout of our FORCE electric frac fleets, an effort that began with the deployment of our first FORCE fleet in August 2023. Our FORCE fleets have received positive reviews from our customers who appreciate the meaningful efficiency upgrades and the fuel savings of electrification. Earlier this year, we commenced our three-year contract with ExxonMobil under which we are providing hydraulic fracturing, wireline and pumpdown services with 2 committed FORCE electric fleets and an option for a third FORCE fleet also with bundled wireline and pumpdown services. Looking ahead to the deployment of ProPetro's fourth and fifth FORCE fleets, we expect the fourth fleet to be deployed under contract by year-end, with the fifth fleet active in early 2025. We intend to continue the transition of our fleet by winding down investment in Tier II diesel-only equipment and instead prioritizing investment into more FORCE electric equipment. Not only do we fundamentally believe this is the way of the future and a clear path to sustainable success, but we are also derisking future earnings by leveraging the contracts this equipment demands. At ProPetro, we believe that a dynamic market requires a dynamic strategy. And when it comes to capital allocation, that is exactly our approach. Our capital allocation strategy has 3 main tenets; fleet transition to electrification, value-enhancing M&A, and shareholder returns and I'm pleased with our execution on all 3 fronts. Our dynamic capital allocation strategy is what has allowed us to opportunistically pursue acquisitions such as Silvertip in the wireline market, Par Five in cementing, and AquaProp in last mile sand solutions, which have all meaningfully contributed to our top and bottom line results. Our recent investments have also allowed us to stay ahead of the curve in transitioning to our FORCE electric equipment, all while delivering attractive returns. We've also mentioned before that deploying capital towards value accretive acquisitions remains a strength at ProPetro and a key component of our strategy for growth and value creation. Moving forward, we will remain opportunistic as we pursue strategic transactions to profitably grow our business and better meet the needs of our customers. As I mentioned a moment ago, our electric fleet transition is well underway and we look forward to continuing that transition in 2025 and beyond. David will go into more detail about our share repurchase program in a moment, but I want to reaffirm to you our commitment to returning capital to shareholders. Earlier this year, we announced that our Board approved an increase and extension of our share repurchase program through May 31, 2025 with an additional $100 million authorized for a total of $200 million in the plan. Since the program's inception, the Company has acquired and retired 12.6 million shares representing approximately 11% of our outstanding shares. We are incredibly proud of our ability to allocate capital to the highest return opportunities while consistently returning capital to our shareholders. Our recent successes demonstrate the strength of ProPetro's business. Our strong performance reinforces our belief that ProPetro shares are a unique investment opportunity, and that the investment thesis is apparent in the discrepancy between our equity value and the strong financial performance evident in our results. While we are proud of the quarter we put together and our ability to continue generating strong profitability, the quarter was not without its challenges. Our wireline business continued to see some softness and pricing across the conventional diesel-only frac market remains competitive, putting pressures on that part of our portfolio. While the second quarter saw some bad storms roll through the Permian, the third quarter actually uncharacteristically had more weather events, particularly in July and August. This resulted in a greater impact than anticipated. Although we did see softness across our sector, I'm pleased to report that much like in the second quarter, our bifurcated offering proved to be resilient. Our Tier IV Dual Fuel and Electric equipment buoyed our business, remaining highly utilized and high performing in the face of a softer market. Moreover, our cementing business continues to excel and capture market share as rig activity has declined. Another achievement in the quarter I want to highlight is another reduction, relative to guidance, of our capital expenditures. A few years ago we were very clear about our CapEx strategy, and I'm proud of our success in achieving and surpassing those objectives. We expect to reduce capital spending to support strong free cash flow generation well into the future. Looking ahead, we remain confident in our ability to deliver strong financial results through the balance of this year and well into the future. I'd now like to briefly touch on our broader industry outlook and how we at ProPetro fit in to that outlook. We are, of course, not immune to the macro headwinds facing our industry. Therefore, we are focused on controlling what we can, which includes taking decisive actions to protect service quality while ensuring that we maintain capital discipline and a strong balance sheet. Everything else flows just from that. Our goal is to become the go-to completions provider that works for the consolidators of the E&P sector. So, looking at future M&A, as I mentioned earlier, we will always keep an open mind. Our focus in this area will be on value-accretive M&A that provides opportunities to scale our businesses through additional offerings that increase our commercial competitiveness without sacrificing free cash flow generation. Moving forward, we also remain optimistic about the strength and potential of North American onshore oilfield services over the next several years, particularly as the market moves in the direction of providers like ProPetro, which offer lower costs to customers through things like fuel savings while also providing enhanced efficiencies. We are confident that ProPetro is positioned as a leader in this arena. Before I turn it over to David, if I can distill where we are today and why we are confident about the future into 3 key points, it's this; first, with our best-in-class team, we are pursuing and achieving operational excellence and have the strong, deep, blue-chip customer base to match. Second, with an eye towards the future, our electric transformation is well underway and garnering resilient contracts in a high demand environment. And finally, with healthy liquidity, a clean balance sheet, and a strategy that derisks future earnings, we are positioned to deliver value for our shareholders while opportunistically pursuing accretive organic and inorganic growth. With that, I'll turn the call over to David to discuss our third quarter financial results. David?

Thanks, Sam and good morning, everyone. You may hear a few things repeated this morning, but they are important to understand what has transpired at ProPetro. As Sam mentioned, we continued to showcase the industrialized nature of our business in the third quarter, and although market headwinds persisted, sequentially we generated strong returns and increased Adjusted EBITDA while continuing to advance our strategy. While short-term working capital headwinds impacted free cash flow, adjusted EBITDA less incurred capital expenditures remained strong. In the third quarter, we grew market share despite softness across our conventional Tier II diesel-only equipment and wireline offerings along with meaningful weather impacts in the Permian. Revenues increased 1% versus the second quarter to $361 million, net loss was $137 million, and adjusted EBITDA increased 8% sequentially to $71 million. Adjusted net income excluding the non-cash impairment expense was $13 million compared to an adjusted net loss of $4 million in the second quarter of 2024. Additionally, we incurred an operating lease expense related to our electric fleets of $13 million for the quarter as compared to $12 million in the prior quarter. During the quarter, we incurred a non-cash impairment expense of $189 million related to our conventional Tier II diesel-only pumping units and associated equipment. This decision was driven by a significant shift in customer preference away from Tier II diesel-only assets, which represent the lower end of the frac services market. After thorough analysis, we concluded that an impairment was necessary resulting in assets being written down to fair value. Moving forward, we plan to cease capital investment in Tier II diesel-only assets and gradually phase them out over the next few years. These assets, which represent approximately 25% of our active fleets, will be decommissioned in the normal course in favor of our more environmentally-friendly alternative technologies. During the third quarter, a total of 14 hydraulic fracturing fleets were active, which was in line with our prior guidance. We expect to run 14 active fleets in the fourth quarter of 2024. For the last 18 months, we've continued to operate at this fleet level, plus or minus one fleet, which reflects the resilience in our business and the demand for our fleets relative to the market. Moving to our capital program, capital expenditures incurred during the third quarter of 2024 were $37 million, which were primarily related to maintenance and support equipment for our FORCE electric hydraulic fracturing fleet deployments. Net cash used in investing activities as shown on the statement of cash flows, was $40 million for the quarter. As we have demonstrated this year, reduced capital spend is a strong tailwind for cash generation and a testament to the success of our fleet transition and optimization of our business. In fact, year-to-date cash CapEx is down 65% versus the prior year-to-date period. Due to the outstanding work by our team, we are reducing our full year guidance for the second time this year with a lower range of between $150 million to $175 million, down from our most recent prior guidance of $175 million to $200 million. On the last call, I mentioned the strategic supply chain initiative that was beginning to yield results in OpEx and CapEx savings. Today, we're benefiting from the combination of improved operational discipline and these more discrete strategic supply chain processes which have so far exceeded our expectations. What we're seeing play-out at ProPetro with our reduced costs and lower capital spending intensity is a case study on what a committed team can achieve with the right mindset and resources. We are now integrating these efforts with our best-in-class enterprise systems deployments to drive even greater efficiencies in our business processes. Given industry stagnation, we continue to face a challenging environment. However, ProPetro's cash and liquidity position remains strong. As of September 30, 2024, total cash was $47 million and our borrowings under the ABL Credit Facility were $45 million. Total liquidity at the end of the third quarter of 2024 was $127 million including cash and $80 million of available capacity under the ABL credit facility. We expect the ongoing transformation of our assets to more FORCE electric fleets to drive further declines in associated OpEx intensity and maintenance capital spending resulting in increased free cash flow in the coming years. ProPetro's improved cash generation profile allows us to more effectively execute our dynamic capital allocation strategy of continuing our fleet transition while also participating in accretive M&A and maintaining a strong balance sheet. Importantly, it also provides optionality to return capital to shareholders. In the third quarter, we remained active in our share repurchase program, retiring another 1.3 million shares. This brings our total number of retired shares to 12.6 million, which equates to approximately 11% of shares outstanding since the inception of the program in May 2023. This translates to the return of $107 million to shareholders. We have $93 million remaining under the current authorization which extends to May 2025. As mentioned earlier, we recorded a non-cash impairment charge of $189 million of our Tier II diesel-only pumping units and related equipment. We view this impairment as a validation of the fleet transition strategy we began a few years back. The industry was heading toward lower emissions solutions and electrification and we took decisive actions to move in that direction. We now expect that at year-end, we will have approximately 75% of our fleets comprised of next generation technologies that are natural gas-burning, lower emissions equipment. Recapitalizing our asset base with these industry-leading technologies and complementary premium completions services has required an investment in excess of $1 billion over The last few years. This significant investment has enabled our commercial and operations teams to engage our customers with confidence, knowing we bring best-in-class technologies along with ProPetro's superior field service to deliver the consistent industrial solutions they expect. We believe this is a winning strategy to drive durable earnings and cash flows. With that, I will turn the call back to Sam.

Thank you, David. To build on what David just said, and before turning to Q&A, I'd like to again reinforce ProPetro's compelling investment thesis and the recent actions we have taken to sustain meaningful cash flow generation while limiting our capital spend to further accelerate our true earnings growth trajectory. Despite headwinds impacting the energy services space, we believe our company is uniquely and favorably positioned. We have been successful in transforming our fleet, pursuing accretive M&A and executing on share buy backs, all while maintaining a healthy balance sheet and strong liquidity. The results you are seeing today are just the beginning and we look forward to building on our progress long into the future. We have been successfully growing our market share in the Permian Basin with our sophisticated, bifurcated service offerings that include our next generation frac assets, Silvertip wireline services, and AquaProp wet sand solutions. Having these assets coupled with our top-notch customer portfolio and operational density in the Permian that differentiates us and has helped us maintain stable frac activity and increase free cash flow through this cycle even when overall activity in the market has fallen. Again, to reiterate, while market pressures persist, we are confident that we have the right assets and the right team to navigate the turbulence. Our best-in-class commercial architecture and disciplined pricing approach also support our strategy and we believe that ProPetro is optimally positioned for the remainder of 2024 and beyond. We are also confident in our ability To capitalize on the evolution of the E&P industry as we see increasing consolidation. This upstream consolidation underscores the need for consistent service quality and seamless integration with next-generation industrial technologies, directly aligning with our strategy. Finally, I couldn't be prouder to lead this incredible ProPetro team. It is because of their dedication that we are able to confidently present and execute on this roadmap. To the whole ProPetro team, I thank you for your commitment, you are why we are winning and will continue to win here in the Permian Basin, the most prolific and important natural resource on this side of the world. With that, operator, I'll ask that we now open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Eddie Kim with Barclays.

You noted that you expect your active fleets to hold flat at around 14 fleets in the fourth quarter. Could you give us some more color on the utilization of those fleets? Some of your peers are guiding to fairly steep kind of third quarter to fourth quarter activity declines in their completion businesses. So just curious what you're seeing in terms of -- or what you expect in terms of utilization?

As we stated in our materials, we do expect to hold fleet count flat. That said, I think the additional variable in there is just the usual holiday time-off around Thanksgiving and Christmas. We do expect a good bit of our customers to take off a few days around each one of those holidays. There's usually, as we sit here in late October, looking into November and especially the end of December, there's usually a bit of unknown too, especially at the end of the year, where there might be a day or 2 added to a handful of crews. So 14 crews active. And really, all we will be dealing with is just the normal holiday seasonality around those specific holidays.

Okay. So it doesn't sound like you expect I mean meaningful utilization declines just based on those comments. Is that fair to say?

Yes, that's right. I mean I think it's -- from an equipment activity standpoint, definitely not, but from maybe days worked or hours pumped, a small step down. I mean I think 1 thing that I should add to that because I think it was in your first question, is that's a total testament to the operating performance of our team and the customers that we work with, right? Where we've positioned our fleets within the portfolios of each one of our customers puts us in a position to stay that active in the fourth quarter because we're technically the baseload for many, if not all, of our larger customers.

And then just my follow-up is on the contract duration on your FORCE fleets. You mentioned the 2 of your FORCE fleets with Exxon are on 3-year contracts. Could you just remind us what the contract duration is on the fourth and the fifth FORCE fleets you expect to deploy here in the coming months? And are those 2 FORCE fleets with different operators. So by the time you deploy that fifth FORCE fleet early next year, is it correct to say that you'll have 4 different operators across those 5 FORCE fleets?

Yes. I think once we deploy the fifth, that will be across 4 different customers. So we'll probably hold the detail on contract term. I think that's -- some of that is competitive information. That said, we are regularly aiming for multiyear agreements. I think I can say that. But on an individual customer basis, we definitely do our best to zoom-in on that customer-specific needs to address what's best for them and do our best to fit those needs. So the electric operation is, from my personal viewpoint, going far better than expected. Operating efficiencies are as high as we've ever seen, and our customers are very happy, and we look to do much more of that in the years to come.

And our next question comes from Waqar Syed with ATB Capital Markets.

Just wanted to maybe get some more clarification on the prior question. So some of your peers expect revenues to decline kind of double digits quarter-over-quarter in Q4. Where do you expect -- what do you mean by normal seasonality and there's some weather impacts in Q2, maybe you may not see that in Q4. So where do you expect kind of quarter-over-quarter revenue change?

I am going to let David speak to some of the detail there.

We're expecting just into the double-digit range on the low end there. And I think, again, as Sam mentioned, this is mostly driven by the normal seasonality that you're going to get. But overall, we've got active fleets operating consistently through the quarter.

And then in terms of your working capital, we saw some cash outflows and especially we see that your payables sharply declined, days payable came down quite a bit. Where do you -- what was the rationale for that? And how do you see that tracking in Q4 and beyond?

Yes. As I mentioned, we've been working on some strategic supply chain initiatives, some of which have included building in a bit more of goodwill into our working capital position. If you look at our balance sheet over the last 18 months, not only has our asset base improved dramatically, but also our working capital position. And so that's something that we did see during the quarter. I think that we're in a good spot where we are today and don't see any further declines in that, call it, AR minus AP spread, but that's something that we did. We felt it was appropriate and are benefiting from that in other ways in the form of discounts and other improvements in our cost structure.

Okay. And your fourth and fifth fleets and beyond, how do the economics of those compare to the first 3 that you built? And any future construction that happens in, let's say, 2025, do you think that's going to be still in terms of leases or do you expect to buy them outright?

I've said in the past that if we look at this like very technically in our own book, we could make the comment that electric fleet pricing has gone up over the last year. It's not by a lot, but it's definitely slightly up, which adds to our conviction about the current and future opportunity of electrified equipment, specifically our FORCE equipment in the way we're operating and performing. Profitability is very good. I would say, without giving too much detail on that, it is good enough for us to continue investing in this and not investing in equipment that burns diesel, as we stated in some of our scripted remarks. I forgot what your second question was, Waqar?

Yes. Regarding the lease or buy, I mean, that's something that we're going to be looking at any time we are deploying capital. And we'll take, in our view, the most favorable option that exists. We believe that there is some additional appetite there that can facilitate some additional leases. But we're going to be mindful of our total capital structure there going forward and I think we're in a really good spot to have that option.

Yes. And to just add on what David said about lease versus buy on the fleet, for me, from my perspective, a lot of that depends on what does the rest of our business need and what are our plans from a capital investment standpoint. We talk a lot about dynamic capital allocation. We use that word a lot. And it really truly is that ensuring that we are deploying each additional dollar in the best place to create as much value as we can for the overall business. So it's just kind of a continual balancing and juggling act to put our investment dollars in the right spot.

And the next question comes from John Daniel with Daniel Energy Partners.

Sam, on the acquisition strategy, the last several deals have all been tied to ancillary services. Is that the trend we should expect going forward?

In general, yes. I think that's kind of where our focus is right now. That said, we're just heads up and eyes open in general. And given the state of the market, I think the bid and the ask range kind of closing in, I think it's closed in up and down the value chain. I think you've seen the same thing in the E&P space. We're just keeping our eyes open in general. But to your point, to your specific question, we have been very curious and very inquisitive about what else is on the frac location with us. And with the exception of the Par Five deal, which was more of a geographic expansion for our cementing service line, which has been performing extremely well, better than expected. With the exception of the Par Five deal, the strategy has been exactly that to try and spread out on location, capitalize on some of the less capital-intensive services that we work alongside.

1 thing I'd just like to add there is we've talked a lot about our fleet transition. We believe that we've got the best fleet in the industry. So I think to Sam's point, looking at other areas probably is the preference. We don't see any other assets in our primary service line of the quality of ours.

And then on to that end, David, with the Tier 2 impairments, I'm just doing my dumb guy math, if there's 14 active fleets, 7 are DGB, 3 electric, that means 4 are Tier 2. Were those 4 that are working part of that impairment?

Yes. The entire Tier 2 asset base that we own today was impaired. And so some of those assets are not working. Some of them are in circulation, but the entire Tier 2 asset base was impaired.

Okay. And then just 1 final 1 from me. I'm not sure if you would answer it, but I'll try anyways. You got the electric fleet coming in '25. Your press release suggests more could be ordered. Is the working plan today to just use those fleets to swap them out with the other Tier 2s that are working or given that it's probably a contracted fleet and given that I'm guessing the person using your Tier 2 is not someone who'd be buying electric, you keep those Tier 2 running, if that makes any sense?

Yes. I mean just for reference, I look back over the last approximately 3 years, we've retired in excess of 300,000 horsepower. So there's a lot of attrition happening outside of our business and many of our small competitors, but we experience every day attrition because you can only run these engines and these units for so long. That said, as we look into next year, opportunities to deploy a fifth, likely a sixth, possibly a seventh fleet next year will all be in line with some of our regular attrition. We don't necessarily see the market expanding next year, very flat, maybe an opportunity. I think a really good outcome for us would be to bump-up to maybe 16 fleets at the end of next year. But our realistic view is operating between 14 and 15 fleets next year. So as we bring in the additional 1 to 2 electrics, those will most likely be replacement of conventional assets that will be retired.

And the next question comes from Scott Gruber with Citigroup.

With your fleet high-grading and ending of investment on the legacy Tier 2 pumps, how should we think about your frac maintenance expense going forward? Kind of what -- where is that trending to on a per fleet basis?

Down significantly. Down so much so that we've had to right-size our maintenance organization just this year as we've deployed multiple electric fleets. They don't come into the shop. We're doing almost all the maintenance on these electric fleets in the field. So it really changes our mindset and our approach to the support structure that, that operation will need as it grows in the future. I don't know if Adam or David want to provide any additional detail there without saying any numbers, it's just down significantly.

Yes. I think if you were to come to our facility in Midland and walk around our maintenance facility, you wouldn't see the electric units in the maintenance base. That kind of speaks to the paradigm shift that we're experiencing here at ProPetro and also providing the continuous pumping out on location that I think customers are quite surprised at the capabilities. And so the team is doing a lot more with less maintenance intensity, and I think that's going to continue to trend favorably.

Another thing I think as we -- as I think about it a little bit more, Scott, that's important to add, we've, for a couple of years now been very intentionally trying to optimize many areas of our operation. We've had a lot of people across our organization participate in that effort. And we've seen a lot of success as it pertains to many of the large components on these conventional units, engines, power-ends, fluid-ends. We've, in many instances, multiplied the life of some of these large components. So yes, lots of benefit to the OpEx side of the equation. But with a lot of the work we're doing internally, optimization, not only operationally, but with our supply chain as well, how we purchase, who we buy from, a huge tailwind to us being able to lower our CapEx guidance for the second time this year as well. Just a lot of different variables going on, a lot of credit to the team here in Midland internally for creating those wins.

Obviously, part of the original investment thesis was around reducing that capital intensity. So glad to hear it's playing out. And even if you guys don't want to provide a kind of per fleet number, would you be able to provide a kind of maintenance kind of ballpark number for the fleet as a whole given the mix and layering in the cementing and wireline, just kind of if you think about '25 and running the 14, 15 fleets with the makeup you have, kind of what's an all-in maintenance CapEx number for ProPetro?

Maintenance CapEx. Well, I think, look, we're working on our budgeting process right now. You can see what's going on in our P&L and the cash flow statement today. So I think that can provide pretty good guidance for the maintenance spend for next year. The things that we'll be evaluating as we get into our budgeting season will be what type of growth initiatives do we build into that versus which ones we might be able to finance. So I think give us some time, we'll provide some more context. But generally speaking, we're seeing improvements of 25% to 30%, 40% relative to the new fleets that are being deployed. So we'll give you some more context on the next call.

And the next question comes from Kurt Hallead with Benchmark.

I just wanted to maybe tie up a loose end here in the context of you indicated your revenues to be down sequentially about 10%. So that would be what, about $30 million, whatever, $35 million. What do you think the decremental on that decline in revenue would be from an EBITDA perspective?

Decrementals probably in the neighborhood of 26% to 30%. And that's just going to be dependent on exactly how it plays out over the quarter. But we saw over 100% incrementals this quarter, largely attributable to the cost management. That's not something that you can sustain, right? But I think on the downside, we would expect somewhere in that neighborhood.

And then just a follow-up on, Sam, you kind of referenced electric fleet pricing has gone up slightly over the past year. When you kind of look at your revenue per crew over the last couple of quarters and EBITDA per crew kind of held pretty constant in a tough market environment. So obviously, that speaks to elements of your e-fleet. Can the same be said with respect to the DGB? Can you give us some context on how pricing is shaping up for that asset class?

I think everything just kind of sits on a continuum. And you and I both explained it, I mean, here on this call that the e-fleet pricing is the most resilient. The dual fuel pricing is next most resilient and the diesel pricing is least resilient. So it kind of depends on our -- as it pertains to dual fuel equipment, it kind of depends on our specific application, customer and geography, all of that. It's not been as resilient as the e-fleet pricing, but it has hung in there much, much better than the diesel equipment.

Okay. And then it's a heavy emphasis as you have continually on free cash flow generation. So just kind of curious, I know you're still kind of setting your budgets and everything else. But if we were to use a proxy for free cash flow conversion, where do you think that would land?

Well, this year, we'll be over 50%. We have been targeting kind of getting up to 30% to 50%. Next year, I think that range ought to be pretty good. So let us do our work on the budget process, and we'll provide some more context on the next call.

And the next question comes from Jeff LeBlanc with TPH.

I just wanted to see if you could give us an update on AquaProp and how the integration efforts are going into your frac fleets.

Sure. Yes, Aquaprop has been great. When we made the acquisition earlier this year, we had it on a few of our fleets already. I think we would all agree that our growth has probably not been as much as expected this point in the year. That said, we've seen the sand market really change quite a bit. We've seen prices fall in dry and wet across the board. And what that does from our -- from my perspective, what that does when the sand market moves that hard, it creates a lot of noise. So it takes some time for everybody to kind of double us and our E&P partners and customers to double back and figure out what the most economic solutions are. It just creates a little bit more time, therefore, creating an obstacle or 2 for us as it pertains to growing that business. We do still believe that, that particular wet sand solution and the pile storage on location is going to be the most industrial and most cost-effective way to move and store sand on location. So in the long-term, we feel very confident about our ability to continue to fold that in commercially as we move into next year and into the future.

Next question comes from Stephen Gengaro with Stifel.

I guess 2 things from me, if you don't mind. And the first is probably kind of a medium-term question. But as the world evolves and most of the fleets that are active and marketed are electric or at least high-quality dual fuel assets, how do you maintain differentiation?

Yes. Performance, really, it all comes back to -- we're in a transitory time in our industry right now where equipment is changing. This has been happening for several years now, but I'd say we're in the mid to late innings of a transition into a frac market that is going to be almost totally natural gas burning. So early on in a transition like that, you could easily differentiate with equipment. As a transition like that matures, it all comes back to people, just like it always has. So our ability to guarantee a customer a certain operating performance with, say, an e-fleet or a dual fuel fleet. And that's not just pumping hours per day, but that's safety, that's fuel displacement. It's really all of the above to fold that into our agreements and then go do it, not just do it, but exceed it is what we think our key differentiator is. We're not shy about that. We don't think that it's something that's that easy to copy or rip off because you have to be on the ground with your people, pushing a mindset that wants to compete and perform every day. Just as an anecdote, recently, we had 1 of our e-fleets pump continuously for over 11 days straight. That's 24 hours a day for 11 days, moving fluid. That fleet in that month went on to pump almost 700 hours in a month. I mean, do the math on how many hours there are in a month, and that's almost a whole month. So we don't know what's more differentiated than that. We want to continue to push the bar higher and work with customers that expect that of us and almost create an entirely new market. We think we're doing just that. And I think for the next few years, we're going to keep differentiating in that manner.

And I just did the math. So that's a large number. The other quick one, just as it pertains to 2025, and I know it's just at a kind of a high level, the general commentary that we've heard from your peers and some others has been kind of expect flat from here through next year from kind of an activity level perspective. Is that in the ballpark of how you're thinking about it?

I think that's likely how we go into the year, Stephen. We do, given some of the differentiation that I just talked about, some other things that we've talked about on the call today, we do think there's going to be opportunity for us to continue to grab market share next year. So is it 14, 15 fleets going into next year? Yes, highly likely. I think if you're building a model on us, you should start the year with that level of activity. Does the market expand a little bit in the back half of the year? I think there's a lot of people hoping that. We'll see. We'll see what comes. That said, I don't think we here at ProPetro to continue to create a lot of financial value for our stakeholders necessarily need that. One thing that we haven't mentioned yet that I think should be noted is on top of just general activity, as we deploy additional e-fleets, we're creating a significant amount of accretion in our earnings. I think you saw some of that here in the third quarter as we had another full quarter effect of an additional e-fleet. From a margin cash flow profile standpoint, I think that's going to be a really important part of our 2025 story.

Yes. And Stephen, just to add to that, we entered 2024 really as a company that had 1 or 2 e-fleets going into the market. We were a new company as it relates to electric frac. Today, we're going to be exiting '24 really at the top of the market. I think our customers have realized that we're delivering industry-leading performance with the best technology in the marketplace, combined with that field service that really enabled us to make that transition over the last couple of years because of the people. So that's going to be a differentiating factor for, we think, some time to come because of that combination of technology and people and what ProPetro is known for. And that's not going to be new going into '25. It's going to be proven.

[Operator Instructions] Our next question comes from Sean Mitchell with Daniel Energy Partners.

My question has been answered. Sorry, that was a misprint on my part. Sorry about that.

See you next week.

Yes. We'll see you next week.

This concludes our question-and-answer session. I would like to turn the conference back over to Sam Sledge for any closing remarks.

Thanks, everybody, for joining us today. Thanks for your interest in the company. Hope to meet with you soon.