ProPetro Holding Corp. (PUMP) Earnings Call Transcript

Thank you. I'm sorry.

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 Weatherall, President and Chief Operating Officer Adam Munoz, and President of Pro Power Travis Simery. This morning we released our earnings results for the second quarter of 2026. Please note that any comments or comments 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 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, 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 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 ProPower 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 long-standing customer. The program experienced significant unexpected downtime before the fleet recently returned to the Permian Basin. That work, together with severe weather across the Permian in June, 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 at 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. Our 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 remain 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've 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 pleats 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 fleets, 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 re-contracting 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 contracted 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 extends well beyond data centers. We're seeing meaningful opportunities across the oil and gas 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 Pro Power 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-tech applications. 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. meaningful milestone that reinforces what we've been saying for several quarters. 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. 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 than we originally anticipated. 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 link them 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. Well, 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 including the contracts announced this quarter, and expect that momentum to continue through 2026. As we deploy capital to grow Pro Power, we're proud of the work we've done to position Pro Petro'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 ProPowers grow, 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 frac 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, Pro Power continues to build meaningful momentum as we focus on discipline execution, successful deployments, and continued de-risking of our operation. 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 completion 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 titans in demand for our distributed power solution continue 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 continue to make meaningful progress across ProPower. During the second quarter, ProPetro generated total revenue of $306 million, an increase of 13% compared to the prior quarter. Net loss totaled $8 million, or $0.07 loss per diluted share, compared to a net loss of $4 million, or $0.03 loss per diluted share in the prior quarter. the entire quarter. Adjusted EBITDA totaled $45 million, representing 15% of revenue and increased 23% sequentially. This includes approximately $16 million of lease expense related to our electric fields. 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. 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 $47 million supporting pro-power equipment orders. just 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. 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 dollars down from the prior 140 million to 160 million dollar 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. or are intent to ultimately purchase all five force electric fleets. Also, as a reminder, the completion business guidance range includes capital reserved for refurbishing a portion of the existing Tier IV 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 pro-petro. Importantly, our balance sheet remains a significant source of strength. As of June 30th, 2026, cash and cash equivalents were $784 million, including proceeds from issuance of $690 million aggregate principal amount of convertible senior notes. 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. 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. 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. Matt, 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, Simon, Caleb. Good 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 helpful, but just a little beyond that. And then related to that, I know you got the Carapela Strategic Framework Agreement, which I'm sure gives you more certainty and some flexibility on the whole timing of equipment delivery and related cash 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 question. 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. 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, communication strategy that we pursued almost a year ago to give really clear guidance and a really clear and transparent fight 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, um, 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. to raise capital and funds to ensure the long-term execution of the business. So I guess before Caleb chimes in, it's, this is, this is more of the same from us, uh, WE'RE REALLY, REALLY PROUD OF THE COMMUNICATIONS PLAN THAT WE PURSUED FOR ALL OF OUR.

almost a year now and we think the plan is well at work. Right now, Caleb, you going to add to that? Yes, thanks Sam. Good morning, Saurabh. Thanks for the question. So the way I think about liquidity is very simply, if you look at our full year CapEx guide of 525 to 595 million 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 nine hundred million dollars or even just cash of seven hundred eighty four million dollars 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 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 that 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 our guidance of 1.4 to 1.5 million dollars per megawatt. Like Sam mentioned, 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 capex standpoint and have a lot of visibility.

into what that's going to look like going forward. Yes, and I guess just one last thing before we get off of this. You know, our long-term future plan and the guidance that we've given, especially the numbers that Caleb just gave on, you know, the cost per megawatt, the 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, Kala, 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.

in that data center project? Yes, 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, you know, really ahead of schedule, quite honestly. And so 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 project. platform to grow into these several hundred megawatt type sites. Yes, Sarban, 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 kind of life cycle of a deal from, you know, 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, you know, going into that first game of the year as a sports team, 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 put some points on the scoreboard and I'm super proud of our team and.

really excited for the next play in the next game. Yes, no, it's always easier said than done. So great to see that progress and good luck.

back down. Your next question comes from a man of Iran. J.R.M. of J.P. Morgan. Your line is open. Yes. Good morning, Sam and team.

Sam, I was wondering if you could – morning. 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 advance. 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 um 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. You know, I made some some comments for Sarb's question around, you know, that nothing's really changed here from a 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. You know, 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. And 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 we're, the team's being very diligent and intentional about how we finalize what are, you know, the first couple marquee data center contracts that we're in extended negotiations with right now. And we're going to 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.

Yes, 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 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 all the data center contracts that we've been negotiating. So we're super mindful of that. full of, you know, all of the deployment schedules and how they come together. And I'm really excited to be able to piece that together and get contracted backlog out into 28. Yes. And look, this this I know you hear us talk a lot about execution, you know,.

We're really proud of what the team's done today, like we've already mentioned. But our ability to go perform on this data center site that we're currently on and deployed to today is 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 verticals. And I've mentioned this previously, but I think it's worth mentioning again that 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, as you heard in our scripted remarks, they're paying their bills right now. This is a positive business. 18 months into standing it up. So we think that's really cool. And that's going to be a part of the sturdiness and.

the ability of a 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 How would you just generalize pricing trends, call it at the top end of the food chain in terms of price? some of the force units, the higher end natural gas burning equipment versus maybe some of the more legacy athletes within the overall portfolio.

Yes, I think the 13th fleet for us is kind of an interesting story, um, I think if you stood back and you guessed, you might think, oh, that's what the private operator that just fired up a new rig program or is increasing their rigs. And that's not the case. This, this, this, this 13th fleet, um, 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, Profetra'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 pretty good line of sight to 12. So this 13th fleet is really the first net add above our expectations coming into this year. Like I said, it's with a top tier EMP. 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. You expand more at some color on talk about pricing term, the return profile here. You 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. Thanks.

Yes, thanks, Derek. Yes, 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 micro grid for, you know, 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, you know, we like these oil and gas deals. We think it only progresses in a positive way for us, you know, either giving us higher economics down the road on deals that we really like, or shifting assets down the road to, you know, 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.

term creating earnings. Okay, great. Thanks, Travis. Maybe switch it over to Frack. 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. Understand you have some temporary headwinds. with the out of base and move on the frack spread, you have some weather standing up at 12th fleet, but some clear momentum with pricing given the tight environment here. So how about the earnings power for completions, next quarter, third quarter, maybe beyond, just looking at the model idea, but where's the path to get back to 25% segment.

keep it up margins for FRAC. Yes, Caleb, please, please add to this if you need to. But, you know, 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 till the toward the very end of Q3. So the revenue contribution will be very low for that additional fleet and 3Q. That said, you know, our kind of fleet stand up and maintenance costs, um, 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, 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. So 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. understanding of the market and how much equipment is or isn't out there. 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 over to you. Thank you. Thank you.

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?.

Yes, 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, you know, 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, yes. 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. Yes, just reiterating that the earnings obviously are more attractive in shorter-term oil and gas deals, which... helps uh kind of create that sturdiness in terms of short-term earnings in the business um we feel like still gives us the opportunity to participate in these data center contract. So we don't have to just wait around for the data center contract. We can go really execute on what's able to be executed during thermal resistance.

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 or so. Still targeting those economics.

awesome that's all really helpful color 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.

Yes, WE'VE, I WOULD JUST DIRECT YOU BACK TO OUR, YOU KNOW, 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.