ProFrac Holding’s Perspective in Q1: KEY Takeaways

ProFrac added six frac spreads as demand for natural gas-specific equipment remained steady in many shale Basins. However, the company faces a slowdown in drilling and completion activity, which can restrict volumes in Q2. The company may also suspend a few programs. In Q2, ACDC introduced ProPilot - an auto-frac platform. Its free cash flow turned negative in Q1.

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Fracking And Outlook

Our short article discussed our initial thoughts about ProFrac Holding's (ACDC) Q1 2025 performance a couple of weeks ago. This article will dive deeper into the industry and its current outlook. Early Q1, ProFrac’s active frac spread count increased by six. Although many regions witnessed a recovery, the growth was most prominent in Eagle Ford and Permian. Going into Q2, it sees resilient demand for its advanced natural gas-heavy frac equipment. Diesel frac spread (Tier II) equipment has been lagging, though.

ACDC’s management expects volumes to decline in Q2. However, average sales prices and increased logistics activity can mitigate the adverse impact. In 2H 2025, the company’s Haynesville operations can see a sharp recovery because the natural gas market is shaping up well. Apart from conventional sources, higher requirements from AI-related power demand and LNG demand can account for the increase in 2H 2025.

Challenges and Opportunities

In recent quarters, ProFrac has tuned its frac spread supply in accordance with lower drilling and completions activity that is consistent with flat production. This implies that a sharp or prolonged slowdown in activity would lead to production declines. Higher input costs due to tariffs and uncertainty over the commodity price reflect a potential economic slowdown and softening global demand.

In the current environment, operators tend to focus on operational expenditures, which means prioritizing production from active wells over bringing new wells online. This can also imply temporarily suspending activity on marginal assets. In Q2 so far, ADCDC suspended some programs, resulting in more white space on the frac calendar. Nonetheless, activity can rebound sharply, and its frac spreads in completions activity can ramp up rapidly. It will also reduce operating costs by supply chain management through its in-house capabilities and better sourcing.

New Technology

In Q2, ACDC introduced ProPilot, which is an auto-frac platform that automatically recommends job designs based on mechanical feedback, fleet configuration, OEM ratings, etc. It can extend useful lives and minimize failures of frac equipment. It also optimizes natural gas substitution rates to deliver fuel savings. After recently implementing ProPilot's auto-frac functionality into a frac spread in South Texas, it plans to deploy it to another frac in West Texas.

A Q1 Financial Discussion

As discussed in our short article, from Q4’24 to Q1’25, ACDC's revenues from the Stimulation Services and Proppant production saw steep rises (36% and 45% up, respectively), while its revenues from Manufacturing remained relatively steady (6% up). The company's free cash flow turned negative in Q1 2025. ACDC's leverage (debt-to-equity) deteriorated marginally to 1.05x as of March 31, 2025. It had $76 million of liquidity as of March 31.

In Q1, it repaid $43 million of long-term debt. It has also identified approximately $70 million-$100 million in potential capex reductions in FY2025.

Relative Valuation

ACDC is currently trading at an EV/EBITDA multiple of 6.6x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is 7x.

ACDC's forward EV/EBITDA multiple expansion versus the current EV/EBITDA is less sharp than its peers because its EBITDA is expected to decrease less steeply than its peers in the next year. This typically results in a higher EV/EBITDA multiple than its peers. The stock's EV/EBITDA multiple is higher than its peers' (LBRT, PUMP, and HAL) average. So, the stock is reasonably valued compared to its peers.

Final Commentary

ACDC started the year on a positive note after it added six frac spreads as activity was boosted in Eagle Ford and Permian. Natural gas demand recovery and LNG production ramp-up have encouraged its natural gas-heavy frac equipment. However, it faces challenges at the Q2 onset. Volumes will likely decline, as drilling and completions activity point to flat production. It has also suspended a few programs as the industry indicators weakened.

To mitigate the tariff-related input cost hike, ACDC may rationalize supply chain management through its in-house capabilities and better sourcing. The company’s FCF turned negative in Q1. Despite that, it repaid long-term debt during the quarter. The stock is reasonably valued compared to its peers.

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