Q1 2021 Liberty Oilfield Services Inc Earnings Call
Good morning, and welcome to the Liberty Oilfield services first quarter 2021 earnings Conference call.
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After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded for them.
For a comments today may include forward looking statements, reflecting the company's view about future prospects revenues expenses or profits.
These matters involve risks and uncertainties that could cause actual results to differ materially from our forward looking statements.
These statements reflect the companys beliefs based on current conditions that are subject to certain risks and uncertainties are.
A detailed in the company's earnings release and other public filings.
Our comments today also include non-GAAP financial and operational measures.
Non-GAAP measures, including EBITDA, adjusted EBITA and pre tax return on capital employed.
And not a substitute for GAAP measures and may not be comparable to similar measures of other companies right.
A reconciliation of net income for EBITDA and adjusted EBITA in the calculation of pre tax return on capital employed.
Scott a call.
A presented in the company's earnings release, which is available on its website I would now like to turn the conference over to a Liberty CEO Chris Wright. Please go ahead.
Thanks Ian.
Good morning, everyone and thank you for joining us to discuss our first quarter 2021 operational and financial results. We're excited to embark on a new era for Liberty completing our first quarter with an expanded platform as a fully integrated completion services engineering and diagnostics.
Yeah.
We're pleased to report 552 million, a revenues and 32 million in adjusted EBITDA from the first quarter a.
The Liberty once the combination has been extraordinary.
For the size of our business, while only growing G&A by approximately 15% and depreciation and amortization line thats been 40% from pre pandemic levels in exchange for a 37% equity interest.
In addition, the enormous growth in our technological expertise has been inspiring.
Together, a suite of leading it takes.
Apologies.
Two of the top technological teams in the industry.
We are excited to bolster our frac technology leadership in many areas and I will highlight just a few later in the call.
We've come a long way since the founding of the Bard company a decade ago.
Our focus however remains the same delivering superior returns for cross cycle to build a differential company with long lasting competitive advantage.
Accomplishing this required a great people and a culture than a line Dan to passionately preceded the Liberty mission.
We estimate we currently have a little over 15% of the deployed fleets in the market and are likely to complete a little under 20% of North American shale wells.
After a rapid rebound off of the COVID-19 volume.
We are now with a slowly improving market.
Liberty number of deployed fleets in the first quarter was in the low thirty's and it'll be similar in the second quarter, we will remain disciplined in deploying the additional capacity.
Fleets are only deploy the customers with strategic value and that will deliver good returns on capital invested.
Overall, the market conditions today remain challenged the data.
Of our improving as demand for Frac services grows and more importantly supply of quality fleet Shrinks, Inc.
The risks in Liberty fleets and partnerships continues to grow our dialogues with customers, becoming even more constructive as both parties seek mutually beneficial long term partnerships.
The demand pull for next generation equipment with engineering of diagnostics is quite strong price.
Pricing dynamics continue to improve across all day long.
While the current pricing levels remain well below Q1 2020 cut.
Customer conversations have continued to gain momentum since the last reported.
As deputy CIO of oil prices have been relatively stable in the $60 range and customer economics have substantially improved.
Our customers are becoming more comfortable with the necessity based approach to price increases.
As a testament to the deep customer relationships our team has developed over the years.
The ongoing attrition amongst practices will likely further of this discussion as we move through the year.
The industry is huge.
The market for Nexgen equipment, the tight and the market for nexgen equipment industry, leading operations and technology innovation is even tighter.
Looking forward, we see a pathway to a normalized margins for Liberty at some point in 2022.
We've already achieved three sequential quarters of margin improvement as activity has built off of historic lows in the second quarter of last year.
While the rate of growth is slowing sequentially the true.
Still looks modestly upward as private E&P companies are reacting to a strong commodity prices.
Public E&ps, however, a remaining steadfast in their commitment to capital discipline, regardless of the commodity prices.
The fully support the disciplined in investing across the whole energy sector as it is required to bring our industry back to a full health after the giant upheaval brought by the share Revolution.
A year on from the onset of the global pandemic and severe crashing oil markets I'm pleased that the fundamentals for our industry and business on an upward trajectory.
North American a global economy are decided the stronger and the world needs more energy.
Or will this energy come from.
While there are a lot of the new and exciting technologies in the market at the heart of dependable a cost effective energy access ease of oil gas and natural gas liquids.
Hydrocarbons play the anchor roll in from filling our global energy and we'll continue to do so in the coming decades.
And the carbon supply of just over 80% of World Energy when we founded Liberty 10 years ago, and they still supply just over 80% of global energy today the <unk>.
Biggest shift in hydrocarbon demand has been a natural gas displacing coal market share in electric power generation.
In fact oil and gas are currently at a record market share ever in the United States and just under 70% of total primary energy supply.
Yes, I know that the year of lots of talk about the energy transition and assumed the makeup all obsolete.
That is simply not true.
Let me put things in perspective, when can solar today supply of roughly 2% of global energy concentrated in the electric power sector, which collectively supplied less than 20% of global Energy Inc.
Absolute terms, the trillions of investing in wind and solar do produce a great deal of energy one of them.
Relative terms they are still quite modest EBIT compared simply for the growth in energy demand. The world, We will see in the next decade alone.
The only way out of poverty is increased energy consumption.
Hydrogen is rightfully full of close these days, but it is not an energy source.
The change is an alternative method of energy storage. It takes more energy to produce hydrogen that is released we need is concerned it has great.
The potential to create zero carbon liquid fuels of high.
Hydrogen adoption will grow not shrink the need for energy.
Climate change concerns are the driver behind the energy transition dialogue.
The changes in serious sizable in global challenge.
Day natural gas displacing coal in the power sector has been the largest factor, bringing U S per capita of greenhouse gas emissions to their lowest levels since the $19 50.
A continued progress will require a significant contributions from many areas across the energy space, including continued contributions from our industry and likely a large scale carbon capture utilization and storage.
For both continue and expand our efforts in lowering greenhouse gas emissions the oil and gas industry is not shrinking.
Rather it's maturing into a steadier slower growth and cleaner business we.
We believe the U S and Canada will continue to play a leading roles as both major energy producers and drivers of improved technology and practices globally.
The world faces a second.
And frankly more urgent global energy challenge energy poverty, one third of humanity still lacks lack of access to modern energy that enables the healthier opportunity rich line that we all treasury.
Die every year simply for lack of a clean cooking fuels and reliable access to electricity.
Sadly this global crisis gets very little of political attention because it all the effects people in low income countries and the lowest income folks as well of the nations.
Surging U S exports of propane and other natural gas liquids are helping hundreds of millions gained their first access to clean cooking fuels U S. LNG exports are also helping bring the electricity access to the 1 billion people, who currently lack of any electricity access.
And another 1 billion with only unreliable intermittent low one is electricity.
Electricity of loading lower income countries comes predominantly from hydrocarbons or hydropower while.
While the shale Revolution has helped accelerate the rise for so many out of poverty more than 2 billion people remain in the dire circumstances. Unfortunately policy decisions to restrict capital access for a hydrocarbon energy development in low income countries is a growing headwind.
You can read much more about these two global energy challenges and Liberty wide ranging efforts in our sustainability report that will be released on June one.
Two weeks after that on June 17.
<unk> will host an investor day in Denver to provide deep insights in the memory people technology development business processes Frac operations strategic efforts and new energy avenues, we hope that you could join us in Denver for.
Video conference.
In the first quarter, our operating teams executed at the highest level navigating weather disruptions across the southern regions in Canada.
Looking quickly to minimize the weather impact some of our customers.
Our sales teams drove new business above expectations.
Secondly, embracing the strength of <unk>.
From a legacy red and blue sales organizations.
Goes without saying that we achieved a record quarter for total proppant pumped topping our previous Mark set in Q1 2021 of these notable is that our fleet efficiency levels collectively strong with both Red and Blue fleet near the top of our efficiency leader Board.
Of course, we have work ahead of us to raise the efficiencies of menu acquired fleets to Liberty standards.
It is notable that we had strong results from cross the combined lease.
Overall, the integration has been incredibly positive experience our teamwork our team workday overdrawn handling the challenges of the integration to deliver a seamless transition for our customers with no disruption to operations when a testament to the hard work of folks.
Cross supply chain.
The HR finance and importantly, our crews in the field.
Again, our improved efficiency has been commendable keeping a naturally disruptive nature of the large scale of integration.
And the hard work continues we.
We are moving towards a collective best practices, which are coming both from a legacy Liberty and our new Liberty Blue fleets. This effort will drive continuous improvement net liberty of DNA.
We are combining a maintenance operations for both Frac and wireline, but the.
The integration isn't over yet we continue to work on the personnel integration finalize the transition of our ERP and the internal systems and manage the challenges associated with the closed Canadian border.
Technology initiatives on exciting part of the progress the rich history of both Red and Blue legacy businesses is the.
The visiting us attractively to push forward opportunities for automation in.
In the near term, we've already identified ways to streamline the number of people. We have on location. We are deploying a new version of sard extract the chemical management automation, a liberty developed electronic system, a sense of subtract chemicals with high accuracy and precision.
Automation of the equipment control systems will also allow us to streamline operations and reduce costs.
We are launching a new direct frac diagnostic measurement of Frac sand.
This grows our portfolio of Frac design and monitoring technologies.
Optimize well spacing chief development, and Taylor Frac designs and perforating strategy.
This is a highly complementary technology to our worldwide diagnostic and our extensive suite of proprietary software tools and the engineering expertise.
Our efforts to help customers lower the cost to produce hydrocarbons.
Our focus on empirical data real measurements expand significantly with financing.
This fiber optic based direct measurement of fracture geometry allows a calibration of our frac models and better optimization tools for our customers Frac.
Frank Thanks measurements provide information of that fracture adjuvant stage spacing coverage perforation cluster design and its impact on cluster efficiency fraction of Maine, and French our highest calibration true volume to the first response.
That is a mouthful.
It also produces a direct way to measure of a frac hit in a complementary fashion with Liberty as well watch.
The Frac has also gained significant momentum in recent weeks, we've hosted numerous customer tours at our <unk> facility of Magnolia and the enthusiasm is a electrifying.
Thank you Frank we can drive a reduction of greenhouse gas emissions of at least 20% compared to all other existing frankly designs and customers are taking notice of.
This is that the number one draw for customer engagement and the E&P priorities are shifting to minimizing the emissions output, while maintaining operational efficiency and safety.
To date, we've completed over 250 hours of high pressured durability testing on a pump and have plans for field testing next month we.
We also have a team in place for commercialization as customer interest has exceeded our expectations.
This is truly the next wave of technology, and frankly design and we're excited to lead the industry in this endeavor the.
Right of <unk> Frac fleet deployment is highly dependent on economics, and the same prudent capital deployment strategy that we have always followed.
As we look at the year ahead of our view of oil markets have become more constructive for.
Buoyed by vaccinations massive fiscal and monetary policy actions and strong fundamental leading economic indicators global demand for oil is expected to continue to rise through the year.
In the U S. Five stage of already recovered from the pandemic recession on a GDP basis with others soon to follow suit.
Surging COVID-19 cases in certain countries, such as India, Brazil, and some EU nations are raising concerns for oil demand in those areas.
On a steady draw a global oil inventories stock suggests a measured increase in OPEC plus oil production output is being absorbed by higher global demand, resulting in a tightening of the oil supply and demand balance.
Over the last three quarters, North American Frac activity has rapidly increased towards supporting maintenance production levels.
It's a public e&ps are now at a roughly maintenance run rate frac activity.
Private e&ps on the other hand, our more response at the current oil and gas prices, which continue to support modestly increasing demand for Frac services in line with the recent rise in rig activity.
Importantly, E&P companies are maintaining capital discipline, and moderating long term growth aiming to increased commodity price stability and the.
Enhanced sector of attractiveness.
We believe that this approach is a positive for the industry going forward.
North America is a critical energy supplier of the globe and we need a healthy industry.
With that I'd like to pass the call over to Michael to discuss our detailed financial performance.
Good morning.
We are pleased with the first quarter results.
I'd like to take a moment to thank Todd for going above and beyond expectations.
All of them together to deliver solid results, while encountering operational challenges arising from the unusual winter weather and added responsibilities for the sizeable integration of that once the acquisition.
We're off to a great start executing on a strategy, we would expect to drive the takes phase of the financial growth superior.
We are already seeing early stage benefits from mid teens, leveraging a full suite of completion services, including Frac wireline at the same along with engineering and diagnostic tools unique of the industry.
To drive increased engagement with new and existing customers as Chris reviewed we are also working very hard of integrating a technology development efforts to improve efficiencies throughout the supply chain and drive the next phase of innovation and great business.
The first quarter of 2021 revenue increase of $114 million to $552 million from 258 this quarter.
Reflecting the inclusion of tungsten and new customer wins that exceeded expectations.
These gains were partially offset by with the disruptions during the period of the SaaS and in Canada, We estimate a day production for this quarter review of approximately $25 million.
The weather impacts at once is the activity disruption was postures.
For the remainder of the revenues are expected to be completed the second quarter.
Sure.
The state law SaaS of tax decrease of 59 million for the fifth quarter compared to $48 million.
Fully diluted net loss per share was 21 seats for the fifth quarter could be a 41 states in the fourth quarter.
Results for the quarter included $7 6 million of non recurring transaction related costs and because of a number.
Reported startup cost true.
The first quarter, adjusted EBITDA, which excludes noncash stock compensation expenses decreased 82 million from June.
The improvement of adjusted EBITDA, primarily reflects the higher absorption of fixed cost with the inclusion of one of them.
General and administrative expenses $26 for really for the quarter and included noncash stock based compensation expenses of $4 3 million.
G&A of approximately 50 amongst some of the higher relative to the full quarter on a.
A 114% sequential increase of revenue G&A costs, essentially flat with Q1 2020 of it the last pre pandemic quarterly benchmark. Despite the doubling of that business for the ones to the acquisition at the end.
The new sales lines basins, and a heat treat as the Canadian market.
We thought what everybody a little frac equipment, and a bottom line in the Permian sand mines, and depreciation and amortization was $62 million the quarter.
Financing costs for the fourth quarter of $46 million net.
Net interest expenses associated fees, so the $3 8 million in line with prior quarters.
We ended the quarter with a cash balance of $60 million approximately flat with a little.
And the total sales of 106 million data for.
Financing costs and a legacy.
It was a borrowings drawn on the ABL credit facility and total liquidity, including the Bayou, Louisiana. The credit facility was $258 million based on the financial statements as of March the exist 2021.
Capital expenditures for $42 million for the quarter, we reiterate that a Kevin lets say this for the year it seems to be the 345 $275 million range.
Maintenance of synergies technology investments and amortization at.
That line for the last quarter importantly, the plan with free cash flow positive for 2021, while continuing to invest for the future.
The integration is proceeding as planned.
One of the wants and pleased that liberty into the systems at the end of February no disruption of the customer operations.
So let me provide a transition of administration services of the fifth quarter, which made up of the bulk of the $7 6 billion transaction services and on the cost line.
There will be some trailing transition cost sufficient 3 billion for now.
To the cash out of it.
The integration of the significant logistical challenges of the between legacy and the planned for and executed incredibly well, bringing together a team of approximately 3000 dedicated individuals across 15 locations two countries during the pandemic with remote listing requirements.
The thing was something we did not undertake lightly that women in the maintenance of the Roes of the challenge and we are now operates one of the living breathing.
For the single go to build the growth of <unk>.
The company period the.
Management team and a move by the hardwood innovation and character strives of up to the example of biopsy.
We will see the fruits of that labor as we exit the challenging the background for the last 12 months have increased scale provides significant financial acreages margin improves we should see increased absorption of fixed cost base of the corporately.
For us because of them to G&A costs of approximately 100 million Boes for the year. We've doubled the size of the company would expect G&A to increase by approximately 15% of prepaid debit. Please.
Full true net income will be helped by the fact, the depreciation and amortization on the <unk>.
Greece by approximately 55%.
For each app.
The technology platform to bring to market tools that increase efficiency and reduce cost of operations enhance supply chain issues of is underpinned by the north American wide operations and increased scale will drive economies and deep partnerships with leaders from all of the cost of operations.
Two more of a these opportunities at our Investor day on June 17, and see the results of.
Yes.
In a highly cyclical business. We believe it is imperative for the long term returns need to revise shields with reward for.
Of this commensurate with risk and Liberty our approach is simple the strike the right balance between sustaining the growth opportunities.
<unk> strength and returns to shareholders.
Looking forward, we are now navigating a significant advantage of business in a rising market with fundamentally stronger market system.
We have a distinct advantage with a best in class technology and completion services driving deeper customer the tonnage.
We are already seeing price increase a secure more customers in the coming quarters, driven by the loans and value added by our industry, leading technical knowledge and citizens that help customers low cost per barrel of oil for Mcf a day.
A leading edge equipment technology most of the deep rights has gotten a significant interest from customers, who want to improve their ESG profile by achieving greater operational efficiency and lowering of mission better.
The economics of it will improve to a point, where it makes sense to a cruciate for that.
Customers have seen meaningful improvement of the three columns.
The economics.
Attrition of accelerating customer interest of the each services will allow us to reach that.
A as in that space.
Importantly, we hit the balance sheet flexibility to act swiftly should conditions improve.
Liberty is committed to creating long term stockholder value.
Balanced strategy compounding shareholder value by reinvesting cash flow at high rates of precision and return the cash to shareholders as appropriate.
The market remains challenging this does not change the fundamental principles upon which we manage the company.
I will hand, the pool of data Chris for closing comments before we open the Q&A.
Thanks, Michael I, just wanted to extend a broad and heartfelt. Thanks to every one in the Liberty family. That's worked so hard through these tough times and through this tremendous transformation of our company to all our customers and partners.
As well and with that we'll open it up for questions.
We will now begin the question and answer session.
To ask a question maybe a press star then one on your telephone keypad share.
There isn't a speaker phone please pickup your handset before pressing the changes.
A question. Please press Star then two.
At this time of a pause momentarily to assemble the roster.
Our first question comes from Blake Gendron of Wolfe Research.
Please proceed.
Yeah. Thanks, Good morning, guys and crisp always appreciate your perspective on the macro and the energy outlook.
The outlook at the top of the call here.
I wanted to circle back on the path to normalized margins. It seems like things are still.
Pretty competitive pricing wise, perhaps an upside bias activity with with private potentially adding in the back half here.
It seems like we really need to see either.
Number one accelerated attrition of a number two.
Bifurcation of next Gen Frac equipment in terms of pricing curious more so on the ladder how are you.
You think that's manifest in terms of your relationship with customers is there any sort of pricing mechanism by which you can take down some economic rent create a bi GHT of emission reduction.
Yes.
Youre right in that the market today is Tom look we've come off of an incredibly low downturn, but every quarter a days of supply and demand the sequentially getting better and yes people want next generation Frac equipment. They want a lower of course, it's not just a greenhouse gas emissions, but.
It's no accident carbon monoxide and other pollutants that a reduced with modern fleet.
So there is a hunger for that Theres also an understanding that our whole industry. The service industry doesn't have the good returns today. The e&ps have recently come back too so yeah. It's a.
Dialog everybody kind of what are you finding what's a low price everybody somebody wants a high price.
Absolutely next generation fleet, and higher performance and higher opportunities to bring technology to continue to drive performance better.
But there is that that commands a price premium and so.
It takes time I think of the last downturn and things were just brutal at the start to summer of 2016 and two years later the market was dramatically different dramatically now that one was driven more by a synergy increase in demand. This rebound we've seen a surge of increase in demand.
The more modest going forward, but the rate of investment in new equipment over the last few years. We've just been very low in 2017 of 2018 people were building a frac fleet with a feverish pace nothing like that has happened in the last two plus years. So I think it's mostly supply attrition and the design.
And for better equipment that continue to pull of the economics of Frac of the right direction.
Totally fair.
One of the switch the wireline bundling we've seen some companies try to do this in the past with a fairly mixed success at various points in the cycle wondering what liberty is seeing in terms of early MPT reductions and the like I know, it's still very early days.
Also in this current activity environment, what the receptivity of.
Value added wireline technology is looking like is there anything specifically you would call out on that front.
Yeah look obviously the integration between Frac and wireline.
The new Liberty work early on in that but again there are opportunities to make those two teams and systems work together better to drive efficiency of lower downtime absolutely.
Clearly Schlumberger had a number of those paired fleets working together for ICD, a bundling sort of a private a price discount for revenues at about the tax.
It's about how do we deliver the state. This fact is that most of efficient completion services and that really is a dance on the on the NAND for between Frac and wireline. So we're proud of the teams we have in both side and very excited about the opportunities about how to make those at the one team not to do.
<unk> teams.
Thanks, a lot for the time.
Thank you.
Our next question comes from Scott Gruber Citigroup stock. Please proceed.
Yes, good morning.
Scott.
Great to hear that.
The normalized margins or a possible next year certainly we saw the <unk>.
Snapback last cycle time, and the non Chris.
Where would you peg the normalized margins.
Given the the new compliance combined fleet in the.
Yes, a different portfolio of composition that youre going to have this next cycle.
Both the Scott.
Sales of wave two specific for us, particularly talking about the future.
But look clearly are our cost basis across our fleet. Our average fleet is lower now.
What we ultimately focus what we ultimately care about is return on capital employed of measured another way cash return on cash invested in our 10 year history, not exactly a stellar years of the industry. We've been above the S&P 500 of that metric and Thats. Our goal is to continue to deploy cash in it.
The disciplined fashion and generate a solid return on net.
And so that's the ultimate yardstick for us from an EBITDA per fleet take I mean, that's sort of a wide band it really depends on a number of factors, but something in the mid teens there is probably a.
Broad brush estimate of that but but again, it's about developing strong returns on capital.
And a strong balance sheets over redwood for whatever comes.
Gotcha Gotcha.
And just.
Thinking through the the pathway to get the something yes.
And in the mid teens ballpark.
Is it primarily operationally driven through the through year.
The fixed cost absorption and the efficiency improvement initiatives, how much pricing is required to get there from kind of split apart of the the pricing driver from the other drivers.
That'd be great.
It's a mix of the two EBIT the mix of the two.
It will go a more specific than that but you need both.
Clearly we have greater efficiencies now clearly we have we have efforts underway to continue to drive down our cost of delivering the service, but we just saw a significant a large pricing compression the work with customers that as oil prices compressed and it was of course, the whole sector, but yes, yes.
You need to see some pricing come back.
Think of our customers are aware of that good news for customers and for the industry. If pricing does it need to come back each of near where it was to bring return back that's just a.
Continue will progress on the efficiency across our industry the <unk>.
Cost of drill a well and deliver a barrel of oil has just continued to go down on a secular basis.
Quickly is that going a bounce up a little bit for the next 12 to 24 months sure, but relatively modest amount relatively modest amount.
So would you be willing to offer a bit more operationally driven or more of pricing driven.
Sir.
Michael slowing of the baseball bat happy if so.
No look at the date.
It's hard to make predictions about the future. It's those two things working in concert.
The company.
I will definitely understood.
Understood I appreciate the color.
Thanks, Ken.
Our next question comes from George O'leary of <unk> Company George Please proceed.
Good morning, Chris Good morning, guys.
George you all talked a good bit about attrition and kind of marketed supply not being what it may seem on the surface. A curious if you could peel back.
The onion, a little bit Darrin frame, what you guys view as the actual marketed supply of versus what our perception of that market to buy might be.
Yes look it again.
It's hard to put specific numbers on that because it was of our yes. The 90 and I think it's in consensus we probably got a border 200, frac fleets running today.
Is there a lot of parked equipment absolutely.
I think very little maybe almost none of that parked equipment is actually staff.
A lot of the customers.
Customers get choice when the market loosen and people want to keep getting better so the.
So theres just a stronger demand for that for the next generation fleet. There is a fair amount of legacy equipment around but it's not being reinvested the starting to perform more poorly so youll see a fleet. They get a used to have X number of pumps and now to bring it out one of the quarter that number of pumps just because of may.
Its problems in pumps go down repairs.
So.
It's not like there is an aircraft carrier full of shiny fleets, just ready to drive off of somebody's yard Dakota scope of work.
And but I think I think it's to state the Indian don't have good enough data to kind of.
Quantify that.
But the rate the rate of equipment being retired and worn out is dramatically larger than the rate of new equipment being built.
Alright.
Helpful, Chris and then.
On the.
Just with respect to the E frac offering it does seem like there is strong demand for a more ESG ish type of offering that truly out of efficiencies in the field out there in the market and you can just think of that in utilization numbers of the different technology types.
Just.
At a high level, what do you think differentiates our will differentiate <unk> in frac offering for.
The competitors is it the largely that S T nine pump.
Or are there other kind of bells, and whistles and not looking for a specific color I know you don't want to give away any kind of a competitive edge, but just any high level color on what you think makes your offering unique versus the competition.
Yes, George this is Ron I'll, maybe give you a just a couple of points that we would maybe highlight in that regard you certainly hit on one of them we think.
From the SB nine pumps standpoint, we have taken a very very novel approach to the.
For the design, there and ultimately believe that that asset is going to be a better performing asset out in the field relative to other approaches that have been taken around squeezing more horsepower through the same size of the pumps. So we're pretty excited about the innovations there, but I think the other side that we looked at very very carefully with the power generation side Theyre going.
Ben we will call. It one very typical approach to powering an electric frac fleets out in the field and our look at that suggested that that was not the optimal way to be running a frac fleets of unlikely frankly, specifically.
There was a better solution to deliver not only improved fuel savings of a better economics on a location, but very specifically a reduced emissions footprint and.
So we'll be taking a very different approach to powering our frankly, we've talked a quite publicly about that already that we will be using natural gas recip engines, rather than a gas turbine on location and I think we are convinced that delivers a better capital efficiency.
The better redundancy on location better efficiency as a result of that and maybe most importantly for some of our customers a significantly footprint relative to the existing solutions.
Awesome, Thanks for the color Ron.
Our next question comes from Stephens, Inc. Gardner.
Stifel. Please proceed.
Hi, Thanks, good morning, everybody.
Two of the two things first.
You mentioned.
You mentioned in your fleet count in the low Thirty's deployed a you were.
Willing to give us a sense for.
How many.
You have which are sort of a readily.
Available to go back to work and how many would require a material capex to reenter the active fleet.
Yes.
Moving to that I think when we rolled out of the ones that deal and part of the deal was we had to tweak the green takes as described by Schlumberger.
<unk> of that goes in the there is no capital.
Capital required for those of US with we're running mobile the 'twenty three 'twenty four fleets of the exit rate. So yes, both through the years basically the outlines of bringing in a particular capex okay.
Yes.
Okay, great. Thanks, and then.
The second one.
As you've sort of gone through the process.
Integrated some of the Schlumberger assets the ones Tim assets has anything surprised you about sort of the relative profitability of the relative efficiencies and have you seen anything which sort of increased your confidence level of changed your views on the integration savings and how they unfold over the next year or two.
The Liberty is their assets.
No I think we've been very very nicely surprised.
The efficiency.
I think that's one of the things when you get under the Hood.
Incredible amount of price.
And those teams and they are improving.
I think they love the fact that working with.
Of that team into the view of being a free.
We are being given to the view of that responsibility of the pace that they can pick the I'd say, we are more optimistic about the equity true.
And when we get to the Investor day on June 17 of less than the sort of more of looks at the integration, but I really think wrong and the technology team have done a great job of really looking at what's going to be the next generation of integrated Frank as you know we make in the basins for the long term.
I think it's going to be really a coming together best practices.
I think it is because we thought of it.
Okay, great. Thank you.
Our next question comes from Christopher for of Wells Fargo. Chris. Please proceed.
Thanks, Good morning, I was hoping to touch a little bit more on pricing I know you'd want to get too detailed but just compared to I guess from February. When you described the fact that you had some pricing increases baked into contracts already that would be showing up in the second and third quarter. Just curious of leading edge has improved at all compared to that.
And then whether you expect any pricing uplift from including Digi, frac or a frac sands that there can be additive or are how.
How to think about what that might bring as you get into the second half of this year or 2022.
Chris I.
I think Chris pointed as Chris Wright pointed out we continue those customers of those discussions with customers in a probably have more price more price increases baked in as we go through the year to the.
Of course did the Frank one of faith margins until we kind of next year.
We will have an increasing amount of tier four DGB fleets, which rules those of the great job by customers as we get through the banking the tissue is a megawatt level.
Okay. Thanks, that's helpful and then.
Maybe on the Capex front, so maintenance, so sorry, not maintenance capex guidance of 145 of $1 75.
How much.
How do we evaluate the upside risk to that in the case of let's say e&ps get even more hungry for ESG and quality of leads and you have to potentially upgrade to.
Tier four DGB or.
I guess Frac, sorry did you crack is not in the near future, but how much upside risk would there be if that becomes even more important for your customers.
The the upside risks and upside for two of the secrets, obviously wont be making those investments without a.
Very very strong path to a sales we do.
And if and.
And when that comes about we'll let you ritual of them.
But I think thats the case, they will be matched the that'll be a bit of pricing environment.
And that's what drives the ambitions.
Moving towards a top 10 percentage.
Okay. Thank you.
Yes.
Our next question comes from Ian Macpherson with Simmons. Please proceed.
Thanks, Good morning, Chris Michael Michael Thank you for a for all of the color when we look out.
Make the walk from where you are in Q1 towards normalized margins by next year.
In Q2, you will have.
The abatement of the weather impact I assume that the $25 million of a revenue impact that you called out Q1 would have extremely high EBITDA decrementals associated with it so there would be a substantial.
A building block there in addition to the reduced transaction costs.
Presumably the entered a price increases coming in so are all of those factors.
Correct as we as we start the March from Q1 towards normalized margins next year.
Just one clarification I think the additional rig a little roll into Q2, we just had a normal increased decrementals or there's nothing specific about net revenue that will drive you still lie ahead for us.
Liberty that you're going to exchange, but a net chemicals as good as a driver for your maintenance causes nothing nothing particularly different.
Revenue growth of activity growth for two for those big reasons, but all of them.
Net issue right and I think as Christine This is a move towards normal net margins at some point in 'twenty took the right yes.
Making sure the generally speaking income out of the gate on the first of January.
Understood and we're certainly not there and we're looking and hoping for some upside to it.
Essentially below your prior cycle margin next year and a model okay.
I wanted to get your thoughts.
Chris with regard to competitive structure going forward.
You've obviously been a.
I think the protagonist from consolidation and there is more of that could be done.
We think there might be but do you expect more.
For transformational consolidation of some of your.
Smaller than you, but some of the larger independent pressure poppers to.
To help improve the market structure over the next several quarters.
Yeah, I don't have any I don't have any particular insight into that there is certainly always dialogue certainly make sense.
So I think there is certainly a real possibility the patch something happens but.
Ultimately it comes down.
Human beings to make decisions and so yeah.
What we also but not not.
<unk>.
Hard to predict.
Well looking forward to the event in mid June thanks.
Thank you for the look forward to seeing you then.
Next question comes from Mike's Kabbalah Bank of America. Please proceed.
Hey, good morning, everyone.
So it seems the I'll get some color on the <unk> activity.
Sort of think look out a little bit in the back half of the year think about where just broadly you think the industry goes from here through year end.
Is there upside and then.
If anybody having conversations around kind of a <unk> budget exhaustion.
Is it something we need to start thinking about yet.
It's still it's still too early to tell.
I would say too early to tell certainly for the public's maybe lay out a budget plan.
And they're going to stick to them and so.
As is typically happen the efficiency of operations run faster and better that you budgeted for.
Of the possibility of.
Budget exhaustion.
A quarter still theyre, absolutely now some of them were still ramping up so it is not different to another year of I don't think the Q1 expenditures were.
A 25% maybe a little below but that's a very real possibility publics are not going to overspend their budget.
Work gets done before December 31, and a number of cases that certainly going to be the case I think theres a roll down there and then gives it the potential offset is water oil price is dead or what are oil prices in the fall. We had projects are making decisions about their magnitude of continuing or picking up activity, so but yes.
I wish I had a better answer got.
Got it yeah, that's fine.
And a quick or just kind of a step back and think a higher level about liberty strategy I think I think you mentioned.
You all had completed 20% of the shale wells in the U S.
The kind of around the 200 Frac fleet number that is.
Kind of a commonly thrown out there whats maintenance for the industry.
When you're thinking about planning for market share.
The industry fleet level kind of on either side of of what you think is normal like what what is normal for the industry and then how do you approach market share.
When when the industry is running either hotter or colder than you think it is going to be.
The only market market share for us is always the output not in the input.
The decision to work a week is always a bottom line. It's always a grant we don't say we are going to put five of our fleets the word here or whatever yes.
We don't even talk like that so for us it's always a balance of who are our existing partners how of that relationship. We are pretty low customer turnover. So we tend to keep working with our existing partners and trying to deepen those relationships. So they went from both sides.
Then we have dialogues with lots of other partners that we could add a new partner or we could grow market share with existing partners. The bigger players in and want to have a larger percentage of the work done by Liberty. So it's really part of dialogues been talked down dialogues, we've said in the past.
Certainly at the bulk of them.
We are in the market a really hot bright returns are awesome and all of that that is certainly the worst possible time, the shady factor all of them.
The three more fleet out because it gives the EBIT awesome 10 day, when the market's really hot the one thing that's telling you is it's not going to the hot before too long so in that sort of thinking longer term.
We've got a yes, so but again, it's all a bottom up I mean look our history. Our 10 year history has been sort of a slow growth and market share is the right customers and partnerships have pulled us through but it's all of the bottom up.
Okay. Thanks, Chris.
Thank you. Thank you.
Our next question comes from where the core sorry.
That's a Alta Corp capital. Please proceed.
Thank you for taking my question and congrats on a great quarter and thank you Chris for your.
Comments on the macro sort of is appreciated.
Maybe I missed this.
I may have missed some of your of your comments I was a little late in joining but.
On Canada.
Active seats do you have in the first quarter and how would seasonality impact second quarter results the seasonality in Canada.
Yeah, we didn't give you a day.
Details about where athletes of running in January we're running low day. These fleets across the whole complex from the North America, obviously, the breakup in Canada that will reduce Canada Dan.
We said that we'd had a relatively fresh.
Fleet Count in Q2, so we got a little bit out of it.
The <unk> suite, so it can be relatively flat across the complex the a cam.
EBITDA itself will have the normal seasonality Dolby breakup.
It will pick up again somewhere in the middle dropped EOG weekly of Canada is easy to drop again.
As of June the general rotation.
Thrilled to be Canada Wilcox. So thanks for asking that yes, you would have a tremendous American partnering energy in a broader picture. So we're very happy to be in Canada, and look forward to building a battery of that business going forward.
Absolutely, yes kind of.
In fact of the market now.
Now in terms of profitability in Canada in the first quarter, how would that compare to the average for for what you reported in the first quarter.
Obviously, we don't breakout of geographic geographies.
But again when you think of we have a very very disciplined approach to how we run the business the game across all the basins as we've seen many times before really we look at them as a whole a.
Sort of a reading every so every decision of putting the Fleetwood and having people working.
The very unique.
And so therefore, they have to be effective zone.
It is thought of as they look at the long term, which is we think Canada is a very appealing to the market for us.
Absolutely.
And then just a final question, what's your current public versus private mixed in terms of the number of pizza located.
Now as we've stated before a generally.
With the once a acquisitions, we've put a net loss with a public private mixes.
Fairly close to about where the industry is I think what you've seen is you've seen a bit of a pick up from the privates.
So the beginning part of this year. So again, we may be a pool gave us the publics very slightly.
<unk> got the use of the beginning of the share but generally we have narrowed the size will be really mirrored the market is ideal for the gym, a market data and I think a very analogous to us.
Okay, great. Thank you very much I appreciate the color.
I just got a greenfield.
Next question comes from John Daniel Daniel Energy. Please proceed.
Hey, yeah. Thanks, guys.
Congrats on the good interest on digital.
Really wanted to understand the rollout process because of <unk>.
I'd assume you guys would seek some contractual support before any type of a large scale build out.
But I'd also assume an E&P companies to test the system before they were willing to sign the contracts a kind of creates a little bit of a chicken and the egg if the ROE I'm just.
Chris How you think you got a handle that.
Yes.
For the balance between those two things in our dialogue with customers one of the things certainly is we don't want our customers to take technology risk they've done that and in many cases, it's not worked out well eats up the liberty to deliver a.
For <unk> to work for the performance specs, we believe it will so.
We will take a contractual commitments, but a.
The bar fleet doesn't work that's gone on that and that's on us.
Okay.
So I assume that the performance of those contracts done so that you'll have an ounce for giving the ability to build.
So all of them.
All of them Okay.
All of that contraction of that way well all of our installed theres been some that were done not that way and I think that's of a mistake for both parties.
Okay and then.
One comment I think you make Christmas the 'twenty two.
1% lower emissions on Digi stock is that.
Relative to the like the levels of turbine installation or is that relative to the tier four DGB solution.
A color.
Net relative to the data we have for all the existing practices got it okay fair enough.
And then I guess a last one for me you mentioned low 30 as a fleet count in Q1 of two two.
Just knowing there is some lead time to reactivate fleets of yet are you, making any plans now for a reactivate fleets taking of the mid thirties and the back half of the year.
I understand you don't want to say, but just curious.
Yeah, John I mean of course, all of US we're in all sorts of dialogues with existing partners potential new partners. So no. There is no macro plan of what our fleet level is going to be right, but again relationships driving all of the drive at all for sure.
You will know for sure we will be disciplined if theres a strong.
The pain pull from customers and partners that could creep up it's not going to scream up it could stay flat.
So yes.
We truly don't know, but yes.
We continue the same partnership mentality, we've always had.
Fair enough. Thank you for putting in.
Okay.
Thanks, John we look forward to seeing you out on the road I appreciate all of the bed.
Yes.
Our next question comes from.
Alright.
Christopher <unk> of Wells Fargo, Chris with the proceeds.
Just a good one more follow up here.
Alright, I'm curious if you could maybe just give some color around the contribution from the sand mines obviously.
A different setup now compared to previously I'm just curious if you can break out of that.
The meaningful contribution of profitability or a percentage of revenues any color around that so you can think about the contribution going forward.
How should we think of them one integrated.
The delivery to our customers. So we really are breaking those out.
At the moment I think that is part of the key thing is not sizable enough to be broken out of the statement.
So I think it's even a look at the complex is low.
Okay. Thank you.
Thank you.
Our last question comes from the reference Hawkins concentric of equity partners. Please proceed.
Hey, guys, great job, improving the business in a very tough market.
As we as we remember the San gel acquisition transforming the company in 2016, I know that we're going to look back.
On the one stem is just a transformation of all of that for both the business as well as for the entire market and as demand comes back we're going to capture more than our fair share of quality customers.
A question for Chris or Ron.
On that fleet deployment increases can you guys comment a little bit on the labor market.
I know a lot of Ceos that we talked to a reporting a hard time recruiting and retaining field workers and enhanced unemployment benefits, creating a lot of friction bringing people back into the workforce how does the liberty see scaling up the workforce.
Over the course of 2021.
Yes, great great comment Frank and that is indeed, the case, it's the case for Liberty, It's the case for the industry and package.
<unk> seen into the case for the broader of economy. My opinion of a lot of dialogues with business leaders outside of oil and gas on the tissue.
But look we had a two we have right now about 6 million people out of the Labor Force net more in the Labor force, but they don't currently obtained a return to the labor for US right. Now So and then you have fiscal and monetary stimulus I understand of course for the physical part that's going to drive.
Growth in economic activity. So we have sort of a accelerator on supply and a St Jude and self reporting of a reduction.
The demand for labor, we have an acceleration that we have some constraints on the supply of labor that hopefully end of September, but we'll see what the what the what.
Washington does on these.
The benefits so yes that the debt.
For for hotels, or restaurants, or whatever that problem is dramatically worse, but yes. It is an issue. It's an issue we are facing as well.
Fortunately, we had we had a good cell and a good culture, but hiring today is.
The charter than you would think from the outside.
Well aware of that I, just want a put a little color on the the frame I mean, I think thats one of the things that's underappreciated as of the limit.
Why all Frac services in June that's one thing that will help a little bit of the pricing side.
As a very very difficult to get people into the marketplace really a key amount of the people. We have the landfills. We pulled from the who can really also with the two industries that are moving at the moment one of them.
Function and the other one is trucking with Amazon et cetera right.
You always think of that industry is the only effect of sort of like the pie of equipment the real real for a number in.
The supply of <unk> is the ability to get good qualified people to net will help us sort of like taking back some of the other questions of Italy that is actually one of the things thats driving the pricing dynamic.
Thanks for your comments guys look forward a senior in June.
I appreciate the thoughtful comments Frank.
This concludes our question and answer session at the.
This time I would like to turn the call back to Chris Wright for any closing remarks.
We thank everyone for their time and interest in Liberty and we will get back to work the whole Liberty family. Thank you for joining us today.
The conference has kind of conclude thank you for a kind of in today's presentation. You may now disconnect.