Q2 2021 Liberty Oilfield Services Inc Earnings Call
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Good morning, and welcome to the Liberty oilfield services second quarter 'twenty.
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Some of our comments today may include forward looking statements, reflecting the company's view about future prospects revenue expenses of profit.
These matters involve risks and uncertainties that could cause actual results to differ materially from our football Lucas.
The statements.
These statements reflect the company's beliefs based on current conditions, the desktop into surgery and the.
The certainties the debris the builder in the company's earnings release and other public filings.
Our comments today also include non-GAAP of financial and operation on.
On the measure.
These non-GAAP of measures, including EBITDA, adjusted EBITDA and free tax return on capital employed are not a substitute for a GAAP measures and may not be comparable to a similar measures the a lot of company.
A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of free.
Return on capital employed of discussed on this cool of presenting the company's earnings release, which is available on its website.
I would now like to turn the conference over to Liberty Fish meal, Chris Wright is go ahead.
Good morning, everyone and thank you for joining.
That's true.
Scott on a second quarter 2021 operational and financial results, we have a little problem with the idea of today. So we apologize that the quality is not up to the usual standard.
Liberty delivered another quarter of solid improvement as we start to exit the COVID-19.
Ill turn the.
Second quarter of marks the anniversary of the extraordinary events of the year ago for business activity plunged on the back of a collapse in oil demand.
I want the first thing the Liberty family for navigating this downturn with the utmost tenacity and dedication.
Good day and commitment throughout these trying times.
We are now starting to see the strength of our business of 1 year out from the depths of the cycle, we could transformative actions, we've taken over the past year, including the 1 standard acquisition.
Second quarter revenue was 581 million.
<unk>, representing a 5% sequential increase.
For approximately a 90% of increase when excluding seasonality in Canada, where based on activity was impacted by spring breakup.
With the acquisition of 1 standard. This is the first year in our history, we've had a.
Graphic exposure in Canada for the spring breakup seasonality will now impact our sequential revenue comparison.
Adjusted EBITDA in the second quarter was $37 million compared to $32 million in the first quarter.
<unk> include the it's the restoration of build.
Personnel variable compensation, 1 quarter ahead of our plan.
Resulting in $8 million increased the personnel costs.
Excluding these costs adjusted EBITDA would have been $45 million.
This equates to a 41% sequential.
Beyond the same profitability adjusted for the variable compensation restoration on a 5 percentage gain in revenue.
While the results improved on higher activity levels with staff fleet still on the low Thirty's. We were also navigating the macroeconomic supply and demand shocks.
Inquiry triggered by the pandemic and related reopening better creating supply chain constraints and the labor shortage.
A swift economic recovery is leading to a strong demand for workers across many industries with not enough folks to fill open positions.
There are several.
2 million workers still out of the Labor force that were in the Labor force pre COVID-19.
The effect of these missing workers is causing disruption in many laboring tech tentative sectors of our economy.
Apply a change in many industries were also disrupted or over.
Several of bound by a lack of components where shortages on raw materials.
As customers, both legacy and new ramps during the quarter effective.
A completion crew scheduling was challenging with producers and service companies dealing with supply chain interruptions staffing and <unk>.
Rotation shortages.
Liberty was not immune from staffing issues and the industry supply chain challenges for example, trucking shortages.
Trucking a strained by the dual impact of high demand for licensed drivers across several industries.
Transfer the scheduling changes due to completion delays from some customers.
Within our customer base. We are also seeing operators transitioning from completing ducks are drilled but uncompleted wells to a new well construction leading to its own challenges that gave rise to the difficulties.
For the calendar coordination and above normal inter basin fleet movements.
All in we are not yet back to liberty usual execution of efficiency in the field, but it is improving every month.
This opportunity motivate and excite us the.
Transitory.
<unk> of the pandemic, driven the supply and demand shocks on labor and supply chain challenges we'll pass.
The robust demand in global energy demand and supported commodity price environment is increasing the demand for Frac services and we believe we are in the early innings.
In the up cycle.
The Liberty team worked hard to welcome a hugely expanded customer portfolio.
But we still have work optimizing our calendar and streamlining service delivery.
As we looked at Q3, we anticipate benefits from continued progress in these areas and.
As a larger percent of our work migrates to fully dedicated fleets and fewer inter basin fleet movements.
Some customer relationships are expanding as we can now work with key customers across North America, given our expanded geographic reach and a premier technology services.
This offering.
As I mentioned earlier, we've restored our variable compensation programs 1 quarter ahead of pace.
The reopening of the economy is happening faster than folks are returning to a labor force ultimately wages are rising and we opted to reinstate our variable compensation plan.
In 1 quarter ahead of schedule to remain competitive in the labor market.
Importantly, we also recognize that our employees made significant sacrifices throughout the last year.
Their dedication and commitment to the Liberty family. During these trying times Whats Foundation.
<unk> to maintaining our partnerships with customers and suppliers and also helping other folks navigate a challenging time.
Looking ahead, the improving macroeconomic backdrop should support these compensation increases.
The industry is seeing a market improvement over the past year.
Since the depths of the downturn.
Global economic growth continues strong.
The forward outlook is also strong as countries more fully reopened partially offset by the impact of global supply chain constraints and virus very of concerns.
Commodity for markets markets.
It's remained constructive and sustained economic expansion drives rising energy demand while years of relative underinvestment in the energy sector can train constrained supply outside of OPEC plus and.
In fact, the rapid rebound in oil demand has already passed.
Pre pandemic highs in major major Asian countries.
This is evidenced by the recent significant draws on global oil inventories.
Looking forward the recent announcement by OPEC plus for a gradual reinstatement of <unk>.
Prior oil supply through the rest of 2020.
And in the 2022 is expected to be more than offset by projected increases in global oil demand. This.
This should support a continued increase in demand for North American completion services.
Exploration of production capital spending.
<unk> increases.
More of a 22 as operators work towards attaining a modest oil growth next year.
They will need to address both of the decline in the inventory of ducks and the impact of decline curves on their production base on.
A modest increase.
In the U S oil and gas production.
Squires, an increase in frac activity from today's levels.
The combined the impact of improved the E&P economics with greater potential for free cash flow generation incur.
The increased completion service demand and tightness in next generation Frac equipment is expected to underpin.
In a more disciplined frac market and continued modest rises in service prices.
On the economic rebound across North America, coupled with supply constraints in the Labor force and some supply chains have led to a rise of inflation and wage growth.
It is important.
The Frac service pricing continues to rebound from the extreme pandemic lows.
The backdrop for pricing discussions with our customers has strengthened throughout the year.
<unk> our teams sacrificed over the past year to support our customers.
The partnership works both ways and we are.
With the remaining disciplined in the current environment.
We continue to have positive dialogues with our customers to volt pass through incremental inflationary costs. In addition, the net frac pricing increases.
Of this process is gradual and we expect gradual improvements to continue facing.
Committed over the next 12 months to 18 months.
It is noteworthy debt service prices tend to lag broader inflationary increases across the value chain.
But the increases are necessary to facilitate the next phase of growth and technology investment.
For the technology.
<unk> by a distinguished team of engineers and the innovators has been a amongst the key differentiators that has allowed us to grow into the second largest north American Frac company from our founding only a decade ago.
During the second quarter, we held our first Investor day, where we spend a day exploring.
Technology that makes Liberty special from our in depth of downhole technologies to how we create operational efficiencies and the evolution towards next generation of equipment.
For those of you of not seeing this I would encourage you to spend some time during the webcast available on our website.
And get the Newmar team, our technology and our unique culture that drives innovation and collaboration.
We also announced a successful field test of our DG Frac electric Frac up during the quarter the results were incredible.
Final field testing was completed on the 3 well pad.
But 'twenty for operations in the Delaware Basin day.
The frac represented around 10% of the pumping capacity.
The work of building the industry's first purpose built fully integrated electric frac pump truly shine as the system.
<unk> became the preferred capacity for a rate changes and adjustments made in real time.
<unk> allows us a quick easy precise adjustments of pumping rate using our micro control system.
Does this mean.
It means that it allowed for on demand precision rate control.
For that was simply not possible before.
The Frac quickly became the go to pump for a precise rate control on location.
This is the value of owning and developing the technology to have the motors the gears the drivetrain fully integrated into the pump.
With.
The electric back side from the <unk> acquisition.
We will provide a fully electrified solutions for our customers agnostic of the power source, whether is the grid or liberty's cash reciprocating engines or both.
Importantly, <unk> will also drive ESG objectives for.
For our customers as they continue to look for ways to minimize their footprint offering at least 20% less emissions relative to the next best technology on the market.
Together.
Having high power density precise control and a noteworthy reduction is of.
It makes the perhaps the best in the market and our customers are taking notice.
We've already begun the commercialization process for DG practice of 2022 with deep collaboration and conversations with customers for fleet rollout.
In early June we released our inaugural ESG.
The mission report entitled Bettering, the human lives.
Liberty is leadership in the ESG as well known as it has been part of our DNA since day 1.
However, we wanted to broaden the conversation around ESG by going far beyond the narrow focus of our company.
SG&A asking only how we can reduce negative impacts.
Of course maximizing positive impacts is a critical part of the balance for a value for evaluated process.
Our reported provides an overview of where the world debt energy and a housing has changed over time.
We also cover the huge problem of energy poverty and the cost the human wellbeing of rising energy prices are falling energy reliability.
We directly discuss the role of fossil fuels in modern society.
And how are we as a company advancing human Liberty.
I am humbled by the response of this report has garnered.
The conversation spurred by a report has been enriching and uplifting. We're proud of the efforts of our industry and our company is being a part of the solution towards reaching billions of underserved people with lower cost of energy by.
By looking at the data.
Data we.
We know progress on the human condition has been enabled by the surge in plentiful affordable energy saving lives and it is important to recognize the unintended consequences of climate change mitigation with a realistic lens.
We welcome the market's focus on.
The ESG as it aligns with the principles, we've long held that Liberty.
But it is critical to bring the sale of analysis supported by data.
ESG decisions just as we do in other areas.
Our team's focus on digital technology has been critical to the immense improvements in shale well product.
Productivity and efficiency over the last decade.
And we continue to strive to advance our customers' ESG goals as well.
We take these responsibilities very seriously and we'll continue to drive the conversation going forward.
We are excited by the opportunity ahead of us.
I'm, so proud of the Liberty team coming together through a year of incredible change.
We created opportunity in the face of the diversity and we believe we are now going through an inflection point.
Our focus is.
As a on operational execution through the rippling effects of the pandemic and the.
In the gains as we embrace the early innings of the cyclical recovery with.
That I would like to turn the call over to Michael stock, our CFO to discuss our financial results.
Good morning, everybody.
We are pleased with the performance of that team at the state in the quarter delivering solid.
The results, while continuing to integrate the ones to the business and managing a ramp in customer activity.
This marks the fifth quarter, we've operated entirely under the Liberty umbrella after the cutover from Schlumberger to Liberty internal systems at the end of the paper.
It's incredible to see what a difference.
From GE SMA.
Just 1 year ago second quarter. It was sitting in the only $88 million of revenue on the back of a dramatic drop worldwide oil demand widespread shut ins from shareholder juices of the near hoped both American franking.
Revenue of the second quarter of 2021.
Over 6 times, what it was a year ago.
I'm so proud of the Liberty team that has navigated the roller coaster of the last 12 months with dedication of focus as we have ramped up in frac activity and made such great progress once the acquisition integration.
Now, let's take a deeper look at the results.
<unk> for the quarter.
On the second quarter of 2021 revenue increased 5% to 581 billion from $552 million this quarter for <unk>.
A lifting the combination of increased activity across the whole U S basins more than offsetting Canadian spring breakup seasonality in banks.
Can I a N seasonality revenue saw an approximate 9% sequential increase on a relatively flat stock fleet accounts.
As a team works diligently to bring new based on activity on line with bulk cooperators. The underlying the business improvement was encouraging and supports a picture of continued improvement despite.
Highest utilization challenges of rising supply chain challenges of the lack of shortages as Christa described.
Importantly.
Our teams a reinvigorated by the activity increase and we expect utilization to show a continually continual improvement in the third quarter as we streamline customer scheduling.
On a scale and actively manage through labor challenges.
Net loss after tax was $52 million net loss included a valuation allowance adjustment.
The tax assets and related TRA capex negatively impacting the results by the age of $21 million.
These accounting adjustments when necessary and applying GAAP standards and were primarily driven by COVID-19 related losses.
The results also include a transaction and other costs $3 million.
$7 million increase in bad shape of the suite.
Fully diluted net loss for this year was 2019 from.
On the same conveyance.
Compared to 21 since the first quarter.
The quarter was negatively affected by approximately 12 seems push year on the fuel tanks out of the asset valuation allowance adjustment.
Second quarter adjusted EBITDA increased to 37.
$52 million.
The.
For the adjusted EBITDA, primarily reflects an increase in business activity.
Taking all of a adjusted EBITDA would have been $45 million, but we have makes it through a stool variable compensation 1 quarter ahead of projected price due.
Due to the impact of type by commodity generic industry.
By the supply is very tight and we.
Improvement of a life of a variety of on the safest.
Economic activity increase.
The <unk>.
General and administrative expenses totaled $29 million and included $5.9 million stock based compensation and Sydney.
<unk> receivable balance excluding the guys.
A continuous underlying G&A expense on the increased modestly by $1.3 million for this quarter. Despite of the costs related to the on boarding of legacy on student of employees.
Net interest expense of associated fees totaled $3.8 million for the C zone.
We also recorded an adjustment of $3.
The $3 billion related to the tax receivable agreement.
It was related to the tax valuation I referred to earlier.
Income tax expense totaled $16 million.
Again, a reflecting the impact of the valuation adjustment resulted in a 24 million dollar tax expense more than offsetting what would have been.
I think the 8 million of tax benefit related to operational results.
Results.
We ended the quarter with a cash balance of $51 million.
Reflecting a decrease from first quarter of enables us with the capital increased total day with 106 million Boes day.
Financing costs.
There were no borrowings.
A a june on the ABL credit facility and total liquidity available under the credit facility was $277 million.
At the quarter.
Of course.
In June <unk> successfully monetize the final part of the acreage position for the <unk> through a secondary stock offering culminating a.
The industry a partnership with the asset.
This transaction of faith as we complete some of this evolution to a fleet a fully publicly traded company with a 1% of share is not tied to the public markets. We are grateful for the commitment of our longest tenured shareholder revenue and are excited to enter into the exchanges.
Okay.
Capital expenditures within the $8 million for the quarter, we focused on being disciplined timing based on insurance recovery balancing second quarter EBITDA for capital expenditures at nearly the equivalent basis.
We continue a disciplined approach from basically into the upside with the capital expenses targeted for technology based on maintenance Capex and growth.
<unk> expense next generation.
As we discussed at our Investor Day, we have a strong foundation of build a path to successfully execute the big side.
Our philosophy remains the same to grow in support of our business and.
With a disciplined approach to investment while maintaining.
Balance sheet strength and its drive on a long term returns for shareholders of the cycles.
As we look forward, we are excited by the core strength of our business at geographic diversity and integrated sales offerings supported by a best in class electric pump the difference in price.
<unk> has a fleet of $60 range for dual fuel equivalent unmet.
Unmatched subsurface technologies that drive customer engagement and the unwavering focus on automation and operational efficiency through project for 14.
This unique combination of exits will drive financial results for the coming cycle.
With that I will now turn the call back to Chris before we open for Q&A.
Thanks, Michael.
We read many reports surprise by the rapidity of the surging demand for oil and natural gas. This should not be a surprise energy enables every other life activities.
As people rebound from Covid, they bring with the desire to better their lives and visit their families and friends.
Global oil demand last year dropped, 8%, 9% natural gas demand dropped 2% and electricity demand only 1%.
All 3 will almost certainly hit record highs next year or in 2023.
Energy matters.
I think the Liberty family and the ecosystem that gives our customers and suppliers.
For their efforts that better of human lives I will now turn it back to the operator.
And for your questions.
We will now begin the question and answer session to ask a question you may of breath on the 1 on your telephone keypad.
It's a using a speakerphone please pick up the handset mix of a question Nicky.
It will be part of your question. Please press the oven.
The first question is from Ian Macpherson with Piper Sandler. Please go ahead.
Hey, good morning, Chris of Michael.
Good morning.
Yes.
Michael I wanted.
Either of you.
Talk about the moving dynamics in the Q3, you talked about a more dedicated.
The work.
A fewer move for.
Fleet moves and probably just a more concentrated calendar for Q3 than you had in Q2, a nimble also have the reversal of the adverse Canadian seasonality.
<unk>.
And you've spoken repeatedly about just the methodical price.
Rice increases so I would imagine that all of that.
The combined to a healthier rate of of top line improvement that we should expect for Q3 and I just wonder if you might break it out for us.
Yeah.
Yes, the P&L.
We can talk about that we'd get a gate.
We moved towards.
1 of the some of the noise out of the calendar the white space of utilization improvement that's going to be a slow improvement as we go through the year.
All of that is going to get wrung out of the system by early next year as we sort of integrate all the new customers in the basins, the Canadian seasonality will reduce debt.
We're probably expecting it to come back.
Getting to the sort of the highest for Q1.
<unk>, Inc, Q3, but we will gain some positivity from day and he's saying, we will get a slow and incremental price increases yes. So I think we will see a slow increase the.
He has slowed the stadium rooms of the rise of the moment with what we're looking at this year as we put in the.
To the correct platform to really.
Take advantage of a week.
Going into the cycle in 2002, a 23.
Yes.
Still not hearing your message anything particular with regards of incremental fleet additions in the back half of at this point correct.
And yes, the golf.
Our view.
But of course, we're very loyal to our customers and the partners we have.
Economics are still not there for us to want a chase revenue on new business for new business for the sake. So theres. Many there is pretty strong pull right now for new capacity, just because of market activity is increasing and for us it's always a combination.
On the pricing the economics on the strategic relationships. So yes, just because of the industry is growing doesn't necessarily mean that Liberty is fleet count is going to growth. That's just a bottom up decision for us.
Understood.
Thanks, Chris but it sounds like did you Frac is indeed moving forward. So that's more.
On the first half 'twenty to commercialization as you see a today.
Hi.
Yes.
The the first half and the end of the okay.
We're out in the field commercially operating.
Got it okay. Okay.
Thank you Beth.
Thank you.
More likely.
Hi.
The next question is from Neil Mehta with Goldman Sachs. Please go ahead.
Hey, this is at the on for Neil.
So on the mezzanine lenders come on.
Uh huh.
Could you could you provide some color on that so are you competing with.
Think of the other industries or are there just folks trying to look to rejoin the force but are have the appalling jobs, what's really happening there.
Yeah Ian.
Look this is this is a part of the wide problem labor intensive industries right now.
Of our stress and.
And for oil and gas employment.
For the field crews the most important for people on our business.
2 big competing industries. It is construction and trucking both local trucking think Amazon the surging demand for local drivers and long haul trucking and construction.
And both of those industries, a booming right now for.
Moving so yes labor market, particularly in the area of our field operations very tight right now.
Thanks scheduled yes. Thank you.
A great question Liberty to always had I think a great place of work and a great culture, we've never been stress for a competition for labor anything like we are today, where the.
Liberty I think we've got a great short term of great people and we will get through it but yeah. Just a challenge we haven't faced a this level before.
Great. Thanks.
Thank you.
The next question is from Connor Lynagh with Morgan Stanley. Please go ahead.
I Wonder if you might be moving.
<unk> every day.
Hey, Thanks. Good morning. This is Dan on from Connors team how are you guys.
Hey, Dan do well Dan.
So I just wanted to ask.
So as you laid out in the press release debt, 1 step as kind of a transitioning from the integration phase to the operational phase.
<unk>.
I was.
Wondering what.
Kind of some of the near term opportunities are and if you could kind of.
Give a little bit more color on on.
Kind of expand a little bit on the operational and capital efficiency opportunities you were talking about in terms of technology integration.
And in automation.
You bet outlook on the all.
I'll start with the human side always the most important si.
You take 2 very proud of genes with different nature of these different history of different procedures. So on 1 of the big things we wanted to do when we took.
So look we did took this over January 1 not great what's happening a car.
Or is that a schlumberger customers higher those crews of those humans in those procedures.
And they do some things differently than us.
Some of the way, we do things is better and we want to move that improvement over their fleet some of the way they do things are.
A better than the way, we do things and we want to move those procedures over to our fleets, but that that's a that's.
Thats human culture of that thousands of people working across the country. So that's a slow methodical process to lead to improvement and minimize the the free.
Friction of transition and changing processes.
But it's incredibly important and again thrilled by the humans thrilled by the new learnings.
There is a there's a number of things and maybe at most of the point you to our Investor day, we win in detail and probably at least a dozen technologies and a key thing. There is you can also.
So meet the people that are leading those teams that are doing that work, but there is there.
A simple straightforward things like engine idle reduction you choose a fuel saving technology, but diesel engines, you can't just shut them off and turn them on so you have to have a smart algorithm about when to shut them off when.
To turn them on and under what environmental conditions in the cold winter, it's a different algorithm a different answer than it is in a heater.
Each of Duffy of Whitney are all different conditions.
We've got the continued progress.
And a major.
Third or or or.
1 of the or technology different ways to do that flexible hose is we have a project. We talk extensively at Investor Day, We called project 14, 40, <unk> hundred 40 minutes of the day and every minute of why arent, we pumping and what can we do about debt.
So look it's again.
My apologies and ideas from both sides.
The legacy sides of the company now Theres just 1 liberty.
So a number of exciting efforts there I take up the rest of the time, if I went down that road I will add 1.1 million as well as the increasing amount of a.
Integrated between wireline and Frac.
On side of the increased number of rate on rate.
Wireline units with customers, which I think net yield so great for both sides on the moving as we say 1 of the key things we're focusing on this year is really the sort of integration between the Frank and the <unk>.
On the wireline systems to reduce.
Downtime and increase of of some completion throughput as we go through the year is a very specific project of the wrong. This team on that.
China is getting the quite good as well so that's just 1 of the 1 other item.
A decrease of the list.
Yes. Thank you both that's great color and then quickly on kind of did you Frac and next.
<unk>.
Equipment. So you guys had laid out 2 scenarios kind of a slower and faster transition scenario.
The Investor Day presentation I was just wondering if you could go over what.
The puts and takes are in terms of what might merit, a faster or slower transition is it more customers for.
<unk> of our contract terms specific or is the macro backdrop kind of a bigger factor and maybe that answer is different for a newbuild did your frac fleet vs.
Kind of just some some upgrades to traditional capacity, but yes any color on on the puts and takes in those 2 scenarios you.
It would be great.
Yeah, well I think a snowy.
A avoid giving details of I think you've laid out the 3 factors you know who is the customer what is the future of that customer what is the depth of the relationship between Liberty and that customer what are the economics, both the short.
Term profitability of it and commissioning a visibility of the long term a physician employment when we want a frac of the many days of possible and get as much done every day as possible.
And those of the 2 dominant drivers and then as you mentioned the macro as a big part of that too where we're cautious investors.
When we get late cycle and we're a more aggressive investors went into the beginning of the cycle just sort of just stronger economics to invest early on of a cycle than there is mid or late cycle.
But.
Again, I can't give any other specific color, it's not a simple quantitative formula.
The relate.
<unk> chip partnership and returns on capital employed and I'll, just give a little color on debt. It's a combination of what we're doing at the moment.
Continued without our upgrade for durations tier 4 DGB this year the.
The cleaning is of that customers that we are sort of discussing the next generation of.
Particular customers moving them to a fully electric sort of.
Natural gas pathway, where you've got the root of the key thing for years, where you've got a great axis. The field gas from featuring a few guests, which drives some of the base of the cost.
Cost savings on that side of the business. So again, it's a combination of Christy as the Recalibrated a little different driver.
But again, it's very really exciting times at the moment as far as having the.
When we think of that heat by far and wide based technologies in both the flexible dual fuel.
On the very much pure new generation design for electricity pump. So I think that combination goes well together.
If the right answer is very different for different customers different circumstances different geographic settings. Liberty was I would say the first mover and dual fuel frac technology from really the start of our company early on.
<unk>.
A big effort, what the convince customers of the benefit.
And we don't want a dual fuel technology that wasn't fully utilized as dual fuel.
Now the acceptance of that is very strong and now the pendulum has swung the other way, but that's what makes the marketplace volume.
Okay.
Thanks, guys. Thank you both.
Turn it back.
The next question is from George on the other week.
The company. Please go ahead.
Good morning, guys.
Good morning, George.
Got it.
First question the kind of an extension of the prior question.
How would you describe the customer appetite for contracts associated with.
E Frac equipment on the crack offering it seems like some of your peers had gotten from contracts signed up at at least optically the good economics, but just what's the customer appetite for contracting for the tier 4 DGB or a new bill. Thank you for that.
Right.
Yes, let's take the customer.
Our interest in a cutting edge technology and fleece is very strong very strong.
Yeah.
And I think the willingness to sign up for <unk>.
Contractors and is also the.
And I think it depends on those deals of the length of time with any of the customer and we received a a wrong way.
Mike.
It's a bad relationship.
Okay. That's helpful and then how would you describe.
What drives the customer decision.
Do I think the practice solution for a tier 4.
On the human or kind of the puts and takes on.
The benefits of.
Some of the other and maybe some of the headwinds of a 1 technology operating versus the other.
Yeah.
It's ultimately I mean the.
The interest is driven by 2 things 1.
<unk> is lower emissions smaller environmental.
The 1 branch footprint certainly our industry has been moving forward in that direction for a decade. This is a continued evolution.
Well I can say 3 things a second 1 is lower long term operating cost guidance yet the difference for the cost difference between gas and diesel is a pretty large right now so.
Our metal or a natural gas youre using for energy for your fleets versus diesel the lower your fuel costs are.
And the 30 is a properly designed.
Next generation fleet, that's more automated and can do more with software behind it can deliver better operational performance as well.
So the more of those are the 3 factors in varying degrees that drive the interest in the technology and then and then the tradeoff of of course everything in life has a trade off the tradeoff for you as the costs are a little bit higher they're not while the higher but they are a little bit higher and a time commitment and surety of work.
It needs to be higher as well.
Okay.
Thank you very much for you Michael.
Thanks George.
Okay.
The next question is from cancer models here with Bank of America. Please go ahead.
Hey, this is true.
Chase L. A for chase good morning, everybody.
Hey, Jason.
Jason Hey, Hey, everybody is doing well.
I've got a couple of questions the <unk>.
First 1 of our own pricing.
In the press release, and obviously in the prepared remarks, you talked about conversations with customers ongoing about pushing price.
No.
I guess number 1.
Are the conversations around net pricing increases or just enough pricing to offset inflation and then number 2 is when should we expect the.
These price increases to show up.
And Liberty's results do you think it's kind of more of a second half of this year catalyst or more.
What kind of first half of next year.
Yes. It is.
Continuing is continuing.
It is both inflation pass throughs and net pricing looked at the quarter. We just finished and we talked about struggled mostly with utilization in calendar that's didn't nevertheless.
So that happened, but that's just life.
We had 5% increase in sequential revenue and a <unk>.
40% increase in sequential EBITDA, if you use the same labor cost payments.
So pricing is coming through not a hugely in Q2, but we had net.
I'd like to see improvements in Q2, we will have more in Q3 of the more beyond that in Q4 and probably means the more next year. So it's a.
Continual gradual process continual gradual process, we've worked a broadly and adjusting prices with our customers where the oil.
Oil prices just collapsed.
And we've worked in that partnership mode, and then a partnership mode coming out of the other side, but on the shape of this downturn the down pricing was a broth and a rebound is slow and gradual.
Yes, and Thats 8.
$8 million of personnel.
Net price cost increase that you noted a here was that a full quarter impact or a <unk> and <unk>.
So as we think of <unk> should that step up from $8 million or is that fully in margins in <unk> and so don't really stepped that up into the <unk>.
And so I'd say a fully in Q2.
So again the on that variable compensation that really isn't going to see a pump that will continue through the quarters going forward I think he is going to see in Jerusalem.
Low single digit increase in labor costs going through the second half of the year.
As well I think the general across the movement of the mix of part of the.
1 of the economy.
Got it.
And then last 1 here when we think about fleet reactivation of I mean, obviously it doesn't sound like you've got any of the back half of this year, but as we step into 2022 I would assume that a modest increase in activity as reported 2 would mean you have to reactivate fleets.
So when we think about this.
Can you maybe talk about how much capital or a capex will be required to reactivate some fleets in 2022, and maybe I don't know if you just want a kind of characterize like what it would cost to reactivate your next to the fleets.
Yes, I mean look the fleet reactivation of its not a.
Yes on January 1 of notebooks.
For them, it's just for US everything is always a bottom up there as a customer dialogue theres a lot of pull right now the most important thing about a lot of pull right now is it accelerates the movement of pricing.
Still not a huge still going to be phased in not not of drops but there is that's a pull.
For increase in pricing and of the pricing meaningful enough in the customers. The right customer we will reactivate we have capacity price.
It's just about the full picture economics for us and I'll turn it over to Michael the comment a little bit on reactivation costs really chase to get the re of exploration.
<unk> cost for the next few fleets is going to be minimal.
I think I really want that there won't be a real cost they came out of.
From some of the giant Green take fleet fully for the ready to go and position.
Minds into probably a couple of million dollars as we move into a multiple than some of the next generation on.
Total debt that could be a battle.
Yep perfect I'll turn it over I appreciate the color.
Thanks, guys.
Again can you just have a question. Please press star then 1.
The next question is from.
I'm, John Danielle with Daniel and edge of partners. Please go ahead.
Hey, Thank you guys just 2 for me and the first 1 is a housekeeping but when.
When you refer to the a.
Staff fleets in the low thirties for both Q1 Q2 win during Q2 with a Canadian breakup, the dose where they're still considered centered.
On the equipment fleets or if the good luck with how.
How did you treat the crews in that.
It's a per definition.
The roll them.
Instead of of annual roll Downs again, we consider the stock fleets and you do a stock Canadian fleet slightly different on.
On that when you have an underlying base of full time employees of you do.
<unk> state of a number of contracts as they come in and add on and often from the east coast.
So the.
New Brunswick, Nova Scotia area sort of a combination of folks that the that held on those crews during the busy theories out of it.
It's a shopping does ramp up of a little bit.
Up and down with those rates as they come on but you've got the underlying.
And sort of get a moment June 10 years, plus a experienced price.
Good day continually.
But the digital your stock Canadian price drop in Q2, just going on break broker.
The same class.
All of the mines.
Smoothed drop in personnel cost on the Jamba, what we consider the we still consider.
Bye bye have a place okay stop on it.
Perfect.
And then the last 1 is just on Gucci crackers.
You did the successful pad does that customer then keep got units you send it back to my colleague or catch up work or if there's another customer take it the test it out just how does that play out over the next couple of quarters of testing.
So the fact that particular pump, yes. It will go to another customer, yes, we won't be doing some some demo runs of course, we're taking a ton of data on it for how we can tweak and further improvement but yes.
But when you look at then all of a day.
To get rebuilt into a final the mutual pump, where the majority of the each reuse, but it will be a broken down the road.
Thinking about a rebuilding if you can't give you a sort of break salary of you're taking your engine upon the rebuilding of the jewelry using the majority of it is that okay.
But if you look at the multiple customers that cash.
Except that the out on the first pad per year.
Chris.
Maybe a might be too optimistic but of a bidding war for that first fleet from some of the customers of the trial it.
Okay.
Well.
I think a bidding war be the wrong way of looked at it but yes the pull.
Significant and for.
For all of his customers you're a projects a few tests.
It's a big decision about who has got a gas the first few fleets 1 of the terms and conditions and who's the right partners.
Yes.
The interest for Digi Frac number of hands of the year will certainly be well above.
Above the number of fleets will build on the near term.
On interest.
As always we find the right partners.
Okay perfect guys. Thanks for the Permian.
John Thanks, so much I appreciate the strides towards each other.
Yes.
This concludes our question and answer session I would like to turn the conference.
If a led to a management for any closing remarks.
Thanks for everyone's time today interest in Liberty and we look forward to talking to you in 3 months and lets keep powering of the world take care of everyone.
Okay.
The conference call has now concluded.
Thank you for attending today's presentation you may now disconnect.
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