Q1 2023 Liberty Energy Inc Earnings Call
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After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.
Tom over to jewelry Euphoria strategic finance and Investor Relations. Please go ahead.
Thank you, Matt Good morning, and welcome to the Liberty Energy first quarter 2023 earnings call joining us on the call are Chris Wright, Chief Executive Officer, President and Michael <unk>, Chief Financial Officer before we begin I would like to remind all participants that some of our call.
Today may include forward looking statements, reflecting the company's view about it.
Is your conference revenues expenses or profits.
Matters involve risks and uncertainties that could cause actual results to differ materially from our forward looking statements.
These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in our earnings release and other public filings.
Comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA adjusted EBITDA and adjusted pretax return on capital employed are not a substitute for GAAP measures and may not be comparable to similar measures of other companies.
A reconciliation of net income to EBITDA and adjusted EBITDA and the calculations of adjusted pre tax return on capital employed as discussed on this call and our earnings release, which is available on the investors section of our website I will turn the call over to Carl.
Thanks, and good morning, everyone and thank you for joining us for our first quarter 2023 operational and financial results Liberty delivered an outstanding first quarter with adjusted EBITDA of 330 million and fully diluted earnings per share of 90 cents navigating.
Volatile oil prices, resulting from financial sector stresses that ripples across the energy sector. This was our fourth consecutive quarter of record profitability, which is reflected in our trailing 12 month adjusted pre tax return on capital employed of 43%.
Revenue for the quarter was $1 3 billion up 59% increase over the prior year.
We have the unique opportunity today to grow our earnings per share meaningfully via both growing our total profits and reducing our share count our 10% sequential growth in earnings per share. This quarter was nearly one third from reduced.
Average quarterly share count.
Michael will discuss our financial results in more detail later.
We are proud of the Liberty team for executing at impressive levels.
Liberty has an 11 year track record of delivering significantly higher average returns than the overall market.
Our competitive advantage has never been larger and our industry is in a stronger position with significant consolidation and the leading players focused on returns and investing with discipline.
Flying the world with oil and gas is mission critical and spare production capacity today is quite modest.
Flying a positive outlook in the coming years for our industry and company.
We began 2023 generating strong key free cash flow, putting us in a position to invest in the business and return cash to shareholders.
Since the reinstatement of our return of capital program in July of 2022, we've now returned $218 million to shareholders through cash dividends and the retirement of seven 1% of outstanding shares.
While continuing to invest in long term growth and expanding our competitive advantage.
We now have 300 million remaining in our authorization and we are focused on the opportunity you stick execution of our buyback strategy.
The speed at which we execute on our buyback authorization will be driven by the dislocation in our stock price relative to what we believe the intrinsic value of the stock to be.
Three years on from the onset of the global pandemic and severe crash in energy markets discipline is now widespread in the energy sector North American Frac activity predominantly just supports the maintenance of today's oil and gas production levels. The days of breakneck oil and gas production growth are.
Over.
The large majority of current Frac activity is required to simply maintain today's record high oil and gas production levels in the U S and Canada service sector margins are now at healthy levels more in line with our E&P customers that had been experiencing strong margins for many quarters in this long.
<unk>, perhaps steadier cycle ahead, there will be episodic challenges like we're seeing today in natural gas markets and of course recessionary risks.
Today, we have excess demand for Liberty services as our customers want to align themselves with the top performers.
This is part of a broader industry flight to quality trend.
We will lead the way and maintaining pricing and profitability as we invest in our <unk> technologies offering and retire older equipment. We believe these actions will support strong long term returns for both Liberty and our customers.
The oilfield is undergoing a transformational change in how frac fleets are powered from diesel to natural gas and Liberty is at the forefront of this change we weren't early driver of this industry shift deploying our first dual fuel fleet 10 years ago today, our suite of <unk> technologies, including <unk>.
Power generation state of the art DG crack electric fleets, the industry's first hybrid pump D G Prime and our electric wireline solution did you wire, bringing together the best of our innovation with the highest thermal efficiency and lowest emission solutions in the market.
This suite of new technology developments allows us to deliver a customized fit for purpose solution.
We can integrate digi technologies with either full or partial grid power, we can fuel digi fleets with any type of gas, including field gas CMG or LNG with Liberty power innovations will provide for our customers.
The first quarter, we deployed our first DG fleet, comprising DG product electric pumps with no disruption to completion operations. We are pleased to announce that the crew quickly reached a milestone achievement of 1200 91 minutes of pumping time of the day or over 90% of the available time.
With plug and perf operations.
As part of the New D G suite.
Or did you why our unit will be deployed alongside that fleet next month.
We are excited by the strong positive reaction from our customers.
Our second DG Frack deployment will be underway. This quarter again deployed in a modular fashion that will maintain completion schedule efficiency during the rollout.
In February we also unveiled our revolutionary hybrid pump DG prime at the SPE Frac conference in Houston Digi.
<unk> Prime is an extremely efficient 100% natural gas engine that we will use as the primary source of horsepower on location based power. If you will complemented by one or two <unk> electric pumps to manage transient load and precision rate control. This configuration.
Minimizes gas consumption and emissions and fleet capital DG Prime hybrid technology also generates and stores electricity to run a fully electric backside powering sand handling chemical additions hydration units the data fan and D. G wire.
As we undergo this technology transition to gas driven equipment.
Priority for Liberty is to secure the supply chain that fuels. These fleets, having control over the technology power generation and fuel services ensure that we put the best technology in the field to drive even further improvement in our industry, leading operational performance with <unk>.
Launched Liberty power innovations to expand our vertical integration alongside our sand logistics manufacturing and design capabilities. These business lines must check two boxes strong returns on capital within their own realm.
And drive operational efficiency and performance in our core Frac business.
<unk> initial focus will be on CMG and field grass processing services that support the secular demand shift towards natural gas as the primary fuel of choice.
We'll provide uninterrupted delivery of fuel for Frac fleets and other customer needs. Today, we are already fueling both drilling and completions in the Permian and Haynesville through both acquired operations and our own organic efforts.
To accelerate <unk> expansion earlier this month, we announced the acquisition of Siren energy, a Permian focused integrated natural gas compression and CMG delivery business.
<unk> brings its installed and expandable gas compression facilities at two Permian sites, together with transportation logistics and well site pressure reduction services.
Our early plans include a strategic expansion to power, our <unk> fleets and dual fuel fleets.
The other growing needs from our customers for reliable CMG.
We have equipment on order to increase our compression compression capacity in the Permian and expansion into other basins grow our fleet of CMG trailers and expand our field gas processing and treating capabilities dependable access to fuel is critical to maintaining highly efficient frac operations there.
Drive Liberty's industry, leading performance and returns the.
The demand for energy and power generation for industries beyond the oilfield or also on the rise we expect to find compelling high return operations opportunities to leverage our expertise and industry, leading thermal efficient efficiency mobile power generation technology.
Together with our integrated fueling and logistic services, we will be highly selective in deploying capital only into compelling opportunities that may arise with micro or mini grids, datacenters utilities emergency power et cetera.
Our logistics platform is also designed to deliver RMG and hydrogen as well as CMG.
The synergies between these critical components position us to capture greater value with our assets today.
Today, our supply chain and logistics team continues to deliver outstanding cost effective performance, enabling the efficiencies of our fleets to produce day in and day out we think critically about what components of the supply chain are necessary to provide a base load of support for our fleets.
Versus what areas are sufficiently and reliably supplied in the market.
We will continue to invest in areas that promote the highest efficiencies with high return opportunities by doing so we will build strong customer relationships based on dependability and elite service quality.
Tight frac market persist in North America domestic natural gas markets are now beginning to show signs of a widely anticipated slowdown but the.
The softness is likely transitory ahead of a wave of LNG and Mexico pipeline export growth.
Fast majority of Frac services are weighted towards oil basins.
We are working to simply maintain todays production levels, implying that demand floor for Frac services.
Today, our calendar remains strong with some expected movement from gas to oil your basins. During this transient period.
The fundamental outlook for North American hydrocarbons as strong as constrained global oil supply is confronted by rising demand in emerging markets and a gradual recovery in China.
North American E&P companies have demonstrated strength and discipline amidst economic turbulence.
Development programs are largely unchanged as production has been roughly aligned with oil demand in the years since the pandemic and E&P companies are financially healthier today relative to prior cycles.
And early spring financial sector stresses and the heightened perceived recessionary risk on global oil demand resulted in an abrupt fall in oil prices concerns have seems to ease as markets digested the news and economic data showed revlon fee.
Apprised collective and proactive output cut from OPEC.
<unk> members, coupled with falling Russian supply drove oil prices back to pre bank stress levels.
Adds inflows are always expected in a cyclical industry, but we see a multi year up cycle ahead that will favor companies who offer unique dependable reliable solutions.
Liberty's focus on innovation puts us in an elite class offering differential technologies at superior reliability.
We are building unique technological operational and cultural advantages that will enable us to continue broadening the markets and service offerings of Liberty energy.
With that I'd like to turn the call over to Michael stock, our CFO to discuss our financial results. Thanks, Chris Good morning, everyone. We're.
We're off to a strong start in 2023 building on the momentum of velocity of all quarters with an improved trailing 12 months return on capital employed of 43% I am pleased to share that we've achieved our fourth consecutive quarter of record profitability in company history, a testament to the hard work of that team to deliver high efficiencies.
We delivered on our strategic priorities balancing our industry, leading to return of capital program with continued investment that keeps us ahead of the curve.
The strategic expansion of that did you free technology offering coupled with new LTI group uniquely positions us to have a win win solutions that drive productivity and profitability for both us and our customers.
In the first quarter of 2023 revenue increased 3% sequentially to $1 3 billion, we delivered on our expectations and built on the solid foundation of the prior year financial results pricing moved rapidly last year post COVID-19 induced pricing declines and are now back in stable territory.
With service companies are able to make a reasonable return while reinvesting in their businesses.
This quarter net income after tax of $163 million increase from $153 million in the fourth quarter fully diluted net income. This year was 19 <unk> compared to 82 cents in the fourth quarter.
General and administrative expenses totaled 53 million in the first quarter and included noncash stock based compensation of $6 million G&A increased 4 million sequentially primary primarily on noncash stock based compensation expense associated with annual grants in the first quarter.
And legal expenses.
Net interest expense and associated fees totaled $8 million for the quarter. This included approximately $2 million related to the extension of our ABL facility and the retirement of that term loan facility.
Tax expense for the quarter was $54 million approximately 25% of pre tax income, we expect tax expense rate for the full year to be approximately 23% to 24% of pretax income.
First quarter, adjusted EBITDA increased 12% sequentially to $330 million from $295 million achieved in the prior quarter as our teams executed at high levels through normal seasonality.
We ended the year with a cash balance of $21 million and net date of $189 million net did increased $14 million from the end of the fourth quarter, even with the execution of $75 million in share buybacks and $9 million towards at quarterly cash dividend.
Total liquidity at the end of the year at the end of the quarter, including availability under the credit facility was $308 million in.
In January we amended our ABL facility to provide $100 million increase in our borrowing capacity to $525 million.
In conjunction with our ABL expansion, we retired at $105 million term loan, reducing our effective interest rate.
Net capital expenditures were $133 million on a GAAP basis in the first quarter, which included costs related to Digi fleet construction capitalized maintenance spending and other projects.
They were approximately $3 million of proceeds from asset sales in the quarter.
Cash from operations was $204 million for the quarter and riches to shareholders was $83 million in the quarter.
In July 2022, clean stone a share repurchase program to take advantage of the dislocated share prices in a biopsy improved market.
During the first quarter, we upsized to have the authorization to a total of $500 million.
Reflecting our conviction in our ability to generate strong free cash flows. We also reinstated our quarterly cash dividend of <unk> <unk> per share in the fourth quarter of last year.
In the first quarter, we returned $83 million to shareholders, including a share repurchase of $5 2 million shares which represents two 9% of the shares outstanding at the beginning of the quarter for a total of $75 million and the balance was rooted in dividends we.
We have now returned to shareholders a cumulative $218 million in the last nine months, we continue to differentiate ourselves with an industry, leading return of capital program, while reinvesting in high return opportunities and growing our free cash flow.
Looking ahead, we are expecting modest sequential growth in the second quarter expanding on the solid results, we achieved in the first quarter and reflecting stable pricing normal seasonality and a solid base of customer demand. We are not seeing softness in the gas market significantly impacting our second quarter results, but any visibility into the second half of the year.
So just we will likely shift a few fleets into larger oily basins, we demand for liberty exceeds that supply as gas basin customers slow their activity in response to near term gas market conditions.
At general outlook for the year remains positive and in line with that first quarter commentary.
As we navigate the upcoming years, we are well positioned to maximize free cash flow generation to support our capital allocation priorities of disciplined investment to expand earnings per share balance sheet strength and the return of capital to shareholders I will now turn it back to Chris for a few remarks ahead of Q&A.
Thanks, Michael.
Foreign power offered the U S a trillion dollars to.
To destabilize our electricity grids.
While also raising electricity prices.
Surely we would scoff at such an offer and <unk>.
Closing lower quality service and higher prices on a network that is the lifeblood of a modern economy.
No.
Unfortunately this is the road, we're heading down with.
With the passage of the IRI, a bill last fall, we will spend not receive hundreds of billions of dollars in uncap subsidies that will likely draw trillions of investment dollars to unbilled to billed low energy density unreliable electricity generation.
Sources, the same political forces absent thoughtful evaluation is also forcing the retirement of reliable dispatch will electric generation capacity that keeps our lights on factories running and life saving incubators supporting the miracle of life.
We know where this leads leads as we've seen it already unfold in California, Germany, the United Kingdom et cetera.
See the recent book the unpopular truth by sharing of Cowen Smith for detailed dissection of todays electrical grid policy policies.
We are passionately and vocally oppose to this impoverishing industry.
This impoverishing industry and jobs outsourcing opportunity squelching trajectory, but sadly it is the current course that we are on.
We will never stop advocating for a radical course correction with that being said Liberty power innovations will likely see many highly attractive business opportunities to supply reliable dependable power solutions to those who simply cannot operate without it our.
Business and advocacy are centered around our mission bettering human lives via more energy and better energy.
We will now open the lineup for your questions.
Okay.
Thank you well begin the question and answer session.
Ask the question, maybe first of all I'm wondering your thoughts going forward.
<unk> introduced a speaker phone please pick up your handset or pressing the keys.
Your question. Please press Star then two.
We will pause momentarily there was some of the roster.
Okay.
First question will be from the bond answer.
<unk>. Please go ahead.
Hey, good morning, guys.
We're gonna be addressed the gas markets right upfront. So you talked about next quarter, maybe moving some fleets from the gas basin oil basin, you talked about your early visibility comment, but maybe just if we can expand on this a little bit adverse case right now is fleets and profitability collapsed in the back half of the year with an expected 30 to 40 rigs come out maybe just.
Walk us through the year do you see these rig count decline materialize, what it can mean for liberty's property profitability and your activity levels just one.
Trying to get a better handle on what the potential magnitude could be for you guys as we move through the year to the end of the year.
You bet Eric.
<unk> looked at the moment is if meaningful we'll see it we went from a marketing that was a market frac market and rig market that was ever tightening to a small pullback, but the magnitude of the pullback is relatively modest less than 20% of our activity is in gas markets, maybe 20% of total industry.
Activities in gas markets.
Even at that pulled back by a third.
Six or 7% declined industry wide and demand for Frac fleets we.
You already had in oil markets, probably more activity that people wanted to pursue that they were unable to pursue for a lack of capacity.
So for Liberty. This this will manifest a couple of ways one is.
The one big gas market, we're in the demand for Liberty, even there outstrips the number of fleets. We have so we're going to see a little bit of growth in market share from existing customers that would like to see more of liberty.
And as Michael alluded, we might move one probably had talked to fleets.
To other people that have been pounding the table to get our Liberty fleet, otherwise, we'll move a fleet to another basin.
I would say the impact on us probably not that meaningful but since we do have a meaningful oversupply in natural gas prices have collapsed dramatically. It's macro this is significant it's not insignificant in the frac and drilling world, but I would say not a large impact on liberty's business and our financial results.
<unk>.
Great that's good color.
Maybe moving over to the Permian I mean, we've heard some comments from your peers around this dislocation of the Permian market I think specifically the spot market, maybe could you talk to that a little bit are you starting to see that in your Permian fleets or given your bifurcation dedicated agreements with customers you see some level of insulation, just maybe more around the Permian basin.
Yes, there are probably more of the latter.
Others that are seeing that much more than us, we're just not meaningful players in the spot market all of our fleets are dedicated either full time that one customer we do work for smaller players, where we layer a few different customers in to fill up the activity on our fleet, but.
Yes.
We have not seen anything meaningfully different in the Permian than we saw four or five months ago.
I appreciate the comments, Chris I'll turn it over.
Thanks.
Thank you next question will be from Neil Mehta with Goldman Sachs. Please go ahead.
Yeah. Good morning team just wanted talk a little bit about the Capex profile. How are you thinking about the cadence of did you frac builds this year and next especially if commodity prices stay here and any guidance you can provide around capital spending numbers over the next couple of years.
Yes, I would.
We reiterated that guidance from Q1, obviously, we were going to be doing approximately 40% to 50% of EBITDA this year, reducing down to about 30% of EBITDA.
And Neil and I think that holds true.
Yes, the demand for the <unk> fleet is strong, but we've just got a balance what are the best opportunities for them that fit our profile of how we want to allocate capital as Michael just risk.
Chunk of that is capex, a chunk of that is to a return of capital to shareholders.
To maintain a balance sheet that we're just bullet proof for whatever the world might throw at us next.
Yeah. That's that's the follow up can you just talk about the <unk> you guys were aggressive in buying back stock in the fourth quarter.
Shares have underperformed relative to energy and relative to your earnings power over the course of this year. So talk about how you use youll continue to use buybacks as a lever.
And that and balancing that against.
A lot of uncertainty.
The economic macro.
It looks like the motivation for buybacks or ultimate motivation for the management team here and everyone that works at Liberty.
Is to grow the value of every liberty share right. That's our job that's what we do.
And when we get and so there's many ways to do that building a competitive advantage strong customer customer relationships delivering the above average return on capital that we've delivered since we founded the company 12 years ago. That's a core part of that message, but will we get other opportunities at very attractive prices to buyback.
Back to increase the ownership amount of each share of Liberty stock by retiring shares at attractive prices Heck, we're going to do that and we're in we're in sort of a special scenario right now where we've got a very strong business. We're 12 years into the business. So we're past sort of a growth mode established liberty mode. So our needs.
For Capex as a percent of our business size have shrunk and we are presented with a compelling opportunity.
To shrink our share base. So we're going to we're going to be all over that as long as that opportunity there.
Chris Mike.
Yeah.
Thank you next question will be from Mark Mackie do Cowen. Please go ahead.
Hey, Thank you.
I wanted to go back to the supply demand balance a bit because.
Because I guess I hear you on the demand side.
There have been some.
Projections that I've seen for I don't know 30 fleets coming into the market and Theres a lot of debate about how many of those are going to be incremental or replacement or just kind of curious what your view is on the supply side.
And maybe how long will it take for investors to sort of know whether those are disrupting the market or not.
That is a good question, we're sort of math and numbers guys, but so we do our own projections and extrapolation, but for the marketplace. Obviously, it's going to take some time to just see the financial results flow through but we do our own bottom up Frac fleet count.
Yes sales and representatives in every basin, we have our own how many fleets are running today, how many are going to be running next month, how many can be run in Q3, I was going to be running in Q4, what those fleets are where they are coming from so that I think theres about 30 frac fleets that are.
That are planned or under construction it looks like from our math that our customer dialogues.
<unk>, probably a little less than half of those will actually hit the ground this year.
And the other half or little more than half will hit the ground next year. So do you think 14 fleets hit the ground. This year. There is north of 250, Frac fleets running right now even if you say hey, the market's good people are going to hang on with Bandaids. Instead of the average 25 fleets that are 25 fleets worth of <unk>.
Equipment.
It's incremental not fleet, but 25 fleets worth of equipment would fall out in the marketplace. This year economics are strong maybe people with mandates hold onto half of that.
12, 13, 14 fleets of equipment exit and 13th 14th fleets of new equipment arrive that's pretty much a flat supply this year and if we continued at that rate it would actually be a declining supply because bandaids only last so long wishes and hopes don't really work equipment will a trip out of them.
Place so the macro outlook right now remains pretty good.
Yes, that's really helpful context, Chris.
Wanted to ask another follow up to a prior question on the Capex side. So Michael you said down to 30% of EBITDA in 'twenty four I guess for beyond 'twenty three.
Thank you guys put a slide deck out since the last quarter, where you were talking about $450 million to $500 million of capex over sort of five to seven years, which would seem to be above that level that you talked about in 'twenty four and beyond.
But maybe just talk about what that what that was meant to two.
To show and then how does the LTI sort of play into whatever those sort of sustainable capex numbers ought to be.
So that was really the show sort of like a replacement cycle with did you take knowledge is sort of as we slowly sort of like move into replace the tier two and no sort of disagree with you really that's where we came up with that 30% number.
Again, obviously that will depend on sort of like the strength of the market, where we see the market the supply demand balance staying very sort of.
Did you say the majority of the demand is coming from replacing the oil that is currently being brought to market is not really major growth in oil production and so we see a reasonably strong steel market over the next few years and a slow sort of replacement of tier two pumps with <unk> technologies.
Which obviously is going to it's got its own drivers as far as increasing profitability and that's where those numbers came from another and that's why we came up with those general numbers. They those two numbers Jive together one drove the other so to speak <unk>. This year the capex for <unk> was.
In the budget that we announced at the beginning part of this year.
Obviously, we've split that up.
Isn't changed the Capex number, but we did the <unk> deal, which we closed at the beginning of this quarter, which was going to speed the revenue generation and earnings generation of that power and then we will look at <unk> as we do all of that businesses. It has to compete for capital and has very has a very very strong returns and has to augment the <unk>.
<unk>.
Base business.
I'm just wondering.
No I think Thats, well said Michael.
And can I just clarify Michael the.
It's $78 million for LTI the acquisition that's outside of the Capex number that you would guided to for this year. It would make sense that you are going to confirm yes, okay super thanks, so much.
Thanks, a lot.
Thank you. Our next question will be from Stephen <unk> of Stifel. Please go ahead.
Hi, Thanks, good morning, everybody.
Steve.
Two things for me.
I think the first one when we think about second half of this year and next year.
How do you when you look at fleet utilization I mean, obviously it seems like you think the markets reasonably tight how are the conversations evolving with customers. When you think about pricing and the demand for liberty's assets versus peers, how do you sort of balance that and how should we think about liberty's willingness.
To give up a little price to keep business.
Or walk away if prices are lower than you think how should we think about how you evaluate that with your customers.
Yes. So look we are in constant dialogue with our customers remember most of our customers have been or have been our customers for years. So we're in a partnership gear.
You'd be surprised but of course, the vast majority of the dialogue with our customers is how do we make operations better more efficient how do we get safer or how do we plan better for things that might have changed in drilling programs about where assets are going to be.
Undertone of course, and all and every market customers would like price higher and lower than we would like price higher I mean, that's just that's just human nature.
At Liberty, its always moved a little bit slower for US right and we are all not just liberty, but the whole industry suffered from sort of this hangover of this crazy overbuilding that was done in 2011, 12, 13 14, those excess fleet only really have gotten burned out in the last year or two.
So we've had a bunch of years of excess hangover now, which we have a certain amount of equipment. There is capex to build new equipment. There is returns on that.
And those returns for our customers, but the biggest needle mover for our customers right now to lower their well costs improve their drilling economics like the low hanging fruit is burn more gas and burn less diesel to power a frac fleet.
Switch the wet sand, where you can.
Save on drawing costs in App transportation shorter.
A lot of gas substitution, sometimes is unreliable you don't have it or you only get two thirds of the pumps get gas and the other third have to burn diesel. We're just knocking over these barriers to reducing costs. That's why we went into <unk>. We have to have reliable gas every day all day for all of our pumps.
That is a huge cost saving opportunity for our customers and return enhancing opportunity for us. So those are the dominate discussions prices sort of a frequent but sort of a smaller dialogue, but today the pricing is pretty much stable and we said this back in probably our Q3 certainly in our Q1 earnings.
Paul at the end of last year, we worked fighting for that last pound. If lastly, you heard others say, 15% more prices coming.
Held a gun to People's head could we have gotten a little bit more at the end, maybe but we played that longer game, where partnership returns for US are good returns for our customers are good right now pricing for US is flat right now.
I don't see any immediate horizon for that to change.
Great. Thank you for the color Chris.
My second question.
When we think about LTI your vertical integration strategy.
And when we sort of look out if we look out.
12 months, but also longer term two to three years, what do you think liberty looks like is it.
All fleets completely integrated or are there additional services at the wells that you're offering how should we think about like sort of the medium term strategic initiatives at Liberty.
Yes, I mean, I would say the best input I can give there as to look at the last few years.
We're all we get pitched every deal out there we haven't been a large acquisition company, but in two downturns. When there is compelling opportunities. We will do those most of what we do is organic LTI was an organic idea launched over a year ago to fix a problem of unreliable gas supply.
In time and across whole whole of fleets.
And we brought in midstream expertise developing technologies and our plan. There are there other things we're looking at that might either improve our current offerings or expand the shoulders, a little bit yes surely surely.
But theres always way more ideas than there are compelling ideas, but you've got a dig into all these ideas and sort of run them to the ground to figure out which ones are the most compelling in today's economics in future competitive advantage and at the right humans right technologies to bring something differential to the mark.
That place so we're not going to add seven business lines and we're we're sort of a slow steady company, but we'll we continue to evolve absolutely we continue to grow our competitive advantage versus our peers yes.
When we broaden our base of business yes.
We always be driven by.
Delivering above industry, all industries returns on capital and tried to grow earnings per share as fast as possible, yes, sorry, im not giving you any more specifics, but we just don't really released those until we're doing them right now thank you.
Good question. Thank you.
Thank you our next question will be from <unk>.
RBC capital markets. Please go ahead.
Hey, Thanks, and good morning.
Maybe if we could just start off on customer or E&P consolidation, we've seen recently.
Some public e&ps buying private e&ps and talking about slowing down there the rig activity on the acquired lands there has been.
Stories written the Wall Street Journal about larger consolidation can you just Chris give us some some some thoughts on where you think or what do you think that more E&P consolidation would mean ultimately for liberty versus versus competitors perhaps.
I would say in general I think it's healthy it's a normal business part of the business cycle and there is periods, where there is less consolidation there's periods, where it's more active with stable strong prices right now, we're probably in a fruitful environment for more consolidation.
We're aware of a lot of those dialogues that are going on before before you hear about them. We think it's again, we think it's healthy we think it's good for Liberty as you get more in fewer stronger players. We mentioned I think in our opening comments there sort of a.
It was sort of a move.
To upgrade service partners, whether you're a big company or a mid sized company in today's world. So.
It's change.
In general its a positive trend for the industry, It's certainly a positive trend for Liberty.
Okay. Thank you and just a follow up.
What how should we take stable pricing to mean in the in the context of of inflation does that mean, there's going to be some pressure on margins or you can pass through pricing or cost increases in pricing.
Yeah, it's going to be a little bit of bolt just straight inputs were buying get our inflation driven we're passing those through theres inflation with many different ways. There is also a sort of a backdrop of efficiency that we're always trying to get better. So we are a little more efficiency kind of outrun a lot of sort of organic inflation. So.
Yeah, I think we're viewing it sort of flattish flattish across the board.
Thank you and if I could just sneak one more clarification in.
Michael I think you said it.
But can you just clarify so the guidance you talked about last quarter for 40% to 50% year over year. Adjusted EBITDA growth are you are you sticking with that.
Yes.
Got it okay. Thanks, very much I appreciate the comments.
Thanks.
Thank you our next question will be from.
Piper Sandler. Please go ahead.
Hey, good morning.
Chris you talked about how you're planning the parent does your prime pumps with your does your Frac pumps and I guess could you talk a little bit of balance.
Got you did your prime pumps and how these fold into conventional fleets over time, maybe its replacement pumps and how you think about these relative to tier four DGB, along with the performance characteristics versus tier four DGB.
Luke it's Ron Yeah, So like Chris said in his remarks, you have to think of Digi Prime as base load power and.
So for us that means that you could really pair it with anything in our fleet did you did you Frac electric pumps of course would would lead to entirely next generation, but it appears equally well with tier four DGB or even through two dual fuel. If we if we were going to do that.
Just something to manage the transient load.
We've kind of those peaks and peaks and troughs that come along with the world of fracking. So you just want to think of that as base load power that we put in place that delivers the first 80% of the horsepower we require on location and then something on top of that to absorb the ebbs and flows of a day to day job and then.
So as you think about it really it brings it brings some benefits in terms of the efficiency of delivers obviously, we're moving to natural gas, but when you. When you have that mechanical drive setup, you just get incredible efficiency in terms of use of the fuel and so when you compare that to something like tier four DGB or 25% to 30%.
A reduction in emissions profile and a significant improvement in effectively what we call fuel economy, So big step forward for us.
Okay, great. Thanks, Ron.
Turn it back.
Thank you.
Once a week from Scott Gruber.
Citigroup. Please go ahead.
Yes, good morning.
This years supply demand that sounds good morning morning.
I just want to come back to the macro.
Can I ask about how it kind of.
Good relate to your pricing.
Obviously, you are splitting that sounds pretty compelling on the market's tight.
But if the spot market does weaken from here.
Curious the.
The impact really when it would impact dedicated pricing I assume spot would have to drop.
Im reasonably healthy spread.
To your pricing just given your superior efficiency.
But curious if you had any color on.
Kind of from past cycles, what spread could be tolerated and sustain without pressuring your pricing.
What levels about deflation and if it does happen it would start to concern you.
I think it's not possible to quantify because there is spot pricing it depends on the customer it depends how fast they're going to move to get stuff done it depends on the service provider. Some companies have to provide huge discounts to other providers.
Just to get the same job. So again there is different players in the spot. So yeah, we don't have enough visibility or our specific insight into that.
It's a factor, but it's not impacting liberty today.
Okay.
And then just on the latest portfolio expansion here.
Can you can you speak to that next level of efficiency.
That youre able to bring in when you guys do.
Pretty good job tracking stage.
Stage counts for yourself and others.
Just commentary on kind of what youre seeing at present and as you continue to kind of expand the portfolio. How you think.
That delta.
Turning to widen.
Again hard to tell.
Hard to quantify but just incredibly proud of our teams look worse were high at record revenue record profitability, we're as big as we've ever been today, obviously since we started the company, but yet the average performance of every fleet. We have the average across all the fleet was a record last quarter, So and I guess the biggest piece.
Or that is humans is culture.
Passion for what people believe so we continue to enhance training.
We mentioned with LPR.
Gas supply has been a little bit of.
Headwind to efficiency, mostly it just means more diesel is burden that needs to be burned. So we're going to switch more of that to natural gas, but on the software technology training Theres. Just so many factors there people keep always asking I asked us five years ago, what do you think Thats plateaued and we said maybe we pick some of the low hanging fruit, but it continues to drive up but that's.
The people the humans in the culture of Liberty So.
I don't know where it goes but I'm reasonably confident it's going to continue to go up.
And what do you think there is an ability to.
Incorporate firms into the contracts, where you can more directly benefit from a wide gas diesel spread.
Oh, absolutely looked at that the biggest driver of of these next generation fleet is that huge delta between diesel and gas cost, but you can't just snap your fingers and get it you have to have different equipment different engines different frac fleets that can burn it you got to supply. It you got to look at the most efficient way to supply it.
So that's a thing that of course wins for both us and our customers. The majority of that benefit obviously goes to us because we're bringing the technologies the equipment the people to do it but it's a win for both sides.
Okay, great. Thanks, Chris.
Thank you next question will be from Roger read Wells Fargo. Please go ahead.
Yeah. Thank you good morning.
We're gonna do kind of a good cop bad Cop question for you and the same question.
You gave your outlook for natural gas and so one question or the first part is what if the downturn is a little bit worse.
30% to 50% decline in gas drilling instead of a one third decline how you might react to that the second part of it is as follow up to a question asked earlier.
About E&P consolidation and Ironically. This morning, we saw a large Japanese company buying into some gas assets in the U S. So maybe as a.
The rest of the world tries to integrate its way through the LNG chain. How do you think that might affect positively as we get beyond the sort of near term issues related to low gas prices.
Well look I'll take the second one first.
Ourselves, we're not outliers here, but the <unk>.
Outlook for natural gas over the coming decades is just simply tremendous and it's tremendous for a number of reasons.
It's cleaner burning and when I say clean clean not lower greenhouse gas emissions. It's also lower greenhouse gas emissions, that's a big driver of it but its cleaner burning as well for sort of air quality air quality in United States is the cleanest, it's ever been and the greatest or in Alaska.
And the last 80 years and the greatest risk to that is emissions that are blowing in from Asia and Latin America. That's the biggest source of smog in the western United States, So as more of that industry and power that's coal slowly switches over to natural gas that brings clean air everybody's pro clean air.
So again natural gas has a great long run Japan, obviously reliable.
Source of electricity, you will see natural gas in the last 10 years is the fastest growing source of energy bar, none we hear things about percentage wise small sources that again ultimately don't don't add a lot of value there growing wider on percentage wise, whereas the world getting more energy from gas is though.
Is the by far winter in that race and likely in the next few decades, whereas a great. Obviously the U S is a tremendous place to produce more gas obviously, our exports are going to grow meaningfully. So I think all of that is happening all of that is positive some will be pipeline to Mexico. The bigger chunk will be LNG so for gas producers.
I think they are in a great position.
Road activity just got ahead of export capacity so that's that.
That happened that will take that made that may take as long as the early 2025, where we're going to see a significant growth in demand for gas.
Export markets in the U S. The markets may firm meaningfully before that as well, we don't know, but again for us it's less than 20% of activity easily deployable elsewhere, and we've got great gas customers. So.
It's not nothing but it's not hugely significant to the outlook for Liberty's business over the next one quarter or two years.
Yes.
Thanks I appreciate it.
Thanks, Robert Yeah. Thanks, Roger.
Thank you next question will be from Tom Curran B Riley FBR. Please go ahead.
Good morning.
I've just got two questions left related to LTI. So first.
As you've just spoken to that business as potential future acquisition activity, but on the organic side is LTI undertaking any R&D, but its own or expected to pursue internal technology development, including perhaps venturing into other types of alternative fuels.
And then strategically do you expect <unk> growth to help solidify natural gas fueled reciprocating engines as the power source of choice for electric horsepower.
Across the industry.
Well.
We do it just there's just so many spaces in which natural gas just wins the problem. The limiter of natural gas in the United States and around the World is infrastructure. The UX is blessed with is awesome pipeline infrastructure that moves gas around.
We're building better way through LNG, but just more expensive to take it by LNG and then other countries you see India huge plans to build gas moving infrastructure as do many other countries and what what LTI is is it sort of a virtual pipeline. It's a pipeline before there is a pipeline or it's a pipeline for just transient enough.
Consumption that it doesn't make sense to build a pipeline. So we wanted was sufficiently as possible type in tap into nearby pipelines transport that most dominantly being natural gas powered vehicles.
And the compression technology, the storage amount of those trucks, absolutely are we working on technology to keep making that better and more efficient you bet.
As he said, we can obviously transport LNG and hydrogen as well, but yeah, we see natural gas as a growing business opportunity and as I said in the opening remarks, just reliable electricity sadly is going to be a rapidly growing business opportunity as well and we have the highest thermal efficiency mobile electricity generating <unk>.
There is and we have a growing logistics business to supply gas to it wherever those units are.
Got it makes sense. Thanks for taking my question.
Thanks, Tom.
Thank you next question will be from Rabobank.
Please go ahead.
<unk>.
Do you expect demand in the oil basins to go up through the remainder of the year because I'm trying to put this into the context I think last quarter you were talking about a 10 to 15 fleet potential under supply in the oily basin. So I just wanted to square that with that comment.
Yeah, I mean look our outlook right now in those basins is roughly flattish.
On the margin are you going to see a little more private activity now that oil is above $80. Yes. There are small private it's hard to get Frac fleets economics were maybe on the bubble. If oil is above 80 and remains above 80 80 is there a little more activity in the oil basins, probably but overall.
Probably roughly flattish.
Okay. Okay. Okay, no that's helpful because.
But I would.
It seems to us cutting a little bit of activity on the margin.
Even before the banking crisis right now oil is back.
That level three the banking crisis I was just wondering if they add activity, they're doing that activity, but it sounds like youre thinking flattish.
I'll put bias.
Yes, I think Thats fair, Yes look the story of the last 12 months 12 months ago, privates, where a much larger percent of activity than they are today, what's happened over the last 12 months has been.
Sort of a rotation a shrinkage of activity from private and a meaningful growth in activity from larger companies.
Because they were slowly ramping up multiyear plans that larger companies.
Yes, yes, yes, no absolutely and then another just quick clarification for me.
Mentioned normal seasonality in the second quarter just to make sure. We're all on the same page that would normally think seasonality as favorably as a tailwind going from <unk> to <unk> just wanted to make sure. That's what you meant when you said normally seasonality in the second quarter.
That is correct, you're going to have the seasonal downturn from the Canadian side of the world and a slight seasonal uptick in the U S. Generally thats, usually a positive movement.
Okay.
Okay. Okay perfect. Okay. Thanks for that I'll turn it back thank you.
Thanks Rommel.
Thank you Yeah. If you have a question. Please press Star then one.
Our next question will be from John Daniel Daniel Energy Partners. Please go ahead.
Hey, guys good morning.
If my memory serves me correctly on the LTI. The Siren press release, you talked about.
Eventually providing power to industrial.
End users or just things outside of oil and gas can you provide a bit of a timeline when you might be able to pursue that.
So John it's something look we've looked at for for some time and obviously more seriously now as we're as we're bringing the pieces together.
The demand for the assets, we are building right now within our core Frac business is tremendous so look everything that we are Foreseeably building right now it's already got a home that spoken for so.
It is.
It's not short term, but its medium to longer term there's opportunities there.
I hesitate to give a specific timeframe frame, but it's not in the next few quarters, but look in our investigation to find the right opportunity that's happening now.
Got it and then the siren they had the two facilities.
What's the optimal number of facilities across the country for you have you come to that decision that are you still evaluating.
It's still evaluating it depends on volumes and location of work.
Simple look at the at the at the Permian is you've got the Delaware and you've got the Midland and they are far enough apart that it makes sense to have different facilities. There you don't have nearly the truck traffic, bringing gaps as you do sand, but you still want to ultimately optimize delivery cost versus infrastructure costs.
A big thing for us as well as the Permian is one base and it's the right base into starting to do this but it's just one basin, okay, and if you decided to build a new facility. What's the time from the decision to actually go and live.
Well I'd say it's.
Around six months okay.
That's all I got thanks for including me.
Thanks, John Thanks, Joe appreciate it.
Thank you. This concludes our question and answer session I'll turn the call back over to Mr. Chris Wright for closing remarks. Please go ahead.
Yes, I just want to thank everyone for their time today and interest in Liberty's business and a broader thank you to everyone in the Liberty family within the Liberty jerseys, our customers our suppliers and everyone working in this broader energy ecosystem that makes my life in everyone's life.
Possible.
Thank you all and we look forward to talking to you in three months.
Thank you.
This concludes our conference. Thank you for attending today's presentation you may now disconnect.