Q1 2024 Liberty Energy Inc Earnings Call
Welcome to the Liberty Energy earnings Conference call, all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference over to <unk> director of Investor Relations. Please go ahead.
Thank you good morning, and welcome to the Liberty Energy first quarter 2024 earnings conference call joining us on the call are Chris Wright, Chief Executive Officer, Ron Second President and Michael <unk>, Chief Financial Officer before we begin I would like to remind all participants that some of our comments today.
May include forward looking statements, reflecting the company's view about future prospects revenues expenses or profit.
These involve risks and uncertainties that could cause actual results.
Could 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 are.
Our 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 calculation of adjusted pre tax return on capital employed as discussed on this call are available on our Investor Relations website.
I will now turn the call over to Chris.
Thanks, Angela Lee Good morning, everyone and thank you for joining us to discuss our first quarter 2020 for operational and financial results.
As we enter the fourth year of what appears to be a durable cycle for North American oil and gas production and development activity consolidation across the energy industry is pushing larger companies to seek technical solutions and expertise to drive value creation.
Liberty strong first quarter results demonstrate the continued benefits of leading the industry in technology innovation service quality and investment in talent over the last year. The operations team delivered our highest combined safety performance and average daily pumping efficiency and <unk>.
<unk> history, our 32% adjusted pre tax return on capital employed for the 12 months ended March 31, 2024 represents a continuance of our history of strong returns.
Proud of the continued outstanding results our team achieved during a period marked by softening industry activity trends.
Exceptional operational execution and deep customer engagement drove strong first quarter revenue of $1 1 billion and adjusted EBITDA of $245 million.
We generated strong cash flow and distributed $42 million to our shareholders in the first quarter.
Since July 2022, we've now distributed $417 million of cash to shareholders through the retirement of 12, 5% of shares outstanding plus cash dividends.
We remain focused on generating strong returns and free cash flow, we are paring investment in profitable growth initiatives to increase our competitive advantage with a robust return of capital program.
We are leading a generational shift towards low emissions capital efficient natural gas fueled technologies.
Our comprehensive solution from critical power generation to the <unk> fuel supply supports our DG fleet deployment and uniquely serves our customers and their development of oil and gas resources.
Furthermore, a growing demand for power from AI, driven data centers and re shoring of industrial and manufacturing activity require reliable sources of power, which we believe will be best served by domestic natural gas Liberty power innovations is well positioned to benefit.
These wider opportunities beyond the oilfield.
Our customers see tremendous benefit from our direct investment in next generation pump technology, our ownership of power generation and fuel infrastructure to control critical areas.
And expansion in our manufacturing.
Together this complete end to end service solution enables a rapid innovation cycle and superior operating efficiency that our customers have come to expect from the best service partners.
Seamless integration of our dingy technologies with advanced cloud based software.
For our pumping control systems power generation and the onsite fuel management maximizes operational efficiency and lower fuel consumption the successful.
Full deployment of our first few did your fleets has further strengthened our customer partnerships, which we continue to grow through ongoing engagement to provide customized solutions. For instance, we are enhancing our automated pump control technology with customization that allows the optimizing key variables.
<unk> important to our customers such as rate pressure sand and chemicals and fuel efficiency.
This solution.
Bonds to reservoir conditions and provides our customers a customized fracture treatment across basins and horizons with innovation.
Software optimization drives enhanced execution, while minimizing downtime and maintenance costs.
Performance of our latest pump technology DG Prime has been excellent.
Prime is the most thermally efficient pump solution in the market and we are seeing natural gas fuel consumption that rivals the best dual fuel systems without any diesel consumption that means the pump lose it uses less natural gas and no diesel when compared to tier four.
DG pump D D.
<unk> pumps doing the same work tech.
Technology innovation has been central to our history, including the multi year design and development efforts of DG crack and DG Prime last year, we decided to expand our internal manufacturing capabilities with the launch of our Liberty advanced equipment technologies Division or Lat.
Matt now encompass is our manufacturing division, formerly known as S. T nine and expands our ability to design engineer and package complete systems. We believe the success of new technology comes through ownership of the engineering design and the ability to rapidly.
Feedback from field operations in the design and manufacturing process. This can further accelerate the innovation cycle and reduce total cost of ownership.
Liberty power innovations continues to grow and scope expanding alongside our dual fuel upgrades and DG fleet deployments in the first quarter, we launched operations in the DG DJ basin with onsite fuel management services and will commence CMG sales this quarter following.
The commissioning of our compressor facility.
Industry dynamics remain constructive as relatively steady demand in recent months has focused service companies on disciplined pricing and quality of service superior performance and reliability drive higher returns for both E&P operators and service companies alike.
Liberty's continual focus on technical innovation in equipment technology, and software automation augments, our industry, leading service offerings, while lowering the total delivered cost to the customer reinforcing our position as the supplier of choice.
Global oil and gas commodity prices have diverged and moved materially in recent months yet these changes have not materially impacted although there has been a very modest softening demand for north American Frac services.
Fuel prices have rallied since early in the year, owing to an improved global economic outlook ongoing OPEC plus voluntary production cuts and rising geopolitical tensions Irene.
Iranian oil exports are at multi year highs with a non trivial risk that future Iranian export volumes decline natura.
Natural gas prices have Conversely declined considerably since last fall, primarily owing to strong production and mild winter weather, both driving natural gas inventories to well above seasonal norms.
Natural gas prices are likely to strengthen in the future with increasing LNG exports and surging domestic demand for power in the years ahead.
After 20 years of nearly static U S power demand analysts' projections for growth in the coming decade from AI and re shored manufacturing range from several Bcf per day to over 10 Bcf per day of incremental natural gas demand from the power sector alone.
<unk>.
Globally energy demand continues to March higher supporting a strong north American oil and gas industry in future years.
The Lucky 1 billion borrowing origin Mercury's term consumed 13 barrels of oil per person per year, while the other 7 billion consume only three.
It is safe to say that global energy demand will grow for the foreseeable future.
Liberty is focus is profitable growth through disciplined investment in talent technology and equipment that lead the industry in efficiency and emissions.
We are confident that our strategic investments in DG fleet, plus power and fuel supply through LTI better positions us to deliver superior returns over cycles.
We are also excited by our partnerships in the Australian beta lose shale gas basin, which exemplify our continued efforts towards growing reliable energy sources worldwide.
In the second quarter, we expect low double digit sequential growth in revenue on stable pricing and increased efficiency with corresponding improvement in profitability.
Continue to expect strong cash flow generation in 2020 for supporting our technology transition investments and industry, leading return of capital program.
With that I'd like to turn the call over to Michael stock, our CFO to discuss our financial results and outlook.
Good morning, everyone. We started the year delivering solid first quarter results fueled by considering you're set to deliver superior reliable service to our customers.
Focusing on meeting the increased complexities of a larger growing E&P customers, we've been able to mitigate the challenges of a softening industry demand during the last four quarters and deliver a strong return on and return of capital.
More sophisticated customer base requires tailored solutions that are be sued by technology investment scale and integration and we have aligned ourselves with these customers by meeting and exceeding the growing demands.
In the first quarter of 2024 revenue was $1 1 billion compared to $1 1 billion in the prior quarter. Our results were flat with the prior quarter in line with our expectations and is a pumping efficiencies and integrated services offset lower sand and other consumable prices and market heat volumes.
The first quarter net income after tax of $82 million compared to $92 million in the prior quarter fully diluted net income per share was <unk> 48, <unk> compared to 54 <unk> in the prior quarter.
First quarter, adjusted EBITDA was $245 million compared to $253 million in the prior quarter.
Craig markets have softened since the highs of late 2022, and 2023, but now appear to have stabilized since late last year.
Our first quarter results were relatively flat with the fourth quarter in line with our expectations.
General and administrative expenses totaled 53 million in the first quarter and included noncash stock based compensation of $5 million G&A decreased $2 million sequentially sequentially as prior quarter performance related compensation was modestly higher than the.
Current quarter.
Net interest expense and associated fees totaled $7 million for the quarter relatively in line with $6 million in the prior quarter.
This quarter tax expense was $26 million.
Approximately 24% of pretax income.
We continue to expect the full year tax expense rate in 2024 to be approximately 25% of pre tax income.
Cash taxes were $17 million in the first quarter and we expect 2020 for cash taxes to be approximately 80% over our effective book tax rate for the year.
We ended the quarter with a cash balance of $24 million and net days with $142 million.
Net debt increased by $39 million from the end of the fourth quarter due to the expected rise in working capital.
This quarter uses of cash included capital expenditures of $30 million in share buybacks and $12 million in quarterly cash dividends total liquidity at the end of the quarter, including availability under the credit facility was $315 million.
Net capital expenditures were 142 million in the first quarter, which included investments in did you did you fleets OPI infrastructure dual fleet dual fuel fleet upgrades lack construction capitalized maintenance spending and other projects, we had approximately $3 million of proceeds from asset sales in the quarter.
Capital expenditures remain on target for 2024.
We are confident in our ability to generate strong cash flows through cycles and remain committed to our industry, leading return of capital program.
In the first quarter, we repurchased $30 million worth of shares or nearly 1% of shares outstanding and distributed $12 million in cash dividends.
Since we reinstated our return of capital program in July of 2022, we have now distributed $417 million to shareholders through cash dividends and the retirement of 12, 5% of shares outstanding at the program commencement.
We continue to deliver on our return of capital program, while reinvesting in high return opportunities that increase our long term cash flow generation.
While the oil and gas commodity prices have meaningfully we see relatively stable demand for Liberty Frac services at.
A slightly based on oil demand is offsetting modestly lower gas basin trains in the second quarter, we continue to expect improved activity levels among our customers.
Primarily owing to high utilization and favorable weather related trade ins in most basins that more than offsets spring breakup in Canada.
We are navigating low double digit sequential revenue and adjusted EBITDA growth. We are also expecting did you freak deployments to continue ratably throughout the year, including our Siemens fleet later this quarter.
We are executing on our two pronged growth strategy one.
Investing in next generation Digi fleets that fueled incremental fleet profitability and to LTI, which brings a low emission source of power generation of fuel to support the rising domestic paramount across industries I will now turn it back to the operator for Q&A after which Chris will have some closing comments at the end of the quarter.
We will now open the line up for your questions.
The first question comes from Roger read with Wells Fargo. Please go ahead.
Okay.
Yes, thank you everybody.
Congrats on the quarter.
I'd like to just follow up on the issues.
Pricing, we did see.
The competitors say they wanted to go grab market share you've obviously got a lot of things that will push back against that.
Better fuel pumps, and everything like that but I was just curious how that market dynamic is working here.
Yes, good morning, good morning, Roger.
The industry conditions, probably peaked about six quarters ago in the fall of 2022, and it's really just because thats when the fleet count peaked and the fleet count is sort of gently moved down since then and if the fleet count is going down you've got incrementally negative pricing pressure this is compared to.
Any other downturn. This has been a very slow very modest gradual pullback and I would take that pricing pressures are in line with that they've been modest and gradual.
There's much more in choosing who youre going to use them get price right.
Quality and technology and way of doing business. So as we've said there is very modest.
Pressure on pricing, but I would say not meaningful and we're probably near a bottom in fleet count activity I don't know that it moves up meaningfully, but when it does start to gradually move up.
See sort of pricing pressure modestly in the other direction. So.
Austin the Liberty World.
The pricing story remains relatively boring.
That's good and then kind of following on your comment there I mean at some point in gas prices recover here and we get more activity in the gas regions.
Any indications from any of your customers kind of where we are in that process or maybe what they need to see to start going the other direction is it a change in production is it just price driven is it.
With the LNG export increases.
Yeah, I think customers are are pretty thoughtful about that and there is a constant dialogue about that but I think I think customers need to see that prices have firmed that export volumes demand actually is pulling upwardly in a meaningful rate and then they've got some comfort that.
The next 12 or 24 months prices are going to be much more constructive than they look today. So that's not imminent.
That increase in gas activity it could be as early as the end of this year.
Not be until next year.
Okay I appreciate it thank you thanks.
Thanks Roger.
Yes.
Sure.
Our next question comes from Stephen <unk> with Stifel. Please go ahead.
Thanks, Good morning, everybody.
Two for me one is just a clarification I think Michael you mentioned the second quarter guide for revenue, but you also said I think you said low double digit EBITDA growth as well and I was just I wanted to ask how we should think about so the incrementals in general even if you don't want to apply it directly to the second quarter.
<unk>.
I would think EBITDA will grow faster than revenue, but just curious your thoughts on that.
Yes, yes, I did say low double digits kind of a similar growth on EBITDA versus revenue.
Yes, I mean as we move forward there is some change in mix as you go through this process and we're helping our clients as they are moving back to Liberty sourcing some of the consumables save and chemicals, which have a lower margin pass through than service revenues service revenues is relatively soon as pricing relatively flat.
Sort of where we get to that so the 25% to 30% Incrementals.
Great and then the second question I had was when.
When you think about it.
And I'm sure you guys have done some of this math if you think about current U S oil production levels and you think about frac activity and drilling activity, where do you think we stand as far as.
Tree activity versus what's needed to hold production at current levels.
Yeah.
That's a fine balance.
My guess is the activity level today is probably consistent with flat U S. Oil production I know, we saw a big decline in January I think thats monthly fluctuations, but we're certainly not at an activity that will meaningfully grow U S production probably activity today is flat.
On on oil production.
Look if prices stay where they are you're going to see a little bit of incremental activity from privates.
Later this year and are we ultimately going to end the year with some modest production growth probably.
Okay, great. Thank you.
Thanks Steven.
Our next question comes from Stephen <unk> with Stifel. Please go ahead.
Okay, I'm, sorry, Neil Mehta with Goldman Sachs. Please go ahead.
Yeah.
Hey, good morning team.
And really solid Q2 guide I guess.
My question was really focused on the on the back half of the year and as you think about the back half versus the first half.
To be kind of in that flattish territory versus last year of EBITDA, there would be a ramp.
And I think there are a lot of reasons I think we do ramp in the back half. So just be curious on your perspective.
Team on some of the drivers in two H versus one eight.
Yes.
You know what I mentioned is oil prices if oil prices stay where they are I think we will see we'll see more activity from private operators in the second half of the year than the first half of the year I would say for the larger publics.
Flat pretty flat activity.
Going forward.
Yes, youre going to get the roll off of Canada.
We've already seen the drop in the gas basins, and it's already baked in and that's where we see to get to that flattish guide for the year.
Okay, Alright that is helpful. And then we didn't talk about return of capital yet. So I'd just love your perspective, the business is starting to generate real free cash flow balance sheet in good shape. So how do you think about.
Returning excess cash to shareholders and what are other calls on that cash, including the potential for bolt on M&A.
Yeah.
Yeah.
Those are decisions, we discuss debate wrestle with every day, we have a <unk>.
Strong core business and key for US there is competitive advantage. We've got every day not last year not last month every day, we've got to deliver a better service quality than our competitors and that's that humans. That's training that's culture. That's technology, that's investment in all of them.
Those things obviously, we've got this larger scale transition to gas burning activity I think we pretty.
<unk> laid out a plan for that we're probably at the peak level of that right. Now. So you know as you go into future years, we will continue to invest in new technologies, but the investment in the Frac fleet, probably gradually rolls down in the coming years. We've got this new LTI business, that's that's quite exciting, but we're going.
To go with a slow and measured pace this year.
In this new business line right now, it's about nailing the technology and the execution of delivering onsite oilfield electricity to run our operations.
Ill.
And then of course look.
Maybe the most compelling investment we have although we have to balance it is to buy back our own stock. We've got a very strong return on capital of incredible competitive position, we still trade at a single digit price to earnings ratio. So yes of course, we're intrigued by that and don't don't see that.
Likely changing in the coming quarters, but it's always a balance between all those things we've always got to keep the business. So that we have a strong competitive advantage and a bright future ahead of us we can't ever just look this year, we should only do this.
So to us it's always balancing.
Opportunities today, and the outlook for the future.
Thanks again.
Our next question comes from Luke Lemoine with Piper Sandler. Please go ahead.
Hey, good morning.
You talked about did you prime just the fuel consumption there versus tier four DGB, but could you. Just also talk about maybe the first six fleets in the field, how theyre performing and then Michael I believe you said.
Number <unk> coming later this quarter.
Or if you're still kind of go into 10 fleets by year end, our fleets eight nine and 10 already allocated to customers.
They are they are.
As we've said since the start the interest there is large the interest is larger than the amount of fleets we can build.
So, yes, but yes, those those leads through the rest of this year, we know who they are going to and where they're going so those plans are in place.
But DG Prime is is it is it is it very different technology. So we love the idea.
Early operations I would say are great, but it's brand new there's little things Oops, Yes got to change that so we're tweaking the design or whatever but the pause.
Comps that are out there yeah. The performance is impressive that the power density that Super high thermal efficiency, so you're actually not just putting gas instead of diesel but less gas.
So I think site managers around that Ron do you want to elaborate or comment anything on that thank you covered it well.
You have to come visit someday, we'll take you out to one.
Okay, absolutely thanks, guys.
Thanks Luke.
Our next question comes from Arun <unk> with J P. Morgan. Please go ahead.
Good morning team.
I wanted to see if you could shed a little bit more light on the sequential.
Double digit sequential.
Topline outlook for the second quarter versus <unk> I'm trying to get a sense of if youre going to kind of.
Dissect the drivers of that growth between more efficiency or pumping hours on existing fleets. You've obviously added a couple of duty fleets I think in <unk>.
And also between <unk>, just help us think about what what's driving the sequential growth.
But.
One thing is just calendar right.
Part of the year, you've got whether you've got people with different plans with programs. So probably the single biggest thing is just.
Speaker Change: It's just a fuller more robust calendar I'll, let Michael add some of these other factors, but I think that's the biggest one.
Correct.
Very very strong pumping efficiencies and.
We would expect that to continue or as it always does slightly improve especially as we get into the beta winter and then as Chris said youre, putting that over a stronger calendar with its white space days, you have a little move obviously with the technology.
Which is helpful on the price side of it offsetting and then you've got that being offset by to some degree as we look and we helped our clients save money on sand and consumables and that general market price on those veins has come down which has been very helpful to our clients. So it's a balance of all of those things are in.
Fair enough.
We get a decent amount of questions on L. P. I. So I was wondering if you could just give us a sense of how big that businesses your future.
Growth opportunities for that segment, and maybe talk a little bit more about.
The L a T or the Liberty advanced technology, which you talked about earlier in your prepared remarks.
You bet, let me look LTI today is relatively small business.
Today, it's about building its about building infrastructure team technologies understanding systems.
What is what is LP I do today delivers natural gas to.
Our on site electric generation to power, our DG fleets and also to dual fuel fleets of course, DG private fleets and it doesn't supply nearly all of those fleets. Today. So this is early stage in that business, but I think it's got.
As you've heard us say, just tremendous tremendous growth opportunities, but key to securing that growth is securing the technology the operations and the supply chain.
Inbounds, we get now for just needs for electricity I mean it shifts.
And look I've been outspoken about this for many years, we have followed very poor policies in this country for our electrical grid and we've fragile lives our electric grid with constant demand demand.
As grow very slowly over the last decade, and even with very little demand growth, we've driven prices up reliability down and now that that grid and those policies are colliding with rapid growth in demand for electricity. So this is going to cause some bumps and struggles for our country.
<unk>.
I wish it wasn't but but <unk> will be will be we will see tremendous business opportunities and providing firm reliable affordable natural gas generated electricity so that.
Future of LTI is tremendous but it isn't a big business today and Liberty no, but will it be a big business in the future. We think it will and it's super exciting as well and I'm going to let Ron take you a little bit about what it is and why we're doing it.
Yes look from probably from going back six years now I guess 2018, we made a pretty conscious decision around getting into some vertical integration around manufacturing capacity that started with our <unk> acquisition and a decision around bringing in house the ability to control the design and ultimately manufacture and assembly.
If a pump.
Sure.
As we fast forward to today, we're in the middle of this transition to next generation equipment.
We control the design of DG Frac from the ground up we've done the same with Digi Prime and it makes sense for us now to control that entire packaging process and particularly the engineering design and control of that in house and so that is a very conscious decision for us to do exactly that which is to be able to take the feedback we're hearing from the field the input from our customers.
Opportunities, we identify for or even advancing the technology beyond where we are today.
Implementing that in our engineering design, and then handling some amount of that packaging internal to our organization. We still have some great third party packagers out there that have been partners for a long time, we will continue to work closely with them as well, but we're going to do some amount of that base load work internally and particularly retain control over the engineering design and innovation.
And that side of things.
Great. Thanks.
Our next question comes from Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
Scott Andrew Gruber: And Scott I had a question here.
And with Walmart gas turning negative just curious whether you are in that contract setup, where you supply the fuel costs such that you can directly benefit from negative gas prices, whereas the benefit.
Liberty mainly indirectly.
Resiliency.
That can dual fuel that little lower negative gas prices provide and growth opportunities for LPL.
Kind of wondering.
You'll have the benefit flows to liberty.
Yes.
Indirect today, we don't capture the benefit of that but we'll be in the future.
We will and think of it even outside of the oil field, we're going to sell electricity gas is going to be an input cost and we're going to sell it in different places and different setups with different commercial arrangements. So yes, we're excited by that but right now that that benefit them.
That benefit goes to our customers but of course. They also have the downside of selling gas into that market. So no today, we don't benefit from that but.
And of course it is just a further tailwind of why it just makes more sense. When you can do it to power large industrial machinery with natural gas instead of diesel diesel is an awesome fuel that powers the world and it will for decades to come but when you've got infrastructure and when you can bring gas and you can take large machinery.
Empowered on gas versus diesel.
Cheaper more abundant lower cost lower pollutants and lower greenhouse gas emissions.
Got it.
And then you wanted to circle back on your comments regarding private.
You're picking up activity later in the year is that mainly just a function of time with Brian privates needed it to.
Human any more cash following the.
Rebound in oil or is there a egress factor here, particularly in the Permian do you think private wait for Matterhorn to start up and then see better egress for natural gas out of the basin.
Well, it's a bit of a combination of all of those but I do think matterhorn matters, because if you look into Permian incredible basin, but it's it's a lot of pretty gassy production, so oil drives economics, but gas matters too. So yes, when we get more pipeline capacity and there is value.
We're less negative value from gas definitely in addition to oil prices that will further improve economics.
Scott Andrew Gruber: Economics of drilling and well.
Not expecting some huge surge or increase in activity, but on the margin. If you were a private operator would you be more likely to produce.
Later this year than earlier this year if oil prices were similar yes definitely definitely later this year is going to be a better decision.
That makes sense thanks, Chris.
Thanks, Yes, good question.
Our next question comes from Derek Pod Heizer with Barclays. Please go ahead.
Hey, Good morning, guys wanted to go back to <unk>, you talked about the opportunities outside of oil and gas looking specifically at the AI data centers could you help frame this market opportunity for us and how you think about that potential earnings power over the medium term.
We'd be talking about decade long ppas. So just more stable earnings just a little bit more how to think about that AI part of the business.
Yes.
It's got to be a different business, but key for us it's going to take the same expertise and the same technology, we are developing today.
That for US has always been the excitement of this were not taken a flyer on some crazy idea.
We have always thought for our Frac operations, it's just essential to control the power of your fleets and so for US we're building that infrastructure to deliver fuel generate electricity and run our operations, but we've known from the start that hey by developing that expertise and that ability to power.
Our own fleet of course, we can do all sorts of different things with those and look it's early on these are we're in.
Dialogues now this year is mostly about developing the technology the expertise and the delivery of that remote electricity to our frac fleets, it's not outside oil and gas that's not a 2024 thing we probably see the start of that next year, what that but to your original question, yes are they going to be.
Some larger projects are there going to be some more stable many many year contracts.
Yes, yes, there will be and so to us its development expertise that helps our core business that will always be a key part of our core business, but yes, it's going to give us a leg up in an entre into a marketplace that Jeff.
That is struggling already with the dearth of power you've got customers for your data center or for your industrial operations, while it's hard to get affordable.
Near term additional power to any industrial activities in this country, we should not be in this situation, but we are and we're going to be in this situation for years many years so for us.
Yes, we should probably give more color later, but yes, it will be a long term a little bit more probably a fair amount more stable.
Leg of our high return profitable business for Liberty.
Understood that's helpful.
Switching back over to Frac, just wanted to think about the fleet count for the remainder of the year and maybe just the interplay of adding additional digi fleets you talked about six going go into 10.
Tiring tier two diesel fleets I think you guys had 100 tier four diesel fleets being upgraded dual fuel DGB and just getting a sense of whats going towards incremental fleets versus replacement fleets. So just your overall view of high grading the fleet mix as we work through the year and how that May help the ramp that you're expecting in the.
Back half of the year.
Yeah today, it's all about replacement fleets, we're not adding new fleet capacity into.
The marketplace as it is today and in fact, we don't have any plans to offer later this year. So this is about replacing existing equipment with next generation equipment that has a lower operating cost and a higher profitability. Ron do you want to add anything or comment on that but it's definitely not about.
From six today to 10, DG fleets, that's not for new fleets going to the marketplace, that's zero new fleets going into the marketplace.
Got it great I appreciate the color I'll turn it back.
Thanks.
Our next question comes from Marc Bianchi with TD Cowen. Please go ahead.
Thank you.
I wanted to first clarify on the.
On the EBITDA outlook for the year to be flat.
Should we be taking that.
Messages as a literal comment so you did $1 $2 billion of EBITDA. In 2023 is the expectation that it's 1.2 in 'twenty four or could it be down 5% to 10% and it's still sort of it's.
Close enough to being flat that it would qualify for that statement.
Yes, we've been very specific flat ish mark flattish. So yes, yes, so yeah. So.
It's not saying, it's a literal flat one two to one to no. It is it is going to be flattish so kind of within the rounding error that you discussed.
Got it got it Okay, and then that still would imply some improvement in the back half and it sounds like from what Youre, saying.
There is.
Bit of what we just talked about with the digital <unk> deployments, helping some sort of customer specific things, helping and maybe a little bit of help from.
Higher oil activity or or maybe that's not the case, if you could just kind of clarify what the the macro outlook is in the back half that's driving your results.
Yes.
We've talked about Q2 versus Q1.
Q3, historically is probably the best quarter of the year.
<unk>.
I don't see any reason to expect that to be different this year.
But yeah.
That's why our guidance flattish, we don't have a crystal ball, we don't know what will go on in Q4.
I don't know specifically Q3, but.
If the activity stays flat is where it is today for us we still have from internal improvements in our business and cost efficiencies at new technology deployment, we can still grow EBITDA in that environment and typically you face.
Some somewhat of a roll down in Q4, we probably see a little of that this year, but probably not so much because activity today is sort of flat production at best.
I think activities.
If there's a bias to change in activity six or 12 months from now its more likely to be up and down but that's why our guide we've sort of always just flat, yes, we don't have a crystal ball for the end of the year, but but in the current existing marketplace, how with Liberty perform.
Annual EBITDA would be flattish compared to last year.
Yep Yep makes sense and then Michael just one more on the on the free cash for the year.
Could you just talk to what we should be thinking of from a conversion of EBITA perspective, because first quarter. It looked like it had a pretty big working cap headwind.
I think earlier in the last call. You said you would expect that to be flat for the year, but just if we could talk about it in kind of how many dollars of EBITA ultimately convert into free cash would be helpful.
We don't give those details I think it can move around but yes, you always get a build of working capital in the first quarter because of kind of Q4 of the last six weeks is always the lowest part of the quarter and.
The opposite spectrum, we will see with growth in revenues, obviously growth in top line, you're going to see a slight usage.
Slight sort of build in working capital in Q2, you're going to see a kind of a release of working capital in Q4, and so yes, as we said over the course of the year working capital will be about flat for the year, but I mean that does free cash flow numbers are not quarterly driven.
They have some a little bit of sort of up and downs with it.
Yeah, Okay. Thanks, very much I'll turn it back.
Thanks, Mike.
Our next question comes from Keith Mackey with RBC capital markets. Please go ahead.
Thanks, Good morning, just wanted to start out with.
The rigs that are associated with consolidation versus the overall Permian rig count and so certainly they have to run the businesses independently before the deal is closed but not necessarily the way. They would if there was no deal. So can you just talk about your exposure to customer consolidation and any potential impacts positive or negative that you could.
See from from the upcoming consolidation.
Yeah look your comment.
Correct, Yes, there is.
There has been a continual consolidation at some pace the last 12 or 18 months, probably still continues.
Scott Andrew Gruber: It does lead to incrementally a little bit less activity, that's probably why our production run rate today is that flattish.
Last year, we grew nearly 1 million barrels a day or over a million barrels a day in total liquids production, so a little bit lower activity.
There'll be an offset of that of course, because noncore assets are going to be sold off and new privates or existing privates will get bigger and we don't feel a little bit of that gap not happening today right now with the bigger customers bigger more sophisticated customers on balance that probably benefits Liberty. That's that's a better match.
For us Ben probably for most of the rest of the marketplace. So in these cases, we're much more likely to be more concentrated with the buyers than sellers in those deals.
So yeah, it's been it's been a small headwind for the industry and maybe a very small tailwind for liberty.
Okay. Thanks for that.
Just maybe a little bit on on Australia, you talked to talked a little bit about the.
The entry into the Blue Basin can you just talk about where you are in that I think some of the equipment was maybe getting ready to to get transported.
So just an update there would be helpful and do you see this as really a one off opportunity or are there other potential international opportunities that you might be looking at as well.
Look we've been pitched about international opportunities almost as long as we've been a company so that the interest in and having Liberty's engineering prowess. In addition to horsepower and equipment and all of that the interest in that international market has been strong.
Our view in the past has always been we're super loyal and we move slowly. So we're in a basin like we're going to stick with our partners in that basin. We tend to have very sticky customers. We've slowly move the other basins as we built more capacity or existing customers that pulled us there. So we've been more.
And doing those things.
It's debatable sort of checks two boxes, one is the gas in place is enormous.
It's this tremendous gas basin it hasnt produced any gas yet but could.
And should and when we talk about and you can read about bettering human lives the fastest growing energy source on the planet over the last 12 years by far is natural gas that likely continues in the coming decades as well so Peter Lou is a huge resource base.
Australia itself is having struggles with domestic gas prices and gas supply and the projections there sure things getting tighter so theres a need for that gas there on Australia, yet youre right near the South Asia Southeast Asia markets for it so it's a big upside and with the rollout of DG technologies, we've now.
We're bringing in new fleets and we don't need new capacity. So we've got fleet going out the other side that we can retire or in the case of <unk>, where we can send a fleet to Australia.
Scott Andrew Gruber: And we've got good partners, there and I think we're levered pretty nicely to upside in that basin, but it's small.
Multiyear thing for that to become meaningful but could it become meaningful I think we think it could I'll, let Ron update you a little bit more about like whats going on timing wise and how that's going but.
Writing new opportunity for us.
Ron: Yes, just a quick update there Keith.
So we isolated a fleet of equipment identified the assets that we're going to head over there they've gone to a central facility for us. They are basically done their refurbishment program at this point in time.
We're making sure that athletes ready to operate in a relatively remote environment.
So as we wrap that up that fleet will ultimately move down to to the Gulf Coast and we'll have that loaded on a boat sometime here in the middle of the middle to latter part of Q2 and it will find its way to Australia should arrive there in an early maybe mid Q3.
And then we'll have to work our way through customs and whatnot. There before we have that on the ground and ready to work, but that's where we stand today.
Okay. Thank you very much.
Thanks.
Our next question comes from Waqar Sayed with ATB capital markets. Please go ahead.
Oh hi.
So.
You know we saw the data from EIA, and North Dakota oil and gas Commission it shows that completion activity.
In.
North Dakota, Bakken was down about 24% quarter over quarter in Q1.
And also in Wyoming, Colorado area. It was also done about 22% did you experience declines in work in those areas and how do you see that kind of changing in Q2.
Going forward.
Yeah, absolutely the case that the Bakken historically has a very meaningful winter downturn and absolutely did this year as well as you just pointed out and that data so absolutely but reduced activity in the Bakken in Q1.
And also some reduced activity in Wyoming, and Colorado. So that data is true I think we will see.
That activity will rebound a little bit.
For the quarters for the rest of the year.
No.
So that's a pretty big change in activity.
How would the incrementals behave as a result wouldn't that deeply strong tailwind to incremental margins as that happened in Q2.
Well the other thing that all of our assets are on wheels.
When activity declines in the Bakken.
Bakken and Theres, just less fleets working.
We did we drive those lease elsewhere.
Okay.
Understood. Thank you very much that's all I had.
Yeah. Thanks Waqar.
Our next question comes from Sara pumped with B O. A please go ahead.
Hi, good morning.
Chris.
And Mike maybe I wanted to start on the efficiency side of things are like you noted in your press release and your comments over the past 12 months efficiencies have been really strong right onto the obvious question is how much running room do we have right, but as far as the follow through on that how much of the incremental efficiencies do you think come from pumping companies.
Yourself and how much of that do you think isn't behinds off the e&ps deal, but are you doing in terms of maybe logistics I'll just say the way they design the jumps and line up the supply chain. If you can just talk to that a little bit.
Yes, it's very much requires both sides.
On location.
Dance between wireline and Frac, and your customer and logistics and supply chain and operations. It's also I would say one of the advantages Liberty's hat.
If you deliver the best quality you get.
You can work with the best customers. So it is absolutely a coordination of all of those in and out.
I'll turn it over to Ron who has certainly been a leader in the engineering innovation the way to think about this and to find the opportunities to move progress.
Yes, we obviously, we continue to work on that you saw we made progress incremental progress each and every quarter one after the other and so.
That's a credit to the operations team to our technical development team as we continue to find ways to understand more and more about how our equipments operating to be proactive around things.
Things that could move the needle.
Could put us.
Yes.
Could could have us.
Deal with some downtime, we're finding ways to identify those and react to them before they happen and so that's a credit to the whole operations team out there. There is still opportunity. There we continue to find ways to move the needle on that but the low hanging fruit is gone a long time ago. These are going to be modest incremental improvements.
As we continue to take equipment to the next level.
Even as you think about DG, our next generation technology.
The time between overhauls on these gas engines look meaningfully different than it does on a diesel engine.
As we automate the operation of the pumps.
We can ensure long increased longevity of components out there so less time required for maintenance as we have worked closely with partners around things like hot swap technology, the ability to get a pump in and out of the Red zone without having anybody's step into place there.
Around.
Zero time between moving from wireline for pumping on a wellhead strong partnerships with Christmas with the E&P side of things, but also with other service providers out there that are bringing supportive technology to the table.
And then also for US of course speaks to the vertical integration. We continue to work on as we work on.
Improving our logistics platform, the introduction of <unk> and removing that reliance on third party for natural gas all of those sorts of things from an integrated services offering help us to ensure the highest possible efficiencies on location and we will continue to try to find little ways to eke out a bit more than that.
After quarter.
Right right no. That's very helpful. And then just one unrelated one I'm just thinking about the medium to them not just the really short term, but I think if I remember correctly, Chris Oh, I know you talked about a 90% of your fleet being gas fired by the end of the year.
Some of your competitors have talked about similar number was not exactly a 90% rate, but a large majority of the fleet being gas fired how should we think about that if you think a couple of years out from now and a lot of the working fleet at least maybe not be there.
Total inventory, but they will complete this gas fired at what point do we do we think about more gas on gas competition versus just displacing diesel.
Right.
Oh, absolutely, but when we talk about fleet technology, a lot that's a positive development for the industry at lowest cost and all that but it's not determined a tip fees.
Please and a good fleet or bad fleet based on what it Burns. That's just one factor the single biggest factor by far and away is the humans running that fleet the quality of operations the quality of the supply chain.
We don't talk too much about this but we've had certainly multiple examples.
Of Liberty.
Seasonal fleet is displacing a 100% gas burning fleet NHS for quality of operations and people customers.
Yes.
It's not just the fuel it takes that just one factor, it's mostly about humans and service quality.
So yes.
Yes.
That is a spec but not leaseback.
I would maybe go a step further than that and say it's also important to remember that not all gas fleets are created equally there are significant technology differences between the.
Opportunities out there to consume gas we have been very very specific about the technologies, we have chosen to invest in and deploy in the field both in Digi Prime and DG frac around ensuring that the gas burning technology, we deliver in the field is the highest efficiency lowest fuel consumption and as a result lowest emissions footprint on location.
That's not true for all gas burning technologies.
Yeah, No I think that makes sense execution, often tends to be the unsung hero.
And then Ron I think you talked about that on the <unk> side as well right. So it makes sense.
Okay. That's done it back thank you.
Thanks Sarah.
Our next question comes from John Daniel with Daniels Energy Partners. Please go ahead.
Hey, guys, thanks for including me.
Chris given the demands for power over the next basically decade, how far out are you guys having to place orders for content on your equipment.
LPR.
Supply chains are tricky supply chains are tricky theres, a lot of dialogue going on about that.
I promise I won't comment on any specifics there John but you do identify a real issue there is not a surplus of such equipment.
Okay.
And I don't know if you can answer this.
Ask it anyway is there any risk that the major Oems pivoting.
Allocate more product to data centers directly to the detriment of oil and gas.
Okay.
That's happening today, that's happening today. It was one of the reasons John as you know we've.
We've held this belief of what's going on with the electricity market for years. So when we got into a bill.
Building, our DG fleets. It was if we count on a third party that's going to do that at third parties not necessary on oil and gas company. If the market switches Nathan drive all those things over to data centers or or for manufacturing thing now.
We're at the Mercy of the business, that's not ours and we just decided that was a risk we didn't want to take.
Okay makes sense. Thank you for indulging me.
Hey, John take care.
This concludes our question and answer session I will now turn it back to Chris for closing remarks.
Thanks, everyone.
Early February released our comprehensive report bettering human lives 2024 that covers energy climate change poverty and prosperity.
Spent many weekends and evenings writing this report.
But what I'm most proud of was not written by me. It was the words in the letter from an higher the executive director of our newly formed better human lives Foundation.
The BHL Foundation is the culmination of our studies into the world's biggest solvable problems and our passion to play a meaningful role in changing the lives of millions and letter says it best and I will read the full text now.
Despite significant cultural and geographical differences among countries in sub Saharan Africa as seems outside the window as I drive from town to town are remarkably similar and all include women and girls standing in lines at water pumps walking in groups in search.
Firewood in cow dung and carrying heavy loads of firewood waterfield buckets, whether in Malawi, Burkina Faso, Ethiopia, Kenya, Ipass clusters of homes and seemed women cooking amidst harmful smoke from open fires that are fueled by wood or cow dung.
We are in the year 2023.
Is this acceptable.
I feel so disheartened that the daily lives of women and girls and many lower income countries continue to be filled with Tds physically demanding and often dangerous task of collecting fuel and water for cooking cleaning laundry and heating homes.
I am a nurse midwife and I've spent 30 years working to improve.
Quality health services for women during pregnancy childbirth, and the postpartum period for 25 years I worked primarily in southeast Asia, where access to energy and economic growth contributed to visible progress and improving health and quality of life for the past five years my work.
Shifted to sub Saharan Africa, and I've encountered a very different reality governments and donors have made huge investments in health over decades, and yet most countries in sub Saharan Africa remain far from reaching global targets for development in any social sector, including maternal and newborn.
Health.
I continually asked myself, how can a woman, possibly enjoy a healthy pregnancy access health services and demand better quality services. When she spends her time collecting firewood cooking over polluting stoves and missing out on education and revenue generating activities.
Ultimately translate into her ability to make decisions and take actions to improve her family's well being.
Better health services are essential but far from sufficient there was a great need to tackle more fundamental problems that perpetually constrained women and their families.
Ron: Clean burning cookstove, such as those powered by liquefied petroleum gas LPG propane can be a life changer for families, particularly women and girls it liberate them from the drudgery of collecting fuel and cooking and smoked field spaces affording them time for school or other <unk>.
Come generating activities in EMEA.
Immediately improves their health safety and quality of life through the bettering Human lives Foundation, Liberty will mobilize financial and human resources to support LPG and Cookstove entrepreneurs and innovators in Africa and in Asia with one goal in mind get a clean.
Cookstove into 1 million households, as a midwife and a mother my heart breaks when I see postpartum mother, and her newborns inside dark smoke filled homes.
I'm eager to get on a more impactful path toward better human lives.
Thank you everyone for your time today for the call and we hope you'll join us and supporting our efforts to better human lives Foundation.
Talk to you all next quarter.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
Okay.
Sure.
[music].
Ron: Okay.