Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Liberty Energy Inc (LBRT, Financial) reported strong financial performance with revenue of $1.2 billion and adjusted EBITDA of $273 million, reflecting sequential growth of 8% and 12%, respectively.
- The company achieved record average daily pumping efficiencies and record safety performance, contributing to a 28% adjusted pretax return on capital employed for the 12 months ended June 30, 2024.
- Liberty Energy Inc (LBRT) generated strong cash flow and distributed $41 million to shareholders in the second quarter, continuing its capital return program.
- The company has made significant technological advancements, including record diesel displacement with data analytics, preventative maintenance programs, and the AI-empowered Sentinel logistics software platform.
- Liberty Energy Inc (LBRT) has successfully integrated its operations, enhancing efficiency and reducing costs, such as a 90% reduction in downtime due to proppant delivery and a 35% decrease in truck count and delivery time.
Negative Points
- Industry drilling and completions activity has softened, which could impact future performance.
- The company anticipates that total North American completions activity will be modestly softer in the second half of the year due to budget front-loading by some operators.
- General and administrative expenses increased by $5 million sequentially, primarily due to higher compensation expenses and other miscellaneous costs.
- The market for Tier 2 diesel engines is declining, which could impact the company's older equipment and necessitate further investments in newer technologies.
- Liberty Energy Inc (LBRT) expects capital expenditures to be around the high end of the range for 2024, which could strain cash flow if market conditions do not improve.
Q & A Highlights
Q: Chris, can you provide some color on pricing trends across the various frac technologies today?
A: The market is slowly softening, with activity levels declining modestly. Tier 2 diesel engines are becoming less desirable due to higher fuel costs and lower efficiency. Larger operators prefer newer technologies like digiFleet and e-frac, but Tier 2 diesel engines are still in use, especially among smaller companies.
Q: How would you describe the incremental demand for e-frac?
A: Demand for e-frac is significant, with all equipment ordered for next year already spoken for. Discussions are ongoing for additional fleets to be deployed in the first half of next year. E-frac is cheaper to run, quieter, and more precise, making it highly desirable.
Q: What is your outlook for demand progression into 2025?
A: We expect modest growth in 2025. Current activity levels are not sufficient to maintain flat natural gas production, and oil production is also flat. We anticipate a slight increase in activity in the first half of next year, likely returning to levels seen in the first half of this year.
Q: Can you elaborate on the growth initiatives for Liberty Power Innovations (LPI) and the demand trends you're seeing?
A: There is significant interest in LPI due to the cost savings of burning natural gas instead of diesel. We are expanding our operations in the Permian, DJ Basin, and Haynesville, primarily to support our own frac fleets but also to supply customer rigs. We see substantial growth potential in this business.
Q: Can you explain the capital lease item on the balance sheet?
A: Capital leases primarily cover rolling stock like tractors and CNG trailers. The interest rates on these leases are slightly lower than our ABL facility, making it an effective short-term financing option.
Q: How much of your capital expenditures are allocated to LPI this year?
A: We are running about 125 megawatts of power generation, with over 50% of that under construction for future oil field operations. Most of the CapEx is focused on moving the molecule, including CNG trailers, compression, and fuel distribution.
Q: How do you view the progression of completion activity into next year?
A: Modest increases in activity will be required to meet projected production growth. Current activity levels are not sufficient to maintain flat production, so we expect a slight increase in frac fleet demand next year.
Q: How do you plan to protect frac pricing given the tightening diesel-CNG spreads?
A: Our vertical integration strategy, including LPI, aims to drive higher returns on invested capital. We focus on delivering more value to our clients, which helps us maintain strong returns even in a softer market.
Q: What is your view on capital allocation, especially in a softer environment?
A: We remain committed to returning capital to shareholders through buybacks. While we are open to acquisitions, our primary focus is on organic growth and maintaining a high return on invested capital.
Q: Can you provide an update on the number of active digiFleets expected by year-end?
A: We are on track to have 10 next-generation digiFleets operating by the start of next year, with no changes to our deployment plans.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
