Liberty Energy Inc.

Good morning and welcome to the Liberty Oilfield Services third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Some of our comments today may include forward-looking statements reflecting the company's view about future prospects, revenues, expenses, or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the company's beliefs based on the current conditions that are subject to risks and uncertainties that are detailed in the company's earnings released in other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA, and pre-tax return on capital employed are not a substitute for GAAP measures and may not be compared to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pre-tax return on capital employed, as discussed on this call, are presented in the company's earnings release, which is available on its website. I would now like to turn the conference over to Liberty CEO, Chris Wright. Please go ahead.

Good morning, everyone. In the midst of a global pandemic and an oil and gas industry downturn, our third quarter results demonstrated the resonance of our business. The Liberty family came together to work through an extraordinarily difficult time for the industry by applying our core principles to meet near-term challenges working hand-in-hand with our customers. Our customers have been as challenged by current conditions as we have been. We are in this battle together. Just as with our personal lives, Relationships are strengthened or broken during trying times. Liberty is growing and strengthening our relationships with our customers, and our Q3 results reflect that. Completions activity is modestly ahead of the pace we expected earlier this year at the outset of the downturn, and we continue to grow market share, percent of business with our top-tier customers. The third quarter also marked an entry into our first major gas basin, the Haynesville Shale, with an existing customer. The Haynesville is a world-class gas resource, geographically advantaged, being developed by a crew of strong operators. We are excited to plant our flag in the Haynesville. Our third quarter adjusted EBITDA, excluding non-cash items, was $1 million. a $10 million improvement from the second quarter, as operators restarted frack activity following an abrupt halt in the oily basins during the second quarter. Cash and cash equivalents were $85 million at the end of the third quarter, and total liquidity, including availability under our credit facility, was $154 million as of the September 30 borrowing base. Because of the severity of this downturn, I want to remind investors of how incredibly hard the team has worked to navigate all the challenges while keeping our people safe and our customers served in the top-tier fashion that they are accustomed to. I'm pleased with our team's solid execution that has translated into the significant improvement in our Q3 results, albeit with much room for further improvement in the coming quarters. All these efforts and decisions have been critical for Liberty's future. Not all of them have been easy. Michael will share our full financial results shortly. Despite near-term macro volatility, we never take our eyes off the long-term goal of building a competitively advantaged leader in North American FRAC. Our strategic goals have always been centered on building a business for longevity and returns through cycles, which requires a strong balance sheet and solid liquidity. We are pleased with the positive reception that the OneSTEM deal has received from our partners, customers, suppliers, and investors. We are excited by the conversations and integration preparation work we've done so far with our colleagues at OneSTEM. Let me briefly discuss OneSTEM. Bringing these two businesses together has energized our team, Our integration work is still in its early stages. We are immersed in discussions on people, technology, assets, strategy, and our future technology alliance framework. This is a huge effort with huge opportunities. Things are progressing quite well. We are pleased with how complementary our engineering databases and innovative technology solutions are for completions designs. and we're excited by the future opportunity to deploy an even better service offering. Suffice it to say that there are simply tremendous opportunities for Liberty to supercharge our technology platform. We will roll out more details on specific initiatives in the near future. Let me say again, technology was the major driver behind this transaction. We are also excited by the pump-down perforating wireline business and the sand mines. It's simply too early to comment on any more specifics at this point. We expect to close the transaction towards the end of the fourth quarter. We have already received antitrust clearance. RAC activity rebound has continued at a modest pace, likely supplemented at liberty by gains in market share. we exited the third quarter at a much higher level of activity than the quarter began. We see activity now leveling off until the seasonal decline towards the end of Q4, which we expect to be more modest this year. For the fourth quarter, we are now anticipating average active practice, excluding the acquisition of one STEM, will increase by greater than 20% from the third quarter. I must recognize again and give thanks for the great sacrifices made by all of those in the Liberty family. I'm pleased to share that we no longer have any employees on furlough. While we are on the road to recovery, it will take time. Oil prices are bouncing around $40, an improvement from the spring, but still too low for a healthy industry. Natural gas prices are in a somewhat better place today than oil prices. The U.S. onshore rig count bottomed about three months after the active spread count bottomed and has also been modestly improving with six consecutive weeks of growth. Current industry activity levels, likely around 130 active frac fleets, are well below the level of activity to hold U.S. oil and gas production flat. Hence, we expect to see further increases in activity levels next year. Liberty is responding to the reality that we have today and building our competitive advantages for however the future unfolds. Customer relationships are central to this. Last quarter, we discussed that our engineering prowess and completion designs were catalyzing more conversations with customers. Crisis catalyzes change. Those discussions have accelerated even further. Customers are looking to Liberty for new ideas and greater innovation to lower the cost of producing a barrel of oil. ESG is also a growing part of our customer dialogues. We are working hard to release our first ESG report for the end of the year. We are anxious to bring a fresh, candid perspective to this growing issue in our industry and our times. These are busy and exciting days for the Liberty family. I will now turn the call over to Michael.

Good morning, everyone. It has been a challenging six months for our industry, and in the second quarter, we transitioned the business to align our cost structure with our dedicated customers' projected activity levels, and our financial results reflect these changes. During the third quarter, we were pleased to see month-to-month improvement in the frack activity off trough levels in the middle of the second quarter. Liberty's partnerships with our well-capitalized, dedicated customers allowed us to achieve results slightly ahead of our projected pace during the period. In the fourth quarter, we are now expecting greater than 20% sequential growth in average active sleeves, which is the top end or higher than our prior guidance of 10 to 12 sleeves. For the third quarter 2020, revenue increased 67% to $147 million from $88 million in the second quarter. reflecting a steady return of activity as the commodity prices backdrop stabilized, albeit at low levels. And net loss after tax totaled $49 million in the third quarter, improving from a $66 million loss in the second quarter. Fully diluted net loss per share was $0.41 in the third quarter, ahead of the fully diluted net loss per share of $0.55 reported in the second quarter. Severance and related costs were $1 million during the quarter, And fleet startup costs included in the cost of sales was $6 million for the quarter. Third quarter adjusted EBITDA improved to a loss of $3 million in the third quarter from a cyclical low of $13 million in the second quarter. Third quarter adjusted EBITDA was a positive $1 million after excluding non-cash items of $4 million. Results were driven by a modest return in frack activity in the third quarter following the second quarter production shut-ins and curtailment of completions by operators in the oil basements. General and administrative expense totaled $19 million, including $1.5 million of one-time transaction costs related to the one-stem acquisition in the third quarter. A modest 4% increase from the second quarter as our cost-saving measures taken early in the second quarter continued to aid overall results. This modest increase in general administrative expenses was primarily due to the timing of certain corporate costs in the third quarter, as well as higher activity, driving an increase in personnel costs as employees returned from furlough. We anticipate a modest uptick in general administrative expenses during the fourth quarter, on a full quarter of no furloughed employees. Net interest expense and associated fees totaled $3.6 million, and we recorded an income tax benefit of $10 million for the quarter. We ended the quarter with a strong liquidity position of $154 million, including a cash balance of $85 million and no borrowings drawn on our ABL facility. Capital expenditures were $12 million for the quarter and $58 million for the year, and we continue to expect capital expenditures in 2020 to be in the $70 to $90 million range. Fourth quarter capital expenditures are expected to primarily include maintenance capex on increased working fleets, investment in next generation fleets and other items. The exceptional circumstances of this historic downturn in oil and gas have been bittersweet. We acted swiftly when circumstances were highly volatile, reducing staff, conserving cash, managing our liquidity and maintaining a strong balance sheet. Our core principles allowed us to navigate a very challenging market. Equally importantly, it also allowed us to take advantage of opportunities, that will make us stronger as the cycle improves. The acquisition of OneStim is a prime example of executing for the future. We believe OneStim will serve as a catalyst to advance our goals in generating superior returns as we have in years past. As Chris discussed, we expect to close our acquisition of Snobagee's frack business late in the fourth quarter, and our integration efforts remain on track. We have long been focused on investing in the future with a sustained focus on technology innovation. With this deal, we believe we can deliver even greater value to our shareholders through a strong, investable platform. And with that, I will now turn the call back to Chris before we open for Q&A.