Liberty Energy Inc.

Good morning and welcome to the Liberty Oil Field Service's fourth quarter and year end 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 that 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 current conditions that are subject to certain risks and uncertainties that are detailed in the company's earnings release and 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 comparable 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.

Thanks, Tom. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2020 operational and financial results. Wow, what a year for the world and our industry. I'm so proud of our team here at Liberty, weathering the storm of COVID impact with tenacity and strength. and ending the year with determination and resolve in building a better company. We successfully navigated these challenges with the unprecedented sacrifice and commitment of the Liberty family. We enter 2021 with excitement as Liberty will celebrate our 10th birthday as a company. While we are very proud of what we have achieved in our first 10 years, we're even more excited about what the amazing group of people that make up Liberty are going to achieve in the next 10 years. 2020 marked a transformative year in our short history. We started the year in a frack market that was already struggling with pricing due to an oversupply of equipment and reduced completion spending. We then rolled into the storm of worldwide COVID infections that led to a brief 25% drop in oil consumption by April of 2020 and oil dropping into the $20 a barrel range. Liberty reacted quickly and changed our cost structure to meet the new market reality. We worked with our EMP partners to plan a way through the crisis to make sure that we reach the other side with the strength to take advantage of an inevitable rebound. Indeed, By our signing a deal with Schlumberger to acquire their one stem North America frac completions wireline and Texas sand businesses in the summer of 2020, we are in a stronger position to capitalize on the nascent industry recovery. We have brought back frac fleets to work as our core customer partners restarted completions and we ramped back up to 15.8 average active frac fleets in the fourth quarter. Most importantly, these fleets performed with a sterling safety record and we set a company-wide operational efficiency records in Q4. This ramp up represents a 68% increase from the third quarter and up from a low of 4.6 average active frac fleets in the second quarter. Revenue for the full year 2020 was $966 million. down from pre-COVID affected numbers in 2019 of roughly $2 billion. Adjusted EBITDA for the full year was $58 million, driven by a relatively strong first quarter. Our fourth quarter revenue was $258 million, a 75% increase over the third quarter, driven by increased fleet count and the high efficiencies mentioned. Our fourth quarter adjusted EBITDA was $7 million, a $6 million improvement from the third quarter as frack activity continued to increase following an abrupt halt in completions activity in the oily basins during the second quarter. As we discussed in our April earnings call, our plan was to manage the balance sheet to cash neutrality during the historic COVID downturn. At year end, Our cash and cash equivalents were 68 million, over 10 million higher than at the end of the first quarter of 2020. We were excited to end the year closing on the acquisition of Schlumberger's North American pressure pumping business on December 31. We have laid the foundation for a new era of Liberty's leadership in technology and sustainability in the oil and gas industry. Our greatly expanded technology portfolio, breadth of operations, dedicated team, and historic Liberty focus position us to achieve even greater innovation and efficiency. We've had five weeks of engagement with our new team members as part of the Liberty family, and the enthusiasm is contagious. Both our legacy Liberty team members and new colleagues are already working together with a renewed level of excitement and dedication to delivering superior service quality and results in the field for our customers. We are excited to now have significant natural gas exposure as that activity is driven by a separate market with different cycles. U.S. natural gas demand dropped only about 2% in 2020, far less than oil demand. The global LNG market is strong right now, with prospects for 5% plus growth in the coming years. It is notable that even during a time of major transition, our new team members were able to drive strong fourth quarter sequential revenue growth of about 25% at legacy one stem, a strong result. As we look ahead to 2021, we are excited by the opportunities ahead of us. We are still in the early innings of a recovery, but the clouds of COVID have begun to part and the global economy is on the mend. The rollout of COVID vaccines, fiscal and monetary stimulus policies around the world, and pent-up demand for goods and services reinforce a global economy that is on an upward trajectory. This provides the backdrop for continued improvement in energy demand while controlled OPEC Plus production, coupled with discipline among U.S. shale companies, is supporting oil and gas prices. This is reflected in a rising rig count throughout the fourth quarter. The number of total marketable frack fleets has declined significantly as the pandemic accelerated the pace of rationalization and cannibalization of frack equipment. As customer demand is shifting towards next generation technologies that support their emissions and efficiency goals, attrition of older equipment is expected to continue. Liberty's focus on reducing environmental impact since our inception with continued investment in technology through cycles has allowed us to remain front and center with our customers in supporting this move by the industry. and moreover, deepening our partnerships during these challenging times. Operators are currently navigating through a time of industry consolidation, a changing political climate, and a commitment to keeping oil and gas production flat. Continued shrinkage of marketable frac fleets across the industry is a necessary part of moving the market towards balance. The current pricing dynamic remains challenging, but Liberty is having many productive discussions with our customers to phase in modest price improvements throughout the year. Liberty was proactive in working with our customers as oil prices collapsed, and that partnership works both ways. We believe the frac market will experience flat to slightly rising demand for frac services in 2021. based on current visibility into customer plans. Public operator demand is expected to be relatively level-loaded, whereas private operator demand is more likely to be a bit back-loaded. Against this backdrop, we enter 2021 with 30 fully staffed frac fleets working across all major basins except the Northeast. Liberty expects to maintain approximately 30 active frac fleets in the first quarter of 2021 with the potential of adding more fleets later in the year only if the economics improve. Increased efficiencies that lower our cost of delivery coupled with a gradual modest rise in frac pricing are the factors that can drive improved fleet profitability. We like our new mix of customers, including larger public and private operators with great assets, balance sheets, and most importantly, great people. It will take the right partnership and the right economics to add new fleets to the mix. Overall, we're off to a strong start to the new year. We are working hard to seamlessly transition our business into one. thanks to the considerable efforts of our integration team. We are now a few weeks in, and the complimentary customer partnerships, technologies, and business acumen across our teams has been an incredible value add. In the first few weeks of the year, we've had folks across all disciplines, notably operations, sales, and engineering teams, come together in our Denver offices. forming new relationships, and finding new ways to collaborate and improve. It's been incredible. We now have new, highly complementary business lines to leverage greater control of the value chain, the capacity to move technology forward at a faster pace, our new Digifrack eFleet on the horizon, and much more. Industry transitions take time. but we believe we're at the beginning of a new era in the industry, well positioned with the right tools in hand. As we shared last quarter, it is the perseverance and enthusiasm of the team that sets the stage for Liberty to execute in 2021. I will now pass the call over to Michael to discuss our detailed financial performance, and then Ron will give a short update on the integration progress for operations and technology.

Good morning. We're pleased to have finished the year on a positive note. Despite the immense challenges the team faced in 2020, our disciplined approach to managing the business was very effective. Break activity improved meaningfully in the fourth quarter, and we were able to put more fleets to work faster than expected. The legacy ones in business also saw significant improvement, despite the inevitable disruption caused by the transition. We are so proud of the persistence and dedication exhibited by our legacy and new team members during the quarter, and we're excited to write the next chapter of our story as one united team. As we look forward, we believe we now have the right operations footprint in place for 2021. We currently plan on running approximately 30 deployed fleets in the first quarter and maintain those fleets during the year with some normal seasonal variation in the US and Canadian markets, impacting utilization in various causes. I will talk further about our 2021 outlook shortly. The full year 2020 revenue declined 51% to $966 million from $2 billion in 2019. Net loss totaled $161 million or $1.36, which is a fully diluted share. Full year adjusted EBITDA was $58 million, compared to an adjusted EBITDA of $291 million in 2019. Just annualized EBITDA firstly was $4.4 million compared to $12.8 million in the prior year. Our adjusted EBITDA reconciliation now excludes stock-based compensation to more closely correlate to other industry reporting. Our focus in 2020 on managing capital expenditures was successful. We were happy to hit our target of positive cash flow on fractional operations during the last months of the year that were severely impacted by the pandemic. We were pleased to be able to reduce our full-year capital expenditures while continuing to invest in Tier 4 DGB equipment, Digifrac E-Fleet engineering and prototypes, and dual-fuel upgrades, all technology that is in high demand and investments in line with our philosophy of managing the businesses by focusing on superior long-term returns while maintaining balance sheet strength. In the fourth quarter 2020, revenue increased 75% to $258 million from $147 million in the third quarter. The increase in revenue was primarily driven by 68% increase in active fleets and improved utilization. As customers restored completions activity faster than expected, net loss after tax decreased to $48 million in the fourth quarter compared to $49 million in the third quarter. Fully diluted, net loss per share was $0.41 in the fourth quarter, equivalent to the third quarter of 2020. Results in the quarter were negatively affected by $11.1 million of non-recurring expenses, including transaction and other non-recurring costs of $9.4 million, and fleet start-up costs of $1.7 million. Fourth quarter adjusted EBITDA, which excludes non-cash stock compensation Improvement in adjusted EBITDA was driven by increased activity and utilization, driving higher absorption fixed costs. General administrative expenses totaled $20.1 million per quarter, including non-cash stock-based compensation expense of $3.5 million. Net interest expense and associated fees totaled $3.6 million, equivalent to the prior quarter. We ended the year with a cash balance of $69 million. and a net debt position of $37 million. At year end, we had no borrowings drawn on the ABL credit facility. Total liquidity, including $114 million of availability under that credit facility, was $183 million. As we laid out in our first quarter earnings call, we targeted managing the business to cash flow neutrality through the end of the year, and we were pleased to be able to beat this projection. Given the considerable change in liberty in the oilfield services market over the last year, I'd like to provide a preliminary view of our 2021 outlook. I remind everyone this is based on current macroeconomic conditions and there is significant uncertainty in the global economic outlook. As Chris pointed out, we are still in the early innings of post-COVID recovery. In the US, we expect a continuation of current FRAC activity levels through the first half, followed by a potential gradual improvement in industry activity in the second half of the year, led by private-owned if the macroeconomic conditions are supported. In Canada, we're anticipating normal seasonality with a stronger first quarter, followed by a seasonal decline in Q2, improvement in Q3, and a seasonal slowdown in Q4. We are planning to run approximately 30 average freight fleets during the first quarter, and we will evaluate changes to fleet deployments based on market conditions. We will add crews in the future only with a meaningful improvement in fleet economics. As Chris described, Increasingly positive dialogue with customers suggests the frag market could see some modest price inflation as the year progresses. We believe there is a recognition amongst operators. We work hand in hand with them to lower pricing during the 2020 energy crisis to assure continuity of operations. But pricing at this level is unsustainable outside of the period of crisis management. We've had productive conversations with a number of clients and have plans in place to face a modest price inflation during the year. With the one-step acquisition, we have grown significantly, adding more frack leads for wildlife business and sand mines to the mix. But we expect that general and administrative expenses in 2021 will only increase by high single digits from 2019 levels. We have increased our operating platform and will gain significant fixed cost leverage. Our first quarter will include approximately $10 million of non-recurring SG&A costs, relating to the transition services provided by Schlumberger. Transition costs and services from Schlumberger will not continue after the first quarter. Capital expenditures are targeted in the $145 million to $175 million range for the year, and depreciation and amortization is estimated at approximately $240 million for the full year. Capital expenditures at the midpoint of the range include maintenance capital, offset by the early stages of CAPEX synergies tied to equipment slated for maintenance support. Annualized savings of approximately $1 million per fleet are expected to begin to appear in the second half of the year after our initial period of evaluation of the support equipment. We're also including approximately $60 million in technology investments, including digit rank, dual fuel upgrades, and tier 4 upgrades. Lastly, approximately $10 million relates to the limitization and homogenization Importantly, we have significant flexibility adjusting our capital spending targets, depending on the market environment, and we plan to be free cash flow positive in 2021, while continuing to invest in the future. As we bring one stiver to the fold, Liberty's latest It is these efforts that will drive deeper customer partnerships and the superior returns we are known for. I'll hand the call over to Ron for a short update on the integration progress for operations and technology.