Liberty Energy Inc.

Good morning and welcome to the Liberty Oil Field Services first quarter 2022 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 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 the website. I would now like to turn the conference over to Liberty CEO, Chris Wright. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss Liberty's first quarter 2022 operational and financial results. The world is seeing in searing fashion how critical it is to have a secure, reliable supply of affordable energy. Today's energy crisis did not begin with the Russian invasion of Ukraine. It began last year when global supplies of LNG simply could not keep up with demand. The costs of this shortage go far beyond the soaring prices of global LNG, which have spent extended periods above $200 per barrel on an energy equivalent basis. The world has seen rolling blackouts, countless factories shut down, millions struggling to pay their heating and utility bills, and perhaps worse of all, we are likely at the leading edge of a global food crisis due in significant part to curtailed nitrogen fertilizer production that is critically dependent on natural gas. Without natural gas synthesized nitrogen fertilizer, global food production would drop in half. Today's crisis is not due to any shortage of energy. It is due to a shortage of energy infrastructure, which in turn is due to a shortage of reality in mainstream energy dialogue and policy. We desperately need a more thoughtful, sober dialogue on energy, or the human toll will continue to mount. Enough on this critical topic. Turning to my favorite energy company, Liberty entered 2022 with the right people, asset base, and strategy to execute in a tightening frack market, and we are pleased to deliver strong first quarter results. This quarter demonstrated the benefits of our vertical integration strategy as we successfully navigated an operationally challenging environment. Last year, we expanded our services to include wireline, and we became a major sand producer, obtaining two large mines in the Permian Basin. We enhanced our technological advantages through the acquisition of PropEx, with wet sand handling and industry leading last mile profit delivery solutions. Together with their ongoing development effort of DigiFrac electric fleets and many others, these advancements provide our customers with differential frac services. The integration of our acquisitions in 2021 came at a short term financial cost, but these actions are already paying significant dividends in 2022. Revenue for the quarter of $793 million increased 16% sequentially, and adjusted EBITDA expanded to $92 million as we executed on our strategy and benefited from increased pricing, both the pass-through of inflationary costs and higher net service pricing. We also saw margin growth from our new strategic efforts that both lowered our cost of operations and increased our efficiency. Liberty also leveraged our vertically integrated portfolio to better mitigate the early quarter impacts of sand and logistics challenges, notably in the Permian Basin. We are encouraged by the progress we've made in the first quarter. The transformative work our team accomplished with the integration of OneSTEM and PropEx in 2021 is now behind us and paying dividends via an advantage platform with the scale and vertical integration to better our frac services. I want to thank our entire team for going above and beyond. As the market tightened last fall, our customers recognized that the unfolding recovery would increase the importance of having the highest quality partners to navigate turbulent times and still deliver operational excellence. Today's operational challenges are topped by labor shortages, sand supply tightness, and logistics bottlenecks. Liberty customers are seeing differential execution in this challenging environment, in part due to vertical integration from our one-STEM and PropX acquisitions. Sand supply tightness in southern oil and gas basins, including the Permian, Eagle Ford, and Haynesville, impacted industry-wide operations. While many EMPs directly source sand, we are seeing a reversal of that trend, as no EMP can hope to match the scale and sophistication of Liberty's supply chain. The magnitude of our purchasing power and the strength of our relationships with suppliers provides better surety of supply to support continuous operations. Sand supply challenges were exacerbated by truck driver shortages. Liberty's logistics digitization efforts, coupled with a wide network of multiple origins and destinations, allowed us to efficiently employ the limited number of truck drivers with dynamic route optimization. We have now deployed PropX's PropConnect software across all our West Texas fleets. giving us increased visibility and data analytics. We were able to act on real-time profit consumption monitoring and inventory tracking, all ultimately supporting the distribution of sand to our fleets and reducing non-productive time. Logistics optimization and centralization is critical in today's environment where truck driver shortages are pervasive across the country. We still have significant room for improvement here, but are pleased with our progress so far. The differential Liberty fleet efficiency requires innovation and continuous improvement. We continue to see the intensity of frack work climbing, which is driving up the demands on our equipment, particularly the high pressure pumps. Maximizing uptime and driving down operating costs are top priorities. Our STEM Commander pump control platform is a key component in achieving this goal. The STEM Commander platform allows for full automation of the pumping equipment, enabling intelligent rate and pressure control across our entire fleet. With a digital model of every engine transmission pump configuration in the Liberty world, the software will ensure the optimal execution of any job design on any fleet. including our soon-to-be-deployed Digifrac pumps. Improved safety, reduced fuel consumption and emissions, improved component life, and reduced personnel requirements are benefits we are starting to see from the deployment. As an example, Liberty saw a 20 to 30% improvement in power and life after deployment in one of our districts where high-pressure work is prevalent. The STEM Commander software has recently been rolled out on over half our fleet so far. The remainder will be completed over the coming quarters. Restrained global investment in oil and gas over the last seven years leaves us supply short just as worldwide demand for energy is growing and expected to surpass pre-pandemic levels in 2022. Relatively low and declining oil and gas inventories have led to persistent upward pressure on commodity prices, even prior to the Russian invasion of Ukraine. Although Russian export volumes of oil and gas have been only modestly impacted so far, uncertainty regarding potential future impacts of sanctions and fire aversion to Russian hydrocarbon presents significant risk to future supply and demand balances. And the modest below stated plan increases in OPEC plus supply and the release of global emergency oil reserves are simply not enough to supply a rebounding world economy. North American oil and gas are critical in the coming years. Tight oil and natural gas markets, coupled with geopolitical tensions in many key oil and gas producing regions, have all eyes on North American supply. The North American economy is proving more relevant to today's global challenges in significant part due to a secure local supply of price-advantaged natural gas. North America is well-positioned to be the largest provider of incremental oil and gas supply to power the global economy and, frankly, enable the modern world. The fracked services market is seeing robust activity improvement and a tightening of the supply-demand balance. Drilled but uncompleted well inventory has stabilized after a steep continuous decline from pandemic-elevated levels. Available frac capacity is nearing full utilization as demand has increased and supply is limited due to continued equipment attrition, labor shortages, supply chain constraints, and very low investment in recent years. Today, profitability of active frac fleets across the industry are still below healthy levels, but trending strongly. We need to see, and we will work to drive, healthy returns in the frac industry to match the already robust returns of our customers. Leading edge service pricing is recovering to levels that could support fleet reactivations and we have many long-term partners requesting additional capacity from us. As always, we will be quite disciplined in deploying the additional capacity that we have today from the one-STEM acquisition. We mentioned several quarters ago that we expected to reach mid-cycle returns at some point in 2022. We are on track to hit that target. It is not that we are particularly prescient. It is simply that supply and demand works. Seven years of underinvestment in oil and gas production capacity was accompanied by an even more dramatic drought in investment in new fracked fleet capacity. The brief 2017 to 2019 upcycle was all about redeploying fleets built earlier in the decade with relatively modest new fleet construction. Much of that older equipment has now been scrapped. The emerging cycle is likely to last longer and be characterized by a much slower and more modest rise in active practice. With that, I'll turn the call over to Michael to discuss our financial results in more detail.

Good morning, everyone. Wow, we have come a long way and we're only just getting started. I'm so proud of our team for the quarter we've achieved. but more importantly, of how we were able to do so after the last two years of managing through the pandemic, a rebounding economy that pivoted into global supply chain challenges, and now an inflationary environment, all while investing in our business for this emerging multi-year upcycle. The first quarter of 2022, revenue was $793 million, a $109 million or 16% increase from $684 million in the fourth quarter. Liberty teams worked with our customers to deliver solid activity gains despite the sand and logistics bottlenecks that plagued the industry. We also saw net service price increases as contracts repriced into the new year. Of the growth in top line, approximately 55% was driven by activity and mix and the balance by net service pricing. We saw good progression through the quarter as sand and logistics bottlenecks eased and the full effect of pricing was realized. Net loss after tax was $5 million in the first quarter compared to $57 million loss in the fourth quarter. Fully diluted net loss per share was $0.03 in the first quarter compared to a $0.31 loss in the fourth quarter. Results were negatively impacted by $9 million related to the loss of disposal of assets of $5 million and a remeasurement of liability under tax receivable agreements, the TRA, of $4 million. General and administrative expenses totaled $38 million for the quarter, including non-cash stock-based compensation of $6 million. G&A was up $3 million sequentially, driven primarily by $2 million of non-cash stock compensation expense, as fourth quarter reductions in stock compensation expense contrasted with the annual grants of the first quarter. Net interest expense and associated fees totaled $4 million for the quarter. First quarter adjusted EBITDA increased to $92 million from $21 million in the fourth quarter, reflecting solid incrementals from activity increases and the increase in net service pricing. The integration challenges of 2021 are now mostly behind us, and we are seeing the value of our scale and our vertical integration strategy as we laid out during Vesta Day last year. We ended the quarter with a cash balance of $33 million and net debt of $179 million. Net debt was upped by $77 million, mainly driven by an increase in working capital. As of March 31st, we had $108 million of borrowings drawn on our ABL credit facility, and total liquidity, including availability under the credit facility, was $222 million. Net capital expenditures totaled $90 million on a gap basis in the first quarter of 2022. CapEx was driven by investments in Tier 4 DGB upgrades and Digifrag, of $46 million, sand logistics and other margin improvement investments of $15 million, and the balance related to normal fleet capitalized maintenance. Looking ahead, we are expecting approximately a 10% sequential revenue growth in the second quarter, expanding on the solid progress made in the first quarter. We expect to see increased activity levels and a modest service price increases as we move through the quarter. These factors are expected to support higher EBITDA margins in the second quarter. Our team worked diligently in the first quarter to educate our customers on the realities of the fast-paced inflationary environment we are operating in. There is a greater understanding across the broad customer base that inflation is going to be part of our near-term environment and increased costs will continue to be passed through as they are incurred. We are at the start of the cycle and service company margins need to return to levels that encourage reinvestment so that we can continue to support our customers' future success. Leading-edge pricing has shown signs of recovery that could potentially justify limited Ornstead's Tier 2 diesel fleet reactivation in support of long-term customer farmers. As the market has changed, the road to what we call Happy Valley, the most profitable way to bring a barrel of oil or MCF of gas to the surface, has changed. Our sales, engineering, supply chain, and operations teams are proactively working with our customers to find ways to mitigate rising costs through optimized completion design, including innovative solutions around sand, chemistry, and logistics, integrated planning to improve efficiency, and optimization of the freight calendar and much more. The Liberty strategy of investing during the early innings of the cycle and focusing on people and partnerships has delivered superior returns on capital and growth over the last 10 years and puts us in a great position to thrive in the upcoming cycle. I'll turn the call back to Chris before we open the phones for questions.