Liberty Energy Inc.

Welcome to the Liberty Energy Earnings Conference Call. All participants will be in a 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. I would now like to turn the conference over to Anjali Voria, Director of Investor Relations. Please go ahead.

Thank you, Wyatt. Good morning, and welcome to the Liberty Energy fourth quarter and full year 2024 earnings conference call. Joining us on the call are Ron Gusick, incoming chief executive officer, and Michael Stock, 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 views 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 our 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, adjusted net income, Adjusted net income per diluted share and cash return on invested capital 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, net income to adjusted net income, and adjusted net income per diluted share and the calculation of adjusted pre-tax return on capital employed and cash return on invested capital, as discussed on this call, are available on our investor relations website. I will now turn the call over to Ron.

Good morning, everyone, and thank you for joining us to discuss our full year and fourth quarter 2024 operational and financial results. Liberty delivered strong leadership in technological innovation and executional excellence in 2024. Solid financial performance and several operational records were achieved, even as industry activity softened through the year. We concluded the year with revenue of $4.3 billion net income of $316 million and adjusted EBITDA of $922 million. Full-year return of capital employed was 17% and our 2024 cash return on capital invested of 21% exceeded the 13-year S&P average. We executed on our fleet transition initiatives, cost optimization efforts using AI-enhanced digital systems and expansion of our natural gas fueling and delivery capacity to optimal scale. We are relentlessly focused on long-term value creation, balancing compelling growth opportunities with return of capital to shareholders. Since July 2022, we have distributed $550 million to shareholders through the retirement of 15% of shares outstanding and quarterly cash dividends. We have built strong partnerships and investments across the energy corridor in geothermal, nuclear, battery, power generation technologies, and the Australian Beetlejuice Basin assets. Today, we have an undeniable opportunity to leverage our knowledge, experience, and expertise in energy systems to meet a rise in power demand in North America. As we embark on an extraordinary new chapter for our company, our founder, Chris Wright, is similarly charting a new path as the U.S. Secretary of Energy. On behalf of the Liberty family, I'd like to extend a heartfelt congratulations to my dear friend of over 20 years for his visionary leadership and significant contribution to Liberty and the broader energy sector. Entering 2025, we have two key strategic priorities, continued technology innovation and leadership in completion services, and significant expansion of our burgeoning power generation services business. As the preeminent completion service provider, the innovation cycle in software, equipment, and design is driving long-term margin enhancement, improvement in capital efficiency, and lower emissions. Our technology team has led advances in design and development of the latest engine technologies for completion services applications. Yesterday, we announced the latest iteration of development for our DigiPrime platform with the industry's first natural gas variable speed large displacement engine with Cummins, a partner of ours since the founding of our firm. This engine enhances our already industry-leading DigiFleet offering by combining high fuel efficiency with the ability to manage transient load and precision rate control, unrivalled in the industry. We have built an integrated ecosystem of software that seamlessly brings together our Digi technologies with advanced cloud-based software for our pump control systems, power generation, demand management and logistics platform, and on-site fuel management software systems. This ecosystem reduces the total cost of delivery, improving our returns and lowering the cost to bring a barrel of oil to the surface for our customers. We are also excited to celebrate the incredible operational feat achieved by one of our DigiPrime fleets. In 2024, this Liberty fleet set a single crew company record of 7,143 hours pumped in a year, averaging nearly 600 hours per month. This equates to approximately 96% of available hours of the year under normal dedicated fleet utilization. As we look ahead, Liberty has an historic opportunity to deliver differentiated power services and solutions to meet growing energy demand. During 2024, we put into motion our distributed energy business that provides a compelling alternative to traditional generation and transmission. Harmful energy policy, high regulatory barriers, and decades of underinvestment in grid infrastructure have increased the fragility of the grid and hindered the ability to respond quickly to growing demand. The rising demand for electrons from the proliferation of data centers, onshoring of manufacturing activity, expansion in mining operations, and industrial electrification provides a supportive backdrop to expand our power generation business outside the oil field. We are uniquely positioned to rapidly deploy distributed modular power solutions with low emission, scalable power infrastructure tailored to meet specific project demands. Liberty brings together a distinctive set of strengths that put us in an advantaged position to grow a successful power business. Since 2011, we have deployed almost $5 billion in capital to build a high returns completion business, which now operates and maintains more than 3,000 pieces of rotating heavy equipment in remote, harsh environments across North America. We have a foundational culture that attracts and retains great people, all of whom strive to deliver at the highest level. Our service delivery is augmented by extensive engineering expertise in engine technologies, mobile power plant assembly, and asset operation in the rigors of the oil field, ensuring thoughtful power generation asset selection and easing future deployment in other applications. We also have critical supply chain relationships built over our history that enhance the innovation cycle and ensure timely access to key components. We have a large operations platform across the United States and Canada, including equipment packaging capabilities to ensure we can fabricate, deliver, and support each installation Together these strengths enable us to build a distributed power business with durability and longevity over the coming years. We are growing our partnerships in the areas of critical technology and infrastructure development to ensure we can provide a coordinated solution that addresses all aspects of a power generation application. Reliability expectations, load variability, gas supply quality, emissions requirements and cooling needs, amongst other considerations, demand strong engineering support paired with a range of technology offerings. We will provide an infrastructure delivery mechanism for electrons that fits the specific application. In the near term, we are targeting merchant power, data centers, commercial EV charging stations, and microgrids for resource extraction applications. We have already successfully deployed 130 megawatts, primarily for DigiFleet applications. By the end of 2026, we expect to take delivery of and deploy an incremental 400 megawatts of power generation, with the initial deployments commencing later this year. Frac markets reached a trough at the end of 2024 after progressive quarterly declines in industry activity since early 2023. Early signs of an inflection in completions activity have now emerged from 2024 lows. Oil producers, which comprise the vast majority of frac activity, are working to simply maintain production. and are returning to anticipated activity levels after the year-end slowdown. Improving natural gas fundamentals are encouraging. For the full year, industry-wide lateral footage completed is expected to be approximately flat with 2024. The slowing pace of activity in late 2024 resulted in near-term price pressure to start 2025, most notably impacting conventional fleets. The fundamental outlook for next generation, higher quality fleets remains strong as operators continue to demand technologies that provide significant emissions reductions, fuel savings, and operational efficiency advantages. The growing complexities of E&P demands and the continued drive for efficiency gains necessitate continued investment in technology and partnerships with high quality service companies. Liberty is well positioned to meet this demand. Fleet titling, attrition, and cannibalization of aging equipment likely accelerate in the next two years as a large swath of Tier 2 equipment reaches end of life. Concurrently, fleet sizes continue to expand to meet increased horsepower requirements for higher intensity fracs. These two dynamics imply the supply and demand balance in horsepower is tighter than industry frac fleet counts infer. An improvement in frac activity through the year could support better pricing dynamics. Global oil markets reflect ongoing uncertainties in geopolitics, Chinese economic growth, OPEC Plus production plans, and a change in the domestic political climate. But the resulting commodity price fluctuation has not yet led to a meaningful change in E&P activity plans. Natural gas demand is supported by LNG export capacity expansion and a large projected multi-year increase in North American power consumption. Power demand is rising at the fastest pace since the start of the century, as accelerating demand from data centers is converging with the reshoring of manufacturing activity and projected increases from mining, electrification, and other commercial and industrial applications. This pace of growth requires power infrastructure solutions that can be adapted to the dynamic needs of individual customers. Liberty is well positioned to meet this demand with a modular solution that offers reliability, redundancy, and the ability to accelerate deployment timelines and scale alongside growing load requirements. Entering 2025, we are excited to lead the industry with innovative and durable technologies that will drive our continued success in the years ahead. We are investing to build truly differential competitive advantages, both in the completions arena and in our new power business, to generate significant value for our customers and our shareholders. We expect our investments today will lead to strong returns in the coming years. In the first quarter, we anticipate a modest sequential increase in revenue and adjusted EBITDA. For the full year, within the completion services business, we expect solid free cash flow generation as capital expenditures moderate, even as pricing headwinds impact profitability. As we embark on the next chapter of Liberty's story, we will also significantly grow our investment in power infrastructure to take advantage of a generational opportunity in power demand growth. 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 are pleased to achieve solid financial results with strong returns and free cash flow that has allowed us to deliver a healthy return of capital to shareholders while reinvesting in our long-term initiatives. While markets are continuously evolving, the way we manage our investment remains the same, growing our competitive advantage generating strong cash returns and maintaining a fortress balance sheet while delivering strong returns to shareholders through cycles. We're at an exciting time in Liberty's journey as we accelerate growth in our power business and advance technology innovation in the completions business. The North American completions industry is reaching maturation in required completions activity to meet EMP production goals. Our growth opportunity in completions is now defined by leading-edge engineering and technology innovation driving organic market share gains, and margin enhancement by leveraging digital systems and vertical integration. We are continually pushing beyond our prior achievements and will lead the industry regardless of where we are in the cycle. In power, we now have an unprecedented opportunity ahead to build a differential business, just as we did in completions 13 years ago, a business that has delivered an average crow cheat 24% over its history. We are building a power business with significant competitive advantages driven by the unique people and culture of Liberty designed to deliver strong cash returns on organic technology and equipment investments in the years ahead. During the next two years, you will see us execute on a variety of power generation installations, including merchant power generation, commercial industrial projects including data centers, and distributed microgrid generation for the energy and mining sectors. We have a strong pipeline of opportunities that provide significantly more demand for Liberty Power than we will be able to supply in the next two years. We're designing our power business with a diverse array of in-markets, which we believe will be inherently less cyclical and have a lower risk profile than our historic frack business. We are targeting a long-term approach in the high team percentage range. We are building an enduring business for the decades to come. We are focused on bringing together great technology and partners and investing in advantaged assets that provide sustainable long-term advantages. We aim to be the partner of choice for the delivery of power. For the full year, revenue was $4.3 billion compared to $4.7 billion in 2023, representing a 9% decline. Net income totaled $316 million, and adjusted net income was $277 million, and excludes $39 million of tax-affected unrealized gains on investments. Fully deleted net income per share was $1.87, and adjusted net income per deleted share was $1.64. Full-year adjusted EBITDA was $922 million, compared to $1.2 billion in the prior year. In the fourth quarter of 2024, revenue was $944 million, representing a sequential decline of 17%, driven by market headwinds, larger than expected budget exhaustion, and a partial quarter impact of two fewer fleets deployed. Fourth quarter net income of $52 million compared to $74 million in the prior quarter. Adjusted net income of $17 million compared to $76 million in the prior quarter, and excludes $35 million of tax-affected unrealized gain on investments. Fully diluted net income per share was 31 cents compared to 44 cents in the prior quarter, and adjusted net income per diluted share was 10 cents compared to 45 cents in the prior quarter. Fourth quarter adjusted EBITDA was 156 million compared to 248 million in the prior quarter. General and administrative expenses totaled 56 million in the fourth quarter, largely in line with the third quarter, and included non-cash stock-based compensation of $7 million. Other income items in total included $33 million for the quarter, inclusive of the aforementioned $45 million of unrealized gains on investments, interest expense of $8 million, and a $3 million loss related to tax receivable agreements. Fourth quarter tax expense was $6 million, approximately 10% of pre-tax income. Cash taxes were a $5 million source of cash as a result of the collection of a prior period overpayment. While we expect tax expense rate in 2025 to be approximately 22% of pre-tax income and cash taxes to be 1% to 2% higher than that, than our effective book tax rate. We ended the year with a cash balance of $20 million and net debt of $171 million. Net debt increased by $67 million from the prior year. In 2024, cash flows were used to fund capital expenditures, $127 million in share buybacks, and $48 million in cash dividends. Total liquidity at the end of the year, including availability of the credit facility, was $135 million. Net capital expenditures were $188 million in the fourth quarter and $627 million for the full year, which included investments in DigiFleets, the LPI gas compression and delivery infrastructure, wet sand technology, capitalized maintenance, spending, and other projects. Our 2024 results showcase our ability to deliver a robust return of capital program while investing in high return projects to expand our competitive advantage. Over two and a half years ago, we reinstated a return of capital program post-pandemic. Since then, we have now distributed over half a billion dollars to shareholders through our share buybacks and cash dividends. We are committed to shareholder returns, and in the fourth quarter, we repurchased 28 million, or approximately 1% of our shares, outstanding, and increased our dividend by 14% to $0.08 a share. We now have $294 million remaining on our buyback authorization. As Ron shared earlier, we expect a modest sequential uptick in the first quarter for revenue and adjusted EBITDA. For the full year, we anticipate adjusted EBITDA will be in the $700 million to $750 million range. At headwinds from the late 2024 service pricing impact, offset favorable fleet mix, and optimization efforts. As the year progresses, we believe the opportunity for price improvement could materialize as frack activity improves through the year. Our completions capital expenditures moderate in 2025 to approximately $450 million, including $175 million in maintenance capital expenditures, and the remaining related to the replacement cycle of four to five digifleets as we retire legacy conventional equipment. Our pace of next generation deployment moderates to these levels versus the accelerated investment in the early part of the cycle. Within our power business, we expect to take delivery of approximately 150 megawatts of power generation by the end of 2025 and another 250 megawatts by the end of 2026. Our 2025 capital expenditures for power generation and related ancillary equipment are expected to be approximately 200 million. Together, our total capital expenditures will be approximately $650 million in 2025. We have significant flexibility in adjusting our capital spending to meet incremental demand. We are focusing on investing for the long-term competitive advantages and are excited for the coming years as we lean into the growth and expansion of a truly differentiated power business and in reinforcing continued leadership in our completions business. I will now turn it back to the operator for Q&A. After which, Ron will have closing comments at the end of the call.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Stephen Gingaro with Stifel. Please go ahead.

Thanks. Good morning, everybody. Two things for me. First, on the frack pricing side, can you talk a little bit about when you, Michael gave some sort of commentary on 25 EBITDA expectations. Can you talk about kind of in rough terms where you're seeing frack pricing right now? relative to maybe 12 months ago?

Yeah, certainly, Stephen. Obviously, FRAC pricing has softened a little bit over the last year as well. As we've said already, we saw a peak in the market probably mid to late 2022, and we've had a slow and steady trend downwards from that point in time. And we certainly felt that headed into the RFP season for 2025. And so we're off there a little. Exact levels vary depending on the technology you're talking about. So, you know, the older tier two assets probably most impacted by that. We've seen very good resiliency in the pricing for next generation assets, even as we head into 2025. So the Digi platform holding up very, very well from a margin standpoint.

I'll just add a little color to that. I mean, this very much feels like the trough coming in. It was a very soft Q4, so therefore it was a sort of a soft repricing environment, already sort of feeling a little bit more sort of positive as we've sort of turned the corner into the beginning of the year. So, you know, it feels like we're kind of at the trough of the cycle, but, you know, history will prove. And one thing about that one, Steve, I just want to kind of point out that By the looks of it, the average profitability per fleet at the moment, at the trough of this cycle, looks to be about the midpoint or a little bit higher than the midpoint of the last cycle. As we've talked about before, the completions business is getting better. There's less providers. There is less excess equipment. The movements of the cycle are less violent. We think it's proving to be very, very positive.

Great. Thanks. And then my other question, I'm not exactly sure how to ask this, but when we think about the power gen business and we think about the power needs for frack, how does either the E&P and or you think about the arbitrage between using the power outside of the oil patch where maybe people are less price sensitive versus purchasing? powering E-Fleets, which I have to, to run FRACs, where the pricing might be lower? How do you balance that sort of price arc?

Interesting question, Stephen. But, you know, of course, we got into the power generation for a very specific reason. As we deploy assets into FRAC, we always want to have as much control over the key variables that play into the success of frac operations as we can. That includes vertical integration and supply chain, manufacturing of key components. For a while, we were in the wellhead business because that was holding up frac operations. We were very intentional about our decision to get into supplying power for the frac business to support our DIGI deployment. And that was for a couple of reasons. Number one, we want to be able to deliver efficiency at the levels our customers have come to know and expect from Liberty. And that happens by virtue of having control over all of those aspects of the business, including the fuel supply for that, so LPI CNG molecule delivery, and the power generation assets themselves. And that remains an important priority for us today. Digi is a key piece of our puzzle out there. It's working hard for some of our great partners in the Permian Basin and in the DJ. We have power generation attached to that with the goal of ensuring the levels of service they've come to expect from Liberty over the long term. We're not going to waiver from that.

Also, I'll just remind you, we have a two-prong view of how we do the natural gas The movement to natural gas for FRAC, right? You know, we have our DigiFRAC fleets, which are pure electric, where we have electric generation into a PDU unit that can also be integrated into the grid. And then we have our DigiPrime units, which are more, you know, have a lower average per capital cost and are slightly more efficient on the fuel usage than a direct drive, right? So we have a balance of assets there. And so therefore, you know, when we look at that, it sort of allows us to have sort of a very, very good focus on purely sort of driving next generation technologies. And that's example by our new Cummings announcement for sort of FRAC. And then also having that flexibility that when we have our mobile power generation for FRAC, when and if the grid arrives for the customers that need that and some of those units may be free, they can just as easily be rolled into a data commissioning project for a data center. for, you know, sort of mobile power for that. So, again, electrons are sort of, you know, able to be used in multiple areas, and this is a very, very sort of, like, flexible set of products and modular products that we build.

Okay, great. Thank you, gentlemen.

Our next question will come from Aaron Jaram with JPMorgan. Please go ahead.

Yeah, good morning, Ron and Michael. Gentlemen, I was wondering if you could help us think about or frame the returns opportunities from deploying in a mobile power generation, understanding that you're still in the process of deploying more of the capacity outside of the oil and gas industry. But how should we think about paybacks and investments and returns relative to your frack business?

Yeah, good question, Arun. As we've outlined, we have a multi-pronged approach to deploying our power generation outside of oil and gas. We've identified a number of areas that we think we can deliver differentiated service in. Those include a merchant power opportunity. We announced a partnership with DC Grid around EV charging. Data centers will, of course, be a part of our puzzle, along with some other commercial and industrial applications. And then, of course, some work inside of resource extraction, oil and gas, and remote mining as well. Now, each of those has a bit of a different outlook and a little bit different duration, let's say, on the contract term that we would have with them. And we'll think about the returns profile for each of those in accordance with that. For example, if we are going to provide long-term firm power for a data center and we have a 20-year PPA to go along with that, we would accept a different returns profile in that environment than we might in a shorter-term bridge power environment where we could be looking at a contract term maybe two years or so. As we progress the conversations for each of these opportunities we have in the pipeline, that's really the consideration. We're going to have some stuff that's going to be in that maybe two to six, seven, eight year range. We're going to have some stuff that's going to be in the 15 to 20 plus year range. And we'll balance the return profiles of each of those accordingly. But as Michael said in his prepared remarks, we're targeting averaged across that business a return profile that is somewhere in the mid to high teens across that entire portfolio. Great.

I think the little counter on that one, Arun, is yeah, by balancing those different return profiles, as Ron said, we still plan to significantly exceed the average of the S&P 500, which is, of course, and with a lot less cyclical business than the completions have been over the last 12 years.

Understood. I wanted to follow up on the release with Cummins on the new variable speed natural gas powered engine. Ron, is there any IP that Liberty has as part of this? And also just wanted to get your thoughts as you deploy this capacity in 2025, what are some of the financial benefits involved? to liberty you'd mentioned lower fuel costs obviously that will accrue to the customer but from a you know is it lower maintenance capex how do we think about you know the impact from this in terms of your opex or anything like that um you know relative um to the current uh you know digi fleets that you have out there so from an ip standpoint um you know we do have some ip on the digi platform that uh that is a important piece of our our puzzle uh in in this case

The IP around the specific engine would be Cummins IP, and so we leave that to them. But we do have an arrangement with them as the launch partner of this that has us in an advantage position for the deployment of that engine over the coming years. As far as what that means out in the field, the great thing about moving to a natural gas engine, while there are a number of positives around it, of course, you mentioned the fuel. First of all, that doesn't all accrue to the customer. Part of our mechanism for recouping the capital investment in these assets is to keep some portion of those fuel savings. The opportunity for the conversation with the customer is around that meaningful change from running a fleet on diesel to running a fleet on natural gas and a path that allows us to earn a return on that additional invested capital without meaningfully changing the price to the customer around their around their completions. Then if you think about the advantages that that also brings to us that could accrue in terms of the cost of operating, natural gas engines have a significantly longer time between overhaul as compared to a diesel engine. In the Liberty world, we see overhaul time as maybe 20,000 to 25,000 hours on a diesel engine. We haven't got to a major overhaul on any gas engine in our fleet yet today, but we expect that number to be north of 60,000 hours and potentially approaching 80,000 hours. So it's going to be 2 to 3x time between major overhauls on those engines. Even the basic maintenance costs, when we talk about fundamental month-over-month maintenance, those costs are lower than they are for a diesel engine. And so we will see those advantages as well as this becomes a larger and larger piece of our fleet. The variable speed engine means that ultimately we can deploy a complete DigiPrime fleet to the field. We talked about it originally with the constant speed engine as DigiPrime providing base load capacity compared with either Tier 4 DGB or DigiFrac, the electric offering. We now have the ability to put a DigiPrime fleet out in the field as DigiPrime from start to finish allows us to manage both the base load horsepower plus those rate transients and fine tuning that we need on a given location.

Thanks, Tron.

Of course.

And our next question will come from Ati Modak with Goldman Sachs. Please go ahead.

Hi. Good morning, team. I was just wondering, for the early deployments you noted for later this year, how should we think about the end market and contract duration? And is there a target mix between the markets that you identify that you'd like to have by your end next year?

So as we work through that deployment starting later this year, we're targeting, I'll say for now, a relatively even spread amongst the areas we've identified. So merchant power, commercial and industrial, and the data center applications. It may not be exactly 33, 33, 33, but roughly in that area. And as we think about the business going forward, that's important for us to have multiple legs on the stool. It ensures a balanced business for us with a good cross-section of contract portfolio. The earliest applications for us probably come on the merchant power and EV charging side of things. I think that'll be the first place that we'll have assets deployed. And then a little bit longer for the data centers. Michael, do you have something you want to add there?

Great, yeah, and I think obviously the resource extractions of microgrids also will be some of the early headers. But, yeah, I think Ron's right. I mean, ultimately, you know, sort of our deployments will probably morph towards some of the larger, when you get to the larger megawatt size, you know, some of the larger data center applications. But, you know, again, I think through sort of the early part of, you know, through the 26 numbers, you know, if you're thinking about a third, a third, and a third, and thinking of that in terms, you know, sort of, you know, kind of a third long term, a third bridge, and a third merchant. So you've got a balance there, a balance of contract terms, a balance of risk profiles, and a balance of long-term cash flows.

Got it, that's helpful. And then you mentioned CapEx needs for the power business. So if you can talk about the return of capital expectations and impacts around that CapEx need for this year, and would it make sense to add any debt to the balance sheet to fund this growth?

Yeah, so when you look at our, when you sort of back into the numbers, We can fund this growth, this initial amount of capex on the power business organically. We can also support an organic set of buybacks and our dividend, of course. This is a very fast-changing market. We have a significant opportunity pipeline, and we're always making sure that we continue with a fortress balance sheet and, you know, sort of investing early in the cycle for these great opportunities. So, you know, this is a fast-changing market, and, you know, we will announce things as they come along.

Got it. Thank you.

Next question will come from Scott Gruber with Citigroup. Please go ahead.

Yes, good morning. Power, obviously, an exciting opportunity. But we have seen several others enter the power space. Can you provide some more color in how you're thinking about kind of out-competing the others in the space? You know, obviously as we think about kind of what you guys have built in FRAC, which is competitive, but you guys have built a mode, you know, around enhancing your FRAC equipment, providing analytics, et cetera. How do you think about, you know, out-competing on the power side? You know, is the equipment offering going to be any different or is it, you know, really, you know, out-competing on the service side?

Yeah, Scott, I think you make a good point by looking at what we've done in the frack business. If you buy a frack from Liberty, you're not just buying a frack. People told us you're getting into a commodity business, and of course, nothing could be further from the truth. Yes, you ultimately get a frack out on location, but you get a frack underpinned by industry-leading technology, by world-class supply chain, by a strong engineering team, by unrivaled service fundamentals, all executed by a team that has probably been together for years given our industry-leading turnover rate in the organization. And so you bring all of those things together, and that has ultimately led to us being the number one FRAC provider ranked year over year in Kimberlite surveys. And so I don't view the power business any differently than that. Yes, we're going to sell electrons to a data center or to the grid or to an ENP customer, but that offering is going to be underpinned by strength in service delivery, by a strong supply chain, by a leading team of technology folks that ensures when we choose an asset, a power generation asset to put in the field, that we put the best possible asset out there that builds in longevity, durability to the business. You have to be very, very thoughtful about these things. It is not a level playing field by any stretch of the imagination. If you think about playing in the merchant power space, for example, bringing the right asset to the table there is critical in terms of amount of deployment time, capacity factor ultimately for that. In maximizing the spark spread, the price between natural gas and the price of an electron, I think we've proven ourselves very thoughtful in all of these areas when it comes to FRAC and our ability to deliver at a level that exceeds anybody else in the space. It will be no different in the power generation space. We are bringing to the table, I think, a platform that is unrivaled by certainly anybody else who has talked about entering the space or is entering the space today. And so I think you'll see that play out in our results over the coming years.

Yeah, let's thank you. We'll talk about the solution, right? We have a modular solution within the last year building the design engineering for it to be able to execute these in blocks. We have a modular skid mounted 10 to 12 megawatt blocks that come with skid mounted transformation controls and breakers. It allows you to basically assemble these in a factory, move them to site, put the trenching, put the grounding in, and then erect that power plant very, very quickly. Those blocks can be put together, 10 of those into a 100 megawatt, 120 megawatt unit. We also have 25 megawatt blocks using the larger four and a half to five megawatt reciprocating engines. The same thermal efficiency as our baseline, which is again, you've got to remember, reciprocating engines are as thermally efficient as the combined cycle plants were built before 2010. They're significantly more thermally efficient than PECA turbines. The other part that we're going to do, we will be using packaged turbines in specific applications where the footprint needs to be small or in areas for resource extraction, if you think of the oil and gas area, where we're using some fuel gas and we have some gas quality that is not necessarily the best for reciprocating engines. So we have sort of these, that allows us to come to market very, very quickly, reduce EPC costs, and the key thing in the electrification of everything at the moment is going to be the fact that there is a significant, significant lack of tradespeople across the country, right? So going modular, building in a factory, significantly reduces the amount of electricians that you need, the amount of people that you need on site to put these power plants together in a cost-effective way for the final delivered electrum.

I appreciate all that color. I did want to dig into the merchant power opportunity. I'm just curious, you know, is that a situation where you would dedicate, you know, some equipment to maybe try to capture the elevated spark spread, like in Texas during the summer, kind of while you're waiting for a longer-term opportunity? Or is that, you know, an opportunity where the equipment gets dedicated to merchant power on a go-forward basis, just trying to understand that opportunity and how you guys think about it?

Yeah, we'll be coming out and talking about that in more detail, probably the next conference call, and give you some area around that. But there is a great long-term opportunity for areas where we've got significant transmission issues for a serious amount of time where you've got great low growth, right? So sort of helping certain numbers of the areas, whether it be ERCOT or PJM, in modeling that in areas where they need that power. So that's really where it's going to be like, but yes, we also can have the ability to integrate our, you know, when we think about it as bridge to backup and wheeling power onto the grid to improve returns, right? So you're going to have assets that over their 30-year life or 20-odd-year life, you know, the return profile is going to morph, and the return profile is going to be used for different things, right? You can provide bridge power. for a data center, you know, when the grid gets there, you can negate the need for the excess diesel backup power, but you've already got a grid interconnect, and you can take advantage of the spark spread at different times to improve your return profile. Right, so there's going to be a lot of different contracting sort of terms for different parts of this power business that's very, very exciting and very, very interesting.

Scott, I would just add that from a grid congestion standpoint, grid instability standpoint, that problem is only getting worse today. We know how to fix that, of course, in this country, but the ability to address that challenge is something that takes a meaningful amount of time. First of all, it's going to take some change in policy, the ability to actually get infrastructure constructed, but even beyond that, there's a significant time component to that and so we view that as uh as an opportunity that's got some real durability to it and and in fact it i think is probably a growing opportunity as far out as we can see today i appreciate all the color i'll turn it back thank you our next question will come from mark bianchi with td cohen please go ahead thank you um congratulations ron um

I was curious on the 400 megawatts, how much of that at this point is under some kind of binding commitment with a customer?

Yeah, so that 400 megawatts is all in the supply chain, so that's what's ordered, and those binding commitments are in negotiation at the moment for two-thirds of it.

Okay.

The last part of the 2026 is still in what I consider sort of that midpoint of the pipeline.

Okay, and when should we hear more about that? Would you anticipate over the next few months that we sort of hear about kind of the entirety of the 400 or what would be a timeline to set some expectations for people?

You know, to be honest, Mike, we'll give you more color every time something comes along in the quarter. But as in the freight business, we don't discuss our customers very detailed, right? We are focused on building a business, right? We have a 12-year track record you know, investing $5 billion worth of equipment and delivering a 23% cash return on cash invested over that period of time, right? We are building a long-term, I would say, generational business here, right? And so we will have significant amounts, but to be honest, the size of the business we're building is not going to be, you know, if our customers wish to announce we are where we are providing power for them, you know, we are happy to accommodate that. But as with the press business, you don't see us announcing, you know, one, two dedicated fleets with large E&P operators, right? You know, we deliver strong returns in our business by managing it properly. We don't sort of like have a tendency to talk in detail about those customer relationships. We will give you contractor, we will give you guidance, and we will give you returns profiles.

Okay, great. Thanks, Michael. One other... With the EBITDA outlook for the year and the CapEx, it would appear that I heard you on solid free cash flow for completions, but maybe overall for total company, free cash flows in the ballpark of breakeven. I don't know if that's sort of the right read on that, but in that context, how should we be thinking about- It's positive. It's positive about breakeven. It's positive. Okay. So how should we be thinking about the share repurchase in that context, if you have, should we be thinking about excess free cash kind of goes towards the repurchase, or would you be looking to borrow a little bit to do some more repurchase?

We look at our share repurchases as opportunistic, depending on where the share price is, right? We are investing in long-term in our power business, and that's going to change sort of over the course of the year, and we will look at that. Generally, we are not borrowing cash. to fund the share repurchase, but we drive strong free cash flow in our free cash flow generating business. If we borrowed money, it would be because we had some large opportunities in the power sector on top of this 400 megawatts that we were actually providing the financing for. That's the way we think about it. When you look at our business, we have a business that is strongly free cash flowing, and if we think our share price is undervalued at that point, we would do opportunistic share prices. we're not really borrowing to fund a share buyback. That's what's funding it. If we're ever borrowing money, we're borrowing money to fund growth. So that's the way we think about running the business.

Yep, very helpful. Thanks so much. I'll turn it back. Thanks, Mark.

This question will come from Sarab Pant with Bank of America. Please go ahead.

Hi, good morning, Ron and Mike. Good morning.

Ron, Mike, maybe I want to follow up a little bit on Mark's question on contracts, right? And, again, I don't want to stop at two years because I know you are building the power business for the long term. So when you have discussions with the customers, Ron or Mike, what kind of contract durations are you looking at? How long are customers willing to sign up? Or for power need, if you can give some color on that, that would be helpful.

Yeah, I mean, those vary depending on the end-use application. At the very short end of things, you're talking about a scenario where we might be providing bridge power to a data center, for example. That might be two or three years before the grid gets there, at which point in time there then becomes a conversation around do the assets remain there in a backup application, Is there an opportunity to be generating power and selling that back to the grid? But think about that as the short end of things. And then on the long end, a 20 plus year power purchase agreement is entirely plausible. If we are going to be the firm power provider for a data center, there is absolutely a willingness out there to sign a 20 year agreement to do so. We'll think about a returns profile, as we said, commensurate with the term of that deal and what that looks like from a utilization standpoint for the asset.

Okay, fantastic. No, that's helpful. And then, Ron, maybe one quick one. I know this has been discussed in the past, but now that you are actually ordering equipment, 400 megawatt, maybe let's revisit the topic of nat gas receipts versus turbines, especially all these applications you're talking about, merchant power. EV charging, data centers. Can you talk about the relative merits and demerits of one versus the other and how would you think about that in your portfolio of power offerings?

Yeah, I'm glad you asked the question, Saurabh. That's an important point and one we like to make sure is well understood. We chose natural gas RECIP engines for our power generation for a number of reasons. Modularity is a key piece of the puzzle, being able to adapt to changing load profiles depending on the situation we're deploying assets into. That allows us to be very, very capitally efficient as we think about each opportunity that we're looking at. Natural gas resip engines are incredibly efficient when it comes to the use of fuel. And without getting too far into the weeds, you know, I'm an engineer, I like to nerd out on stuff like this, but if you think about a natural gas resip engine, it turns 44% of the available energy in a unit of fuel into useful work, in this case electricity. If you take a gas turbine and put it in the same application, it turns, it varies a little bit on the size of the turbine, but I'm going to say roughly a third of the available energy in a unit of fuel into useful work. And so if you think about that comparison, it means that we're going to burn a third less fuel to accomplish the same outcome when compared to a gas turbine. And if you're thinking about building durability, longevity into a business like this, ensuring your ability to be competitive, whether it's for in supplying electrons to a data center or providing electricity onto the grid, maximizing that efficiency, maximizing the spread between the cost of your fuel and the power that you're able to sell is critical to being competitive in that space. For us, that's why spark ignition gas resip engines make the most sense. Now, there are a couple of things where a turbine offers a compelling consideration. Michael alluded to those already in his comments. First of all, they have a little bit more flexibility when it comes to the input fuel source. A natural gas resip engine likes a very consistent fuel source that's primarily methane. No problem if you're on a distributed gas system. If you're going to be out in the field and you have a rich gas supply, that is going to be better tolerated by a turbine. And so that would be a place where a turbine would probably shine. The other place that there really is a difference is power density. If you're talking about a very, very large application, hundreds and hundreds and hundreds of megawatts, you're going to be able to accomplish that in a smaller footprint with a turbine than you could with gas resip engines. So power density, fuel flexibility, probably the two considerations that you would lean towards a turbine. But if you're truly looking at, if you have a good stable gas supply and you're looking towards longevity, durability, competitiveness in the space, that's where we think gas resip really shines and why we've leaned towards that.

Perfect. No, that's fantastic color, Ron. We can keep going on on this discussion, but let me stop there and turn it back. Thank you.

All right. Thank you. The next question will come from Dan Kutz with Morgan Stanley.

Please go ahead.

Hey, thanks. Good morning.

And congrats, Ron, and congrats to Chris as well on the new roles. I guess just a couple of housekeeping questions on the power business. I was wondering if you could share kind of the useful life of the power gen units. I know it's kind of early stages, but just wondering if you have a viewer expectation on the useful life and also kind of the associated maintenance costs or maintenance cycle for the power gen units.

Yeah. Go ahead. So if you think about these gas engines, as I said, we haven't got one to even get to a major overhaul yet. But based on the guidance we have from our partners on the manufacturing side, whether that be Cummins, Caterpillar, Rolls-Royce, MTU, or Yenbacher, you're talking about time between major overhauls, so when we actually take that engine out of service and tear it right down to the bones and rebuild it, of 80,000 hours. That's That's probably approaching 10 years at 24-7, 365 operation, maybe nine years and change if I'm doing the math right in my head. But it's a long, long time, and that's just for a major overhaul. We will overhaul a diesel engine at least once in its life with us, maybe two or three times. And so if we think about that for these power generation assets, you're talking about a lifespan that's measured in decades and decades.

Awesome. That's really helpful. And then I guess just pulling on a comment in the prepared remarks and from the press release about your view that the footage drilled for the total U.S. year-over-year will be roughly flat. Is the read on that that your view is that Liberty's horsepower demand will be roughly flattest year-over-year, which I guess you could have potentially some offsetting, you know, increased efficiencies, but also increased intensity, i.e., higher increased horsepower per fleet. And, yeah, just wondering if you could unpack that comment and the implications for your view on Liberty horsepower demand in 2025. Thank you.

Yeah, Dan, I think you're thinking about that exactly right. Of course, if we talk about flat lateral footage, that offers the same opportunity for work that has to be done in the field. As you saw last year, we continue to find ways to get a little more efficient year on year on year. And so on one hand, what you'll probably see is headline fleet count come down a little bit. to accomplish the same amount of work. The counter to that, to exactly the point you made, is the intensity of that work. A good part of that efficiency is being driven by a move to simulfrac and trimulfrac operations. That requires only what we call a single fleet on location, but ultimately a fleet that has a lot more horsepower attached to it. And so you have those two puts and takes that really trade off against one another. And so I think as we think about it from the liberty standpoint, the horsepower that we are going to have out working is actually going to be relatively flat, which leads to this point around the idea that the market could tighten sooner than you might perceive just from looking at headline fleet count. That's the number that gets published all the time and you see that come down a little bit, but I don't think that provides a clear picture as to how quickly the market really could tighten given the draw on incremental horsepower inside of each additional fleet. That could be something we see play out later this year, particularly if there's a bit of a rebound in gas activity.

Awesome. Appreciate all the color. I'll turn it back.

Our next question will come from Makar Syed with ATV Capital Markets. Please go ahead.

Thank you for taking my question. So, Ron, I'm going to follow up on the fracking business side. I think you still have that business. So just on the till side, like we hear a lot that some of the E&Ps have drilled and completed wells that have not been connected to liners yet. Do you have a sense of how large that inventory is? And as a company starts to maybe grow production, like how long will it take to exhaust that before they go into going after the ducts?

Well, Car, I don't know that I have an exact answer to your question. Certainly those tills exist out there, and with strengthened gas prices and a strengthened forward strip, I think you're going to start to see some of that come online. I'd say probably, you know, I don't think we have a great outlook on exactly how long that will take them to play out. There's probably some variables that come into that. We probably need to wait until the shoulder season when we get a good sense of exactly how many heating days we ended up with this winter, what that does to storage levels, and that will probably play into that decision for them. But I think there's a reasonable possibility we could see a response in rig count by the second half of this year and then headed through the tail end of the year and into 2026. So that's probably as best a guess as I could give you today.

Okay, great. And then just going back to the power business for May, do you see that opportunity for you mostly, you know, what regions? Like, do you see that in Rockies as well? You know, there are some data centers and other things being built in North Dakota. There is some excess gas there. Obviously, Permian area is a big opportunity. So where do you see regionally that opportunity play out?

Yeah, obviously there's a range of opportunities across the country. And I expect that as we grow the foundation of this business, we will step into a number of those. As I highlighted, maybe as one of the advantages we bring to the table, our footprint across North America gives us the ability to support installations in a wide range of places. The DJ Basin would be an example for that. And so we'll look at all of those as they come in. Early days, I think you're going to see primary deployments in Texas. That's where a lot of that demand is coming from initially. But Michael mentioned the East Coast. I think we definitely see some opportunity out there. And then we'll start to layer on additional locations after that. As with everything we do, we're going to approach the business thoughtfully at a good cadence and make sure that we can provide the level of service Liberty has come to be known for, and that means not jumping onto a pile of widespread opportunities and losing the focus that we like to maintain.

Great. Well, thank you very much. Really appreciate the answers, and good luck.

Thanks, Makar. Our next question will come from Tom Curran with Seaport Research. Please go ahead.

Good morning, guys. Ron, let me echo everyone else. Kudos on officially taking a helm here in your first call as CEO. Thanks very much, Tom. Yeah, you bet. How are you positioned at this point for LPI supply chains, specifically as it relates to the gas research insets, the passage turbines, and any other key assets you'll need to provide as part of your partnership with DC Grid?

Yeah, I would say incredibly well-positioned. One of the things we pride ourselves on as an organization is not only being the provider of choice to our customers, but being the purchaser of choice to our suppliers. So we have worked very, very hard over the entire history of Liberty to be a great partner to our suppliers. We owe a meaningful amount of our success as an organization to their support. And so... That partnership, whether it's with Caterpillar, with Rolls-Royce, MTU, with Cummins, those are long-time partnerships that we have built and grown over the history of Liberty. We will carry on now into the power generation business. That offers us a real opportunity as maybe one of their largest partners in the oilfield services side. to carry that over to power generation. And so for us to line up this 400 megawatts of capacity that we're going to deploy over the coming year is Something that is very, very manageable for us, and as Michael said, is already in the queue. And I would say that I'm very comfortable we could expand on that if we chose to going forward. We have those strong partnerships, and I think we're going to get a lot of support from the supply chain standpoint in terms of being able to deliver in an incredibly timely fashion relative to others.

You know, earlier in the call, Ron, you did allude to the fact that, you know, historically, Liberty hasn't hesitated to vertically integrate an offering in order to solve for a pain point or to seize an opportunity to innovate and improve on it somehow. Are there any aspects of LPI's existing or expected asset fleet that you might bring in-house and have LAT manufacture?

Well, I think at this point in time, probably a little early to say, for sure we'll lean on our engineering design and packaging capabilities, so I expect that we will own the engineering controls, design, all of that stuff from bottom up for not only the generation capacity but also balance of plant that will be inside the Liberty World. We will lean on the LAT team in El Reno to help with timely packaging to ensure that we can meet short time frames that we're being asked about. So we're going to leverage some of those things, vertical integration capabilities that we already have in-house, and as we begin to identify other opportunities that make sense, that are well aligned with our strengths and capabilities, As you said, we wouldn't hesitate to step into those, but I wouldn't name any today outside of where we're really focused.

And then just shifting to the labor side for LPI, how does the labor intensity differ from the services side? And are there any unique considerations when it comes to recruitment and training for the type of crews you're going to need for LPI?

Obviously, that side of the business is going to be significantly less labor intensive than frac is. Our oil field services operation, we deploy a meaningful number of people out into the field to support each and every one of our frac fleets out there. This business on the power side is going to be a lot less people heavy for not only the design, packaging, and construction, but even the support over the long term. From a recruitment standpoint, that's not something I ever worry about at Liberty. We have such a strong name in the industry today. Our ability to attract people to the Liberty family has always been something we prided ourselves on. We've always had far more resumes in the people to choose from than we've had opportunities to offer employment. And I don't view that as any different in this case. We've started to add that expertise to our family of Liberty already, given our power generation in the frac business. So we have medium voltage electricians and whatnot on staff. We're starting to build that expertise in FRAC, and we'll have that to leverage as we begin to expand into the power generation space.

Very helpful. Thanks for squeezing me in and taking all the questions. All right. Thanks, all.

And our next question will come from Eddie Kim with Barclays. Please go ahead.

Hi, good morning. Sorry if I missed this, but is there anything at all that's different about the nature of the equipment on this incremental 400 megawatts versus the 130 megawatts you already have deployed on your DigiFleets, either from a power density standpoint or anything like that? Or is it pretty much the same equipment? And separately... Just your guidance on the power-related capex in 25 of 200 million implies about 1.3 million of capex per megawatt for this year. Is that also a fair assumption to use for the 26 deliveries as well, or should we maybe expect to see some level of inflation next year?

Yeah, so a couple, let me take the first question and then we'll touch on that second one as well. So in terms of differences, Not a huge amount. There'd be a couple of things I would point out. For our frac business, of course, we build everything as mobile power generation. It's all on wheels because we drive it out to a location, we set it up, it's there for 30 days, we tear it down and we move to another location. As we think about the power generation world, we're likely to be in a spot, in some cases, for decades at a time. And so we're likely to build far less mobile power generation there. It's likely to be skid-mounted. in more of a stationary application. We will also bring to the table larger generation assets in the power gen business than we do in the frac business. So again, thinking about mobility versus something that could be stationary for a while, we're comfortable bringing a heavier, larger asset to the table for those power generation situations. So you're going to see in our portfolio there For example, the 4.3, 4.5 megawatt gas resip engine from Janbacher as a case. That's not something that we would probably put in our frack business just given the size and scale of that engine. To your second question around the CapEx, there's a couple of variables that will play into that. One of them is just around timing, around pace of taking delivery of assets versus deployment, deposits, and things like that. So that is part of the variable. But then the other thing you want to think about is if we think about the broader picture, deploying not only the power generation but also balance of plants, the transformers, the bus, the conduit and cable and things like that. We think about in round numbers a megawatt of power costing about a million dollars, but once you layer that balance of plant on top, you're probably talking about something closer to $1.3, $1.4 million as a round number to include everything. That's going to vary a little bit application by application. depending on how much work we're going to have to do, whether there's a gas pipeline to be built or not, whether the substation exists or not. So you'll see a little fluctuation in that number, but that is the other reason you see probably a little higher capex per megawatt deployed than just the flat cost of generation.

Understood. Thanks for all that, Collin. And just a quick follow-up. Have the deliveries of the 100, the expected deliveries of 100 megawatts by the end of this year Have those orders already been placed? And if so, I mean, should we expect to see the majority of that $200 million capex hit to take place in the first half of this year? Just trying to think about lead times for this equipment. Is it, you know, a year, year and a half? Just any color there would be great.

Yeah, so all of those orders have been placed. All of that is underway in our supply chain already. So we're firm on taking delivery of that. If you think about lead time for the asset, it's not a year to 18 months for assets like this. The timeframe is shorter than that for us to be able to take delivery of power generation, even packaged. So I think that's part of our advantage as we think about these opportunities is just ability to respond very, very quickly relative to other solutions in the marketplace today.

But I'd like to clarify, all 400 that we've announced are all scheduled in the supply chain coming out of the manufacturers, right? Yes. I think Ron's alluding to the fact that, yes, could we add to that with the right opportunities and speed, make that 400 increased? Yes, we could. But all the 400 is scheduled in manufacturing and has time definite when it's coming out, and it will be packaged and ready to go.

Got it. Got it. Thanks for that clarification and all that color. I'll turn it back.

Our next question comes from Keith Mackey with RBC Capital Markets. Please go ahead.

Hey, good morning, and thanks for taking my questions here. Just, Ron, since you're building a business in new industries for, as you point out, a long-term set of opportunities, can you just maybe give us a little bit of colour on how you see the power business unfolding over the next, say, five years? When we think about the level of investment you've outlined for 2025 and 2026, it kind of looks like you could maybe build a business that does between $150 and $200 million of EBITDA in five years. Would you be happy with that? Is that sort of what you're targeting here, or is it too early to say what things will look like that far away?

I would tell you, Keith, that I'm incredibly bullish on the opportunities in this business, and I think we're going to grow a business larger than you have suggested there. I really think we have an opportunity over the next five to eight years to grow a business that maybe rivals our oil field services business in scale. And certainly, I don't have any reason to say we wouldn't pursue that.

Okay, thanks for that. And just maybe turning quickly to the frac business, you talk about average fleet sizes having to get bigger. How has your fleet size changed over 24 and maybe 25, if you have a sense of that?

Yeah, I mean, just at a high level, we have more simulfrac work in our world today than we did in 2024. We have some customers who are moving towards that. Simulfrac varies a little bit from customer to customer, but you could see fleet sizes increase anywhere from 30% to 100%, depending on their thoughts around Simulfrac or Trimulfrac. Okay. Thanks for that. That's it for me.

Thanks, Keith. This concludes our question and answer session. I would like to turn the conference back over to Ron for any closing remarks.

Our mission is a simple one, to better human lives. That starts here at Liberty with the lives of everyone here in the Liberty family. With the success of our business, it grows beyond that to the communities we work in and ultimately the world. We took a step further in this mission last year with the launch of the Bettering Human Lives Foundation, enabling a more direct path to address the urgent challenge of energy poverty in Africa. I could not be prouder of our team and all that we have accomplished in pursuit of this mission. a journey that Chris started us on almost 14 years ago and has never wavered from since. And I'm excited to carry on our pursuit of that mission as we start the next chapter in the Liberty story. I'll end with a thank you to the entire Liberty family. While it's not always recognized, the world depends on you and the work that you do each and every day. Thanks for that. Thank you for joining us on the call today.

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