Liberty Energy Inc. (NYSE:LBRT) Q1 2024 Earnings Call Transcript April 19, 2024
Liberty Energy Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Liberty Energy Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] 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.
Anjali Voria: Thank you. Good morning, and welcome to Liberty Energy’s first quarter 2024 earnings conference call. Joining us on the call are Chris Wright, Chief Executive Officer; Ron Gusek, President; 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 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 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 and adjusted pretax 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 adjusted pretax return on capital employed as discussed on this call are available on our Investor Relations website. I will now turn the call over to Chris.
Chris Wright: Thanks, Anjali. Good morning, everyone, and thank you for joining us to discuss our first quarter 2024 operational and financial results. As we enter the fourth year of what appears to be a durable cycle for North American oil and gas production and development activity, consolidation across the energy industry is pushing larger companies to seek technical solutions and expertise to drive value creation. Liberty’s strong first quarter results demonstrate the continued benefits of leading the industry in technology innovation, service quality and investment in talent. Over the last year, the operations team delivered our highest combined safety performance and average daily pumping efficiency in Liberty’s history.
Our 32% adjusted pretax return on capital employed for the 12 months ended March 31, 2024, represents the continuance of our history of strong returns. I’m proud of the continued outstanding results our team achieved during a period marked by softening industry activity trends. Exceptional operational execution and deep customer engagement drove strong first quarter revenue of $1.1 billion and adjusted EBITDA of $245 million. We generated strong cash flow and distributed $42 million to our shareholders in the first quarter. Since July 2022, we have now distributed $417 million of cash to shareholders through the retirement of 12.5% of shares outstanding plus cash dividends. We remain focused on generating strong returns and free cash flow. We are pairing investment in profitable growth initiatives that increase our competitive advantage with a robust return of capital program.
We are leading a generational shift towards low emissions, capital-efficient natural gas-fueled technologies. Our comprehensive solution from critical power generation to the CNG fuel supply supports our digiFleet deployments and uniquely serves our customers in their development of oil and gas resources. Furthermore, a growing demand for power from AI-driven data centers and reshoring of industrial and manufacturing activity require reliable sources of power, which we believe will be best served by domestic natural gas. Liberty Power Innovations is well-positioned to benefit from these wider opportunities beyond the oilfield. Our customers see tremendous benefit from our direct investment in next-generation pump technology, our ownership of power generation and fuel infrastructure to control critical areas and expansion in our manufacturing.
Together, this complete end-to-end service solution enables a rapid innovation cycle and superior operating efficiency that our customers have come to expect from the best service partners. Seamless integration of our digiTechnologies with advanced cloud-based software for our pumping control systems, power generation and on-site fuel management maximizes operational efficiency and lower fuel consumption. The successful deployment of our first few digiFleets has further strengthened our customer partnerships, which we continue to grow through ongoing engagement to provide customized solutions. For instance, we are enhancing our automated pump control technology with customization that allows optimizing key variables deemed important to our customers, such as rate, pressure, sand and chemicals and fuel efficiency.
This solution responds to reservoir conditions and provides a customized fracture treatment across basins and horizons with innovation. Software optimization drives enhanced execution while minimizing downtime and maintenance costs. The performance of our latest pump technology, digiPrime has been excellent. DigiPrime is the most thermally efficient pump solution in the market, and we have seen natural gas fuel consumption that rivals the best dual fuel systems without any diesel consumption. That means the pump uses less natural gas and no diesel when compared to Tier 4 DGB pumps doing the same work. Technology innovation has been central to our history, including the multiyear design and development efforts of digiFrac and digiPrime. Last year, we decided to expand our internal manufacturing capabilities with the launch of our Liberty Advanced Equipment Technologies division, or LAET.
LAET now encompasses our manufacturing division, formerly known as ST9 and expands our ability to design, engineer and package complete systems. We believe the success of new technology comes through ownership of the engineering design and the ability to rapidly incorporate feedback from field operations in the design and manufacturing process. This can further accelerate the innovation cycle and reduce total cost of ownership. Liberty Power Innovations continues to grow in scope, expanding alongside our dual fuel upgrades and digiFleet deployments. In the first quarter, we launched operations in the DJ Basin with onsite fuel management services and will commence CNG sales this quarter following the commissioning of our compressor facility.
Frac industry dynamics remain constructive as relatively steady demand in recent months has focused service companies on disciplined pricing and quality of service. Superior performance and reliability drive higher returns for both E&P operators and service companies alike. Liberty’s continual focus on technical innovation in equipment technology and software automation augments our industry-leading service offerings while lowering the total delivered cost to the customer, reinforcing our position as the supplier of choice. Global oil and gas commodity prices have diverse and moved materially in recent months. Yet these changes have not materially impacted, although there’s been a very modest softening demand for North American frac services.
Oil prices have rallied since early in the year, owing to an improved global economic outlook, ongoing OPEC+ voluntary production cuts and rising geopolitical tensions. Iranian oil exports are at multiyear highs with a nontrivial risk that future Iranian export volumes decline. Natural gas prices have conversely declined considerably since last fall, primarily owing to strong production and mild winter weather, both driving natural gas inventories to well above seasonal norms. Natural gas prices are likely to strengthen in the future with increasing LNG exports and surging domestic demand for power in the years ahead. After 20 years of nearly static U.S. power demand, analyst projections for growth in the coming decade from AI and reshored manufacturing, range from several Bcf per day to over 10 Bcf per day of incremental natural gas demand from the power sector alone.
Globally, energy demand continues to march higher, supporting a strong North American oil and gas industry in future years. The lucky one billion, borrowing [indiscernible] term, consumed 13 barrels of oil per person per year, while the other $7 billion consume only three. It is safe to say that global energy demand will grow for the foreseeable future. Liberty’s focus is profitable growth through disciplined investment in talent, technology and equipment that leads the industry in efficiency and emissions. We are confident that our strategic investments in digiFleet, plus power and fuel supply through LPI better positions us to deliver superior returns over cycles. We are also excited by our partnerships in the Australian Beetaloo shale gas basin, which exemplify our continued efforts towards growing reliable energy sources worldwide.
In the second quarter, we expect low double-digit sequential growth in revenue on stable pricing and increased efficiency with corresponding improvement in profitability. We continue to expect strong cash flow generation in 2024, supporting our technology transition investments and industry-leading return of capital program. With that, I’d like to turn the call over to Michael Stock, our CFO, to discuss our financial results and outlook.
Michael Stock: Good morning, everyone. We started the year delivering solid first quarter results, fueled by a concerted effort to deliver a superior reliable service to our customers. By focusing on meeting the increased complexities of our larger growing E&P customers, we’ve been able to mitigate the challenges of a softening industry demand during the last four quarters and deliver a strong return on and return of capital. A more sophisticated customer base requires tailored solutions that are best served by technology investment, scale and integration, and we have aligned ourselves with these customers by meeting and exceeding their growing demands. In the first quarter of 2024, revenue was $1.1 billion compared to $1.1 billion in the prior quarter.
Our results were flat with the prior quarter, in line with our expectations and as our pumping efficiencies and integrated services offset lower sand and other consumable prices and market headwinds. The first quarter net income after tax of $82 million compared to $92 million in the prior quarter. Fully diluted net income per share was $0.48 compared to $0.54 in the prior quarter. First quarter adjusted EBITDA was $245 million compared to $253 million in the prior quarter. Frac markets have softened since the height of late 2022 and early 2023, but now appear to have stabilized since late last year. Our first quarter results were relatively flat with the fourth quarter, in line with our expectations. General and administrative expenses totaled $53 million in the first quarter and included noncash stock-based compensation of $5 million.
G&A decreased $2 million sequentially as prior quarter performance-related compensation was modestly higher than the current quarter. Net interest expense and associated fees totaled $7 million for the quarter, relatively in line with $6 million in the prior quarter. First quarter tax expense was $26 million, approximately 24% of pretax income. We continue to expect the full year tax expense rate in 2024 to be approximately 25% of pretax income. Cash taxes was $17 million in the first quarter, and we expect 2024 cash taxes to be approximately 80% of our effective book tax rate for the year. We ended the quarter with a cash balance of $24 million and net debt of $142 million. Net debt increased by $39 million from the end of the fourth quarter due to the expected rise in working capital.
First quarter uses of cash included capital expenditures, $30 million in share buybacks and $12 million in quarterly cash dividends. Total liquidity at the end of the quarter, including availability under the credit facility, was $315 million. Net capital expenditures were $142 million in the first quarter, which included investments in digiFleets, LPI infrastructure, dual fuel fleet upgrades [indiscernible] construction, capitalized maintenance spending and other projects. We had approximately $3 million of proceeds from asset sales in the quarter. Our capital expenditures remain on target for 2024. We are confident in our ability to generate strong cash flows through cycles and remain committed to our industry-leading return of capital program.
In the first quarter, we repurchased $30 million worth of shares or nearly 1% of shares outstanding and distributed $12 million in cash dividends. Since we reinstated our return of capital program in July of 2022, we have now distributed $417 million to shareholders through cash dividends and retirement of 12.5% of shares outstanding at the program commencement. We continue to deliver on our return of capital program while reinvesting in high-return opportunities that increase our long-term cash flow generation. While oil and gas commodity prices have resurged meaningfully, we see relatively stable demand for Liberty Frac Services. A slightly better oily demand is offsetting modestly lower gas basin trends. In the second quarter, we continue to expect improved activity levels among our customers, primarily owing to higher utilization and favorable weather-related trends in most basins that more than offsets spring break-up in Canada.
We are now projecting low double-digit sequential revenue and adjusted EBITDA growth. We are also expecting digiFleet deployments to continue ratably throughout the year, including our 7th fleet later this quarter. We are executing on our two-pronged growth strategy: one, investing in next-generation digiFleets that fuel incremental fleet profitability; and two, LPI, which brings a low emission source of power generation of fuel to support the rising domestic power demand across industries. I will now turn it back to the operator for Q&A, after which Chris will have some closing comments at the end of the call.
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