Liberty Energy (US:LBRT)2022-10-20 23:56PART I: FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the period ended September 30, 2022, reflect significant financial performance improvement and strategic capital management Condensed Consolidated Balance Sheets Total assets increased to $2.53 billion as of September 30, 2022, driven by current assets and property, with total equity rising to $1.41 billion Condensed Consolidated Balance Sheet Highlights (as of Sep 30, 2022 vs. Dec 31, 2021) | Balance Sheet Item | Sep 30, 2022 ($ in thousands) | Dec 31, 2021 ($ in thousands) | | :--- | :--- | :--- | | Total Current Assets | 996,061 | 630,377 | | Property and equipment, net | 1,295,189 | 1,199,287 | | Total Assets | 2,525,158 | 2,040,660 | | Total Current Liabilities | 704,857 | 569,247 | | Long-term debt, net | 252,682 | 121,445 | | Total Liabilities | 1,117,720 | 810,221 | | Retained earnings (accumulated deficit) | 90,779 | (155,954) | | Total Equity | 1,407,438 | 1,230,439 | Condensed Consolidated Statements of Operations The company achieved a significant turnaround in profitability, with Q3 2022 revenue surging to $1.19 billion and net income reaching $147.0 million Q3 2022 vs Q3 2021 Performance | Metric | Q3 2022 ($ in thousands) | Q3 2021 ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 1,188,247 | 653,727 | +81.8% | | Operating Income (Loss) | 182,983 | (39,566) | N/A | | Net Income (Loss) to Stockholders | 146,953 | (38,890) | N/A | | Diluted EPS | $0.78 | $(0.22) | N/A | Nine Months 2022 vs Nine Months 2021 Performance | Metric | Nine Months 2022 ($ in thousands) | Nine Months 2021 ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | 2,923,636 | 1,787,047 | +63.6% | | Operating Income (Loss) | 297,426 | (117,789) | N/A | | Net Income (Loss) to Stockholders | 246,733 | (123,655) | N/A | | Diluted EPS | $1.30 | $(0.72) | N/A | Condensed Consolidated Statements of Cash Flows Net cash from operations significantly increased to $292.6 million for the nine months ended September 30, 2022, supporting higher capital expenditures and share repurchases Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2022 ($ in thousands) | 2021 ($ in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 292,610 | 80,142 | | Net cash used in investing activities | (333,875) | (119,319) | | Net cash provided by financing activities | 45,642 | 5,149 | | Net increase (decrease) in cash | 4,377 | (34,028) | | Cash and cash equivalents - end of period | 24,045 | 34,705 | - Key financing activities in the first nine months of 2022 included net borrowings of $132.0 million on the line-of-credit and $70.1 million used for share repurchases25 Notes to Condensed Consolidated Financial Statements Key notes detail the PropX acquisition integration, ABL facility amendment, a $250 million share repurchase program, and the reinstatement of a quarterly dividend - On July 25, 2022, the Board authorized a share repurchase program of up to $250.0 million During the nine months ended Sep 30, 2022, the company repurchased 4.7 million shares for $70.1 million8891 - In July 2022, the ABL Facility was amended to increase the maximum borrowing amount by $75.0 million to $425.0 million and replace LIBOR with SOFR as the interest rate benchmark6062 - Subsequent to quarter end, on October 18, 2022, the board approved the reinstatement of a quarterly dividend of $0.05 per share of Class A Common Stock126 - The company maintains a full valuation allowance on its U.S. net deferred tax assets but believes there is a reasonable possibility that it could be reversed as soon as Q4 2022, which would impact income tax expense and the TRA liability102185 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2022 performance to robust demand and higher pricing in a tight frac market, driving significant revenue and EBITDA growth Recent Trends and Outlook Management observes a tight frac market with near-full utilization, driven by capital discipline and supply constraints, potentially strengthening demand for North American energy - The frac market is described as relatively tight with near-full utilization of available capacity, making service quality and reliability important differentiators for customers135 - Global supply risks, including OPEC+ production cuts and sanctions on Russia, alongside low global inventories, may strengthen demand for North American energy134 Key Market Indicators (Q3 2022) | Indicator | Q3 2022 | Q3 2021 | Q2 2022 | | :--- | :--- | :--- | :--- | | WTI Price (Avg. per Bbl) | $93.06 | $70.58 | $108.83 | | US & Canada Rig Count (Avg.) | 942 | 634 | 810 | Results of Operations Financial results dramatically improved year-over-year, with Q3 2022 revenue increasing 81.8% to $1.2 billion and a significant swing to operating income Q3 2022 vs Q3 2021 Results Summary | Description | Q3 2022 ($ in thousands) | Q3 2021 ($ in thousands) | Change ($ in thousands) | | :--- | :--- | :--- | :--- | | Revenue | 1,188,247 | 653,727 | 534,520 | | Operating income (loss) | 182,983 | (39,566) | 222,549 | | Net income (loss) to Stockholders | 146,953 | (38,890) | 185,843 | - The $534.5 million (81.8%) increase in Q3 revenue was attributed to higher service pricing and an activity-driven increase in fleet utilization and efficiency139 Nine Months 2022 vs 2021 Results Summary | Description | Nine Months 2022 ($ in thousands) | Nine Months 2021 ($ in thousands) | Change ($ in thousands) | | :--- | :--- | :--- | :--- | | Revenue | 2,923,636 | 1,787,047 | 1,136,589 | | Operating income (loss) | 297,426 | (117,789) | 415,215 | | Net income (loss) to Stockholders | 246,733 | (123,655) | 370,388 | Non-GAAP Financial Measures Adjusted EBITDA significantly increased to $276.9 million for Q3 2022 and $564.8 million for the nine-month period, reflecting improved market conditions and operational leverage Reconciliation of Net Income (Loss) to Adjusted EBITDA | Metric ($ in thousands) | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | 147,263 | (39,379) | 247,122 | (130,467) | | EBITDA | 239,456 | 31,233 | 501,533 | 81,585 | | Adjusted EBITDA | 276,853 | 32,008 | 564,793 | 100,266 | Liquidity and Capital Resources The company maintains a strong liquidity position with $273.6 million available under its ABL Facility and a $250.0 million share repurchase program - As of September 30, 2022, the company had $273.6 million of remaining availability under its $425.0 million ABL Facility169 - A share repurchase program authorizes up to $250.0 million in repurchases through July 31, 2024175 Cash Flow Summary (Nine Months Ended Sep 30) | Description ($ in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | 292,610 | 80,142 | | Net cash used in investing activities | (333,875) | (119,319) | | Net cash provided by financing activities | 45,642 | 5,149 | Quantitative and Qualitative Disclosure about Market Risk The company's primary market risk is foreign currency exchange rates, resulting in an $8.3 million translation loss for the nine months ended September 30, 2022 - The company's main market risk is foreign currency translation due to its Canadian subsidiary For the nine months ended September 30, 2022, this resulted in a translation loss of $8.3 million191 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, following the integration of PropX accounting functions - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2022193 - During Q3 2022, the company integrated the accounting functions of the PropX acquisition and updated its internal controls over financial reporting to reflect the changes194 PART II: OTHER INFORMATION Legal Proceedings The company is subject to legal proceedings but does not anticipate a material adverse effect on its financial position or operations - The company is subject to legal proceedings but does not expect them to have a material adverse effect on its financial condition or operations124198 Risk Factors Key risk factors include the Russia-Ukraine conflict, OPEC+ production decisions impacting oil and gas prices, and choice of forum provisions in the company's charter - The ongoing military conflict between Russia and Ukraine is cited as a significant risk that could lead to market disruptions, commodity price volatility, and supply chain interruptions201 - Actions by OPEC+ to set and maintain oil production levels are a key uncertainty that could lead to increased volatility in oil and natural gas prices, affecting the company's business204 - The company's charter includes choice of forum provisions that designate Delaware courts for certain disputes and federal courts for Securities Act claims, which may limit stockholders' ability to choose a favorable judicial forum202 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4.7 million shares for $70.1 million during Q3 2022, with $180.0 million remaining authorized under the share repurchase program Share Repurchases (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Value Remaining for Repurchase ($) | | :--- | :--- | :--- | :--- | | July 2022 | — | — | 250,000,000 | | August 2022 | 3,196,002 | $15.08 | 201,792,691 | | September 2022 | 1,506,164 | $14.47 | 180,000,041 | | Total Q3 | 4,702,166 | $14.89 | 180,000,041 | Defaults Upon Senior Securities No defaults upon senior securities were reported - None207 Mine Safety Disclosures Mine safety disclosures, as required by the Dodd-Frank Act, are provided in Exhibit 95 of this quarterly report - Mine safety disclosures required under Regulation S-K are provided in Exhibit 95 of the report208 Other Information No other material information is reported in this section - None209