Liberty Energy (US:LBRT)2024-02-08 22:41Part I Business Liberty Energy Inc. provides hydraulic fracturing and complementary services to North American E&P companies, emphasizing technology and vertical integration, with its top five customers accounting for 34% of 2023 revenue - The company's core business is providing hydraulic fracturing services, along with complementary offerings like wireline services, proppant delivery, field gas processing, and data analytics across major North American shale basins2122 - Liberty has grown significantly from one active hydraulic fracturing fleet in December 2011 to over 40 active fleets as of December 31, 202330 - The company focuses on ESG-friendly technologies, including its Liberty Quiet Fleet®, dual-fuel DGB fleets, and innovative digiFleets℠, which have a lower CO2e emission profile333435 - In 2023, Liberty launched Liberty Power Innovations (LPI) and acquired Siren Energy to provide integrated natural gas supply and power solutions, supporting the transition to lower-emission fleets29 - For the year ended December 31, 2023, the company's top five customers accounted for approximately 34% of its revenues, with no single customer exceeding 10%67 Risk Factors The company faces substantial risks from volatile commodity prices, E&P capital spending, extensive environmental regulations, reliance on large customers, operational liabilities, cybersecurity threats, and significant obligations under Tax Receivable Agreements - The business is highly dependent on E&P capital spending, which is influenced by volatile oil and natural gas prices, global economic conditions, and OPEC+ actions888990 - Extensive and evolving federal, state, and local regulations on hydraulic fracturing, emissions, and water disposal could impose significant costs, operational delays, and reduce demand for services767781 - The company is required to make potentially significant payments under its Tax Receivable Agreements (TRAs), which could negatively impact liquidity; a change of control could trigger an immediate lump-sum payment120123 - Reliance on a few large customers is a key risk, with the top five customers representing 34% of consolidated revenue in 2023128 - Cybersecurity threats pose a significant risk; the company experienced a denial-of-service attack in early 2020, which was managed without material impact, but future incidents remain a possibility129 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None155 Cybersecurity Liberty has an integrated cybersecurity risk management program overseen by the Audit Committee, managed by senior leadership including a CIO, and supported by external experts and simulated incidents - The Board of Directors has designated the Audit Committee to oversee risk management associated with cybersecurity threats161 - A cybersecurity risk management committee, including the CIO, evaluates risks and provides at least quarterly briefings to the Audit Committee162 - The company periodically engages external experts and auditors to evaluate and test its information systems and has processes to oversee risks associated with third-party service providers158159 Properties The company's corporate headquarters are leased in Denver, Colorado, with numerous owned and leased principal properties across key operating areas in North America, deemed adequate for operations Key Owned and Leased Properties | District Facility Location | Size | Leased or Owned | | :--- | :--- | :--- | | Midland, TX | 90,000 sq. ft on 35 acres | Owned | | Odessa, TX | 77,500 sq. ft on 48 acres | Owned | | Kermit, TX | 5,000 acres | Owned | | Monahans, TX | 3,200 acres | Owned | | Shreveport, LA | 215,000 sq ft. on 45 acres | Owned | | Cheyenne, WY | 115,000 sq. ft on 60 acres | Owned | | Red Deer, AB | 170,000 sq. ft on 42 acres | Owned | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 15—Commitments & Contingencies in the financial statements section of the report - The company is subject to various legal proceedings from time to time, but management does not believe any current matters will have a material adverse effect on its financial position or results of operations167501503 Mine Safety Disclosures Information concerning mine safety violations and other regulatory matters is included in Exhibit 95 to the Form 10-K - Mine safety disclosure information is provided in Exhibit 95 of the 10-K filing168 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Liberty's Class A Common Stock trades on the NYSE under 'LBRT', with a reinstated quarterly dividend totaling $37.5 million in 2023, and a significant share repurchase program increased to $750 million cumulative authorization - The company's dividend was reinstated in Q4 2022, totaling $37.5 million for the year173174 - The Board authorized increases to the share repurchase program, reaching a cumulative authorization of $750 million, extended through July 31, 2026176 - During the year ended December 31, 2023, the company repurchased and retired 13.7 million shares of Class A Common Stock for $203.1 million at an average price of $14.82 per share177 Share Repurchases for Q4 2023 | Period | Total number of shares purchased | Average price paid per share | Approximate dollar value of shares that may yet be purchased under the plans or programs (1) | | :--- | :--- | :--- | :--- | | October 1, 2023 - October 31, 2023 | 351,632 | $19.91 | $203,968,909 | | November 1, 2023 - November 30, 2023 | 1,161,489 | $19.45 | $181,379,741 | | December 1, 2023 - December 31, 2023 | 518,615 | $18.22 | $171,930,956 | | Total | 2,031,736 | $19.21 | $171,930,956 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, revenue increased 14% to $4.7 billion, driving operating income to $760.6 million, with a stable 2024 outlook supported by strong liquidity and strategic investments in advanced technologies Results of Operations For fiscal year 2023, revenue grew by $598.7 million (14%) to $4.7 billion compared to 2022, with operating income increasing to $760.6 million and Adjusted EBITDA reaching $1.21 billion Consolidated Results of Operations (2023 vs. 2022) | Description | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Revenue | $4,747,928 | $4,149,228 | $598,700 | | Cost of services | $3,349,370 | $3,149,036 | $200,334 | | General and administrative | $221,406 | $180,040 | $41,366 | | Depreciation, depletion, and amortization | $421,514 | $323,028 | $98,486 | | Operating income | $760,579 | $495,890 | $264,689 | | Net income before income taxes | $734,890 | $399,509 | $335,381 | | Net income attributable to Liberty Energy Inc. stockholders | $556,317 | $399,602 | $156,715 | - The 14% increase in revenue was primarily driven by higher service pricing and an activity-driven increase in fleet efficiency208 Reconciliation of Net Income to Adjusted EBITDA | Description | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net income | $556,408 | $400,302 | $156,106 | | EBITDA | $1,183,910 | $745,252 | $438,658 | | Adjusted EBITDA | $1,213,068 | $860,267 | $352,801 | Liquidity and Capital Resources The company's liquidity is primarily sourced from $1.0 billion in 2023 cash flow from operations and its upsized ABL Facility, funding significant capital expenditures, share repurchases, and dividends Summary of Cash Flows | Description | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,014,583 | $530,364 | $484,219 | | Net cash used in investing activities | ($672,328) | ($450,656) | ($221,672) | | Net cash used in financing activities | ($349,315) | ($55,770) | ($293,545) | - In January 2023, the company borrowed $106.7 million on its ABL Facility to pay off and terminate its Term Loan Facility226 - As of December 31, 2023, the company had $140.0 million outstanding under its ABL Facility, with $277.7 million of remaining availability224 Quantitative and Qualitative Disclosure about Market Risk The company is exposed to market risks including industry volatility from commodity prices, interest rate risk on variable-rate debt, commodity price risk affecting costs, and foreign translation risk from Canadian operations - The business is exposed to industry risk, as demand is dependent on volatile oil and natural gas drilling and completion activity261 - The company has interest rate risk from its ABL Facility; a 1% change in the weighted average interest rate would impact annual interest expense by about $1.4 million263 - Foreign translation risk is present due to Canadian operations, with a foreign currency translation gain of $1.3 million recorded in 2023265 Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for 2023, showing total assets of $3.03 billion, total revenue of $4.75 billion, and net income of $556.4 million, along with detailed notes on accounting policies and transactions Consolidated Statements of Operations For 2023, total revenues were $4.75 billion, operating income was $760.6 million, and net income attributable to stockholders was $556.3 million, or $3.15 per diluted share Key Operating Results (2023 vs. 2022) | Description (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total revenue | $4,747,928 | $4,149,228 | | Operating income | $760,579 | $495,890 | | Net income attributable to Liberty Energy Inc. stockholders | $556,317 | $399,602 | | Diluted EPS | $3.15 | $2.11 | Consolidated Balance Sheets As of December 31, 2023, total assets were $3.03 billion, with total liabilities of $1.19 billion and total stockholders' equity increasing to $1.84 billion Key Balance Sheet Items (As of Dec 31) | Description (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total current assets | $954,254 | $956,673 | | Property and equipment, net | $1,645,368 | $1,362,364 | | Total assets | $3,033,557 | $2,575,932 | | Total current liabilities | $639,424 | $649,497 | | Long-term debt, net | $140,000 | $217,426 | | Total liabilities | $1,192,149 | $1,078,626 | | Total stockholders' equity | $1,841,408 | $1,495,017 | Consolidated Statements of Cash Flows For 2023, the company generated $1.01 billion in cash from operating activities, with $672.3 million used in investing activities and $349.3 million in financing activities, resulting in a $7.06 million decrease in cash Cash Flow Summary (For the year ended Dec 31) | Description (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,014,583 | $530,364 | | Net cash used in investing activities | ($672,328) | ($450,656) | | Net cash used in financing activities | ($349,315) | ($55,770) | | Net (decrease) increase in cash | ($7,060) | $23,938 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None267 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with the accounting functions of the acquired Siren entity integrated during the year - Management concluded that disclosure controls and procedures were effective as of December 31, 2023268 - The company integrated the accounting functions of Siren Energy following its acquisition on April 6, 2023269 Other Information This section discloses the adoption of Rule 10b5-1 trading plans by CFO Michael Stock and CEO Chris Wright in December 2023 for the potential sale of shares acquired from vested restricted stock units - CFO Michael Stock adopted a Rule 10b5-1 trading plan in December 2023 for the potential sale of up to 200,000 shares of Class A common stock between March and December 2024272 - CEO Chris Wright adopted a Rule 10b5-1 trading plan in December 2023 for the potential sale of up to 240,000 shares of Class A common stock between March and August 2024273 Part III Part III of the report, covering directors, executive compensation, security ownership, and certain relationships, incorporates information by reference from the company's definitive proxy statement for its 2024 annual meeting of stockholders Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 proxy statement277 Executive Compensation Information regarding executive compensation is incorporated by reference from the forthcoming 2024 proxy statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2024 proxy statement278 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the forthcoming 2024 proxy statement - Information regarding security ownership is incorporated by reference from the forthcoming 2024 proxy statement279 Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the forthcoming 2024 proxy statement - Information regarding related party transactions and director independence is incorporated by reference from the forthcoming 2024 proxy statement280 Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the forthcoming 2024 proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the forthcoming 2024 proxy statement281 Part IV Part IV contains the list of financial statements, schedules, and exhibits filed with the report; Item 16, Form 10-K Summary, is noted as 'None' Exhibits and Financial Statement Schedules This item lists the financial statements, schedules, and exhibits filed as part of the Annual Report - This section refers to the Index to Financial Statements and the Index to Exhibits for a list of all filed documents283284 Form 10-K Summary The company has not provided a Form 10-K summary - None286