UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018June 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 001-38081
|
| | | | | | | | | | | | | |
Liberty Oilfield Services Inc.LIBERTY ENERGY INC. |
| (Exact Name of Registrant as Specified in its Charter) |
| |
| Delaware | | | | 81-4891595 |
(State or Other Jurisdiction of
Incorporation or Organization)
| | | | (I.R.S. Employer
Identification No.)
|
| |
950 17th17th Street, Suite 2400 Denver, Colorado | | | | 80202 |
| (Address of Principal Executive Offices) | | | | (Zip Code) |
| |
(303) 515-2800 (Registrant’s Telephone Number, Including Area Code) |
| Securities registered pursuant to section 12(b) of the Act: |
| | | | |
| Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
| | | | |
| Class A Common Stock, par value $0.01 | | LBRT | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | | | |
Large accelerated filer ☐☒ | Accelerated filer ☐ | Non-accelerated filer ☒☐ | Smaller reporting company ☐ |
Emerging growth company ☐ (Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No
As of May 4, 2018,July 22, 2022, the registrant had 69,971,274186,859,269 shares of Class A Common Stock and 48,207,372325,902 shares of Class B Common Stock outstanding.
Our Class A Common Stock is traded on the New York Stock Exchange under the symbol “LBRT.” There is no public market for our Class B Common Stock.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly(“Quarterly Report”) and certain other communications made by us containscontain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange of 1934, as amended (the “Exchange Act”), including, among others, statements about our expected growth from recent acquisitions such as the PropX Acquisition (as defined below) and OneStim Acquisition (as defined below), expected performance, future operating results, oil and natural gas demand and prices and the outlook for the oil and gas industry, future global economic conditions, the impact of the Russian invasion of Ukraine, the impacts of the novel strain of the coronavirus (“COVID-19”) pandemic, improvements in operating procedures and technology, our business strategy and the business strategies of our customers, in addition to other estimates, beliefs and expected performance.beliefs. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We may use the words “estimate,” “outlook,” “project,” “position,” “potential,” “likely,” “believe,” “anticipate,” “plan,” “expect,” “intend,” “achievable,” “anticipate,” “may,” “will,” “should”“continue,” “should,” “could” and similar expressions to help identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. We cannot assure you that our assumptions and expectations will prove to be correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements.statements, including but not limited to the risks described in this Quarterly Report and other filings that we make with the U.S. Securities Exchange Commission (the “SEC”). We undertake no intention or obligation to update or revise any forward-looking statements, except as required by law, whether as a result of new information, future events or otherwise and readers should not rely on the forward-looking statements as representing the Company’s views as of any date subsequent to the date of the filing of this Quarterly Report.Report on Form 10-Q. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
Forward-looking statements may include statements about:
our business strategy;
our operating cash flows, the availability of capital and our liquidity;
our future revenue, income and operating performance;
our ability to sustain and improve our utilization, revenue and margins;
our ability to maintain acceptable pricing for our services;
our future capital expenditures;
our ability to finance equipment, working capital and capital expenditures;
competition and government regulations;
our ability to obtain permits and governmental approvals;
pending legal or environmental matters;
oil and natural gas prices;
acquisitions;
general economic conditions;
credit markets;
our ability to successfully develop our research and technology capabilities and implement technological developments and enhancements;
uncertainty regarding our future operating results; and
plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.
We caution you that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, decline in demand for our services, the cyclical nature and volatility of the oil and natural gas industry, a decline in, or substantial volatility of, crude oil and natural gas commodity prices, environmental risks, regulatory changes, the inability to comply with the financial and other covenants and metrics in our Credit Facilities (as defined herein), cash flow and access to capital, the timing of development expenditures and the other risks described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “Annual Report”).
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
LIBERTY OILFIELD SERVICESENERGY INC.
Condensed Consolidated and Combined Balance Sheets
(Dollars in thousands, except share data)
(Unaudited) | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Assets | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 41,476 | | | $ | 19,998 | |
| Accounts receivable—trade, net of allowances for credit losses of $884 and $884, respectively | 399,817 | | | 298,531 | |
| | | |
| Unbilled revenue (including amounts from related parties of $1,254 and $0, respectively) | 164,222 | | | 108,923 | |
| Inventories | 163,652 | | | 134,593 | |
| Prepaid and other current assets | 71,757 | | | 68,332 | |
| Total current assets | 840,924 | | | 630,377 | |
| Property and equipment, net | 1,267,393 | | | 1,199,287 | |
| Finance lease right-of-use assets | 24,095 | | | 18,201 | |
| | | |
| Operating lease right-of-use assets | 109,517 | | | 109,899 | |
| Other assets | 92,924 | | | 82,289 | |
| Deferred tax assets | 280 | | | 607 | |
| Total assets | $ | 2,335,133 | | | $ | 2,040,660 | |
| Liabilities and Equity | | | |
| Current liabilities: | | | |
| Accounts payable (including payables to related parties of $1,842 and $2,732, respectively) | $ | 311,404 | | | $ | 288,801 | |
| Accrued liabilities (including amounts due to related parties of $415 and $1,142, respectively) | 269,645 | | | 235,115 | |
| Deferred revenue | 1,554 | | | 4,552 | |
| Current portion of long-term debt, net of discount of $737 and $743, respectively | 1,013 | | | 1,007 | |
| Current portion of finance lease liabilities | 7,615 | | | 8,743 | |
| Current portion of operating lease liabilities | 30,841 | | | 31,029 | |
| Total current liabilities | 622,072 | | | 569,247 | |
| Long-term debt, net of discount of $903 and $1,270, respectively, less current portion | 252,937 | | | 121,445 | |
| Deferred tax liability | 563 | | | 563 | |
| Payable pursuant to tax receivable agreements | 41,888 | | | 37,555 | |
| Noncurrent portion of finance lease liabilities | 10,491 | | | 4,445 | |
| Noncurrent portion of operating lease liabilities | 77,166 | | | 76,966 | |
| Total liabilities | 1,005,117 | | | 810,221 | |
| Commitments & contingencies (Note 15) | 0 | | 0 |
| | | |
| Stockholders’ equity: | | | |
| Preferred Stock, $0.01 par value, 10,000 shares authorized and none issued and outstanding | — | | | — | |
| Common Stock: | | | |
| Class A, $0.01 par value, 400,000,000 shares authorized and 186,859,269 issued and outstanding as of June 30, 2022 and 183,385,111 issued and outstanding as of December 31, 2021 | 1,869 | | | 1,834 | |
| Class B, $0.01 par value, 400,000,000 shares authorized and 325,902 issued and outstanding as of June 30, 2022 and 2,632,347 issued and outstanding as of December 31, 2021 | 3 | | | 26 | |
| Additional paid in capital | 1,384,134 | | | 1,367,642 | |
| Accumulated deficit | (56,174) | | | (155,954) | |
| Accumulated other comprehensive loss | (2,263) | | | (306) | |
| Total stockholders’ equity | 1,327,569 | | | 1,213,242 | |
| Non-controlling interest | 2,447 | | | 17,197 | |
| Total equity | 1,330,016 | | | 1,230,439 | |
| Total liabilities and equity | 2,335,133 | | | 2,040,660 | |
|
| | | | | | | |
| | March 31,
2018 | | December 31, 2017 |
| Assets | (unaudited) |
| Current assets: | | | |
| Cash and cash equivalents | $ | 98,070 |
| | $ | 16,321 |
|
| Accounts receivable—trade | 211,467 |
| | 195,961 |
|
| Accounts receivable—related party | 7,982 |
| | 3,984 |
|
| Unbilled revenue | 74,078 |
| | 58,784 |
|
| Unbilled revenue—related party | — |
| | 59 |
|
| Inventories | 60,072 |
| | 55,524 |
|
| Prepaid and other current assets | 26,847 |
| | 21,396 |
|
| Total current assets | 478,516 |
| | 352,029 |
|
| Property and equipment, net | 549,297 |
| | 494,776 |
|
| Other assets | 11,113 |
| | 5,298 |
|
| Total assets | $ | 1,038,926 |
| | $ | 852,103 |
|
| Liabilities and Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 139,084 |
| | $ | 66,846 |
|
| Accrued liabilities: | | | |
| Accrued vendor invoices | 60,162 |
| | 78,646 |
|
| Operational accruals | 12,666 |
| | 32,208 |
|
| Accrued salaries and benefits | 22,461 |
| | 24,990 |
|
| Deferred revenue | 6,784 |
| | 9,231 |
|
| Accrued interest and other | 8,487 |
| | 6,573 |
|
| Accrued liabilities—related party | — |
| | 2,000 |
|
| Current portion of long-term debt, net of discount of $1,380 and $1,739, respectively | 370 |
| | 11 |
|
| Total current liabilities | 250,014 |
| | 220,505 |
|
| Long-term debt, net of discount of $4,811 and $6,466, respectively, less current portion | 106,905 |
| | 196,346 |
|
| Deferred tax liability | 28,796 |
| | — |
|
| Payable pursuant to tax receivable agreement | 2,291 |
| | — |
|
| Total liabilities | 388,006 |
| | 416,851 |
|
| Commitments & contingencies (Note 12) |
| |
|
| Redeemable common units | — |
| | 42,486 |
|
| Member equity: | | | |
| Member equity | — |
| | 392,766 |
|
| Stockholders' equity: | | | |
| Common Stock: | | | |
| Class A, $0.01 par value, 400,000,000 shares authorized and 69,971,274 issued and outstanding as of March 31, 2018 and none issued and outstanding as of December 31, 2017 | 700 |
| | — |
|
| Class B, $0.01 par value, 400,000,000 shares authorized and 48,207,372 issued and outstanding as of March 31, 2018 and none issued and outstanding as of December 31, 2017 | 482 |
| | — |
|
| Additional paid in capital | 347,965 |
| | — |
|
| Retained earnings | 23,675 |
| | — |
|
| Total stockholders' equity | 372,822 |
| | — |
|
| Noncontrolling interest | 278,098 |
| | — |
|
| Total equity | 650,920 |
| | 392,766 |
|
| Total liabilities and equity | $ | 1,038,926 |
| | $ | 852,103 |
|
and Combined Financial Statements.
LIBERTY OILFIELD SERVICESENERGY INC.
Condensed Consolidated and Combined Statements of IncomeOperations
(Dollars inIn thousands, except per share data)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenue: | | | | | | | |
| Revenue | $ | 941,370 | | | $ | 581,288 | | | $ | 1,711,851 | | | $ | 1,132,140 | |
| Revenue—related parties | 1,249 | | | — | | | 23,538 | | | 1,180 | |
| Total revenue | 942,619 | | | 581,288 | | | 1,735,389 | | | 1,133,320 | |
| Operating costs and expenses: | | | | | | | |
| Cost of services (exclusive of depreciation, depletion, and amortization shown separately below) | 713,718 | | | 521,956 | | | 1,383,737 | | | 1,020,891 | |
| General and administrative | 42,162 | | | 29,403 | | | 80,480 | | | 55,762 | |
| Transaction, severance, and other costs | 2,192 | | | 2,996 | | | 3,526 | | | 10,617 | |
| Depreciation, depletion, and amortization | 77,379 | | | 63,214 | | | 151,967 | | | 125,270 | |
| (Gain) loss on disposal of assets | (3,436) | | | (277) | | | 1,236 | | | (997) | |
| Total operating costs and expenses | 832,015 | | | 617,292 | | | 1,620,946 | | | 1,211,543 | |
| Operating income (loss) | 110,604 | | | (36,004) | | | 114,443 | | | (78,223) | |
| Other expense: | | | | | | | |
| Loss (gain) on remeasurement of liability under tax receivable agreements | 168 | | | (3,305) | | | 4,333 | | | (3,305) | |
| | | | | | | |
| | | | | | | |
| Interest expense, net | 4,862 | | | 3,767 | | | 9,186 | | | 7,521 | |
| Total other expense | 5,030 | | | 462 | | | 13,519 | | | 4,216 | |
| Net income (loss) before income taxes | 105,574 | | | (36,466) | | | 100,924 | | | (82,439) | |
| Income tax expense | 235 | | | 16,006 | | | 1,065 | | | 8,649 | |
| Net income (loss) | 105,339 | | | (52,472) | | | 99,859 | | | (91,088) | |
| | | | | | | |
| Less: Net income (loss) attributable to non-controlling interests | 183 | | | (1,912) | | | 79 | | | (6,323) | |
| Net income (loss) attributable to Liberty Energy Inc. stockholders | $ | 105,156 | | | $ | (50,560) | | | $ | 99,780 | | | $ | (84,765) | |
| | | | | | | |
| Net income (loss) attributable to Liberty Energy Inc. stockholders per common share: | | | | | | | |
| Basic | $ | 0.56 | | | $ | (0.29) | | | $ | 0.54 | | | $ | (0.50) | |
| Diluted | $ | 0.55 | | | $ | (0.29) | | | $ | 0.52 | | | $ | (0.50) | |
| Weighted average common shares outstanding: | | | | | | | |
| Basic | 186,719 | | | 172,523 | | | 185,367 | | | 167,891 | |
| Diluted | 190,441 | | | 172,523 | | | 190,623 | | | 167,891 | |
See Notes to Condensed Consolidated Financial Statements.
LIBERTY ENERGY INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) | $ | 105,339 | | | $ | (52,472) | | | $ | 99,859 | | | $ | (91,088) | |
| Other comprehensive (loss) income | | | | | | | |
| Foreign currency translation | (3,012) | | | 1,288 | | | (1,956) | | | 2,698 | |
| Comprehensive income (loss) | $ | 102,327 | | | $ | (51,184) | | | $ | 97,903 | | | $ | (88,390) | |
| Comprehensive income (loss) attributable to non-controlling interest | 177 | | | (1,760) | | | 80 | | | (6,079) | |
| Comprehensive income (loss) attributable to Liberty Energy Inc. | $ | 102,150 | | | $ | (49,424) | | | $ | 97,823 | | | $ | (82,311) | |
See Notes to Condensed Consolidated Financial Statements.
LIBERTY ENERGY INC.
Condensed Consolidated Statements of Changes in Equity
(In thousands, except per unit and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares of Class A Common Stock | | Shares of Class B Common Stock | | Class A Common Stock, Par Value | | Class B Common Stock, Par Value | | Additional Paid in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity | | Non-controlling Interest | | Total Equity |
| Balance—December 31, 2021 | 183,385 | | | 2,632 | | | $ | 1,834 | | | $ | 26 | | | $ | 1,367,642 | | | $ | (155,954) | | | $ | (306) | | | $ | 1,213,242 | | | $ | 17,197 | | | $ | 1,230,439 | |
| Exchange of Class B Common Stock for Class A Common Stock | 2,306 | | | (2,306) | | | 23 | | | (23) | | | 15,817 | | | — | | | — | | | 15,817 | | | (15,817) | | | — | |
| Offering Costs | — | | | — | | | — | | | — | | | (564) | | | — | | | — | | | (564) | | | — | | | (564) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other distributions and advance payments to non-controlling interest unitholders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 924 | | | 924 | |
| | | | | | | | | | | | | | | | | | | |
| Stock based compensation expense | — | | | — | | | — | | | — | | | 10,931 | | | — | | | — | | | 10,931 | | | 83 | | | 11,014 | |
| Vesting of restricted stock units | 1,168 | | | — | | | 12 | | | — | | | 8 | | | — | | | — | | | 20 | | | (20) | | | — | |
| Tax withheld on vesting of restricted stock units | — | | | — | | | — | | | — | | | (9,700) | | | — | | | — | | | (9,700) | | | — | | | (9,700) | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | (1,957) | | | (1,957) | | | 1 | | | (1,956) | |
| Net income | — | | | — | | | — | | | — | | | — | | | 99,780 | | | — | | | 99,780 | | | 79 | | | 99,859 | |
| Balance—June 30, 2022 | 186,859 | | | 326 | | | $ | 1,869 | | | $ | 3 | | | $ | 1,384,134 | | | $ | (56,174) | | | $ | (2,263) | | | $ | 1,327,569 | | | $ | 2,447 | | | $ | 1,330,016 | |
|
| | | | | | | |
| | Three Months ended March 31, |
| | 2018 | | 2017 |
| Revenue: | | | |
| Revenue | $ | 491,098 |
| | $ | 249,218 |
|
| Revenue—related parties | 4,062 |
| | 3,176 |
|
| Total revenue | 495,160 |
| | 252,394 |
|
| Operating costs and expenses: | | | |
| Cost of services (exclusive of depreciation and amortization shown separately below) | 376,827 |
| | 211,633 |
|
| General and administrative | 21,677 |
| | 17,084 |
|
| Depreciation and amortization | 28,016 |
| | 14,146 |
|
| Loss (gain) on disposal of assets | 80 |
| | (43 | ) |
| Total operating costs and expenses | 426,600 |
| | 242,820 |
|
| Operating income | 68,560 |
| | 9,574 |
|
| Other expense: | | | |
| Interest expense | (6,494 | ) | | (1,452 | ) |
| Net income before income taxes | 62,066 |
| | 8,122 |
|
| Income tax expense | 8,079 |
| | — |
|
| Net income | 53,987 |
| | 8,122 |
|
| Less: Net income attributable to Predecessor, prior to Corporate Reorganization | 8,705 |
| | 8,122 |
|
| Less: Net income attributable to noncontrolling interests | 21,607 |
| | — |
|
| Net income attributable to Liberty Oilfield Services Inc. stockholders | $ | 23,675 |
| | $ | — |
|
| | | | |
| Net income attributable to Liberty Oilfield Services Inc. stockholders per common share: | | | |
| Basic | $ | 0.34 |
| | |
| Diluted | $ | 0.34 |
| | |
| Weighted average common shares outstanding: | | | |
| Basic | 68,923,719 |
| | |
| Diluted | 118,182,439 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares of Class A Common Stock | | Shares of Class B Common Stock | | Class A Common Stock, Par Value | | Class B Common Stock, Par Value | | Additional Paid in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income | | Total Stockholders’ Equity | | Non-controlling Interest | | Total Equity |
| Balance—December 31, 2020 | 157,952 | | | 21,550 | | | $ | 1,579 | | | $ | 216 | | | $ | 1,125,554 | | | $ | 23,288 | | | $ | — | | | $ | 1,150,637 | | | $ | 159,406 | | | $ | 1,310,043 | |
| Exchange of Class B Common Stock for Class A Common Stock | 19,690 | | | (19,690) | | | 197 | | | (197) | | | 142,204 | | | — | | | — | | | 142,204 | | | (142,204) | | | — | |
| Offering Costs | — | | | — | | | — | | | — | | | (779) | | | — | | | — | | | (779) | | | (75) | | | (854) | |
| Other distributions and advance payments to non-controlling interest unitholders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,372 | | | 1,372 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Stock based compensation expense | — | | | — | | | — | | | — | | | 10,134 | | | — | | | — | | | 10,134 | | | 712 | | | 10,846 | |
| Vesting of restricted stock units | 668 | | | — | | | 7 | | | — | | | (3,082) | | | — | | | — | | | (3,075) | | | (510) | | | (3,585) | |
| Restricted stock and RSU forfeitures | — | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | 2 | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | 2,454 | | | 2,454 | | | 244 | | | 2,698 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (84,765) | | | — | | | (84,765) | | | (6,323) | | | (91,088) | |
| Balance—June 30, 2021 | 178,310 | | | 1,860 | | | $ | 1,783 | | | $ | 19 | | | $ | 1,274,031 | | | $ | (61,475) | | | $ | 2,454 | | | $ | 1,216,812 | | | $ | 12,622 | | | $ | 1,229,434 | |
See Notes to Condensed Consolidated and Combined Financial Statements.
LIBERTY OILFIELD SERVICESENERGY INC.
Condensed Consolidated and Combined Statement of Changes in Equity
(Amounts in thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Members' Equity | | Shares of Class A Common Stock | | Shares of Class B Common Stock | | Class A Common Stock, Par Value | | Class B Common Stock, Par Value | | Additional Paid in Capital | | Retained Earnings | | Total Stockholders' equity | | Noncontrolling Interest | | Total Equity |
| Balance—December 31, 2017 | $ | 392,766 |
| | | | | | | | | | | | | | | | | | $ | 392,766 |
|
| Return on redeemable common units | (149 | ) | | | | | | | | | | | | | | | | | | (149 | ) |
| Net income prior to Corporate Reorganization | 8,705 |
| | | | | | | | | | | | | | | | | | 8,705 |
|
| Balance prior to Corporate Reorganization | $ | 401,322 |
| | — |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 401,322 |
|
| Corporate Reorganization | | | | | | | | | | | | | | | | | | | |
| Exchange of Liberty LLC Units for Class A Common Stock and Class B Common Stock and extinguishment of Redeemable Common Units | (401,322 | ) | | 55,986 |
| | 48,207 |
| | 560 |
| | 482 |
| | 446,824 |
| | | | 447,866 |
| | | | 46,544 |
|
| Net deferred tax liability due to corporate reorganization | | | | | | | | | | | (28,620 | ) | | | | (28,620 | ) | | | | (28,620 | ) |
| Initial Public Offering | | | | | | | | | | | | | | |
|
| | | |
|
|
| Issuance of Class A Common Stock, net of underwriter discount and offering costs | | | 14,340 |
| | | | 143 |
| | | | 219,790 |
| | | | 219,933 |
| | | | 219,933 |
|
| Redemption of Legacy Ownership, net of underwriter discount | | | (1,609 | ) | | | - | (16 | ) | | | | (25,881 | ) | | | | (25,897 | ) | | | | (25,897 | ) |
| Issuance of Restricted Stock | | | 1,258 |
| | | | 13 |
| | | | (13 | ) | | | | — |
| | | | — |
|
| Liability due to tax receivable agreement | | | | | | | | | | | (2,291 | ) | | | | (2,291 | ) | | | | (2,291 | ) |
| Initial allocation of noncontrolling interest of Liberty LLC effective on the date of the IPO | | | | | | | | | | | (261,844 | ) | | | | (261,844 | ) | | 261,844 |
| | — |
|
| Distribution paid and payable to non-controlling interest unitholders | | | | | | | | | | | | | | | — |
| | (5,353 | ) | | (5,353 | ) |
| Restricted stock forfeited | | | (4 | ) | | | | — |
| | | | | | | | — |
| | | | — |
|
| Net income subsequent to the Corporate Reorganization and IPO | | | | | | | | | | | | | 23,675 |
| | 23,675 |
| | 21,607 |
| | 45,282 |
|
| Balance—March 31, 2018 | $ | — |
| | 69,971 |
| | 48,207 |
| | $ | 700 |
| | $ | 482 |
| | $ | 347,965 |
| | $ | 23,675 |
| | $ | 372,822 |
| | $ | 278,098 |
| | $ | 650,920 |
|
See Notes to Condensed Consolidated and Combined Financial Statements.
LIBERTY OILFIELD SERVICES INC.
Condensed Consolidated and Combined Statements of Cash Flows
(Dollars in thousands)
(Unaudited) | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2022 | | 2021 | | |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 99,859 | | | $ | (91,088) | | | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation, depletion, and amortization | 151,967 | | | 125,270 | | | |
| Loss (gain) on disposal of assets | 1,236 | | | (997) | | | |
| | | | | |
| Non-cash lease expense | 2,088 | | | 1,409 | | | |
| Stock based compensation expense | 11,014 | | | 10,846 | | | |
| | | | | |
| Deferred income tax expense | 320 | | | 6,124 | | | |
| Loss (gain) on remeasurement of liability under tax receivable agreements | 4,333 | | | (3,305) | | | |
| Other non-cash expense | 826 | | | 1,882 | | | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable and unbilled revenue | (156,049) | | | (141,439) | | | |
| Accounts receivable and unbilled revenue—related party | (1,118) | | | — | | | |
| Inventories | (29,209) | | | (10,586) | | | |
| Other assets | (1,560) | | | 4,757 | | | |
| Deferred revenue | (2,898) | | | — | | | |
| Accounts payable and accrued liabilities | 58,539 | | | 132,846 | | | |
| Accounts payable and accrued liabilities—related party | (1,955) | | | — | | | |
| Initial payment of operating lease liability | (1,764) | | | (153) | | | |
| Net cash provided by operating activities | 135,629 | | | 35,566 | | | |
| Cash flows from investing activities: | | | | | |
| Purchases of property and equipment and construction in-progress | (224,737) | | | (67,861) | | | |
| Investment in sand logistics | (5,717) | | | — | | | |
| Investment in Fervo Energy Company | (10,000) | | | — | | | |
| Proceeds from sale of assets | 7,630 | | | 1,966 | | | |
| Net cash used in investing activities | (232,824) | | | (65,895) | | | |
| Cash flows from financing activities: | | | | | |
| Proceeds from borrowings on line-of-credit | 400,000 | | | 50,000 | | | |
| Repayments of borrowings on line-of-credit | (268,000) | | | (50,000) | | | |
| Repayments of borrowings on term loan | (875) | | | (875) | | | |
| Payments on finance lease obligations | (2,696) | | | (4,064) | | | |
| Class A Common Stock dividends and dividend equivalents upon restricted stock vesting | (148) | | | (168) | | | |
| | | | | |
| Other distributions and advance payments to non-controlling interest unitholders | 924 | | | 1,372 | | | |
| | | | | |
| Tax withholding on restricted stock unit vesting | (9,700) | | | (3,586) | | | |
| Payments of equity offering costs | (523) | | | (854) | | | |
| Payments of debt issuance costs | (224) | | | — | | | |
| Net cash provided by (used in) financing activities | 118,758 | | | (8,175) | | | |
| Net increase (decrease) in cash and cash equivalents before translation effect | 21,563 | | | (38,504) | | | |
| Translation effect on cash | (85) | | | 236 | | | |
| Cash and cash equivalents—beginning of period | 19,998 | | | 68,978 | | | |
| Cash and cash equivalents—end of period | $ | 41,476 | | | $ | 30,710 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | |
| | Three Months ended March 31, |
| | 2018 | | 2017 |
| Cash flows from operating activities: | | | |
| Net income | $ | 53,987 |
| | $ | 8,122 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 28,016 |
| | 14,146 |
|
| Loss (gain) on disposal of assets | 80 |
| | (43 | ) |
| Amortization of debt issuance costs | 2,310 |
| | 109 |
|
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (15,506 | ) | | 2,243 |
|
| Accounts receivable—related party | (3,998 | ) | | 5,017 |
|
| Unbilled revenue | (15,294 | ) | | (6,437 | ) |
| Unbilled revenue—related party | 59 |
| | 2,487 |
|
| Inventories | (4,548 | ) | | (3,959 | ) |
| Prepaid and other current assets | (20,927 | ) | | (8,071 | ) |
| Accounts payable and accrued liabilities | 6,523 |
| | 69,900 |
|
| Accounts payable and accrued liabilities—related party | — |
| | 775 |
|
| Net cash provided by operating activities | 30,702 |
| | 84,289 |
|
| Cash flows from investing activities: | | | |
| Capital expenditures | (54,985 | ) | | (124,885 | ) |
| Proceeds from disposal of assets | 251 |
| | 263 |
|
| Net cash used in investing activities | (54,734 | ) | | (124,622 | ) |
| Cash flows from financing activities: | | | |
| Proceeds from issuance of common stock, net of underwriter discount | 230,174 |
| | — |
|
| Redemption of LLC Units from Legacy Owners | (25,897 | ) | | — |
|
| Repayments of borrowings on term loan | (61,097 | ) | | (3,000 | ) |
| Proceeds from borrowings on line-of-credit | — |
| | 5,000 |
|
| Repayments of borrowings on line-of-credit | (30,000 | ) | | — |
|
| Proceeds from Liberty Oilfield Services Holdings LLC | 2,115 |
| | — |
|
| Payments on capital lease obligations | — |
| | (119 | ) |
| Proceeds from issuance of redeemable common units | — |
| | 39,794 |
|
| Distribution paid to non-controlling interest unitholders | (4,125 | ) | | — |
|
| Payment of deferred equity offering costs | (5,389 | ) | | — |
|
| Net cash provided by financing activities | 105,781 |
| | 41,675 |
|
| Net increase in cash and cash equivalents | 81,749 |
| | 1,342 |
|
| Cash and cash equivalents—beginning of period | 16,321 |
| | 11,484 |
|
| Cash and cash equivalents—end of period | $ | 98,070 |
| | $ | 12,826 |
|
| Supplemental disclosure of cash flow information: | | | |
| Cash paid for income taxes | $ | 5,934 |
| | $ | — |
|
| Cash paid for interest | $ | 4,441 |
| | $ | 2,004 |
|
| Non-cash investing and financing activities: | | | |
| Capital expenditures included in accounts payable and accrued liabilities | $ | 46,569 |
| | $ | 41,327 |
|
Condensed Consolidated Statements of Cash Flows cont.
(Dollars in thousands)
(Unaudited) | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2022 | | 2021 | | |
| Supplemental disclosure of cash flow information: | | | | | |
| Cash paid for income taxes | $ | 6,073 | | | $ | — | | | |
| Cash paid for interest | $ | 8,352 | | | $ | 5,326 | | | |
| Non-cash investing and financing activities: | | | | | |
| Capital expenditures included in accounts payable and accrued liabilities | $ | 79,319 | | | $ | 22,364 | | | |
| Capital expenditures reclassified from prepaid and other current assets | $ | 1,190 | | | $ | — | | | |
See Notes to Condensed Consolidated and Combined Financial Statements.
LIBERTY OILFIELD SERVICESENERGY INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Note 1—Organization and Basis of Presentation
Organization
Liberty Energy Inc., formerly known as Liberty Oilfield Services Inc. (the “Company”) was incorporated as a Delaware corporation on December 21, 2016, to become a holding corporation for Liberty Oilfield Services New HoldCo LLC (“Liberty LLC”) and its subsidiaries upon completion of a corporate reorganization (as detailed below, the(the “Corporate Reorganization”) and planned initial public offering of the Company (“IPO”).
Prior On April 19, 2022, the stockholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation for the purpose of changing the Company’s name from “Liberty Oilfield Services Inc.” to “Liberty Energy Inc.” and thereafter, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation to reflect the new name, effective April 25, 2022. The Company has no material assets other than its ownership of units in Liberty LLC (“Liberty LLC Units”). Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022 (the “Annual Report”) for additional information on the Corporate Reorganization Liberty Oilfield Services Holdings LLC (“Liberty Holdings”) wholly owned Liberty Oilfield Services LLC (“LOS”) and LOS Acquisition CO I LLC (“ACQI” and, together with LOS, the “Predecessor”), which includes the assets and liabilities of LOS Odessa RE Investments, LLC (“Odessa”) and LOS Cibolo RE Investments, LLC (“Cibolo”). Following the Corporate Reorganization, Liberty LLC wholly owns the Predecessor. Effective March 22, 2018 the assets of ACQIIPO that were contributed into LOS and ACQI was dissolved.completed on January 17, 2018.
The Company, together with its subsidiaries, is a multi-basin provider ofleading integrated oilfield services and technology company focused on providing innovative hydraulic fracturing services with a focus on deploying the latestand related technologies in the technically demandingto onshore oil and natural gas reservoirs in which it operates, principallyexploration and production (“E&P”) companies in North Dakota, Colorado, Wyoming and Texas.
Corporate Reorganization
In connectionAmerica. We offer customers hydraulic fracturing services, together with the IPO, the Company completed a series of organizational transactions,complementary services including the following:
Liberty Holdings contributed all of its assets to Liberty LLC in exchange for Liberty LLC Units (as defined below);
Liberty Holdings liquidated and distributed to its then-existing owners (the “Legacy Owners”) Liberty LLC Units pursuant to the terms of the limited liability company agreement of Liberty Holdings and the Master Reorganization Agreement dated as of January 11, 2018, by and among the Company, Liberty Holdings, Liberty LLC, and the other parties named therein (the “Master Reorganization Agreement”);
Certain of the Legacy Owners directly or indirectly contributed all or a portion of their Liberty LLC Units to the Company in exchange for 55,685,027 shares ofwireline services, proppant delivery solutions, data analytics, related goods (including our Class A common stock, par value $0.01 per share (the “Class A Common Stock”)sand mine operations), and 1,258,514 restricted shares of Class A Common Stock. Subsequent to the initial exchange, 1,609,122 shares of Class A Common Stock were redeemed for an aggregate price of $25.9 million, upon the exercise of the underwriters' overallotment option;
the Company issued, at par, the Legacy Ownerstechnologies that continued to own Liberty LLC Units (the “Liberty Unit Holders”) an aggregate amount of 48,207,372 shares ofwill facilitate lower emission completions, thereby helping our Class B common stock, par value $0.01 per share (the “Class B Common Stock”); and
the Company contributed the net proceeds it received from the IPO to Liberty LLC in exchange for additional Liberty LLC Units such that the Company holds a total number of Liberty LLC Units equal to the number of shares of Class A Common Stock outstanding following the IPO.
Initial Public Offering
On January 17, 2018 the Company completed its IPO of 14,640,755 shares of its Class A Common Stock at a public offering price of $17.00 per share, of which 14,340,214 shares were offered by the Company and 300,541 were offered by the selling shareholder. The Company received $220.0 million net proceeds, after deducting approximately $13.4 million in underwriting discounts and commissions and $10.4 million of other offering costs. The Company did not receive any proceeds from the sale of the shares of Class A Common Stock by the selling shareholder. The Company used $25.9 million of net proceeds to redeem ownership interests in Liberty LLC from the Legacy Owners. The Company contributed the remaining net proceeds to Liberty LLC in exchange for units in Liberty LLC (the “Liberty LLC Units”). Liberty LLC used a portion of these net proceeds (i) to repay outstanding borrowings and accrued interest under the Predecessor’s ABL Facility (as defined herein), totaling approximately $30.1 million, (ii) to repay 35% of the Predecessor’s outstanding borrowings, accrued interest and prepayment premium under the Term Loan Facility (as defined herein), totaling approximately $62.5 million and (iii) for
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
general corporate purposes, including repayment of additional indebtedness and funding a portion of 2018 and other future capital expenditures. Following the IPO and as of March 31, 2018, the Company owns 59.2% of Liberty LLC.
Upon completion of the IPO and Corporate Reorganization, (i) the Company is a holding company with no material assets other than its ownership of Liberty LLC, and (ii) the Company had 69,975,174 shares of Class A Common Stock and 48,207,372 shares of Class B Common Stock issued and outstanding, of which 55,334,419 shares of Class A Common Stock and all shares of Class B Common Stock were held by the Legacy Owners.customers reduce their emissions profile.
Basis of Presentation
The accompanying unaudited condensed consolidated and combined financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principlesGAAP for annual financial statements and should be read together with ourthe annual financial statements and notes thereto included in the 2017 Annual Report on Form 10-K.Report.
The accompanying unaudited condensed consolidated and combined financial statements and related notes present the condensed consolidated financial position of the Company as of June 30, 2022 and December 31, 2021, and the results of operations, cash flows, and equity of the Company as of and for the three and six months ended MarchJune 30, 2022 and 2021. The interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim period. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results of operations expected for the entire fiscal year ended December 31, 20182022. Further, these estimates and other factors, including those outside the combinedCompany’s control, such as the impact of sustained lower commodity prices, could have a significant adverse impact to the Company’s financial position,condition, results of operations and cash flows of the Predecessor as of December 31, 2017 and for the three months ended March 31, 2017.flows.
All intercompany amounts have been eliminated in the presentation of these unaudited condensed consolidated and combined financial statements. Comprehensive income is not reported due to the absence of items of other comprehensive income or loss during the periods presented. The condensed consolidated and combined financial statements include financial data at historical cost as the contribution of assets is considered to be a reorganization of entities under common control. The condensed consolidated and combined financial statements may not be indicative of the actual level of assets, liabilities and costs that would have been incurred by the Predecessor if it had operated as an independent, publicly-traded company during the periods prior to the IPO or of the costs expected to be incurred in the future. In the opinion of management, the adjustments necessary for a fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been made. Such adjustments are of a normal recurring nature.
The unaudited condensed consolidated and combined financial statements for periods prior to January 17, 2018, reflect the historical results of Predecessor. The unaudited condensed consolidated financial statements include the amounts of the CompanyCompany. The Company’s operations are organized into a single reportable segment, which consists of hydraulic fracturing and all majority owned subsidiaries where we have the ability to exercise control.related goods and services.
Note 2—Significant Accounting Policies
Revenue RecognitionReclassifications
Effective January 1, 2018,Certain amounts in the Company adopted a comprehensive new revenue recognition standard, Accounting Standard Codification (“ASC”) Topic 606-Revenueprior period financial statements have been reclassified from Contracts with Customers. The detailsinterest income to interest expense, net in the accompanying unaudited condensed consolidated statements of operation to conform to the presentation of the significant changes to accounting policies resulting from the adoption of the new standard are set out below. The Company adopted the standard using a modified retrospective method; accordingly, the comparative information for the three months ended March 31, 2017 has not been adjusted and continues to be reported under the previous revenue standard. The adoption of this standard did not have a material impact to the condensed consolidatedcurrent period financial position, reported revenue, results of operations or cash flows as of and for the three months ended March 31, 2018.
Under the new standard, revenue recognition is basedstatements. These reclassifications had no effect on the transfer of control,previously reported net income or our customer’s ability to benefit from our services and products in an amount that reflects the consideration expected to be received in exchange for those services and products. In recognizing revenue for services and products, the transaction price is determined from sales orders or contracts with customers. Revenue is recognized at the completion of each fracturing stage, and in most cases the price at the end of each stage is fixed, however, in limited circumstances contracts may contain variable consideration.
Variable consideration typically may relate to discounts, price concessions and incentives. We estimate variable consideration based on the amount of consideration we expect to receive. The Company accrues revenue on an ongoing basis to reflect updated information for variable consideration as performance obligations are met.
The Company also assesses customers’ ability and intention to pay, which is based on a variety of factors including historical payment experience and financial condition. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 45 days.
loss.
LIBERTY OILFIELD SERVICESENERGY INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Note 3—The PropX Acquisition
From time to time,On October 26, 2021, the Company may require partial paymententered into the certain Master Transaction Agreement (the “Transaction Agreement”) with Proppant Express Investments, LLC to acquire the assets and liabilities of Proppant Express Solutions, LLC (“PropX”), which provides last-mile proppant delivery solutions, including proppant handling equipment and logistics software across North America (the “PropX Acquisition”). PropX was acquired in advance from new customers to secure credit or from existing customersexchange for $11.9 million in order to secure additional hydraulic fracturing services. Initially, such payments are recorded in the accompanying condensed consolidatedcash and combined financial statements as deferred revenue, and upon performance3,405,526 shares of the agreed services,Company’s Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”) and 2,441,010 shares of the Company recognizes revenue consistentCompany’s Class B Common Stock, par value $0.01 per share (the “Class B Common Stock”, and together with its revenue recognition policy described above. Asthe Class A Common Stock, the “Common Stock”), for total consideration of March 31, 2018,$103.0 million based on the Company had $6.8 million recorded as deferred revenue relatedOctober 26, 2021 closing price of Class A Common Stock of $15.58. In connection with the issuance of 2,441,010 shares of Class B Common Stock, Liberty LLC also issued 2,441,010 Liberty LLC Units to the unearned portionCompany. The Liberty LLC Units are redeemable for an equivalent number of a prepayment from an existing customer to secure additional services from a new fleet byshares of Class A Common Stock at any time, at the end of 2017. The new fleet commenced services in December 2017, and the Company applies the prepayment in accordance with the customer agreement as services are performed. During the three months ended March 31, 2018, the Company recognized $2.4 millionelection of the prepayment to revenue.
Fleet Start-up Costsshareholder.
The Company incurs start-upaccounted for the PropX Acquisition using the acquisition method of accounting. The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair value at the date of the acquisition. The estimated fair values of certain assets and liabilities require significant judgments and estimates. The majority of the measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs.
In accordance with ASC Topic 805, an acquirer is allowed a period, referred to as the measurement period, in which to complete its accounting for the transaction. Such measurement period ends at the earliest date that the acquirer a) receives the information necessary or b) determines that it cannot obtain further information, and such period may not exceed one year. As the PropX Acquisition closed on October 26, 2021 the Company is in the process of completing the initial purchase price allocation, particularly as it relates to current assets and current liabilities.
The following table summarizes the fair value of the consideration transferred in the PropX Acquisition and the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of October 26, 2021, the date of the closing of the PropX Acquisition: | | | | | | | | |
| ($ in thousands) | | |
| Total Purchase Consideration: | | |
| Consideration | | $ | 103,023 | |
| | |
| Cash and cash equivalents | | $ | 53 | |
| Accounts receivable and unbilled revenue | | 4,089 | |
| Inventory | | 8 | |
| Prepaid and other current assets | | 1,722 | |
Property and equipment (1) | | 94,137 | |
Intangible assets (included in other assets in the accompanying consolidated balance sheet as of December 31, 2021) (2) | | 7,100 | |
| Total identifiable assets acquired | | 107,109 | |
| Accounts payable | | 2,152 | |
| Accrued liabilities | | 1,934 | |
| Total liabilities assumed | | 4,086 | |
| Total purchase consideration | | $ | 103,023 | |
(1) Useful lives average of 10 years, see Note 5—Property and Equipment
(2) Definite lived intangibles with an amortization period ranging from seven to 10 years
Transaction costs, to commission a new fleet or district. These costs include hiringassociated with issuing additional equity and training of personnel, andintegration costs were recognized separately from the acquisition of consumable partsassets and tools. Start-upassumptions of liabilities in the PropX Acquisition. Transaction costs consist of legal and professional fees. Integration costs consist of expenses incurred to integrate PropX’s operations, aligning accounting processes and procedures, and integrating its enterprise resource planning system with those of the Company. Merger and integration costs are expensed as incurred, and are reflectedequity offering costs were recorded as a reduction to additional paid in general and administrative expense in the combined statement of operations. Start-up costs for the three months ended March 31, 2018 and 2017, were $3.3 million and $4.6 million, respectively. Start-up costs incurred during the three months ended March 31, 2018 and 2017 related to the establishment of two new fleets during each respective period. The terms and conditions of the Credit Facilities, defined herein, between the Company and its lenders provides for the add-back of costs or expenses incurred in connection with the acquisition, deployment and opening of any new hydraulic fracturing fleet or district in the computation of certain financial covenants. (See Note 5).
Recently Adopted Accounting Standards
In May 2014 the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU sets forth a five-step model for determining when and how revenue is recognized. Under the model, an entity is required to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. Additional disclosures are required to describe the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company adopted this standard on January 1, 2018 using the modified retrospective method. The Company did not record a cumulative effect adjustment to the opening balance of retained earnings, as no adjustment was necessary. The adoption of this standard did not impact the Company's reported revenue, net income or cash flows.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The adoption of ASU 2016-01 did not have a material impact on the consolidated financial statements of the Company.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides guidance on eight different issues, intended to reduce diversity in practice on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption of ASU 2016-15 did not have a material impact on the consolidated financial statements of the Company.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” which requires entities to recognize the tax consequences of intercompany asset transfers in the period in which the transfer takes place, with the exception of inventory transfers. The adoption of ASU 2016-16 did not have a material impact on the consolidated financial statements of the Company.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which provides guidance to increase clarity and reduce both diversity in practice and cost and complexity when applying the existing accounting guidance on changes to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 require an entity to account for the effects of a modification unless all the following are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (iii) the classification of the modified award as an equity
capital.
LIBERTY OILFIELD SERVICESENERGY INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
instrument or a liability instrument isThe Company’s condensed consolidated statements of operations for the samethree and six months ended June 30, 2021 does not include any results from PropX operations as the classificationPropX Acquisition closed on October 26, 2021. The Company does not present pro forma financial information for the periods prior to the PropX Acquisition as such information, after elimination of PropX’s historical transactions with the original award immediately before the original awardCompany, is modified. The guidance in ASU 2017-09 should be applied prospectively. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company’s adoption of this guidance did not materially impact itsdifferent than the results presented in the accompanying condensed consolidated financial statements.statements of operations for three and six months ended June 30, 2021.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a purchase financed by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similarly to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is expected to impact the Company’s consolidated and combined financial statements as the Company has certain operating and real property lease arrangements for which it is the lessee. The standard is effective on January 1, 2019, with early adoption permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which is effective for fiscal years and interim periods within fiscal years beginning after December 15, 2019, with a modified-retrospective approach to be used for implementation. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Specifically, this new guidance requires using a forward looking, expected loss model for trade and other receivables, held-to-maturity debt securities, loans and other instruments. This will replace the currently used model and may result in an earlier recognition of allowance for losses. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
Note 3—4—Inventories
Inventories consist of the following: | | | | | | | | | | | |
| June 30, | | December 31, |
| ($ in thousands) | 2022 | | 2021 |
| Proppants | $ | 22,948 | | | $ | 23,413 | |
| Chemicals | 24,660 | | | 17,996 | |
| Maintenance parts | 116,044 | | | 93,184 | |
| $ | 163,652 | | | $ | 134,593 | |
The Company did not record any write-down to the inventory carrying value during the three and six months ended June 30, 2022 or the year ended December 31, 2021. |
| | | | | | | |
| | March 31, | | December 31, |
| ($ in thousands) | 2018 | | 2017 |
| Proppants | $ | 31,750 |
| | $ | 30,523 |
|
| Chemicals | 11,865 |
| | 10,660 |
|
| Maintenance parts | 16,457 |
| | 14,341 |
|
| | $ | 60,072 |
| | $ | 55,524 |
|
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Note 4—5—Property and Equipment
Property and equipment consist of the following: | | | | | | | | | | | | | | | | | |
| Estimated
useful lives
(in years) | | June 30, | | December 31, |
| ($ in thousands) | | 2022 | | 2021 |
| Land | N/A | | $ | 30,278 | | | $ | 33,812 | |
| Field services equipment | 2-7 | | 1,720,116 | | | 1,579,420 | |
| Vehicles | 4-7 | | 61,495 | | | 61,282 | |
| Lease Equipment | 10 | | 77,337 | | | 64,770 | |
| Buildings and facilities | 5-30 | | 141,191 | | | 148,555 | |
| Mineral reserves | >25 | | 76,823 | | | 76,823 | |
| Office equipment and furniture | 2-7 | | 8,719 | | | 8,218 | |
| | | 2,115,959 | | | 1,972,880 | |
| Less accumulated depreciation and depletion | | | (1,000,240) | | | (863,194) | |
| | | 1,115,719 | | | 1,109,686 | |
| Construction in-progress | N/A | | 151,674 | | | 89,601 | |
| | | $ | 1,267,393 | | | $ | 1,199,287 | |
|
| | | | | | | | | |
| | Estimated
useful lives
(in years) | | March 31, | | December 31, |
| ($ in thousands) | | 2018 | | 2017 |
| | | | | | |
| Land | N/A | | $ | 4,495 |
| | $ | 4,495 |
|
| Field services equipment | 2-7 | | 637,102 |
| | 572,096 |
|
| Vehicles | 4-7 | | 61,356 |
| | 60,815 |
|
| Buildings and facilities | 5-30 | | 24,713 |
| | 24,260 |
|
| Office equipment, furniture, and software | 2-7 | | 6,038 |
| | 5,879 |
|
| | | | 733,704 |
| | 667,545 |
|
| Less accumulated depreciation and amortization | | | (226,090 | ) | | (198,453 | ) |
| | | | 507,614 |
| | 469,092 |
|
| Construction in-progress | N/A | | 41,683 |
| | 25,684 |
|
| | | | $ | 549,297 |
| | $ | 494,776 |
|
DuringDepreciation expense for the three months ended March 31, 2018June 30, 2022 and 2017,2021 was $72.4 million and $58.1 million, respectively. During the six months ended June 30, 2022 and 2021, the Company recognized depreciation expense of $28.0$142.3 million and $14.1$114.8 million, respectively. Depletion expense for the three months ended June 30, 2022 and 2021was $0.3 million and $0.3 million, respectively. Depletion expense for the six months ended June 30, 2022 and 2021 was $0.6 million and $0.6 million, respectively.
As of June 30, 2022 and December 31, 2021, the Company concluded that no triggering events that could indicate possible impairment of property and equipment had occurred, other than related to the assets held for sale discussed below.
As of June 30, 2022, the Company classified $2.0 million of land and $6.0 million of buildings, net of accumulated depreciation, of 1 property that it intends to sell within the next year, and that meets the held for sale criteria, to assets held for sale, included in prepaid and other current assets in the accompanying unaudited condensed consolidated balance sheet. The Company estimates that the carrying value of the assets were greater than the fair value less the estimated costs to sell, and therefore recorded a $2.3 million loss during the six months ended June 30, 2022, included as a component of (gain) loss on disposal of assets in the accompanying unaudited condensed consolidated statements of operations.
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5—Debt6—Leases
The followingCompany has operating and finance leases primarily for vehicles, equipment, railcars, office space, and facilities. The terms and conditions for these leases vary by the type of underlying asset.
Certain leases include variable lease payments for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. Payments that vary based on an index or rate are included in the measurement of lease assets and liabilities at the rate as of the commencement date. All other variable lease payments are excluded from the measurement of lease assets and liabilities, and are recognized in the period in which the obligation for those payments is incurred.
The components of lease expense for the three and six months ended June 30, 2022 and 2021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Finance lease cost: | | | | | | | |
| Amortization of right-of-use assets | $ | 1,229 | | | $ | 1,557 | | | $ | 2,206 | | | $ | 3,352 | |
| Interest on lease liabilities | 352 | | | 434 | | | 613 | | | 971 | |
| Operating lease cost | 12,635 | | | 9,566 | | | 22,134 | | | 16,833 | |
| Variable lease cost | 1,045 | | | 1,286 | | | 2,136 | | | 1,843 | |
| Short-term lease costs | 1,446 | | | 1,695 | | | 2,992 | | | 2,004 | |
| Total lease cost | $ | 16,707 | | | $ | 14,538 | | | $ | 30,081 | | | $ | 25,003 | |
Supplemental cash flow and other information related to leases for the three and six months ended June 30, 2022 and 2021 were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Cash paid for amounts included in measurement of liabilities: | | | | | | | |
| Operating leases | $ | 12,863 | | | $ | 8,854 | | | $ | 21,895 | | | $ | 15,284 | |
| Finance leases | 1,830 | | | 2,172 | | | 3,309 | | | 5,035 | |
| Right-of-use assets obtained in exchange for new lease liabilities: | | | | | | | |
| Operating leases | 9,909 | | | 59,175 | | | 19,370 | | | 59,206 | |
| Finance leases | 6,333 | | | — | | | 6,333 | | | — | |
During the six months ended June 30, 2022, the Company amended certain operating leases, the change in terms of which caused the leases to be reclassified as finance leases. In connection with the amendments, the Company wrote-off operating lease right-of-use assets of $0.2 million and liabilities of $0.1 million. Additionally, the Company recognized finance lease right-of-use assets of $1.8 million and liabilities of $1.8 million. During the six months ended June 30, 2021, the Company amended certain finance leases, the change in terms of which caused the leases to be reclassified to operating leases. In connection with the amendments the Company wrote-off finance lease right-of-use assets of $6.3 million and liabilities of $4.9 million. Additionally, the Company recognized operating lease right-of-use assets of $5.4 million and liabilities of $4.1 million. There was no gain or loss recognized as a summaryresult of debt:these amendments.
Lease terms and discount rates as of June 30, 2022 and December 31, 2021 were as follows: | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 | | |
| Weighted-average remaining lease term: | | | | | |
| Operating leases | 4.9 years | | 5.2 years | | |
| Finance leases | 2.6 years | | 1.5 years | | |
| Weighted-average discount rate: | | | | | |
| Operating leases | 4.5 | % | | 4.2 | % | | |
| Finance leases | 8.2 | % | | 8.6 | % | | |
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
| | | | | | | |
| | March 31, | | December 31, |
| ($ in thousands) | 2018 | | 2017 |
| Term Loan Outstanding | $ | 113,466 |
| | $ | 174,562 |
|
| Revolving Line of Credit | — |
| | 30,000 |
|
| Deferred financing costs and original issue discount | (6,191 | ) | | (8,205 | ) |
| Total debt, net of deferred financing costs and original issue discount | $ | 107,275 |
| | $ | 196,357 |
|
| Current portion of long-term debt, net of discount | $ | 370 |
| | $ | 11 |
|
| Long-term debt, net of discount and current portion | 106,905 |
| | 196,346 |
|
| | $ | 107,275 |
| | $ | 196,357 |
|
| | | | | | | | | | | | | | |
| ($ in thousands) | | Finance | | Operating |
| Remainder of 2022 | | $ | 4,629 | | | $ | 18,822 | |
| 2023 | | 7,603 | | | 29,458 | |
| 2024 | | 2,724 | | | 22,912 | |
| 2025 | | 2,678 | | | 20,585 | |
| 2026 | | 2,656 | | | 9,836 | |
| Thereafter | | — | | | 19,081 | |
| Total lease payments | | 20,290 | | | 120,694 | |
| Less imputed interest | | (2,184) | | | (12,687) | |
| Total Liability | | $ | 18,106 | | | $ | 108,007 | |
The Company’s vehicle leases typically include a residual value guarantee. For the Company’s vehicle leases classified as operating leases, the total residual value guaranteed as of June 30, 2022 is $13.1 million; the payment is not probable and therefore has not been included in the measurement of the lease liability and right-of-use asset. For vehicle leases that are classified as finance leases, the Company includes the residual value guarantee, estimated in the lease agreement, in the financing lease liability.
Lessor Arrangements
The Company leases dry and wet sand containers and conveyor belts to customers through PropX. PropX leases to customers through operating leases, where the lessor for tax purposes is considered to be the owner of the equipment during the term of the lease. The lease agreements do not include options for the lessee to purchase the underlying asset at the end of the lease term for either a stated fixed price or fair market value. However, some of the leases contain a termination clause in which the customer can cancel the contract. The leases can be subject to variable lease payments if the customer requests more units than what is agreed upon in the lease. The Company does not record any lease assets or liabilities related to these variable items.
The carrying amount of equipment leased to others, included in property, plant and equipment, under operating leases as of June 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | |
| ($ in thousands) | | June 30, 2022 | | December 31, 2021 |
| Equipment leased to others - at original cost | | $ | 77,337 | | | $ | 64,770 | |
| Less: Accumulated depreciation | | (5,601) | | | (1,377) | |
| Equipment leased to others - net | | $ | 71,736 | | | $ | 63,393 | |
Future payments receivable for operating leases commenced and committed but not delivered as of June 30, 2022 are as follows:
| | | | | | | | |
| ($ in thousands) | | |
| Remainder of 2022 | | $ | 5,871 | |
| 2023 | | 10,429 | |
| 2024 | | 4,592 | |
| 2025 | | 1,051 | |
| 2026 | | — | |
| Thereafter | | — | |
| Total | | $ | 21,943 | |
Revenues from operating leases for the three and six months ended June 30, 2022 were $5.9 million and $11.8 million, respectively. There was no revenue from operating leases for the three and six months ended June 30, 2021.
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7—Accrued Liabilities
Accrued liabilities consist of the following: | | | | | | | | | | | | | | |
| ($ in thousands) | | June 30, 2022 | | December 31, 2021 |
| Accrued vendor invoices | | $ | 126,319 | | | $ | 109,903 | |
| Operations accruals | | 72,521 | | | 64,707 | |
| Accrued benefits and other | | 70,805 | | | 60,505 | |
| | $ | 269,645 | | | $ | 235,115 | |
Note 8—Debt
Debt consists of the following: | | | | | | | | | | | |
| June 30, | | December 31, |
| ($ in thousands) | 2022 | | 2021 |
| Term Loan outstanding | $ | 105,590 | | | $ | 106,465 | |
| Revolving Line of Credit | 150,000 | | | 18,000 | |
| Deferred financing costs and original issue discount | (1,640) | | | (2,013) | |
| Total debt, net of deferred financing costs and original issue discount | $ | 253,950 | | | $ | 122,452 | |
| Current portion of long-term debt, net of discount | $ | 1,013 | | | $ | 1,007 | |
| Long-term debt, net of discount and current portion | 252,937 | | | 121,445 | |
| Total debt, net of deferred financing costs and original issue discount | $ | 253,950 | | | $ | 122,452 | |
On September 19, 2017, the Company entered into two new2 credit agreements, for a revolving line of credit up to $250.0 million, subsequently increased to $350.0 million, see below, (the “ABL Facility”) and a $175.0 million term loan (the “Term Loan Facility”, and together with the ABL Facility the “Credit Facilities”). Following is a description of
Effective July 18, 2022, the Company executed an amendment to the ABL Facility (the “Revolving Credit Agreement Amendment”) to exercise the option to increase the ABL Facility by $75.0 million, to $425.0 million, refer to Note 17—Subsequent Events for more information.
The weighted average interest rate on all borrowings outstanding as of June 30, 2022and the Term Loan Facility.December 31, 2021 was 5.3% and 7.9%, respectively.
ABL Facility
Under the terms of the ABL Facility, up to $250.0$350.0 million may be borrowed, subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory. As of March 31, 2018,June 30, 2022, the borrowing base was calculated to be $213.0$350.0 million, and the Company had no borrowings$150.0 million outstanding except forin addition to a letter of credit in the amount of $0.3$1.4 million, with $212.8$198.6 million of remaining availability. Borrowings under the ABL Facility bear interest at LIBOR or a base rate, plus an applicable LIBOR margin of 1.5% to 2.0%2% or base rate margin of 0.5% to 1.0%1%, as defined in the ABL Facility credit agreement. Additionally, borrowings as of June 30, 2022 incurred interest at a rate of 2.9%. The average monthly unused commitment is subject to an unused commitment fee of 0.375% to 0.5%. Interest and fees are payable in arrears at the end of each month, or, in the case of LIBOR loans, at the end of each interest period. The ABL Facility matures on the earlier of September 19, 2022, or(i) October 22, 2026 and (ii) to the extent the debt under the Term Loan Facility remains outstanding, 90 days prior to the final maturity of the Term Loan Facility.Facility, which matures on September 19, 2024. Borrowings under the ABL Facility are collateralized by accounts receivable and inventory, and further secured by the Company, Liberty LLC, and R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the Company, as parent guarantors.
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Term Loan Facility
The Term Loan Facility provides for a $175.0 million term loan, of which $113.5$105.6 million remained outstanding as of March 31, 2018.June 30, 2022. Amounts outstanding bear interest at LIBOR or a base rate, plus an applicable margin of 7.625% or 6.625%, respectively, and the weighted average rate on borrowings was 9.5% as of March 31, 2018.June 30, 2022 incurred interest at a rate of 8.687%. The Company is required to make quarterly principal payments of 1% per annum of the initialoutstanding principal balance, commencing on December 31, 2017, with final payment due at maturity on September 19, 2022.2024. The Term Loan Facility is collateralized by the fixed assets of LOS and
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
its subsidiaries, and is further secured by the Company, Liberty LLC, and R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the Company, as parent guarantors.
The Credit Facilities include certain non-financial covenants, including but not limited to restrictions on incurring additional debt and certain distributions. Moreover, the ability of the Company to incur additional debt and to make distributions is dependent on maintaining a maximum leverage ratio. The Term Loan Facility requires mandatory prepayments upon certain dispositions of property or issuance of other indebtedness, as defined, and annually a percentage of excess cash flow (25% to 50%, depending on leverage ratio, of consolidated net income less capital expenditures and other permitted payments, commencing with the year ending December 31, 2018). Certain mandatory prepayments and optional prepayments are subject to a prepayment premium of 3% of the prepaid principal declining annually to 1% during the first three years of the term of the Term Loan Facility.
The Credit Facilities are not subject to financial covenants unless liquidity, as defined in the respective credit agreements, drops below a specifiedspecific level. Under the ABL Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined in the credit agreement governing the ABL Facility, of 1.0 to 1.0 for each period if excess availability is less than 10% of the borrowing base or $12.5 million, whichever is greater. Under the Term Loan Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined, of 1.2 to 1.0 for each trailing twelve-month reportperiod if the Company’s liquidity, as defined, is less than $25.0 million for at least five consecutive business days.
The Company was in compliance with these covenants as of March 31, 2018.June 30, 2022.
Maturities of debt are as follows: | | | | | |
| ($ in thousands) | |
| |
| Remainder of 2022 | $ | 875 | |
| 2023 | $ | 1,750 | |
| 2024 | $ | 252,965 | |
| 2025 | $ | — | |
| 2026 | $ | — | |
| $ | 255,590 | |
|
| | | |
| ($ in thousands) | |
| Years Ending March 31, | |
| 2019 | $ | 1,750 |
|
| 2020 | 2,188 |
|
| 2021 | 1,750 |
|
| 2022 | 1,750 |
|
| 2023 | 106,028 |
|
| | $ | 113,466 |
|
Note 6—Redeemable Common Units
During February 2017, ACQI received $39.8 million in cash from Liberty Holdings in exchange for 40,000,000 redeemable common units of ACQI which accrue a return of 8% per annum (the “Redeemable Common Units”). The Redeemable Common Units were redeemable at the option of the holder on the later of (A) the earlier of an initial public offering or March 23, 2020 and (B) the second business day after all principal and interest outstanding under the ABL Facility have been paid in full and commitments thereunder are terminated. In accordance with ASC 505, “Equity”, due to their conditional redemption feature, the Redeemable Common Units were classified as temporary equity in the accompanying combined balance sheet as of December 31, 2017.
The Redeemable Common Units were deemed extinguished and satisfied in full in connection with the Corporate Reorganization (see Note 1).
Note 7—9—Fair Value Measurements and Financial Instruments
The fair values of the Company’s assets and liabilities represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction aton the reporting date. These fair value measurements
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability aton the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. The Company discloses the fair values of its assets and liabilities according to the quality of valuation inputs under the following hierarchy:
•Level 1 Inputs: Quoted prices (unadjusted) in an active market for identical assets or liabilities.
•Level 2 Inputs: Inputs other than quoted prices that are directly or indirectly observable.
•Level 3 Inputs: Unobservable inputs that are significant to the fair value of assets or liabilities.
The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroboratedcorroborating market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroboratedcorroborating market data is no longer available. Transfers occur at the end of the reporting period. There were no transfers into or out of Levels 1, 2, and 3 during the threesix months ended March 31, 2018June 30, 2022 and 2017.2021.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued liabilities, long-term debt, and capitalfinance and operating lease obligations. These financial instruments do not require disclosure by level. The carrying values of all of the Company’s financial instruments included in the accompanying unaudited condensed consolidated balance sheets approximated or equaled their fair values at March 31, 2018on June 30, 2022 and December 31, 2017.2021.
•The carrying values of cash and cash equivalents, accounts receivable and accounts payable (including accrued liabilities) approximated fair value at March 31, 2018on June 30, 2022 and December 31, 2017,2021, due to their short-term nature.
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
•The carrying value of amounts outstanding under long-term debt agreements with variable rates approximated fair value at March 31, 2018on June 30, 2022 and December 31, 2017,2021, as the effective interest rates approximated market rates.
Nonrecurring Measurements
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These items are not measured at fair value on an ongoing basis but may be subject to fair value adjustments in certain circumstances. These assets and liabilities include those acquired through the PropX Acquisition, which are required to be measured at fair value on the acquisition date in accordance with ASC Topic 805. See Note 3—The PropX Acquisition.
As of June 30, 2022, the Company recorded $2.0 million of land and $6.0 million of buildings of 1 property that met the held for sale criteria, to assets held for sale at a total fair value of $5.7 million, which are included in prepaid and other current assets in the accompanying unaudited condensed consolidated balance sheet. The Company estimated the fair value of the property based on a purchase and sale agreement for one property, which is a Level 3 input.
Recurring Measurements
The fair values of the Company’s cash equivalents measured on a recurring basis pursuant to ASC 820-10 Fair Value Measurements and Disclosures are carried at estimated fair value. Cash equivalents consist of money market accounts which the Company has classified as Level 1 given the active market for these accounts. As of June 30, 2022 and December 31, 2021, the Company had cash equivalents, measured at fair value, of $0.3 million and $0.3 million, respectively.
Nonfinancial assets
The Company estimates fair value to perform impairment tests as required on long-lived assets. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and would generally be classified within Level 3 in the event that such assets were required to be measured and recorded at fair value within the combinedunaudited condensed consolidated financial statements. There were noNo such measurements were required as of March 31, 2018June 30, 2022 and December 31, 2017.2021 as no triggering event was identified.
Credit Risk
The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade receivables.
The Company’s cash and cash equivalent balances on deposit with financial institutions total $98.1$41.5 million and $16.3$20.0 million as of March 31, 2018June 30, 2022 and December 31, 2017,2021, respectively, which exceeded FDIC insured limits. The Company regularly monitors these institutions’ financial condition.
The majority of the Company’s customers have stated payment terms of 45 days or less.
As of March 31, 2018 and December 31, 2017, two customersJune 30, 2022 no customers accounted for 23% and 22% ofmore than 10% of total consolidated accounts receivable and unbilled revenue, respectively. revenue. As of December 31, 2021, customer A accounted for 12% of total consolidated accounts receivable and unbilled revenue. During the three and six months ended June 30, 2022, customer A accounted for 10% of consolidated revenues. During the three and six months ended June 30, 2021, no customers accounted for more than 10% of consolidated revenues.
The Company mitigates the associated credit risk by performing credit evaluations and monitoring the payment patterns of its customers. During the three months ended March 31, 2018 and 2017, two customers accounted for 27% and 44% of total revenue, respectively.
As of March 31, 2018June 30, 2022 and December 31, 2017,2021, the Company had no provision$0.9 million in allowance for doubtful accounts.credit losses as follows: | | | | | | | | |
| ($ in thousands) | | |
| Allowance for credit losses at December 31, 2021 | | $ | 884 | |
| Credit Losses: | | |
| Current period provision | | — | |
| Amounts written off | | — | |
| Allowance for credit losses at June 30, 2022 | | $ | 884 | |
Note 8—Equity
Class A Common Stock
The Company had a total of 69,971,274 shares of Class A Common Stock outstanding as of March 31, 2018, which includes 959,457 shares of restricted stock. Holders of Class A Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders and are entitled to ratably receive dividends when and if declared by the Company's board of directors.
LIBERTY OILFIELD SERVICESENERGY INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Note 10—Equity
Class B CommonRestricted Stock Units
The Company had a total 48,207,372Restricted stock units (“RSUs”) granted pursuant to the Long Term Incentive Plan (“LTIP”), if they vest, will be settled in shares of Class B Common Stock outstanding as of March 31, 2018. Holders of the Class B Common Stock are entitled to one vote per share on all matters to be voted upon by stockholders. Holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters presented to the Company's stockholders for their vote or approval, except with respect to amendment of certain provisions of the Company's certificate of incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely, which amendments must be by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law.
Holders of Class B Common Stock do not have any right to receive dividends, unless the dividend consists of Class B Common Stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class B Common Stock paid proportionally with respect to each outstanding share of Class B Common Stock and a dividend consisting of shares of Class A Common Stock or of rights, options, warrants or other securities convertible or exercisable into or exchangeable for shares of Class A Common Stock on the same terms is simultaneously paid to the holders ofCompany’s Class A Common Stock.
Holders of Class B CommonRSUs were granted with vesting terms up to five years. Changes in non-vested RSUs outstanding under the LTIP during the six months ended June 30, 2022 were as follows: | | | | | | | | | | | |
| Number of Units | | Weighted Average Grant Date Fair Value per Unit |
| Non-vested as of December 31, 2021 | 2,741,061 | | | $ | 11.04 | |
| Granted | 681,960 | | | 12.51 | |
| Vested | (1,348,449) | | | 11.00 | |
| Forfeited | (65,357) | | | 9.85 | |
| Outstanding at June 30, 2022 | 2,009,215 | | | $ | 11.60 | |
Performance Restricted Stock do not have any rightUnits
Performance restricted stock units (“PSUs”) granted pursuant to receive a distribution upon liquidation or winding upthe LTIP, if they vest, will be settled in shares of the Company.
The Liberty LLC Unit holders generally have the right (the “Redemption Right”) to cause Liberty LLC to acquire all or a portion of their Liberty LLC Units (and a corresponding number of shares of Class B Common Stock), for, at Liberty LLC's election, (i) shares ofCompany’s Class A Common
Stock, atStock. PSUs were granted with a
redemption ratiothree year cliff vesting schedule, subject to a performance target compared to an index of
one share of Class A Common Stock for each Liberty LLC Unit (and corresponding share of Class B Common Stock) redeemed, (subject to conversion rate adjustments for stock splits, stock dividends, and reclassifications and other similar transactions) or (ii) an equivalent amount of cash. Alternatively, uponcompetitors’ results over the exercisethree year period as designated in the award. The Company records compensation expense based on the Company’s best estimate of the Redemption Right,number of PSUs that will vest at the end of the performance period. If such performance targets are not met, or are not expected to be met, no compensation expense is recognized and any recognized compensation expense is reversed. Changes in non-vested PSUs outstanding under the LTIP during the six months ended June 30, 2022 were as follows: | | | | | | | | | | | |
| Number of Units | | Weighted Average Grant Date Fair Value per Unit |
| Non-vested as of December 31, 2021 | 1,306,945 | | | $ | 12.45 | |
| Granted | 412,920 | | | 12.47 | |
| Vested | (329,277) | | | 14.93 | |
| Forfeited | — | | | — | |
| Outstanding at June 30, 2022 | 1,390,588 | | | $ | 11.87 | |
Stock-based compensation is included in cost of services and general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations. The Company recognized stock based compensation expense of $4.2 million and $11.0 million for the three and six months ended June 30, 2022, respectively. The Company recognized stock based compensation of $5.9 million and $10.8 million for the three and six months ended June 30, 2021, respectively. There was approximately $27.7 million of unrecognized compensation expense relating to outstanding RSUs and PSUs as of June 30, 2022. The unrecognized compensation expense will be recognized on a straight-line basis over the weighted average remaining vesting period of two years.
Dividends
On April 2, 2020, the Company (insteadsuspended future quarterly dividends until business conditions warrant reinstatement. As of Liberty LLC) willJune 30, 2022 dividends have not been reinstated by the right (the “Call Right”) to, for administrative convenience, acquire each tendered Liberty LLC Unit directly from the redeeming Liberty Unit holder for, at its election, (x) one shareCompany.
As of Class A Common Stock or (y) an equivalent amount of cash. In addition, upon a change of control ofJune 30, 2022 and December 31, 2021, the Company the Company has the righthad $0.1 million and $0.2 million of dividends payable related to require each holder of Liberty LLC Units (other than the Company)RSUs to exercise its Redemption Right with respectbe paid upon vesting, respectively. Dividends related to some or all of such unitholder’s Liberty LLC Units. In connection with any redemption of Liberty LLC Units pursuant to the Redemption Right or the Call Right, the corresponding number of shares of Class B Common Stockforfeited RSUs will be canceled.forfeited.
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11—Net Income (Loss) per Share
Basic net income (loss) per share measures the performance of an entity over the reporting period. Diluted net income (loss) per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The Company uses the “if-converted” method to determine the potential dilutive effect of its Class B Common Stock and the treasury stock method to determine the potential dilutive effect of outstanding restricted stock.stock and RSUs.
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
The following table reflects the allocation of net income (loss) to common stockholders and net incomeloss per share computations for the periods indicated based on a weighted average number of common stock outstanding for period subsequent to the Corporate Reorganization on January 17, 2018:outstanding: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| (In thousands) | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| Basic Net Income (Loss) Per Share | | | | | | | |
| Numerator: | | | | | | | |
| Net income (loss) attributable to Liberty Energy Inc. stockholders | $ | 105,156 | | | $ | (50,560) | | | $ | 99,780 | | | $ | (84,765) | |
| Denominator: | | | | | | | |
| Basic weighted average common shares outstanding | 186,719 | | | 172,523 | | | 185,367 | | | 167,891 | |
| Basic net income (loss) per share attributable to Liberty Energy Inc. stockholders | $ | 0.56 | | | $ | (0.29) | | | $ | 0.54 | | | $ | (0.50) | |
| Diluted Net Income (Loss) Per Share | | | | | | | |
| Numerator: | | | | | | | |
| Net income (loss) attributable to Liberty Energy Inc. stockholders | $ | 105,156 | | | $ | (50,560) | | | $ | 99,780 | | | $ | (84,765) | |
| Effect of exchange of the shares of Class B Common Stock for shares of Class A Common Stock | 183 | | | — | | | 79 | | | — | |
| Diluted net income (loss) attributable to Liberty Energy Inc. stockholders | $ | 105,339 | | | $ | (50,560) | | | $ | 99,859 | | | $ | (84,765) | |
| Denominator: | | | | | | | |
| Basic weighted average shares outstanding | 186,719 | | | 172,523 | | | 185,367 | | | 167,891 | |
| Effect of dilutive securities: | | | | | | | |
| Restricted stock units | 3,396 | | | — | | | 4,049 | | | — | |
| Class B Common Stock | 326 | | | — | | | 1,207 | | | — | |
| Diluted weighted average shares outstanding | 190,441 | | | 172,523 | | | 190,623 | | | 167,891 | |
| Diluted net income (loss) per share attributable to Liberty Energy Inc. stockholders | $ | 0.55 | | | $ | (0.29) | | | $ | 0.52 | | | $ | (0.50) | |
|
| | | | |
| ($ in thousands) | | Three Months Ended March 31, 2018 |
| Basic Net Income Per Share | | |
| Numerator: | | |
| Net income attributable to Liberty Oilfield Services Inc. Stockholders | | $ | 23,675 |
|
| Denominator: | | |
| Basic weighted average shares outstanding | | 68,923,719 |
|
| Basic net income per share attributable to Liberty Oilfield Services Inc. Stockholders | | $ | 0.34 |
|
| Diluted Net Income Per Share | | |
| Numerator: | | |
| Net income attributable to Liberty Oilfield Services Inc. Stockholders | | $ | 23,675 |
|
| Effect of exchange of the shares of Class B Common stock for shares of Class A Common Stock | | 16,311 |
|
| Diluted net income attributable to Liberty Oilfield Services Inc. Stockholders | | $ | 39,986 |
|
| Denominator: | | |
| Basic weighted average shares outstanding | | 68,923,719 |
|
| Effect of dilutive securities: | | |
| Restricted Stock | | 1,051,348 |
|
| Class B Common Stock | | 48,207,372 |
|
| Diluted weighted average shares outstanding | | 118,182,439 |
|
| Diluted net income per share attributable to Liberty Oilfield Services Inc. Stockholders | | $ | 0.34 |
|
LLC Interest Issuance
Prior to the IPO and Corporate Reorganization, as described in Note 1, Liberty Holdings issued membership interests to investors in exchange for cash consideration. Total member contributions asIn accordance with GAAP, diluted weighted average common shares presented above do not include certain weighted average shares of December 31, 2017 were $275.7 million, net of commitment and issuance fees. On January 17, 2018, in connection with the Corporate Reorganization, these membership interests were exchanged for Liberty LLC Units. See Note 1 for additional information regarding the Corporate Reorganization.
Unit-Based Compensation
Prior to the IPO and Corporate Reorganization, Liberty Holdings issued Class B units of Liberty Holdings (“Legacy Units”) to certain eligible employees of the Company. The Legacy Units were non-voting, except with respect to such matters that units are entitled to vote as a matter of law. In such cases, each Legacy Unit entitled the holder to 1/1000th of one vote. Certain Legacy Units granted to eligible participants had an assigned benchmark value and were subject to vesting in accordance with the terms of each award letter. Upon termination of the holder's employment for any reason, Liberty Holdings had the right, but not the obligation, to repurchase from the recipient those vested Legacy Units at fair value.
The Company recognizes compensation expense for equity-based Legacy Units issued to employees based on the grant-date fair value of the awards and each award’s requisite service period. With the assistance from a third-party valuation expert, the Predecessor determined that the Legacy Units issued to employees were deemed to have a de minimis grant-date fair value based on their assigned benchmark values. In connection with the Corporate Reorganization, the unvested Legacy Units were exchanged for 1,258,514 shares of Restricted Stock with the same terms and requisite vesting conditions as the Legacy Units. There was no change in the classification of the awards, and the fair value of the awards was the same immediately before and after the exchange. As such, in accordance with ASU 2017-07, modification accounting was not applicable, and the restricted stock awards continue to be recognized at the grant date fair value of the Legacy Units.
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Restricted Stock Awards
Restricted stock awards are awards of Class A Common Stock that are subject to restrictions on transfer and to a risk of forfeitures if the award recipient is no longer an employee or director of the Company for any reason prior to the lapse of the restrictions.
The following table summarizes the Company's unvested restricted stock activity for the three months ended March 31, 2018:
|
| | | | | | |
| Number of Shares | | Grant Date Fair Value per Share (1) |
Shares of Restricted Stock Issued in Exchange for Legacy Units | 1,258,514 |
| | — |
|
Vested | (295,157 | ) | | — |
|
Forfeited | (3,900 | ) | | — |
|
Outstanding at March 31, 2018 | 959,457 |
| | $ | — |
|
(1) As discussed above the shares of Restricted Stock retain the grant date fair value of the Legacy Units.
Long Term Incentive Plan
On January 11, 2018, the Company adopted the Long Term Incentive Plan (“LTIP”) to incentivize employees, officers, directors and other service providers of the Company and its affiliates. The LTIP provides for the grant, from time to time, at the discretion of the Board or a committee thereof, of stock options, stock appreciation rights, restricted stock, restricted stock units,
stock awards, dividend equivalents, other stock-based awards, cash awards, substitute awards and performance awards. Subjectbecause to
adjustment in the event of certain transaction or changes of capitalization in accordance with the LTIP, 12,908,734 shares of Class A Common Stockdo so would have
been reserved for issuance pursuant to awards under the LTIP. Class A Common stock subject tohad an
award that expires or is canceled, forfeited, exchanged, settled in cash or otherwise terminated without delivery of shares and shares withheld to pay the exercise price of, or to satisfy the withholding obligations with respect to, an award will again be available for delivery pursuant to other awards under the LTIP.antidilutive effect, as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| (In thousands) | June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| Weighted average shares of Class B Common Stock | 7 | | | 7,641 | | | — | | | 11,963 | |
| Weighted average shares of restricted stock units | — | | | 4,107 | | | — | | | 3,700 | |
Note 9—12—Income Taxes
The Company is a corporation and is subject to U.S.taxation in the United States, Canada and various state, local and provincial jurisdictions. Liberty LLC is treated as a partnership, and its income is passed through to its owners for income tax purposes. Liberty LLC’s members, including the Company, are liable for federal, state and local income taxtaxes based on itstheir share of Liberty LLC’s pass-through taxable income. As a result
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recordedmay distribute cash from foreign subsidiaries to its U.S. parent as business needs arise. The Company has not provided for deferred tax assets and liabilities for the difference between the book value of assets and liabilities for financial reporting purposes and those amounts applicable for income tax purposes. Deferred tax assets have been recorded for tax attributes contributed to the Company as part of the reorganization. Deferred tax liabilities of $28.8 million have been recorded in connection with the Liberty LLC Units acquired through reorganization. The initial deferred tax liability is recorded as a long term liability and additional paid in capitaltaxes on the condensed consolidated balance sheetundistributed earnings from certain foreign subsidiaries earnings, as of March 31, 2018.such are considered to be indefinitely reinvested. If such earnings were to be distributed, any income and/or withholding tax would not be significant.
The effective combined U.S. federal and stateglobal income tax rate applicable to the Company for the six months ended June 30, 2022 was 1.1%, compared to (10.5)%, for the period commencing on January 17, 2018, the date of the Corporate Reorganization, through March 31, 2018 was 13.0%.ended June 30, 2021. The Company’s effective tax rate is significantly less than the statutory federal income tax rate of 21.0% primarily due to the shortened taxable period, asCompany’s full valuation allowance on its U.S. net deferred tax assets while calculating income tax expense on Canada operations that are not subject to a valuation allowance. The Company’s effective tax rate is also less than the Company was a pass-through entity prior to the IPO, andstatutory rate because no taxes are payable by the Company forof the non-controlling interest’s share of Liberty LLC’s pass throughpass-through results for federal, state and local income tax reporting.reporting, upon which no taxes are payable by the Company. The Company recognized an income tax expense of $8.1$0.2 million and $1.1 million during the three and six months ended June 30, 2022, respectively. The Company recognized an income tax expense of $16.0 million and $8.6 million during the three and six months ended June 30, 2021, respectively, which included the impact of the initial recording of a valuation allowance on a portion of the Company’s deferred tax assets.
Per the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted on March 27, 2020, net operating losses (“NOL”) incurred in 2019 and 2020 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has applied for and expects to receive a NOL carryback refund to recover $5.5 million of cash taxes paid by the Company in 2018. This amount has been reflected as a receivable in prepaids and other current assets line item in the accompanying unaudited condensed consolidated balance sheets. The remaining deferred tax asset for net operating losses available for carryforward are presented net of the Company’s valuation allowance.
The Company recognized a deferred tax liability in the amount of $0.6 million as of June 30, 2022 and December 31, 2021. The Company also recognized a deferred tax asset related to foreign jurisdictions in the amount of $0.3 million and $0.6 million as of June 30, 2022 and December 31, 2021, respectively. Deferred income tax assets and liabilities are recognized for the period commencing on January 17, 2018,estimated future tax consequences attributable to differences between the datefinancial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
The Company evaluated its deferred tax assets as of June 30, 2022 and considered both positive and negative evidence in applying the guidance of ASC 740 Income Taxes (“ASC 740”) related to the realizability of its deferred tax assets. Consistent with the prior quarter, in accordance with ASC 740, the objective negative evidence of remaining in a three year cumulative pre-tax book loss position, primarily due to COVID-19 related losses, outweighed the consideration of the Corporate Reorganization, through March 31, 2018.
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
expected future profitability in evaluating the realizability of its deferred tax assets.
Tax Receivable Agreements
In connection with the IPO, on January 17, 2018, the Company entered into two2 Tax Receivable Agreements (the “TRAs”) with the R/C Energy IV Direct Partnership, L.P. and the Legacy Ownersthen existing owners that continued to own Liberty LLC Units (each such person and any permitted transferee, a “TRA Holder” and together, the “TRA Holders”). The TRAs generally provide for the payment by the Company of 85% of the net cash savings, if any, in U.S. federal, state, and local income tax and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes) that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the IPO as a result, as applicable to each TRA Holder, of (i) certain increases in tax basis that occur as a result of the Company'sCompany’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder'sHolder’s Liberty LLC Units in connection with the IPO or pursuant to the exercise of the Redemption Rightredemption or the Company's Call Right,call rights, (ii) any net operating losses available to the Company as a result of the Corporate Reorganization, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRAs.
During the six months ended June 30, 2022, exchanges of Liberty LLC Units and shares of Class B Common Stock initially resulted in a net increase of $6.5 million in deferred tax assets, and an increase of $5.5 million in amounts payable under the TRAs, all of which are subject to the valuation allowance and remeasurement of TRA liability discussed below, and which are recorded through equity. The termCompany did not make any TRA payments for the six months ended June 30, 2022.
At June 30, 2022 and December 31, 2021, the Company’s liability under the TRAs was $41.9 million and $37.6 million, respectively, all of eachwhich is presented as a component of long-term liabilities, and the related deferred tax asset totaled $97.8 million and $91.3 million, respectively, of which a valuation allowance on the net deferred tax asset has been recorded. The Company also remeasured the liability under the TRAs as of June 30, 2022 and recorded a loss on remeasurement of liabilities subject to the TRAs for the six months ended June 30, 2022 of $4.3 million recorded as part of continuing operations. The
LIBERTY ENERGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
increase in the liability under the TRA commenced on January 17, 2018,is primarily driven by current additions of property and will continue until all suchequipment and amortization of expected tax benefits that are subject to such TRA have been utilized or expired, unless the Company experiences a change of control (as defined in the TRAs,valuation allowance, which includes certain mergers, asset sales and other forms of business combinations) or the TRAs are terminated early (at the Company's election or as a result of its breach), and the Company makes the termination payments specified in such TRA.
The amounts payable, as well as the timing of any payments, under the TRAs are dependent upon significant future events and assumptions, including the timing of the redemptions of Liberty LLC Units, the price of our Class A Common Stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming unit holder's tax basis in its Liberty LLC Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount of net operating losses available to the Company as a result of the Corporate Reorganization, the amount and timing of taxable income the Company generates in the future, the U.S. federal income tax rate then applicable, and the portion of the Company’s payments under the TRAs that constitute imputed interest or give rise to depreciable or amortizable tax basis. As of March 31, 2018, there have been no payments associated with the TRA.
Prior to the Corporate Reorganization, one of the Legacy Owners contributed a portion of its member interest in Liberty Holdings to R/C IV Non-U.S. LOS Corp (“R/C IV”). Subsequently, in conjunction with the Corporate Reorganization, R/C IV was contributed to Liberty LLC. R/C IV had net operating loss carryforwards totaling $11.1 million for federal income tax purposes and $7.8 million for certain state income tax purposes. As a result of the Company being in a net income position and the expected utilization of deferred tax assets, the tax attributes contributed to the Company included a deferred tax asset of $2.6 million. As of March 31, 2018, the Company recognized a $2.3 million payable pursuant to the TRAs, or 85% of the deferred tax asset that is expected to be realized.realized in the foreseeable future.
Note 10—13—Defined Contribution Plan
The Company sponsors a 401(k) defined contribution retirement plan covering eligible employees. The Company makeshas historically made matching contributions which were temporarily suspended in May 2015, but were resumed in April 2017 at a rate of $1.00 for each $1.00 of employee contribution, subject to a cap of 3% of the employee’s salary. In October 2017, the cap on these contributions was increased to 6% of the employee’s base salary.salary and federal limits. Contributions made by the Company were $3.3were $6.0 million and $0$4.1 million for the three months ended March 31, 2018June 30, 2022 and 2017,2021, respectively, and $12.1 million and $7.9 million for the six months ended June 30, 2022 and 2021, respectively.
Note 11—14—Related Party Transactions
In connection with the Corporate Reorganization,OneStim Acquisition and Related Transaction
On August 31, 2020 the Company engagedacquired certain assets and liabilities of Schlumberger Technology Corporation (“Schlumberger”) and Schlumberger Canada Limited OneStim® business (“OneStim”), which provides hydraulic fracturing pressure pumping services in transactions with affiliates (see Note 1) including entering into two tax receivable agreements with affiliates (see Note 9)onshore United States and Canada (the “OneStim Acquisition”). Also inAs of June 30, 2022 Schlumberger owned 23,069,461 shares of Class A Common Stock of the Company, or approximately 12.3% of the issued and outstanding shares of Common Stock. In conjunction with closing the Corporate Reorganization, Liberty Holdings contributed $2.1OneStim Acquisition, the Company entered into a transition services agreement with Schlumberger under which Schlumberger provides certain administrative transition services until the Company fully integrates the acquired business. The Company incurred $0.5 million and $5.7 million, of assetsfees payable to LibertySchlumberger for such transaction services during the three and six months ended June 30, 2021. No fees were incurred during the three and six months ended June 30, 2022.
During 2021, a subsidiary of the Company and Schlumberger entered into a property swap agreement under which the Company exchanged with Schlumberger a property acquired in the OneStim Acquisition and $4.9 million in cash for a separate property that the Company will utilize with its existing operations. The Company did not recognize any gain or loss on the transaction.
Following the OneStim Acquisition, in the normal course of business, the Company purchases chemicals, proppant and other equipment and maintenance parts from Schlumberger and its subsidiaries. During the three and six months ended June 30, 2022, total purchases from Schlumberger were approximately $4.5 million and $8.1 million, respectively. During the three and six months ended June 30, 2021, total purchases from Schlumberger were approximately $8.8 million and $19.9 million, respectively. As of June 30, 2022 amounts due to Schlumberger were $1.8 million and $0.4 million included in accounts payable and accrued liabilities, respectively. As of December 31, 2021 amounts due to Schlumberger were $2.7 million and $1.1 million, included in accounts payable and accrued liabilities, respectively, in the unaudited condensed consolidated balance sheet.
Franklin Mountain Energy, LLC Redeemable Common Units
Effective on June 15, 2021, Audrey Robertson was appointed to the board of directors of the Company. Ms. Robertson serves as the Chief Financial Officer of Franklin Mountain Energy, LLC (“Franklin Mountain”). During the three and six months ended June 30, 2022 the Company performed hydraulic fracturing services for Franklin Mountain in the amount of $42.6$1.2 million or 0.1% and $23.5 million or 1.4% of the Company’s revenues for such periods, respectively. Amounts included in unbilled revenue from Franklin Mountain as of June 30, 2022 and December 31, 2021 were settled (see Note 6)$1.2 million and $2.0$0.0 million, respectively. Receivables from Franklin Mountain as of accrued advisory fees to RiverstoneJune 30, 2022 and December 31, 2021 were settled.$0.0 million.
In September 2011, Liberty Resources LLC
Liberty Resources LLC, an oil and gas exploration and production company, and its successor entity (collectively, the “Affiliate”) and LOS, companies withhas certain common ownership and management entered into a services agreement (the “Services Agreement”) wherebywith the Affiliate is to provide certain administrative support functions to LOS and a master service agreement whereby LOS provides hydraulic fracturing services to the Affiliate at market service rates. The amounts incurred under the Services Agreement by LOS during the three months ended March 31, 2018 and 2017, were $0.2 million and $0, respectively, and there was $0.2 million and $0 payable as of March 31, 2018 and December 31, 2017.Company. The amounts of the Company’s revenue related to hydraulic fracturing services provided to the Affiliate for the three months ended March 31, 2018June 30, 2022 and 2017, were $3.92021 was $0.0 million $3.2and $0.0 million, respectively, and $0.0 million and $1.2 million for the six months ended June 30, 2022 and 2021, respectively. As of March 31, 2018June 30, 2022 and December 31, 2017, $8.0 million and $4.0
LIBERTY OILFIELD SERVICES INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
million, respectively, of the Company’s2021, there were no outstanding accounts receivable and $0 and $0.1 million, respectively, of the Company’s unbilled revenue was with the Affiliate.
The Company has an advisory agreement dated December 30, 2011 in which Riverstone is to provide certain administrative advisory services. The service fees incurred during the three months ended March 31, 2018 and 2017 were $0 and $0.8 million, respectively, and accrued as of March 31, 2018 and December 31, 2017 were $0 and $2.0 million, respectively. The amount accrued as of December 31, 2017 was settled and the agreement terminated in connection with the IPO.PropX Acquisition
During 2016, Liberty Holdings entered into a future commitment to invest and become a non-controlling minority member in Proppant Express Investments, LLC (“PropX, Investments”), the owner of Proppant Express Solutions, LLC (“PropX”), a provider of proppant logistics equipment. LOS is partyEffective October 26, 2021, the Company completed the purchase of all membership interest in PropX, refer to a services agreement (the “PropX Services Agreement”) whereby LOS isNote 3—PropX Acquisition for further discussion of the transaction.
LIBERTY ENERGY INC.
Notes to provide certain administrative support functionsCondensed Consolidated Financial Statements
(Unaudited)
Prior to the PropX and LOS is to purchase and lease proppant logisticsAcquisition the Company leased equipment from PropX. ForPropX, during the three and six months ended March 31, 2018 and 2017June 30, 2021, the Company purchased proppant logistics equipment of $2.1 million and $3.0 million, respectively, and leased proppant logistics equipment for $1.6$2.1 million and $0.5$4.1 million, respectively. Receivables from
R/C IV Liberty Big Box Holdings, L.P., a Riverstone Holdings LLC (“Riverstone”) fund and a former significant stockholder of the Company, held a greater than 10% equity interest in PropX. Christopher Wright, the Chief Executive Officer, Michael Stock, the Chief Financial Officer and Ron Gusek, the President of the Company, held a less than 5% equity interest in PropX through Big Box Proppant Investments LLC. Cary Steinbeck, a director of the Company, served on the PropX board of the directors and held a less than 5% indirect equity interest in PropX. In addition, Brett Staffieri, a Riverstone appointed director, served on the board of the directors of the Company until June 15, 2021 and on the PropX board of directors until the acquisition date. The PropX Acquisition was reviewed and approved by the disinterested members of the Board and pursuant to the Company’s related party transactions policy.
Secondary Offering by Selling Stockholder
On April 29, 2022, the Company, Liberty LLC, Schlumberger, and BofA Securities, Inc. and J.P. Morgan Securities LLC (together, the “Underwriters”), entered into an underwriting agreement, dated as of March 31, 2018 and December 31, 2017 were $0 and $0. PayablesApril 29, 2022, pursuant to PropX aswhich Schlumberger sold 14,500,000 shares of March 31, 2018 and December 31, 2017 were $0.2 million and $0.7 million, respectively. DuringClass A Common Stock at a price of $15.50 per share to the three months ended March 31, 2018, in exchange for a 5% discount,Underwriters (the “Sale”). The Sale closed on May 3, 2022. Following the Sale, Schlumberger held 35,101,961 shares of Class A Common Stock. The Company made a prepayment to PropX for rented equipment indid not receive any proceeds from the amount of $5.4 million, which is reflected in prepaids and other current assets.Sale.
Note 12—15—Commitments & Contingencies
Operating Leases
The Company leases office space, facilities, equipment, and vehicles under non-cancelable operating leases. Rent expense for the three months ended March 31, 2018 and 2017, was $7.9 million and $1.9 million, respectively.
Future minimum lease payments are as follows:
|
| | | |
| ($ in thousands) | |
| Years Ending March 31, | |
| 2019 | $ | 23,304 |
|
| 2020 | 21,008 |
|
| 2021 | 25,016 |
|
| 2022 | 8,363 |
|
| 2023 | 4,726 |
|
| Thereafter | 22,909 |
|
| | $ | 105,326 |
|
Purchase Commitments (tons per ton,and gallons per gallon and per rail car prices are not in thousands)
The Company enters into purchase and supply agreements to secure supply and pricing of proppants and chemicals. As of March 31, 2018June 30, 2022 and December 31, 2017,2021, the agreements commit the Company to purchase 10,614,850purchase1,212,478 and 10,108,00089,317 tons, respectively, of proppant through DecemberMarch 31, 2021, during the remaining terms of the agreements at per ton prices varying from approximately $33.73 to $102.30, respectively, depending on the final delivery location and type of proppant.2024. Amounts abovebelow also include commitments to pay for transport fees on minimum amounts of proppants or railcars, including two contracts for a minimum of 100 railcars each per month at a rate of $630 to $750 per railcar,proppants. Additionally, related proppant transload service commitments extend into 2023.
Future proppant, transload, equipment and one contract includes a $3.00 per ton fee on committed sand purchase.mancamp commitments are as follows: | | | | | |
| ($ in thousands) | |
| Remainder of 2022 | $ | 27,365 | |
| 2023 | 18,205 | |
| 2024 | 4,200 | |
| 2025 | — | |
| 2026 | — | |
| Thereafter | — | |
| $ | 49,770 | |
Certain supply agreements contain a clause whereby in the event that the Company fails to purchase minimum monthly volumes, as defined in the agreement, during any particular calendar month,a specific time period, a shortfall fee varying from $15.00may apply. In circumstances where the Company does not make the minimum purchase required under the contract, the Company and its suppliers have a history of amending such minimum purchase contractual terms and in rare cases does the Company incur shortfall fees. If the Company were unable to $35.00 willmake any of the minimum purchases and the Company and its suppliers cannot come to an agreement to avoid such fees, the Company could incur shortfall fees in the amounts of $6.8 million, $5.8 million, and $0.7 million for the remainder of 2022 and the years ended 2023 and 2024, respectively. Based on forecasted levels of activity, the Company does not currently expect to incur significant shortfall fees.
Included in the commitments for the remainder of 2022 are $8.5 million of payments expected to be appliedmade to each shortfall ton.Schlumberger, in conjunction with a permissive use agreement provided by Schlumberger, in the third quarter of 2022 for the use of certain light duty trucks, heavy tractors and field equipment used to various degrees in OneStim’s frac and wireline operations. The Company hasis in negotiations with the abilitythird party owner of such equipment to mitigate the shortfall penalty in a certain period by purchasing proppant in excesslease or purchase some or all of the requirement in another period. There were no shortfalls as of March 31, 2018 and December 31, 2017.
During 2017, the Company entered into two agreements for the purchase of chemicals. As of March 31, 2018, the agreements commit the Company to purchase 25,921,500 gallons of chemicals through December 31, 2020 at prices ranging from $1.08 to $1.83 per gallon.
LIBERTY OILFIELD SERVICESENERGY INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Future proppant, chemicalsuch aforementioned vehicles and rail car commitments are as follows: |
| | | |
| ($ in thousands) | |
| Years ended March 31, | |
| 2019 | $ | 287,825 |
|
| 2020 | 218,394 |
|
| 2021 | 83,760 |
|
| 2022 | 16,919 |
|
| 2023 | — |
|
| | $ | 606,898 |
|
Litigation
From time to time, the Company is subject to legal and administrative proceedings, settlements, investigations, claims and actions. The Company’s assessment of the likely outcome of litigation matters is based on its judgment of a number of factors including experience with similar matters, past history, precedents, relevant financial and other evidence and facts specific to the matter. Notwithstanding the uncertainty as to the final outcome, based upon the information currently available, management does not believe any matters in aggregate will have a material adverse effect on its financial position or results of operations.
On February 23, 2017, SandBox Logistics, LLC and Oren Technologies, LLC (collectively, “SandBox”) filed suit
Note 16—Selected Quarterly Financial Data
The following tables summarizes consolidated changes in the Houston Division of the U.S. District Courtequity for the Southern District of Texas against PropX Investments, PropXthree months ended June 30, 2022 and LOS. As described in Note 11, LOS is party to the PropX Services Agreement. SandBox alleges that LOS willfully infringes multiple U.S. patents and has breached an agreement between SandBox and LOS by “directing, controlling, and funding” inter partes review (“IPR”) requests before the U.S. Patent and Trademark Office (“USPTO”). SandBox seeks both monetary and injunctive relief from the court, as well as attorney’s fees and costs. On August 14, 2017, the court denied SandBox’s request for a preliminary injunction to prevent LOS from filing a request for an IPR with the USPTO, and the court denied SandBox’s request for reconsideration of such order on March 13, 2018. Pursuant to the parties’ stipulation, all claims and counterclaims related to one of the four patents asserted by SandBox were dismissed without prejudice on November 6, 2017. A hearing on the construction of claim terms in the remaining asserted patents occurred on March 1, 2018. LOS intends to vigorously defend against the claims brought by SandBox. The Company cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares of Class A Common Stock | | Shares of Class B Common Stock | | Class A Common Stock, Par Value | | Class B Common Stock, Par Value | | Additional Paid in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders’ equity | | Noncontrolling Interest | | Total Equity |
| Balance—March 31, 2022 | 185,761 | | | 340 | | | $ | 1,858 | | | $ | 3 | | | $ | 1,389,987 | | | $ | (161,330) | | | $ | 743 | | | $ | 1,231,261 | | | $ | 2,405 | | | $ | 1,233,666 | |
| Exchanges of Class B Common Stock for Class A Common Stock | 14 | | | (14) | | | — | | | — | | | 130 | | | — | | | — | | | 130 | | | (130) | | | — | |
| Offering Costs | — | | | — | | | — | | | — | | | (502) | | | — | | | — | | | (502) | | | — | | | (502) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Other distributions and advance payments to non-controlling interest unitholders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock based compensation expense | | | | | | | | | 4,194 | | | — | | | — | | | 4,194 | | | 7 | | | 4,201 | |
| Tax withheld on vesting of restricted stock units | — | | | — | | | — | | | — | | | (9,676) | | | — | | | — | | | (9,676) | | | | | (9,676) | |
| | | | | | | | | | | | | | | | | | | |
| Vesting of restricted stock units | 1,084 | | | — | | | 11 | | | | | 1 | | | — | | | — | | | 12 | | | (12) | | | — | |
| Currency translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | (3,006) | | | (3,006) | | | (6) | | | (3,012) | |
| Net income | — | | | — | | | — | | | — | | | — | | | 105,156 | | | — | | | 105,156 | | | 183 | | | 105,339 | |
| Balance—June 30, 2022 | 186,859 | | | 326 | | | $ | 1,869 | | | $ | 3 | | | $ | 1,384,134 | | | $ | (56,174) | | | $ | (2,263) | | | $ | 1,327,569 | | | $ | 2,447 | | | $ | 1,330,016 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares of Class A Common Stock | | Shares of Class B Common Stock | | Class A Common Stock, Par Value | | Class B Common Stock, Par Value | | Additional Paid in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders’ equity | | Noncontrolling Interest | | Total Equity |
| Balance—March 31, 2021 | | | 169,259 | | | $ | 10,281 | | | $ | 1,692 | | | $ | 103 | | | $ | 1,212,354 | | | $ | (10,915) | | | $ | 1,318 | | | $ | 1,204,552 | | | $ | 73,183 | | | $ | 1,277,735 | |
| Exchange of Class B Common Stock for Class A Common Stock | | | 8,421 | | | (8,421) | | | 84 | | | (84) | | | 59,451 | | | — | | | — | | | 59,451 | | | (59,451) | | | — | |
| Offering Costs | | | — | | | — | | | — | | | — | | | (6) | | | — | | | — | | | (6) | | | — | | | (6) | |
| Recognition of valuation allowance on deferred tax asset, net of liability under tax receivable agreements | | | — | | | — | | | — | | | — | | | (435) | | | — | | | — | | | (435) | | | — | | | (435) | |
| Other distributions and advance payments to non-controlling interest unitholders | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 824 | | | 824 | |
| Stock based compensation expense | | | — | | | — | | | — | | | — | | | 5,619 | | | — | | | — | | | 5,619 | | | 280 | | | 5,899 | |
| Vesting of restricted stock units | | | 630 | | | — | | | 7 | | | — | | | (2,952) | | | — | | | — | | | (2,945) | | | (454) | | | (3,399) | |
| Currency translation adjustment | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,136 | | | 1,136 | | | 152 | | | 1,288 | |
| Net loss | | | — | | | — | | | — | | | — | | | — | | | (50,560) | | | — | | | (50,560) | | | (1,912) | | | (52,472) | |
| Balance—June 30, 2021 | | | 178,310 | | | 1,860 | | | 1,783 | | | 19 | | | 1,274,031 | | | (61,475) | | | 2,454 | | | 1,216,812 | | | 12,622 | | | $ | 1,229,434 | |
LIBERTY OILFIELD SERVICESENERGY INC.
Notes to Condensed Consolidated and Combined Financial Statements
(Unaudited)
Note 13—17—Subsequent Events
On April 24, 2018,July 18, 2022, the Company entered into an amendment to the ABL Facility. The amendment amended certain terms, provisions and covenants of the ABL Facility, including among other things; (i) increasing the maximum borrowing amount by $75.0 million to $425.0 million, subject to certain borrowing base limitations based on percentage of eligible accounts receivable and inventory, (ii) modified certain covenant and reporting-related baskets, and (iii) replacing LIBOR with the second overnight financing rate (SOFR) as the interest rate benchmark.
On July 25, 2022, the Company’s Board of Directors approvedauthorized a share repurchase program that allows the issuanceCompany to certain members of management of 520,388 restricted stock units issued pursuantrepurchase up to the terms$250.0 million of the LTIP (See Note 8).Company’s Class A Common Stock beginning immediately and continuing through and including July 31, 2024. The grant date fairshares may be repurchased from time to time in open market or privately negotiated transactions or by other means in accordance with applicable state and federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including management’s assessment of the intrinsic value of the awards, based onCompany’s Class A Common Stock, the Company's closingmarket price on April 24, 2018, was $19.94 per share. The awards vest in three equal installments on April 1, 2019, 2020,of the Company’s Class A Common Stock, general market and 2021,economic conditions, available liquidity, compliance with the exceptionCompany’s debt and other agreements, applicable legal requirements, and other considerations. The exact number of 22,115 units which vest 50% each on April 1, 2019 and 2020. In addition, 49,836 restricted stock units were issued pursuantshares to the terms of the LTIP to certain directors ofbe repurchased by the Company as compensation for their serviceis not guaranteed, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company expects to fund the repurchases by using cash on hand, borrowings under its revolving credit facility and expected free cash flow to be generated over the Board of Directors. The awards fully vest on January 1, 2019.next two years.
No other significant subsequent events have occurred that would require recognition or disclosure in the unaudited condensed consolidated financial statements.
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs, and expected performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in “Cautionary Note Regarding Forward-Looking Statements” and ourStatements,” the Annual Report under the heading “Item 1A. Risk Factors.Factors,” and in “Part II – Other Information, Item 1A.–Risk Factors” included herein. We assume no obligation to update any of these forward-looking statements.
Unless the context otherwise requires, references to the terms “Company,” “we,” “us” and “our” refer to the Predecessor for periods prior to the IPO, and Liberty Oilfield Services Inc. and its consolidated subsidiaries for periods following the IPO.
Overview
We areThe Company, together with its subsidiaries, is a growing independent provider ofleading integrated oilfield services and technology company focused on providing innovative hydraulic fracturing services and related technologies to onshore oil and natural gas exploration and production (“E&P”)&P companies in North America. We offer customers hydraulic fracturing services, together with complementary services including wireline services, proppant delivery solutions, data analytics, related goods (including our sand mine operations), and technologies that will facilitate lower emission completions, thereby helping our customers reduce their emissions profile. We have grown from one active hydraulic fracturing fleet in December 2011 to 21over 30 active fleets in May 2018. The demand for our hydraulic fracturing services exceeds our current capacity, and we expect, based on discussions with customers, to deploy one additional fleet, as well as add additional horsepower to existing fleets, by the end of the second quarter of 2018, and two additional fleets by the end of the year, for a total of 24 active fleets, representing approximately 1,170,000 hydraulic horsepower, including additional supporting horsepower. We added two fleets during the first quarter of 2018 to bring our total active fleets to 21 as of March 31, 2018. Average active fleets during the three months ended March 31, 2018 was 19.9, compared to 11.4 for the same period in 2017. Average active fleets is calculated as our daily average of active fleets for the relevant period. Our additional fleets are currently being built to our specifications.June 30, 2022. We provide our services primarily in the Permian Basin, the Eagle Ford Shale, the DJ Basin, the Williston Basin, andthe San Juan Basin, the Powder River Basin, the Haynesville Shale, the SCOOP/STACK, the Marcellus Shale, Utica Shale, and the Western Canadian Sedimentary Basin. Additionally, we operate two sand mines in the Permian Basin.
On December 31, 2020, the Company acquired certain assets and liabilities of Schlumberger’s OneStim business, which provides hydraulic fracturing pressure pumping services in onshore United States and Canada, including its pressure pumping, pumpdown perforating and Permian frac sand business, in exchange for consideration resulting in a total of 66,326,134 shares of the Class A Common Stock being issued in connection with the OneStim Acquisition. As of July 22, 2022, Schlumberger owned 12.3% of the issued and outstanding shares of our Common Stock. The combined company delivers best-in-class completion services for the sustainable development of unconventional resource plays in the United States and Canada onshore markets.
On October 26, 2021, the Company acquired PropX in exchange for $11.9 million in cash and 3,405,526 shares of Class A Common Stock and 2,441,010 shares of Class B Common Stock, and 2,441,010 Liberty LLC Units, for total consideration of $103.0 million, based on the Class A Common Stock closing price of $15.58 on October 26, 2021, subject to customary post-closing adjustments. The Liberty LLC Units are redeemable for an equivalent number of shares of Class A Common Stock at any time, at the election of the shareholder. Founded in 2016, PropX is a leading provider of last-mile proppant delivery solutions including proppant handling equipment and logistics software across North America. PropX offers innovative environmentally friendly technology with optimized dry and wet sand containers and wellsite proppant handling equipment that drive logistics efficiency and reduce noise and emissions. We believe that PropX wet sand handling technology is a key enabler of the following characteristics bothnext step of cost and emissions reductions in the proppant industry. PropX also offers customers the latest real-time logistics software, PropConnect, for sale or as hosted software as a service.
We believe technical innovation and strong relationships with our customer and supplier bases distinguish us from our competitors and are the foundations of our business: forming ongoing partnerships of trust and innovation with our customers; developing and utilizing technology to maximize well performance; and promoting a people-centered culture focused on our employees, customers and suppliers.business. We have developed strong relationships with our customers by investing significant time in fracture design collaboration, which substantially enhances their production economics. Our technological innovations have become even more critical asexpect that E&P companies have increased thewill continue to focus on technological innovation as completion complexity and fracture intensity of horizontal wells.wells increases, particularly as customers are increasingly focused on reducing emissions from their completions operations. We areremain proactive in developing innovative solutions to industry challenges, including developing: (i) our proprietary databases of U.S. unconventional wells to which we apply our proprietary multi-variable statistical analysis technologies to provide differential insight into fracture design optimization; (ii) our Liberty Quiet Fleet™Fleet® design which significantly reduces noise levels compared to conventional hydraulic fracturing fleets; and (iii) our hydraulic fracturing fluid systemsystems tailored to the specific reservoir properties in the DJ Basinbasins in which materially reduces completion costs without compromising production. We fosterwe operate; (iv) our dual fuel dynamic gas blending fleets that allow our engines to run diesel or a people-centered culture built around honoringcombination of diesel and natural gas, to optimize fuel use, reduce emissions and lower costs; (v) the successful test of digiFrac™, our commitmentsinnovative, purpose-built electric frac pump that has approximately 25% lower CO2e emission profile than the Tier IV DGB; and (vi) our PropX wet sand handling technology which eliminates the need to customers, partnering withdry sand, enabling the deployment of mobile mines nearer to wellsites. In addition, our suppliersintegrated supply chain includes proppant, chemicals, equipment, logistics and hiring, training and retaining people thatintegrated software which we believe promotes wellsite efficiency and leads to bemore pumping hours and higher productivity throughout the best talent inyear to better service our field, enabling uscustomers. In order to be one of the safestachieve our technological objectives, we carefully manage our liquidity and most efficient hydraulic fracturing companiesdebt position to promote operational flexibility and invest in the United States.business throughout the full commodity cycle in the regions we operate.
Recent Trends and Outlook
Demand for our hydraulic fracturing services is predominantly influenced byWhile the levelglobal economic recovery outlook has softened on reverberating impacts from higher inflation, rising interest rates and the Russian invasion of drillingUkraine, oil and completion by E&P companies, which, in turn, depends largely on the currentgas markets remain constructive. Today, low global oil and anticipated profitabilitygas inventories, limited OPEC spare production capacity and a lack of developing oilrefining capacity are concurrently being met with increased energy demand. Oil and natural gas reserves. More specifically, demand for our hydraulic fracturing servicesgrowth is drivencoming in part from the post-pandemic recovery in travel, China’s emergence from its enforced Covid lockdowns, plus seasonal demand. These are all further exacerbated by the completionRussia/Ukraine conflict and the potential for sanctions imposed on Russian oil exports, coupled with Russia’s decision to constrain natural gas pipeline exports to Europe.
North America is positioned to be a large provider of hydraulic fracturing stagesincremental oil and gas supply. Today, E&P operators are evaluating the opportunity to deploy incremental capital in unconventional wells, which,North America to modestly grow production while remaining focused on shareholder priorities. Supply is restricted by a tight frac market, where equipment, supply chain and labor constraints limit frac fleet availability and service quality. Moreover, many operators desire modern, ESG-friendly frac fleet technologies that provide the opportunity for both emissions reductions and fuel savings.
The frac market is near full utilization and we expect the supply of available frac fleets to remain tight through the remainder of 2022. We were disciplined in turn, is driven byrestraining fleet reactivations in the post-Covid era but pricing has now recovered to where we, in support of our customers’ long-term development needs, are reactivating several factors includingof our recently acquired, available fleets. Importantly, these long-term, dedicated customers seek additional next generation fleets that are not readily available today, and we are providing an avenue to serve those customers and simultaneously driving free cash flow from these existing fleets to reinvest in our fleet modernization program.
During the second quarter of 2022, the posted WTI price traded at an average of $108.83 per barrel (“Bbl”), as compared to the second quarter of 2021 average of $66.19 per Bbl, and first quarter of 2022 average of $95.18 per Bbl. In addition, the average domestic onshore rig count well count, service intensityfor the United States and Canada was 810 rigs reported in the timingsecond quarter of 2022, up from the second quarter of 2021 of 508 and style of well completions.
Recently Improving Macro Conditions
Inslightly decreased from the first quarter of 2018, the price2022 of West Texas Intermediate crude oil averaged $62.91 compared with an average of $55.27 for the fourth quarter of 2017 and an average of $51.66 for the first quarter of 2017. This has led to an increase in our customer activity levels, which is commonly measured by the active rig count. In the first quarter of 2018, the horizontal rig count averaged 831 compared with an average of 786 for the fourth quarter of 2017 and an average of 605 for the first quarter of 2017,816, according to a report byfrom Baker Hughes, a GE company.
Based on these market conditions, conversations with our customers and other factors, we expect demand for frac services to remain strong during 2018, especially for high-efficiency frac fleets. We also believe that we will be able to drive
Hughes.
increases in utilization and throughput across our fleets during the second quarter of 2018, as the weather challenges presented in the first quarter have not been present thus far in the second quarter.
How We Evaluate Our Operations
We use a variety of qualitative, operational and financial metrics to assess our performance. First and foremost of these is a qualitative assessment of customer satisfaction because ensuring we are a valuable partner to our customers is the key to achieving our quantitative business metrics. Among other measures, management considers each of the following:
Revenue;
Operating Income (Loss);
Net Income;
Net Income per Share;
EBITDA;
Adjusted EBITDA; and
Adjusted EBITDA per Average Active Fleet.
Revenue
We analyze our revenue by comparing actual monthly revenue to our internal projections for a given period and to prior periods to assess our performance. We also assess our revenue in relation to the number of fleets we have deployed (revenue per average active fleet) from period to period.
Operating Income (Loss)
We analyze our operating income (loss), which we define as revenues less direct operating expenses, depreciation and amortization and general and administrative expenses, to measure our financial performance. We believe operating income is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets. We also compare operating income to our internal projections for a given period and to prior periods.
EBITDA and Adjusted EBITDA
We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income (loss) before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted to eliminate the effects of items such as new fleet or new basin start-up costs, costs of asset acquisition, gain or loss on the disposal of assets, asset impairment charges, bad debt reserves, and non-recurring expenses that management does not consider in assessing ongoing operating performance, including stock compensation expense related to the one time grant of restricted shares in connection with the Corporate Reorganization and IPO. See “—Comparison of Non-GAAP Financial Measures” for more information and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.
Results of Operations
Three months ended March 31, 2018,June 30, 2022 compared to three months ended March 31, 2017
|
| | | | | | | | | | | |
| | Three months ended March 31, |
| Description | 2018 | | 2017 | | Change |
| | (in thousands) |
| Revenue | $ | 495,160 |
| | $ | 252,394 |
| | $ | 242,766 |
|
| Cost of services, excluding depreciation and amortization shown separately | 376,827 |
| | 211,633 |
| | 165,194 |
|
| General and administrative | 21,677 |
| | 17,084 |
| | 4,593 |
|
| Depreciation and amortization | 28,016 |
| | 14,146 |
| | 13,870 |
|
| Loss (gain) on disposal of assets | 80 |
| | (43 | ) | | 123 |
|
| Operating income | 68,560 |
| | 9,574 |
| | 58,986 |
|
| Interest expense | (6,494 | ) | | (1,452 | ) | | (5,042 | ) |
| Net income before income taxes | 62,066 |
| | 8,122 |
| | 53,944 |
|
| Income tax expense | 8,079 |
| | — |
| | 8,079 |
|
| Net income | 53,987 |
| | 8,122 |
| | 45,865 |
|
| Less: Net income attributable to Liberty LLC, prior to the Corporate Reorganization | 8,705 |
| | 8,122 |
| | 583 |
|
| Less: Net income attributable to noncontrolling interest | 21,607 |
| | — |
| | 21,607 |
|
| Net income attributable to Liberty Oilfield Services Inc. stockholders | $ | 23,675 |
| | $ | — |
| | $ | 23,675 |
|
| | | | | | | | | | | | | | | | | |
| Three months ended June 30, |
| Description | 2022 | | 2021 | | Change |
| (in thousands) |
| Revenue | $ | 942,619 | | | $ | 581,288 | | | $ | 361,331 | |
| Cost of services, excluding depreciation, depletion and amortization shown separately | 713,718 | | | 521,956 | | | 191,762 | |
| General and administrative | 42,162 | | | 29,403 | | | 12,759 | |
| Transaction, severance and other costs | 2,192 | | | 2,996 | | | (804) | |
| Depreciation, depletion and amortization | 77,379 | | | 63,214 | | | 14,165 | |
| Gain on disposal of assets | (3,436) | | | (277) | | | (3,159) | |
| Operating income (loss) | 110,604 | | | (36,004) | | | 146,608 | |
| Other expense, net | 5,030 | | | 462 | | | 4,568 | |
| Net income (loss) before income taxes | 105,574 | | | (36,466) | | | 142,040 | |
| Income tax expense | 235 | | | 16,006 | | | (15,771) | |
| Net income (loss) | 105,339 | | | (52,472) | | | 157,811 | |
| Less: Net income (loss) attributable to non-controlling interests | 183 | | | (1,912) | | | 2,095 | |
| Net income (loss) attributable to Liberty Energy Inc. stockholders | $ | 105,156 | | | $ | (50,560) | | | $ | 155,716 | |
Revenue
Our revenue increased $242.8$361.3 million, or 96.2%62.2%, to $495.2$942.6 million for the three months ended June 30, 2022 compared to $581.3 million for the three months ended March 31, 2018 comparedJune 30, 2021. The increase in revenue is attributable to $252.4higher service pricing and an activity-driven increase in fleet utilization and efficiency commensurate with increased demand for hydraulic fracturing services.
Cost of Services
Cost of services (excluding depreciation, depletion and amortization) increased $191.8 million, or 36.7%, to $713.7 million for the three months ended March 31, 2017. The increase was dueJune 30, 2022 compared to the combined effect of a 74.6% increase in average active fleets deployed and a 12.0% increase in revenue per average active fleet. Our revenue per average active fleet increased to approximately $24.9$522.0 million for the three months ended March 31, 2018June 30, 2021. The higher expense was primarily related to increases in materials and parts consumption and higher labor costs related to higher fleet utilization as well as ongoing inflationary increases impacting costs for materials, labor, and maintenance parts.
General and Administrative
General and administrative expenses increased $12.8 million, or 43.4%, to $42.2 million for the three months ended June 30, 2022 compared to approximately $22.1$29.4 million for the three months ended March 31, 2017, basedJune 30, 2021 primarily related to increases in performance-based variable compensation, labor cost inflation, and corporate costs related to increased activity.
Transaction, Severance and Other Costs
Transaction, severance and other costs decreased $0.8 million, or 26.8%, to $2.2 million for the three months ended June 30, 2022 compared to $3.0 million for the three months ended June 30, 2021. The costs incurred in the three months ended June 30, 2021 primarily related to integration cost, investment banking, legal, accounting, and other professional services provided in connection with the OneStim Acquisition. Such costs were lower during the three months ended June 30, 2022 as the integration efforts move towards completion.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased $14.2 million, or 22.4%, to $77.4 million for the three months ended June 30, 2022 compared to $63.2 million for the three months ended June 30, 2021. The increase in 2022 was due to additional equipment placed in service since the prior year period and additional depreciation from property acquired in the PropX Acquisition.
Gain on 19.9Disposal of Assets
The Company recognized a gain on disposal of assets of $3.4 million for the three months ended June 30, 2022 primarily as a result of the sale of used field equipment and 11.4 average active fleets deployedlight duty trucks in a strong used vehicle and equipment market compared to a gain of $0.3 million for the three months ended June 30, 2021 due to miscellaneous equipment disposals. All disposals recorded during those respective periods.the three months ended June 30, 2022 and 2021 were in the normal course of business.
Operating Income (Loss)
The Company recorded operating income of $110.6 million for the three months ended June 30, 2022 compared to operating loss of $36.0 million for the three months ended June 30, 2021, an increase in operating results of $146.6 million, or 407.2%. The increase in operating income is primarily due to the $361.3 million, or 62.2%, increase in total revenue only partially offset by a $214.7 million increase in total operating expenses, the significant components of which are discussed above.
Other Expense, net
Other expense, net increased $4.6 million, or 988.7%, to $5.0 million for the three months ended June 30, 2022 compared to $0.5 million for the three months ended June 30, 2021. Other expense, net is comprised of loss (gain) on remeasurement of liability under the TRAs and interest expense, net. The Company remeasured the liability under the TRAs resulting in a loss of $0.2 million for the three months ended June 30, 2022, compared to a gain of $3.3 million for the three months ended June 30, 2021. Additionally, interest expense, net increased $1.1 million as a result of increased borrowings under the credit facility.
Net Income (loss) before Income Taxes
The Company realized net income before income taxes of $105.6 million for the three months ended June 30, 2022 compared to net loss before income taxes of $36.5 million for the three months ended June 30, 2021. The increase in income is primarily attributable to an increase in revenue, as discussed above, related to the increase in activity and service pricing.
Income Tax Expense
We recognized a tax expense of $0.2 million for the three months ended June 30, 2022, at an effective rate of 0.2%, compared to a tax expense of $16.0 million, at an effective rate of (43.9)%, recognized during the three months ended June 30, 2021. The decrease in income tax expense is primarily attributable to the Company recording a valuation allowance on its U.S. net deferred tax assets, beginning in the second quarter of 2021, resulting in income tax expense for that period, while in subsequent periods no tax expense or benefit is recognized on U.S. state and federal income or loss.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
| | | | | | | | | | | | | | | | | |
| Six months ended June 30, |
| Description | 2022 | | 2021 | | Change |
| (in thousands) |
| Revenue | $ | 1,735,389 | | | $ | 1,133,320 | | | $ | 602,069 | |
| Cost of services, excluding depreciation, depletion and amortization shown separately | 1,383,737 | | | 1,020,891 | | | 362,846 | |
| General and administrative | 80,480 | | | 55,762 | | | 24,718 | |
| Transaction, severance and other costs | 3,526 | | | 10,617 | | | (7,091) | |
| Depreciation, depletion and amortization | 151,967 | | | 125,270 | | | 26,697 | |
| Loss (gain) on disposal of assets | 1,236 | | | (997) | | | 2,233 | |
| Operating income (loss) | 114,443 | | | (78,223) | | | 192,666 | |
| Other expense, net | 13,519 | | | 4,216 | | | 9,303 | |
| Net income (loss) before income taxes | 100,924 | | | (82,439) | | | 183,363 | |
| Income tax expense | 1,065 | | | 8,649 | | | (7,584) | |
| Net income (loss) | 99,859 | | | (91,088) | | | 190,947 | |
| Less: Net income (loss) attributable to non-controlling interests | 79 | | | (6,323) | | | 6,402 | |
| Net income (loss) attributable to Liberty Energy Inc. stockholders | $ | 99,780 | | | $ | (84,765) | | | $ | 184,545 | |
Revenue
Our revenue increased $602.1 million, or 53.1%, to $1.7 billion for the six months ended June 30, 2022 compared to $1.1 billion for the six months ended June 30, 2021. The increase in revenue per active fleet was dueis attributable to improvedhigher service pricing and throughputan activity-driven increase in conjunctionfleet utilization and efficiency commensurate with increased demand for ourhydraulic fracturing services.
Cost of Services
Cost of services (excluding depreciation, depletion and amortization) increased $165.2$362.8 million, or 78.1%35.5%, to $376.8 million$1.4 billion for the threesix months ended March 31, 2018June 30, 2022 compared to $211.6 million$1.0 billion for the threesix months ended March 31, 2017.June 30, 2021. The higher expense is duewas primarily related to an increaseincreases in services providedmaterials and reflects a $108.7 million increase attributableparts consumption and higher labor costs related to higher fleet utilization as well as inflationary increases impacting costs for materials, which was driven by a 62.2% increase in material volumes in the three months ended March 31, 2018 compared to the same period in 2017. Personnel costs increased by $33.5 million, or 93.0%, to support the increased activity, including a 74.6% increase in average active fleets deployed. Additionally, the cost of components used in our repairslabor, and maintenance operations increased by $13.5 million for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017.parts.
General and Administrative Expenses
General and administrative expenses increased by $4.6$24.7 million, or 26.9%44.3%, to $21.7$80.5 million for the threesix months ended March 31, 2018June 30, 2022 compared to $17.1$55.8 million for the threesix months ended March 31, 2017. PayrollJune 30, 2021 primarily related to increases from reinstated bonus programs which had been temporarily suspended during the first quarter of 2021 as a result of the COVID-19 pandemic, labor cost inflation, and benefitscorporate costs related to increased levels of activity.
Transaction, Severance and Other Costs
Transaction, severance and other costs decreased $7.1 million, or 66.8%, to $3.5 million for the six months ended June 30, 2022 compared to $10.6 million for the six months ended June 30, 2021. The costs incurred in the six months ended June 30, 2021 primarily related office expenses increased approximately $2.0 millionto integration costs, investment banking, legal, accounting, and $1.4 million, respectively,other professional services provided in connection with the increase in head count to support our expanded scope of operations and the nine fleets deployedOneStim Acquisition. Such costs were lower during the twelvesix months ended March 31, 2018.June 30, 2022 as the integration efforts move towards completion.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased $13.9$26.7 million, or 98.0%21.3%, to $28.0$152.0 million for the threesix months ended March 31, 2018June 30, 2022 compared to $14.1$125.3 million for the threesix months ended March 31, 2017,June 30, 2021. The increase in 2022 was due to nine additional hydraulic fracturing fleets deployed duringequipment placed in service since the twelve months ended March 31, 2018.
prior year period and additional depreciation from property acquired in the PropX Acquisition.
Loss (gain) on disposal of assets
The Company recognized a loss on disposal of assets of $1.2 million for the six months ended June 30, 2022 primarily as a result of the sale of one and plan of sale for another non-strategic facility acquired in the OneStim Acquisition compared to a gain of $1.0 million for the six months ended June 30, 2021 due to miscellaneous equipment disposals in the normal course of business.
Operating Income (Loss)
We realizedThe Company recorded operating income of $68.6$114.4 million for the threesix months ended March 31, 2018June 30, 2022 compared to $9.6operating loss of $78.2 million for the threesix months ended March 31, 2017,June 30, 2021, The operating income is primarily due to the increased number of hydraulic fracturing fleets deployed and the higher revenue per average active fleet in response to increased demand for our services described above. Generally, our financial results have improved significantly due to the increased drilling and completion activity by E&P companies during the recovery of the oil and gas industry beginning in the third quarter of 2016.
Interest Expense
The$602.1 million, or 53.1%, increase in interest expense of $5.0 million, or 347.2%, during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily due to $1.7 million of deferred financing costs written off in connection with the pay down of 35% of the term loan and $0.9 million prepayment penalty assessed in connection with the pay down andtotal revenue partially offset by a $1.5$409.4 million increase in interest expense due tototal operating expenses, the increased average borrowings outstanding during the three months ended March 31, 2018 compared to the same period in 2017.
Net Income before Tax Expense
We realized net income before tax expense of $62.1 million for the three months ended March 31, 2018 compared to $8.1 million for the three months ended March 31, 2017. The increase in net income is primarily attributable to our expanded scope of operations following the deployment of nine additional hydraulic fracturing fleets during the twelve months ended March 31, 2018.
Income Tax Expense
Our operations are taxed at a combined U.S. federal and state effective tax rate of 13.0%. As a pass-through entity prior to the IPO, our Predecessor was subject only to the Texas margin tax at a statutory rate of 1.0% and was not subject to U.S. federal income tax. Subsequent to the IPO, we recognized $8.1 million of expense for the period commencing on January 17, 2018 through March 31, 2018 compared to none recognized during the three months ended March 31, 2017. This increase was attributable to our status as a corporation subject to U.S. federal income tax as well as a net increase in operating income, thesignificant components of which are discussed above.
Other expense, net increased $9.3 million to $13.5 million for the six months ended June 30, 2022 compared to $4.2 million for the six months ended June 30, 2021. Other expense, net is comprised of loss on remeasurement of liability under the TRAs and interest expense, net. The Company remeasured the liability under the TRAs resulting in a loss of $4.3 million for the six months ended June 30, 2022, compared to a gain of $3.3 million for the six months ended June 30, 2021. Additionally, interest expense increased $1.7 million as a result of increased borrowings under the credit facility.
Net Income (Loss) before Income Taxes
The Company realized net income before income taxes of $100.9 million for the six months ended June 30, 2022 compared to net loss before income taxes of $82.4 million for the six months ended June 30, 2021. The increase in results is primarily attributable to an increase in revenue, as discussed above, related to the increase in activity and service pricing.
Income Tax Expense
Income tax expense decreased $7.6 million to $1.1 million for the six months ended June 30, 2022, at an effective rate of 1.1%, compared to $8.6 million, at an effective rate of (10.5)%, recognized during the six months ended June 30, 2021. This decrease in income tax expense is primarily attributable to the Company recording a valuation allowance on its U.S. net deferred tax assets, beginning in the second quarter of 2021, resulting in income tax expense for that period, while in subsequent periods no tax expense or benefit is recognized on U.S. state and federal income or loss.
Comparison of Non-GAAP Financial Measures
We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income before interest, income taxes, and depreciation, depletion and amortization. We define Adjusted EBITDA as EBITDA adjusted to eliminate the effects of items such as non-cash stock based compensation, new fleet or new basin start-up costs, fleet lay-down costs, costs of asset acquisition,acquisitions, gain or loss on the disposal of assets, asset impairment charges, bad debt reserves, transaction, severance, and other costs, the loss or gain on remeasurement of liability under our tax receivable agreements and other non-recurring expenses that management does not consider in assessing ongoing operating performance.
Our board of directors, management, investors, and lenders use EBITDA and Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation, depletion and amortization) and other items that impact the comparability of financial results from period to period. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. Additionally, the calculation of Adjusted EBITDA complies with the definition of Consolidated EBITDA and other provisions of our Credit Facilities. See “—Debt Agreements.”
Note Regarding Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations. Net income (loss) is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
27
The following tables present a reconciliation of EBITDA and Adjusted EBITDA to our net income,loss, which is the most directly comparable GAAP measure for the periods presented:
Three Months Ended March 31, 2018 Comparedand six months ended June 30, 2022 compared to Three Months Ended March 31, 2017:three and six months ended June 30, 2021: EBITDA and Adjusted EBITDA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| Description | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | |
| (in thousands) | | | | |
| Net income (loss) | $ | 105,339 | | | $ | (52,472) | | | $ | 157,811 | | | $ | 99,859 | | | $ | (91,088) | | | $ | 190,947 | | | |
| Depreciation, depletion and amortization | 77,379 | | | 63,214 | | | 14,165 | | | 151,967 | | | 125,270 | | | 26,697 | | | |
| Interest expense | 4,862 | | | 3,767 | | | 1,095 | | | 9,186 | | | 7,521 | | | 1,665 | | | |
| Income tax expense | 235 | | | 16,006 | | | (15,771) | | | 1,065 | | | 8,649 | | | (7,584) | | | |
| EBITDA | $ | 187,815 | | | $ | 30,515 | | | $ | 157,300 | | | $ | 262,077 | | | $ | 50,352 | | | $ | 211,725 | | | |
| Stock based compensation expense | 4,201 | | | 5,899 | | | (1,698) | | | 11,014 | | | 10,846 | | | 168 | | | |
| Fleet start-up and lay-down costs | 5,169 | | | — | | | 5,169 | | | 5,754 | | | — | | | 5,754 | | | |
| Transaction, severance and other costs | 2,192 | | | 2,996 | | | (804) | | | 3,526 | | | 10,617 | | | (7,091) | | | |
| (Gain) loss on disposal of assets | (3,436) | | | (277) | | | (3,159) | | | 1,236 | | | (997) | | | 2,233 | | | |
| Provision for credit losses | — | | | 745 | | | (745) | | | — | | | 745 | | | (745) | | | |
| Loss (gain) on remeasurement of liability under tax receivable agreements | 168 | | | (3,305) | | | 3,473 | | | 4,333 | | | (3,305) | | | 7,638 | | | |
| Adjusted EBITDA | $ | 196,109 | | | $ | 36,573 | | | $ | 159,536 | | | $ | 287,940 | | | $ | 68,258 | | | $ | 219,682 | | | |
|
| | | | | | | | | | | |
| | Three Months Ended
March 31, |
| Description | 2018 | | 2017 | | Change |
| | (in thousands) |
| Net income | $ | 53,987 |
| | $ | 8,122 |
| | $ | 45,865 |
|
| Depreciation and amortization | 28,016 |
| | 14,146 |
| | 13,870 |
|
| Interest expense | 6,494 |
| | 1,452 |
| | 5,042 |
|
| Income tax expense | 8,079 |
| | — |
| | 8,079 |
|
| EBITDA | $ | 96,576 |
| | $ | 23,720 |
| | $ | 72,856 |
|
| Fleet start-up costs | 3,309 |
| | 4,612 |
| | (1,303 | ) |
| Asset acquisition costs | — |
| | 1,354 |
| | (1,354 | ) |
| Loss (gain) on disposal of assets | 80 |
| | (43 | ) | | 123 |
|
| Advisory services fees | 202 |
| | 794 |
| | (592 | ) |
| Adjusted EBITDA | $ | 100,167 |
| | $ | 30,437 |
| | $ | 69,730 |
|
EBITDA was $96.6$187.8 million for the three months ended June 30, 2022 compared to $30.5 million for the three months ended March 31, 2018June 30, 2021. Adjusted EBITDA was $196.1 million for the three months ended June 30, 2022 compared to $23.7$36.6 million for the three months ended March 31, 2017. Adjusted EBITDA was $100.2 million for the three months ended March 31, 2018 compared to $30.4 million for the three months ended March 31, 2017. Annualized Adjusted EBITDA per average active fleet was $20.4 million for the three months ended March 31, 2018 compared to $10.8 million for the three months ended March 31, 2017.June 30, 2021. The increases in EBITDA and Adjusted EBITDA primarily resulted from the increased revenueimproved market conditions and other factorsactivity levels as described above under the captions Revenue, Cost of Services, and General and Administrative Expenses above. for the Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021.
EBITDA was $262.1 million for the six months ended June 30, 2022 compared to $50.4 million for the six months ended June 30, 2021. Adjusted EBITDA was $287.9 million for the six months ended June 30, 2022 compared to $68.3 million for the six months ended June 30, 2021. The increases in EBITDA and Adjusted EBITDA primarily resulted from improved market conditions and activity levels as described above under the captions Revenue, Cost of Services, and General and Administrative Expenses for the Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021. Liquidity and Capital Resources
Overview
Historically, our primary sources of liquidity to date have been cash flows from operations, capital contributionsproceeds from our ownersIPO, and borrowings under our Credit Facilities. We expect to fund operations and organic growth with the proceeds from our IPO and cash flows from operations.operations and available borrowings under our Credit Facilities. We monitor the availability of capital resources such as equity and debt financings that could be leverage for current or future financial obligations including those related to acquisitions, capital expenditures, working capital and other liquidity requirements. We may incur additional indebtedness or issue equity in order to meet our capital expenditure activities and liquidity requirements, as well as to fund growth opportunities that we pursue, including via acquisition, such as with the OneStim Acquisition and the PropX Acquisition. Our primary uses of capital have been capital expenditures to support organic growth and funding ongoing operations, including maintenance and fleet upgrades.
On January 17, 2018, we completed our IPO of 14,640,755 shares of our Class A Common Stock at a public offering price of $17.00 per share, of which 14,340,214 shares were offered by us and 300,541 shares were offered by the selling shareholder. We received approximately $220.0 million in net proceeds after deducting approximately $13.4 million of underwriting discounts and commissions and $10.4 million of other offering costs. We did not receive any proceeds from the sale of the shares of Class A Common Stock by the selling shareholder. We used approximately $25.9 million of net proceeds from the IPO to redeem ownership in Liberty LLC from the Legacy Owners and contributed the remaining proceeds to Liberty LLC in exchange for the Liberty LLC Units. Liberty LLC used a portion of the net proceeds (i) to fully repay our outstanding borrowings and accrued interest under our ABL Facility (as defined herein), totaling approximately $30.1 million, (ii) to repay 35% of our outstanding borrowings, accrued interest and prepayment premium under our Term Loan Facility (as defined herein), totaling approximately $62.5 million and (iii) for general corporate purposes, including repayment of additional indebtedness and funding a portion of our 2018 and other future capital expenditures. Our cash on hand, expected cash flow from operations and availability under our Credit Facilities are expected to be sufficient to meet the Company’s liquidity requirements for the next twelve months.
Cash and cash equivalents increased by $81.7$21.5 million to $98.1$41.5 million as of March 31, 2018June 30, 2022 compared to $16.3$20.0 million as of December 31, 2017, primarily attributable to net proceeds from the IPO. Going forward, we intend to finance the majority of our capital expenditures, contractual obligations and2021, while working capital needs with proceeds from the IPOexcluding cash and operating cash flows. We believe that our operating cash flowcurrent liabilities under debt and available borrowings under our Credit Facilities will be sufficient to fund our operations for at least the next twelve months.
lease arrangements increased $134.9 million.
Cash Flows
The following table summarizes our cash flows forWe have $350.0 million committed under the periods indicated:
|
| | | | | | | | | | | |
| | Three Months Ended March 31, |
| Description | 2018 | | 2017 | | Change |
| | (in thousands) |
| Net cash provided by operating activities | $ | 30,702 |
| | $ | 84,289 |
| | $ | (53,587 | ) |
| Net cash used in investing activities | (54,734 | ) | | (124,622 | ) | | 69,888 |
|
| Net cash provided by financing activities | 105,781 |
| | 41,675 |
| | 64,106 |
|
| Net increase in cash and cash equivalents | $ | 81,749 |
| | $ | 1,342 |
| | $ | 80,407 |
|
Analysis of Cash Flow Changes Between the Three Months Ended March 31, 2018 and 2017
Operating Activities. Net cash provided by operating activities was $30.7ABL Facility, increased to $425 million for the three months ended March 31, 2018, comparedsubsequent to $84.3 million for the three months ended March 31, 2017. The $53.6 million decrease in cash from operating activities was attributable to a $53.7 million increase in working capital for the three months ended March 31, 2018 compared to a $62.0 million decrease for the prior period, offset by a $45.9 million increase in net income and a $16.2 million increase in other non-cash expense items such as depreciation and amortization.
Investing Activities. Net cash used in investing activities was $54.7 million for the three months ended March 31, 2018, compared to $124.6 million for the three months ended March 31, 2017. Capital expenditures, including amounts in Accounts Payable and Accrued Liabilities, were $82.9 million for the three months ended March 31, 2018 compared to $136.5 million for the three months end March 31, 2017. The $69.9 million decrease in net cash used in investing activities was primarily due June 30, 2022, see Note 17—Subsequent Events to the acquisition of Titan Frac Services LLC during the three months ended March 31, 2017.
Financing Activities. Net cash provided by financing activities was $105.8 millionconsolidated financial statements included in “Item 1. Financial Statements (unaudited)” for the three months ended March 31, 2018, compared to $41.7 million for the three months ended March 31, 2017. The $64.1 million increase in cash provided by financing activities was primarily due to $204.3 million in proceeds from the IPO, offset by $93.1 million net repayments on debt, and $39.8 million in proceeds from issuance of redeemable common units received during the three months ended March 31, 2017.
Debt Agreements
The Company’s ABL Facility provides for a line of credit up to $250.0 million,further details, subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory.inventory available to finance working capital needs. As of March 31, 2018,June 30, 2022, the borrowing base was calculated to be $213.0$350.0 million, with no amounts drawn and anthe Company had $150.0 million outstanding, in addition to a letter of credit for $0.2in the amount of $1.4 million, leaving $212.8with $198.6 million of remaining availability. Borrowings underAdditionally, we have $105.6 million borrowings remaining on the ABLTerm Loan Facility, bear interest at LIBOR or a base rate, plus an applicable LIBOR margin of 1.5% to 2.0% or base rate margin of 0.5% to 1.0%, as defined in the ABL Facility credit agreement. which was originally $175.0 million.
The ABL Facility is not subject to financial covenants unless liquidity, as defined in the ABL Facility credit agreement, drops belowhas a specified level. Under the ABL Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined in the ABL Facility credit agreement, of 1.0 to 1.0 for each period if excess availability is less than 10%maturity date of the borrowing base or $12.5 million, whichever is greater. earlier of (a) October 22, 2026 and (b) to the extent the debt under the Term Loan Facility remains outstanding 90 days prior to the final maturity of the Term Loan Facility, which matures on September 19, 2024.
The Credit Facilities contain covenants that restrict our ability to take certain actions. At June 30, 2022, the Company was in compliance with these covenants as of March 31, 2018.all debt covenants.
Income Taxes
The Company is a corporation and is subject to U.S. federal, state and local income tax on its share of Liberty LLC’s taxable income. As a result of the IPO and Corporate Reorganization, the Company recorded deferred tax assets and liabilities for the difference between the book value of assets and liabilities for financial reporting purposes and those amounts applicable for income tax purposes. Deferred tax assets have been recorded for tax attributes contributedSee Note 8—Debt to the Company as part of the reorganization. Deferred tax liabilities of $28.8 million have been recorded in connection with the Liberty LLC Units acquired through the Corporate Reorganization.
The effective combined U.S. federal and state income tax rate applicable to the Company for the three months ended March 31, 2018 was 13.0%. The Company’s effective tax rate is significantly less than the statutory tax rate of 21.0% primarily because no taxes are payable by the Company for the non-controlling interest’s share of Liberty LLC’s pass through results for federal, state and local income tax reporting. The Company recognized income tax expense of $8.1 million for the three months ended March 31, 2018.
Tax Receivable Agreements
In connection with the IPO, on January 17, 2018, the Company entered into the TRAs with the TRA Holders. The TRAs generally provide for the payment by the Company of 85% of the net cash savings, if any, in U.S. federal, state, and local income tax and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes) that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the IPO as a result, as applicable to each TRA Holder, of (i) certain increases in tax basis that occur as a result of the Company's acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder's Liberty LLC Units in connection with the IPO or pursuant to the exercise of the Redemption Right or the Company's Call Right, (ii) any net operating losses available to the Company as a result of the Corporate Reorganization, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRAs.
With respect to obligations the Company expects to incur under the TRAs (except in cases where the Company elects to terminate the TRAs early, the TRAs are terminated early due to certain mergers, asset sales, or other changes of control or the Company has available cash but fails to make payments when due), generally the Company may elect to defer payments due under the TRAs if the Company does not have available cash to satisfy its payment obligations under the TRAs or if its contractual obligations limit its ability to make such payments. Any such deferred payments under the TRAs generally will accrue interest. In certain cases, payments under the TRAs may be accelerated and/or significantly exceed the actual benefits, if any, the Company realizes in respect of the tax attributes subject to the TRAs. The Company accounts for amounts payable under the TRAs in accordance with ASC Topic 450, Contingent Consideration.
If the Company experiences a change of control (as defined under the TRAs) or the TRAs otherwise terminate early, the Company’s obligations under the TRAs could have a substantial negative impact on its liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreements.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with U.S. GAAP, which require us to make estimates and assumptions (see Note 1 to the combined financial statements included in the Annual Report). We believe that some of our accounting policies involve a higher degree of judgment and complexity than others. As of December 31, 2017, our critical accounting policies included revenue recognition, estimating the recoverability of accounts receivable, inventory valuation, accounting“Item 1. Financial Statements (unaudited)” for income taxes, accounting for long-lived assets, accounting for derivative instruments, and accounting for abnormally low production levels. These critical accounting policies are discussed more fully in the Annual Report.
Effective January 1, 2018, the Company adopted Accounting Standard Codification Topic 606-Revenue from Contracts with Customers (see Note 1 to the condensed consolidated and combined financial statements included in this Form 10-Q). There have been no other changes in our evaluation of our critical accounting policies since December 31, 2017.
Off Balance Sheet Arrangementsfurther details.
We have no material off balance sheet arrangements as of March 31, 2018,June 30, 2022, except for the operating leases and purchase commitments under supply agreements as disclosed above under “Item 1. Financial Statements—Note 12—15—Commitments & Contingencies.” As such, we are not materially exposed to any other financing, liquidity, market, or credit risk that could arise if we had engaged in such financing arrangements.
Share Repurchase Program
Under our share repurchase program, the Company is authorized to repurchase up to $250.0 million of outstanding Class A Common Stock through and including July 31, 2024. Shares may be repurchased from time to time for cash in the open market transactions, through block trades, in privately negotiated transactions, through derivative transactions or by other means in accordance with applicable federal securities laws. The timing and the amount of repurchases, if any, will be determined by the Company at its discretion based on an evaluation of market conditions, capital allocation alternatives and other factors. The share repurchase program does not require us to purchase any dollar amount or number of shares of our Class A Common Stock and may be modified, suspended, extended or terminated at any time without prior notice. The Company expects to fund the repurchases by using cash on hand, borrowings under its revolving credit facility and expected free cash flow to be generated over the next two years.
Cash Flows
The following table summarizes our cash flows for the periods indicated: | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| Description | 2022 | | 2021 | | Change |
| (in thousands) |
| Net cash provided by operating activities | $ | 135,629 | | | $ | 35,566 | | | $ | 100,063 | |
| Net cash used in investing activities | (232,824) | | | (65,895) | | | (166,929) | |
| Net cash provided by (used in) financing activities | 118,758 | | | (8,175) | | | 126,933 | |
Analysis of Cash Flow Changes Between the Six Months Ended June 30, 2022 and 2021
Operating Activities. Net cash provided by operating activities was $135.6 million for the six months ended June 30, 2022, compared to $35.6 million for the six months ended June 30, 2021. The $100.1 million increase in cash from operating activities is primarily attributable to a $602.1 million increase in revenues, offset by a $380.5 million increase in cash operating expenses and a $134.3 million decreasein cash from changes in working capital for the six months ended June 30, 2022, compared to a $14.4 million decrease in cash from changes in working capital for the six months ended June 30, 2021.
Investing Activities. Net cash used in investing activities was $232.8 million for the six months ended June 30, 2022, compared to $65.9 million for the six months ended June 30, 2021. Cash used in investing activities was higher during the six months ended June 30, 2022, compared to the six months ended June 30, 2021 as the Company continued to invest in equipment, including building new digiFrac™ fleets, to support increased customer demand in next generation equipment and technology.
Financing Activities. Net cash provided by financing activities was $118.8 million for the six months ended June 30, 2022, compared to net cash used in financing activities of $8.2 million for the six months ended June 30, 2021. The $126.9 million increase in cash provided by financing activities was primarily due to net borrowings of $132.0 million on the ABL
Facility during the six months ended June 30, 2022, compared to no net borrowings on the ABL Facility for the six months ended June 30, 2021. Additionally, there was a $1.4 million decrease in payments on finance lease liabilities as the number of finance leases active for the full period has decreased since June 30, 2021.
Cash Requirements
Our material cash commitments consist primarily of obligations under long-term debt, TRAs, finance and operating leases for property and equipment, and purchase obligations as part of normal operations. We have no material off balance sheet arrangements as of June 30, 2022, except for obligations of $27.4 million payable within 2022, $18.2 million in 2023, and $4.2 million payable thereafter. See Note 15—Commitments & Contingencies to the unaudited condensed consolidated financial statements included in “Item 1. Financial Statements (Unaudited)” for information regarding scheduled contractual obligations. There have been no other material changes to cash requirements since the year ended December 31, 2021.
Income Taxes
The Company is a corporation and is subject to U.S. federal, state, and local income tax on its share of Liberty LLC’s taxable income. The Company is also subject to Canada federal and provincial income tax on its foreign operations.
The combined effective tax rate applicable to the Company for the six months ended June 30, 2022 and 2021 was 1.1% and (10.5)%, respectively. The Company’s effective tax rate is significantly less than the federal statutory income tax rate of 21.0% due to the Company recording a valuation allowance on its U.S. net deferred tax assets as of June 30, 2022, due to entering into a three year cumulative pre-tax book loss position, primarily as a result of COVID-19 related losses in 2021. The Company’s effective tax rate is also less than the statutory rate because of foreign operations for 2021, and the non-controlling interest’s share of Liberty LLC’s pass-through results for federal, state and local income tax reporting, upon which no taxes are payable by the Company for the six months ended June 30, 2022 and 2021. The Company recognized income tax expense of $0.2 million and $1.1 million for the three and six months ended June 30, 2022, respectively, and $16.0 million and $8.6 million for the three and six months ended June 30, 2021, respectively, which included the impact of the initial recording of a valuation allowance on a portion of the Company’s deferred tax assets.
Per the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted on March 27, 2020, net operating losses (“NOL”) incurred in 2019, and 2020 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has previously applied for and expects to receive a NOL carryback refund to recover $5.5 million of cash taxes paid by the Company in 2018. This amount has been reflected as a receivable in the prepaids and other current assets line item in the accompanying audited consolidated balance sheets.
Refer to Note 12— Income Taxes to the consolidated financial statements for additional information related to income tax expense.
Tax Receivable Agreements
Refer to Note 12— Income Taxes to the consolidated financial statements for additional information related to tax receivable agreements.
Critical Accounting Estimates
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions (see Note 2—Significant Accounting Policies to the unaudited consolidated financial statements in this Form 10-Q and Note 2—Significant Accounting Policies and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report). A critical accounting estimate is one that requires our most difficult, subjective or complex estimates and assessments and is fundamental to our results of operations. We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
There have been no material changes in our critical accounting estimates since our Annual Report.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
At March 31, 2018, we had $113.5 million of debt outstanding, withOur consolidated financial statements are expressed in U.S. dollars, but, effective January 1, 2021, a weighted average interest rate of 9.5%. Interest is calculated under the termsportion of our Credit Facilities based on our selection, from time to time, of oneoperations is conducted in a currency other than U.S. dollars. The Canadian dollar is the functional currency of the index rates available to us plus an applicable margin that varies based on certain factors. See “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Debt Agreements.” Assuming no changeCompany’s foreign subsidiary as it is the primary currency within the economic environment in which the subsidiary operates. Changes in the amount outstanding,exchange rate can affect our revenues, earnings, and the impact on interest expensecarrying value of a 1% increaseour assets and liabilities in our consolidated balance sheet, either positively or decreasenegatively. Adjustments resulting from the translation of the subsidiary’s financial statements are reported in other comprehensive income (loss). For the three and six months ended June 30, 2022, the Company recorded foreign currency translation losses to comprehensive income of $3.0 million and $2.0 million, respectively. For the three and six months ended June 30, 2021, the Company recorded foreign currency translation gains to comprehensive loss of $1.3 million and $2.7 million, respectively.
Other exposures to market risk have not changed materially since December 31, 2021. For quantitative and qualitative disclosures about market risk, in addition to foreign currency translation, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in the weighted average interest rate would be approximately $1.1 million per year. We do not currently have or intend to enter into any derivative arrangements to protect against fluctuations in interest rates applicable to our outstanding indebtedness.Annual Report.
Item 4. Controls and Procedures
Our management,In accordance with Rules 13a-15 and 15d-15 of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, evaluatedof the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underof the Exchange Act) as of March 31, 2018. Thethe end of the period covered by this report. Based on that evaluation, included certain internal control areas in which we have madeour principal executive officer and are continuing to make changes to improve and enhance controls. Ourprincipal financial officer concluded that our disclosure controls and procedures are designedwere effective as of June 30, 2022 to provide reasonable assurance that information required to be disclosed in theour reports we filefiled or submitsubmitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (the “SEC”) rules and forms of the SEC. Our disclosure controls and procedures include controls and procedures designed to ensure that such information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer, concluded that, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2022, we continue to integrate the entities acquired in the PropX Acquisition, on October 26, 2021. The Company is in the process of March 31, 2018,integrating PropX’s and our disclosureinternal controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Once integrated, we will update documentation of our internal controls over financial reporting, as necessary, to reflect modifications to business processes and accounting procedures were effective, at the reasonable assurance level. Any controls and procedures, no matter how well designed and operated can only provide reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of all possible controls and procedures.impacted.
There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2018June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal ProceedingProceedings
On February 23, 2017, SandBox filed suitInformation relating to legal proceedings is described in the Houston DivisionNote 15 to our unaudited condensed consolidated financial statements in Part I, Item 1 of the U.S. District Court for the Southern District of Texas against Proppant Express Investments, LLC, PropX, and LOS. LOS is party to a services agreement with PropX. SandBox alleges that LOS willfully infringes multiple U.S. patents and has breached an agreement between SandBox and LOS by “directing, controlling, and funding” IPR requests before the USPTO. SandBox seeks both monetary and injunctive relief from the court, as well as attorney’s fees and costs. On August 14, 2017, the court denied SandBox’s request for a preliminary injunction to prevent LOS from filing a request for an IPR with the USPTO,this Quarterly Report, and the court denied SandBox’s request for reconsideration of such order on March 13, 2018. Pursuant to the parties’ stipulation, all claims and counterclaims related to one of the four patents assertedinformation discussed therein is incorporated by SandBox were dismissed without prejudice on November 6, 2017. A hearing on the construction of claim terms in the remaining asserted patents occurred on March 1, 2018. We intend to vigorously defend ourselves against the claims brought by SandBox.reference into this Part II, Item 1.
We are named defendants in certain lawsuits, investigations and claims arising in the ordinary course of conducting our business, including certain environmental claims and employee-related matters, and we expect that we will be named defendants in similar lawsuits, investigations and claims in the future. While the outcome of these lawsuits, investigations and claims cannot be predicted with certainty, we do not expect these matters to have a material adverse impact on our business, results of operations, cash flows or financial condition. We have not assumed any liabilities arising out of these existing lawsuits, investigations and claims.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in the Annual Report and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results.
The risk factors below are in addition to the risk factors set forth in the Annual Report. There have been no other material changes to the risk factors in the Annual Report.
The ongoing military action between Russia and Ukraine could adversely affect our business, financial condition and results of operations.
In February of 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, higher inflation, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. As a result of the invasion and ongoing military conflict, governments in the European Union, the United States, the United Kingdom, Switzerland and other countries have implemented and may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories. Such sanctions, and other measures, as well as the existing and potential further responses from Russia or other countries to such sanctions, supply chain disruptions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, financial condition and results of operations, and could also aggravate the other risk factors that we identify herein.
The choice of forum provisions in our risk factors from those describedcharter and bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our Amended and Restated Certificate of Incorporation (as amended, the “Charter”) provides that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the General Corporation Law of the State of Delaware, the Charter or the Company’s bylaws, or (iv) any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine, in each such case subject to Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Our Second Amended and Restated Bylaws (the “Bylaws”) further provide that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933 (the “Securities Act”). Under the Securities Act, federal and state courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of common stock of the Company will be deemed to have notice of and have consented to the provisions of our Charter and Bylaws related to choice of forum. The choice of forum provisions in our Annual ReportCharter and Bylaws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Additionally, the enforceability of choice of forum provisions in other companies’ governing documents has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against us, a court could find the choice of forum provisions contained in our Charter and Bylaws to be inapplicable or unenforceable in such action. If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
There can be no assurance that we will repurchase shares of our Class A Common Stock at all or in any particular amounts.
The stock markets in general have experienced substantial price and trading fluctuations, which have resulted in volatility in the market prices of securities that often are unrelated or disproportionate to changes in operating performance. These broad market fluctuations may adversely affect the trading price of our Class A Common Stock. Price volatility over a given period may also cause the average price at which we repurchase our own Class A Common Stock to exceed the stock’s price at a given point in time. In addition, significant changes in the trading price of our Class A Common Stock and our ability to access capital on terms favorable to us could impact our ability to repurchase shares of our Class A Common Stock. The timing and amount of any repurchases will be determined by the Company’s management based on its evaluation of market conditions, capital allocation alternatives and other SEC filings.factors beyond our control. Our share repurchase program may be modified, suspended, extended or terminated by the Company at any time and without notice.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 11, 2018, our registration statement on Form S-1, as amended (File No. 333-216050), filed in connection with our IPO, was declared effective by the SEC and, on January 17, 2018, we closed our IPO consisting of 14,640,755 shares of our Class A Common Stock, of which 14,340,214 shares were issued and sold by us and 300,541 shares were sold by the selling shareholder, in each case at a public offering price of $17.00 per share. Morgan Stanley & Co. LLC acted as the representative of the several underwriters in our IPO. Following the sale of the shares in connection with the closing of our IPO and the sale of shares subject to the option referenced above, the offering was concluded. In our IPO, we received approximately $220.0 million in net proceeds, after deducting underwriting discounts and commissions of $13.4 million and $10.4 million of other offering expenses. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. The Company used $25.9 million of net proceeds to redeem Liberty LLC Units from the Legacy Owners. The Company contributed the remaining net proceeds to Liberty LLC in exchange for Liberty LLC Units. Liberty LLC used a portion of these net proceeds (i) to repay outstanding borrowings and accrued interest under the Predecessor’s ABL Facility (as defined herein), totaling approximately $30.1 million, (ii) to repay 35% of the Predecessor’s outstanding borrowings, accrued interest and prepayment premium under the Term Loan Facility (as defined herein), totaling approximately $62.5 million and (iii) for general corporate purposes, including repayment of additional indebtedness and funding a portion of 2018 and other future capital expenditures.None.
Item 3. Defaults Upon Senior Securities
NoneNone.
Item 4. Mine Safety Disclosures
Not applicable. Our mining operations are subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this report.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits required to be filed by Item 6 are set forth in the Exhibit Index included below.
INDEX TO EXHIBITS
|
| | | | | | | | | | |
Exhibit Number | | Description | |
| 1.1 | | |
1.1 |
| | Underwriting Agreement, dated as of January 11, 2018,April 29, 2022, by and among Liberty Oilfield ServicesEnergy Inc., Liberty Oilfield Services New HoldCo LLC, R/C Energy IV Direct Partnership, L.P.,Schlumberger Technology Corporation, BofA Securities, Inc. and J.P. Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC and Wells Fargo Securities LLC, as representatives of the several underwriters named thereinLLC. (2) (1) | |
| | | |
| 2.1 |
| | | |
| | | |
| 3.1 |
| | | |
| | | |
| 3.2 |
| | | |
| | | |
| 3.3 | | | |
| | | |
| 4.1 |
| | StockholderAmended and Restated Stockholders Agreement, dated as of January 17, 2018,December 31, 2020, by and among Liberty Oilfield Services Inc., R/C IV Liberty Oilfield Services Holdings, L.P., R/C Energy IV Direct Partnership, L.P., and other parties names thereinSchlumberger (2) (5) | |
| | | |
| 10.1 |
| | |
| | |
10.2 |
| | |
| | |
10.3 |
| | |
| | |
10.4 |
| | |
| | |
10.5 |
| | |
| | |
10.6 |
| | |
| | |
10.7 |
| | |
| | |
10.8 |
| | Seventh Amendment and Parent Joinder to Credit Agreement, dated January 17, 2018, by and among Liberty Oilfield Services Holdings LLC, Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders signatory thereto (4) |
| | |
10.9
|
| | Second Amendment and Parent Joinder to Credit Agreement, dated March 21, 2018,July 18, 2022, by and among Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield ServicesEnergy Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, WellsFreedom Proppant LLC, LOS Kermit LLC, LOS Leasing Company LLC, LOS Cibolo RE Investments, LLC, LOS Odessa RE Investments, LLC, Proppant Express Solutions, LLC, ST9 Gas and Oil LLC, Well Fargo Bank, National Association, as Administrative Agent, and the lenders signatory theretothereto. (4) (6) |
| | |
10.10 |
| | Amendment and Joinder to Credit Agreement, dated January 17, 2018, by and among Liberty Oilfield Services Holdings LLC, Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (4) |
| | |
10.11 |
| | Second Amendment and Joinder to Credit Agreement, dated March 21, 2018, by and among Liberty Oilfield Services LLC, LOS Acquisition Co I LLC, Liberty Oilfield Services Inc., Liberty Oilfield Services New Holdco LLC, R/C IV Non-U.S. LOS Corp, U.S. Bank National Association, as Administrative Agent, and the lenders signatory thereto (4) |
| | |
10.12 |
| | |
| | |
10.13 |
| | |
| | |
10.14 |
| | |
| | |
10.15 |
| | |
| | |
10.16 |
| | |
| | |
10.17 |
| | |
| | |
|
| | | |
10.1831.1 |
| | |
| | |
10.19 |
| | |
| | |
10.20 |
| | |
| | |
10.21 |
| | |
| | |
10.22 |
| | |
| | |
10.23 |
| | |
| | |
10.24 |
| | |
| | |
31.1 |
| | | |
| | | |
| 31.2 |
| | | |
| | | |
| 32.1 |
| | | |
| | | |
| 32.2 |
| | | |
| | | |
101.INS95 |
| | |
| | | |
| 101.INS | | XBRL Instance Document * | |
| | | |
| 101.SCH |
| | XBRL Taxonomy Extension Schema Document * | |
| | | |
| 101.CAL |
| | XBRL Taxonomy Extension Calculation Linkbase Document * | |
| | | |
| 101.LAB |
| | XBRL Taxonomy Extension Label Linkbase Document * | |
| | | |
| 101.PRE |
| | XBRL Taxonomy Extension Presentation Linkbase Document * | |
| | | |
| 101.DEF |
| | XBRL Taxonomy Extension Definition Linkbase Document * | |
| | | |
| (1) | | Incorporated by reference to the exhibitsregistrant’s Current Report on Form 8-K, filed on May 3, 2022. |
| | | |
| (2) | Incorporated by reference to the registrant’s Registration StatementCurrent Report on Form S-1, as amended (SEC File 333-216050).8-K, filed on September 1, 2020. | |
| | |
(2)(3) | Incorporated by reference to the registrant’s Current Report on Form 8-K, filed on January 18, 2018. | |
| | | |
(3)(4) | Incorporated by reference to the registrant’s Amendment No. 1 to the Current Report on Form 8-K/A,8-K, filed on January 22, 2018.April 21, 2022. | |
| | |
(4)(5) | Incorporated by reference to the registrant's Annualregistrant’s Current Report on Form 10-K,8-K, filed on March 23, 2018.January 4, 2021. | |
| | | |
*(6) | Filed herewith.Incorporated by reference to the registrant’s Current Report on Form 8-K, filed on July 22, 2022. | |
| | | |
** | FurnishedFiled herewith. | |
| | | |
†** | Denotes a management contract or compensatory plan or arrangement.Furnished herewith. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| | | Signature |
| | | /s/ Christopher A. Wright |
| Date: | July 27, 2022 | By: | Christopher A. Wright |
| | | Chief Executive Officer (Principal Executive Officer) |
| | | |
| | | Signature |
| | | /s/ Christopher A. Wright |
Date: | May 10, 2018 | By: | Christopher A. Wright |
| | | Chief Executive Officer (Principal Executive Officer) |
| | | /s/ Michael Stock |
| Date: | May 10, 2018July 27, 2022 | By: | Michael Stock |
| | | Chief Financial Officer (Principal Financial Officer) |
| | | |
| | | /s/ Ryan T. Gosney |
| Date: | May 10, 2018July 27, 2022 | By: | Ryan T. Gosney |
| | | Chief Accounting Officer (Principal Accounting Officer) |