Liberty Oilfield Services Inc. (LBRT) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance-sheet comparisons are to December 31, 2019. The company provides hydraulic-fracturing services and related goods across North American basins. Figures below are in U.S. dollars; financial statement figures are generally rounded to millions.
Financial performance and position
| Metric | Q1 2020 / March 31, 2020 | Comparable period / prior date |
|---|---|---|
| Revenue | $472.3 million | $535.1 million, Q1 2019 |
| Operating income and margin | $6.3 million; 1.3% | $44.2 million; 8.3%, Q1 2019 |
| Net income | $2.4 million consolidated; $1.7 million attributable to Liberty stockholders. Basic and diluted EPS: $0.02 | $33.9 million consolidated; $18.1 million attributable to stockholders. Basic EPS: $0.27; diluted EPS: $0.26 |
| EBITDA / Adjusted EBITDA | $51.1 million / $53.5 million | $82.5 million / $84.8 million, Q1 2019 |
| Operating cash flow | $0.2 million | $49.5 million, Q1 2019 |
| Capital expenditures | $45.4 million | $66.3 million, Q1 2019 |
| Cash and current liquidity | Cash: $56.5 million; current assets: $518.0 million; current liabilities: $283.3 million | Cash: $112.7 million; current assets: $489.0 million; current liabilities: $266.5 million, December 31, 2019 |
| Debt and borrowing availability | $109.5 million principal on term loan; no ABL borrowings and $202.7 million availability | Term loan principal: $110.0 million, December 31, 2019 |
Revenue fell 11.7% year over year. Average active fleets increased to 22.8 from 22.3, but revenue per average active fleet declined 13.7%, to approximately $20.7 million. Operating income fell 85.8%. Operating cash flow was sharply lower largely because working capital used $55.3 million of cash, including higher receivables and unbilled revenue. Cash declined $56.2 million during the quarter. The company reported total assets of $1.30 billion and total liabilities of $517.1 million at quarter end.
Gross term-loan principal was $109.5 million; the balance-sheet carrying amount of total debt, net of financing costs and discount, was $106.0 million. The term loan’s weighted-average interest rate was 8.6%. It matures in September 2022, with required quarterly amortization; the company reported it was not subject to financial covenant testing and was in compliance at March 31. The ABL borrowing base was $203.0 million, with a $0.3 million letter of credit.
Material changes versus Q1 2019
- Revenue declined $62.8 million as lower pricing and activity more than offset the modest increase in average fleets.
- Cost of services excluding depreciation and amortization decreased 8.5%, less than the revenue decline. General and administrative expense rose 29.5% to $28.6 million, including a $2.5 million provision for credit losses.
- Depreciation and amortization increased 16.8% to $44.8 million, reflecting an additional fleet and increased finance-lease assets.
- Adjusted EBITDA declined $31.3 million. The company’s reported non-GAAP measure includes adjustments such as credit-loss provisions and asset-disposal gains or losses.
- Investing cash outflow decreased to $45.1 million from $66.2 million; financing cash outflow decreased to $11.3 million from $27.9 million, partly because there were no share repurchases in Q1 2020.
Outlook, management commentary, risks and unusual items
- Management described unprecedented uncertainty from COVID-19, collapsing oil demand, oversupply and constrained storage. It said customer capital budgets and completion activity were being cut, and expected depressed demand to persist at least through Q2 and Q3 2020. No revenue or earnings guidance was provided.
- Management reduced planned 2020 capital expenditures by approximately 50%, to $70–$90 million. In April, the company cut staffed fleet and personnel counts by approximately 50%, implemented furloughs and compensation and cost reductions, and suspended future quarterly dividends. It said available liquidity and contingency plans were expected to fund operations for at least the next 12 months.
- Q1 included a $2.5 million credit-loss provision under the newly adopted expected-credit-loss standard; most of the allowance related to one customer in bankruptcy. The company also recorded a $0.7 million inventory write-down. Despite impairment indicators from market deterioration and customer cancellations, it recorded no property-and-equipment impairment at March 31; future impairment remains possible.
- The CARES Act supported a carryback refund claim; $9.3 million was recorded in prepaid and other current assets. Management estimated a 16.2% full-year 2020 effective tax rate, versus 9.7% in Q1.
- April layoffs were expected to result in approximately $7.4 million of one-time severance costs in Q2. The April dividend suspension followed the $0.05-per-share dividend paid in March.
- Supply agreements represented forecast purchase commitments of $224.2 million. Potential shortfall fees could be substantial if minimum purchase volumes are not met and suppliers do not agree to amend terms; management did not expect significant fees based on its activity forecast.
- Two putative securities class actions filed in March and April 2020 allege IPO registration-statement or prospectus misstatements and seek unspecified damages. The company said it would vigorously defend them. The filing also disclosed an early-2020 denial-of-service cyberattack, which disrupted some non-financial systems briefly; the company reported no material operational impact and minimal to no data loss.
Important facts for investors to verify
- Whether customer activity, pricing, collections and credit losses deteriorated further after March 31, particularly given the sharp decline in oil prices and the company’s customer concentration.
- Whether the planned $70–$90 million capital-spending range and April cost actions were sufficient to preserve cash, and how actual operating cash flow and liquidity compared with management’s expectations.
- Whether supply-contract minimums were renegotiated and whether shortfall fees or other commitments became payable as activity fell.
- Developments in the securities lawsuits, customer bankruptcy exposure, and any subsequent long-lived-asset impairment or cyber-risk effects.
- The filing’s stated liquidity outlook and covenant status, including the availability of the borrowing base as receivables and inventory levels changed.