Liberty Oilfield Services Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company provides hydraulic fracturing services and related goods across North American basins. Results include the OneStim business acquired from Schlumberger on December 31, 2020; the 2020 comparison does not include OneStim’s results.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $581.3 million | $88.4 million | $1,133.3 million | $560.7 million |
| Operating loss | $36.0 million | $73.5 million | $78.2 million | $67.3 million |
| Net loss | $52.5 million | $65.8 million | $91.1 million | $63.4 million |
| Net loss attributable to company stockholders | $50.6 million | $45.8 million | $84.8 million | $44.1 million |
| Adjusted EBITDA | $36.6 million | $(8.3) million | $68.3 million | $49.4 million |
| Operating cash flow | Not separately provided | Not separately provided | $35.6 million | $96.6 million |
Q2 revenue rose 558% year over year, reflecting the recovery in activity from pandemic lows and the addition of OneStim fleets and service lines. Revenue less cost of services, before depreciation and amortization, was approximately $59.3 million (10.2% of revenue), versus negative $1.2 million in Q2 2020. For the six-month period, this measure was approximately $112.4 million (9.9% of revenue), versus $78.5 million (14.0%) in 2020. Operating margins remained negative: approximately (6.2)% in Q2 and (6.9)% for the six months. Management attributed the six-month operating loss increase primarily to lower margins versus a prior-year period that included three pre-pandemic months, and the restoration of cost-saving measures.
Q2 basic and diluted loss per share was $0.29; six-month loss per share was $0.50. Q2 income tax expense was $16.0 million, and six-month expense was $8.6 million, mainly reflecting a valuation allowance on U.S. deferred tax assets after the company entered a three-year cumulative pretax loss position. Adjusted EBITDA is a non-GAAP measure; the filing cautions it is not a substitute for GAAP results.
Cash, debt, and liquidity
- Cash and cash equivalents were $30.7 million at June 30, 2021, down from $69.0 million at December 31, 2020. Six-month operating cash flow of $35.6 million was below capital spending of $67.9 million; cash used in investing activities was $65.9 million.
- Term-loan debt was $107.3 million outstanding ($105.6 million net of financing costs and discount); weighted-average interest rate was 8.6%. Approximately $106.5 million of principal matures in 2022. The company had no ABL borrowings, a $0.8 million letter of credit, and $246.5 million of ABL availability at quarter-end. It reported compliance with applicable covenants.
- Total current assets were $668.7 million and current liabilities were $491.1 million. Current liabilities include lease obligations. Operating lease liabilities totaled $123.6 million and finance lease liabilities $22.9 million.
Material changes and notable items
- OneStim materially expanded operations and consolidated revenue, assets, and workforce; transaction costs were $3.0 million in Q2 and $10.6 million for the six months. Purchase-price allocation remained preliminary.
- Class B shares were exchanged for Class A shares during the period. A June secondary sale by R/C entities involved 12.3 million Class A shares; the filing describes it as a shareholder sale, not a company capital raise. Schlumberger held approximately 37% of outstanding common stock at June 30.
- The quarterly dividend remained suspended. The company restored its 401(k) matching contribution effective January 1, 2021.
- The company recorded a $3.3 million gain from remeasurement of its tax receivable agreement liability. The liability was $53.3 million at quarter-end; such agreements generally require payment of 85% of specified realized tax savings and can create liquidity pressure, including in certain change-of-control circumstances.
Outlook, risks, and contingencies
Management reported improving demand and constructive commodity-market conditions, with Q2 average WTI at $66.19 and North American onshore rig count averaging 437, up from 378 in Q1. It expected demand for completion services to continue increasing, anticipated modest frac-activity growth in 2022, and cited potential for stronger service pricing as activity and next-generation equipment demand tighten. These are forward-looking expectations, not firm financial guidance. Management said operating cash flow and available credit should fund operations for at least the next 12 months.
Key risks include oil and gas demand and pricing, COVID-19 effects, customer payment and credit risk, cost and wage inflation, foreign-currency exposure from Canadian operations, and execution of OneStim integration. Supply and service commitments totaled $48.5 million; potential shortfall fees could apply if minimum purchases are missed, although management did not expect significant fees based on forecast activity. Two securities class actions alleging IPO disclosure violations seek unspecified damages; the company plans to defend them and said currently known litigation was not expected to materially affect financial position or results. No material risk-factor changes were reported.
Important facts for investors to verify
- Whether activity growth and service-price improvement materialize, and whether operating margins turn positive as costs and inflation rise.
- OneStim’s ongoing contribution to revenue, cash generation, capital needs, and integration costs; comparisons with 2020 are not like-for-like.
- Cash conversion and working-capital trends, including the significant six-month decline in operating cash flow and the increase in receivables and unbilled revenue.
- Refinancing or repayment plans for the approximately $106.5 million term-loan maturity in 2022, and continued covenant compliance.
- Recoverability of deferred tax assets, future tax-receivable-agreement obligations, supply-commitment exposure, and developments in the securities litigation.