Liberty Energy Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 10, 2023. This is an annual report, not a standalone fourth-quarter earnings report, and the supplied filing text does not provide a clear set of Q4-only financial results.
Business context
Liberty provides hydraulic fracturing, wireline, proppant delivery, sand, and related technology services to North American onshore oil and gas producers. It reported one operating segment. The company had more than 40 active fracturing fleets at year-end and was investing in newer, lower-emission equipment, including digiFrac electric pumps.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $4.149 billion | $2.471 billion |
| Operating income (loss) | $495.9 million | $(181.2) million |
| Net income (loss) | $400.3 million | $(187.0) million |
| Net income (loss) attributable to Liberty stockholders | $399.6 million | $(179.2) million |
| Diluted earnings (loss) per share | $2.11 | $(1.03) |
| EBITDA (non-GAAP) | $745.3 million | $100.6 million |
| Adjusted EBITDA (non-GAAP) | $860.3 million | $120.9 million |
| Cash provided by operating activities | $530.4 million | $135.5 million |
| Cash used in investing activities | $(450.7) million | $(186.5) million |
Revenue rose 68%, primarily from higher service pricing, fleet reactivations, and higher utilization and efficiency as demand strengthened. Cost of services increased 40% to $3.149 billion, reflecting greater fleet activity, materials use, labor, maintenance, and inflation. The difference between revenue and cost of services was approximately $1.000 billion, or 24.1% of revenue, versus approximately $221 million, or 8.9%, in 2021. Operating margin was approximately 12.0%, compared with negative 7.3% in 2021.
Investing cash outflow included $451.9 million of property and equipment purchases, supporting fleet deployment and digiFrac investment. Operating cash flow less those purchases was approximately $78.5 million; this simple measure is not the company’s reported free cash flow. Working-capital changes used cash during 2022.
Liquidity, debt, and capital allocation
- At December 31, 2022, cash was $43.7 million and total debt, before unamortized discounts, was approximately $219.7 million: $115.0 million drawn on the ABL facility and $104.7 million on the term loan. The weighted-average rate on total borrowings was 9.0%.
- The ABL borrowing base was $425.0 million, with $115.0 million outstanding and a $2.6 million letter of credit; reported remaining availability was $307.4 million. The company reported compliance with debt covenants at year-end.
- On January 23, 2023, Liberty increased the ABL facility commitment to $525 million, extended its maturity to January 2028, and used $106.7 million of ABL borrowings to repay the term loan. As of February 6, 2023, the filing reported $284.0 million outstanding on the ABL and a $2.6 million letter of credit.
- Liberty repurchased 8.19 million shares for $125.3 million during 2022. The board increased the cumulative repurchase authorization to $500 million in January 2023. A $0.05-per-share quarterly dividend was reinstated in 2022; another $0.05 dividend was approved for March 2023.
- Year-end working capital was supported by $956.7 million in current assets and $649.5 million in current liabilities. The balance sheet included a $118.9 million long-term tax receivable agreement liability.
Changes, outlook, and notable items
- The company moved from a 2021 operating and net loss to substantial profit in 2022 as activity and pricing improved. U.S. and Canadian average onshore rig count was 947 in Q4 2022 versus 704 in Q4 2021; average 2022 WTI was $94.90 per barrel versus $68.13 in 2021.
- Management described North American hydrocarbon fundamentals and frac demand as healthy, expecting activity to support production and offset natural declines. It anticipated that any pullback in natural-gas regions might be offset by demand in oil-focused areas. Management also cited elevated recession risk and uncertainty around commodity supply and prices. This is qualitative outlook, not numerical guidance.
- The 2022 tax benefit was $0.8 million despite $399.5 million of pretax income. The company released a $91.3 million valuation allowance on U.S. deferred tax assets; that release also contributed to a $76.2 million loss from remeasuring the TRA liability. Reported other expense was $96.4 million.
- Purchase commitments for proppant, transload services, and equipment totaled $203.4 million, including $158.7 million due in 2023. Possible shortfall fees were disclosed, although management did not expect significant fees based on forecast activity.
- A related-party affiliate had $11.8 million of outstanding invoices under amended payment terms due April 1, 2024, with interest rates stepping up over time. The filing also reports $131.8 million of 2022 services revenue from Franklin Mountain Energy, an entity related through a director.
- Management said litigation matters were not expected, in aggregate, to materially adversely affect financial position or results. The company highlighted cyclical demand, commodity-price volatility, inflation, supply and labor constraints, weather, customer concentration, environmental and hydraulic-fracturing regulation, safety, and climate-related policy as significant risks.
- The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls were effective.
Most important facts for investors to verify
- Obtain the company’s Q4 2022 earnings release or quarterly data for standalone fourth-quarter revenue, margins, earnings, and cash flow; this 10-K summary provides annual comparisons.
- Assess whether higher pricing and utilization can be sustained while labor, materials, maintenance, and fleet investment costs rise.
- Review the post-year-end ABL balance, borrowing availability, interest costs, covenants, and the effects of debt-funded shareholder returns.
- Examine the $118.9 million TRA liability, its sensitivity to future taxable income and tax assumptions, and the potential acceleration of payments upon a change of control.
- Track collection and repayment of the $11.8 million related-party receivable, customer concentration and credit exposure, and the $203.4 million of purchase commitments.
- Distinguish GAAP profit and operating cash flow from non-GAAP EBITDA and Adjusted EBITDA; review the company’s reconciliations and adjustments.