Liberty Oilfield Services Inc. — Q3 2021 Form 10-Q
Business context and reporting period
The unaudited report covers the three and nine months ended September 30, 2021. Liberty provides hydraulic-fracturing services and related products across North American basins. Its December 31, 2020 acquisition of Schlumberger’s OneStim business materially expanded its fleets, service lines, and geographic reach. The 2020 comparison periods do not include OneStim results.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $653.7 million | $147.5 million | $1,787.0 million | $708.2 million |
| Operating loss | $39.6 million | $55.4 million | $117.8 million | $122.7 million |
| Net loss | $39.4 million | $49.0 million | $130.5 million | $112.4 million |
| Net loss attributable to Liberty stockholders | $38.9 million | $34.5 million | $123.7 million | $78.6 million |
| Adjusted EBITDA | $32.0 million | $1.4 million | $100.3 million | $50.8 million |
| Operating cash flow | Not separately presented | Not separately presented | $80.1 million | $70.0 million |
Q3 revenue rose 343%, primarily from higher fleet utilization and pricing, market recovery, and OneStim. Adjusted EBITDA margin was approximately 4.9% in Q3 versus 0.9% a year earlier; for the nine-month periods it was approximately 5.6% versus 7.2%. Higher operating activity improved results, but cost inflation and integration pressures limited margin conversion. Despite improvement in total net loss, the loss attributable to Liberty stockholders increased year over year in both comparison periods.
Capital expenditures were $123.0 million for the nine months, versus $82.8 million in 2020. Operating cash flow less those expenditures was approximately negative $42.9 million, compared with negative $12.8 million. Cash declined to $34.7 million from $69.0 million at year-end 2020.
Balance sheet and liquidity
At September 30, 2021, total debt, net of financing costs and discount, was $121.5 million; this included $106.9 million under the term loan and $16.0 million drawn on the revolving facility. The term loan rate was 8.625%; revolving borrowings bore 3.75%. The company reported $233.2 million of availability under its $250 million borrowing base, after outstanding borrowings and a letter of credit. It was in compliance with applicable covenants.
Current assets were $671.6 million and current liabilities were $509.1 million, a current ratio of approximately 1.32. The filing states that operating cash flow and available credit were expected to fund operations for at least the following 12 months. Operating and finance lease liabilities were also significant, totaling approximately $143.8 million.
Changes, outlook, and risks
- Revenue growth and improved operating loss largely reflect market recovery and the inclusion of OneStim, which was absent from Q3 2020 reported results; reported year-over-year growth is therefore not a like-for-like comparison.
- Management cited rising material, transportation, personnel, repair and maintenance costs, labor and driver shortages, supply-chain constraints, and OneStim integration costs. It expected supply-chain, logistics, and integration challenges to continue into Q4 while working to moderate their effect on margins.
- Management reported stronger energy demand, constrained supply, and higher activity and service pricing. WTI averaged $70.58 in Q3 2021, and North American onshore rigs averaged 484, up from 437 in Q2 2021. No specific financial guidance was provided.
- On October 22, 2021, after quarter-end, the revolving facility was amended, increasing its maximum size to $350 million and extending maturity to October 2026; the term loan maturity was extended to September 2024.
- On October 26, 2021, the company acquired PropX, a proppant delivery and logistics business, using cash and equity. The filing gives differing transaction values: approximately $104 million in Note 17 based on the October 25 closing share price, and approximately $90 million in Part II based on the preceding 30-trading-day average. Purchase accounting was incomplete.
- Other risks include customer credit exposure, a valuation allowance against U.S. deferred tax assets following cumulative losses, purchase commitments and possible shortfall fees, and securities class-action lawsuits related to the IPO. Management said it did not expect the disclosed litigation, in aggregate, to materially harm financial position or results, but outcomes and timing remain uncertain.
Most important facts for investors to verify
- How much of revenue and earnings improvement reflects OneStim and market recovery versus sustainable pricing, utilization, and underlying margins.
- Whether cost inflation, supply-chain limitations, labor availability, and integration costs continue to pressure margins, particularly in Q4.
- Cash conversion and capital spending needs, including the effect of working-capital movements on liquidity and borrowing availability.
- The amended credit agreements’ full terms, covenant headroom, borrowing-base availability, and debt repayment obligations.
- The PropX consideration and valuation discrepancy between the two sections of the filing, as well as its final purchase-price allocation and expected contribution.
- Potential tax-asset realizability, tax receivable agreement obligations, and the eventual resolution and financial exposure of the IPO-related lawsuits.