Liberty Energy Inc. (formerly Liberty Oilfield Services Inc.) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Financial comparisons are with fiscal 2020 unless noted.
Business context
Liberty provides hydraulic fracturing, wireline, proppant delivery and related products and services to North American onshore oil and gas producers. It reported one operating segment. At year-end it had more than 30 active fracturing fleets. The OneStim acquisition, completed December 31, 2020, expanded its services and geographic reach; the October 2021 PropX acquisition added last-mile proppant delivery equipment and logistics software.
Key financial results
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $2.471 billion | $965.8 million |
| Operating loss | $181.2 million | $177.0 million |
| Net loss | $187.0 million | $160.7 million |
| Net loss attributable to Liberty stockholders | $179.2 million; $1.03 per share | $115.6 million; $1.36 per share |
| EBITDA, non-GAAP | $100.6 million | $3.1 million |
| Adjusted EBITDA, non-GAAP | $120.9 million | $57.9 million |
| Net cash from operating activities | $135.5 million | $85.4 million |
| Net cash used in investing activities | $186.5 million | $100.3 million |
| Capital expenditures | $198.8 million | $103.6 million |
Revenue rose 156%, reflecting higher utilization and pricing, energy-demand recovery, and service lines and fleets acquired through OneStim. Because OneStim’s results were not included in 2020 operating results, the year-over-year increase is not an organic-growth comparison. PropX contributed 66 days of operations in 2021.
Operating margin was approximately negative 7.3% and net margin approximately negative 7.6%. Adjusted EBITDA margin was approximately 4.9%. These percentages are calculated from reported figures; adjusted EBITDA is a non-GAAP measure.
Cost of services increased 162% to $2.250 billion, outpacing revenue growth. Management cited higher activity as well as inflation, supply-chain constraints, personnel costs, and repairs and maintenance. General and administrative expense rose 47% to $123.4 million, partly reflecting acquired headcount and the return of incentive and 401(k) programs. Despite the substantial improvement in EBITDA, the GAAP net loss widened.
Cash, debt and liquidity
- Cash and cash equivalents were $20.0 million at year-end, down from $69.0 million.
- Gross debt was $124.5 million: $106.5 million under the term loan and $18.0 million under the ABL. The balance-sheet carrying amount of debt, net of financing costs and discount, was $122.5 million. Cash-adjusted gross debt was approximately $104.5 million.
- The ABL had a $350 million maximum commitment, subject to borrowing-base limits. At year-end, its borrowing base was $269.0 million, with $18.0 million drawn, a $1.5 million letter of credit, and $249.5 million of remaining availability. The term loan matures September 19, 2024; the ABL matures no earlier than October 22, 2026, subject to its term-loan-related maturity provision.
- Management reported compliance with debt covenants. Current assets were $630.4 million and current liabilities $569.2 million, a current ratio of approximately 1.11.
- Operating cash flow was less than capital expenditures; the simple difference was approximately negative $63.3 million. Investing cash flow also included asset sales, sand-logistics investment and the PropX acquisition.
Material changes, outlook and commentary
- PropX was acquired for total consideration of approximately $103.0 million, principally in equity, including $11.9 million cash. Its preliminary purchase-price allocation included $94.1 million of property and equipment and $7.1 million of intangible assets.
- In October 2021, Liberty increased the ABL maximum commitment from $250 million to $350 million and extended its maturity; it also extended the term-loan maturity from 2022 to September 2024.
- Management described an industry recovery and tightening frac-fleet supply, citing higher commodity prices, rising activity, labor constraints and fleet attrition. Liberty said it was holding active fleet count steady until returns justify deployments.
- Management expected sequential revenue growth and improving margins in first-quarter 2022 as integration costs eased and pricing improved, including pass-through of inflationary costs. It anticipated modest further pricing increases and potential margin gains from lower costs and improved efficiency later in 2022. No numerical revenue or earnings guidance was provided.
- Liberty reported successful testing of its digiFrac electric pump, with an approximately 25% lower CO2e emissions profile than Tier IV dynamic gas blending equipment. It had two multi-year customer arrangements and expected its first fleet to enter commercial service in 2022.
- Dividends remained suspended, with no dividends paid in 2021; no shares were repurchased in 2021.
Risks, contingencies and unusual items
- The business is cyclical and exposed to oil and gas prices, customer capital spending, utilization, labor availability, inflation and supply-chain disruption. Weather, water access, proppant supply and regulatory or climate-related limits on hydraulic fracturing may also affect activity.
- The five largest customers represented approximately 27% of 2021 revenue, down from 48% in 2020; no customer represented more than 10% of 2021 revenue. Customer concentration and collection risk remain relevant.
- The company reported a $9.2 million income tax expense, versus a $30.9 million benefit in 2020, and established a valuation allowance against U.S. net deferred tax assets after entering a three-year cumulative pretax book-loss position. The filing reports a $91.3 million valuation allowance.
- The tax receivable agreement liability was $37.6 million at year-end. Liberty generally owes eligible holders 85% of specified realized tax savings; certain change-of-control or early-termination events may accelerate payments that could exceed tax benefits ultimately realized. No TRA payments were expected within the following 12 months.
- Purchase commitments totaled $26.0 million, primarily due in 2022. Potential shortfall fees could reach $16.1 million in 2022 and $1.4 million in 2023 if minimum purchases are missed and terms are not amended; management did not expect significant shortfall fees based on forecast activity.
- Two putative securities class actions relating to the IPO remained pending; the company said it intended to defend them. Management did not believe other proceedings in aggregate would materially adversely affect its financial position or results, but outcomes could not be predicted.
- The audit opinion on the financial statements was unqualified. Management and the auditor assessed internal control over financial reporting as effective, but PropX was excluded from the assessment during the permitted first year after acquisition; PropX represented 9% of net assets and 6% of total assets at year-end.
Investor verification priorities
- Separate organic operating trends from the effects of the OneStim and PropX acquisitions when assessing revenue growth and margins.
- Track fleet utilization, pricing, integration costs, labor and repair costs, and whether 2022 margin improvement materialized as management anticipated.
- Reconcile operating cash flow with capital spending, working-capital movements and acquisition spending; monitor cash, ABL availability and debt maturities.
- Review the assumptions behind deferred tax assets, the valuation allowance and the $37.6 million TRA liability, including potential acceleration terms.
- Monitor customer concentration, receivable quality, supply commitments and possible shortfall fees, as well as the status and exposure of the IPO-related litigation.