Liberty Oilfield Services Inc. — Q1 2018 Form 10-Q
Period: Three months ended March 31, 2018. The filing registrant is Liberty Oilfield Services Inc. (identified in the request as Liberty Energy Inc.). The company provides hydraulic fracturing services across multiple U.S. basins. The period included its January 17 IPO and corporate reorganization; 2017 comparative results are those of the predecessor, so certain net-income and equity comparisons are not directly comparable.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $495.2 million | $252.4 million |
| Operating income | $68.6 million | $9.6 million |
| Operating margin | 13.8% | 3.8% |
| Net income | $54.0 million | $8.1 million |
| Net income attributable to company stockholders | $23.7 million | Not applicable to predecessor comparison |
| Basic and diluted EPS | $0.34 | Not presented |
| EBITDA / Adjusted EBITDA (non-GAAP) | $96.6 million / $100.2 million | $23.7 million / $30.4 million |
| Cash provided by operating activities | $30.7 million | $84.3 million |
| Capital expenditures, including amounts in payables and accruals | $82.9 million | $136.5 million |
Revenue increased 96.2% year over year, reflecting 74.6% more average active fleets (19.9 versus 11.4) and 12.0% higher revenue per average fleet. Management attributed the per-fleet improvement to better pricing and throughput. Operating income rose substantially as activity and pricing improved. Adjusted EBITDA margin was approximately 20.2%, versus 12.1% in Q1 2017. Interest expense increased to $6.5 million from $1.5 million, including a $1.7 million write-off of deferred financing costs and a $0.9 million prepayment penalty related to term-loan repayment.
Liquidity, debt and balance sheet
- Cash was $98.1 million at March 31, 2018, up from $16.3 million at year-end, primarily reflecting IPO proceeds.
- Gross term-loan debt was $113.5 million; reported debt net of financing costs and discount was $107.3 million. The company had no ABL borrowings and reported $212.8 million of remaining availability.
- The term loan carried a 9.5% weighted-average interest rate. A 1 percentage-point rate change would affect annual interest expense by approximately $1.1 million, assuming unchanged borrowings.
- Operating cash flow fell by $53.6 million year over year, principally because of working-capital investment. Receivables, unbilled revenue and prepaid assets increased.
- Management said cash, expected operating cash flow and available credit were expected to fund liquidity needs for at least the next 12 months. The company reported compliance with applicable credit-facility covenants.
Material changes, outlook and risks
- The January IPO generated approximately $220 million of net proceeds. Proceeds were used in part for a $25.9 million redemption of legacy ownership interests, repayment of ABL borrowings and approximately $62.5 million of term-loan principal, interest and premium, with the balance for general purposes and capital needs. Term-loan principal outstanding declined from $174.6 million at December 31, 2017 to $113.5 million at March 31, 2018.
- The company added two fleets in Q1, bringing active fleets to 21 at March 31 and in May. Management expected to deploy one additional fleet and add horsepower to existing fleets by the end of Q2, then add two fleets by year-end, targeting 24 active fleets and approximately 1.17 million hydraulic horsepower. These are expectations, not guarantees.
- Management cited stronger market conditions: average WTI crude was $62.91 per barrel in Q1 2018 versus $51.66 a year earlier, and the average horizontal rig count was 831 versus 605. It expected strong 2018 demand, particularly for high-efficiency fleets, and anticipated improved utilization and throughput after Q1 weather challenges.
- Significant contractual commitments included $105.3 million of future operating-lease payments and $606.9 million of proppant, chemical and rail-car commitments. Proppant and chemical agreements include minimum-volume terms and potential shortfall fees; no shortfalls were reported at quarter-end.
- Tax receivable agreements generally require payment to specified holders of 85% of realized tax savings. Payments had not begun, but timing and amount depend on future events; acceleration or early termination can increase obligations and pressure liquidity.
- SandBox Logistics and Oren Technologies alleged patent infringement and breach of contract and sought monetary and injunctive relief. A preliminary injunction was denied and one patent’s claims were dismissed without prejudice; the company said the outcome and potential liability could not be predicted. Management did not expect litigation matters in aggregate to materially affect results.
- Key risks include oilfield-services cyclicality and commodity-price volatility, demand and pricing, fleet deployment and capital needs, customer concentration, working-capital requirements, interest rates, credit-facility restrictions, and legal or environmental matters. Two customers represented 27% of Q1 revenue.
Most important facts for investors to verify
- Whether planned fleet additions occur on schedule and generate the expected utilization, pricing and throughput.
- Whether working-capital needs and capital expenditures permit operating cash flow to support the stated liquidity outlook.
- The pace of term-loan repayment, borrowing-base availability and compliance with facility covenants as activity expands.
- The eventual scope and cost of the SandBox litigation and any tax receivable agreement payments or acceleration exposure.
- How customer concentration, supply commitments and minimum-volume provisions affect margins and cash flow if market activity weakens.