Liberty Oilfield Services Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The filing identifies the registrant as Liberty Oilfield Services Inc. (NYSE: LBRT), a hydraulic-fracturing services provider operating across several U.S. basins. Dollar figures below are in millions unless noted.
Financial performance
| Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Revenue | $542.1 | $628.1 | $1,077.3 | $1,123.2 |
| Operating income | $51.2 | $114.2 | $95.4 | $182.8 |
| Net income | $40.5 | $94.7 | $74.4 | $148.7 |
| Net income attributable to company stockholders | $22.0 | $49.6 | $40.2 | $73.3 |
| Diluted EPS | $0.32 | $0.71 | $0.58 | $1.05 |
| Adjusted EBITDA (non-GAAP) | $92.1 | $148.6 | $176.9 | $248.8 |
Operating margin was approximately 9.4% in Q2 (18.2% prior year) and 8.9% for H1 (16.3% prior year). Net margin was approximately 7.5% in Q2 (15.1% prior year) and 6.9% for H1 (13.2% prior year). Q2 revenue fell 13.7%; H1 revenue fell 4.1%. Management attributed lower revenue per average active fleet to oversupply of staffed fracturing fleets, lower customer activity and pricing pressure. More active fleets partly offset the declines.
Cash flow, balance sheet and liquidity
- H1 operating cash flow was $97.7, versus $109.2 a year earlier; capital spending was $130.4. Investing cash outflow was $130.1, and financing cash outflow was $38.5.
- Cash declined to $32.5 at June 30 from $103.3 at year-end 2018. Management attributed much of the decline to timing of collections as trade receivables rose to $248.2 and unbilled revenue to $98.2.
- Long-term debt outstanding was $111.3 gross ($106.8 net of discount and financing costs). The $175.0 term loan carried a 10.0% rate. The ABL had no borrowings, a $0.3 letter of credit and $233.9 of availability. The company reported covenant compliance.
- Finance and operating lease liabilities totaled $54.0 and $60.5, respectively. Adoption of the new lease standard in January 2019 recognized lease assets and liabilities; the company reported no significant impact on income, equity or cash flows.
- Equity was $792.4. H1 financing uses included $18.4 of share repurchases, $6.9 of Class A dividends and $4.4 of distributions to noncontrolling unitholders.
Changes, outlook and risks
- Q2 revenue per average active fleet decreased 20.1% year over year; average active fleets increased 8.0% to 23.0. For H1, revenue per fleet fell 13.4% while average active fleets rose 10.8% to 22.6.
- Operating income declined 55.2% in Q2 and 47.8% in H1. Higher depreciation and amortization, repair and maintenance expense, and personnel costs weighed on results; lower material costs and fewer start-up costs provided offsets.
- Management expected demand to remain stable for the rest of 2019, particularly for high-efficiency fleets, but did not expect pricing improvement during 2019 and noted possible lower activity in Q4 if customers exhaust annual completion budgets. This is management’s outlook, not a guarantee.
- WTI averaged $59.88/bbl in Q2 2019, versus $68.02 a year earlier. Management cited excess staffed-frac capacity and lower industry activity as drivers of pricing pressure.
- The company had $546.6 of future proppant, transport and chemical purchase commitments. Ordinary-course litigation was not expected by management to materially harm financial position or results; no material change in reported risk factors was noted.
- A related-party affiliate’s $15.6 of overdue invoices was converted to a note receivable due July 31, 2020, bearing 13% annual interest applied retroactively to invoice dates. The filing reported $0.7 of accrued interest at June 30.
- After quarter-end, the board approved a $0.05-per-share dividend for payment in September. In July, holders redeemed 6.19 million Liberty LLC units and corresponding Class B shares for Class A shares; the company expected related deferred-tax and tax-receivable-agreement changes.
Important facts for investors to verify
- Whether lower service pricing, fleet oversupply and customer activity continue to pressure revenue per fleet and operating margins.
- Whether cash collections improve: receivables and unbilled revenue increased substantially while cash fell, although management expected operating cash flow and available credit to fund operations for at least 12 months.
- Capital spending, maintenance requirements and lease obligations relative to operating cash flow and the term loan’s 10.0% interest rate.
- Customer concentration and collectability, including the related-party note’s repayment and interest terms; the filing reported no doubtful-account provision.
- Potential liquidity effects of purchase commitments, tax receivable agreements and any acceleration of TRA payments.
- The comparability of prior-year results: 2018 included the IPO and corporate reorganization, and the company’s non-GAAP Adjusted EBITDA is not a substitute for GAAP results.