Liberty Energy Inc. — Q3 2023 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2023, compared with the same 2022 periods. Liberty provides hydraulic fracturing and related services and technologies to North American oil and gas producers. It reported one operating segment. The company acquired Permian natural-gas compression and CNG-delivery business Siren Energy on April 6, 2023, for $76.0 million in cash.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,215.9m | $1,188.2m | $3,673.0m | $2,923.6m |
| Operating income | $205.2m | $183.0m | $636.8m | $297.4m |
| Net income | $148.6m | $147.3m | $464.0m | $247.1m |
| Diluted EPS | $0.85 | $0.78 | $2.62 | $1.30 |
| Adjusted EBITDA (non-GAAP) | $319.2m | $276.9m | $960.6m | $564.8m |
Margins. Operating margin was approximately 16.9% in Q3 2023 versus 15.4% in Q3 2022; nine-month operating margin was 17.3% versus 10.2%. Net margin was approximately 12.2% versus 12.4% in Q3, and 12.6% versus 8.5% for the nine-month periods.
Cash flow and investment. Nine-month operating cash flow was $719.8m, compared with $292.6m a year earlier. Purchases of property and equipment were $465.2m; net cash used in investing was $528.4m, including $75.7m for Siren, net of cash received. Financing used $208.3m, including $164.0m of share repurchases and approximately $25.8m of dividends. Cash declined to $26.6m from $43.7m at year-end 2022.
Debt and liquidity. Reported debt was $223.0m, all under the revolving ABL facility; the prior-year-end balance was $218.4m, including a $104.7m term loan that was repaid and terminated in January 2023. The ABL borrowing base was $521.2m, with $295.6m availability after $223.0m drawn and $2.6m in letters of credit. The facility matures January 2028; the company reported covenant compliance. Finance lease liabilities increased substantially, including $105.3m of new finance lease obligations during Q3.
Changes, outlook and risks
- Q3 revenue rose 2.3% year over year, attributed to higher service pricing, fleet reactivations, and improved fleet efficiency. Cost of services excluding depreciation fell 2.8%, mainly from lower materials and operating overhead. Operating income increased, while net income was nearly flat, partly because income tax expense rose to $49.8m from $2.6m.
- For the first nine months, revenue increased 25.6% and net income rose to $464.0m from $247.1m. Higher activity and pricing supported revenue; costs also increased with additional fleets, labor, materials, maintenance, and inflation. Depreciation and amortization rose 29.1%.
- The nine-month effective tax rate was 24.6%, versus 1.5% in 2022, primarily because Liberty recorded taxes on U.S. activity in 2023 whereas the comparable 2022 period had a valuation allowance on U.S. net deferred tax assets.
- Management described industry demand as moderating but relatively stable, with service pricing holding and underutilized fleets exiting the market. It expects seasonal softness, winter weather, and holiday disruptions in Q4, and a modest activity increase beginning in 2024, citing stronger commodity prices. This is not quantified earnings guidance.
- Management cited uncertainty from commodity-price volatility, possible Middle East conflict escalation, and recession concerns. Average Q3 WTI was $82.25/barrel, below $93.06 a year earlier; the average U.S. and Canadian onshore rig count was 817, down from 942.
- Other items to note: the board declared a $0.07-per-share dividend after quarter-end, payable December 20, 2023; $211.0m remained authorized for buybacks at September 30. The company disclosed $179.1m of future proppant, transload, and equipment commitments, including $91.4m for the remainder of 2023. It said significant shortfall fees were not expected based on forecast activity. Management did not believe pending legal matters would materially adversely affect results or financial position.
Key facts for investors to verify
- Whether Q4 seasonal weakness and the anticipated 2024 activity improvement develop as management expects; no quantified forward guidance was provided.
- Cash conversion and working-capital needs, including the increase in accounts receivable and unbilled revenue, alongside planned capital spending and shareholder returns.
- ABL availability, borrowing-base capacity, interest costs, and the effect of new finance leases on future cash commitments.
- Siren’s eventual purchase-price allocation and contribution to revenue and earnings; the filing says acquisition-related results and pro forma information were immaterial and not disclosed.
- Collection and terms of related-party balances, including $14.7m due from Liberty Resources under extended payment terms, and customer concentration: one customer represented 13% of accounts receivable and unbilled revenue at quarter-end.
- Tax expense and the $119.5m tax receivable agreement liability, as well as the remaining buyback authorization and dividend commitments.