Liberty Energy Inc. (formerly Liberty Oilfield Services Inc.) — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a standalone Q4 filing; quarterly figures below are unaudited. The company provides hydraulic fracturing services and related goods to North American onshore oil and gas producers. OneStim was acquired on December 31, 2020, so its operating results are not included in 2020 results.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $965.8 million | $1,990.3 million |
| Operating income (loss) | $(177.0) million | $103.6 million |
| Net income (loss) | $(160.7) million | $74.9 million |
| Net income (loss) attributable to Liberty shareholders | $(115.6) million | $39.0 million |
| EBITDA | $3.1 million | $269.0 million |
| Adjusted EBITDA | $57.9 million | $290.7 million |
| Cash provided by operating activities | $85.4 million | $261.1 million |
| Capital expenditures | $103.6 million | $195.2 million |
Revenue fell 51.5%, reflecting sharply lower customer activity and pricing amid COVID-19 and the oil-price collapse. Average active fleets declined 42.1% to 13.2, while revenue per average active fleet fell 16.2% to $73.2 million. Operating margin was approximately negative 18.3%; Adjusted EBITDA margin was approximately 6.0%. Adjusted EBITDA is a non-GAAP measure.
Q4 2020: Revenue was $257.6 million; operating loss was $54.4 million; net loss attributable to Liberty shareholders was $37.0 million. Revenue improved from $88.4 million in Q2 and $147.5 million in Q3, but remained below Q4 2019 revenue of $398.0 million. The OneStim acquisition closed on December 31 and contributed no 2020 operating revenue.
Balance sheet and liquidity: At December 31, cash and cash equivalents were $69.0 million, total assets $1.89 billion, and total liabilities $579.9 million. Debt principal was $108.2 million under the term loan; the ABL had no borrowings, a $115.1 million borrowing base, and $114.3 million remaining availability after a letter of credit. The term loan’s weighted-average interest rate was 8.6% and it matures in September 2022. The company reported compliance with applicable covenants. Cash declined $43.7 million during the year; operating cash flow less capital expenditures was approximately negative $18.2 million.
Material changes and notable items
- OneStim was acquired from Schlumberger for consideration of approximately $683.8 million, primarily 66.3 million newly issued Class A shares. Schlumberger held about 37% of outstanding common stock at closing. The transaction expanded the company’s fleet, service offerings, geographic reach, wireline operations, and sand-mining assets.
- OneStim’s acquired assets and liabilities were recorded using a preliminary purchase-price allocation; the company stated that the allocation remained subject to completion and adjustment. The acquisition substantially increased reported assets and equity but did not affect 2020 operating results.
- The company recorded $21.1 million of transaction, severance, and other costs, including $8.5 million related to the acquisition and workforce reductions. No impairment was recorded despite 2020 impairment indicators.
- Cash dividends were suspended in April 2020; the 401(k) match and base salaries were restored effective January 1, 2021. No shares were repurchased during 2020.
- The top five customers represented approximately 48% of 2020 revenue; four customers individually exceeded 10%.
Outlook, risks, and contingencies
- Management expected flat to slightly rising demand for fracturing services in 2021, with approximately 30 active frac fleets in Q1 and potential additions if economics improved. It cited pricing pressure but anticipated discussions could produce modest price increases during the year. This was management’s expectation, not a quantified financial forecast.
- Management identified uncertainty around the pace of oil-demand recovery, OPEC+ supply, producer capital spending, customer liquidity, and pricing. The business is highly cyclical and exposed to commodity prices and customer activity.
- Other significant risks include COVID-19 impacts, customer concentration and credit risk, integration and realization of OneStim benefits, Schlumberger’s substantial influence and potential future share sales, regulation and climate-related policy, environmental and operational hazards, and water, proppant, and equipment supply constraints.
- Contractual obligations included $127.4 million of purchase commitments, mainly for proppant and transport; shortfall fees could apply if minimum volumes are not met. Management did not expect significant shortfall fees based on forecast activity.
- The company disclosed two putative securities class actions alleging misleading statements in connection with its IPO. It planned to defend the claims; the filing did not state a clear estimate of potential loss.
- Tax receivable agreement obligations were $56.6 million at year-end. The agreements generally require payment of 85% of specified realized tax savings and may require accelerated, potentially substantial payments following certain transactions or a change of control.
- Management and the auditor reported effective internal control over financial reporting, but the OneStim business was excluded from the year-end control assessment while integration was underway. The auditor issued unqualified opinions on the financial statements and assessed controls.
Most important facts for investors to verify
- How the final OneStim purchase-price allocation, integration, utilization, and expected cost or revenue benefits compare with management’s assumptions.
- Whether the anticipated recovery in fleet demand and pricing occurs, and how utilization and per-fleet returns develop.
- Liquidity, cash generation, and refinancing or repayment plans ahead of the September 2022 term-loan maturity.
- Customer concentration, receivable collections, and exposure to customer distress or bankruptcy.
- Potential cash requirements under the tax receivable agreements, including any acceleration provisions, and the outcome of the securities litigation.
- Whether purchase commitments, lease obligations, and other contractual costs remain manageable under lower activity levels.