Liberty Oilfield Services Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company provides hydraulic fracturing services and related goods across North America. Unless otherwise noted, amounts below are in millions of U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $552.0 | $472.3 |
| Operating income (loss) | ($42.2) | $6.3 |
| Net income (loss) | ($38.6) | $2.4 |
| Net income (loss) attributable to Liberty stockholders | ($34.2) | $1.7 |
| Basic and diluted EPS | ($0.21) | $0.02 |
| EBITDA (non-GAAP) | $19.8 | $51.1 |
| Adjusted EBITDA (non-GAAP) | $31.7 | $57.7 |
| Cash from operating activities | $27.5 | $0.2 |
| Cash used in investing activities | ($23.8) | ($45.1) |
Revenue increased 16.9%, primarily from additional fleets and service offerings acquired with OneStim, partly offset by lower frac pricing than in the pre-pandemic comparison period. Cost of services, excluding depreciation and amortization, rose 27.0% to $498.9 million. Revenue less this cost was $53.1 million, or 9.6% of revenue, versus $79.6 million, or 16.8%, a year earlier. Management attributed lower EBITDA and Adjusted EBITDA to weaker pricing and lagging margin recovery as activity recovered.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $69.5 million at March 31, 2021, versus $69.0 million at December 31, 2020.
- Total debt, net of financing costs and discount, was $105.7 million, including $107.8 million outstanding on the term loan before those deductions. The term loan carried a weighted-average interest rate of 8.6% and matures September 19, 2022; $106.5 million of principal was scheduled to mature in 2022.
- The ABL facility had no borrowings; $188.9 million remained available after a $0.8 million letter of credit. Its borrowing base was $189.7 million.
- Management said operating cash flow and available credit were expected to fund operations for at least the next 12 months. The company reported compliance with applicable credit covenants.
- Total liabilities were $639.0 million and total equity was $1,277.7 million. Tax receivable agreement liabilities were $84.7 million, up from $56.6 million at year-end, including a $28.1 million increase associated with unit redemptions.
Material changes and unusual items
- OneStim, acquired from Schlumberger on December 31, 2020 for approximately $683.8 million in stock and other consideration, is included for the full first quarter of 2021; Q1 2020 contains no OneStim results. The reported year-over-year comparison is therefore not on a like-for-like basis.
- Q1 2021 included $7.6 million of OneStim-related transaction costs and $62.1 million of depreciation, depletion and amortization, up from $44.8 million. The acquired fleets and assets contributed to both higher revenue and higher costs.
- The company recorded an income tax benefit of $7.4 million, compared with $0.3 million of tax expense in Q1 2020. It expected to apply for a $5.5 million CARES Act NOL carryback refund.
- Class B share redemptions resulted in 10.3 million shares exchanged for Class A shares during the quarter. Schlumberger owned approximately 37% of outstanding common stock at March 31, 2021.
- The quarterly dividend remained suspended; the company said it had suspended future dividends in April 2020 until business conditions warranted reinstatement.
Outlook, risks and contingencies
Management described improving energy demand, higher oil prices and a recovering North American onshore rig count. It expected frac demand to be flat to slightly higher in 2021, with publicly traded operators relatively level and potential growth from private operators if commodity prices supported activity. The company expected to maintain its current fleet count, with possible additions later in the year if economics improved. Improved fleet profitability depended on operating efficiencies, modest pricing recovery and continuation of the prevailing commodity-price environment; no specific earnings or revenue guidance was provided.
- Risks include commodity-price volatility, COVID-19 and related demand disruption, customer activity and payment capacity, pricing pressure, and foreign-exchange movements following the start of Canadian operations. Management recorded a $1.4 million foreign-currency translation gain in other comprehensive income.
- Supply, proppant, transload and mancamp commitments totaled $92.6 million. Potential shortfall fees could reach $31.7 million for the remainder of 2021 and additional amounts through 2025 if minimum purchases were missed; management did not expect significant fees based on forecast activity.
- Two securities class actions relating to the IPO sought unspecified damages. The company planned to defend them; management said it did not believe pending matters in aggregate would materially affect financial position or results, but outcomes and duration were uncertain.
- Management disclosed no material off-balance-sheet arrangements other than purchase commitments and reported that disclosure controls were effective.
Important facts for investors to verify
- Assess OneStim’s contribution to revenue, costs and fleet utilization separately from the legacy business; Q1 comparisons include the acquisition only in 2021.
- Track pricing recovery against service-cost inflation and whether the decline in Adjusted EBITDA margins reverses.
- Review cash conversion, working-capital movements and capital spending; Q1 operating cash flow benefited from working-capital changes, while $27.5 million of capital expenditures were included in accounts payable and accrued liabilities.
- Evaluate the 2022 term-loan maturity, refinancing or repayment capacity, and the potential cash impact of tax receivable agreement obligations.
- Monitor supply minimums and any shortfall exposure, the IPO-related litigation, customer credit risk, and the company’s expected timing and amount of the tax refund.