Good morning, and welcome to the Liberty Oilfield Services First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Some of our comments today may include forward-looking statements, reflecting the company's view about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause the actual results to differ materially from our forward-looking statements. These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in the company's earnings release and other public filings.

Thanks, Ian. Good morning everyone, and thank you for joining us to discuss our first quarter 2021 operational and financial results. We're excited to embark on a new era for Liberty, completing our first quarter with an expanded platform as a fully integrated completion services engineering and diagnostics company. We're pleased to report $552 million in revenue and $32 million in adjusted EBITDA in the first quarter. The Liberty OneStim combination has been extraordinary. We've doubled the size of our business, while only growing G&A by approximately 15%, and depreciation and amortization by less than 40% from pre-pandemic levels, in exchange for a 37% equity interest. In addition, the enormous growth in our technological expertise has been inspiring. We've brought together a suite of leading edge technologies and two of the top technological teams in the industry. We are excited to bolster our frac technology leadership in many areas, and I will highlight just a few later in the call. We have come a long way since the founding of our company a decade ago. Our focus, however, remains the same; delivering superior returns across cycles to build a differential company with long-lasting competitive advantages. Accomplishing this requires great people and a culture that aligns them to passionately pursue the Liberty mission. We estimate, and we currently have a little over 15% of the deployed fleets in the market, and are likely completing a little under 20% of North American shale wells. After a rapid rebound off of the COVID bottom, we are now in a slowly improving market. Liberty's number of deployed fleets in the first quarter was in the low 30s and will be similar in the second quarter. We will remain disciplined in deploying additional capacity. Fleets are only deployed to customers with strategic value and that will deliver good returns on capital invested. Overall, market conditions today remain challenged, but they are improving as demand for frac services grows, and more importantly, the supply of quality fleets shrinks. Interest in Liberty fleets and partnership continues to grow. Our dialogues with customers are becoming even more constructive as both parties seek mutually beneficial long-term partnerships.

Good morning. We are pleased with our first quarter results. I'd like to take a moment to thank our entire team for going above and beyond expectations. They came together to deliver solid results while encountering operational challenges arising from unusual winter weather and added responsibilities through the sizeable integration about OneStim acquisition. We're off to a great start. Executing on our strategy, we expect to drive the next phase of financial growth and superior returns. We are already seeing early stage benefits from our teams leveraging a full suite completion services, including frac, wireline and sand, along with engineering and diagnostic tools unique in the industry to drive increased engagement with new and existing customers. As Chris reviewed, we are also working very hard on integrating our technology development efforts to improve efficiencies throughout the supply chain and drive the next phase of innovation in the frac business.

Thanks, Michael. I just want to extend a broad and heartfelt thanks to everyone in the Liberty family that's worked so hard through these tough times and through this tremendous transformation of our company, to all our customers and partners as well. And with that, we'll open it up for questions.

We'll now begin the question-and-answer session. And our first question comes from Blake Gendron of Wolfe Research. Blake, please proceed.

Yes, thanks. Good morning, guys. And Chris, always appreciate your perspective on the macro and the energy outlook at the top of the call here. I want to circle back on the path to normalize margins. Seems like things are still pretty competitive pricing-wise, perhaps an upside biased activity with privates potentially adding in the back-half year. That said, it seems like we really need to see either, number one, accelerated attrition or, number two, a bifurcation of next-gen frac equipment in terms of pricing. Curious more so on the latter, how you think this manifests in terms of your relationship with customers. Is there any sort of pricing mechanism by which you can take down some economic created by GHG emission reduction?

Yes, you're right in that the market today is tough. Look, we've come off an incredibly low downturn, but every quarter we are seeing supply and demand sequentially getting better. And yes, people want next generation frac equipment; they want lower emissions. Of course, it's not just greenhouse gas emissions, but also carbon monoxide and other pollutants that are reduced with modern fleets. So, there's a hunger for that. There's also an understanding that our whole industry, the service industry doesn't have the good returns today that E&P have recently come back to. So yes, it's a dialogue. Everybody buying wants a low price; everybody selling wants a high price. But absolutely, the next generation fleets with higher performance and opportunities to bring technology to continue to drive performance is commanding a price premium. And so, it takes time.

Totally fair. Wanted to switch to wireline bundling, we've seen some companies try to do this in the past with fairly mixed success at various points in the cycle. Wondering what Liberty is seeing in terms of early NPT reductions and the like, I know still very early days. And also in this current activity environment, what the receptivity of value-added wireline technology is looking like. Is there anything specifically you'd call out on that front?

Look, obviously, in integration between frac and wireline at the new Liberty, we're early on in that. But yes, there are opportunities that make those two teams and systems work together better to drive efficiency and lower downtime. Absolutely. Clearly, Schlumberger had a number of those paired fleets working together. For us, it would be about bundling, sort of like price discounts. For us, it isn't about that. It's about how do we deliver the safest, fastest, best, most efficient completion service. And that really is a dance on the dance floor between frac and wireline. So, we're proud of the teams we have on both sides, and very excited about the opportunities to make those into one team, not two different teams.

Thanks a lot for the time.

Thank you. Thanks, Blake.

Our next question comes from Scott Gruber of Citigroup. Scott, please proceed.

Yes, good morning.

Morning, Scott.

Great to hear that normalized margins are possible next year. And certainly we saw the quick snapback last cycle, like you commented on, Chris. Where would you peg the normalized margins given the new combined fleet and the different portfolio composition that you're going to have this next cycle?

Well, Scott, peg sounds way too specific for us, particularly when talking about the future. But look, clearly our cost basis across our fleet, our average fleet, is lower now. What we ultimately focus on is return on capital employed or measured another way, cash return on cash invested. In our 10-year history, not exactly in stellar years in the industry, we've been above the S&P 500 in that metric. That's our goal, to continue to deploy cash in a disciplined fashion and generate a solid return on that. And so that's the ultimate yardstick for us. From an EBITDA per fleet, a broad-brush estimate would be something in the mid-teens. Yes, it's about developing strong returns on capital and a strong balance sheet so we are prepared for whatever comes.

Got you. And just thinking through the pathway to get to something in the mid-teens ballpark, is it primarily operationally driven through your fixed cost absorption and efficiency improvement initiatives? How much pricing is required to get there? If you can kind of split the pricing driver from the other drivers, that would be great.

It’s a combination of both factors. I won’t go into further specifics, but both are necessary. We have definitely made strides in efficiency and are actively working to lower our service delivery costs. However, we have experienced significant pricing compression, particularly as oil prices drop, and this trend is seen across the entire sector. We do need to see some recovery in pricing. I believe our customers understand this. The positive aspect for both customers and the industry is that pricing doesn’t need to return to previous levels to achieve meaningful returns; ongoing improvements in efficiency within our industry are key. The costs associated with drilling wells and delivering oil have continued to decrease over time. While we might see a slight cyclical increase in the next 12 to 24 months, it will likely be modest.

Got you. Would you be willing to offer if it's more operationally driven or more pricing driven to get there?

Michael is swinging a baseball bat at me, so it's hard to make predictions about the future. It's those two things working in concert; time will tell.

Understood, appreciate the color.

Thanks, Scott.

Our next question comes from George O'Leary of TPH & Company. George, please proceed.

Morning, Chris. Morning, guys.

Morning, George.

You all talked a good bit about attrition and kind of marketed supply not being what it may seem on the surface. I'm curious if you could peel that onion a little bit and frame what you guys view as the actual marketed supply versus what our perception of that marketed supply might be?

Yes, it's challenging to provide specific numbers, but our estimate, which seems to align with consensus, is that we likely have around 200 frac fleets operational today. There is a considerable amount of parked equipment, but very little, if any, of that equipment is actively staffed. Customers tend to choose newer fleets when the market softens, reflecting a growing demand for next-generation equipment. While there is still a significant amount of legacy equipment, it is not being reinvested in and is underperforming. Fleets that once operated a certain number of pumps are now experiencing reduced performance due to maintenance issues and pump failures. There isn't an abundance of new fleets ready to be deployed immediately. The situation is complex, and we lack sufficient data to accurately quantify it. However, the rate at which equipment is being retired and becoming outdated is significantly greater than the rate of new equipment being produced.

That's very helpful, Chris. Regarding the e-frac offering, there seems to be strong demand for more ESG-oriented solutions that truly enhance field efficiencies in the market. The utilization numbers show a variety of technology types. At a high level, what do you believe sets your e-frac offering apart from competitors? Is it primarily due to the SC9 pump, or are there additional features? I’m not seeking specific details, as I understand you want to protect your competitive advantage. However, any general insight into what makes your offering unique compared to the competition would be appreciated.

Yes, George, this is Ron. I'll maybe give you just a couple of points that we would highlight in that regard. You certainly hit on one of them. We think from the SC9 pump standpoint, we have taken a very novel approach to the design there and believe that that asset is going to be a better performing asset out in the field, relative to other approaches that have been taken. We're pretty excited about the innovations there. But I think the other side that we looked at very carefully was the power generation side; there has been one typical approach to powering directly out in the field. Our look at that suggested that there was not the optimal way to be running a frac fleet, specifically regarding e-frac fleets. We will be taking a different approach to powering our frac fleet, utilizing natural gas reserve engines rather than a gas turbine on location. We believe this delivers better capital efficiency, improved redundancy, and a better efficiency result. Most importantly for some of our customers, it offers a significantly improved footprint compared to existing solutions.

Awesome. Thanks for the call, Ron.

Our next question comes from Stephen Gengaro of Stifel. Please proceed.

Thanks. Good morning, everybody. Two things first, you mentioned your fleet count in the low 30s deployed. Are you willing to give us a sense of how many fleets you have that are readily available to go back to work and how many would require material CapEx to reenter the active fleet?

As we pointed out, I think when we rolled out the OneStim deal, part of the deal we had 20 retakes described by the blue fleet ready to go. No capital is required for those, plus we were running more to 23, 24 fleets of Legacy rate, so those two basically outline our CapEx needs.

Okay, great. Thanks. And then second, as you've gone through the process and integrated some of the Schlumberger assets, the OneStim assets, has anything surprised you about the relative profitability or efficiencies? Have you seen anything that increased your confidence level or changed your views on integration savings and how they unfold over the next year or two? And how should you liberate their assets?

No, I think we would be very pleasantly surprised by the efficiency. I think that's one of the things when you get under the hood. There's an incredible amount of pride out there, and those teams are incredibly good. So yes, I think they love the fact is that if you're working with that team, and you have that responsibility, you need to be your best. We are more optimistic about that potential. And when we get to the investor day on June 17, we will lay out some more looks at the integration. Ron and the technology team have done a great job of really identifying what's going to be the next generation integrated team. As you know, we make investments for the long term, and I think it's going to be exciting.

Okay, great. Thank you.

And our next question comes from Chris Voie of Wells Fargo. Chris, please proceed.

Thanks. Good morning. I was hoping to touch a little bit more on pricing. I know you don't want to get too detailed, but just compare to, I guess, in February, when you described the fact that you had some pricing increases baked into contracts already that would be showing up in the second and third quarter. Just curious if lead pricing has improved at all compared to that. And then whether you expect any pricing uplift from including DigiFrac or frac sands if they're going to be additive, or how to think about what that might bring as you get into the second half of this year or 2022?

Hi, Chris. I think Chris pointed out that we continue those discussions with customers. They've probably had more price increases baked in as we go through the year into next year. Of course, the de-fracking won't affect margins until we come in next year. We'll have an increasing amount of Tier IV DGB fleets which are also in great demand by customers as we get through the backend of this year. So that will help.

Okay, thanks. That's helpful. And then maybe on the CapEx front, with CapEx guidance ranging from $145 to $175, how do we evaluate the upside risk to that, in the case of, let's say, E&Ps get even more hungry for ESG quality fleets, and you have to potentially upgrade to Tier IV DGB or I guess, DigiFrac is not in the near future? But how much upside risk would there be if that becomes even more important to your customers?

The upside risk won't be managed without a strong path. It comes down to pricing and returns, and that's what drives their investments. They're looking towards that path of long-term business.

Okay, thank you.

Our next question comes from Ian Macpherson with Simmons. Please proceed.

Thanks. Good morning, Chris, Michael, thank you for all the color. When we look out, making the walk from where you are in Q1 towards normalized margins by next year, starting in Q2, you will have the abatement of the weather impact. I assume that the $25 million of revenue impact that you called out in Q1 would have extremely high EBITDA decrementals associated with it. So, are all of those factors correct as we start the march from Q1 towards normalized margins next year?

One clarification; I think the initial review will roll into Q2, which has had normal increase decrementals, so nothing particularly different other than revenue growth and activity growth. Yes, you're right. I think as Chris said, this is a move towards normal margins at some point in '20, right, so making sure that you're not expecting to come out of the gate on January.

Understood, and we're looking and hoping for some upside to it, actually below your prior cycle margins next year in our model.

Yes, I don't have any particular insight into that. There's certainly always a dialogue; it certainly makes sense. So, there is a real possibility that that's how it happens. But, ultimately, it comes down to human beings making decisions, which makes predictions challenging.

Okay, understood. Well, looking forward to the event in mid-June. Thanks.

Thank you. We look forward to seeing you then.

Next question comes from Mike Sabella with Bank of America. Please proceed.

Hey, good morning, everyone.

Good morning.

So you all gave some color on 2Q activity, if we sort of think about the back half of the year, where do you think the industry goes from here through year-end? Is there upside? Is anybody having conversations around kind of 4Q, but budget exhaustion? Is it something we need to start thinking about yet or is it still too early to tell?

I would say it's too early to tell. Certainly for the publics, they lay out a budget plan, and they're going to stick to it. As typically happens, if the efficiency of operations runs faster and better than you budgeted for, the possibility of budget exhaustion is certainly there. But the fourth quarter is still something we have to monitor carefully. The public companies generally will not overspend their budget, so they're likely to get their work done ahead of deadlines.

Got it. Yes, that's fine. If we could just kind of step back and think higher level about Liberty strategy. I think you mentioned you all had completed 20% of the shale wells in the U.S. and you're around this 200 frac fleet number commonly thrown out there as what's maintenance for the industry. When you're planning for market share with an industry fleet level kind of on either side of what you think is normal, what is normal for the industry, and how do you approach market share when the industry is running either hotter or colder than you think?

For us, market share is always an output, not an input. The decision to work a fleet is always bottom-up. We don't say we're going to put five fleets to work here. It's about who our existing partners are, how is that relationship. We maintain pretty low customer turnover, working with our existing partners to deepen relationships. The scenario varies; we could grow market share with existing partners if they're larger players. In the end, our history shows a slow growth in market share, primarily as the right customers and partnerships have pulled us through, but it's always bottom-up.

Okay. Thanks, Chris.

Thank you.

Our next question comes from Waqar Syed of AltaCorp Capital. Please proceed.

Thank you for taking my question, and congrats on a great quarter. Thank you, Chris, for your comments on the macro, always appreciated. I may have missed this. I was a little late in joining, but on Canada, how many active fleets do you have in the first quarter and how would seasonality impact second quarter results in Canada?

Waqar, we didn't give details about where our fleets are running. In January, we were running low 30s fleets across the whole complex of North America. Obviously, we'll have a relatively flat fleet count in Q2. Canada itself has normal seasonality; there will be a breakout and pick up again in the summer, followed by a drop in January.

We're thrilled to be in Canada. Thanks for asking. Yes, you would have tremendous American partnering energy in the broader picture, so we're very happy to be in Canada and look forward to building a better business in that market.

Oh, absolutely. Yes, Canada is an attractive market now. Now, in terms of profitability in Canada in the first quarter, how would that compare to the average for what you reported in the first quarter?

Obviously, we don't break out geographies. But again, we have a very, very firm approach to how we run our business, and every decision of putting a fleet to work is very unique. Therefore, they have to be effective. We believe Canada is a very appealing long-term market for us.

Absolutely. And then just one final question, what's your current public versus private mix in terms of number of fleets allocated?

As we've said before, generally, with the OneStim acquisition, our public-private mix is fairly close to where the industry is. I think what you've seen is a bit of a pickup in the privates. In the beginning part of this year, so we may be have a little heavier to the public just slightly, because that’s where we were going into the beginning of this year. But generally, we are reflective of the markets.

Okay, great. Thank you very much. Appreciate the color.

Thanks for your question.

Next question comes from John Daniel of Daniel Energy. Please proceed.

Hey, thanks guys. Congrats on the great interest in DigiFrac. Just have a question on that. Really wanting to understand the removal process? Because I would assume you guys would seek some contractual support before any type of large scale build out. But I'd also assume E&P companies would want to test the system before they want to sign a contract. So it kind of creates a little bit of a chicken-and-egg scenario, I'm just curious how you think you’re going to handle that?

John, it's a balance between those two things. In discussions with customers, one of the things, certainly, is we don't want our customers to take technology risk. They've done that and in many cases, it's not worked out well. It's up to Liberty to deliver DigiFrac to performance specs. We will secure contractual commitments, but if our fleet doesn't work, that's not on them; it's on us.

Okay, so maybe performance-based contracts then, so they don't have an out or give you the ability to build.

All frac contracts are that way. There've been some that were not, and I think that's a mistake for both parties.

Okay. And then, one comment, I think you mentioned Chris was the 20% lower emissions on DigiFrac. Is that relative to a legacy turbine solution, or even the Tier IV DGB solution? Any color on that?

That's relative to all existing practices that we've data on.

Got it. Okay, fair enough. I guess, last one for me, you mentioned low-30s fleet count in Q1 and Q2. Just knowing there’s some lead time to reactivate fleets, are you making any plans now to sort of reactivate fleets, taking into the mid-30s in the back half of the year? Understand if you don't want to say, but just curious.

Yes, John. We're in numerous dialogues with existing partners, and potential new partners. There's no macro plan of what our fleet level is going to be. But again, relationships drive it all for sure. We will be disciplined; if there's strong demand pull from customers and partners, that could creep up, but it won't scream up. So yes, it's uncertain at this time.

Fair enough. Thank you for taking my call.

Thanks, John.

Thanks, John. We look forward to seeing you out on the road. Appreciate all your efforts.

Our last question comes from Chris Voie of Wells Fargo. Chris, please proceed.

Just one more follow-up here. I'm curious if you could give some color around the contribution from the sand mines. Obviously, different setup now compared to previously. Just curious if you can break out if that was a meaningful contribution to profitability or percentage of revenues, any color on that.

If we think of it as one integrated delivery to our customers, we really aren't breaking those out at the moment. It's not sizable enough to be broken out of segments. Look at the complex as a whole. Thanks.

And our last question comes from Frank Reppenhagen of Concentric Equity Partners. Please proceed.

Hey, guys. Great job improving the business in a very tough market. As we remember the Sanjel acquisition transforming the company in 2016, I know that we're going to look back and OneStim is just a transformational event for both this business as well as for the entire market. As demand comes back, we're going to capture more than our fair share of quality customers. Question for Chris or Ron on that is fleet deployment increases? Can you comment a bit on the labor market? A lot of CEOs that we talked to are reporting a hard time recruiting and retaining field workers, and enhanced unemployment benefits creating a lot of friction bringing people back into the workforce. How does Liberty see scaling up the workforce over the course of 2021?

Yes, great comment, Frank. And that is indeed the case. It's the case for Liberty; it's the case for the industry. It's the case for the broader economies as well. In my opinion, there are about 6 million people out of the labor force who were previously working but don't intend to return to the labor force right now. You have fiscal and monetary stimulus to drive growth. We have supply constraints and some constraints on the labor supply that hopefully end in September, but we'll see what Washington does regarding employee benefits. Yes, that problem is dramatically worse for other industries, but it is also an issue for us. Fortunately, we have a good culture. Hiring today is much harder than you would think from the outside.

I would add that that's one of the underappreciated factors limiting the supply of frac services in general, which helps on the pricing side. It's very difficult to get good, qualified people into the marketplace. The key amount of labor we pull from also works in construction and trucking. While people think of our industry, they often do not consider the labor constraints. That's driving the pricing dynamic with customers.

Thanks for your comments, guys. Look forward to seeing you in June.

We thank everyone for their time and interest in Liberty. Let's get back to work, the whole Liberty family. Thanks for joining us today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.