Good morning, and welcome to the Liberty Oilfield Services’ Fourth Quarter and Full Year 2021 Earnings Conference Call. All participants will be in listen-only mode. Please note that 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 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 on the company’s earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and pre-tax return on capital employed, are not a substitute for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pre-tax return on capital employed, as discussed on this call are presented in the company’s earnings release, which is available on its website. I’d now like to turn the conference over to Liberty’s CEO, Chris Wright. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2021 operational and financial results. In 2021, we focused on the integration of OneStim and its customers into Liberty. In the recent downturn, we acquired OneStim to strengthen our platform and technology portfolio, which positions us well for today’s rising tide and all future cycles. In our 11-year history, we have seen 2 deep downturns, 2015 through 2016 and the recent COVID collapse, and we have executed transformative transactions during both of them. In 2016, at the bottom of the downturn, we invested aggressively, both in acquiring Sanjel’s asset and in upgrading them to Liberty quality. We also launched our breakthrough quiet fleet technology in 2016. These investments set the stage for the outsized returns that we reached in the years ahead. Investment decisions at Liberty are always made with a long-term time horizon. Business integrations are always challenging, and this time was exacerbated by COVID-impacted supply chain and difficult labor challenges. However, the OneStim prize was large, and our team worked in overdrive to bring nearly 2,000 new members into Liberty while continuing to deliver superior service performance to all of our customers, both legacy and new. Our top priorities in 2021 were our customers, our team members and then the safety of everyone that touches Liberty. 2021 was a record year for Liberty work performed, whether measured by revenues, frac stages, pounds of sand pumped, etc. We also set many operational records during 2021. Record sand pumped in a day by a single fleet was raised several times, including again in January of 2022. Zero OSHA recordable incidents in our wireline business, and 75 hours of continuous pumping on a plug-and-perf pad. All of this was achieved in challenging times, and executed with our best safety performance ever. We are only going to do this integration once and we are going to do it right to the best of our ability. We were simply not willing to sacrifice customer service, employee satisfaction and safety, each of which is critical to long-term financial success for the sake of short-term financial results. Integration-related costs are still with us today, impacting our bottom line results. However, January was a very significant turning point in moving these cost pressures behind us. We very much like where we sit today. 2021 revenue grew to $2.5 billion and EBITDA was $121 million, both representing more than doubling of our 2020 results. But it’s still representative of early cycle conditions. Fourth quarter revenue was $684 million, a 5% sequential increase over the third quarter, on robust activity, offsetting weather and holiday seasonality. Fourth quarter adjusted EBITDA was $21 million, pushed down by over $20 million of continued integration costs that will soon be behind us. The transformative work our team accomplished in 2021 positions us well as our industry begins an upcycle driven by rapidly tightening markets for oil and gas. Seven years of subdued global investment in upstream oil and gas production is now colliding with record global demand for natural gas and natural gas liquids, and likely record global demand for oil sometime later this year. Oil and gas are central to the global economy, which is well along the way of recovering from the global pandemic. The severe energy crisis that has wracked Europe over the last several months demonstrates the danger of underinvestment in our industry. E&P customers are responding to the oil and gas price signals. The public companies are maintaining tight limits that will show only very modest production growth this year. The private companies, on the other hand, are reacting more robustly to strong commodity prices. Within the frac market, 2 years of supply attrition and cannibalization, plus limitations from labor shortages, and a secular shift towards next-generation frac fleet technologies has led to tightness in the frac space. Liberty has focused on finding the right long-term partnerships for the coming years and we have been very disciplined in holding our frac fleet count steady until returns are strong. We are, however, investing to build truly differential competitive advantages in frac fleet technology, digital systems and logistics optimization, all to enable Liberty to continue our historical track record of well above S&P 500 average returns on capital invested. Competitive advantage is the name of that game. We expect that our investments today will lead to strong returns in the coming years. Let me elaborate a little more about the areas where we are investing today. Frac fleet technology, we talked about quite regularly, so I will be brief on that one. Liberty’s focus is to bring the 2 best technologies available: Tier IV DGB with automated controls to maximize gas substitution for diesel, and Liberty’s digiFrac, which will set a new industry bar combining the lowest emissions in the marketplace, together with superior pump performance, reliability and cost efficiency. The modularity of our high thermal efficiency natural gas production systems allows the phased deployment of digiFrac fleets, as they are 100% compatible with our existing fleets. DigiFrac pumps and gas recip will start deploying into our frac fleet early in Q2. We plan to have at least 2 complete digiFrac fleets operational this year. We displayed digiFrac at the SPE Frac Conference in Houston last week, and industry interest remains exceptionally high. Repairs and maintenance for frac fleets are both a very large cost driver and absolutely critical to delivering safe, high-efficiency frac services. Liberty has been a leader in this area. However, integrating new team members from OneStim, who were using different maintenance systems and procedures, led to significant inefficiencies during integration. The downsides of this are readily apparent in our compressed margins in the second half of 2021. But this is also an area for huge improvement going forward. Bringing together legacy Liberty technologies with OneStim, plus the combined team’s ongoing development efforts, will dramatically improve our performance. The early stages of that are already visible in January results. Success in R&M is controlled by teamwork across operators, supervisors and mechanics, and also by processes, technology and parts. We have enhanced our continuous equipment monitoring program with additional sensors that help reduce premature failures and guide optimal preventative maintenance. We are just introducing a virtual equipment digital twin model for each frac pump that helps drive minimum cost of ownership for each and every pump. Increased data and reporting across all Liberty crews is empowering everyone to take ownership of their work. We’ve already seen meaningful improvements. Although we are not back to our historical rates yet, of course, our goal is to perform across the whole company at levels well above our historical levels. We are also launching an in-house Logistics Management Center that has built around large-scale upgrades to our current profit planning execution model. The recent sand bottleneck challenges in the Permian Basin, both of sand availability and last-mile transportation, highlight the importance of this initiative. We’ve already begun the integration of our PropX’s PropConnect software into our Oracle transportation management system to further modernize last-mile delivery, enable our driver quick pay initiative and bring significant improvement to route optimization. Like repairs and maintenance, sand and logistics represent both a large spend, and a critical link in the chain of operational efficiency and safety. Liberty’s expanded team and technologies with the addition of PropX should drive large improvements in efficiency, safety and cost. Our forecasting PropX and quick pay initiatives should help attract the best trucking partners and long-term loyalty. Liberty legacy is developing and deploying technologies that help maximize returns for our customers, and hence, mutually beneficial long-term partnerships. Wet sand handling is at the forefront of disruptive technology in the processing and delivery of sand, and we’re excited about the work we are doing at PropX. This ESG-friendly solution removes the need to dry sand at the mine, thereby eliminating the highest emitting step in the processing of sand. It further enables smaller scale, localized wet sand mines to carry a smaller footprint by moving mining operations closer to the wellhead. PropX already has multiple active contracts in 2022 to support mini mines that lower the total delivery cost of sand and meaningfully reduce environmental impact by eliminating the drying process and perhaps biggest of all reducing trucking needs. We estimate that a 10-mile distance from a local mine to the pad could reduce trucking requirements by over 70% when compared to an 80-mile haul. This is game-changing in key basins. Let me touch on our outlook. We expect high-single-digit revenue growth sequentially in the first quarter and significant growth in our margins as integration costs start to fade away. We are benefiting from increased pricing in 2022, driven by a pass-through of inflationary costs and higher net service pricing. We expect continued rises in frac pricing in subsequent quarters. We also expect margin growth as our new strategic efforts begin to pay dividends in lowering our cost of operations and increasing efficiency. We are excited about the opportunity ahead. We have a macro tailwind together with high-quality customers eager to improve their operations and ESG profiles. Every day we ask ourselves, how can we deliver a value proposition that is compelling for our shareholders and customers through commodity cycles? With that, I’ll turn the call over to Michael to discuss our financial results in more detail.

Good morning. As we discuss our results in detail and look for the future, I find that it’s always good to view them through the lens of how we manage the date, focusing on shareholder returns through the cycle. At the bottom of the cycle, we look for the opportunity to invest to create maximum benefit from a longer runway to capture returns. The company is an organic growth company, but we are always looking at potential opportunistic acquisitions, especially with a technology benefit that increases the competitive advantage. During the COVID downturn, we found 2 unique opportunities: the acquisitions of OneStim and PropX. OneStim that was becoming the second largest completion services provider with the scale and breadth of technology that positions us to navigate through the next decade. In our first year with OneStim, revenue increased 156% to $2.5 billion from $966 million in 2020. We added new basins and complementary sand and wireline businesses, expanded on Liberty’s already strong customer relationships, and added historical OneStim customers to the family, introducing them to those of any difference. This expansion and integration was executed during the pandemic and unprecedented supply chain disruptions. There’s a cost to build this platform that will use to expand long-term shareholder returns that have negative effects over 2021 financial results. The net loss for the year totaled $187 million or $1.03 per fully diluted share. Full-year adjusted EBITDA was $121 million, compared to an adjusted EBITDA of $58 million in 2020. The cost of integration, alongside the businesses that we acquired at the start of the year, was amplified by supply chain and labor constraints and the impact of legacy OneStim fixed price customer contracts that were detrimental for margins in an inflationary environment. We estimate that higher equipment costs, legacy costs from third-party management sand mines, and carrying costs of vital equipment negatively impacted full-year results by 150 to 200 basis points. We also moved all of that legacy OneStim improved into the schedule and initiative that supports the culture and employee engagement and advances our premium service offering over the long-term. This was completed at a time when we were managing through a weak price environment, unfavorable legacy contracts and integration inefficiencies. In the fourth quarter of 2021, revenue was $684 million, a 5% increase from $654 million in the third quarter, while stands out here to be grew at top-line despite seasonal weather impacts. Almost every basin saw an uptick in business, and our crews achieved a high level of efficiency, offsetting seasonal headwinds, showcasing our team’s ability to grow their businesses. Their crews are keeping our operations efficient while handling the integration. Net loss after tax was $57 million in the fourth quarter, compared to a $39 million loss in the third quarter. Fully diluted net loss per share was $0.31 for the fourth quarter compared to a $0.22 loss in the third quarter. Results included $7.6 million of non-recurring expenses, including transaction severance and other costs of $3 million. Fleet startup lay down costs of $2.8 million and a loss on disposal of assets of $1.9 million. General and administrative expenses totaled $35 million, including non-cash stock-based compensation of $3.6 million. Net interest and other associated fees totaled $4.1 million. Fourth quarter adjusted EBITDA was $20.6 million compared to $32 million in the third quarter, reflecting the full base of integration, supply chain cost inflation, and moving our operations into the schedule. In the fourth quarter, we estimate integration costs, including the elevated parts replacements, primarily on legacy OneStim equipment, reduced margins by over 200 basis points. The good news is we instituted measures in October that already showed improvement in December and continued further into January. We also moved our final crews back to schedule, which similarly impacted EBITDA by adding an additional shift to legacy OneStim frac and wireline. Future dynamics, hand in hand, foster a better work-life balance. This drives an increased level of engagement and translates into greater efficiency and better care for our customers and our equipment. The change in historical superior efficiency utilization levels moving into 2022 will support the returns on the investment moving the crews back to scheduled operations. Over the past few months, we’ve also put our contracts under the lens to assess opportunities for improvements for us and our customers. We inherited some contracts with largely fixed pricing, which in a rising inflationary environment creates a drag on margin. In some cases, we’re generating losses on our bottom line as progressed. For instance, one customer accounted for a $5 million EBITDA drag in the fourth quarter due to a legacy OneStim contract that did not reset in the underlying inflation, or additional costs of higher designs on equipment made. However, it’s been a great opportunity for both us and our customers to have a collaborative engaged dialogue on how we all can do things better. We put our sales, engineering, operations, supply chain and finance teams together to work alongside our customer to find ways to recalibrate operations that ultimately lead to a win-win for both parties. We ended the year with a cash balance of $20 million and net debt of $102 million; at year-end, we had $18 million of borrowings on the ABL credit facility. Total liquidity, including availability under the credit facility, was $269 million. Net capital expenditures totaled $174 million on a GAAP basis in 2021, partially offsetting the capital investment of next-generation equipment for the upcoming cycle with the planned sale of assets. We were able to capture $25 million of synergies from asset sales, primarily related to monetizing legacy OneStim assets that were not caught by our operations. Gross capital expenditures were $199 million, consisting of $140 million maintenance CapEx approximately $20 million of digitization, and approximately $40 million of Tier IV DGB upgrades and digiFrac and other investments in technology. With the majority of the heavy lifting of integration behind us, we’re excited by the opportunity here. For the first quarter of 2022, we’re expecting strong sequential improvements on higher service prices and activity and lower integration-related costs. Frac fleet prices have been meaningfully increasing, and much of the change here in EBITDA in January has been evident. The customers are understanding that the environment, coupled with the roll-off of pandemic discounts, requires higher service prices to meet those costs and, more importantly, to restore reasonable returns. Pricing is still below pre-pandemic levels, but moving in the right direction. We also anticipate better utilization in Q1 following the fourth quarter seasonality impacts. Lastly, the combination of maintenance logistics agents with the frac fleet will provide an overall tailwind in the months ahead. We see 2022 as an ideal opportunity to reinvest in the early part of the cycle to maximize free cash flow over the side. In 2022, capital expenditures are targeted to be in the range of $300 million to $350 million, with the optionality to adjust throughout the year. At the midpoint of this range, capital expenditures include maintenance capital of approximately $130 million for frac, wireline and sand. Next-generation technology investments, including digiFrac with pad generation systems, customer demand-driven Tier IV DGB upgrades with sand handling technology, and other marginal engagement is projected to be approximately $225 million. This is offset by approximately $30 million facilities rationalizing our equipment and footprint with legacy assets to pass it. We have been significantly adjusting our capital spending targets depending on customer demand and returns expectations. We plan to be free cash flow positive in 2022 by investing in long-term competitive advantage. Looking forward, we’re excited for the coming years, as we move forward into a robust cycle. We enter 2022 with a sustained focus on technology innovation, and investing to build a truly differentiated business with a competitively advantageous portfolio. This is foundational to our recommitment to a value proposition designed to reward shareholders and stakeholders alike through the cycle. I’ll hand the call back to Chris for closing remarks before we take your questions.

The underinvestment in oil and gas over the last 7 years is starting to bite. Most prominently, we see this via the energy crisis in Europe that is also making for significant challenges in Asia. Global LNG prices are so high right now that many fertilizer plants sit idle. This is not good. Fertilizer prices are elevated, and this brings us to see many fields with reduced fertilization, which inevitably leads to reduced crop yields and further pressure on basic foodstuffs later this year. Society cannot thrive without robust energy supplies. Yes, the last decade has seen a disproportionate amount of the shale revolution gains going to energy consumers. We can and should be proud of the benefits global consumers have received. But our industry, over the last 10 years, has brought more pain than gain, but that pendulum is swinging hard now. The industry is poised for years of strong returns, especially for the leaders and those that remain focused on winning in the long term. Operator, we are now ready to take questions.

We will now begin the question-and-answer session. First question comes from Arun Jayaram from JPMorgan Chase. Please go ahead.

Yeah, good morning. My first question is I wanted to see if we could walk through how you think the margin progression will be in 2022? If we add back some of the integration expenses that you outlined in the press release, your 4Q EBITDA margins would have been in the 6% range. And not to – in some of your peers who provided color on 4Q are probably in the low double-digit range and now you’re still dealing with some integration things? But I’m just wondering if you could help us think about how you think your EBITDA margins could trend this year, and maybe give us a little bit of color on the turn you saw in January.

Definitely, Arun. I think as we move forward, we will see a roll-off of the integration costs through Q1, which should be relatively low by the early part of Q2. We expect to see margins improve as we set them through Q1 and Q2, and as more price increases come into play in the second half. So, yeah, I expect the margins to get back to sort of a normal state and increase as we go through the year.

Any more color, Michael, on just thoughts on percentages? Do you expect to be in the double-digits as an EBITDA margin this year?

Yes.

Okay. Fair enough. And then just my follow-up on capital. You guys released an updated view of $300 million to $350 million for capital. I think I heard you saying $225 million of growth and $130 million or so are maintenance. Can you provide us a little bit more details on the growth CapEx? I assume that some of that is for the digiFrac fleets, but just give us a little bit of color on your growth CapEx plan this year?

Correct. By far the largest side of the base is the digiFrac fleets that are under contract to customers. We have some completions in the first half of this year, which include Tier IV DGB upgrades, which are in demand from those customers. Growth will be front-end weighted, if you look at bottlenecks. I’d say it’s probably significantly front-end weighted for the year, and we’ll adjust as we go through for returns while looking at clients and returns for any additional commitments for digiFrac they want to make.

When we see growth, this is an incremental frac fleet, this is really growth in margin. These are incremental upgraded products, things that drive better efficiency, things that committed premium from customers. So growth doesn’t mean new frac fleet, it means new technology to build our competitive advantage.

Great. Thanks for clarifying. Appreciate it.

Thank you. Our next question comes from Ian MacPherson with Piper Sandler. Please go ahead.

Thanks. Good morning, Chris and Michael.

Good morning.

If we’re solving for full year EBITDA from your free cash flow and CapEx guidance and other pieces on the edges, do you get to that level of EBITDA growth on what kind of activity expansion? We did see that you had some fleet startup costs itemized in Q4, which you had a pretty flat fleet cadence throughout most of last year. Is the plan to ramp up into the mid or exit the year in the high-30s of active fleets? Or could you talk to that as a component of the outlook?

The Q4 startup cost was actually reactivating one fleet, so that was that one addition. At the moment, the plan is to stay relatively modest on fleet visions with the upgrades and driving. The idea is to drive significant extra margin at this specific point in time.

Okay. So the framework you’ve got does not really assume a great degree of net fleet growth activity year-over-year. Is that what I heard correctly?

That’s right; that is the base framework for the year. That’s obvious.

Okay, that’s helpful. Thanks. My other question. We’re hearing from everywhere that the pricing surge in frac has become broader and it’s encompassing the full spectrum of assets. Even conventional tier 2 pricing is moving along with everything else. Given that, I assume there’s also probably a surge in customer appetite to engage in longer-term contract agreements. Can you speak to your appetite on that side of the commercial framework, and if you’re at the getting to the point now on leading edge pricing, where you’re willing to lock in longer-term agreements apart from what you’re doing on digiFrac?

This is Chris. And that is true. Look, the customer demand today is strong. And with the attrition of supply over the last 2 years, even at the start of this year, we have a pretty tight frac market. So for us, it’s a contract matter, but it’s far more than just contracts, right? Counterparty matters hugely. Who is your partner? Who are you committing long-term to partner with? But your point is absolutely correct. There are people that are keen to make sure their needs are met, keen to have the right partner, and we are entering into some longer-term contracts. Some of those include next-generation equipment as well.

Interesting. Thank you, Chris. I’ll pass it over.

You bet. Thank you.

Thank you, Ian.

Thank you. And our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Good morning, team. And thanks for the comments. The first question is really on the expense side? Can you help us understand what happened in the quarter and what the $20 million was specifically used for as you talk about integration costs? I’m guessing a lot of that was about securing and compensating labor. How much of that carries forward versus is one-time in nature, because it’s been a couple quarters now where we’ve seen costs surprise us to the upside?

Yeah, thank you. No problem. All that $20 million that you’re discussing in Q4, actually, probably about 3 quarters was related around equipment. If we step back a little bit through the beginning of the integration, we moved the OneStim team under the form of the umbrella in Q2. Then you definitely had some integration issues with changing the maintenance systems, changing how everybody works together, which caused problems. The cost of that generally turns up about 6 months later, the cost of running equipment. So you’re not changing valves or sieves quickly enough, so that when you're using the historical norms, you’ve done business. So the slide of those costs really started tuning in during the September, October, November timeframe. As we got through the summer, and integration got smoother, we’re starting to see those numbers rolling off in December and January. So I think that slide-up of equipment costs, with a good chunk of that being related to personnel, was a big drag on the second half of the year. Now, we’re entering into a smoother operational phase.

That just says we calibrate our models. If we saw $20 million in the fourth quarter, is it fair to assume there’s going to be minimal impact here in the first quarter due to the released integration?

In regards to integration, we’re still going to have some costs. As we see here, there are some costs related to lease equipment that will still stay on the lease costs. That’ll be in the range of $1 million to $3 million at quarter end. And we’ll still see some wastage of that equipment cost run in Q1 as well. So, yeah, that’s where I think you’re going to see an incremental improvement in margins in Q1, and then another step change in Q2.

Thanks, Michael. And the follow-up is, and this is one that might be tough to opine on, but obviously, Schlumberger owns a substantial amount of shares. We’ve seen them start to make movements around monetization. You guys have a really strong balance sheet, recognizing there’s some calls on free cash flow in the near term, is there anything you can do to offset potential technical pressure to the extent that they elect to monetize their positions?

Yeah, Neil. Good. Capital allocation is certainly a big issue and a central issue here. But we’re always evaluating all the trade-offs and decisions made there. I certainly know what you’re hinting at. I can also say that we feel very comfortable about the decisions we’ve made in progressing through this integration. We’re quite pleased with where we sit today.

Thanks a lot, Chris. Appreciate it.

Thanks, Neil.

Thank you. Next question, Chase Mulvehill with Bank of America. Please go ahead.

Good morning, everybody.

Hey, Chase.

I guess first question, obviously, you’ve got sand in the portfolio today. We’ve heard of sand tightness in the fourth quarter and continuing into this year. Sand prices are $40 a tonne or so, kind of what we’re hearing in the Permian Basin? So, I guess, maybe can you talk to how much sand you’re selling externally or using internally, and the tightness of sand and how that’s impacting your business?

Hey, this is Ron. Yeah, I’ll certainly delve into that a little bit. I think from our standpoint, we went into the sand business, obviously, recognizing there was a real benefit for Liberty in having those couple of mines available to us. Yes, some amount of that capacity is dedicated specifically to Liberty fleets, and supporting our customers for whom we are working. But some amount of that sand from those mines still remains sold directly to customers that may not have a Liberty fleet working for them. We have relationships on both sides of that and expect that to continue going forward. Having that capacity available to us has provided us some additional support we might not have had in the past relying solely on third parties. I think it’s provided us a little more flexibility in terms of how we’ve been able to manage our supply chain through these challenges. We still have a number of great third-party providers, partners that have been partners of ours for a long time on the sand supply side. And I don’t expect that to change. Those strong relationships are critical to us; multiple legs on a stool make for the best stability. So that’s the way we continue to look at it.

Okay, perfect. And follow-up here. I’m not sure that I’m going to get very far with this, but I’m going to try. But if we look at the fleet level profitability, and look at and split the fleets between OneStim and legacy Liberty fleets. I guess, first, is there a difference in profitability if you get and look at the averages between the two? And if there is, in OneStim, is profitability lower? Can you tell us kind of what are the action items that you need to take to improve the OneStim profitability?

Yeah, Chase, this is something I’ll take on. There was a difference. A lot of that was due to legacy contracts. You need to remember we closed this deal on December 31, right? So this season for this year Liberty and Schlumberger, amidst each other’s deals being announced. The Schlumberger team really had to fill work with one hand tied behind their back, obviously, the sales couldn’t talk, and we couldn’t appear high, which customers knew that they were going to be assumed by Liberty. I think those contracts were the biggest drag, not necessarily the fleets themselves. The cost of operations due to the high deferred maintenance and when we look back in the rearview mirror was higher on those legacy blue fleets significantly. And I think part of that was the green tech status they came with, so they came with high hour and high usage numbers. The difference is that this year, we don’t expect to see that difference driven by technology.

Got it. Got it. All makes sense. Thanks, Michael. Thanks, Ron. I’ll turn it back over.

Thank you. And the next question comes from Scott Gruber of Citigroup. Please go ahead.

Yes, good morning.

Good morning, Scott.

So question on the pricing traction, we’re hearing similar anecdotes of the broadening of pricing improvement. The rate of change one the legacy tier 2 equipment, is that now moving at a similar pace to what we’ve seen today on ESG-friendly? Or is that still lagging in terms of kind of the rate of change?

Right now, I think the rate of change is moving at a similar pace, or still that significant Delta across the portfolio. But yes, all types of fleets have moved up meaningfully.

Got you. And then, at the current pricing, what type of payback would you expect on the DGB fleet?

It’s relative to the specifics – it’s quick. I don’t know if we want to give any more colors than that. But we have been about for our whole history win-win deals; we can bring something better to our customers that achieves their objectives for them, they save money from displacing diesel with natural gas, as well as getting lower emissions. We deploy capital and we get strong returns on that deploy capital, and we also bring technology into that to get higher substitution rates and safer substitution of processing and burning gas on location.

I have a little bit of that one, say, we look at the lens of all of our investments. If you look at historical results, right, we’ve averaged better returns than the average of the S&P 500. And for a cyclical industry, you need to provide those returns to offer value to shareholders, and every new technology vision we look through that lens and aim at that same target or better of what we’ve historically done. So I think that’s the key thing with it, whether it’s a Tier IV DGB upgrade, a digiFrac, or the investment in a new vision of ion control systems, etc. They all go through the same lens of financial return metrics.

Got it. And then just a quick one, again, if you think about the EBITDA to free cash conversion, anything to note on the working capital line, Michael?

No, I think, working capital as we go through, we’re going to see growth in the top line and expansion of mines. But with growth in the top line, that will be a slight headwind. Again, working capital generally moves in conjunction with revenue top-line growth.

Should we expect kind of static days or improvement in days?

Yeah, I don’t know about – Scott, I think, generally, days have been relatively similar for the last 5 years. On a quarterly basis, they can move around, depending on where customers are, but generally standard days. The only other big mover there is probably the accrued CapEx funding CapEx that we received at the end of the quarter, you can move your payables numbers to the GAAP. So we’ve received a large number of cash generation equipment at the end of the quarter, and that can influence cash flow. So that’s where you would read the balance sheet daily.

Got it. Appreciate the color. Thank you.

Thanks, Scott.

Thank you. Next question comes from Waqar Syed, ATB Capital Markets. Please go ahead.

Thank you for taking my question. Mike...

Good morning.

In terms of the normalized margins, could you provide some guidance on the timing of that? When do you expect to achieve that? And given all the price increases that you’re seeing in the strength in the market? Do you see that timeline to achieve normalized margins move forward or is it still kind of the same level as previous guidance?

It’s similar to the guidance. I think you’re going to see the additional cost roll off in the first half of this year. It’s reasonable to expect getting back to more normalized margins as we get to the second half of the year. Again, if you think about the integration process, it’s around an 18-month process. They should be running out of the system by the second half.

Okay. And then, just a broader macro question. Would you care to comment on the supply demand dynamics? How many fleets are currently working in the U.S. and Canada? What do you see the demand as, and what do you expect the trend to be in the coming quarters in terms of demand?

Sure, Waqar, I’ll do that. So we have an internal bottom-up frac fleet count. We haven’t shared the detailed numbers of it yet, but it spent a great new thing for us to know what’s going on across all the bases. It’s been a trailing count – and count up to today, and also includes a projection for what customer dialogues are and what plans are. So, in random numbers, I’ll take frac fleet active right now is in the low 200s but over 200. At that frac fleet level of activity, that leads to production growth: production growth in natural gas, production growth in oil, production growth in NGLs, not monstrous but meaningful. From the plans we know of today, there’s probably another 10% growth in active frac fleet from where we are today to where we will be late this year. It’s not huge upward pressure in practice, but the pricing impact will be significant.

But the industry itself is adding some new capacity as well. Do you think that Delta incremental demand is being met by the internal incremental supply that’s being added?

Those are probably of similar magnitudes. But the offsetting thing is that new fleet does not mean the frac fleet count is static. Even putting an optimistic Liberty running up an asset may lead to you’ve got a 10-year asset. So, 10% of that capacity is going to disappear every year. The frac fleet additions we have this year are probably not even offsetting the shrinkage of the frac fleet, meaning demand is higher later in the year.

Interesting. And just one final thing, any commentary on the Canadian market?

We love Canada and Canadians like Ron...

I don’t think anything just similar to what Chris’s comments were from a broad field standpoint. I think we remain optimistic in the Canadian market as well. I think we’re going to see growth in frac fleet demand up there and supportive market conditions. I think you’ve probably heard that from our peers up there as well. So, yeah, we remain excited about the outlook north of the 49th.

Thank you very much. Thanks, guys.

Thanks, Waqar.

Thanks.

Thank you. Next question, Taylor Zurcher of Tudor, Pickering, Holt. Please go ahead.

Hey, Chris, and team, thanks for taking my question. My first one is I just wanted to circle back on the CapEx budget, specifically the growth capital piece. I think you said $225 million. So as of today, you’ve got 2 full fleets of digiFrac, I guess, long-term contracts secured already. So clearly, that’s in the budget on the growth side for 2022. Just hoping you could give us maybe some building blocks as it relates to build enough to that $225 million feels to me like, obviously, you’ll have some Tier IV DGB. But maybe you have some more digiFrac budgeted in there. So just curious how you’re thinking about the building blocks behind that $225 million number?

Yeah, the last portion of that, the largest portion is the digiFrac, obviously. The next portion is the Tier IV upgrading 2 fleets of tier 2 to tier 4. A fraction of that is supporting the growth of the PropX business and their customers, which are projected to bring great returns on that business. That’s another chunk of what we’re doing. It’s probably in the $20 million to $30 million range for what I would just say short-term margin enhancement projects, essential for boosting efficiency. That’s a significant item.

Okay. Got it. And just wanted to follow-up on the anecdote you gave about a legacy OneStim contract that from what I gleaned didn’t have inflationary escalator clauses and resulted in a $5 million negative impact in Q4. So just to clarify, as we progress forward, does that contract sort of reset here in Q1 such that you’re able to pass through some of these input cost items on to the customer? And as you look at your broad portfolio of contracts, whether legacy Liberty or legacy OneStim, do you have any more outstanding contract cases that are similar to that one, that you called out where inflationary items might be an issue for you moving forward?

One of them is really going to be a little bit of that. The legacy contract will still be a bit of a drag in Q1, but we fixed after that, and really even the last contract was pretty stable. I think some of those, historically, when the contracts were more fixed in nature, we’re probably okay in a down market than when conditions are tough, became quite a weakness in the inflationary environment. But we have established some flexibility with the new contracts, historically, the new contracts have been more flexible regarding the openness of pricing and operations.

Understood. Thanks, Michael.

Thank you. Next question comes from Tom Curran of Seaport Research Partners. Please go ahead.

Good morning.

Good morning.

Ron, on Project 1440, would you please update us on the active fleets' average pumping time utilization relative to that project starting point of 60%? Where did average pumping time come in for Q4, and what’s your target level for Q4 of this year? Where would you like to exit the year?

Look, probably won’t get into specifics there. But you did hear in Chris’s comments, I think the latest record, so 75 hours of continuous pumping, we continue to make tremendous headway from an efficiency standpoint in the field. We look forward to some additional progress there. We have a few other initiatives underway this year that will further contribute to that if we’re successful getting them across the finish line. But we certainly did make progress last year; we see some opportunities for more this year.

And then, given the expected enduring tightness here in the fleet labor market and its associated upward pressure on wages, are you seeing or expect any acceleration of spread automation initiatives? Be it internally at Liberty or perhaps elsewhere within the industry or at a smart robotic startup that you’re watching?

Yeah, we could definitely provide specifics there, but absolutely automation for efficiency of labor use for safety, and for speed of operations is a focus at Liberty.

The only thing I would add to that maybe is, it’s certainly one of the things we’re most excited about as we move towards digiFrac; those opportunities are not insignificant in diesel and dual fuel world. But the opportunities that come with moving to electric fleet are another step forward yet, so quite excited about the opportunity to get digiFrac installed in the field and move forward with the level of automation that we could attain in that environment.

Got it. So more of an e-frac transition technology development, okay. And then two questions on the Permian. First, are you seeing any rivals starting to pull out or shrink the size of their footprint there, perhaps by closing a district yard or two? We understand that a pioneer may soon be in the market looking to replace some of its spreads on contract. Do you expect to have a shot at those?

Those are detailed commercial things. So, yeah, I’m not going to comment on that.

All right. Well, thanks for taking my questions.

Thank you. Our next question will come from John Daniel with Daniel Energy Partners. Please go ahead.

Hi, gentlemen, thanks for squeezing me in. Chris, earlier in your commentary, you talked about many mines being game-changing. Can you just elaborate on how many you see and how you see that market developing?

There’s a few operating right now that are customers of ours. Certainly, more opportunities for that exist. It’s not an explosion, but rather a combination of meeting mine technology and transport and wet sand technology. It’s an evolution that we think has good runway to bring differential costs and ESG advantages to customers willing to make that commitment and geographically position them.

Do you see yourself developing your own mini-mines or just letting the others do that?

Yeah, if we have the technology to move wet sand and partnerships, we’re going to enable the growth of many mines is maybe the best way to say that.

Okay. And then in response to Ian’s questions on, you cited the longer-term contracts, is that just on digiFrac’s out on traditional equipment?

It’s on both?

Are any of the terms greater than one year on the traditional can you say?

Yes.

Yeah, okay. Thank you. And then the last one is, you called out and congratulations on the record safety performance, which has occurred given the sharp ramp and activity and also given that major integration. It’s pretty impressive. I’m just curious if you attribute that to any one specific initiative like what allows you to do that in light of two things of different lease?

I don’t know that there’s one specific initiative we would call out. I think it speaks to 2 very strong teams of operational personnel that came together with a commitment to provide great services to our customers in the field. We probably did benefit from the ability to return some initiatives we had in place pre-COVID. We had an initiative to put a safety trailer out there in the field to get face to face with our teams on a regular basis to highlight opportunities for focus. Some of these were paused during the pandemic, but we were able to resume those last year. I think those initiatives helped, but I wouldn’t call out any one thing that got us to that spot.

Okay, fair enough. Thank you for letting me ask a few questions.

Thanks, John.

Thank you. Next question will be from Keith Mackey with RBC Capital Markets. Please go ahead.

Hi, good morning, and thanks for taking my questions. It has certainly gone through a pretty big year of transformative M&A and bolted on the PropX deal, as well as talked about some of your internal initiatives with the logistics control center and that kind of stuff. Just curious if there’s any other areas along the supply chain where you feel that you need to focus on as well, whether it be organic or inorganic?

Yeah, I think probably our biggest focus this year will still be in the pump vertical. Specifically, that has been a challenging part of the supply chain, certainly over the last year, and so it’ll be an area of focus going forward. It’s a massive part of our R&M spend, specifically the pump maintenance side of things, valve seats, fluid and power in. And so that would be a big area of focus for us this year.

Got it. Thanks, Ron. And thank you for the CapEx guidance; apologies if I missed it, but for the growth CapEx. How many digiFrac fleets does that include? And then how many will you have running at the end of the year, assuming you put those into the field?

They are going to be under contract, so yeah, the two that are kind of currently committed, and then we’re discussing more with customers about it.

Okay, thanks very much.

Thanks, Keith.

Thank you. Next question comes from an unidentified analyst from Morgan Stanley. Please go ahead.

Thanks. Good morning. So just a follow-up on pricing. And I wanted to ask, if you guys are kind of seeing a range of customer receptivity to pricing increases or if customers have largely been amenable to you pushing that pricing? I guess, have you guys had to reposition your customer base, your fleets among customers at all to kind of drive the net pricing improvements that you’re talking about?

Okay. Look, amenable, I don’t know if that’s the right word. Most everything we do with customers is quite synergistic. It’s about getting operations more efficient, operationally safe, operationally planned, frac design, strategic decisions about how to execute programs, the best. Those are most of our dialogues, which are partnership dialogues, but prices are one direction that is good for one side and the other is good for the other. Customers want the right partners, and in the COVID downturn, we did what it took to keep our customers going. We’ve worked with them in respect. Nowadays things have shifted the other way. Everyone wants the right partner at the most economical price possible. For us, efficiency drivers help both of us. So yeah, it’s an ongoing dialogue about the magnitude of price and whether it’s all in big one lump sum, or whether it’s a more gradual step-up.

Makes sense. Thanks. And then question on, I guess, kind of following up on the next generation fleet transition scenarios that you guys had laid out at your Investor Day last year. I’m wondering if you can kind of help us think about now that we’re through 2021. And you’ve kind of thought through your 2022 capital framework, how would you characterize where you’re at in kind of the higher case faster next gen transition scenario versus the slower transition scenarios that you laid out? Is it somewhere in between? Or is it kind of more tracking closer to one of those 2 scenarios?

Somewhere in between; it’s a very active dialogue with a number of parties. It’s not if we’re going to do something with them, it’s how we win. But yeah, it’s got to make sense — it’s got to make sense for both parties. For us, it’s got to be right for returns, balance sheet, and corporate funding of it. For customers, it’s got to make sense, too, and we’re not in a rush; we’re rolling out a new technology that we think is going to be a pretty big deal. It’s a balance of many factors. But I would say things are going as planned.

Great. Thanks for the color.

Thank you. Next question comes from Marc Bianchi of Cowen. Please go ahead.

Hey, thanks. Good morning, guys. I wanted to ask about other cash items just building off of the CapEx for this year. So for $300 million to $350 million, you mentioned working capital earlier. I’m not sure if I assume $50 million there, maybe $15 million of interest based on the range here. It would appear you need to have kind of high $300 million to over $400 million of EBITDA just to get to the free cash positive. Is there anything I’m missing in that bridge, any extra cash coming in or other items that we should be considering?

Yeah, I think honestly it covers the majority of that; really think of working capital building become a build or a either use or provider of cash. As we think about free cash flow, we’re really looking at operational returns, right, sort of EBITDA with CapEx ain’t covering interest that characterize the capital building for this class.

Okay. From what it sounds like just based on the trajectory into the first quarter and first half here, with the integration and stuff you’d be below consensus, as it stands right now, in the first and the second quarter, and probably above consensus just to get to those types of numbers, we’re talking about in the second half for the year. It’s a pretty big ramp. I don’t know if you disagree with that kind of trajectory. But what can you tell them to get them more confident in the ability to get there? Will we see any evidence of that, or will we just have to wait till the second half when you deliver on the results?

Yeah, Marc. I can’t comment on consensus; I don’t have a copy of your models. We’ve laid out expectations for the year. Our history of delivery is consistent, and then I think we’ll see a ramp-up as we roll off the integration costs. We expect the second half to be better than the first half, and that’s really our guidance.

Okay, super. Just one last one, if I could. It looks like the implied EBITDA per fleet is improving from a mid-single-digit number annualized to mid-double-digits, mid-teens or something by the second half. So, call it, $10 million of improvement throughout the year. I think you mentioned earlier that there’s a combination of pricing and throughput there. Could I just decompose that a little bit more? Is it half pricing, half throughput? How much of that pricing is already set in contracts versus how much you kind of need to get from further improvement in the market?

Marc, every comment you make, I’m not sure I agree with. I’m not sure we do it, though. We won’t comment on that. But as I say, through the year, we’re expecting an increase in activity that’s most likely going to be the biggest force driving change, and pricing should reflect positively, when you look year-over-year change.

Great. Thanks so much, Michael. Turn it back.

Thanks.

This concludes our question-and-answer session. Now I’ll turn the call back over to Mr. Chris Wright for closing remarks. Please go ahead.

Thanks, everyone, for joining today, and we appreciate your interest. Understand the critical comments. We feel good about where we are, we appreciate your partnership, and have a great day.

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