Liberty Energy Inc. Q1 FY2024 Earnings Call

Welcome to the Liberty Energy 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. I would now like to turn the conference over to Anjali Voria, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Liberty Energy's first quarter 2024 earnings conference call. Joining us on the call are Chris Wright, Chief Executive Officer; Ron Gusek, President; and Michael Stock, Chief Financial Officer. Before we begin, I would like to remind all participants that 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 in our 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 adjusted pretax 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 adjusted pretax return on capital employed as discussed on this call are available on our Investor Relations website. I will now turn the call over to Chris.

Thanks, Anjali. Good morning, everyone, and thank you for joining us to discuss our first quarter 2024 operational and financial results. As we enter the fourth year of what appears to be a durable cycle for North American oil and gas production and development activity, consolidation across the energy industry is pushing larger companies to seek technical solutions and expertise to drive value creation. Liberty's strong first quarter results demonstrate the continued benefits of leading the industry in technology innovation, service quality and investment in talent. Over the last year, the operations team delivered our highest combined safety performance and average daily pumping efficiency in Liberty's history. Our 32% adjusted pretax return on capital employed for the 12 months ended March 31, 2024, represents the continuance of our history of strong returns. I'm proud of the continued outstanding results our team achieved during a period marked by softening industry activity trends. Exceptional operational execution and deep customer engagement drove strong first quarter revenue of $1.1 billion and adjusted EBITDA of $245 million. We generated strong cash flow and distributed $42 million to our shareholders in the first quarter. Since July 2022, we have now distributed $417 million of cash to shareholders through the retirement of 12.5% of shares outstanding plus cash dividends. We remain focused on generating strong returns and free cash flow. We are pairing investment in profitable growth initiatives that increase our competitive advantage with a robust return of capital program. We are leading a generational shift towards low emissions, capital-efficient natural gas-fueled technologies. Our comprehensive solution from critical power generation to the CNG fuel supply supports our digiFleet deployments and uniquely serves our customers in their development of oil and gas resources. Furthermore, a growing demand for power from AI-driven data centers and reshoring of industrial and manufacturing activity require reliable sources of power, which we believe will be best served by domestic natural gas. Liberty Power Innovations is well-positioned to benefit from these wider opportunities beyond the oilfield. Our customers see tremendous benefit from our direct investment in next-generation pump technology, our ownership of power generation and fuel infrastructure to control critical areas and expansion in our manufacturing. Together, this complete end-to-end service solution enables a rapid innovation cycle and superior operating efficiency that our customers have come to expect from the best service partners. Seamless integration of our digiTechnologies with advanced cloud-based software for our pumping control systems, power generation and on-site fuel management maximizes operational efficiency and lowers fuel consumption. The successful deployment of our first few digiFleets has further strengthened our customer partnerships, which we continue to grow through ongoing engagement to provide customized solutions. For instance, we are enhancing our automated pump control technology with customization that allows optimizing key variables deemed important to our customers, such as rate, pressure, sand and chemicals and fuel efficiency. This solution responds to reservoir conditions and provides a customized fracture treatment across basins and horizons with innovation. Software optimization drives enhanced execution while minimizing downtime and maintenance costs. The performance of our latest pump technology, digiPrime, has been excellent. DigiPrime is the most thermally efficient pump solution in the market, and we have seen natural gas fuel consumption that rivals the best dual fuel systems without any diesel consumption. That means the pump uses less natural gas and no diesel when compared to Tier 4 DGB pumps doing the same work. Technology innovation has been central to our history, including the multiyear design and development efforts of digiFrac and digiPrime. Last year, we decided to expand our internal manufacturing capabilities with the launch of our Liberty Advanced Equipment Technologies division, or LAET. LAET now encompasses our manufacturing division, formerly known as ST9, and expands our ability to design, engineer and package complete systems. We believe the success of new technology comes through ownership of the engineering design and the ability to rapidly incorporate feedback from field operations in the design and manufacturing process. This can further accelerate the innovation cycle and reduce the total cost of ownership. Liberty Power Innovations continues to grow in scope, expanding alongside our dual fuel upgrades and digiFleet deployments. In the first quarter, we launched operations in the DJ Basin with onsite fuel management services and will commence CNG sales this quarter following the commissioning of our compressor facility. Frac industry dynamics remain constructive as relatively steady demand in recent months has focused service companies on disciplined pricing and quality of service. Superior performance and reliability drive higher returns for both E&P operators and service companies alike. Liberty's continual focus on technical innovation in equipment technology and software automation augments our industry-leading service offerings while lowering the total delivered cost to the customer, reinforcing our position as the supplier of choice. Global oil and gas commodity prices have diversified and moved materially in recent months. Yet these changes have not materially impacted, although there's been a very modest softening demand for North American frac services. Oil prices have rallied since early in the year, owing to an improved global economic outlook, ongoing OPEC+ voluntary production cuts and rising geopolitical tensions. Iranian oil exports are at multiyear highs with a nontrivial risk that future Iranian export volumes decline. Natural gas prices have conversely declined considerably since last fall, primarily owing to strong production and mild winter weather, both driving natural gas inventories to well above seasonal norms. Natural gas prices are likely to strengthen in the future with increasing LNG exports and surging domestic demand for power in the years ahead. After 20 years of nearly static U.S. power demand, analyst projections for growth in the coming decade from AI and reshored manufacturing range from several Bcf per day to over 10 Bcf per day of incremental natural gas demand from the power sector alone. Globally, energy demand continues to march higher, supporting a strong North American oil and gas industry in future years. The one billion lucky ones consume 13 barrels of oil per person per year, while the other seven billion consume only three. It is safe to say that global energy demand will grow for the foreseeable future. Liberty's focus is profitable growth through disciplined investment in talent, technology and equipment that leads the industry in efficiency and emissions. We are confident that our strategic investments in digiFleet, plus power and fuel supply through LPI better position us to deliver superior returns over cycles. We are also excited by our partnerships in the Australian Beetaloo shale gas basin, which exemplify our continued efforts towards growing reliable energy sources worldwide. In the second quarter, we expect low double-digit sequential growth in revenue on stable pricing and increased efficiency with corresponding improvement in profitability. We continue to expect strong cash flow generation in 2024, supporting our technology transition investments and industry-leading return of capital program.

Good morning, everyone. We started the year delivering solid first quarter results, fueled by a concerted effort to deliver superior reliable service to our customers. By focusing on meeting the increased complexities of our larger growing E&P customers, we've been able to mitigate the challenges of a softening industry demand during the last four quarters and deliver a strong return on and return of capital. A more sophisticated customer base requires tailored solutions that are best served by technology investment, scale and integration, and we have aligned ourselves with these customers by meeting and exceeding their growing demands. In the first quarter of 2024, revenue was $1.1 billion compared to $1.1 billion in the prior quarter. Our results were flat with the prior quarter, in line with our expectations and as our pumping efficiencies and integrated services offset lower sand and other consumable prices and market headwinds. The first quarter net income after tax of $82 million compared to $92 million in the prior quarter. Fully diluted net income per share was $0.48 compared to $0.54 in the prior quarter. First quarter adjusted EBITDA was $245 million compared to $253 million in the prior quarter. Frac markets have softened since the height of late 2022 and early 2023, but now appear to have stabilized since late last year. Our first quarter results were relatively flat with the fourth quarter, in line with our expectations. General and administrative expenses totaled $53 million in the first quarter and included noncash stock-based compensation of $5 million. G&A decreased $2 million sequentially as prior quarter performance-related compensation was modestly higher than the current quarter. Net interest expense and associated fees totaled $7 million for the quarter, relatively in line with $6 million in the prior quarter. First quarter tax expense was $26 million, approximately 24% of pretax income. We continue to expect the full year tax expense rate in 2024 to be approximately 25% of pretax income. Cash taxes was $17 million in the first quarter, and we expect 2024 cash taxes to be approximately 80% of our effective book tax rate for the year. We ended the quarter with a cash balance of $24 million and net debt of $142 million. Net debt increased by $39 million from the end of the fourth quarter due to the expected rise in working capital. First quarter uses of cash included capital expenditures, $30 million in share buybacks and $12 million in quarterly cash dividends. Total liquidity at the end of the quarter, including availability under the credit facility, was $315 million. Net capital expenditures were $142 million in the first quarter, which included investments in digiFleets, LPI infrastructure, dual fuel fleet upgrades and capitalized maintenance spending and other projects. We had approximately $3 million of proceeds from asset sales in the quarter. Our capital expenditures remain on target for 2024. We are confident in our ability to generate strong cash flows through cycles and remain committed to our industry-leading return of capital program. In the first quarter, we repurchased $30 million worth of shares or nearly 1% of shares outstanding and distributed $12 million in cash dividends. Since we reinstated our return of capital program in July of 2022, we have now distributed $417 million to shareholders through cash dividends and retirement of 12.5% of shares outstanding at the program commencement. We continue to deliver on our return of capital program while reinvesting in high-return opportunities that increase our long-term cash flow generation. While oil and gas commodity prices have resurged meaningfully, we see relatively stable demand for Liberty Frac Services. A slightly better oily demand is offsetting modestly lower gas basin trends. In the second quarter, we continue to expect improved activity levels among our customers, primarily owing to higher utilization and favorable weather-related trends in most basins that more than offsets spring break-up in Canada. We are now projecting low double-digit sequential revenue and adjusted EBITDA growth. We are also expecting digiFleet deployments to continue ratably throughout the year, including our seventh fleet later this quarter. We are executing on our two-pronged growth strategy: one, investing in next-generation digiFleets that fuel incremental fleet profitability; and two, LPI, which brings a low emission source of power generation of fuel to support the rising domestic power demand across industries. I will now turn it back to the operator for Q&A, after which Chris will have some closing comments at the end of the call.

Yes. Thank you, everybody, and congrats on the quarter. I'd like to just follow up on the issues of pricing. We did see a competitor say they wanted to go grab market share. You've obviously got a lot of things that will push back against that, the better fuel pumps and everything like that. But I was just curious how that market dynamic is working here.

Yes. Good morning, Roger. Look, the industry conditions probably peaked about six quarters ago in the fall of 2022. And it's really just because that's when the fleet count peaked. And the fleet count has sort of gently moved down since then. And if the fleet count is going down, you've got incrementally negative pricing pressure. This is compared to any other downturn. This has been a very slow, very modest gradual pullback. And I would say that pricing pressures are in line with that. They've been modest and gradual. And there's much more in choosing who you're going to use than just price, right? It's quality and technology and the way of doing business. So as we've said, there is very modest pressure on pricing, but I would say not meaningful. And we're probably near a bottom in fleet count activity. I don't know that it moves up meaningfully, but when it does start to gradually move up, we'll see pricing pressure modestly in the other direction. So for us in the Liberty world, the pricing story remains relatively boring.

That's good. And then kind of following on your comment there. I mean, at some point, gas prices recover here and we get more activity in the gas regions. Any indications from any of your customers kind of where we are in that process or maybe what they need to see to start going the other direction? Is it a change in production? Is it just price driven? Is it synced up with the LNG export increases?

Yes. I think customers are pretty thoughtful about that, and there is a constant dialogue about that. But I think, yeah, I think customers need to see that prices have firmed, that export volumes demand actually is pulling upward at a meaningful rate. And that they've got some comfort that the next 12 or 24 months prices are going to be much more constructive than they look today. So that's not imminent. That increase in gas activity, it could be as early as the end of this year. It might not be until next year.

Thanks. Good morning, everyone. I have two questions. First, could you clarify something? Michael, I believe you mentioned the revenue guide for the second quarter. You also spoke about low double-digit EBITDA growth. I'm curious about how we should consider incremental growth in general. If you prefer not to connect it directly to the second quarter, that's fine. I'm inclined to think that EBITDA will increase at a faster rate than revenue, but I’d like to hear your thoughts on this.

Yes, I did say low double digits, kind of a similar growth on EBITDA versus revenue. Yes, I mean, as we move forward, there is some change in mix as you go through this process. We're helping our clients as they are moving back to Liberty sourcing some of their consumables, sand and chemicals, which have a lower margin pass-through than service revenues. Service revenues are relatively flat, and that's sort of where we get to that so the 25% to 30% incrementals.

Great. And then the second question I had was, when you think about current U.S. oil production levels and you consider frac activity and drilling activity, where do you believe we stand regarding industry activity compared to what is required to maintain production at current levels?

That's a fine balance. My guess is the activity level today is probably consistent with flat U.S. oil production. I know we saw a big decline in January. I think that's monthly fluctuations. But we're certainly not at an activity that will meaningfully grow U.S. production. Probably activity today is flat on oil production. And look, if prices stay where they are, you're going to see a little bit of incremental activity from privates later this year. And are we ultimately going to end the year with some modest production growth? Probably.

Good morning team. A really solid Q2 guide. I guess my question was really focused on the back half of the year. And as you think about the back half versus the first half, to be kind of in that flattish territory versus last year of EBITDA, there would be a ramp. And I think there are a lot of reasons, I think we do ramp in the back half. So just be curious on your perspective team on some of the drivers in 2H versus 1H.

Yes. What I mentioned pertains to oil prices. If oil prices remain at their current levels, I believe we will observe increased activity from private operators in the second half of the year compared to the first half. For the larger public companies, I expect activity to remain fairly steady going forward.

Yes, you're going to get the roll-off of Canada. We've already seen the drop in the gas basins. I think that's already baked in. And that's where we see to get to that flattish guide for the year.

Hi, good morning. Chris, you talked about digiPrime, just the fuel consumption there versus Tier 4 DGB. But could you just also talk about maybe the first six fleets in the field, how those have been performing? And then Michael, I believe you said number seven is coming later this quarter, if you're still kind of going to 10 fleets by year-end are fleets eight, nine and 10 already allocated to customers?

They are. As we've mentioned from the beginning, there is significant interest. The demand exceeds our capacity to build fleets. We have plans in place for the fleets for the rest of this year, including details on their destinations. However, digiPrime represents a different technology. We are excited about the concept. The initial operations have been promising, but since it's new, there are some minor adjustments necessary. We're making tweaks to the design. The pumps currently deployed are performing well, showcasing impressive power density and high thermal efficiency. This means we're not only using gas instead of diesel but actually utilizing less gas overall. Ron, would you like to add anything to that?

I think you covered it well, Chris.

Good morning, team. I wanted to see if you could shed a little bit more light on the sequential double-digit sequential topline outlook for the second quarter versus 1Q. I'm trying to get a sense of if you're going to kind of dissect the drivers of that growth between more efficiency or pumping hours on existing fleets, you've obviously added a couple of digiFleets I think in 1Q and also between LPI. Just help us think about what's driving the sequential growth?

One significant factor is the calendar. At the beginning of the year, there are weather changes and varying plans from people. So likely the main contributor is having a more comprehensive and active calendar. I'll let Michael add other details, but I believe that's the primary issue.

Correct. We had very, very strong pumping efficiencies, and we expect that to continue or as it always does, slightly improve, especially as we get into the better weather. And then as Chris said, you're putting that over a stronger calendar with less whitespace days, you have a little move, obviously, with the technology, which is helpful on the price side of it, offsetting. And then you've got that being offset by, to some degree, as we look and we help our clients save money on sand and consumables and that general market price on those sands has come down, which has been very helpful to our clients. So it's a balance of all of those things, Arun.

Yes, good morning. A question here. With Waha Gas turning negative, I'm just curious whether you have any frac contract set up where you supply the fuel costs such that you can directly benefit from negative gas prices or is the benefit to Liberty mainly indirect the rate resiliency for e-frac and dual fuel, that lower negative gas prices provided and growth opportunities for LPI. Just kind of wondering how the benefit flows to Liberty.

Today, we don't directly benefit from that situation. However, we anticipate seeing advantages in the future. Additionally, even beyond the oilfield, we plan to sell electricity, with gas serving as an input cost. We will explore various setups and commercial arrangements. While our customers currently enjoy some benefits, they also face the challenges associated with selling gas into that market. Therefore, as of now, we aren't benefitting from it directly. Nevertheless, it highlights why using natural gas to power large industrial machinery is more efficient compared to diesel. Diesel remains a valuable fuel and will continue to be used for many years. However, when the infrastructure is in place to use gas, powering large equipment with it instead of diesel proves to be cheaper, more abundant, and results in lower pollutants and greenhouse gas emissions.

Hi, good morning, guys. I wanted to go back to LPI. You talked about the opportunities outside of oil and gas, looking specifically at the AI data centers. Could you help frame this market opportunity for us? And how you think about that potential earnings power over the medium term? I mean will we be talking about decade-long PPAs, just more stable earnings. Just a little bit more how to think about that AI part of the business.

Yes, it's going to be a different business. However, it's crucial for us to utilize the same expertise and technology we're currently developing. This initiative has always excited us. We're not pursuing a risky idea; we believe controlling the power of our fleet is essential for our frac operations. Therefore, we are building the necessary infrastructure to provide fuel, generate electricity, and operate our systems. We have known from the beginning that by developing the skills and capabilities to power our own fleet, we can pursue various opportunities with that power. Currently, we are early in this process and are actively engaging in discussions. This year primarily focuses on advancing the technology, expertise, and delivery of remote electricity to our frac fleets. Expanding outside the oil and gas sector isn’t something we expect until next year. However, to answer your original question, yes, we anticipate some larger projects and more stable long-term contracts. Developing expertise will enhance our core business and will always remain a key aspect of it. Additionally, this approach will give us an advantage and access to a marketplace that is already facing challenges with insufficient power. Customers are looking for power for data centers and industrial operations, but obtaining affordable, short-term power for industrial activities in this country is difficult. Unfortunately, we find ourselves in this situation, and it’s likely to persist for many years. We may provide more detailed updates later, but this will represent a more stable and potentially more profitable segment of our business in the long run.

I understand. That information is helpful. Returning to frac, I'd like to discuss the fleet count for the rest of the year and consider the addition of extra digiFleets. You mentioned increasing from six to ten and retiring Tier 2 diesel fleets, along with upgrading 100 Tier 4 diesel fleets to dual-fuel DGB. I'm trying to grasp the balance between new incremental fleets and replacement fleets. Could you share your overall perspective on improving the fleet mix as we progress through the year and how that might support the anticipated ramp-up in the latter half of the year?

Yes. Today, it's all about replacement fleets. We're not adding new fleet capacity into the marketplace as it is today. And in fact, we don't have any plans for later this year. So this is about replacing existing equipment with next-generation equipment that has a lower operating cost and a higher profitability. Ron, do you want to add anything or comment on that, but it's definitely not about going from six today to 10 digiFleets; that's not four new fleets going to the marketplace. That's zero new fleets going into the marketplace.

Thank you. I wanted to first clarify on the EBITDA outlook for the year to be flat. Should we be taking that message as a literal comment? So you did $1.2 billion of EBITDA in 2023. Is the expectation that it's $1.2 billion in 2024 or could it be down 5% to 10%, and it's still sort of is close enough to being flat that it would qualify for that statement?

We've been very specific flattish, Marc, flattish. So yes, so yes. So no, it's not saying it's a little flat, $1.2 billion to $1.2 billion. No, it is going to be flattish so kind of within the rounding area that you discussed.

Got it. Got it. Okay. And then that still would imply some improvement in the back half. And it sounds like from what you're saying, there's a bit of what we just talked about with the digiFleet deployments helping some sort of customer-specific things helping and maybe a little bit of help from higher oil activity or maybe that's not the case. If you could just kind of clarify what the macro outlook is in the back half that's driving your results.

Yes. We've discussed Q2 compared to Q1. Historically, Q3 tends to be the strongest quarter of the year, and I see no reason for that to change this year. That's why our guidance indicates a stable outlook. We cannot predict what will happen in Q4 or specifically in Q3. However, if overall activity remains steady at its current level, we can still achieve EBITDA growth due to internal business improvements, cost efficiencies, and the implementation of new technologies. While Q4 typically experiences a slight decline, we might not see a significant drop this year since current activity remains flat at best. If there is any shift in activity in the next six to twelve months, it's more likely to fluctuate. This is the rationale behind our guidance suggesting a stable outlook. We cannot forecast the end of the year, but in the existing market conditions, Liberty's annual EBITDA is expected to remain steady compared to last year.

Thanks. Good morning. Just wanted to start out with customer consolidation, I didn't really hear that as a factor in the outlook. But certainly, there is a lot of rig activity that is subject to consolidation, particularly in the Permian. And we have noticed a slight downtick in rigs that are associated with consolidation versus the overall Permian rig count. And so certainly, they have to run the businesses independently before the deals close, but not necessarily the way they would have if there was no deal. So can you just talk about your exposure to customer consolidation and any potential impacts, positive or negative that you could see from the upcoming consolidation?

Look, your comments, I think, are correct. There's been a continual consolidation at some pace in the last 12 or 18 months, probably still continues. It does lead to incrementally a little bit less activity. That's probably why our production run rate today is that flattish, where last year we grew nearly 1 million barrels a day or over 1 million barrels a day in total liquids production. So a little bit lower activity. There'll be an offset of that, of course, because noncore assets are going to be sold off and new privates or existing privates will get bigger and it will fill a little bit of that gap, not happening today right now. But the bigger customers, bigger, more sophisticated customers on balance, that probably benefits Liberty, that's a better match for us than probably for most of the rest of the marketplace. So in these cases, we're much more likely to be more concentrated with the buyers than the sellers in those deals. So yes, it's been a small headwind for the industry and maybe a very small tailwind for Liberty.

Okay. Thank you for that. Just maybe a little bit on Australia. You talked a little bit about the entry into the Beetaloo Basin. Can you just talk about where you are in that? I think some of the equipment was maybe getting ready to get transported. So just an update there would be helpful. And do you see this as really a one-off opportunity or are there other potential international opportunities that you might be looking at as well?

We've been discussing international opportunities for quite some time, and there's strong interest in leveraging Liberty's engineering capabilities alongside our equipment. Historically, we've been loyal and cautious, sticking with our partners in specific basins, which has led to a loyal customer base. Our expansion into other basins has been gradual, driven by the need from existing customers or the development of our capacity. The Beetaloo Basin presents a significant opportunity due to its vast, untapped gas reserves. Natural gas has been the fastest-growing energy source globally over the past 12 years and is expected to continue being in demand. Australia is facing challenges with domestic gas prices and supply, indicating a need for gas, especially with proximity to South Asia and Southeast Asian markets. With the introduction of new technologies, we have the capacity to send fleets to Australia when needed, and we feel optimistic about potential growth in this area. While it’s a small-scale opportunity at the moment, we believe it could grow into something significant over the next few years. Ron will provide more details on the timing and updates, but we see this as an exciting opportunity for us.

Yes, here’s a brief update, Keith. We have isolated a fleet of equipment and identified the assets designated for deployment. These assets have been sent to a central facility and are nearly finished with their refurbishment. We are ensuring that this fleet is prepared for operation in a relatively remote setting. Once we complete this process, the fleet will eventually move to the Gulf Coast, and we expect it to be loaded onto a boat in the middle to later part of Q2, making its way to Australia, where it should arrive in early to mid-Q3. After that, we will navigate customs and other processes before it's on the ground and ready for use. That is our current status.

Hi. So we saw the data from EIA and North Dakota Oil and Gas Commission. It shows that completion activity in North Dakota Bakken was down about 24% quarter-over-quarter in Q1. And also in Wyoming, Colorado area, it was also down about 22%. Did you experience declines in work in those areas? And how do you see that kind of changing in Q2 and going forward?

Yes, that's definitely accurate. The Bakken region typically experiences a significant winter slowdown, which certainly occurred this year, as you mentioned. There was indeed reduced activity in the Bakken during the first quarter, along with some decrease in Wyoming and Colorado. So that data is correct. I believe we will see some recovery in activity for the remaining quarters of the year.

Hi, good morning, Chris, Ron and Mike. Maybe I want to start on the efficiency side of things. Like you noted in your press release, in your comments over the past 12 months, efficiencies have been really strong, right? And the obvious question is how much running room do we have, right? But as a follow-through on that, how much of the incremental efficiencies do you think come from pumping companies like yourself? And how much of that do you think is in the hands of the E&Ps, the operators in terms of maybe logistics or just the way they design the jobs and line up the supply chain? If you can just talk to that a little bit.

Yes, it requires collaboration from both sides. You are on location, coordinating between wireline and fracturing, as well as with your customer, logistics, supply chain, and operations. I would say that one of Liberty's advantages is that delivering the best quality allows you to work with the best customers. It is essential to coordinate all these aspects. Now, I'll hand it over to Ron, who has been a leader in engineering and innovation, and who has been instrumental in identifying opportunities for progress.

Yes. We are continuously working on that and making incremental progress each quarter. This is a testament to our operations and technical development teams as we learn more about our equipment's performance, allowing us to proactively address potential issues that could affect our operations and reduce downtime. We are finding ways to anticipate and react to these challenges before they arise, which highlights the efforts of our operations team. There are still opportunities for improvement, and while the easy gains have already been achieved, we will continue to make modest incremental advancements. Considering our next-generation technology, the intervals between overhauls for gas engines are significantly different compared to diesel engines. As we automate pump operations, we can enhance the lifespan of the components, reducing maintenance time. We are collaborating closely with partners to implement technologies like hot swap, which allows us to replace a pump without anyone needing to enter dangerous areas, ensuring a seamless transition from wireline to pumping at the wellhead. Our strong partnerships, as Chris mentioned on the E&P side and with other service providers bringing innovative technologies, are crucial. Additionally, our ongoing efforts towards vertical integration, improvements in our logistics platform, and the introduction of LPI to reduce dependence on third-party natural gas are enhancing our integrated services offering and maximizing efficiency on-site. We will keep striving to find ways to improve progressively every quarter.

Right. Right. No, that's very helpful. And then just one unrelated one. I'm just thinking about the medium term, not just the very short term, but I think as I remember correctly, Chris, Ron, you talked about 90% of your fleet being gas-fired by the end of the year. And some of your competitors have talked about similar numbers, not exactly 90%, right, but a large majority of the fleet being gas-fired. How should we think about that if we think a couple of years out from now and a lot of the working fleet at least maybe not the total inventory, but the working fleet is gas-fired? At what point do we think about more gas-on-gas competition versus just displacing diesel like we are at this point?

Absolutely. We frequently discuss fleet technology, which is a positive advancement for the industry as it reduces costs. However, it’s not the sole determining factor. Whether a fleet is considered good or bad depends on what it consumes, but that’s just one aspect. The most significant factor is the quality of the people managing the fleet, along with operational quality and the supply chain. Although we don’t emphasize it enough, there are multiple instances where a Liberty diesel fleet has replaced a completely gas-powered fleet, primarily due to superior operational quality and personnel. Customers consider more than just the type of fuel; it mainly revolves around human factors and service quality. So, while fuel type is a consideration, it’s certainly not the only one.

And I would maybe go a step further than that and say it's also important to remember that not all gas fleets are created equally. There are significant technology differences between the opportunities out there to consume gas. We have been very, very specific about the technologies we have chosen to invest in and deploy in the field, both in digiPrime and digiFrac around ensuring that the gas burning technology we deliver in the field is the highest efficiency, lowest fuel consumption and as a result, lowest emissions footprint on location. That's not true for all gas burning technologies.

Hi, guys. Thanks for including me. Just, Chris, given the demands for power over the next basically decade, how far out are you guys having to place orders for content on your equipment and for LPI?

Supply chains are challenging, and there is substantial discussion about that. While I won't go into specifics, you have highlighted a significant issue. There is not an excess of such equipment.

Okay. Do you think there is any risk that the major OEMs might shift their focus and allocate more products to data centers, potentially harming the oil and gas sector?

That's happening today. It was one of the reasons, John. As you know, we've believed for years that the electricity market is changing. So when we started building our digiFleets, we realized that relying on a third party, which might not be an oil and gas company, puts us at risk. If the market shifts and they choose to focus more on data centers or manufacturing, we're left vulnerable to a business that's not under our control. We concluded that this was a risk we didn't want to take. Thanks, everyone. In early February, we released our comprehensive report Bettering Human Lives 2024 that covers energy, climate change, poverty and prosperity. I spent many weekends and evenings writing this report. But what I'm most proud of was not written by me. It was the words in the letter from Anne Hyre, the Executive Director of our newly formed Bettering Human Lives Foundation. The BHL Foundation is the culmination of our studies into the world's biggest solvable problems and our passion to play a meaningful role in changing the lives of millions. Anne's letter says it best, and I will read the full text now. Despite significant cultural and geographical differences among countries in Sub-Saharan Africa, the scenes outside the window as I drive from town to town are remarkably similar and all include women and girls standing in lines at water pumps, walking in groups in search of firewood and cow dung and carrying heavy loads of firewood and water-filled buckets, whether in Malawi, Burkina Faso, Ethiopia or Kenya, I pass clusters of homes and see women cooking amidst harmful smoke from open fires that are fueled by wood or cow dung. We are in the year 2023. How is this acceptable? I feel so disheartened that the daily lives of women and girls in many lower-income countries continue to be filled with tedious physically demanding and often dangerous tasks of collecting fuel and water for cooking, cleaning, laundry and heating homes. I am a nurse midwife, and I've spent 30 years working to improve quality health services for women during pregnancy, childbirth and the postpartum period. For 25 years, I worked primarily in Southeast Asia, where access to energy and economic growth contributed to visible progress in improving health and quality of life. For the past five years, my work has shifted to Sub-Saharan Africa, and I have encountered a very different reality. Governments and donors have made huge investments in health over decades, and yet most countries in Sub-Saharan Africa remain far from reaching global targets for development in any social sector, including maternal and newborn health. I continually ask myself, how can a woman possibly enjoy a healthy pregnancy, access health services and demand better quality services when she spends her time collecting firewood, cooking over polluting stoves and missing out on education and revenue-generating activities that ultimately translate into her ability to make decisions and take actions to improve her family's well-being. Better health services are essential, but far from sufficient. There is a great need to tackle more fundamental problems that perpetually constrain women and their families. A clean burning cook stove such as those powered by liquefied petroleum gas, LPG or propane can be a life changer for families, particularly women and girls. It liberates them from the drudgery of collecting fuel and cooking in smoke-filled spaces, affording them time for school or other income-generating activities. It immediately improves their health, safety and quality of life. Through the Bettering Human Lives foundation, Liberty will mobilize financial and human resources to support LPG and cookstove entrepreneurs and innovators in Africa and in Asia with one goal in mind, get a clean cookstove into 1 million households. As a midwife and a mother, my heart breaks when I see postpartum mothers and their newborns inside dark smoke-filled homes. I am eager to get on a more impactful path towards Bettering Human Lives. Thank you, everyone, for your time today for the call, and we hope you'll join us in supporting our efforts to the Bettering Human Lives Foundation. We'll talk to you all next quarter.

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