Liberty Energy Inc. (LBRT; “Liberty”) announced fourth quarter and full year
2022 financial and operational results.
Summary Results and Highlights
- Revenue of $4.1 billion, a 68% increase over the prior year, and net income1 of $400 million, or $2.11 fully diluted earnings per share, for the year ended December 31, 2022
- Adjusted EBITDA2 of $860 million for the year ended December 31, 2022
- Fourth quarter revenue of $1.2 billion, a 3% sequential increase, and net income1 of $153 million, or $0.82 fully diluted earnings per share, for the quarter ended December 31, 2022
- Adjusted EBITDA2 of $295 million for the quarter ended December 31, 2022, a 7% sequential increase
- Initiated the commercial deployment of high-performance, low-emission digiFrac™ pumps, the industry’s first purpose-built fully integrated electric frac pump with high power density
- Returned $134 million to shareholders in the second half of 2022 through a combination of share repurchases and a quarterly cash dividend reinstated in the fourth quarter of 2022
- Repurchased 4.4% of outstanding shares at an average price of $15.29, or $125 million in total, since July 2022
- Increased share repurchase authorization to $500 million, with $375 million of authorization remaining
“Liberty achieved outstanding returns in 2022 with the highest earnings per share in company history. Full-year Adjusted Pre-Tax Return on Capital Employed (“ROCE”)3 and Cash Return on Capital Invested (“CROCI”)4 were each at 31%, and both accelerated as the year progressed. These results demonstrate the enhanced earnings power of our diversified platform and technology portfolio and the profitability potential over the longer duration cycle ahead,” commented Chris Wright, Chief Executive Officer. “Our strong conviction in the outlook and growing free cash flow led us to launch and expand a sector-leading return of capital strategy in 2022 with a share repurchase program and the reinstatement of our quarterly cash dividend. During the second half of 2022, we returned a combined $134 million in share repurchases and dividend payments to shareholders, retiring 4.4% of outstanding shares. Our confidence continues today spurring us to double the size of our share repurchase authorization.
“Our 2022 financial performance illustrated the value creation of our actions over the pandemic years, including transformative transactions, technology innovation, and investment in the extraordinary talent at Liberty for future success,” continued Mr. Wright. “Together, the Liberty team achieved new operational records in the midst of tight labor and supply chain markets. We always strive to raise the bar of elite service quality and performance in the industry.
“Our relentless focus on maximizing total return for shareholders reflects our team’s commitment to expanding our competitive advantages by investing in technology and vertical integration, balanced with returning capital to shareholders,” said Mr. Wright. “In late 2022, we began the commercial deployment of digiFrac electric pumps, developed over the past few years with a technically superior engineering design for the operational conditions of the frac site. We are thrilled to bring our customers the highest quality and efficiency frac services with the lowest emissions profile.”
The frac market is currently tight in all the shale basins. To date there has not been any significant reduction in activity in the natural gas regions despite a significant drop in gas prices. We do expect to see some industry pullback in response to gas prices and, if necessary, Liberty would move any spare capacity to oilier areas where demand for our services significantly outstrips our current supply.
While markets are preparing for the most widely anticipated recession in nearly 50 years, tumult in global oil supply coupled with today’s rather low spare global production capacity imply a strong need for North American barrels in the coming years. Today’s low spare production capacity is the inevitable result from years of underinvestment in upstream oil and gas production. The gradual reopening of China and rising global travel are expected to drive incremental demand for oil, even if balanced against slowing economic activity. Oil supply growth remains challenged as the release of U.S. strategic petroleum reserves subsides, the impact of the Russian oil products export embargo hits next month, and reduced investment across the Russian industry gradually impacts production.
The fundamental outlook for North American hydrocarbons is the healthiest Liberty has seen in our 12-year history. Against this strong backdrop, we expect many possible bumps in the road like softening natural gas activity and an elevated recession risk. However, the multi-year outlook for North American activity is robust. Currently our customers and competitors are investing with discipline, keeping capacity flat to only very modest growth.
E&P customers continue to see attractive drilling returns, particularly in oil, even as breakeven prices have increased from the pandemic lows. The majors are redirecting capital spending to North America and domestic E&P operators’ pronouncements of returns targets infer a continuation of resource development to at least offset natural production declines. As North American oil and gas production reaches new heights, there is a rising level of frac activity required to simply keep our customers’ production flat.
Two factors summarize today’s frac market: full utilization of existing frac capacity and strong demand for gas-powered fleets that significantly reduce fuel costs – natural gas is much cheaper than diesel – while driving down frac fleet emissions. This transition to natural gas-powered fleets is happening at a measured pace, roughly aligned with the attrition of the industry’s older generation diesel frac capacity.
Today’s tight frac market creates a sense of urgency among E&P operators to align with top tier partners for both differential long-term technology and outstanding service quality required to deliver on their production goals. Over the past few years, Liberty’s team has rapidly innovated to develop the most technically advantaged frac fleet with digiFrac, and 2022 marks the first commercial deployment of these game changing pumps. Liberty continues to diversify its offering with an exciting suite of new technology developments that offer fit-for-purpose scale and technologies for customers with differing needs.
“Looking ahead, we see a multi-year cycle where Liberty’s technology and culture can thrive. Our 11-year annual average Cash Return on Capital Invested (CROCI)4 of 23% since our company founding was achieved during a relatively tough period for our industry, and before we had developed the suite of differential technologies and services that we are now rolling out. Today, Liberty is creating opportunity through ingenuity and innovation not just in frac fleet technologies, but also in wet sand handling equipment, logistics software and systems to optimize supply chains, predictive software generating operational efficiencies, and so much more,” commented Mr. Wright. “We enter 2023 with significant competitive advantages that enable strong partnerships with the best producers and drive demand for Liberty services far beyond our capacity to supply. These factors are likely to deliver rising free cash flow and strong returns to our shareholders in the years ahead.”
Share Repurchase Program
On January 24, 2023, the Board approved an increase to Liberty’s existing share repurchase authorization announced July 25, 2022 to $500 million, a $250 million increase from the originally authorized amount.
During the year ended December 31, 2022, Liberty repurchased and retired 8,185,890 shares of Class A common stock, representing 4.4% of shares outstanding at program commencement, for approximately $125 million. With this program expansion, total remaining authorization for future common share repurchases is approximately $375 million.
The shares may be repurchased from time to time in open market transactions, through block trades, in privately negotiated transactions, through derivative transactions or by other means in accordance with federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including management’s assessment of the intrinsic value of the Company’s common stock, the market price of the Company’s common stock, general market and economic conditions, available liquidity, compliance with the Company’s debt and other agreements, applicable legal requirements, and other considerations. The exact number of shares to be repurchased by the Company is not guaranteed, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company expects to fund the repurchases by using cash on hand, borrowings under its revolving credit facility and expected free cash flow to be generated through the authorization period.
Quarterly Cash Dividend
During the quarter ended December 31, 2022 the Company paid a quarterly cash dividend of $0.05 per share of Class A common stock, or approximately $9 million in aggregate to shareholders.
On January 24, 2023, the Board declared a cash dividend of $0.05 per share of Class A common stock, to be paid on March 20, 2023 to holders of record as of March 6, 2023.
Future declarations of quarterly cash dividends are subject to approval by the Board of Directors and to the Board’s continuing determination that the declarations of dividends are in the best interests of Liberty and its stockholders. Future dividends may be adjusted at the Board’s discretion based on market conditions and capital availability.
2022 Full Year Results
For the year ended December 31, 2022, revenue grew to $4.1 billion, an increase of 68% from $2.5 billion for the year ended December 31, 2021.
Net income before income taxes totaled $400 million for the year ended December 31, 2022 compared to a net loss before income taxes of $178 million for the year ended December 31, 2021. Net income before income taxes for the year ended December 31, 2022 included non-recurring transaction, severance and other costs of $6 million compared to $15 million for the year ended December 31, 2021.
Net income1 (after taxes) totaled $400 million for the year ended December 31, 2022 compared to a net loss1 (after taxes) of $187 million for the year ended December 31, 2021.
Adjusted EBITDA2 of $860 million for the year ended December 31, 2022, increased 612% from $121 million for the year ended December 31, 2021. Please refer to the reconciliation of Adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) in this earnings release.
Fully diluted earnings per share was $2.11 for the year ended December 31, 2022 compared to a fully diluted loss per share of $1.03 per share for the year ended December 31, 2021.
In 2021, cumulative net losses due to the Covid downturn resulted in the recognition of a valuation allowance on certain deferred tax assets and a related remeasurement of the liability under the tax receivable agreements (TRA Liability) resulting in a non-cash gain of $19 million. In 2022, recent cumulative earnings resulted in the release of the valuation allowance recorded in 2021 and a related remeasurement of the TRA Liability for a non-cash loss of $76 million.
Fourth Quarter Results
For the fourth quarter of 2022, revenue grew to $1.2 billion, an increase of 3% from $1.2 billion in the third quarter of 2022.
Net income before income taxes totaled $149 million for the fourth quarter of 2022 compared to $150 million for the third quarter of 2022.
Net income1 (after taxes) totaled $153 million for the fourth quarter of 2022 compared to $147 million in the third quarter of 2022.
Adjusted EBITDA2 of $295 million for the fourth quarter of 2022 increased 7% from $277 million in the third quarter of 2022. Please refer to the reconciliation of Adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) in this earnings release.
Fully diluted earnings per share was $0.82 for the fourth quarter of 2022 compared to $0.78 for the third quarter of 2022.
Balance Sheet and Liquidity
As of December 31, 2022, Liberty had cash on hand of $44 million, an increase from third quarter levels, and total debt of $218 million including $115 million drawn on the secured asset-based revolving credit facility (“ABL Facility”), net of deferred financing costs and original issue discount. Total liquidity, including availability under the credit facility, was $351 million as of December 31, 2022.
In January 2023, Liberty amended its ABL Facility to provide for a $100 million increase in aggregate commitments to $525 million. Availability under the amended ABL Facility is subject to a borrowing base, supported by receivables and inventory. In conjunction with the credit facility amendment, Liberty retired its $105 million term loan due September 2024, with cash and ABL Facility availability.