Q1 2024 Liberty Energy Inc Earnings Call

Participants

Anjali Voria; Strategic Finance & IR Lead; Liberty Energy Inc

Christopher Wright; Chairman of the Board, Chief Executive Officer; Liberty Energy Inc

Michael Stock; Chief Financial Officer, Treasurer; Liberty Energy Inc

Ron Gusek; President; Liberty Energy Inc

Roger Read; Analyst; Wells Fargo Securities LLC

Stephen Gengaro; Analyst; Stifel, Nicolaus & Company Inc

Neil Mehta; Analyst; Goldman Sachs Group Inc

Luke Lemoine; Analyst; Piper Sandler & Co

Arun Jayaram; Analyst; JPMorgan Chase & Co

Scott Gruber; Analyst; Citigroup Inc

Derek Podhaizer; Analyst; Barclays Bank PLC

Marc Bianchi; Analyst; TD Cowen

Keith MacKey; Analyst; RBC Capital Markets

Waqar Syed; Analyst; ATB Capital Markets Inc

Saurabh Pant; Analyst; BofA Securities

John Daniel; Analyst; Daniel Energy Partners LLC

Presentation

Operator

Welcome to the Liberty Energy earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero 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 Andrea Warrior, Director of Investor Relations. Please go ahead.

Anjali Voria

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 Grensteiner, President, and Michael sock, 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.

Christopher Wright

Thank you, and really good morning, everyone, and thank you for joining us to discuss our first quarter 2024 operational and financial results as we enter the 4th 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 31st, 2024 represents a continuance of our history of strong returns on 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 DG fleet deployments and uniquely serves our customers in their development of oil and gas resources. Furthermore, the growing demand for power from AI driven data centers and reshoring of industrial and manufacturing activity will 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 oil field, 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 and do and the 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 digital technologies 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 fleets 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 custom-made 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, digital Prime has been excellent. The prime 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 a pump lose it uses less natural gas and no diesel when compared to Tier four DG. pump DGDGB. pumps doing the same work technology innovation has been central to our history, including the multiyear design and development efforts of DG. frac and DG. prime. Last year, we decided to expand our internal manufacturing capabilities with the launch of our Liberty advanced equipment technologies division or less. That now encompasses our manufacturing division, formerly known as ST. nine 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 total cost of ownership.
The REpower innovations continues to grow in scope, expanding alongside our dual fuel upgrades and DG. fleet deployments. In the first quarter, we launched operations in the DGDJ. basin with on-site fuel management services and will commence CNG sales this quarter following the commissioning of our compressor facility. Pricing 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 diverged 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 plus 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 US power demand analyst projections for growth in the coming decade from AI and reshoring 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 lucky $1 billion borrowing. Arjun Murti term consume 13 barrels of oil per person per year. While the other $7 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 lead the industry in efficiency and emissions. We are confident that our strategic investments in digital fleet plus power and fuel supply through LPI. better positions 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 toward 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 2020 for supporting our technology transition investments and industry-leading return of capital program.
With that, I'd like to turn the call over to Michael stock, our CFO, to discuss our financial results and outlook.

Michael Stock

Good morning, everyone. We started the year delivering solid first quarter results, fueled by a concerted effort to deliver a 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 the 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. 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. Freight 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 sequentially as prior quarter performance related compensation was modestly higher than the current quarter. 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 or 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 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 digital for digital fleets, LPI. infrastructure, fuel fleet, dual-fuel fleet upgrades, let construction 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 billion 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 the 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 introduced meaningfully, we see relatively stable demand for Liberty frac services as slightly better oil 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 high utilization and favorable weather related trends in most basins that more than offsets spring breakup in Canada, we are now projecting low double digit sequential revenue and adjusted EBITDA growth. We are also expecting digital deployments to continue ratably throughout the year, including our seven fleet later this quarter, we are executing on our two pronged growth strategy, one, investing in next-generation digital fleets that fuel incremental fleet profitability and two LPI., which brings a low emissions 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 we'll have some closing comments at the end of the call.

Question and Answer Session

Operator

We will now open the line for your question.
Our first question comes from Roger Read with Wells Fargo.
Please go ahead.

Roger Read

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

Christopher Wright

Yes, good morning. I've already Roger thing that the industry conditions probably peaked about six quarters ago in the fall of 2022. And it's really just co-investment, the fleet count piece and the fleet count has sort of gently moved down since then. And if the fleet counts 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 way of doing business. So yes, and we've said there is very modest our 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 sort of pricing pressure modestly in the other direction. So for us in the Liberty world, the pricing story remains relatively boring.

Roger Read

That's good and then kind of following on your comment there may 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 that a change in production is just price driven as it synced up with the LNG export increases?

Christopher Wright

Yes, I think customers are are pretty thoughtful about that and there is a constant dialogue about that. But I but I think the I think customers need to see that prices have firmed that, that export volumes demand actually is pulling upward in 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 I know that's not imminent that increase in gas activity. It could be as early as the end of this year. It might not be till next year.

Roger Read

Okay. Appreciate it. Thank you.

Christopher Wright

Thanks, Roger.

Operator

And our next question comes from Stephen Gengaro with Stifel Please go ahead.

Stephen Gengaro

Thanks. Good morning. Everybody. two from me. One is just a clarification. I think, Michael, you mentioned the second quarter guide for revenue, but you also said I think you said low double digit EBITDA growth as well. And I was just I wanted to ask how we should think about sort of incrementals in general, even if you don't want to apply directly to the second quarter for that this I would think EBITDA will grow faster than revenue, but just curious your thoughts on that.

Christopher Wright

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

Stephen Gengaro

Great. And then the second question I had was when when you think about and I'm sure you guys have done some of this math, you think about current U.S. oil production levels and you think about frac activity and drilling activity where you think we stand as far as, you know, industry activity versus what's needed to hold production at current levels.

Christopher Wright

Did I get that that's of a fine balance and my guess is the activity level today is probably consistent with flat US oil production. I know we saw a big decline in January, and I think that's monthly fluctuations on, 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.

Stephen Gengaro

Okay, great. Thank you.

Christopher Wright

Thanks, Stephen.

Operator

Our next question comes from Stephen Gengaro with Stifel. Please go ahead at the I'm sorry, Neil Mehta with Goldman Sachs.
Please go ahead.

Neil Mehta

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

Christopher Wright

Yes. I mean, what I mentioned is oil prices and oil prices stay where they are. I think we'll see we'll see more activity from private operators in the second half of the year than the first half of the year, I would say. But the larger publics, um, flat, pretty flat activity going forward, you're going to get the role of Canada, and we've already seen the drop in the gas prices, and that's already baked in.
And that's where we see to get to that flattish guide for the year.

Neil Mehta

Okay. All right. That is helpful. And then we didn't talk about return of capital yet.
So I'd just love your perspective, the business is starting to generate real free cash flow balance sheet in good shape. So how do you think about and returning excess cash to shareholders and what are other calls on that cash, including the potential for bolt-on M&A?

Christopher Wright

Yes, those are. Those are decisions. We discussed debate wrestle with every day. We have a strong core business and key for us. There is competitive advantage. We've got it every day, not last year, not last month. Every day, we've got to deliver a better service quality than our competitors and that that's human that's training, that's culture, that's technology that's investment in all of those things. Obviously, we've got this larger scale transition to gas burning activity. I think we have pretty much laid out a plan for that. We're probably at the peak level of that right now. So yes, as you go into future years, we'll continue to invest in new technologies. But the investment in the frac fleet probably gradually roll down in the coming years. We've got this new LPI. business. That's quite exciting, but we're going to go at a slow and measured pace this year with a in this in this new business line. Right now, it's about nailing the technology and the execution of delivering on-site oilfield electricity to run our operations. And then, of course, the spread maybe the most compelling investment we have, although we have to balance it to buy back our own stock, we've got a very strong return on capital, an incredible competitive position, we still traded a single digit price to earnings ratio. So yes, of course, we're intrigued by that. And don't I don't see that likely changing in the coming quarters, but it's always a balance between all those things. We've always got to keep the business so that we have a strong competitive advantage and a bright future ahead of us. We can't ever just look at just this year. We should only do this. So to us, it's always balancing opportunities today and the outlook for the future.

Neil Mehta

Thanks again, team.

Operator

Our next question comes from Luke mine with Piper Sandler.
Please go ahead.

Luke Lemoine

Hey, good morning.
Chris, you talked about digital, Brian, just the fuel consumption there versus Tier four DGB. But can you just also talk about maybe the first six fleets in the field, how there's been performing?
And then Michael have limited number seven's coming later this quarter on for if you're still kind of going to 10 fleets by year end, our fleet's eight, nine, 10 already allocated to customers.

Christopher Wright

They are they are, you know, we as we've said, since the start, the interest there is large, the interest is larger than the amount of fleets we can build. So yes, but yes, those those fleet through the rest of this year, we know who they are going to and where they're going. So those plans are in place on the DG. Prime is it isn't it's a very different technology. So we love the idea. The early operations I would say are great, but it's brand new. There's little things groups. You have got to change that. So we're 12 tweaking the design or whatever, but the pumps that are out there.
Yes, the performance is impressive there that power density that super high thermal efficiency. So you're actually not just burning gas instead of diesel, but less gas. And so again, I think excitement is around that. Ron, do you want to elaborate or comment anything on that?

Ron Gusek

I think you covered it. Well, Chris.

Christopher Wright

Yet to come visit some debt.
We'll take out the one.

Luke Lemoine

Yes, absolutely.
Thanks, guys.

Operator

Our next question comes from Arun Jayaram with JPMorgan.
Please go ahead.

Arun Jayaram

Good morning, team.
I wanted to see if you could shed a little bit more light on the sequential of double digit sequential top line outlook for the second quarter versus one Q, I was 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 in existing fleets? You've obviously added a couple of TI fleets I think in 1Q and also between LPI. Just help us think about what's driving the sequential growth.

Christopher Wright

But one thing is just calendar right at the start of the year. You've got weather, you've got people with different plans with programs. So probably the single biggest thing is just a it's just a fuller, more robust calendar.
I'll let Michael add some of these other factors, but I think that's the biggest one.

Michael Stock

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 procedures, you're putting that over a stronger calendar with its whitespace days, you have a little move, obviously with the technology, which is 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 are.

Arun Jayaram

Fair enough.
But Chris, you get a decent amount of questions on LPI. So I was wondering if you could just give us a sense of how big that business is your future growth opportunities for that segment? And maybe talk a little bit more about the LAT. or the Liberty advanced technology, which you talked about earlier prepared remarks.

Christopher Wright

You bet.
I mean, look, LPI. today is relatively small business. The idea today it's about building, it's about building infrastructure, a team technologies, understanding systems. What is what is what is LP. I do today. It delivers natural gas through our on-site electric generation to power our digital fleets and also to dual fuel fleets, of course, did you find fleece and it doesn't supply nearly all of those fleets today. So this is early stage in that business. But I think it's got, as you've heard us say, just tremendous tremendous growth opportunities, but key to securing that growth is securing the technology, the operations and the supply chain on the inbounds we get now for just needs for electricity. I mean it shifts we had and like I've been outspoken about this for many years, we have followed very poor policies in this country for our electrical grid, and we've fragile lives our electric grid with constant demand demanded and is growing very slowly over the last decade. And even with very little demand growth, we have driven prices up reliability down and now that that grid and those policies are colliding with rapid growth in demand for electricity. So this is going to cause some bumps and struggles for our country. I wish it wasn't but but the LPI. will be or will be we'll see tremendous business opportunities and providing firm reliable, affordable natural gas generated electricity. So the future of LPI. is tremendous. But is it a big business today in Liberty? No.
But will it be a big business in the future?
We think it will. And our lab is super exciting. As well. And I'm going to let Ron tell you a little bit about what it is and why we're doing it.

Ron Gusek

Yes.
Look from probably from going back six years now, I guess 2018, we made a pretty conscious decision around getting into some vertical integration around manufacturing capacity that started with our ST. nine acquisition and a decision around bringing in-house, the ability to control the design and ultimately manufacture and assembly of a pump.
As we fast-forward to today, we're in the middle of this transition to next-generation equipment. We control the design of DG frac from the ground up. We've done the same with DG. prime and it makes sense for us now to control that entire packaging process and particularly the engineering design and control of that in-house. And so that is a very conscious decision for us to do exactly that, which is to be able to take the feedback we're hearing from the field, the input from our customers opportunities we identify for for even advancing the technology beyond where we are today in implementing that in our engineering design. And then meant handling some amount of that packaging internal to our organization. We still have some great third party packages out there that have been partners for a long time. We'll continue to work closely with them as well. But we're willing to do some amount of that baseload work internally and particularly retain control over the engineering design and innovation in that side of things.

Arun Jayaram

Thanks.

Operator

Our next question comes from Scott Gruber with Citigroup.
Please go ahead.

Scott Gruber

Yes, good morning.
Scott.
Had a question here with Waha gas turning negative.
I'm just curious whether you have any frac contracts set up where you supply the fuel costs for today, you can directly benefit from negative gas prices for the benefit to Liberty, mainly indirect via the rate resiliency for e-frac and dual fuel that low lower negative gas prices provide growth opportunities for LP. I just kind of wondering and you have the benefit flows.
The Liberty.

Christopher Wright

Yes, today it's indirect today. We don't capture the benefit of that, but will we in the future, you bet, we will. And think of it even outside the oilfield, we're going to sell electricity gas is going to be an input cost, and we're going to sell it in different places and different setups with different commercial arrangements. So yes, we're excited by that. But right now that that benefit dump well, that benefit goes to our customers. But of course, they also have the downside of selling gas into that market. So no, today, we don't benefit from that. But it, of course, is just a further tailwind of why it just makes more sense when you can do it to power a large industrial machinery with natural gas instead of diesel diesel is an awesome fuel that powers the world and it will for decades to come. But when you've got infrastructure and when you can bring gas and you can take large Machinery and Power it on gas versus diesel, it's just cheaper, more abundant, lower cost, lower pollutants and lower greenhouse gas emissions.

Scott Gruber

Got it.
And then you wanted to circle back on your comments regarding privates, actually picking up activity later in the year. Is that mainly just it turned a function of time with Prime private MI due to accumulate more cash following the rebound in oil? Or is there a egress factor here, particularly in the Permian? Do you think privates wait for Matterhorn to start up and and see better egress for natural gas out of the basin.

Christopher Wright

Was I guess it's a bit of a combination of all of those.
But I do think Matterhorn matters because if you look at the Permian, incredible basin, but it's a lot of pretty gassy production. So oil drives economics, but gas matters too. So yes, when we get more pipeline capacity and there's value or less negative value from gas, definitely in addition to oil prices, that will further improve the economics of drilling. And we're not expecting some huge surge or increase in activity, but on the margin, if you were a private operator, would you be more likely to produce five, you know, later this year than the earlier this year?
You know, if oil prices were similar yet definitely definitely later this year is going to be a better decision.

Scott Gruber

Makes sense.
Thanks. Chris.

Christopher Wright

THANKS?
Yes, good question.

Operator

Our next question comes from Derek partisan with Barclays Please go ahead.

Derek Podhaizer

Hey, 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 as PPAs and just more of stable earnings, just a little more how to think about that AI. part of the business.

Christopher Wright

And yes, it's going to it's going to be a different business. But key for us, it's going to take the same expertise and the same technology we're developing today. You know that for us, it's always been the excitement of this. We're not taking a flyer on some crazy idea. We have always thought for our frac operations. It's just essential to control the power of your fleet. And so for us we're building that infrastructure to deliver fuel, generate electricity and run our operations. But we've known from the start that, hey, by developing that expertise and that ability to power our own fleets. Of course, we can do all sorts of different things with those, and I look into early on these are we're in dialogues now, but this year is mostly about developing the technology, the expertise and the delivery of that remote electricity to our frac fleets. It's not outside oil and gas. That's not a 2024 thing. We probably see the start of that next year.
What data?
But to your original question, yes, are they going to be some larger projects or they're going to be some more stable, many, many year contracts on?
Yes, yes, there will be it. So to us, it's develop an expertise that helps our core business. That will always be a key part of our core business. But yes, it's going to give us a leg up in an on-trade into a marketplace that, Jeff, that is struggling already with a dearth of power. You've got customers for your data center or for your industrial operations, but it's hard to get affordable on near term additional power to any industrial activities in this country. We should not be in this situation, but we are and we're going to be in this situation for years, many years. So for us, yes, we should probably give more color later. But yes, it will be a long term a little bit more that probably a fair amount, more stable leg of a high return profitable business for Liberty.

Derek Podhaizer

Understood.
That's helpful.
I'm switching back over to frac. Just want to think about the fleet count for the remainder of the year and maybe just the interplay of adding additional digital fleets? You talked about six go and go and attend or retiring Tier two diesel fleets. Have you guys had 100 Tier four diesel fleets being upgraded, dual-fuel DGB and just getting a sense of what's going towards incremental fleets versus replacement fleets. So just your overall view of high-grading the fleet mix as we work through the year and how that may help the ramp that you're expecting in the back half of the year?

Christopher Wright

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 to offer 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 really going from six today to 10 DG. fleet. That's not for new fleets going to the marketplace, zero new fleets going into the marketplace.

Derek Podhaizer

Got it. Great.
Appreciate the color. I'll turn it back.

Christopher Wright

Thanks.

Operator

Our next question comes from Mark BRG with TD. Cohen.
Please go ahead.

Marc Bianchi

Thank you.
I wanted to first clarify on the, um, 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 and '24, could it be down 5% to 10% and it's still sort of close enough to being flat that it would qualify for that statement.

Michael Stock

And we've been very specific flattish, Mark, flattish. So yes, yes. So yes, so you know, Joe is not saying it's a literal flat [$1.2 billion to $1.2 billion].
No, it is it is going to be flattish, so kind of within the rounding error that you discussed.

Marc Bianchi

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 digital fleet deployments helping on some sort of customer-specific things helping and maybe a little bit of help from higher oil activity or 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?

Christopher Wright

Yes. And so we've talked about Q2 versus Q1 on Q. three. Historically, it's probably the best quarter of the year. I don't see any reason to expect that to be different this year.
Yes, that's and that's why our guidance flat. If we don't have a crystal ball. We don't know what will go on in Q4. We don't know specifically Q. three, but I know if the activity stays flattish where it is today for us, we still have from internal improvements in our business and cost efficiencies and new technology deployment. We could still grow EBITDA in that environment. And typically you face of, you know, some somewhat of a roll down in Q4. We probably see a little of that this year, but probably not so much because activity today is sort of flat production at best. So I think activities. If there is a bias to change in activity six or 12 months from now, it's more likely to be up and down. But that's why our guide, we're sort of always just flat?
Yes, we don't have a crystal ball for the end of the year. But in the current existing marketplace, how would Liberty perform the annual EBITDA would be flattish compared to last year?

Marc Bianchi

Yes, yes, makes sense. And then, Michael, just one more on the on the free cash for the year. Could you just talk to what we should be thinking of from a conversion of EBITDA perspective because first quarter looked like you had a pretty big working cap on headwind. And I think earlier in the last call, you said you would expect that to be flat for the year. But just if we could talk about it and kind of how many dollars of EBITDA ultimately convert into free cash would be helpful.

Michael Stock

And we don't give those details as things move around. But yes, you always get a build of working capital in the first quarter because as you I'm kind of Q4 of the last six weeks is always the lowest part of the quarter. The opposite spectrum, we will see good growth in revenue, obviously, growth in top line. You're going to see a slight usage on the slight sort of build in working capital in Q2, and you're going to see a kind of a release of working capital in Q4. And so yes, as we as we said, over the course of the year, working capital will be about a sort of flat for the year. But I mean that those free cash flow numbers are not quarterly driven and I sort of asked a little bit of sort of up and downs with it.

Marc Bianchi

Yes.
Okay.
Thanks very much.
I'll turn it back.

Michael Stock

Thanks, Mike.

Christopher Wright

Thanks.

Operator

Our next question comes from Keith MacKey with RBC Capital Markets.
Please go ahead

Keith MacKey

Thanks.
Good morning.
Just wanted to start out with some customer consolidation. 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 deal's closed, but not necessarily the way they would 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?

Christopher Wright

I'd like your comments, I think are correct there is that there's been a continual consolidation at some pace. The last 12 or 18 months probably still continues. Come. It does lead to incrementally a little bit less activity. That's probably why our production run rate today is that flattish. We're you know, 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 on that. There'll be an offset of that, of course, because non-core assets are going to be sold off and new privates or existing privates will get bigger, and we'll feel a little bit of that gap not happening today right now with the bigger customers, bigger, more sophisticated customers on balance that pipe benefits Liberty, that's 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 sellers in those deals. So yes, it's been and it's been a small headwind for the industry and maybe a very small tailwind for Liberty.

Keith MacKey

Okay, thanks.
Thanks for that. Just maybe a little bit on Australia. You talked I talked a little bit about this, the 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 to get transported them. So just an update there would be helpful and you see this as really a one-off opportunity? Or are there other potential international opportunities that you might be looking at as well?

Christopher Wright

But we've been pitched about international opportunities almost as long as we've been a company so that the interest in having Liberty's engineering prowess in addition to horsepower and equipment and all that the interest in that international market been strong and our view in the past has always been we're super loyal and we move slowly. So we're in a basin like we're going to stick with our partners in that basin. We tend to have very sticky customers. We've slowly moved to other basins as we built more capacity or existing customers have pulled us there. So we've been more gradual and doing those things but the beat of the sort of checks two boxes. One is the gas in place is enormous. It's this tremendous gas basin that hasn't produced any gas yet, but could and should. And when we talk about the E and you can read about and bettering human lives, the fastest growing energy source on the planet over the last 12 years by far is natural gas that likely continues in the coming decades as well. So Beetaloo is a huge resource base on Australia itself is having struggles with domestic gas prices and gas supply and the projections there show things getting tighter. So there's a need for that gas there in Australia, you're right near the South Asia and Southeast Asian markets for it. So it's a big upside. And with the rollout of VG. technologies, we've now we're bringing in new fleets and we don't need new capacity. So we've got fleets going out. The other side that we can retire or in the case of people who are weak incentive fleet to Australia. And we've got good partners there. And I think we're levered pretty nicely to upside in that basin. But it's small that's a multiyear thing for that to become meaningful, but could it become meaningful?
I think we think it could. I'll let Ron update. You a little bit more about like what's going on timing wise and how that's going, but an exciting new opportunity for us on.

Ron Gusek

Yes, just a quick update there. To some extent so we isolated a fleet of equipment, identified the assets that we're going to head over there. They've gone to a central facility for us. They are basically done their refurbishment program at this point in time, we're making sure that fleets ready to operate in a relatively remote environment. So as we wrap that up, that fleet will ultimately move down to to the Gulf Coast, and we'll have that loaded on a boat sometime here in the middle, the middle to latter part of Q2, and it will find its way to Australia should arrive there in early, maybe mid to three. And then we'll have to work our way through customs and whatnot there before we have that on the ground and ready to work but that's where we stand today.

Keith MacKey

Okay.
Thank you very much.

Christopher Wright

Thanks.

Operator

Our next question comes from Waqar Syed with ATB Capital Markets.
Please go ahead.

Waqar Syed

Hi. So you saw the data from EIA. and the 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?

Christopher Wright

Yes, absolutely. The case that the Bakken historically has a very meaningful winter downturn and absolutely did this year as well. As you just pointed out, net data. So absolutely that reduced activity in the Bakken in Q1 and also some reduced activity in Wyoming and Colorado. So you have that data is true. I think we'll see again and that activity will rebound a little bit on gas for the year QUARTERS for the rest of the year?
No. So at least that's a pretty big change in activity in a how would I mean your incrementals behave as it has? And wouldn't that be pretty strong tailwind to incremental margins as it happened in Q2?
Well, the other thing is you know, all of our assets are on wheels, you know, so when activity declines in the in the pocket and there's just less fleets working, um, we did we drive those leads elsewhere.

Waqar Syed

That I say.
Thank you very much. That's all I had.

Christopher Wright

Yes.
Thanks, Rickard.

Operator

Our next question comes from Saurabh Pant with BOA.
Please go ahead.

Saurabh Pant

Hi, good morning.
Chris or Ron and Mike, or 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 rate. And the obvious question is how much running room do we have.
Right?
But as far as the 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&P operators in terms of maybe logistics or just a just the way they design the jobs and lineup or the supply chain, if you can just talk to that a little bit?

Christopher Wright

Yes, it very much requires both sides, you're on location. It's a dance between wireline and frac and your customer and logistics and supply chain and operations. It's also, I would say one of the advantages Liberty has had, you know, if you're if you deliver that the best quality you get you, you can work with the best customers. So it is absolutely a coordination of all of those in. And now I'll turn it over to Ron, who certainly been a leader in the engineering innovation, the way to think about this and to find the opportunities to move progress.

Ron Gusek

Yes, we obviously we continue to work on that.
You saw we made progress incremental progress each and every quarter, one after the other. And so that's a credit to the operations team to our technical development team as we continue to find ways to understand more and more about how our equipment's operating to be proactive around things that could move the needle could put us on. I could have us deal with some downtime. We're finding ways to identify those and react to them before they happen. And so that's a credit to the whole operations team out there. There's still opportunity there. We continue to find ways to move the needle on that. But the low-hanging fruit is gone a long time ago. These are going to be modest incremental improvements as we continue to take equipment to the next level, even as you think about DG., our next-generation technology, the time between overhauls on these gas engines look meaningfully different than it does on a diesel engine. As we automate the operation of the pumps, we can ensure long increased longevity of components out there. So less time required for maintenance as we have worked closely with partners around things like our hot swap technology, the ability to get a pump in and out of the red zone without having anybody stepping into place there around it's zero time between moving from wireline to pumping on a wellhead, strong partnerships as Chris model with the E & P side of things but also with other service providers out there that are bringing supportive technology to the table. And then also for us, of course, speaks to the vertical integration. We continue to work on as we work on improving our logistics platform, the introduction of LPI. and removing that reliance on third-party for natural gas, all of those sorts of things from an integrated services offering help us to ensure the highest possible efficiencies on location. And we'll continue to drive to find little ways to eke out a bit more in that quarter after quarter.

Saurabh Pant

Right. Right now.
That's very helpful. And then just one unrelated one. I'm just thinking about the medium term, not just a really short term, but I think if I remember correctly, Chris or 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 do we think about more gas-on-gas competition versus just this placing these are like we are at this point.

Christopher Wright

We absolutely. But we talk about fleet technology a lot. That's a positive development for the industry. It lowers costs and all that. But it's not determinative of a fleet and a good fleet or bad fleet based on what it burns. That's just one factor. The single biggest factor by far and away is there humans running that fleet, the quality of operations, the quality of the supply chain, we don't talk too much about this, but we've had certainly multiple examples where a Liberty diesel fleet is displacing a 100% gas burning fleet. It is just for quality of operations and people customers just it's not just the it takes. That's just one factor. It's mostly about humans and service quality. And so yes, that that is a spec but not the spec.

Ron Gusek

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 DG. prime and DG. frac 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.

Saurabh Pant

You know, I think that makes sense. Execution often tends to be the unsung hero and then add on I think you talked about that on the LED side as well.
Right, so it makes sense.
Okay, thanks.
I'll turn it back.
Thank you.

Christopher Wright

Thanks, Sara.

Operator

Our next question comes from John Daniel with Daniels' Energy Partners.
Please go ahead.

John Daniel

Hey, guys, thanks for including me.
But 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 LTRE?

Christopher Wright

The supply chains are tricky supply chains are tricky. There's a lot of dialogue going on about that, but I promise I won't comment on any specifics there, John, but you do identify a real issue there. Is there is not a surplus of such equipment.

John Daniel

Okay.
And I don't know if you can answer this, but I'll ask anyway, is there any risk that the major OEMs pivot in allocate more product to data centers directly to the detriment of oil and gas.

Christopher Wright

And if that's happening today that's happening today. It was one of the reasons, John, as you know, we we've held this belief of what's going on with the electricity market for years. So when we got into building our digital fleet, it was if we count on a third party that's going to do that at third party administrator and oil and gas company. If the market switches, they can drive all those things over to data centers or or for manufacturing thing. And now we've now we're at the mercy of the business that's not ours, and we just decided that was a risk we didn't want to take.

John Daniel

Okay, excellent.
Thank you.
For indulging me.

Christopher Wright

John.
Thank you.

Operator

This concludes our question and answer session. I will now turn it back to Chris for closing remarks.

Christopher Wright

Thanks to 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 riding this report, but what I am most proud of was not written by me. It was the words in the letter from and higher the executive director of our newly formed better humanized foundation. BAL. 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 and letter says it best. And I will read the full text Now despite significant cultural and geographical differences among countries in Sub-Saharan Africa seem to outside the window as I drive from town to town are remarkably similar in all include women and girls standing in lines at water pumps, walking and groups in search of fire, wood and countdown and carrying heavy loads of fire wood and water filled buckets. Whether in Malawi, 14 of Faso, Ethiopia and Kenya, I passed clusters of homes and save women cooking amidst harmful smoke from open fires that are fueled by wood or Caledon. We are in the year 2023? Or how is this acceptable growth?
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 task of collecting fuel and water for cooking cleaning, laundry and heating homes. I am a nurse Midwave, 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've 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 spent her time collecting fire would 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 was a great need to tackle more fundamental problems that perpetually constrained women and their families, a clean burning Cook's job 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 fuels and cooking and smoke field 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 cook stove entrepreneurs and innovators in Africa and in Asia with one goal in mind, get a clean Cook stove into 1 million households as a mid wife and a mother, my heart breaks when I see postpartum mother and her newborns inside dark smoke filled homes, I'm eager to get on a more impactful path toward 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.

Operator

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