Liberty Oilfield Services (NYSE: LBRT) reported Q2 EPS of ($0.55), $0.11 worse than the analyst estimate of ($0.44). Revenue for the quarter came in at $88 million versus the consensus estimate of $98.77 million.

Second Quarter Results

• For the second quarter of 2020, revenue decreased 81% to $88 million from $472 million in the first quarter of 2020.
• Net loss before income taxes totaled $77 million for the second quarter of 2020 compared to net income before income taxes of $3 million for the first quarter of 2020.
• Net loss1 (after taxes) totaled $66 million for the second quarter of 2020 compared to net income1 of $2 million in the first quarter of 2020.
• Adjusted EBITDA2, which includes non-cash stock compensation expense, decreased 123% to $(13) million from $54 million in the first quarter. Please refer to the reconciliation of Adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) in this earnings release.
• Fully diluted loss per share was $0.55 for the second quarter of 2020 compared to earnings of $0.02 for the first quarter of 2020.
• Modest net-debt position at the end of the first quarter of 2020 swung to a $19 million net-cash position at the end of the second quarter.

“During the second quarter, Liberty continued to safely deliver exceptional service while taking steps to manage through an abrupt drop in completions activity across the industry due to global oil supply and demand shocks. In response to an unprecedented level of commodity price volatility during the second quarter, our top tier customers appropriately chose to curtail oil production and cease completions activity. We worked closely with our customers to evaluate forward business activity and implemented a clear plan to conserve cash, maintain liquidity and position the Company for strong performance in an eventual recovery. As earlier announced, we elected to reduce staffed frac fleets by approximately 50% to align with our customers’ activity plans towards year-end 2020. We also reduced our capital expenditures target, suspended our dividend, and continued to improve our cost structure to position the Company favorably for the long-term by exercising near term flexibility aimed at maintaining our balance sheet strength. Our Liberty family members have made unprecedented sacrifices given the challenges presented by the current market, and we thank all past and current Liberty employees for their contributions,” commented Chris Wright, Chief Executive Officer.

Mr. Wright continued, “These actions, coupled with outstanding operational performance, allowed us to deliver on our long-term strategic goals that recognize the importance of cash generation, disciplined capital allocation and a strong balance sheet. While our revenues declined to $88 million in the second quarter, and net loss1 was $66 million, or $0.55 per fully diluted share, we were able to generate significant free cash flow during the second quarter. Adjusted EBITDA2, excluding non-cash items, was approximately $(8) million for the quarter. We ended the quarter with total liquidity of $207 million. Despite these extraordinary circumstances that our industry faces today, we remain focused on building long-term partnerships with the industry’s leading players and investing in technology to grow our competitive advantage, all with laser focus on safe and efficient operations. This was illustrated by setting new efficiency records in the quarter such as pumping 97% of the minutes in a day on a plug and perf pad, enabled by our onsite and logistics prowess and proprietary technologies.”

Outlook

The collapse of worldwide demand for oil during the second quarter resulted in an abrupt reset of operators’ drilling and completion activity plans for the year. We believe the second quarter likely marks the bottom in completions activity. In the third quarter, rig count declines have slowed and West Texas Intermediate crude oil prices have seen signs of stability after a highly volatile second quarter. In response to higher and more stable oil prices North American exploration and production companies are bringing back curtailed production volumes and beginning a modest uptick in completions activity, albeit off a very low base. Our customer dialogues center around optimizing their development plans for the second half of 2020 and looking into 2021.

As operators look to the “other side,” a side where many operators and service providers will no longer exist, there is a heightened interest in best-in-class service quality, efficiency, safety and technology solutions that enable a better and more respected industry. Liberty is becoming a larger part of our top-tier customers’ anticipated business activity during the second half of 2020, as the innovative engineering Liberty brings to completions strategies and our environmental, social and governance (“ESG”) conscious approach to hydraulic fracturing have simply become more important. Using our proprietary database and analysis tools, our team is partnering with major Permian operators to evaluate completion practices and well-productivity to help drive economic improvements across the basin. We are also working together on rigorous design, analysis and implementation plans for our next generation frac fleets to continue raising the industry ESG bar.

Commenting on the outlook, Wright added, “Prior downturns in the oil and gas industry have tested and proved the resilience of Liberty’s strategy, and we believe this time is no different. Liberty developed a plan to navigate the downturn, with an eye toward our strategic principles, and we executed swiftly and decisively to position the Company well for the long-term.”

Wright continued, “Entering the second half of 2020, the foundation of a strong culture, coupled with technology and efficiency-centered competitive advantages, will allow us to continue a path towards expanding our deep-rooted customer relationships that we have cultivated over the years. We now expect a modest acceleration in activity during the third quarter, and we expect to have 10 to 12 frac fleets working in the fourth quarter of 2020 as customers look to utilize superior services in the current climate. We believe that we are significantly advantaged with a strong balance sheet, a high-quality service offering, low capital outlay and flexible cost structure that allow us to serve our customers through an impending recovery. As Sun-Tzu said over two millennia ago ‘In the midst of chaos, there is also opportunity’.”

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