Welcome to the Liberty Energy Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] 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..

Thanks, Wyatt. Good morning, and welcome to the Liberty Energy's third quarter 2024 earnings 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 for today also include non-GAAP financial and operational measures.

These non-GAAP measures, including EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per diluted share and adjusted pre-tax return on capital employed, are not a substitute for GAAP measures and may not be comparable to similar measures of other companies.

A reconciliation of net income to EBITDA and adjusted EBITDA, net income to adjusted net income and adjusted net income per diluted share and the calculation of adjusted pre-tax 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..

Thank you, Anjali. Good morning, everyone, and thank you for joining us to discuss our third quarter 2024 operational and financial results. Liberty delivered a solid quarter with revenue of $1.1 billion and adjusted EBITDA of $248 million.

We again reached new heights in efficiencies, pumping more hours in a quarter than ever before companywide amidst the backdrop of a slowing demand environment.

We are excited to celebrate the progress of a Liberty digiPrime fleet that set the company record for number of hours pumped in a month by any crew in company history, low fuel cost from natural gas, low emissions, and record operational performance.

The Liberty culture of striving for improvement and pushing beyond our prior achievements continues regardless of the macro environment we find ourselves in. I'm proud of our team for executing at the highest operating levels, generating strong financial performance and value for our customers.

In the third quarter, we generated strong free cash flow, enabling a robust return of capital program. We opportunistically increased our share repurchases to $32 million at a lower at -- $39 million at a lower stock price relative to the prior quarter.

Since the reinstatement of our capital return program in July 2022, we have distributed $509 million to shareholders through the retirement of 14% of shares outstanding and quarterly cash dividends. Earlier this week, we also announced a 14% increase in our quarterly cash dividend to $0.08 per share.

The compounding effect of buybacks and dividends is an attractive way to drive higher total shareholder returns over cycles. We balance our return of capital program with disciplined investment in innovative businesses and leading-edge technologies that expand our competitive advantage and increase our market opportunities in the coming years.

Our success across multiple business cycles is driven by our well-defined competitive moat, differential technologies, long-term growth potential and high returns on invested capital. I want to highlight two of the drivers of our leading financial performance.

Number one, we've built trust and loyalty with our customers by delivering a superior service focused on their specific needs. And number two, we've strategically expanded in essential areas that grow our technology and service leadership position.

Why is this important? When we look at our relative performance in a softening market, our largest customers have grown during this period of industry consolidation, and our percentage of their work has also grown.

This demonstrates the importance of dedicated relationships with customers that are also able to withstand and prosper across cycles and who value quality, safety, and service. Our focus on strategic investment drives the differential experience our customers benefit from today.

Focused investments have allowed us to develop new markets and lead technology innovation and operational efficiency in the industry. Let me share a few recent examples. Over the past year, Liberty entered partnerships with entrepreneurs to develop the new gas-rich Beetaloo Basin in Australia.

We have taken a significant step forward with the arrival of a Liberty fleet in country. Operations are expected to begin next month. Another example is our Liberty Advanced Equipment Technologies, LAET, manufacturing and assembly division that delivered its first digiPrime pumps in the third quarter.

This marks great progress since the launch of LAET just last year. For the last few years, we have supported our frac operations with the design and manufacturing of Liberty pump technology, including power ends, fluid ends, and ancillary equipment.

We are now designing and manufacturing digiTechnologies as well as critical components for LPI and PropX. The new LAET organization expands our ability to design, engineer, and package complete proprietary systems.

The success of new technology comes through ownership of the engineering design and the ability to rapidly incorporate feedback from field operations. This accelerates the innovation cycle and reduces total cost of ownership.

Our manufacturing strategy reflects a balanced approach to in-house versus outsourced production whereby we can leverage selective key learnings through the innovation cycle with our external partners, which remain an important part of the scale of our manufacturing and assembly needs.

Our PropX division, acquired three years ago, is a leading provider of last-mile proppants handling and delivery solutions and has delivered nearly 400 billion pounds of sand since inception. As the premier provider of wet sand handling technology, we're excited to share several new developments.

PropX has recently deployed its new [prop stack] (ph), damp pile delivery system, optimizing the use of damp sand piles for high throughput frac locations.

The innovative new [prop hopper] (ph), together with advanced [laser sand metering] (ph) technology currently in testing, offer additional value to our customers through improved accuracy and simplified on-site operations.

We are also in the advanced stages of testing a slurry pipe system for last-mile delivery of sand that could minimize trucking, reduce environmental impact, and provide real sustainable cost reductions across the value chain.

Earlier this summer, Liberty Power Innovations, LPI, fuel gas operations commenced in the DJ Basin with first CNG sales in July. LPI's expanded compression and delivery operations in Colorado are off to a strong start, helping bring our frac fleet CNG fueling services to critical mass.

We are now supporting most of our gas burning fleets in both the Permian and DJ Basin. Alongside CNG, we are also treating field gas in the Haynesville, Permian and other basins for certain customers. LPI handled more gas volumes and delivered more CNG in the third quarter than in its operating history, with much more runway to expand.

Today, the rising demand for power in commercial and industrial applications offers compelling opportunities for LPI. We are excited to leverage the expertise that we have built constructing and managing power plants for frac fleets to additional opportunities both inside and outside the oilfield.

An energy-rich future creates opportunity as much of the ensuing demand will be meaningfully powered by natural gas, which is an area we believe we have significant advantages. The other opportunity in growing long-term supply of firm power is nuclear, which has been much in the news these days.

Our ownership stake and partnership with small modular reactor company, Oklo, has been truly exciting. Oil markets reflect significant uncertainty across the global economy, OPEC+ production plans, Chinese economic growth and Middle East geopolitical dynamics.

Global demand for oil will grow by approximately 1 million barrels of oil per day this year and it's expected to exceed that rate next year. While global oil production may be in surplus in 2025, oil prices are expected to remain relatively range-bound and supportive of North American activity.

Natural gas prices rose in recent weeks as storage congestion concerns ease due to producer curtailments and strong domestic power generation demand. However, higher prices may incentivize reversal of curtailments and, therefore, prove to be transitory. The commissioning of LNG export facilities in the U.S.

and Canada is expected to stimulate gas activity in 2025 and support higher sustained natural gas demand.

Frac markets are navigating the slowing of E&P operators' 2024 development programs in response to the strong first half 2024 production efficiency gains from factors including producer consolidation, longer lateral wells and concentration of activity in high-graded acreage.

Elevated uncertainty in energy markets has further left operators reluctant to accelerate completions activity in advance of the New Year. We now expect a low-double-digit percentage reduction in Q4 activity, a bit more than the typical Q4 softening.

Completions activity likely increases in early 2025 to support flattish E&P oil and gas production targets. Since late 2023, U.S. crude oil production has been relatively flat and would likely decline if current completion activities levels persist.

Eventually, activity levels will likely increase to support growing global demand for oil and natural gas. Frac industry dynamics are poised to improve in 2025 from today's levels. E&Ps brought wells to production faster this year, in part due to completion efficiencies and increased frac intensity with higher pump rates.

Efficiencies were aided by a mix shift towards larger producers benefiting from consolidation and partnership with top-tier frac service providers. Industry-wide frac efficiency is at its highest levels, but we expect the rate of improvement will slow going forward. Higher intensity fracs require more horsepower.

Softer activity has been a catalyst for equipment attrition, cannibalization and idling of fleets. Together, these imply that the supply and demand balance of frac fleets is tighter than headline frac fleet counts suggest. Large well-capitalized E&Ps are enjoying attractive economics across a wide range of oil prices.

To maintain efficiency gains and further support the increasing complexity of E&P needs, investment is necessary in leading-edge service technologies. Soft year-end frac activity levels are pressuring prices in the near term to levels that are inconsistent with the anticipated market demand and supply of horsepower in 2025.

It is important that service prices support investment, especially given aging equipment, industry underinvestment in next-generation technologies and growing fleet sizes. Few service providers are positioned to manage the growing complexion -- complexities of completion demands with quality service and next-generation technologies.

We are significantly advantaged with our deep customer relationships, leading-edge digiTechnologies offering and the integrated services that enable strong efficiencies for our customers and returns for our shareholders. We remain disciplined in investing in asset deployment as we seek to drive superior long-term financial results.

Over the last two years, we have maintained a roughly flat deployed fleet count. However, amidst near-term reductions in customer activity and market pressures, we are planning to temporarily and modestly reduce our deployed fleet count, while continuing to support our long-term partners.

Looking ahead, we expect to deliver healthy free cash flow generation in 2025. Our investment cadence within frac slows following an accelerated technology transition push in the last few years. Our strategic investment is expected to shift in support of our growing opportunities for power generation services.

We are well-positioned to deliver on our dual priorities of strategic investment and return of capital to shareholders, creating value over the long term. With that, I'd like to turn the call over to Michael Stock, our CFO, to discuss our financial results and outlook..

Good morning, everyone. Over the past two years, our results demonstrate the hard work and dedication of the Liberty team. We've delivered superior returns during a time when industry activity levels and market conditions have softened from peak levels. We've also strategically used those two years to focus on building our competitive advantages.

We embarked on the initiative to transition our fleet to next-generation digiTechnologies that are in high demand. We are pleased to share that we are on track to start the year with approximately 90% of fleets, primarily powered by natural gas with dual fuel and digiFleets.

We also launched and have now reached critical mass in LPI infrastructure to power our fleets. As we look ahead, we are well-positioned to drive continued differentiation and solid performance through cycles.

In the third quarter of 2024, revenue was $1.1 billion compared to $1.2 billion in the prior quarter, representing a 2% sequential decline on pricing headwinds. Third quarter net income after-tax was $74 million compared to $108 million in the prior quarter.

Adjusted net income after-tax was $76 million compared to $103 million in the prior quarter and excludes a pre-tax net unrealized loss of $3 million for mark-to-market loss adjustments.

Fully diluted net income per share was $0.44 compared to $0.64 in the prior quarter, and adjusted net income per diluted share was $0.45 compared to $0.61 in the prior quarter. Third quarter adjusted EBITDA was $248 million compared to $273 million in the prior quarter.

General and administrative expenses totaled $59 million in the third quarter, largely in line with $58 million in the second quarter, and included non-cash stock-based compensation of $5 million. Other expense items totaled $11 million for the quarter, inclusive of the aforementioned $3 million net unrealized loss on investments.

Net interest expense of $9 million was relatively in line with $8 million in the prior quarter. Third quarter tax expense was $22 million, approximately 23% of pre-tax income. We continue to expect the tax expense rate in 2024 to be approximately 23% to 24% of pre-tax income.

Cash taxes were $16 million in the quarter, and we now expect 2024 cash taxes to be approximately 50% of our effective book tax rate for the year. We ended the quarter with a cash balance of $23 million and net debt of $100 million. Net debt declined by $17 million from the end of the second quarter.

Third quarter uses of cash included capital expenditures, $39 million in share buybacks and $11 million of quarterly cash dividends. Total liquidity at the end of the quarter, including availability under the credit facility, was $352 million.

Net capital expenditures were $163 million in the third quarter, which included investments in digiFleets, dual fuel fleet upgrades, LATC and Permian facility construction, capitalised maintenance spending and other projects. We had approximately $4 million of proceeds from asset sales in the quarter.

In the fourth quarter, we expect capital expenditures to be approximately $200 million based on expected timing deliveries on digiTechnologies, completion of dual fuel technology upgrades, demand for wet sand handling equipment. Our ability to generate strong cash flows through cycles enables our commitment to capital returns.

In the third quarter, we repurchased $39 million of shares, or over 1% of the shares outstanding, and distributed $11 million in cash dividends. We continue to deliver on our return of capital program while reinvesting in high returns opportunities that increase our long-term cash flow generation.

Looking ahead, we are now anticipating fourth quarter seasonality to be more pronounced than typical, as early year E&P production outperformance, coupled with emerging macroeconomic uncertainties, keep E&Ps hesitant to raise activity ahead of the New Year.

While unusually softer year-end activity levels are serving as a backdrop in pricing conversations, these pressures are inconsistent with the anticipated industry demand in 2025. We believe fleet activity is now at or below levels required to sustain flattish oil and gas production and are poised to inflect higher in 2025.

Horizontal rig counts have also stabilized, a signal of bottoming activity in the market. After two years of largely maintaining a flat fleet count, we are now planning to temporarily reduce our deployed fleets by approximately 5%. We will reactivate those fleets to support our customers' long-term development needs in a disciplined fashion.

As we invested early in the cycle to build our competitive advantage transitioning our fleet to next-generation digiTechnologies, we now expect our capital spending program for our completion services to decline in 2025. As such, we expect free cash flow, as defined as EBITDA less CapEx, to the completions business to increase year-over-year.

We have significant flexibility to maintain strong free cash flow generation and adjust our capital spending targets to fund potential new power opportunities while continuing to support our robust return of capital program. We expect our investments to shift towards growing opportunities for power generation services in the years ahead.

We also increased our quarterly cash dividend by 14% to reflect the confidence we have in our ability to invest and expand our long-term earnings, drive free cash flow generation and deliver a leading return of capital strategy. We combine a cash dividend with opportunistic share repurchases to generate significant value for our shareholders.

I will now turn the call back to Chris for a few remarks..

Thanks, Michael. Slowing activity is pressuring pricing levels, inconsistent with expected future demand. Let me try to put this in perspective. Our per fleet frac profitability remains above the cyclical high in 2018.

This cycle is markedly different than previous cycles, reflecting a far healthier frac market, with perhaps wider differential in profitabilities across the quality of frac providers. Already, we are seeing smaller frac companies fall into insolvency, and most of our competitors' investments in frac equipment are below their attrition levels.

Available frac capacity is shrinking. This will lead to tightening in the frac market even without increasing frac demand. Our competitive advantage is bigger than it has ever been. CapEx in our core business will trend downward next year and in the foreseeable future, boosting our free cash flow.

Liberty Power Innovations is in its infancy, and we have the technology, business infrastructure, and cash flow to develop a high return, sizable diversification to the frac business. However, we love the frac business and have never been more excited about our competitive position and future prospects in frac.

I will now turn it back to the operator for Q&A, after which I will have some closing comments at the end of the call..

I'll now open the line up for your questions. [Operator Instructions] And the first question comes from Scott Gruber with Citigroup. Please go ahead..

Yes, good morning..

Good morning, Scott..

Good morning, Scott..

I wanted to start on your comments around investment next year, so EBITDA less CapEx for completions, that will rise with lower completions CapEx next year. What does it mean for how many e-frac fleet additions you could target for next year? And it sounds like LPI investment could go higher next year.

So, putting those two pieces together, what are your early thoughts on '25 CapEx? And a wide range is fine. I know we're early, but just curious what that range could be..

Yeah, thanks, Scott. Yeah, I mean, that level of CapEx that we were discussing there probably has us bring four or five digiFleets into the market about just a bit over -- about 10% kind of replacement.

So, we've probably in sort of 14% to 15% or closing in on 40% at the end of next year with digiTechnologies just depending on how the fleet configuration goes between [indiscernible] frac fleets and others. So, I think that's about where we are on that.

And then, the LPI investments, obviously, kind of early days in looking at the power opportunities, got a lot of discussions going on there that are quite interesting, and in reasonable advanced status, but that will come clear and probably be a lot clearer by our January call of what those numbers would look like.

But we like to kind of think about it for investor to say, we're generating far more cash -- we're going to be generating more cash next year out of our completions business, which is where we're doing at the moment.

That also includes the -- that number that I gave for the CapEx also includes the base molecule management, kind of any expansion that we need for delivering natural gas to support those frac fleets as well.

So that's included in what I consider the completions business side of that, and eventually any sort of outside of frac power generation will be something we talk about in January..

Got it. I appreciate that color. And then just a follow-up on the near-term dynamics.

I guess, one, how should we think about the decrementals in 4Q on that low-teens revenue decline? And two, can you offer any early thoughts on the 1Q recovery from a revenue and incremental standpoint? A couple of moving pieces there in terms of positive seasonal trend, but I would assume those two fleets you're laying down, probably stay on the sidelines for a bit, and then there could be some additional pricing headwinds.

Just trying to level set how we should think about where Liberty starts 2025 from a revenue and EBITDA standpoint?.

Yeah. So, Scott, let me take that one. I think the revenue decline, it will be similar compared to last year in the fourth quarter. I think decrementals will be a little higher.

That's with kind of as we sort of looked at sort of kind of the slow decreasing of pricing and kind of sort of the dynamics at the end of this year versus the dynamics at the end of last year. So, if you look at revenue and the decrementals there, I think we'll have activity recovery coming into Q1. It won't be back to Q3 levels.

It'll be between Q4 and Q3 and the standard incrementals, I would say, from there. We'll have to -- we'll guess as we get closer and closer. We're still in the early part of RFP season, et cetera, but we have a reasonable look at where things are at the moment..

Great color, Michael. Appreciate it. Thank you..

Thanks, Scott. Operator Next question comes from Ati Modak with Goldman Sachs. Please go ahead..

Hi, good morning, team.

Can you talk about the pricing pressure dynamic in the market? Do you think industry pricing discipline is breaking down? Is there a profitability level or return level on your feet that we should think of in trying to understand where pricing can go?.

Yeah, Ati, I wouldn't -- I think discipline breaking down is definitely too strong of a statement, but you get to the year-end and there's a number of fleets going down, people's programs are just running out. They may not have gone down yet, but they know they're going to get down late in November, early December after this pad or the next pad.

And we do see people trying to fill that gap and keep that fleet working. So, for extra pickup work, pricing is very rough, and unusually rough even. Normally, that's not great pricing, but that's particularly rough. And we're just not going to play that game. We're just not going to run a fleet at pricing that doesn't justify running that fleet.

And so, look, we were -- two years ago, the market condition peaked and it's been sort of a slow gradual decline. We've used technology in improving our efficiency and services to try to swim against that tide offsetting it. I think we obviously continue to do that. But rig count is plateaued.

I think operators probably feel we're at or near a pricing bottom. And so, yeah, look, we stay tight to our partners. We're going to keep our profitability up. And if we can't, we're going to take the actions we're taking right now, which is idle some capacity. We're fine doing that.

But conditions aren't great today, but I don't -- this isn't a normal downturn where it's about to drop. And it's -- this is just a first leg down. I look probably pricing wise at or near the bottom would be my guess..

Got it. That's very helpful. And then, you mentioned efficiency. You also mentioned that it's at the highest levels, but there is room for some incremental changes, which will be slower from here.

Maybe can you help us understand those changes that would take that efficiency even higher and what that means for the competitive advantage?.

Yeah, look, we, and I would say our industry, but I would say led by Liberty, are just passionate innovators, right? We're always looking to do something different, to do something better and that won't stop. But think of the huge changes in just the last 12 to 18 months. We've had some consolidation of significant sized companies.

What happens then? Maybe together they were running 12 rigs and now they're running nine, and all nine of those are running on the best acreage in the combined portfolio. That increases productivity per well or swims against a long-term degradation in average well productivity that's been going on for six, seven, eight years now.

People are going to -- when there's excess capacity and pricing feel soft, people go more to simul frac, which is really more than one fleet on operation. So, it gets counted as one fleet, but really that's 1.6 fleets or 1.7 fleets.

So, these factors have allowed in the last couple of years and maybe especially in the last nine months, great increases in efficiency and productivity.

This is great for our industry, great for the economics of the whole pie, but obviously, in the short term, it's pricing pressure on frac equipment, which is getting more done with the same amount of horsepower. The decline in fleet count is roughly half offset by growth in the average fleet count size.

So, horsepower that's being run has not declined by as much as frac fleet count has declined. But, yeah, I would say, what makes us feel better about the marketplace is the differential in the profitability, say, of Liberty versus smaller privates you don't even know that are out there and they're part of the marketplace, they are truly struggling.

Some of those companies are drying up, shutting down operations, going into bankruptcy or just sort of folding their cards and selling their assets away to someone else or shutting them down. So, we see that generation, that shrinkage in capacity in the marketplace.

That's what it takes to fix a market where supply and demand are a little bit out of whack. But -- and I'd probably address not as much on your technology thing.

I don't know if Ron wants to add into that, but optimizing supply chain, AI for routing truck delivery, how do we maximize the life of an engine, how do we increase gas substitution, so we can bring a greater fuel cost savings to ourselves and to our customers, a lot of technical efforts going on. I think I'm talking too long.

Ron, if you want to add anything or if we move on?.

I think you hit all the high points, Chris..

Thanks, Ron. Thanks, Ati..

Thank you, guys..

Okay. Our next question comes from Stephen Gengaro with Stifel. Please go ahead..

Thanks. Good morning, everybody. Two for me. I'd start just back on the pricing question.

When you talk about dedicated fleets with customers, do these prices roll at this time of year or they roll throughout the year? And just as an add-on to that, do you expect any material deterioration in pricing for that part of the business?.

Those are all different. Some of them is fixed for a year. Some of them, it has twice a year or even quarterly adjustments based on some factors. Those adjustments are big and there's usually caps on how much that can move up or down. So, there can be movements, but they're not huge.

There is some rebidding going on now for a new contract starting in January. Not everybody does it on the calendar year, but a lot do. So, there is -- and that's the negotiations and dialogue we're having right now with our customers. We have long-term partners. They appreciate the efficiency and the quality of us working together.

Those relationships are going to continue. But are other bids coming in that lower that pressure that dialogue a little bit? Sure. But that's been going on for two years now..

Great. Thanks.

And the other one is, when you -- we hear all about energy demand for AI data centers, et cetera, and I know about the investment in partnership with Oklo and then you sort of think about the LPI business, is the LPI sort of end market similar to sort of where SMRs will be playing or is there any way that you can help us sort of start thinking about what kind of end market you'd be after on the LPI side?.

You bet. Both of them are aimed at what I would call 10-plus years and, in some states, more than that of just sort of bad electricity policy that has driven up the price of electricity and driven down the stability of the grid. That is -- if look at California's electricity prices, they doubled with actually no increase in demand at all.

High prices just pushed the industry out of California, but they've still driven up their prices. Now, nationwide, we're about to see the first meaningful growth in demand in electricity in 25 years. So, yeah, they're both targeted at that, but think of Oklo, they're going to be fixed on location. They're going to be built somewhere.

They could be on the grid. They could be behind the grid, but they're going to be fixed. So, data center is a huge target market for that, other industrial facilities. LPI and our natural gas generating assets, they're on wheels.

They could be supplying a data center that's 18 months behind or 24 months until it gets a grid connection, but they're not likely to be parked somewhere for 20 years or the nuclear power plant is going to be there forever. So, it could be in some of those same markets, but they also have the flexibility to move where there's power dislocations.

So, we're figuring that out. The interest in them is just tremendous. What we've got to figure out is, we only got a limited amount of assets and we're only going to build a limited amount of capacity, where's the best and highest use of those fleets? So, there's some overlap, but there's very different capabilities between the two.

So, I think the overlap will probably be more the exception than the rule, but excited about the opportunities for both..

Great. Thank you for the color..

And I'm sure Fervo's electric generating capacity from next-generation geothermal, they're plugging into that same market. Those are more long-term contracts to utilities. But it may be -- but that's another business that Liberty is a partner in that I think has got pretty bright prospects addressing the same problem, but in a slightly different way..

Thank you..

Next question comes from Saurabh Pant with BoA. Please go ahead..

Hi, good morning..

Good morning..

Good morning..

Chris, maybe I want to dig in a little bit on your comment on, I think you said the pricing pressure is inconsistent with anticipated supply/demand balance next year, right? So, I'm just thinking forward from there and thinking if that's the case, that's your view, then how do we think you approach your contracting strategy for 2025? Basically saying, do you want shorter-term contracts with more reopeners just to get the upside potential in the back half of '25? Or do you look to sign up contracts with relatively fixed stable pricing, again relative is the word right, for most of 2025? How do you approach that?.

So, great question. So, if we're going to build a new fleet for someone, that's going to have locked-in pricing that guarantees it makes sense to deploy the capital and build this fleet.

It may have reopeners that can move that price up, but it will certainly be structured in a way that that price will not degrade to make that investment a bad investment for us. But there's a lot of interest with producers right now. Of course, for new fleets, we're not -- they're not going out at poor pricing, none of them, zero of them.

But the legacy equipment, there is some tough pricing going on in that world. We do have some assets like that.

So, it's possible with partners there, we would make price adjustments for a dedicated fleet that would just be structured such that they move up as the market firms, in a slow and gradual partnership way that we've been doing since we started the company. So, yeah, it depends on asset type, depends on customer, depends on duration.

So, it is a wide range of things going on. And that's part of the Liberty thing. Different customers have different needs and different priorities. And what we do is just engage with them candidly and find out the right way to structure it that we're comfortable with that works for them.

And if we can't, again, we'll find the idle capacity, but there aren't many players out there that want to move away from their partnership with Liberty. That's a vanishingly small list..

Right. No, that makes a lot of sense. Chris, thanks for that. And Mike, maybe one for you. In the press release, you mentioned healthy free cash flow for 2025.

If you can help us think through the pieces as we think about 2025 from a free cash flow perspective, what things should we be mindful of as we try to build that up?.

Yeah. So, I mean, as we've talked about, we're going to be managing CapEx down at our completions business. We'll look at replacing four to maybe five digiFleets kind of the 10% attrition cycle, the kind of natural cycle maintenance capital in that business.

A lot of our -- sort of all of our investments in dual fuel, that will be completed in the fourth quarter, and a number of other, so new blended technologies, et cetera, some of those investment we made with PropX and the wet pile handling to support clients there.

So, we'll see those -- that CapEx comes down, which obviously is the biggest part of it as it offsets kind of a decline in EBITDA. I think what we will see is you're going to see kind of a slight raise in cash taxes. We're running about 50% of our tax rate. We will run I think about 100% of our book tax rate next year by the looks of things.

Interest will remain relatively flat. Given the fact we're going to have a quietest Q4, you're going to see working capital fluctuate during the year, but I would expect that over the whole year, next year, working capital will be relatively flat on that side of the business.

Obviously, the largest portion of our free cash flow at the moment and very much going forward, we can easily support the same strong return of capital to shareholders that we're doing now, and would expect that to continue..

Okay, perfect. No, that's all very useful color, Mike. Thank you. I'll turn it back..

Thank you..

Next question comes from Marc Bianchi with TD Cowen. Please go ahead..

Hi, thank you. Maybe Michael, just a follow-up on the capital spending for next year.

It wasn't clear to me, do you expect the CapEx dollars to be higher or lower for the total company?.

Lower for the completions business. Obviously, the power generation opportunity is still to be clarified. That we'll talk about. I mean, I would expect that within the realm, I think it probably would be slightly low unless there's really exciting and very large power generation opportunity.

But generally I'd say it will be down slightly, it will be down significantly in the completions business.

But a good portion of that may, I would say, until we get made up in the outside of frac power generation business, that's still to be thought about and going and decided upon, and you'll see announcements around that as we go through the quarter into the January call..

Yeah. Okay. That was going to be my next question. The other one that I had was just on the revenue progression here. So, the activity is down low-double-digits, but it sounds like your revenue is down also low-double-digits, but there's some pricing weakness. So, I would have thought that the revenue decline is more than the activity decline.

So, maybe you could talk about that and how that progresses into 1Q? I know you said activities up in 1Q, but not quite to 3Q levels.

There's pricing component we probably need to be considering too, right?.

Yeah, there's a lot of sort of mix issues that happen sort of when you look at sort of an activity decline versus the revenue decline. So, it depends on sort of where things are going on certain parts of the kind of mix of the business. So, it happens that those two will be pretty similar in Q4.

As you'll see, there's a pricing element in there, sort of there's some offsets obviously, because as I've said, the decrementals will be slightly higher in Q4 this year with a similar revenue drop than it was Q4 last year.

So, you can basically read through that there is a little bit of a pricing sort of element to that, that's kind of increasing those incrementals. Yeah, and I'd say, as we say, I think what we're going to see is we're going to see things come up Q4 -- Q1 to come up sort of between Q4 and Q3.

And I think you'll see, we'll kind of get some clarity around that as we get through pricing season, how that falls through to earnings. But I'd say kind of modeling it in that medium point.

We see total activity really for the whole industry, kind of pretty much equal lateral feet next year versus this year, right? And that's where Chris talks about this.

The pricing pressure at the moment is kind of inconsistent with the future demand, right? I mean, when you look at this thing, kind of the amount of demand for this whole year, the whole of next year is going to be similar.

So, if you think about the limited number of supply of frac fleets, the increased attrition really that's going on and the larger amount, the sort of more complex fracs, we have got a slightly tightening market. Hence, the reason that we see that improving -- probably improving on a pricing matrix as we go through the year.

I think it's going to naturally happen. It is, one, I think we've talked about this with a number of folks, there's a flavor of the end of 2021, 2022 in here. I think you may have remembered if you go to our September call, we had six fleets we weren't working.

And we said we were bringing them out because the bid in the market was weaker than it should have been. And I think you can kind of look back at when we brought those fleets out in April, they came out at significant profitability increase, right, in a very short period of time.

Because market sentiments caught up with the realities of the underlying supply and demand. Now, it's not going to be that extreme next year, we don't think, but there is going to be a flavor of that in this. So, yeah, so it's going to be a little dynamic as we go through the year.

But the great thing about that one is we manage it -- better free cash flow next year than we will this year on that side of it..

Yeah, strategy makes sense. If I could just squeeze one more in, how indicative do you think your experience here into year-end is for the broader industry? And I'm wondering if there's Liberty-specific things. You've got your sand business. You've got some wireline.

Are there things happening in those parts of the businesses that might cause you to be different than sort of the broader frac industry as we think about the implications for other companies into 4Q?.

I think the short answer is we don't know. It's hard to say. There's just a lot of moving pieces. But I think what we're seeing is reasonably indicative of the whole marketplace, but definitely, our business is dictated by our relationships with our customers and other people's businesses.

So, yeah, I don't think it's quite far off from the overall macro, but I guess we'll see in the coming weeks..

Yeah. All right, Chris. Thanks a lot..

Thanks..

The next question comes from Keith Mackey with RBC Capital Markets. Please go ahead..

Hi, good morning. So, it looks like CapEx for this year ends up at around $650 million.

Could you maybe just talk a little bit about what the frac portion of that would be and what portion of that would be maintenance CapEx?.

Yeah. So, I think this year probably maintenance CapEx -- so obviously maintenance CapEx is a big part -- frac is a big part of maintenance CapEx. But maintenance CapEx is probably below $200 million, say $175 million, plus or minus, on that side of the business.

We've had a pretty significant investment in LPI, some in the wet sand handling side of the world. And then, we've had a significant amount of dual fuel upgrades, digiFrac and some other underlying technology on the blender and other side of upgrades that went on this year. So that's the bulk of it..

Okay. Got it.

And just to follow-up, would it be fair to assume then that next year, your maintenance CapEx in the frac business is roughly similar to that and then you had four to five digiFleets at maybe $50 million each and your total frac CapEx ends up $400 million to $450 million? Is that how we should be thinking about it at this point?.

Yeah, you're in the general realm of sensibility there, yeah..

Yeah. Okay. And just one more, if I can. Just to maybe put some of the commentary into numbers for Q4, it looks like with the revenue decline being similar year-over-year and the higher decremental, like we should be getting somewhere between $170 million and $180 million of EBITDA.

Is that also in the right ballpark there, Michael?.

Reasonable estimation..

Okay. That's it. Thanks very much..

And the next question comes from Jeff LeBlanc with TPH. Please go ahead..

Good morning, Chris and team. Thank you for taking my question. I just wanted to follow-up on the comment on CapEx of Q4 of $200 million. I'm just curious if you're pulling forward CapEx from 2025 or what's causing the increase, because I believe on the prior call, the estimate was $550 million for the full year. Thank you..

Yeah, it's deliveries, it's kind of a combination of sort of I think there's been a lot of debottlenecking going on in some of our delivery partners.

I think we had -- they had some fairly significant issues around their assembly lines and kind of -- and so there's a lot of that debottlenecking was happening at the end -- through the back end of summer, the early part of fall. And I think they've got that together.

So, I think the delivery cycle and ergo the sort of where things were going to fall as expectation is reasonable. And then, we've sort of had some extra wet sand additions and a few other things that kind of have added to the Q4 that are probably added -- of order of those things..

Thank you very much. I'll turn the call back over to the operator..

Thanks..

Thanks, Jeff..

And our next question comes from Roger Read with Wells Fargo. Please go ahead..

Hey, Roger..

Hey, good morning, guys. Just wanted to kind of follow-up on some of your comments about this, call it, seasonality or CapEx exhaustion issues next month and into December. One of the things we hear from the E&P companies is that they like to pursue this productivity and efficiency and it requires pretty consistent operations.

Does the opening in, call it, activity levels or jobs reflect kind of a mix? Is this mostly smaller private E&Ps? Is it guys exposed more to gas or maybe it makes sense to take a little time off here? Or are you seeing this across kind of the entire area of operations, meaning large E&Ps all the way down to the small privates?.

I think you've given a reasonable summary, Roger. It's mostly smaller. It could be small publics. The very biggest players, I would say for sure are the most steadfast in keeping things going, keeping efficiency on track and not ceasing operations.

But even those, occasionally they'll be, geez, we're too efficient, so there's a frac holiday, a brief break. But I would say, yeah, it's mostly smaller players. Definitely, it's gas players. Gas has been a hard thing to predict and plans have evolved a lot over the last 12 to 24 months with the gas players.

So, yeah, I think your summary at the beginning was reasonable..

So, are you implying that it's going to become easier to forecast gas after 12 months?.

Yeah, good humor, but again, as you've seen, we're probably at a level of gas activity right now that's below even keeping production flat. So no, it's not going to be easy to predict it, but instead of a bouncing trend down, it might be more of a bouncing trend up..

Yeah, I'm just checking you there. I was trying to sure you were still standing on two feet. The other question I know we understand completion CapEx will likely trend lower, but if we were to see, let's call it, a solid move up or a solid move down in commodity prices.

What is your flexibility to either defer spending or to pull spending forward as you look at the supply chains out there?.

Yeah, I mean, we've got very -- we have very strong ability to defer or bring spending forward. But that said, it really has sort of a three- to five-months window, sort of as far as deliveries goes. You can defer deliveries. We've done that before.

You think about closes, we pushed off deliveries and we pushed those off nine to 12 months in partnership with our people, so in extreme circumstances, but in general, you've got a three- to five-month window there where it's not going to change, but you can meaningfully change CapEx within a 12-month period..

Okay. Great. Appreciate it. Thanks, guys..

Thanks, Roger..

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

Thank you very much. Good morning. Chris, I just wanted to get a sense on by when do you think LPI could have a material impact on the revenue line that would be maybe something that 10% of revenues could be LPI. Is that like two to three years out, or is it you're looking at five, six years out? Any guidance on that would be helpful..

Yeah, well, it's not five to six years. It's certainly faster than that. But for us, as with our core frac business, it's always more about doing it right than doing it big or doing it fast. So -- but two to three years is probably not unreasonable expectation..

Okay. And then, from an activity perspective, pumping activity perspective for next year, you're mentioning that you see activity needs to go up to maintain crude oil production.

Where do you expect activity to pick up? Do you think it's going to be mostly Permian, or do you think Bakken and Eagle Ford also sees some activity increases? And then, when do you expect Haynesville activity to kind of pick up?.

Wow, those are all the hard questions, Waqar. But I think it will be across basins, for sure. Obviously, some of the northern areas, they slow down naturally in the wintertime. So, Q1 is often a little bit slower in Northern regions for weather, and Q2 and Q3 are busier. Permian doesn't really have a weather cycle per se.

But it's certainly commodity price dependent. Look, if oil prices move, it doesn't wildly change things, but on the margin it does. We'll start a little earlier, we'll do this.

So, in gas -- so look, I think in general across the basins, where we -- look, we're in Q4 right now, in general, if we look at six months from now, I think the average level of activity in the oil basin, it will be up from where it is today. How much is yet to be seen, but it will be up from where we are today.

And gas basins, that's probably a reasonable assumption as well. It's just activity is very low right now. We've got some great competitive advantage there. So, I mean, like our market share, our gas activity today is not insignificant, but it's not huge, but our market share is big.

So, if that gas activity is maybe a little higher six months from now, maybe meaningfully higher 12 months from now, but that's just a guess. That's just a guess. I shouldn't -- I probably be predicting that too much..

Okay.

And then, the pricing pressures that you're seeing, is that now across entire fleet or is it still more on the Tier 2s and maybe Tier 2 dual fuel as well, or now it's permeated to e-fleets and Tier 4 DGBs as well?.

It's certainly strongest in legacy equipment, the least desirable equipment. That's where attrition is being driven, equipment being retired there as well. The high end natural gas burning fleets are much more desirous. But yeah, when you've got a softest market, there's a little bit of pressure everywhere.

A newbuild fleet, we wouldn't do a newbuild fleet without great economics. So, yeah, not so much change at the top, but not zero..

Okay. Great. Well, thank you very much. Appreciate the color..

Thanks, Waqar..

Our next question comes from Tom Curran with Seaport Research Partners. Please go ahead..

Good morning, guys. Thanks for squeezing me in. Chris and Michael, in addition to everything you've accomplished via ever better execution in technology out in the field as Chris gave a comprehensive overview earlier in the call.

You've also been pulling different levers internally to protect and sustain your record profitability amidst this long grinding downtrend in frac pricing.

At this point, which ongoing initiatives do you expect to provide the most support to margins? Have you identified any new efficiency or cost-out opportunities that have yet to be meaningfully realized?.

I'm going to -- look, there's so many incremental things, I'm going to turn it over to Ron. And he can deal with medium-term projects and long-term projects. But you're right and I appreciate you pointing them out that that is always an effort for us. We don't control the marketplace, but we do drive our own self-improvement.

And that's always in two buckets that how can we deliver a better service to our customers and how can we do the same thing more efficiently cheaper?.

Yeah, I mean, certainly a number of areas of focus there for us, obviously on the digiFleet side of things, the maintenance outlook changes pretty meaningfully. We're building an asset there that is longer lived, and that's true on both the digiPrime and the digiFrac side of things.

If you think about the electric side of things, of course, the maintenance profile looks very different there, both on the pump side and on the power generation side of things. And the same is true in the digiPrime world. We're building an asset there that has a very different maintenance profile than our historical diesel assets.

And so, a lot of work that's been going on in that regard. And we're certainly taking those learnings and applying them throughout the fleet as we advance our machine learning capabilities around our ability to understand how an asset is performing and respond to that in the field. Lots of other work going on that ultimately changes our outcomes.

Automation has been a big thing. We've been focused on automating the operation of our fleet all the way from the sand handling side of things through the chemistry side of things and into the pump side of things. And so, an immense amount of work going there.

You can imagine that as we continue to automate these things, we improve operations out there, you see that both in our efficiency, but you also see that in the maintenance profile for the assets.

A huge amount of work on the logistics side of things, we've got Sentinel out and running across the board from a sand handling standpoint, that has dramatically changed our efficiencies from a sand handling and trucking measure. We're probably down about 30% in the number of trucks required to move sand to a location versus pre-Sentinel deployment.

We're rolling that out across our LPI division as well. We're using that same technology to manage our gas deliveries and improve the efficiencies there at the same time. You're going to see us -- our percentage of fleets working in the simul frac space climb over the coming year as well.

We probably just by virtue of our customer base not had as high a percentage of our fleets working in that space as some others have, but that's climbing for us in the coming year as well.

And so, of course, we've seen efficiencies come as a result of that on a per lateral foot per hour completed basis and we're going to feel the benefit of that as we head into next year too..

Got it. A lot to chew on there. Thanks, Ron. And then just with LPI, you guys have once again skated to where the puck is headed in terms of the need for technology solution, in this case, for next-gen power support and logistics out in the field.

Looking to 2025, could you share any quantified targets or expectations you have for LPI, be they operational or financial?.

No, I mean, that's coming clarification over the Q4 bound. I mean, that is as we've said, this is something that we'll discuss in the January call. So, we'll kind of look at that and I think kind of a more of a holistic view of what that business will look like..

Okay.

But it sounds like there is more coming that we can look forward to there, Michael?.

There certainly is -- we're very excited about it. But as you know, we're not [indiscernible] where we very much we talk about things. We're the tortoise, not the hair. We talk about things when they're ready to go and we always -- we may not be first to market, but we always seem to end up winning..

I appreciate that. Thanks for taking my questions..

Thanks..

The next question comes from Eddie Kim with Barclays. Please go ahead..

Hey, good morning. Just thanks for squeezing me in here. I'll just keep it to one question. But just wanted to dig into the softness you're seeing in 4Q a bit more. It just feels like the market has softened pretty substantially over the past three months.

So, could you talk about what's really surprised you or what got much worse than you initially expected back in July? Is it mainly kind of the volatility in oil prices that's causing operator uncertainty as you mentioned, or operators reaching their production targets for the year earlier than expected? Just any color on what the main negative surprise was for you guys over the past three months?.

I'd say a little bit of both. Think of consolidation, you bring acreages together and now you are mostly drilling two miles and now you -- by early this year, you start drilling a lot of three- and four-mile laterals, and they worked. They worked well. Efficiency got them done quickly. Production came on strong.

So, I think part of it is some positive on productivity efficiency gains from bigger operators focusing in the sweet spot. So, I think that's a good chunk of it. Definitely the softening in oil prices on a margin like where we're going to kind of hang here or take a little break, maybe we're going to take a little break.

So, it's a little bit of both of those. But when you think of the productivity gains of the wells, a lot of that's kind of one-time big gear shifts. In general, next year, the average quality of the drilling location is going to be lower than it was this year. And three or four years from -- out from now, it's going to be lower still.

That doesn't mean shale revolution is over ending. It just means we'll see a continued migration up in frac intensity. Or maybe another way to say it is, we'll see a continued migration in that more pounds of sand have to be pumped underground on an annual basis to get the same amount of oil out of the ground on an annual basis.

So, we have a longer-term macro trend that's sort of modestly positive. But in the short term, we were sort of victims of our own success, a little bit increased well productivity and the pricing as well, a little bit of both..

Got it. Understood. Thanks for all that color, Chris. I'll turn it back..

Thanks..

And our next question comes from John Daniel with Daniel Energy Partners. Please go ahead..

Hey, good morning. Thanks for including me. Chris, as you probably know, there are a number of E&P management teams that now have private equity backing and should probably start up in '25.

I'm just curious if that is factored into your '25 outlook and presumably that would drive upside to your spot market views?.

Yeah. Definitely not driven into our views right now. We certainly are in dialogues with lots of them. There are people we know. And it's smaller number of teams, but there's a fair amount of dry capital powder looking for divestitures and opportunities to get assets. So, yeah, look, as a lifelong entrepreneur, that's exciting.

But John, no, not baking in any of that happening, but yeah, some of that's eventually going to happen, absolutely..

Right. And then, Michael, you touched on the possibility of pricing improvements next year, and I think the attrition story is real, bankruptcies, liquidations are happening, perhaps some consolidation and then a rise in spot market activity as new players emerge.

It would seem to me that when that all happens, all else being equal, it's the pricing recovery is probably not low single digit, but something perhaps more substantial at least in the spot market.

Is that a fair assessment?.

There's certainly one way you can look at it. If you look at the '21, '22 example, yes, we've got some historical -- recent historical kind of evidence of that. So yeah, so I think it will be -- we'll see what it is when it comes. As you like to see, I think we -- as we said, it's unnaturally soft in the market at the moment.

And the animal spirits will take hold, and I think we may see improvement next year..

Okay.

And this is probably a leading question, so I apologize, I guess, maybe not, but if I were modeling 2026, which I'm not, doesn't this flow through coupled with lower R&M, the rise in LPI and eventually a higher call in OFS activity given lower-quality rock, it would seem that you could have a material improvement in '26 versus '25?.

That certainly would be a very reasonable assumption..

Okay. And then, the last one for me, sorry to be a question hog, but I think there's a question early on the power generation CapEx. As we talk to people in that side of the business, it would seem that those -- that CapEx would likely be back with contractual support perhaps longer term than what you normally see in the frac market.

Is that a fair assessment?.

Yeah, that is a fair assessment..

Okay. That's all I got. Thanks for including me..

John, I appreciate you [indiscernible] in the field. That's much appreciated by everyone..

Well, thank you. Thank you. See you guys..

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Wright for any closing remarks..

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