Liberty Oilfield Services Inc

NYSE:LBRT

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, and welcome to the Liberty Oilfield Services First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

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 the 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 the company's 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 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 pretax return on capital employed as discussed on this call are presented in the company's earnings release, which is available on its Web site.

I would now like to turn the conference over to Liberty's CEO, Chris Wright. Please go ahead.

[Chris Wright, CEO]

Thanks, Ian. Good morning everyone, and thank you for joining us to discuss our first quarter 2021 operational and financial results. We're excited to embark on a new era for Liberty, completing our first quarter with an expanded platform as a fully integrated completion services engineering and diagnostics company. We're pleased to report $552 million in revenue and $32 million in adjusted EBITDA in the first quarter. The Liberty OneStim combination has been extraordinary. We've doubled the size of our business, while only growing G&A by approximately 15%, and depreciation and amortization by less than 40% from pre-pandemic levels, in exchange for a 37% equity interest. In addition, the enormous growth in our technological expertise has been inspiring.

We've brought together a suite of leading edge technologies and two of the top technological teams in the industry. We are excited to bolster our frac technology leadership in many areas, and I will highlight just a few later in the call. We have come a long way since the founding of our company a decade ago. Our focus, however, remains the same; delivering superior returns across cycles to build a differential company with long-lasting competitive advantages. Accomplishing this requires great people, and a culture that aligns them to passionately pursue the Liberty mission. We estimate, and we currently have a little over 15% of the deployed fleets in the market, and are likely completing a little under 20% of North American shale wells.

After a rapid rebound off of the COVID bottom, we are now in a slowly improving market. Liberty's number of deployed fleets in the first quarter was in the low 30s, and will be similar in the second quarter. We will remain disciplined in deploying additional capacity. Fleets are only deployed to customers with strategic value and that will delivery good returns on capital invested. Overall, market conditions today remain challenged, but they are improving as demand for frac services grows, and more importantly, supply of quality fleets shrinks. Interest in Liberty fleets and partnership continues to grow. Our dialogues with customers are becoming even more constructive as both parties seek mutually beneficial long-term partnerships.

The demand pull for next generation equipment with engineering and diagnostics is quite strong. Pricing dynamics continue to improve across all basins. While current pricing levels remain well below Q1 2020, customer conversations have continued to gain momentum since we last reported. As WTI oil prices have been relatively stable in the $60 range and customer economics have substantially improved, our customers are becoming more comfortable with the necessity for a phased approach to price increases. This is a testament to the deep customer relationships our team has developed over the years.

The ongoing attrition among frac fleets will likely further this discussion as we move through the year. The industry is healing. The market for next gen equipment has tightened, and the market for next gen equipment with industry-leading operations and technology innovation is even tighter.

Looking forward, we see a pathway to normalized margins for Liberty at some point in 2022. We've already achieved three sequential quarters of margin improvement as activity has built off history lows in the second quarter of last year. While the rate of growth is slowing sequentially, the trend still looks modestly upward as private E&P companies are reacting to strong commodity prices. Public E&Ps however are remaining steadfast in their commitment to capital discipline regardless of commodity prices. We fully support this discipline in investing across the whole energy sector as it is required to bring our inventory back to full health after the giant upheaval brought by the shale revolution.

A year on from the onset of the global pandemic and severe crash in old markets, I'm pleased that the fundamentals for our industry and business are on an upward trajectory. North American and global economies are decidedly stronger, and the world needs more energy. Where will this energy come from? While there a lot of new and exciting technologies in the market, at the heart of dependable, cost-effective energy access is oil, gas, and natural gas liquids. Hydrocarbons play the anchor role in fulfilling our global energy needs, and will continue to do so in the coming decades. Hydrocarbons supply just over 80% of world energy when we founded Liberty, 10 years ago, and they still supply just over 80% of global energy today.

The biggest shift in hydrocarbon demand has been natural gas displacing coal market share in electric power generation. In fact, oil and gas are currently at their record market share ever in the United States, at just under 70% of total primary energy supplied. Yes, I know that we hear lots of talk about an energy transition that is soon to make us all obsolete. That is simply not so. Let me put things in perspective. Wind and solar today supply roughly 2% of global energy, concentrated in the electric power sector, which collectively supplies less than 20% of global energy. In absolute terms, the trillions invested in wind and solar do produce a great deal of energy, but in relative terms they are still quite modest, even compared simply to the growth in energy demand the world will see in the next decade alone. The only way out of poverty is increased energy consumption. Hydrogen is rightfully full of buzz these days. But, it is not an energy source. Hydrogen is an alternate method of energy storage. It takes more energy to produce hydrogen that is released when it is consumed. It has great potential to create zero carbon liquid fuels. But, hydrogen adoption will grow not shrink the world need for energy.

Climate change concerns are the driver behind the energy transition dialog. Climate change is a serious sizeable and global challenge. Today, natural gas displacing coal in the power sector has been the largest factor bringing U.S. per capita greenhouse gas emissions to their lower levels since the 1950s. Continued progress will require significant contributions from many areas across the energy space including continued contributions from our industry and likely large scale carbon capture utilization and storage.

Liberty will both continue and expand our efforts in lowering greenhouse gas emissions. The oil and gas industry is not shrinking, but rather is maturing into a steadier, slower growth, and cleaner business. We believe the U.S. and Canada will continue to play leading roles as both major energy producers and drivers of improved technology and practices globally. The world faces a [second] [Ph] and frankly more urgent global energy challenge, energy poverty.

One-third of humanity still lacks access to modern energy that enables the healthier opportunity rich lives that we all treasure. Millions die every year simply for lack of clean cooking fuels and reliable access to electricity. Sadly, this global crisis gets very little political attention because it only affects people in low income countries and the lowest income folks in wealthy nations. Surging U.S. exports of propane and other natural gas liquids are helping hundreds of millions gain their first access to clean cooking fuel.

U.S. LNG exports are also helping bring electricity access to the one billion people who currently lack any electricity access and another billion with only unreliable intermittent low voltage electricity. Electricity in lower income countries comes predominantly from hydrocarbons or hydropower. While the shale revolution has helped accelerate the rise for so many on poverty, more than 2 billion people remain in these dire circumstances. Unfortunately, policy decisions to restrict capital access for hydrocarbon energy development in low income countries is a growing headwind. You could read much more about these two global energy challenges and Liberty's wide ranging efforts in our sustainability report that will be released on June 1st. Two weeks after that on June 17th, Liberty will host an Investor Day in Denver to provide deep insight in Liberty people, technology development, business processes, frac operations, strategic efforts, and new energy avenues.

We hope that you can join us in Denver or via video conference. In the first quarter, our operation's team executed at the highest level navigating weather disruptions across the southern region and in Canada, working quickly to minimize weather impacts on our customers. Our sales teams drove new business above the expectations successfully embracing the strength of both our legacy red and blue sales organizations. It goes without saying that we achieved a record quarter for Total Proppant Pumped topping our previous marked [indiscernible] in Q1 2020. What is notable is that our fleet efficiency levels were collectively strong with red and blue fleet near the top of our efficiency leader board. Of course, we have work ahead of us to raise efficiencies of many [forward] [Ph] fleets to Liberty standards. But it is notably that we had strong results across the combined fleets.

Overall, the integration has been incredibly positive experience. Our teamwork -- our team worked in overdrive handling the challenges of integration to deliver a seamless transition for our customers with no disruption to operations. What a testament to the hard work of folks across supply chain, IT, HR, finance, and importantly, our crews in the field. Again, our crew efficiency has been commendable given unnaturally disruptive nature of a large scale integration, and the hard work continues. We're moving towards the collective best practices, which are coming both from Legacy Liberty and our new Liberty Blue fleets. This effort will drive continuous improvement that is Liberty DNA. We've combined our maintenance operations for both frac and wireline, but the integration isn't over yet.

We continue to work on personnel integration, finalize the transition of our ERP and internal systems and manage the challenges associated with the closed Canadian border. Technology initiatives are an exciting part of the progress. The rich history of both Red and Blue Legacy businesses is positioning us attractively to push forward opportunities for automation. In the near-term, we've already identified ways to streamline the number of people we have on location, we're deploying a new version of extract chemical management automation on Liberty developed an electronic system of sensors to track chemicals with high accuracy and precision.

Automation of equipment control systems will also allow us to streamline operations and reduce costs. We're launching a new direct track diagnostic measurement frac sets. This grows our portfolio of frac design and monitoring technologies that help optimize well spacing to development and tailor frac designs and perforating strategy. This is a highly complementary technology to our well diagnostic and our extensive suite of proprietary software tools and engineering expertise that power our efforts to help customers lower the cost to produce hydrocarbons, our focused on empirical data, real measurements expand significantly with frac sets. This fiber optic based direct measurement of frac geometry allows calibration of our frac models and better optimization tools for our customers.

Fracture measurements provide information about fracture estimates, safe spacing coverage, perforation cluster design, and its impact on cluster efficiency, fracture length and fracture height calibration through volume to first response, that isn't helpful. It also produces a direct way to measure frac in a complementary fashion with Liberty's Well Watch. DigiFrac is also gaining significant momentum in recent weeks, we've hosted numerous customer tours at our STI facility in Magnolia and the enthusiasm is electrifying. With DigiFrac, we can drive a reduction in greenhouse gas emissions of at least 20% compared to all other existing frac fleet designs and customers are taking notice. This is the number one draw for customer engagement, as E&P priorities are shifting to minimizing emissions while maintaining operational efficiency and safety.

To-date, we've completed over 215 hours of high pressure durability testing on our pump, and have plans for field testing next month. We also have a team in place for commercialization as customer interest has exceeded our expectations. This is truly the next wave of technology in frac fleet design. And we're excited to lead the industry in this endeavor. The rate of DigiFrac deployment is highly dependent on economics, and the same prudent capital deployment strategy that we have always followed.

As we look at the year ahead, our view on real markets have become more constructed. Buoyed by vaccinations, massive fiscal and monetary policy actions and strong fundamental leading economic indicators, global demand for oil is expected to continue to rise through the year

In the U.S., five states have already recovered from the pandemic recession on the GDP basis with other similar policies, surging COVID cases in certain countries, such as India, Brazil, and some EU nations are rising concerns for oil demand in those areas, but a steady drop of global oil inventory stock suggests measured increases in OPEC plus oil production output is being absorbed by higher global demand, resulting in a tightening of the oil supply and demand balance.

Over the last three quarters, North American frac activity has rapidly increased towards supporting maintenance production levels. Hence, public E&P are now at roughly making its run-rate frac activity. Private E&Ps on the other hand are more responsive to current oil and gas prices, which continue to support modestly increasing demand for frac services in line with their recent rise in rig activity. Importantly, E&P companies are maintaining capital discipline and moderating long-term growth, aiming to increase commodity price stability and enhance sector attractiveness. We believe that this approach is a positive for the industry going forward. North America is a critical energy supplier of the globe, and we need a healthy industry.

With that I'd like to pass the call over to Michael to discuss our detailed financial performance.

[Michael Stock, CFO]

Good morning. We are pleased with our first quarter results. I'd like to take a moment to thank our entire team for going above and beyond expectations. They came together to deliver solid results while encountering operational challenges arising from unusual winter weather and added responsibilities through the sizeable integration about OneStim acquisition. We're off to a great start. Executing on our strategy, we expect to drive the next phase of financial growth and superior returns. We are already seeing early stage benefits from our teams leveraging a full suite completion services, including frac, wireline and sand, along with engineering and diagnostic tools unique in the industry to drive increased engagement with new and existing customers. As Chris reviewed, we are also working very hard on integrating our technology development efforts to improve efficiencies throughout the supply chain and drive the next phase of innovation in the frac business.

In the first quarter of 2021 revenue increased 114% to $552 million from $258 million in the fourth quarter, reflecting the inclusion of OneStim and new customer wins and exceeded expectations. [Indiscernible] gains were partially offset by weather disruptions during thievery in the south. And in Canada, we estimate a net reduction of fiscal quarter revenue of approximately $25 million of weather impacts as OneStim's activity disruption was partially [indiscernible], the remainder of the revenues are expected to be completed in the second quarter.

Net loss after tax decreased to $59 million in the first quarter compared to $48 million in the fourth quarter fully diluted net loss per share was $0.21 in the first quarter compared to $0.41 in the fourth quarter. Results for the quarter included $7.6 million of non-recurring transaction related costs and we have now reported fleet startup costs during the quarter. The first quarter adjusted EBITDA, which excludes non-cash stock compensation expense increased to $32 million from $7 million during the fourth quarter.

The improvement in adjusted EBITDA primarily reflects the higher absorption of fixed costs with the inclusion of OneStim. General and administrative expense totaled $26.4 million for the quarter and included non-cash stock-based compensation expense of $4.3 million. G&A was approximately 31% higher relative to the fourth quarter up 114% sequential increase in revenue. G&A costs essentially flat with Q1 2020 levels the last three pandemic quarterly benchmarks despite the doubling of our business with the OneStim acquisition and the addition of new sales lines basins and our entry into the Canadian market.

We're doubling our available frac equipment, added wirelines, and depreciation and amortization was $62 million for the quarter only 35% higher in the fourth quarter of $46 million. Net interest expense and associated fees totaled $3.8 million in line with prior quarters. We ended the quarter with a cash balance of $70 million approximately flat with fourth quarter levels and the total debt of $106 million, net of deferred financing costs and OID. There were no borrowings drawn on the ABL credit facility, and total liquidity, including availability under the credit facility, was $258 million based on the financial statements as of March 31, 2021.

Capital expenditures were $42 million in the quarter. We reiterated our capital expenditures for the year is expected to be in the $145 million to $175 million range, including maintenance, data synergies, technology investments and advertization outlined in the last quarter, importantly, we plan to be free cash flow positive in 2021 while continuing to invest for the future integrations proceeding as planned that we cut over once in place to deliver the internal systems at the end of February with no disruption of customer operations.

Schlumberger provided transition administration services in the first quarter, which made up a bulk of the $7.6 million transaction services and other costs line. We expect there'll be some trailing transition costs of this $3 million in the second quarter related to the cutover. The integration was a significant logistical challenge, but they retain both legacy and new plan for and executed incredibly well.

Bringing together a team approximately 3,000 dedicated individuals across 15 locations to countries during a pandemic with remote working requirements. Social distancing was something we did not undertake lightly both woman and man of Liberty rose the challenge. And we are now operating one living, breathing organism with a single goal to build and grow the stencils company period.

The management team and I are humbled by the hard work, innovation and character strived to live up to the example they have said. We'll see the fruits of our labors as we exit the challenging market background last 12 months. Our increased scale provides significant financial leverage as the market improves. We should see increased absorption of fixed costs for both basic and corporate level, price because [indiscernible] G&A cost were approximately $100 million per year. We have doubled the scale of the company the expected G&A to increase by approximately 15% over pre-pandemic levels.

Fall through net income will be held by the fact of depreciation and amortization only increased by approximately 35%, with leverage of new broad technology platform to bring to market tools that increase efficiency and reduce cost of operations. Enhanced supply chain [technical difficulty] by the North American wide operations, and increase scale will drive economies and deep partnerships with their vendors from lower cost of operations. We're excited to talk more about these opportunities at our Investor Day on June 17, and we see the results over next few years. In a highly cyclical business, we believe it's imperative that long-term returns need to provide shareholders with reward that is commensurate with risk. At Liberty our approach is simple to strike the right balance between sustainable growth opportunities, balance sheet strength and returns to shareholders.

Looking forward, we are now navigating a significantly larger business in a rising market with fundamentally stronger market systems. We have a distinct advantage with our best-in-class technology and completion of services driving deeper customer partnerships. We are already seeing pricing increases secured with more customers in the coming quarters, driven by the long-term value-added by our industry leading technical knowledge and services that help customers lower at overall cost per barrel of oil or MCF a case.

Our leading-edge equipment technology, most of our DigiFrac has gotten significant interest from customers who want to improve with their ESG profiles by achieving great operational efficiency and lowering mission level. The economics of one crucial point where it makes sense to a cruciate, but customers have seen meaningful improvement in their economics. Industry attrition, accelerating customer interest and our leading initiatives will allow us to reach that level and others in that space.

Importantly, we have the balance sheet flexibility to explicitly through conditions improve meaningful. Liberty's measures to create long-term stockholder value by our balanced strategy compounding shareholder value by reinvesting cash flow at high rates [indiscernible] shareholders is appropriate. While the market remains challenging. This does not change the fundamental principles upon which we manage the company.

With that, I'll hand the call over back to Chris for closing comments before we open for Q&A.

[Chris Wright, CEO]

Thanks, Michael. I just want to extend a broad and heartfelt thanks to everyone in the Liberty family that's worked through so hard through these tough times and through this tremendous transformation of our company, to all our customers and partners as well.

And with that, we'll open it up for questions.

[Operator]

We'll now begin the question-and-answer session. [Operator Instructions] And our first question comes from Blake Gendron of Wolfe Research. Blake, please proceed.

[Blake Gendron, Wolfe Research]

Yes, thanks. Good morning, guys, and Chris, always appreciate your perspective on the macro and the energy outlook at the top of the call here. I want to circle back on the path to normalize margins. Seems like things are still pretty competitive pricing-wise, perhaps an upside biased activity with with privates potentially adding in the back-half year. That said, it seems like we really need to see either, number one, accelerated attrition or, number two, a bifurcation of next gen frac equipments in terms of pricing. Curious more so on the latter, how you think this manifests in terms of your relationship with customers. Is there any sort of pricing mechanism by which you can take down some economic [rent] [Ph] created by GHG emission reduction?

[Chris Wright, CEO]

Yes, you're right, in that that market today is tough. Look, we've come off an incredibly low downturn, but every quarter gained supply and demand sequentially getting better. And yes, people want next generation frac equipment, they want to lower, of course, it's not just greenhouse gas emissions, but it's [not actually] [Ph] carbon monoxide, and other pollutants that are reduced with modern fleets. So, there's a hunger for that. There's also an understanding that our whole industry, the service industry doesn't have the good returns today that E&P have recently come back to. So yes, it's a dialogue. Everybody buying wants a low price; everybody selling wants a high price.

But absolutely, next generation fleets and higher performance and higher opportunities to bring technology to continue to drive performance better, that there's -- that commands a price premium. And so, it takes time. I think of the last downturn, and things were just brutal at the start of the summer, in 2016. And two years later the market was dramatically different; dramatically. Now, that one was driven more by a surging increase in demand. This rebound, we've seen a surge of increase in demand, probably most modest going forward. But the rate of investment in new equipment over the last few years has just been very low. In 2017 to 2018, people were building frac fleets in a feverish pace. Nothing like that has happened in the last two-plus years. So, I think it's mostly supply accretive and a desire for better equipment that continue to pull the economics of frac in the right direction.

[Blake Gendron, Wolfe Research]

Totally fair. Wanted to switch to wireline bundling, we've seen some companies try to do this in the past with fairly mixed success at various points in the cycle. Wondering what Liberty is seeing in terms of early NPT reductions and the like, I know still very early days. And also in this current activity environment what the receptivity of value-added wireline technology is looking like. Is there anything specifically you'd call out on that front?

[Chris Wright, CEO]

Look, obviously, in integration between frac and wireline at the new Liberty, we're early on in that. But yes, there are opportunities that make those two teams and systems work together better to drive efficiency and lower downtime, absolutely. Clearly, Schlumberger had a number of those paired fleets working together. For us it would be a bundling, sort of, right, like price discount. For us it isn't about that. It's about how do we deliver the safest, fastest, best, most efficient completion service. And that really is a dance on the dance floor between frac and wireline. So, we're proud of the teams we have in both side, and very excited about the opportunities about how to make those into one team, not two different teams.

[Blake Gendron, Wolfe Research]

Thanks a lot for the time.

[Chris Wright, CEO]

Thank you. Thanks, Blake.

[Operator]

Our next question comes from Scott Gruber of Citigroup. Scott, please proceed.

[Scott Gruber, Citigroup]

Yes, good morning.

[Chris Wright, CEO]

Morning, Scott.

[Scott Gruber, Citigroup]

Great to hear that normalized margins are possible next year. And certainly we saw the quick snapback last cycle, like you commented on, Chris. Where would you peg the normalized margins at given the new combined fleet and the different portfolio composition that you're going to have this next cycle?

[Chris Wright, CEO]

Well, Scott, peg sounds way too specific for us, and particularly talking about the future. But look, clearly our cost basis across our fleet, our average fleet, is lower now. What we ultimately focus, what we ultimately care about is return on capital employed or measured another way, cash return on cash invested. In our 10-year history, not exactly in stellar years in the industry, we've been above the S&P 500 in that metric, and that's our goal, is to continue to deploy cash in a disciplined fashion and generate a solid return on that. And so that's the ultimate yardstick for us. From an EBITDA per fleet thing, I mean, yes, that's sort of a wide band, and really depends on a number of factors. But something in the mid teens there is probably a broad-brush estimate of that. But yes, it's about developing strong returns on capital, and a strong balance sheet so we're [indiscernible] for whatever comes.

[Scott Gruber, Citigroup]

Got you. And just thinking through the pathway to get to something in the mid teens ballpark, is it primarily operationally driven through your fixed cost absorption and efficiency improvement initiatives? How much pricing is required to get there, if you can kind of split part the pricing driver from the other drivers that would be great?

[Chris Wright, CEO]

Look, it's a mix of the two. It is a mix of the two. And I don't think we'll go any more specific than that, but you need both. Clearly we have greater efficiencies now; clearly we have efforts underway to continue to drive our costs to deliver the service. But we just saw a significant -- a large pricing compression, and work with customers as oil prices compress, and it was across the whole sector. But yes, we'll need to see some pricing come back, it is. I think our customers are aware of that. Good news for customers and for the industry, is pricing doesn't need to come back even near where it was to bring returns back, and just a continual progress on efficiency across our industry. The cost to drill a well and deliver a barrel of oil have just continued to go down on a secular basis. Cyclically, is that going to bounce up a little in the next 12 to 24 months? Sure, but relatively modest amount, relatively modest amount.

[Scott Gruber, Citigroup]

Got you. Would you be willing to offer if it's more operationally driven or more pricing driven to get there?

[Chris Wright, CEO]

Michael is swinging a baseball bat at me, and so [indiscernible]. So, it's hard to make predictions about the future. It's those two things working in concert, I -- time will tell.

[Scott Gruber, Citigroup]

Understood, appreciate the color.

[Chris Wright, CEO]

Thanks, Scott.

[Operator]

Our next question comes from George O'Leary of TPH & Company. George, please proceed.

[George O'Leary, TPH & Company]

Morning, Chris. Morning, guys.

[Chris Wright, CEO]

Morning, George.

[George O'Leary, TPH & Company]

You all talked a good bit about attrition and kind of marketed supply not being what it may seem on the surface. And curious if you could peel that, the onion a little bit there, and frame what you guys view as the actual marketed supply versus what our perception of that marketed supply might be?

[Chris Wright, CEO]

Yes, in terms of -- look, and again, it's hard to put specific numbers on that because, look, our guess and now I think it's in consensus, we probably got of order 200 frac fleets running today. Is there a lot of parked equipment; absolutely. [Indiscernible] I think very little, maybe almost none of that parked equipment is actually staff, a lot of it -- look, customers get choice when the market loosens, and people want to keep getting better, so that -- so there's just a stronger demand for that -- for the next generation fleets. There is a fair amount of legacy equipment around, but it's not being reinvested in. It's starting to perform more poorly. So, you see, a fleet that used to have x number of pumps, and now they're brining one at a quarter, that number of pumps just because of maintenance problems, and pumps go down, and repairs. So, it's like there's an aircraft carrier full of shiny fleets just ready to drive off somebody's yard and go to work. And -- but I think it's too sticky and don't have good enough data to kind of quantify that. But the rate of equipment being retired and worn out is dramatically larger than the rate of new equipment being built.

[George O'Leary, TPH & Company]

Great. That's very helpful, Chris. And then on the -- just with respect to the e-frac offering, it does seem like there is strong demand for more ESG-ish type offerings that truly add efficiencies in the field out there in the market. And you can just see in utilization numbers the different technology types. And just at high level, what do you think differentiates or will differentiate [you-all's] [Ph] e-frac offering from the competitors? Is it largely that ST9 pump or are there other bells and whistles? I'm not looking for specific color; I know you don't want to give away any kind of competitive edge. But any high-level color on what you think makes your offering unique versus the competition?

[Ron Gusek, President]

Yes, George, this is Ron. I'll maybe give you just a couple of points that we'd maybe highlight in that regard. You certainly hit on one of them, we think from the SC 9 pump standpoint, we have taken a very, very novel approach to the design there and ultimately believe that that asset is going to be a better performing asset out in the field, relative to other approaches that have been taken around squeezing more horsepower through the same size of pump. So we're pretty excited about the innovations there. But I think the other side that we looked at very, very carefully was the power generation side, there had been, we'll call it one very typical approach to powering directly out in the field. And our look at that suggested that that was not the optimal way to be running a frac fleet, record frac fleet specifically that that there was a better solution to deliver not only improved fuel savings, a better economics on location, but very specifically reduced emissions footprint.

And so, we'll be taking a very different approach to powering our frac fleet, we talked quite publicly about that already, that we'll be using natural gas reserve engines, rather than a gas turbine on location. And I think we're convinced that delivers better capital efficiency, better redundancy on location, better efficiency as a result of that. And maybe most importantly, for some of our customers have significantly improved footprint relative to the existing solutions.

[George O'Leary, TPH & Company]

Awesome. Thanks for the call, Ron.

[Operator]

Our next question comes from Stephen Gengaro of Stifel. Please proceed.

[Stephen Gengaro, Stifel Nicolaus]

Thanks. Good morning, everybody. Two things first, you mentioned your fleet count in the low 30s deployed, are you willing to give us a sense for how many fleets you have which are sort of readily available to go back to work and how many would require material CapEx to reenter the active fleet?

[Ron Gusek, President]

As we pointed out, I think when we rolled out the ones deal, part of the deal we had 20 retakes, as described by with blue fleet ready to go. So there is no capital required for those plus we were running more orders 23, 24 fleets of Legacy rate, so those two basically outline doesn't mean really in terms of CapEx.

[Stephen Gengaro, Stifel Nicolaus]

Okay, great. Thanks. And then second, as you've sort of gone through the process and integrated some of the Schlumberger assets, the OneStim assets, has anything surprised you about sort of the relative profitability or the relative efficiencies? And have you seen anything, which increased your confidence level or changed your views on integration savings and how they unfold over the next year or two? And how should you libertize their assets?

[Michael Stock, CFO]

No, I think we would be very, very nicely surprised by the efficiency. I think that's one of the things when you get under the hood, incredible amount of pride out there.

Those teams and they're incredibly good. And so yes, I think they love the fact is that if you're working with that team, and sort of you're being made free, you have been given so that you have that responsibility as best they can be. So I think we are more optimistic about that potential. And I think and when we get to the investor day on June 17, we'll lay out some sort of more looks at the integration. But I really think Ron and the technology team had done a great job of really looking at what's going to be the next generation integrated team. As you know, we make investments for the long-term. So I think it's going to be really coming together best practices, and I think it's going to be exciting.

[Stephen Gengaro, Stifel Nicolaus]

Okay, great. Thank you.

[Operator]

And our next question comes from Chris Voie of Wells Fargo. Chris, please proceed.

[Chris Voie, Wells Fargo]

Thanks. Good morning, I was hoping to touch a little bit more on pricing. I know don't want to get too detailed, but just compare to I guess, in February, when you describe the fact that you had some pricing increases baked into contracts already that would be showing up in the second and third quarter, just curious of leading edge has improved at all compared to that. And then whether you expect any pricing uplift from including DigiFrac or frac sands if they're going to be additive, or how to think about what that might bring as you get into the second-half of this year or 2022?

[Michael Stock, CFO]

Hi, Chris. I think Chris pointed out lastly to that, we continue those customers, those discussions with customers, and they've probably had more price, more price increases baked in as we go through the year in to next year. Of course, the defracking won't affect margins until we come in next year. And we'll have an increasing amount of Tier IV DGB fleets which are also in great demand by customers as we get through the back end of this year. So that will help.

[Chris Voie, Wells Fargo]

Okay, thanks. That's helpful and then maybe on the CapEx front, so maintenance or sorry not maintenance with CapEx guidance 145 to 175, how much, how do we evaluate the upside risk to that, in the case of let's say E&Ps get even more hungry for ESG quality fleets and you have to potentially upgrade to Tier IV DGB or I guess fracs, sorry, DigiFrac is not in the near future. But how much upside risk would there be if that becomes even more important to your customers?

[Michael Stock, CFO]

The upside risk and upside are two obviously, we won't be making those investments without very, very strong path to sorts of we do and it comes about virtual. But I think that's the key. They won't be managed. There'll be a bit of pricing round in returns. And that's what drives their investments. So they're looking towards that path of long-term business.

[Chris Voie, Wells Fargo]

Okay, thank you.

[Operator]

Our next question comes from Ian Macpherson with Simmons. Please proceed.

[Ian Macpherson, Simmons]

Thanks. Good morning, Chris, Michael, thank you for all the color. When we look out, make the walk from where you are in Q1 towards normalized margins by next year, starting in Q2, you will have the abatement of the weather impact, I assumed that the $25 million of revenue impact that you called out in Q1 would have extremely high EBITDA decrementals associated with it. So there would be a substantial building block there, in addition to the reduced transaction costs, and presumably, the iterative pricing increases coming in. So, are all of those factors correct we as we start the march from Q1 towards normalized margins next year?

[Michael Stock, CFO]

So one clarification, I think the initial review will roll into Q2, which has had normal increase decrementals, so there's something specific about that revenue that will drive, you still go ahead, deliver you got to have sand, you got to have chemicals and it's good to drive repair maintenance, so there is nothing, nothing particularly different other than sort of revenue growth and activity growth, those resources. But other than that yes, you are right. I think as Chris said, this is a move was normal at margins at some point in '20, right, so making sure that you're not expecting it to come out of the gate on the first of January.

[Ian Macpherson, Simmons]

Understood, and we're certainly not there. And we're looking and hoping for some upside to it, actually below your prior cycle margins next year in our model. Okay. I wanted to get your thoughts, Chris with regard to competitive structure going forward, you've obviously been leading protagonists on consolidation, and there is more that could be done. We think there might be but do you expect more transformational consolidation of some of your smaller than you, some of the larger independent pressure pumpers to help improve the market structure over the next several quarters?

[Chris Wright, CEO]

Yes, I don't have any particular insight into that. There's certainly always dialog, it certainly makes sense. So, I think there's certainly a real possibility that that's how it happens. But, ultimately, it comes down to human beings that makes decisions, and so yes, we also -- but not hard to predict.

[Ian Macpherson, Simmons]

Okay, understood. Well, looking forward to the event in mid-June. Thanks.

[Chris Wright, CEO]

Thank you. We look forward to seeing you then.

[Operator]

Next question comes from Mike Sabella with Bank of America. Please proceed.

[Mike Sabella, Bank of America]

Hey, good morning, everyone.

[Chris Wright, CEO]

Good morning.

[Mike Sabella, Bank of America]

So you all gave some color on 2Q activity, if we sort of think look a little bit in back half of the year, think about where just broadly, you think the industry goes from here through year-end? Is there upside and then, is anybody having conversations around kind of 4Q, but budget exhaustion, is it something we need to start thinking about yet or still too early to tell?

[Chris Wright, CEO]

I would say too early to tell, certainly for the publics, they lay out a budget plan and they're going to stick to them. And so as is typically happened, if efficiency of operations run faster and better than you budgeted for, the possibility of budget exhaustion, they did fourth quarter still there absolutely, now some of them were still ramping-up. So it's not different to another year. I don't think the Q1 expenditures were ahead of 25% maybe a little below but that's a very real possibility, publics are not going to overspend their budget, so that work gets done before 7/31 and in a number of cases that's certainly going to be the case. I think there's some roll down there. And then the potential offset is what our oil prices then or what our oil prices in the fall when privates are making decisions about their magnitude of continuing or picking up activity. So, but, yes, I wish I had a better answer.

[Mike Sabella, Bank of America]

Got it. Yes, that's fine. I mean, if we could just kind of step back and think higher level about Liberty strategy, I think you mentioned you all had completed 20% of the shale wells in the U.S. and we're kind of around this 200 frac fleet number that is kind of commonly thrown out there as what's maintenance for the industry. When you're thinking about planning for market share with an industry fleet level kind of on either side of what you think is normal like what is normal for the industry, and then how do you approach market share when the industry is running either hotter or colder than you think it's going to be?

[Chris Wright, CEO]

Market share for us is always an output, not an input. The decision to work a fleet is always bottom up. It's always - we don't say we're going to put five fleets to work here or whatever. We don't even talk like that. So for us, it's always about who were our existing partners, how is that relationship. We have pretty low customer turnover, so we tend to keep working with our existing partners and trying to deepen those relationships. You said they went through both sides then we had dialogues that lots of other partners that we couldn't add a new partner, or we could grow market share with existing partners, if they're bigger players and want to have you larger percent of their work done by Liberty.

So, it's really more bottom up dialogues than top down dialogues. We've said in the past, certainly at the bottom of -- when the market is really hot, right, returns are awesome and all that, that's certainly the worst possible time to chase after -- but three more fleets out because even as they're awesome today, when the market is really hot, the one thing that's telling you is it's not going to be hot before too long. So in that sort of thinking longer term, we've got it. Yes, so, but again, it's all bottom up. I mean, look our history, our 10 year history has been sort of a slow growth in market share as the right customers and partnerships have pulled us through, but it's all bottom up.

[Mike Sabella, Bank of America]

Okay. Thanks, Chris.

[Chris Wright, CEO]

Thank you. Thank you.

[Operator]

Our next question comes from Waqar Syed of AltaCorp Capital. Please proceed.

[Waqar Syed, AltaCorp Capital]

Thank you for taking my question and congrats on a great quarter and thank you, Chris, for your comments on the macro, always appreciated. I may have missed this. I may have missed some of your earlier comments. I was a little late in joining, but on Canada, how many active feeds do you have in the first quarter and how would seasonality impact second quarter results that seasonality in Canada?

[Chris Wright, CEO]

Waqar, no, we didn't give details about where our fleets are running. In January, we're running low 30s fleets across the whole complex of North America. Obviously, these breakouts in Canada [indiscernible] we said that we had the relatively flat fleet counts in Q2. So we've got a little bit out of work elsewhere. So it's going to be relatively flat across the complex. Again, Canada itself has a normal seasonality. There'll be breakout and it'll pick up again in the summer and then it will drop in January. Canada has [indiscernible] instead of the general rotation there.

[Michael Stock, CFO]

We're thrilled to be in Canada, Waqar. So, thanks for asking that. Yes, you would have tremendous American partnering energy in broader picture, so we're very happy to be in Canada and look forward to building better in that business going forward.

[Waqar Syed, AltaCorp Capital]

Oh, absolutely. Yes, Canada is an attractive market now. Now, in terms of profitability in Canada in the first quarter, how would that compare to the average for what you reported in the first quarter?

[Chris Wright, CEO]

Obviously, we don't break out geographies. But again, one can think that we have a very, very dismembered approach to how we run our business, you know that again across all that basin as we've seen many times before, really, we look at them as a whole and sort of reading every, so every decision of putting to fleet to work and having people working, it's a decision that's very unique. And so, therefore they have to be effective. When we look at long-term results, and we think Canada is a very appealing long-term market for us.

[Waqar Syed, AltaCorp Capital]

Absolutely. And then just one final question, what's your current public versus private mix in terms of number of fleets allocated?

[Chris Wright, CEO]

As we've said before, generally, with the OneStim acquisition, as we talked about last quarter. Our public private mix is fairly close to about where the industry is, right? I think what you've seen is -- you've seen a bit of a pickup in the privates. So the beginning part of this year, so we may be have a little heavier to the public very slightly, because that's where we were going into the beginning of this year. But generally, we are now beside where we really mirror the markets and if you look at the general market data that is actually very analogous to us.

[Waqar Syed, AltaCorp Capital]

Okay, great. Thank you very much. Appreciate the color.

[Chris Wright, CEO]

Thanks for your question.

[Operator]

Next question comes from John Daniel of Daniel Energy. Please proceed.

[John Daniel, Daniel Energy]

Hey, thanks guys. Congrats on the great interest on DigiFrac. Just have a question on that. Really wanting to understand the removal process? Because, I would assume you guys would seek some contractual support before any type of large scale build out. But I'd also assume an E&P companies to test the system before they want to sign a contract. So it kind of creates a little bit of a chicken and the egg if you will. I'm just curious how you think you're going to handle that?

[Chris Wright, CEO]

John it's about between those two things. In our dialogue with customers, one of the things certainly is we don't want our customers to take technology risk. They've done that. And in many cases, it's not worked out well. It's up to Liberty to deliver DigiFrac to work to the performance specs, we believe it will. So if we will get contractual commitments, but if our fleet doesn't work that's not on them, that's on us.

[John Daniel, Daniel Energy]

Okay, so maybe a performance-based contracts then, so they don't have an out or give you the ability to build.

[Chris Wright, CEO]

All way, all the frac contracts on that way, there's been some that were done not that way, and I think that's a mistake for both parties.

[John Daniel, Daniel Energy]

Okay. And then, one comment, I think you made Chris was the 20% lower emissions on DigiFrac. Is that relative to the like a legacy turbine solution, or is that relative to even like the Tier IV DGB solution. Any color on that?

[Chris Wright, CEO]

That's relative to the data we have for all existing practices.

[John Daniel, Daniel Energy]

Got it. Okay, fair enough. And then I guess, last one for me. You mentioned low-30s fleet count in Q1 and Q2. Just knowing there is some lead time to reactivate fleets. Are you making any plans now to sort of reactivate fleets taking in the mid-30s and the back half of the year? Understand, if you don't want to say, but just curious.

[Chris Wright, CEO]

Yes, John. We're in all sorts of dialogues with existing partners, potential new partners. There's no macro plan of what our fleet level is going to be.

[John Daniel, Daniel Energy]

Right.

[Chris Wright, CEO]

But again relationships, drive it all for sure. And you as you will know, for sure, we will be disciplined if there's strong demand pull from customers and partners that could creep up, it's not going to scream up, it could stay flat. So yes, we truly we don't know. But we continue the same partnership mentality we've always had.

[John Daniel, Daniel Energy]

Fair enough. Thank you for putting in.

[Michael Stock, CFO]

Thanks, John.

[Chris Wright, CEO]

Thanks John. We look forward to seeing you out in the road. Appreciate all your…

[Operator]

Our next question comes from Chris Voie of Wells Fargo. Chris, please proceed.

[Chris Voie, Wells Fargo]

Just one more follow-up here, I'm curious if you could maybe just give some color around the contribution from the sand mines. Obviously, different setup now compared to previously. Just curious if you can break out if that was a meaningful contribution or profitability, or percentage of revenues, any color on that. So you can think about the contribution going forward.

[Michael Stock, CFO]

If we think it as one integrated delivery to our customers, so you know, we really aren't breaking those out at the moment. I think that is probably the key thing, it's not sizable enough to be broken out of segments. So I think if you'd have look at the complex as a whole.

[Chris Voie, Wells Fargo]

Okay. Thank you.

[Michael Stock, CFO]

Thanks.

[Operator]

And our last question comes from Frank Reppenhagen of Concentric Equity Partners. Please proceed.

[Frank Reppenhagen, Concentric Equity Partners]

Hey, guys. Great job improving the business in a very tough market, as we remember the Sanjel acquisition transforming the company in 2016, I know that we're going to look back and OneStim is just a transformational event for both this business as well as for the entire market. And as demand comes back, we're going to capture more than our fair share of quality customers. Question for Chris or Ron on that is fleet deployment increases? Can you guys comment a little bit on the labor market? I know a lot of CEOs that we talked to are reporting a hard time recruiting and retaining field workers and enhanced unemployment benefits, creating a lot of friction bringing people back into the workforce. How does Liberty see scaling up the workforce over the course of 2021?

[Chris Wright, CEO]

Yes, great comment Frank. And that is indeed the case. It's the case for Liberty. It's the case for the industry. And in fact, it's as you've seen it's the case for the broader economies. In my opinion, a lot of dialogues with business leaders, outside of oil and gas on this issue, if we look at, we have right now about 6 million people out of the labor force that were in the labor force, but they don't currently intend to return to the labor force right now. So you -- and then you have fiscal and monetary stimulus that of course, pertaining to the fiscal part that's going to drive growth and economic activity. So we have sort of an accelerator on supply and an incentive and self-reporting of a reduction. I mean in demand for labor, we have an acceleration, and we have some constraints on the supply of labor that hopefully end in September, but we'll see what's up in Washington does on these on - on the employee benefits.

So, yes, that's for hotels, or restaurants or whatever that problem is dramatically worse. But yes, it is an issue. It's an issue we are facing as well. Fortunately, we have a good cell and a good culture. But hiring today is much harder than then you would think from the outside and you're well aware of that.

[Ron Gusek, President]

I sort of add a bit of color on that Frank. I mean, I think that's one of the things that's underappreciated. As a limiter of the supply of frac services in general, that's one thing that will help a little bit on the pricing side. It is actually very, very difficult to get people into the marketplace, right? Really a key amount of the people that we that the labor force we pull from, can really also work in two industries that are booming at the moment one is construction, and the other one is trucking with Amazon [indiscernible]. So when people do always think about our industry and think only infected sort of like the fire hitting equipment, the real limiter in supplier frac is the ability to get good, qualified people, so that will help us sort of like sitting back some of our other questions earlier. There is actually one of the things that's driving the pricing dynamic with customers.

[Frank Reppenhagen, Concentric Equity Partners]

Thanks for your comments, guys. Look forward to seeing you in June.

[Chris Wright, CEO]

Appreciate your thoughtful comments, Frank.

[Operator]

This concludes question-and-answer session. At this time, I'd like to turn the call back to Chris Wright for any closing remarks.

[Chris Wright, CEO]

We thank everyone for their time and interest in Liberty and we'll get back to work the whole Liberty family. Thanks for joining us today.

[Operator]

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