Third Quarter 2026 Earnings Conference Call - LIBERTY ENERGY INC

Financial Performance:

• Third quarter 2026 revenue was $1.2 billion, remaining flat year-over-year.
• Adjusted EBITDA reached $142 million, while net income was $39 million (a net loss compared to $43 million profit in the prior year).
• Adjusted net income was $10 million ($0.06 per diluted share) versus $14 million ($0.09 per share) in the prior quarter.
• Non-GAAP measures were impacted by a $49 million tax-affected unrealized loss on investments and $63 million in unrealized fair value losses on non-core equity investments.
• Cash position ended the quarter at $119 million with $1.2 billion in net debt (primarily senior convertible notes) and $669 million in total liquidity.
• Capital expenditures totaled $622 million, with ~$450 million allocated to power generation deposits and digital fleet investments.
• A quarterly cash dividend of $0.10 per share was declared, representing an 11% increase, returning $15 million to shareholders.

Guidance and Future Outlook:

• Q4 outlook expects seasonal holiday slowdowns to be partially offset by strong demand and deferred activity from Q3, resulting in a potentially smaller than normal revenue decline.
• Long-term goal includes delivering 1.2 gigawatts of integrated power services, with the first 500 MW agreement targeting execution by December 2026 and energization spanning Q4 2027 to Q1 2029.
• Management expects to continue securing modest pricing increases throughout 2027, supported by a strengthening forward oil curve (2027 above $85, 2028 above $70-$75).
• The company targets high teens unlevered IRRs on power projects, aiming for approximately 5x cash-on-cash payback over a 15-year contract term.
• Full-year capital expenditure guidance remains unchanged at approximately $1.5 billion.

Business Segments and Product Lines:

• Power (LPI): Secured a strategic development agreement for 1.2 GW with a frontier AI lab, including a prepayment of hundreds of millions of dollars amortized over the first five years.
• Completions: Achieved record natural gas substitution (over 60% of total fuel) across fleets, delivering over $1 billion in annualized customer savings and driving efficiency via the "DigiPrime" digital intelligence layer.
• Technology: Completed advanced grid integration testing with the National Laboratory of the Rockies to validate control methodologies and grid interoperability for islanded and connected operations.
• Project Financing: Implementing a strategy where projects are dropped into non-recourse Special Purpose Vehicles (SPVs) with ~20% equity and 80% debt, reimbursing the corporation for initial long-lead investments.

Market and Competitive Landscape:

• Global oil prices remain elevated due to Middle East and Ukraine conflicts, creating a risk premium that supports producer well economics and completion activity.
• North American natural gas fundamentals are balanced, but AI-driven data center power demand is expected to drive significant LNG export and power consumption growth.
• The frac market is tight due to fleet attrition, equipment cannibalization, and industry underinvestment, favoring scaled providers with integrated digital services.
• Competition in behind-the-meter power solutions exists, but Liberty emphasizes its unique "molecule-to-watt" capabilities and trusted long-term partnerships as differentiators.

Risks and Challenges:

• Operational: Drilling-related delays in Q3 occurred as the company outpaced customer well inventory replenishment, catching up to rig counts in specific instances.
• Cost Inflation: Facing headwinds from labor costs, trucking expenses, and rising fluid/lubricant costs due to tariffs, though these are being offset by technology-driven efficiencies.
• Regulatory/Political: Data centers are facing political scrutiny, though management believes they have contingency plans (backup sites in different states) to mitigate delays.
• Market Volatility: Risks associated with geopolitical disruptions affecting the Strait of Hormuz and potential supply chain constraints for long-lead power equipment.

Management Commentary and Tone:

• Management expressed high confidence in the strategy, describing the 1.2 GW AI deal as a "landmark agreement" reflecting strong customer trust.
• Ron Gusek (CEO) adopted a constructive and optimistic tone regarding the future of energy demand, framing the current period as an "inflection point" necessitating new infrastructure.
• CFO Michael Stock emphasized financial discipline, highlighting the company's ability to generate free cash flow from the core business while funding growth via convertible bonds and project-level financing.
• The tone regarding Q4 was cautiously optimistic, expecting resilience despite typical seasonal declines.

Analyst Questions and Answers:

• Competitive Differentiation: Ron Gusek stated Liberty's "unrivaled" supply chain and ability to manage complex balance-of-plant and grid integration issues drive the trust behind the AI deal.
• Prepayment Structure: Confirmed the prepayment is hundreds of millions of dollars, received in the near term, and amortized over the first five years; it is not contingent on the final ESA signing.
• Project Timelines: The 1.2 GW deal is phased, with the first ESA for 500 MW targeted for Dec 2026; remaining capacity will be executed via additional ESAs as data center buildings are constructed.
• Frack Pricing: Management confirmed pricing power is increasing for next-gen fleets due to fuel savings value and market tightness, aiming for less than a 3-year cash-on-cash payback on tech upgrades.
• Financing Mechanics: Project assets will be dropped into SPVs for non-recourse financing, recycling capital back to the corporation to fund further long-lead items; equity/debt split at SPV level is ~20%/80%.
• Q4 Seasonality: Management declined to provide specific Q4 revenue guidance but noted declines will be lower than historical norms due to strong demand and inventory carryover.

Other Key Points:

• Liberty Energy is positioning itself as a dual-engine growth company with a durable portfolio in both completions and integrated power.
• The company emphasized the importance of local community engagement and transparent permitting processes for large-scale energy infrastructure.
• A "moratorium mentality" in the energy sector was criticized by the CEO as a risk to U.S. economic competitiveness and energy security.
• The Wyoming "Buffalo Run" project is part of a separate, longer-term pipeline intended for 2028-2030 execution, distinct from the immediate 1.2 GW deal.
• Management reiterated that they are not capital limited, having access to diverse capital sources including project finance, bonds, and private credit.