Third Quarter 2026 Earnings Conference Call - LIBERTY ENERGY INC

Explicit Guidance:

• Tax Rate: Expected effective tax rate in the remainder of 2026 is approximately 24% of pre-tax income; no material cash taxes expected for the full year.
• Dividends: Quarterly cash dividend increased by 11% to $0.10 per share, effective immediately.
• Capex: Full-year 2026 capital expenditure guidance remains intact at $1.5 billion (as referenced in Q3 prior guidance); no change announced for 2026.
• Cash Flow: Expects to generate "solid, strong" free cash flow from completions business in 2027, even while reinvesting in DigiFleet replacements; no material cash tax outflows expected in 2026.

Business-Segment Outlook:

• Power (LPI): Signed strategic agreement for 1.2 GW integrated power services; first Energy Service Agreement (ESA) for ~500 MW targeted for execution by December 2026.
• Power Timeline: Phased energization scheduled from Q4 2027 through Q1 2029; additional long-term ESAs expected to follow based on the same commercial terms.
• Power Capacity: Confident in securing 3 GW of available generation capacity to be energized by end of 2029.
• Power Profitability: Targets high-teens unlevered IRR and ~5x cash-on-cash payback on invested capital (15-year term) across power projects; capital intensity (1.0x–2.0x base generation cost) does not dilute returns.
• Power Financing: Non-recourse project-level financing expected to launch in early 2027; target SPV capital structure of ~20% equity and 80% debt to recycle capital.
• Completions: Expects modest pricing increases quarter-over-quarter in 2027 driven by tight market dynamics; anticipates strong utilization and "less than normal" seasonal decline in Q4 2026 revenue due to deferred activity and strong demand.
• Fleet Technology: Expect continued investment in next-generation "DigiFleet" equipment to maintain competitive advantage and drive customer savings (natural gas substitution >60% achieved); revenue growth anticipated from shifting diesel fleets to dual-fuel/NG-fuel fleets.

Market and Competitive Outlook:

• Frac Market: Market dynamics remain tight due to fleet attrition, equipment cannibalization, and underinvestment; expected to support durable pricing improvements in 2027.
• Pricing Dynamics: Confidence in executing modest price increases above inflationary costs; pricing conversations for 2027 (RFP season) are underway, with many fleet allocations already secured based on trust and relationships rather than formal RFPs.
• Power Market: Co-located, integrated power solutions increasingly leveraged by hyperscalers to mitigate grid congestion and local rate pressures; Liberty expects to see strong engagement from diverse capital providers for project finance.
• Customer Demand: Expect continued strength in demand for completions in 2027 supported by strengthened E&P well economics and forward oil curves (expecting 2027 oil prices >$85/barrel and 2028 prices >$70–$75/barrel).

Macro / Industry Outlook:

• Oil & Gas Prices: Global oil prices strengthened due to Middle East/Ukraine conflicts; forward curve strengthening provides visibility for 2027 hedging opportunities.
• Natural Gas: North American fundamentals balanced with record production; LNG exports and AI-driven power consumption expected to drive long-term demand growth.
• Inflationary Headwinds: Expect ongoing cost inflation, particularly in labor and trucking (impacted by data center construction); input costs for fluids/lubricants have stabilized after mid-year spikes.
• Political/Regulatory: Acknowledges political headwinds regarding data centers but maintains confidence in securing December 2026 ESA execution; advocates for faster permitting and infrastructure certainty in the U.S. to meet AI/energy demand.

Strategic Initiatives:

• Power Infrastructure: Expanding integrated power platform capabilities (generation, controls, grid integration) with validated testing at National Lab of the Rockies; aiming for "molecule-to-watt" lifecycle control.
• Capital Allocation: Utilizing a three-pillar funding strategy: (1) Strong free cash flow from core business, (2) Convertible bond issuance (already raised ~$1.3B), and (3) Project-level non-recourse financing to recycle capital.
• Pipeline Development: Building a multi-gigawatt, non-geographic-specific IPP pipeline extending into the 2030s; specific projects like "Buffalo Run" (Wyoming) targeting execution start in late 2028/2029.
• Partnerships: Actively expanding relationships with multiple hyperscalers to diversify site risk; pivoting capacity to backup sites (different states) if primary sites face delays.

Risks and Headwinds to Outlook:

• Operational Risks: Drilling-related delays (specifically "chasing rigs" due to high completion efficiency) caused temporary calendar gaps in Q3 2026; could recur if rig count outpaces crew availability.
• Input Costs: Labor inflation and trucking cost increases remain significant risks to margins; tariff impacts on fluids/lubricants stabilized but could resurface.
• Regulatory/Permitting: Data center development faces potential political headwinds and permitting timelines (16–18 months), though contingency plans allow for site pivoting with modest delays.
• Market Volatility: Potential for pushback from hyperscalers at specific sites could delay energization timelines, though diversified portfolio mitigates single-site risk.
• Execution Risk: Finalizing commercial terms and site-specific details for ESAs remains a prerequisite for unlocking project financing and revenue recognition.

Management Tone on the Future:

• Confidence: High confidence in 2027 outlook for completions pricing and power project execution; views 2026 Q4 as having "tailwinds" offsetting seasonality.
• Strategic Focus: Emphasizes a "both and" approach to capital allocation, investing simultaneously in core completions technology and power infrastructure without being capital-constrained.
• Relationship Leverage: Highlights "unrivaled" trust with hyperscalers and customers as a primary differentiator for securing long-term, scale power deals and completions contracts.
• Macroeconomic View: Believes the U.S. is at an "inflection point" requiring significant infrastructure build-out to support AI and economic growth; advocates for proactive policy rather than moratoriums.

Miscellaneous:

• Prepayment Structure: 1.2 GW agreement includes a "hundreds of millions" of dollars in prepayment of capacity fees, to be received in the near term (likely Q4 2026) and amortized over the first five years of the contract.
• Contract Terms: Anticipated ESA duration is 15 years with renewal options; initial 500 MW contract will serve as a template ("rinse and repeat") for subsequent phases.
• Financial Structure: Project assets will be dropped into SPVs with ~80% debt financing, reimbursing Liberty for upfront long-lead capital spent initially via convertible bonds.