Liberty Energy Inc (LBRT) 2018 Q4 法說會逐字稿

Good morning, and welcome to the Liberty Oilfield Services Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) 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 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 website.

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

Good morning, everyone, and thank you for joining us. We're pleased to discuss with you today our fourth quarter and full year 2018 results. In partnership with our customers, the Liberty team continues to focus on driving technology innovations and high-efficiency operations, which are a win for Liberty and a win for our customers. 2018 was Liberty's first year as a public company, and we welcome our new investors to the Liberty family.

Liberty was built on the idea of bringing great people together with a singular focus on building the best frac company to support our customers and bring technology innovations to the shale revolution. The unique people and culture that we have created at Liberty drive us forward in this goal every day. We are pleased to report strong 2018 financial results. We had significant growth in all key metrics, including revenue up 45% to $2.16 billion, net income before taxes up 72% to $289 million, and adjusted EBITDA up 56% to $438 million.

Our strong cash generation in 2018 enabled us to invest in growth and return $95 million of cash to shareholders in the form of quarterly dividends, distributions and the repurchase of 4% of our total outstanding post-IPO shares. All of this was achieved while reducing our net debt to only $3 million at year end.

Liberty was built for long-term success with a focus on superior returns on invested capital, maintaining a strong balance sheet and investing for the future. Liberty demonstrated this in 2018 by delivering a pretax return on capital employed of 39% in a year of strong growth, while generating significant free cash flow and returning cash to shareholders.

In 2019, and into the future, we will continue this relentless focus to provide the best service and technology to our customers, environment and culture for our employees, close partnerships with our suppliers and superior returns to our shareholders. Strong cash generation in the fourth quarter enabled us to execute on returning $35 million of cash to shareholders in the form of a quarterly dividend and repurchasing 1.5% of our total outstanding post-IPO shares, while reducing our net debt to $3 million.

The fourth quarter of 2018 was challenging from a fleet utilization perspective. A number of customers made last minute decisions to defer completions in the fourth quarter due to a combination of capital budget and cash flow management decisions brought on in part by the rapid drop in the commodity price in November and December. While this was disruptive to our fourth quarter work calendar, we believe the focus of capital discipline by operators is ultimately a positive factor for the services industry as we move towards a sustainable production environment that could ultimately lead to less volatile activity levels and perhaps even a steadier commodity price.

With these challenges, our fourth quarter revenue was $473 million, and net income was $34 million, or $0.27 per fully diluted share. Adjusted EBITDA for the quarter was $72 million, or $13 million per average active frac fleet on an annualized basis. Premium service quality, coupled with basin and customer diversity, provides the company the opportunity to continue generating strong returns on capital employed regardless of how the market unfolds in 2019.

The fourth quarter customer project deferrals provided Liberty a solid backdrop for utilization at the start of 2019. In fact, in January, we pumped the highest monthly volume of sand in the company's history. We are currently projecting sequential revenue growth in the first quarter in the single digit percentage range and adjusted EBITDA to be approximately flat, as increased utilization is offset by pricing decreases.

Due to the rapid commodity price decline at the end of 2018, our customers are still finalizing budgets for 2019 and we expect to have a much clearer picture of full year 2019 completions demand by the end of the first quarter.

Utilization of our frac fleets is expected to remain strong due to the partnerships we have forged with our customers, but the potential timing of a price improvement is not clear at this point. We are focused on generating strong returns on capital and free cash flow in 2019, while investing in technology and growing our competitive advantage.

On the technology front, we continue to focus on opportunities to improve safety and drive efficiency. Through a partnership with one of our key suppliers, Liberty will be deploying a new articulating flowline that allows for quick, safe transitions between wellheads on a multiwell pad. The new system eliminates the need for a zipper manifold and significantly reduces the amount of treating iron required, replacing those components with a single flow line and a hydraulic quick connect at the wellhead. Regain is simplified and potential exposure for personnel is reduced.

When we rolled out our Quiet frac fleets in 2016, we integrated an innovative fire suppression system into every frac pump. We recently finished the engineering to enhance our traditional pumps with this new safety feature and expect all Liberty frac pumps to be equipped with onboard fire suppression by the end of 2019.

We expect capital expenditures in 2019 to be approximately $175 million, a decrease of 36% from 2018. The budget includes $65 million for the completion of the deferred fleets 23 and 24, $65 million of maintenance capital, and about $45 million for technology, fleet efficiency improvements and facilities.

While we are taking delivery of the final equipment for fleets in 23 and 24 in early 2019, they will not be deployed without the correct combination of strategic customer demand and market dynamics. We may end 2019 with one or both fleets awaiting deployment.

Liberty's strong financial results, favorable long-term outlook and strong balance sheet support our balanced strategy of growth and returning capital to our stockholders. Liberty is committed to compounding long-term stockholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate. We're excited by the opportunities in front of us and the positive long-term outlook for the shale revolution, and the benefits that this brings to our industry and the country as a whole.

I will now hand the call over to Michael Stock, our CFO, to discuss our financial results.

Good morning. We're exceptionally proud of Liberty's financial performance in our first year as a publicly traded company. For full year 2018, revenue increased 45% to $2.16 billion from $1.49 billion in 2017. This was driven by an increase in average frac fleet 41% and an increase in efficiency across active fleets.

Net income totaled $249 million in the full year or $1.81 per fully diluted earnings per share. Full year adjusted EBITDA increased 56% to $438 million from $281 million in 2017.

Annualized adjusted EBITDA per fleet increased to $20.6 million in the full year compared to $18.6 million in 2017. We are pleased with our operation team's year-over-year efficiency increases, which were achieved during a period of significant capacity growth.

The high fleet throughput efficiency that we achieve is a win for both our customers and Liberty. We can lower their completion costs, speed their product to market and increase our returns on capital employed. As we have said, we are a returns-focused company and our return on capital employed is a key metric we use to measure the business. For the full year 2018, our pretax return on capital employed was 39%. When we went public in early 2018, we stated that our goal as a company from the beginning was very simple. To build a frac company with a distinct competitive advantage. We believe superior results are achieved when you get the best people and bind them together with a unique culture and a singular focus. We achieved this by marrying operational excellence with technology and a strong balance sheet. We're focused on what is important to our customers: the cost to deliver a barrel of oil to the surface. We work in partnership with them to improve completion efficiency every day and believe that our financial results for 2018 underline the effectiveness of this plan.

Our strong cash generation in 2018 enabled us to invest in growth, return $95 million of cash to shareholders in the form of quarterly dividends, distributions and the repurchase of 4% of our total outstanding shares in our first year as a public company. All of this was achieved while reducing our net debt to only $3 million at year end and delivering on significant profitable growth.

As Chris mentioned, the fourth quarter was challenging from a customer scheduling perspective. Last-minute project deferrals due to companies managing to announce budgets and cash flow balancing caused a significant increase in white space on the calendar. Typically, we would have far more visibility into these schedule changes and therefore, be better able to fill these gaps.

We expect to gain a lot more clarity into our customers' full year completion plans as we get through the earnings season and the customer top line budgets have flowed through to asset level completion plans.

We are pleased with the performance of our team during a challenging fourth quarter, and the Liberty operations team worked tirelessly in the face of very unusual customer scheduling choppiness to provide exceptional execution for our clients.

The fourth quarter 2018, revenue decreased 15% to $473 million from $559 million in the third quarter. Net income totaled $34 million in the fourth quarter compared to net income of $66 million in the third quarter. Fourth quarter adjusted EBITDA decreased to $72 million from $117 million in the third quarter. Annualized adjusted EBITDA per fleet decreased to $13 million in the fourth quarter compared to $21 million in the third quarter.

General and administrative expenses totaled $25 million for the quarter or 5% of revenues included stock-based compensation expense of $1.6 million.

Interest expense and associated fees totaled $3.5 million for the quarter, and fourth quarter income tax expense totaled $4 million compared to $12 million in the third quarter. We ended the year with a cash balance of $103 million and a roughly equal amount of total debt of $106 million.

At year-end, we had no borrowings drawn under our ABL credit facility and total liquidity, including availability under the credit facility, was $328 million.

As we have discussed previously, in order to seek the best long-term returns for our shareholders, we will follow a prudent strategy of maintaining a strong balance sheet, investing in compelling growth opportunities and returning capital to shareholders when appropriate.

In the fourth quarter, we paid a quarterly dividend of $0.05 per share, and we also repurchased 1.75 million shares reducing our total outstanding post-IPO share count by 1.5%.

As of December 31, 2018, the total remaining availability under our original $100 million share repurchase authorization was $17 million, all of which was used to repurchase shares in January of 2019. Additionally, our Board of Directors approved on January 22, 2019, an additional authorization to repurchase shares of Liberty's Class A common stock in the amount not to exceed $100 million through January 31, 2021.

Our Board of Directors has also declared a quarterly cash dividend and distribution of $0.05 per share to be paid on March 20, 2019, to holders of record as of March 6, 2019.

As we look forward into 2019, we are very positive about how Liberty is positioned to continue its mission to drive best-in-class returns. Our geographically diverse footprint, long-term customer partnerships and highly efficient operations position us well to reduce solid returns, even in a challenging market.

In 2019, we expect general and administrative expense to maintain a run rate similar to the second half of 2018. And tax rates for the year are estimated to be 16% for GAAP book tax rate, 24% for the fully diluted as if converted EPS calculation and 14% for the cash tax effect.

I will turn the call back to Chris before we open up for Q&A.

I'd like to close with some thoughts on the shale revolution. We understand the investment community's concerns with the oil and gas industry's relatively poor returns on capital in recent years. I think it's helpful to understand how we got here. The first successful test of shale gas occurred only 20 years ago in the Barnett Shale. Shale gas exploration and production reached critical mass only a little more than a decade ago. And for shale oil, it was far less than a decade ago. Since then, U.S. oil production has more than doubled, significantly altering world oil markets.

Shale gas has also transformed world natural gas markets, switching the U.S. from one of the world's largest importers of natural gas to one of the world's largest exporters. Any change this vast and this large, in one of the world's largest and most important industries leads to significant disruption. We believe that the industry is in the process of exiting the dot-com phase of the shale revolution, where the primary focus was on growth and optimism was pervasive.

This upending is yielding winners and losers. Like in the dot-com boom, there've been more losers than winners; however, the pace of innovation has been impressive. While some companies have been disciplined with their shareholders' capital during this period, we expect to see increasing investment discipline and returns across the value chain as we move out of the early stage dot-com phase of the shale revolution.

Thanks for listening in today. I will turn it back to the operator for questions.

(Operator Instructions) The first question will come from James West of Evercore ISI.

Chris, I appreciate your perspective on the shale revolution here. I think you're right, and I hope you're right on we're exiting the dot-com phase of the revolution on oil shale because as you pointed out, returns have been atrocious for the industry, and not particularly for you guys. You guys were capital disciplined and returns focused, but for industry overall, it's been a pretty bad run here. So I wanted to ask -- the question at the top of my mind is, okay, so we've gone through an air pocket here with -- it was in the pressure pumping business, it's unclear how this year's going to ultimately unfold in terms of pricing and returns on assets, but how are you seeing behavior of your competitors? You guys are, certainly, disciplined, but I don't know that everybody else is, and so perhaps, if you could comment on kind of what you're seeing in the marketplace right now?

Yes, will do, James. And look, we hear stuff from our customers, we hear stuff in the -- around the -- in the bars. So what I'm going to get -- give you is sort of a sense of what's going on. But in the broad sweep, last -- from last summer, sort of the peak of activity level, and a very high peak it was, probably 20%, say 70, 80, 90 frac fleets that were fracking last summer are not fracking today or were not -- probably some of that -- a few of them are back, but they weren't fracking in December. So that's a pretty significant decline. And as you have a fleet that's getting pushed out of work, it doesn't immediately just lay the guys off and park the equipment. They try to find new work. They want to keep that fleet going. It takes a few strikes or they're -- if they're failing or the pricing's so egregious, before those people get laid off and the equipment really gets parked, and now, you've shrunk supply in the marketplace. So I think, we're seeing a fair amount of supply come out of the marketplace. So I actually think a lot of the reactions of our competitors have probably mostly been rational. There's many more frac -- many less frac fleets available to frac today. There's less demand for them, so the market is soft. But the -- for a market to get better, you either have to have an increase in demand or a decrease in supply. And what's really been going on in the last 6 months and I suspect we'll see continue the next few months is a reduction in the available supply looking for work.

Right, okay, great. And then another topic on top of mind is consolidation in the industry, and I know you guys have a fleet that's unique and perhaps you may not be interested in mixing your assets with other assets, but could you maybe comment on what you see in the M&A market? And if this is a possible outcome for the industry, I mean -- I know we have a lot of new public companies, including yourself that maybe don't want to be consolidated or consolidate, but it seems to me we need some consolidation to get the overall return profile for pressure pumping up?

Of course, predictions are hard, especially about the future. But I think you're going to see some of the least efficient players, including the levered ones, struggle a bit in today's environment. So we might see some consolidation. We might see -- certainly, there's plenty of rumors and chatter. I think there is a lot of that dialogue going on. Yes, there was a little bit of consolidation and 1 or 2 less frac players by the end of the year, that would certainly improve the market and there's probably a reasonable chance it happens.

The next question will come from Sean Meakim of JP Morgan.

So maybe we can just dive in a little bit more into the drivers of your 1Q guide. Just thinking between volumes, efficiencies, pricing. Where is -- where would you say leading-edge pricing is for your fleet today versus what your average fleet is experiencing? How much do you think efficiency can help you month-over-month as budgets get set? Just thinking about those different -- unpack those pieces a little bit for us as you think about your guidance for the first quarter, please.

You bet, Sean. So look, as we've said in the late summer, whatever, market's very strong, we saw some erosion in Q3 in activity level as we talked about on our last call. We saw a more significant erosion in Q4. And when there are these fleets that are pushed on the market and they're trying to get new work, that pushes pressure on pricing. So pricing, I don't know, from last fall or something, maybe pricing's declined by more than 10%. Half of that is a decrease in commodity prices. Think of the compression, for example, in sand prices. That's a plus for us, it's a plus for our customers. But maybe 5% of that is coming out of our variable margin. So that's -- of course, that makes the market tougher. But activity level, we have these -- schedule changes, they're normal for this industry. They happen all the time, but we usually know them with some advance. And as you've heard us say before, there's excess demand for Liberty. We can always move fleet somewhere else if we know a schedule changed. What bit us in the fourth quarter was very short notice changes in behavior that didn't allow us to redeploy those fleets or efficiently redeploy them. That hurts. Now that goes on in Q4. In Q1 today, every fleet, all 22 fleets we have are fracking, as I'm talking to you today. And I'd say, we've got good reason to believe that will continue, that will continue as far out as we can see. I think we feel pretty good about fleet utilization this year even though the market is softer. We'll keep our fleets busy. We've been in very close communication with our customers. They're somewhat apologetic for the vagaries of this changing market, exiting the dot-com phase that sometimes makes very rapid decisions required, but pricing is compressed. And Sean, I guess, to maybe your most important question, I would say, across our fleets today, they are all pretty close or roughly in line with leading edge pricing. I think the compression in pricing has probably mostly happened. I would suspect we're at a bottom. Our dialogues with customers about pricing now is when we might bring them back up. But I don't see, that's not next week, next month, but we don't have wide price disparity in the fleets today.

Got it. That's very helpful. And so then just to expand on that a little bit, just how would you characterize your ability to drive improved EBITDA per fleet if we are able to stabilize at roughly current pricing levels? So like in other words, we've talked previously about a range of EBITDA per fleet in 2018 that was maybe low to high 20s. We've had this downdraft here in the back half of '18 into '19, what does that range look like without pricing improvement in '19 as you drive volumes and improve your efficiency? And how confident are you in 1Q as a bottom for that metric?

Yes, well, of course, we don't know pricing. Again, I suspect by the time we get to year-end, we probably got -- there's probably a drift in the other direction in pricing. From here to there, we don't know the timing of that. You've heard sort of our guide of what we think happened this quarter and that's reflective of this tough pricing. There's 2 things we can do about that. One is schedule, is to keep the fleets busy. Customers -- if we're getting customer work faster than they thought, we've thought ahead on that. We've found ways to either slide up the work that follows that with that customer or insert work from others to keep these fleets busy. And the second big -- in Q4, our fleets actually had awesome throughput on every day they fracked. The problem was it was just way too many days they didn't frac. So that's why we gave the hat tip to our operations team, for even with these big schedule gaps, still running like a well-oiled machine on the days they're fracking. But as you've heard us say before, this huge driver, that's a win for us and win for our customers, is driving increased efficiency throughput every day in the field. And we continue a huge focus on that, and I'm going to let Ron Gusek elaborate a little bit on a few of the highlights of what's going on with us on increased throughput.

Yes, Sean, I might just add a few things in there just around the efficiency thoughts. I mean, obviously, we continue to work on training and those sorts of things with our crews. We've had crews that have been working together for years and years now. The tenure, the experience together continues to allow for efficiency improvements just amongst the guys out there. New technology, Chris alluded to the quick connect system that we're working on. So with this idea of tracking all of the time that we're spending out on location and where we have opportunity for improvement, we continue to work on technology initiatives that allow us to get rid of those extra minutes there and find more time to pump. So the quick connect initiative being one of those. I'd love to say we've solved all the equipment problems that exist out there, but we still continue to see meaningful opportunity there. We -- I think, we talked about our work on the blenders that we've been doing to improve up-time on what is a single point of failure inside of our frac fleet. We continue to do a large amount of work on pumps and pump design with the goal of ensuring increased up-time there and reduced maintenance time. And then, of course, we continue do a lot of work with our customers. As our customer partnerships continue to get more and more mature, we grow together, and find opportunities for improved efficiency there. So all of those things together, still plenty of room for efficiency improvement there. The Permian, for example, looking fantastic right now. We've had many fleets that have been running through Q4, pumping more than 1,200 minutes a day. But that still leaves us 200-plus minutes a day that we can find there. So lots of opportunity, I think, on the efficiency side, yes.

The next question will come from Jud Bailey of Wells Fargo.

Wonder if I could follow up on kind of Sean's line of questioning. The guidance for revenue, I think, you said, up single-digit. Could you give us a sense of kind of what your expectation would be how to think about activity against that? I mean, you cited, I think, January pumping hours were a record. Would you think about your pumping hours being up -- or sand pump rather, would we think about that being up 5% to 10% to get to that kind of revenue number? Or how are you thinking about the volume growth relative to the revenue expectation?

Yes.

I think you're about right there, Sean. I think, we're sort of probably talking Q-over-Q overall are 10% up volumetrically to get to that single-digit revenue growth.

Okay. And I guess, my next question is to get that -- how do you feel about your visibility for the first quarter? And I guess, all through all of 2019, as you sit here today, how would you characterize visibility on the calendar both near term and then over the rest of '19?

Jud, in spite of the rapid collapse -- or shrinkage in activity, collapse is absolutely the wrong word -- we feel pretty good. I mean, we are completely booked as far as we look out into later this spring and, certainly, in the dialogues with our customers. I would say, pull or interest from our customers right now is larger than the fleets we have running. So we are in decisions about what are we going to say yes to, what are we not going to say yes to. So I would say we feel pretty confident that the utilization of our fleets will be very good. There's demand for well more than the 22 Liberty fleets that are fracking today.

Okay. Chris, if I could slip in one more based on that last comment. If you've got that much demand, is it fair to think that fleets 23 and 24 could find work in the back half of the year? Is it a price discussion? Or is it just no one willing to commit that far down the road at this point?

No -- I mean, Jud, we could put both fleets to work next month. No problem at all, and we are in dialogues about that. But we probably -- but I think, it's unlikely that we do. So yes, it's a combination of price, which means what are we going to make right now and customer partnership. Is it a strategic customer? Does it matter for our long-term position? What's the right balance there to do that? So it's not a question of could we find work to put the fleets out. We have a pull on that today. But I think we'll be slow, cautious, disciplined, I don't know the right word in deploying those. As we said in our press release, it's a very real possibility that one or both of those fleets are still idle at the end of the year. And more likely, one of them will be out by then, but I don't know. It's not -- a year ago, we had such -- with very good current economics, we had good customer relationships. There was no reason to hold back on that. Today, we're more on a bubble. Profitability at current levels is meaningfully lower than it was and that we think is representative of mid-cycle. So we're not anxious to deploy every horsepower we can in today's market. But we respect the customer relationships we have and where they might go in the future. So it's always a balance. We deploy a fleet, again, it's a -- that's a 10-year asset and the humans in it are going to have 10 years longer than that. So we're looking longer-term at it but, of course, it reflects current pricing as well.

A little color on that too, Jud. I mean, I think, we're being very judicious when we look at it. We believe -- in discussions with our customers and with people -- E&P operators that aren't currently our customers that there is going to be a very strong focus on customer -- on capital discipline, on staying within budgets, looking at cash flow. So we want to be very careful and as -- when we look through their asset, how they roll down their completions of their assets, what the back-end of the year is going to look like? We want to make sure that we're going to have a very clear view of where they are in their sort of spin cycle for the year. Otherwise, we -- you could end up with sort of rather choppy Q4. So we're being very sort of judicious as we look at that and whether or not we can look at some new -- some clients who want to expand and can we do that with a little flex capacity, especially if we're looking at whether or not we've got some other clients that may slow down sort of in the Q4 period. So if we've got flex capacity we can sort of use over the summer, we may stretch a little bit and then still only have the 22 fleets through Q4, and it'll be a very solid utilization. So we're looking at that in very -- a great amount of detail this year.

The next question will come from George O'Leary with Tudor, Pickering, Holt & Co.

Trying to come at the utilization question and kind of frac activity question from a slightly different angle. If you guys could frame maybe the average days worked or average days pumping per fleet in the fourth quarter of '18 or a utilization percentage, maybe ballparking that? And then, what you would need to achieve to keep EBITDA flat quarter-over-quarter in light of the pricing decreases? I think that would be super helpful.

Yes, George, if you looked at that Q-over-Q, Q3 to Q4, we were down probably 10% to 15% from a utilization standpoint.

And then, for the first, more or less, how many basis points or how many incremental days per spread do you think you might need to pump to keep that EBITDA flat? It sounds like January is good, but just trying to think through the progression of the whole quarter.

We'll probably be up of order 10%, maybe high single digits to 10 points going into Q1.

Okay, great. That's super helpful. And then, I just kind of had a -- given you all's focus on efficiency and adding bells and whistles to the frac fleet. I kind of had a nerdier question born more out of curiosity than anything else, but the -- replacing the zipper manifold is interesting. A zipper manifold's typically rented on the well side. I'm just curious if this new, I believe you referred to it as an articulating arm. Is that a new rental product? Or is that something you'll be purchasing from a CapEx perspective to bolt onto your fleets?

We'll be purchasing it. So it'll be CapEx bolted onto our fleet.

The next question will come from Scott Gruber of Citigroup.

Coming back to the activity outlook. I know that there's been several questions on this front, but I wanted to ask another one. Chris, you mentioned a full calendar as we go through 1Q and it sounds like into 2Q, does that mean there's line of sight to getting back to the mid-2018 rate of stages per fleet per month in 2Q or 3Q?

Absolutely. I'd say we're there today or close to it. I mean, we're running 22 fleets and pumped record amount of sand in January. So I think, stage throughput and activity levels right now are good. We're winter so we're going to have disturbances, but boy so far winter has been very smooth. Winter has been very smooth.

Got it. And then, just help me square a couple of other numbers then. You had mentioned roughly a 5% net pricing hit, I believe. Previously, you guys had talked about a mid-20s EBITDA per fleet when you were running at, call it, full utilization. But the EBITDA guide for 1Q is essentially flat. So at first take, I would assume that you'd apply that 5% net pricing hit to the mid-20s on EBITDA, but there seems to be a gap in 1Q if we're already at that level of utilization. So can you just help me think about that calculus?

Yes. We had some pricing erosion in Q3. We had some more pricing erosion in Q4 so the total price erosion, I've got to talk about from which start to which end. But in round numbers, if we went from mid-20s EBITDA to mid-teens or below mid-teens, that's probably a 12% net price reduction to us. The price reduction to customers over that time period is even larger because material costs are going down. Revenues -- to get flat revenues through the last 6 or 8 months, you've got to grow your activity level. Again, even without margin compression just because of the largest cost of a frac is sand and that price has compressed a lot. But to your point, pricing from the peak to now is -- net to us has maybe declined closer to 10% than 5%. And yes, in Q3, Q2, we had almost a dreamy alignment of schedule, so that the days fracked per month for every fleet was incredibly high. We've got a couple more fleets running now, I think, than we did at the end of Q2. We didn't have quite that dreamy of a schedule alignment in January but, boy, throughput on an average day, I would say, is good or better.

Got it. And one last one. And the answer to this may be nothing because you guys do a number of things well and have a great strategy. But as we move out of the dot-com phase, as you called it, do you think about changing anything with regard to your strategy?

We're always thinking about changing our strategy. Look, the marketplace changes, what's most -- which -- maybe which customers are our peak customers, change customer's plans or views of the world or the right way to do things changes. We're always in dialogue with our customers. We're always challenging ourselves internally. So yes, and again, probably more of our change, technology or culture is kind of behind in the door so we don't talk about all of it. But absolutely. Look, think of how much as a -- how much the oil and gas world's changed in the last 10 years. Is Liberty going to look a bit -- are we going to look different 5 years from now? Yes. Is the principles that guide us different? No.

I think, one other thing, Scott, obviously, we have almost quadrupled in the last 2.5 years, right? So during -- and that's in the growth phase. We're now focusing as we're going through a slightly slower growth period in the next year, focus on efficiency, focus on effectiveness allows us time to spend a lot of time focusing on getting a lot better internally. And there is a huge amount of -- number of things that we can do there.

The next question will come from Connor Lynagh of Morgan Stanley.

I was wondering if you can give us a little more color on the technology investment you guys are referring to. Obviously, pretty significant portion of the capital budget this year. So I think, you already sort of alluded to some of the things you were talking about, but if you can give us a sense of how much capital is going to what? And the relative -- how you think about the returns on that investment?

Yes. I think, Connor, overall probably 40% of that investment is going towards the new articulating arm, the slide suppression systems, that Ron discussed in detail. Other items we're doing there is sort of improvement in blender technology, rolling out new dry guard dry fast skids, facility upgrades, an ERP upgrade, et cetera. So there's a number of different sort of as we move forward. As I said, one of the things we're focusing on this year -- I mean, you have to invest in this because we're going to be doing this call in 5 years' time and we want these things to pay dividends, is efficiency upgrade inside the building, right? How do we get better? And that's one of the things that we focus on every day. So yes, we look at every investment and look at the return on that investment, whether it's a straight sort of cost reduction to the bottom line, improved efficiency, improved throughput and a number of other ways, and a lot of it's investing in people. So I think, we look at all those different investments that way.

Got it. Maybe just shifting more to the capital return side of things. So it seems if things hold where they are essentially improved seasonally, you will be generating a decent amount of free cash flow this year. How do you think about -- are you planning to execute the entire $100 million buyback? Are you planning on any changes to the dividend policy? And just walk us through how you think about that?

No, we -- Connor, we look at these decisions sort of as we march through the year. Yes, this is an interesting year, right? This could be challenging. We'll see where the commodity market goes. At the moment, we're not seeing a dislocation on asset pricing. But if that happens we want to make sure that we have the balance sheet available to take advantage of it just like we did in the last downturn. Our dividend policy, as we said when we announced it, we intend for that to be a regular event. We will look at that every quarter, but we have no plans at the moment of changing it. And we'll look at the buyback policy as it makes sense as far as the share price and the balance sheet.

And the next question will come from Stephen Gengaro of Stifel.

Just -- I just wanted to just follow up on 2 things quickly. The first being the potential sort of EBITDA per fleet numbers at current pricing? Kind of current frac pricing, current frac sand pricing? Any ballpark you'd be willing to throw out there?

Well, the guidance we've given for Q1 is obviously -- was a flat EBITDA per fleet from Q4 around -- just over $13 million a fleet. And again, I think what we'll do is we haven't given any further guidance on that side of the world, but we would hope to see efficiency increases. And we'll look to see how the supply-demand market comes together, and where we can move prices up in the future.

Okay. And then just, the other quick question. Geographically, any material shift to where your assets are versus prior quarter? I don't think so but just wanted to be sure.

No, there isn't. There isn't. We have opportunities in every basin we're in. So they've all got challenges, but not huge differences between the basins as we sit here today, and no movement of assets on our end.

The next question will come from Blake Gendron of Wolfe Research.

My first is on -- it's pretty compelling what you talked about a vision for a steadier state U.S. line completions market. And in that paradigm, you're going to get to a returns -- you're going to get to a certain return level where growth is the answer, but what would it take for you guys after you deploy the 24th spread to just take a step back and say, we're going to stop growing and just take cash off the table?

It depends on the outlook for the market. And I should say, we don't believe the oil and gas industry will ever become steady, but we do believe that there are some forces that might make it steadier. I think when you build an asset that lasts a long time like a well, you get a cyclical industry. But if spending is more curtailed in high cash flow, high prices times, and U.S. -- look, we've driven oil price down because U.S. production over the last 5 years has grown more than total demand in world oil. Obviously, that's not going to continue. I think U.S. oil production will grow meaningfully in the years ahead, but not likely at the crazy breakneck speed it's been the last 5 years. So -- and as people move towards not outspends for growth as was common at the start of the shale revolution, I think we'll get a little bit slower growth in U.S. oil production. Therefore, a little bit -- probably steadier level of activity, not steady, but steadier. And so I think, we will continue the strategy the same as we generate cash every year, it's what to do with those dollars? What's the best return? Sometimes it's going to be buying back our stock. Sometimes it's going to be building more frac fleets. Sometimes it's going to be burnishing a balance sheet because there is other investment opportunities. And huge throughout all those is going to be returning cash to shareholders. So it's not like at 24 fleets we stop, nothing about that, there's no reason to do that. But returning -- I'm probably rambling because it so depends on the particular circumstances and the opportunities in front of us. But will Liberty return a lot of cash to shareholders in the coming 5 years? Yes. Will we not grow at all? Unlikely, that we will not grow at all. We'll likely continue to grow, but in today's climate, that balance of where to deploy capital is much less towards growth. Like with the...

With single-digit market share, in the frac market, with deep relationships with our customers and we really value the fact of the service and that partnership with them. And as those customers, as we build with those customers, that pull is what will take us through our growth after fleets 24, and through 24. So yes, there is an organic growth strategy there that's been in place since the beginning and will continue.

But we're not a growth for growth's sake. We've grown very fast. We just finished our 7th commercial year in business. So we'd say we grew quite fast, but it was not we set out to grow at a breakneck pace, we set out to do things differently and provide a differential level of service and a differential return on capital. And by executing on that the polar demand for Liberty is great. The cash generation was large, and so we -- it made sense and we funded relatively rapid growth. But we're not -- for us, the goal isn't just to -- isn't to be bigger, it's to be better.

Got it. That makes sense. And I think, the more encouraging aspect of the steadier state is just better visibility and it'll allow you to make those capital allocation decisions a bit easier. My second question, and this is more of a Bakken sort of nuance completion design question. I'm going to single out Hess, specifically, as a relatively new adapter of plug and perf as opposed to sliding sleeves. It's been a factor that's helped your throughput story in the Bakken specifically, but any sort of meaningful shift in completion design up there that could potentially pressure the throughput side of the story up there?

No. I think, like all the other basins, it's seen the benefits of higher throughput. Just in lower well costs and when you're zippering, you get this stress interaction among the fractures and offset wells. It also will help steer fractures to the right place in the reservoir you want them because as I used to joke as a frac modeler, fracs don't like fracs. Just like frac modelers didn't like frac modelers. But no, obviously, with sliding sleeves, you can get faster, easier throughput. When we arrived in the Bakken, 70% of the wells were completed with sliding sleeves. One of the reasons for that was you could get wells done much faster. You could frac a well in 1.5 day instead of a week. It's not a week anymore, but with single wells it was. So we were pushing against the tide there that by going to plug and perf on single HBP wells, you slowed the completion of a well. You had to invest several more days and more money to produce those wells, but you increase well costs 10% or 12%, and you increase productivity in EURs by 40-plus percent. So we think the tradeoffs were strongly in favor of doing it. And it's why almost everyone, there's probably 2 companies in the Bakken that still do sliding sleeves and we know the Hess guys and have partnered with them on multiple things. You can see them moving -- they're probably going to be one remaining after them. And in the long run, you want to get the maximum recovery and greatest economic returns. Plug and perf is almost always the right way to go, and plug and perf today is quite different than it was 5 or 7 years ago. I mean, originally, we were trying to get 3 to 5 individual fracs in each stage, that's why it was better than sliding sleeves. Today, and we run diagnostics in this, what we call extreme limited entry perforating that we published papers on. We're getting a dozen or more individual fractures in each frac stage. So the density of plumbing and contact to the rock is just compelling. Sorry for the long-winded answer.

Our next question will come from Mark Bianchi of Cowen.

Most of my questions have been answered. I just wanted to ask a little bit more on first quarter. January, you mentioned, was the highest monthly volume in sand for the company. As you put together the guidance here for first quarter, what's the expectation of the progression from January through the remainder of the quarter?

I would say flattish. We've got all of our fleets running at high pace today and see no reason to believe that won't be the case in February, March. And flattish is a nice change from Q4.

Sure, sure it is. And is the -- I suspect that would imply the kind of exit rate profitability that you would have would be pretty consistent with what you're guiding to here in the first quarter, is that a fair assumption?

I think it is.

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

Thanks for everyone for investing the time to dialogue with Liberty today, and your interest in following the company. Interesting times in the marketplace, so a longer Q&A section, but a great dialogue and we look forward to the rest of the year in 2019. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.