Liberty Energy Inc. 10-Q

Item 1. Financial Statements (Unaudited) LIBERTY ENERGY INC. Condensed Consolidated Balance Sheets (Dollars in thousands, except share data) (Unaudited) September 30, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 24,045 $ 19,998 Accounts receivable—trade, net of allowances for credit losses of $ 884 and $ 884 , respectively 480,714 298,531 Accounts receivable—related party 10,307 — Unbilled revenue (including amounts from related parties of $ 26,119 and $ 0 , respectively) 200,144 108,923 Inventories 185,647 134,593 Prepaid and other current assets 95,204 68,332 Total current assets 996,061 630,377 Property and equipment, net 1,295,189 1,199,287 Finance lease right-of-use assets 31,812 18,201 Operating lease right-of-use assets 103,165 109,899 Other assets 98,669 82,289 Deferred tax assets 262 607 Total assets $ 2,525,158 $ 2,040,660 Liabilities and Equity Current liabilities: Accounts payable (including payables to related parties of $ 3,807 and $ 2,732 , respectively) $ 378,480 $ 288,801 Accrued liabilities (including amounts due to related parties of $ 1,121 and $ 1,142 , respectively) 286,504 235,115 Deferred revenue 976 4,552 Current portion of long-term debt, net of discount of $ 734 and $ 743 , respectively 1,016 1,007 Current portion of finance lease liabilities 8,694 8,743 Current portion of operating lease liabilities 29,187 31,029 Total current liabilities 704,857 569,247 Long-term debt, net of discount of $ 721 and $ 1,270 , respectively, less current portion 252,682 121,445 Deferred tax liability 563 563 Payable pursuant to tax receivable agreements 70,788 37,555 Noncurrent portion of finance lease liabilities 15,862 4,445 Noncurrent portion of operating lease liabilities 72,968 76,966 Total liabilities 1,117,720 810,221 Commitments & contingencies (Note 15) Stockholders’ equity: Preferred Stock, $ 0.01 par value, 10,000 shares authorized and none issued and outstanding — — Common Stock: Class A, $ 0.01 par value, 400,000,000 shares authorized and 182,158,820 issued and outstanding as of September 30, 2022 and 183,385,111 issued and outstanding as of December 31, 2021 1,822 1,834 Class B, $ 0.01 par value, 400,000,000 shares authorized and 325,902 issued and outstanding as of September 30, 2022 and 2,632,347 issued and outstanding as of December 31, 2021 3 26 Additional paid in capital 1,320,731 1,367,642 Retained earnings (accumulated deficit) 90,779 ( 155,954 ) Accumulated other comprehensive loss ( 8,595 ) ( 306 ) Total stockholders’ equity 1,404,740 1,213,242 Non-controlling interest 2,698 17,197 Total equity 1,407,438 1,230,439 Total liabilities and equity 2,525,158 2,040,660 See Notes to Condensed Consolidated Financial Statements. 1 Table of Contents LIBERTY ENERGY INC. Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue: Revenue $ 1,122,453 $ 646,714 $ 2,834,304 $ 1,778,854 Revenue—related parties 65,794 7,013 89,332 8,193 Total revenue 1,188,247 653,727 2,923,636 1,787,047 Operating costs and expenses: Cost of services (exclusive of depreciation, depletion, and amortization shown separately below) 874,453 593,683 2,258,190 1,614,574 General and administrative 50,473 32,281 130,953 88,043 Transaction, severance, and other costs 1,767 1,556 5,293 12,173 Depreciation, depletion, and amortization 82,848 65,852 234,815 191,122 Gain on disposal of assets ( 4,277 ) ( 79 ) ( 3,041 ) ( 1,076 ) Total operating costs and expenses 1,005,264 693,293 2,626,210 1,904,836 Operating income (loss) 182,983 ( 39,566 ) 297,426 ( 117,789 ) Other expense (income): Loss (gain) on remeasurement of liability under tax receivable agreements 28,900 ( 4,947 ) 33,233 ( 8,252 ) Gain on investments ( 2,525 ) — ( 2,525 ) — Interest expense, net 6,773 4,007 15,959 11,528 Total other expense (income) 33,148 ( 940 ) 46,667 3,276 Net income (loss) before income taxes 149,835 ( 38,626 ) 250,759 ( 121,065 ) Income tax expense 2,572 753 3,637 9,402 Net income (loss) 147,263 ( 39,379 ) 247,122 ( 130,467 ) Less: Net income (loss) attributable to non-controlling interests 310 ( 489 ) 389 ( 6,812 ) Net income (loss) attributable to Liberty Energy Inc. stockholders $ 146,953 $ ( 38,890 ) $ 246,733 $ ( 123,655 ) Net income (loss) attributable to Liberty Energy Inc. stockholders per common share: Basic $ 0.79 $ ( 0.22 ) $ 1.33 $ ( 0.72 ) Diluted $ 0.78 $ ( 0.22 ) $ 1.30 $ ( 0.72 ) Weighted average common shares outstanding: Basic 185,508 178,311 185,414 171,402 Diluted 189,907 178,311 190,465 171,402 See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents LIBERTY ENERGY INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net income (loss) $ 147,263 $ ( 39,379 ) $ 247,122 $ ( 130,467 ) Other comprehensive (loss) income Foreign currency translation ( 6,343 ) ( 2,287 ) ( 8,299 ) 411 Comprehensive income (loss) $ 140,920 $ ( 41,666 ) $ 238,823 $ ( 130,056 ) Comprehensive income (loss) attributable to non-controlling interest 299 ( 513 ) 379 ( 6,592 ) Comprehensive income (loss) attributable to Liberty Energy Inc. $ 140,621 $ ( 41,153 ) $ 238,444 $ ( 123,464 ) See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents LIBERTY ENERGY INC. Condensed Consolidated Statements of Changes in Equity (In thousands, except per unit and per share data) (Unaudited) Shares of Class A Common Stock Shares of Class B Common Stock Class A Common Stock, Par Value Class B Common Stock, Par Value Additional Paid in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders ’ Equity Non-controlling Interest Total Equity Balance—December 31, 2021 183,385 2,632 $ 1,834 $ 26 $ 1,367,642 $ ( 155,954 ) $ ( 306 ) $ 1,213,242 $ 17,197 $ 1,230,439 Exchange of Class B Common Stock for Class A Common Stock 2,306 ( 2,306 ) 23 ( 23 ) 15,817 — — 15,817 ( 15,817 ) — Offering Costs — — — — ( 79 ) — — ( 79 ) — ( 79 ) Other distributions and advance payments to non-controlling interest unitholders — — — — — — — — 924 924 Share repurchases ( 4,702 ) — ( 47 ) — ( 69,987 ) — ( 70,034 ) ( 60 ) ( 70,094 ) Stock-based compensation expense — — — — 17,031 — — 17,031 95 17,126 Vesting of restricted stock units 1,170 — 12 — 8 — — 20 ( 20 ) — Tax withheld on vesting of restricted stock units — — — — ( 9,701 ) — — ( 9,701 ) — ( 9,701 ) Currency translation adjustment — — — — — — ( 8,289 ) ( 8,289 ) ( 10 ) ( 8,299 ) Net income — — — — — 246,733 — 246,733 389 247,122 Balance—September 30, 2022 182,159 326 $ 1,822 $ 3 $ 1,320,731 $ 90,779 $ ( 8,595 ) $ 1,404,740 $ 2,698 $ 1,407,438 Shares of Class A Common Stock Shares of Class B Common Stock Class A Common Stock, Par Value Class B Common Stock, Par Value Additional Paid in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income Total Stockholders ’ Equity Non-controlling Interest Total Equity Balance—December 31, 2020 157,952 21,550 $ 1,579 $ 216 $ 1,125,554 $ 23,288 $ — $ 1,150,637 $ 159,406 $ 1,310,043 Exchange of Class B Common Stock for Class A Common Stock 19,690 ( 19,690 ) 197 ( 197 ) 142,204 — — 142,204 ( 142,204 ) — Offering Costs — — — — ( 938 ) — — ( 938 ) ( 75 ) ( 1,013 ) Other distributions and advance payments to non-controlling interest unitholders — — — — — — — — 1,372 1,372 Stock-based compensation expense — — — — 14,335 — — 14,335 756 15,091 Vesting of restricted stock units 668 — 7 — ( 3,082 ) — — ( 3,075 ) ( 510 ) ( 3,585 ) Restricted stock and RSU forfeitures — — — — — 2 — 2 — 2 Currency translation adjustment — — — — — — 191 191 220 411 Net loss — — — — — ( 123,655 ) — ( 123,655 ) ( 6,812 ) ( 130,467 ) Balance—September 30, 2021 178,310 1,860 $ 1,783 $ 19 $ 1,278,073 $ ( 100,365 ) $ 191 $ 1,179,701 $ 12,153 $ 1,191,854 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents LIBERTY ENERGY INC. Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Cash flows from operating activities: Net income (loss) $ 247,122 $ ( 130,467 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion, and amortization 234,815 191,122 Gain on disposal of assets ( 3,041 ) ( 1,076 ) Inventory write-down 1,724 — Non-cash lease expense 3,085 2,834 Stock-based compensation expense 17,126 15,091 Deferred income tax expense 316 6,124 Loss (gain) on remeasurement of liability under tax receivable agreements 33,233 ( 8,252 ) Other non-cash (income) expense, net ( 1,007 ) 2,449 Changes in operating assets and liabilities: Accounts receivable and unbilled revenue ( 250,471 ) ( 121,282 ) Accounts receivable and unbilled revenue—related party ( 36,295 ) — Inventories ( 56,472 ) ( 6,878 ) Other assets ( 31,030 ) ( 5,001 ) Deferred revenue ( 3,476 ) — Accounts payable and accrued liabilities 143,986 135,981 Accounts payable and accrued liabilities—related party ( 4,696 ) — Initial payment of operating lease liability ( 2,309 ) ( 503 ) Net cash provided by operating activities 292,610 80,142 Cash flows from investing activities: Purchases of property and equipment and construction in-progress ( 326,960 ) ( 123,008 ) Investment in sand logistics ( 6,721 ) — Investment in Fervo Energy Company and Natron Energy, Inc. ( 15,000 ) — Proceeds from sale of assets 14,806 3,689 Net cash used in investing activities ( 333,875 ) ( 119,319 ) Cash flows from financing activities: Proceeds from borrowings on line-of-credit 543,000 100,000 Repayments of borrowings on line-of-credit ( 411,000 ) ( 84,000 ) Repayments of borrowings on term loan ( 1,313 ) ( 1,313 ) Payments on finance lease obligations ( 4,791 ) ( 6,144 ) Class A Common Stock dividends and dividend equivalents upon restricted stock vesting ( 148 ) ( 168 ) Other distributions and advance payments to non-controlling interest unitholders 924 1,372 Share repurchases ( 70,094 ) — Tax withholding on restricted stock unit vesting ( 9,701 ) ( 3,585 ) Payments of equity issuance costs ( 557 ) ( 1,013 ) Payments of debt issuance costs ( 678 ) — Net cash provided by financing activities 45,642 5,149 Net increase (decrease) in cash and cash equivalents before translation effect 4,377 ( 34,028 ) Translation effect on cash ( 330 ) ( 245 ) Cash and cash equivalents—beginning of period 19,998 68,978 Cash and cash equivalents—end of period $ 24,045 $ 34,705 5 Table of Contents LIBERTY ENERGY INC. Condensed Consolidated Statements of Cash Flows cont. (Dollars in thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 6,502 $ — Cash paid for interest $ 13,622 $ 9,686 Non-cash investing and financing activities: Capital expenditures included in accounts payable and accrued liabilities $ 83,298 $ 25,484 Capital expenditures reclassified from prepaid and other current assets $ 12,445 $ — See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1— Organization and Basis of Presentation Organization Liberty Energy Inc., formerly known as Liberty Oilfield Services Inc. (the “Company”) was incorporated as a Delaware corporation on December 21, 2016, to become a holding corporation for Liberty Oilfield Services New HoldCo LLC (“Liberty LLC”) and its subsidiaries upon completion of a corporate reorganization (the “Corporate Reorganization”) and planned initial public offering of the Company (“IPO”). On April 19, 2022, the stockholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation for the purpose of changing the Company’s name from “Liberty Oilfield Services Inc.” to “Liberty Energy Inc.” and thereafter, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation to reflect the new name, effective April 25, 2022. The Company has no material assets other than its ownership of units in Liberty LLC (“Liberty LLC Units”). Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 22, 2022 (the “Annual Report”) for additional information on the Corporate Reorganization and IPO that were completed on January 17, 2018. The Company, together with its subsidiaries, is a leading integrated oilfield services and technology company focused on providing innovative hydraulic fracturing services and related technologies to onshore oil and natural gas exploration and production (“E&P”) companies in North America. We offer customers hydraulic fracturing services, together with complementary services including wireline services, proppant delivery solutions, data analytics, related goods (including our sand mine operations), and technologies that will facilitate lower emission completions, thereby helping our customers reduce their emissions profile. Basis of Presentation The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with the annual financial statements and notes thereto included in the Annual Report. The accompanying unaudited condensed consolidated financial statements and related notes present the condensed consolidated financial position of the Company as of September 30, 2022 and December 31, 2021, and the results of operations, cash flows, and changes in equity of the Company as of and for the three and nine months ended September 30, 2022 and 2021. The interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim period. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations expected for the entire fiscal year ended December 31, 2022. Further, these estimates and other factors, including those outside the Company’s control, such as the impact of sustained lower commodity prices, could have a significant adverse impact to the Company’s financial condition, results of operations and cash flows. All intercompany amounts have been eliminated in the presentation of the unaudited condensed consolidated financial statements of the Company. The Company’s operations are organized into a single reportable segment, which consists of hydraulic fracturing and related goods and services. Note 2— Significant Accounting Policies Reclassifications Certain amounts in the prior period financial statements have been reclassified from interest income to interest expense, net in the accompanying unaudited condensed consolidated statements of operation to conform to the presentation of the current period financial statements. Additionally, amounts in the prior period financial statements have been reclassified from provision for credit losses to other non-cash (income) expense, net in the accompanying unaudited condensed consolidated statement of cash flows to conform to the presentation of the current period financial statements. These reclassifications had no effect on the previously reported net income or loss. 7 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 3— The PropX Acquisition On October 26, 2021, the Company entered into the certain Unit Purchase Agreement (the “Transaction Agreement”) with Proppant Express Investments, LLC to acquire the assets and liabilities of Proppant Express Solutions, LLC (“PropX”), which provides last-mile proppant delivery solutions, including proppant handling equipment and logistics software across North America (the “PropX Acquisition”). PropX was acquired in exchange for $ 11.9 million in cash and 3,405,526 shares of the Company’s Class A Common Stock, par value $ 0.01 per share (the “Class A Common Stock”) and 2,441,010 shares of the Company’s Class B Common Stock, par value $ 0.01 per share (the “Class B Common Stock”, and together with the Class A Common Stock, the “Common Stock”), for total consideration of $ 103.0 million based on the October 26, 2021 closing price of Class A Common Stock of $ 15.58 . In connection with the issuance of 2,441,010 shares of Class B Common Stock, Liberty LLC also issued 2,441,010 Liberty LLC Units to the Company. The Liberty LLC Units are redeemable for an equivalent number of shares of Class A Common Stock at any time, at the election of the shareholder. The Company accounted for the PropX Acquisition using the acquisition method of accounting. The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair value at the date of the acquisition. The estimated fair values of certain assets and liabilities require significant judgments and estimates. The majority of the measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs. In accordance with ASC Topic 805, an acquirer is allowed a period, referred to as the measurement period, in which to complete its accounting for the transaction. Such measurement period ends at the earliest date that the acquirer a) receives the information necessary or b) determines that it cannot obtain further information, and such period may not exceed one year. As the PropX Acquisition closed on October 26, 2021 the Company completed the purchase price allocation, particularly as it relates to current assets and current liabilities, during the nine months ended September 30, 2022. The following table summarizes the fair value of the consideration transferred in the PropX Acquisition and the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed as of October 26, 2021, the date of the closing of the PropX Acquisition: ($ in thousands) Total Purchase Consideration: Consideration $ 103,023 Cash and cash equivalents $ 53 Accounts receivable and unbilled revenue 4,089 Inventory 8 Prepaid and other current assets 1,722 Property and equipment (1) 94,137 Intangible assets (included in other assets in the accompanying consolidated balance sheet as of December 31, 2021) (2) 7,100 Total identifiable assets acquired 107,109 Accounts payable 2,152 Accrued liabilities 1,934 Total liabilities assumed 4,086 Total purchase consideration $ 103,023 (1) Useful lives average of 10 years, see Note 5—Property and Equipment (2) Definite lived intangibles with an amortization period ranging from seven to 10 years Transaction costs, costs associated with issuing additional equity and integration costs were recognized separately from the acquisition of assets and assumptions of liabilities in the PropX Acquisition. Transaction costs consist of legal and professional fees. Integration costs consist of expenses incurred to integrate PropX’s operations, aligning accounting processes and procedures, and integrating its enterprise resource planning system with those of the Company. Merger and integration costs are expensed as incurred, and equity offering costs were recorded as a reduction to additional paid in capital. 8 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) The Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 do not include any results from PropX operations as the PropX Acquisition closed on October 26, 2021. The Company does not present pro forma financial information for the periods prior to the PropX Acquisition as such information, after elimination of PropX’s historical transactions with the Company, is not materially different than the results presented in the accompanying condensed consolidated statements of operations for three and nine months ended September 30, 2021. Note 4— Inventories Inventories consist of the following: September 30, December 31, ($ in thousands) 2022 2021 Proppants $ 31,156 $ 23,413 Chemicals 20,139 17,996 Maintenance parts 134,352 93,184 $ 185,647 $ 134,593 During the three and nine months ended September 30, 2022, the lower of cost or net realizable value analysis resulted in the Company recording a write-down to the inventory carrying value of $ 1.7 million. The Company did not record any write-down to the inventory carrying value during the year ended December 31, 2021. Note 5— Property and Equipment Property and equipment consist of the following: Estimated useful lives (in years) September 30, December 31, ($ in thousands) 2022 2021 Land N/A $ 29,384 $ 33,812 Field services equipment 2 - 7 1,817,333 1,579,420 Vehicles 4 - 7 61,674 61,282 Lease Equipment 10 90,897 64,770 Buildings and facilities 5 - 30 133,607 148,555 Mineral reserves > 25 76,823 76,823 Office equipment and furniture 2 - 7 8,826 8,218 2,218,544 1,972,880 Less accumulated depreciation and depletion ( 1,073,092 ) ( 863,194 ) 1,145,452 1,109,686 Construction in-progress N/A 149,737 89,601 $ 1,295,189 $ 1,199,287 Depreciation expense for the three months ended September 30, 2022 and 2021 was $ 77.5 million and $ 61.1 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company recognized depreciation expense of $ 219.9 million and $ 175.9 million, respectively. Depletion expense for the three months ended September 30, 2022 and 2021was $ 0.3 million and $ 0.3 million, respectively. Depletion expense for the nine months ended September 30, 2022 and 2021 was $ 0.9 million and $ 1.0 million, respectively. As of September 30, 2022 and December 31, 2021, the Company concluded that no triggering events that could indicate possible impairment of property and equipment had occurred, other than related to the assets held for sale discussed below. As of September 30, 2022, the Company classified $ 2.5 million of land and $ 11.4 million of buildings, net of accumulated depreciation, of two properties that it intends to sell within the next year, and that meets the held for sale criteria, to assets held for sale, included in prepaid and other current assets in the accompanying unaudited condensed consolidated balance sheet. The Company estimates that the carrying value of the assets were greater than the fair value less the estimated costs to sell, and therefore recorded a $ 2.7 million loss during the nine months ended September 30, 2022, included as a component of gain on disposal of assets in the accompanying unaudited condensed consolidated statements of operations. 9 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 6— Leases The Company has operating and finance leases primarily for vehicles, equipment, railcars, office space, and facilities. The terms and conditions for these leases vary by the type of underlying asset. Certain leases include variable lease payments for items such as property taxes, insurance, maintenance, and other operating expenses associated with leased assets. Payments that vary based on an index or rate are included in the measurement of lease assets and liabilities at the rate as of the commencement date. All other variable lease payments are excluded from the measurement of lease assets and liabilities, and are recognized in the period in which the obligation for those payments is incurred. The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows: Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Finance lease cost: Amortization of right-of-use assets $ 1,590 $ 1,213 $ 3,796 $ 4,565 Interest on lease liabilities 453 347 1,066 1,318 Operating lease cost 10,675 12,869 32,809 29,702 Variable lease cost 1,337 1,273 3,473 3,116 Short-term lease costs 2,121 1,479 5,113 3,483 Total lease cost $ 16,176 $ 17,181 $ 46,257 $ 42,184 Sup plemental cash flow and other information related to leases for the three and nine months ended September 30, 2022 and 2021 were as follows: Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2022 2021 2022 2021 Cash paid for amounts included in measurement of liabilities: Operating leases $ 10,170 $ 12,136 $ 32,065 $ 27,420 Finance leases 2,548 2,064 5,857 7,099 Right-of-use assets obtained in exchange for new lease liabilities: Operating leases 3,323 10,999 22,693 70,205 Finance leases 8,409 — 14,742 — 10 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) During the nine months ended September 30, 2022, the Company amended certain operating leases, the change in terms of which caused the leases to be reclassified as finance leases. In connection with the amendments, the Company wrote-off operating lease right-of-use assets of $ 0.2 million and liabilities of $ 0.1 million. Additionally, the Company recognized finance lease right-of-use assets of $ 2.7 million and liabilities of $ 2.7 million. During the nine months ended September 30, 2021, the Company amended certain finance leases, the change in terms of which caused the leases to be reclassified to operating leases. In connection with the amendments the Company wrote-off finance lease right-of-use assets of $ 13.7 million and liabilities of $ 10.6 million. Additionally, the Company recognized operating lease right-of-use assets of $ 11.8 million and liabilities of $ 8.8 million. There was no gain or loss recognized as a result of these amendments. Lease terms and discount rates as of September 30, 2022 and December 31, 2021 were as follows: September 30, 2022 December 31, 2021 Weighted-average remaining lease term: Operating leases 4.9 years 5.2 years Finance leases 3.0 years 1.5 years Weighted-average discount rate: Operating leases 4.5 % 4.2 % Finance leases 8.0 % 8.6 % Future minimum lease commitments as of September 30, 2022 are as follows: ($ in thousands) Finance Operating Remainder of 2022 $ 2,204 $ 9,330 2023 9,610 30,228 2024 4,799 23,758 2025 4,910 21,430 2026 6,709 10,384 Thereafter — 19,074 Total lease payments 28,232 114,204 Less imputed interest ( 3,676 ) ( 12,049 ) Total Liability $ 24,556 $ 102,155 The Company’s vehicle leases typically include a residual value guarantee. For the Company’s vehicle leases classified as operating leases, the total residual value guaranteed as of September 30, 2022 is $ 12.9 million; the payment is not probable and therefore has not been included in the measurement of the lease liability and right-of-use asset. For vehicle leases that are classified as finance leases, the Company includes the residual value guarantee, estimated in the lease agreement, in the financing lease liability. Lessor Arrangements The Company leases dry and wet sand containers and conveyor belts to customers through PropX. PropX leases to customers through operating leases, where the lessor for tax purposes is considered to be the owner of the equipment during the term of the lease. The lease agreements do not include options for the lessee to purchase the underlying asset at the end of the lease term for either a stated fixed price or fair market value. However, some of the leases contain a termination clause in which the customer can cancel the contract. The leases can be subject to variable lease payments if the customer requests more units than what is agreed upon in the lease. The Company does not record any lease assets or liabilities related to these variable items. The carrying amount of equipment leased to others, included in property, plant and equipment, under operating leases as of September 30, 2022 and December 31, 2021 were as follows: 11 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) ($ in thousands) September 30, 2022 December 31, 2021 Equipment leased to others - at original cost $ 90,897 $ 64,770 Less: Accumulated depreciation ( 8,288 ) ( 1,377 ) Equipment leased to others - net $ 82,609 $ 63,393 Future payments receivable for operating leases commenced and committed but not delivered as of September 30, 2022 are as follows: ($ in thousands) Remainder of 2022 $ 4,126 2023 16,704 2024 9,218 2025 1,051 2026 — Thereafter — Total $ 31,099 Revenues from operating leases for the three and nine months ended September 30, 2022 were $ 6.7 million and $ 18.4 million, respectively. There was no revenue from operating leases for the three and nine months ended September 30, 2021. Note 7— Accrued Liabilities Accrued liabilities consist of the following: ($ in thousands) September 30, 2022 December 31, 2021 Accrued vendor invoices $ 116,859 $ 109,903 Operations accruals 93,979 64,707 Accrued benefits and other 75,666 60,505 $ 286,504 $ 235,115 Note 8— Debt Debt consists of the following: September 30, December 31, ($ in thousands) 2022 2021 Term Loan outstanding $ 105,153 $ 106,465 Revolving Line of Credit 150,000 18,000 Deferred financing costs and original issue discount ( 1,455 ) ( 2,013 ) Total debt, net of deferred financing costs and original issue discount $ 253,698 $ 122,452 Current portion of long-term debt, net of discount $ 1,016 $ 1,007 Long-term debt, net of discount and current portion 252,682 121,445 Total debt, net of deferred financing costs and original issue discount $ 253,698 $ 122,452 On September 19, 2017, the Company entered into two credit agreements, a revolving line of credit up to $ 250.0 million, subsequently increased to $ 425.0 million, see below, (the “ABL Facility”) and a $ 175.0 million term loan (the “Term Loan Facility”, and together with the ABL Facility the “Credit Facilities”). On July 18, 2022, the Company entered into an amendment to the ABL Facility (the “Seventh ABL Amendment”). The Seventh ABL Amendment amended certain terms, provisions and covenants of the ABL Facility, including among other things: (i) increasing the maximum borrowing amount by $ 75.0 million to $ 425.0 million, subject to certain borrowing base limitations 12 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) based on percentage of eligible accounts receivable and inventory, (ii) modifying certain covenant and reporting-related baskets, and (iii) replacing LIBOR with the secured overnight financing rate (“SOFR”) as the interest rate benchmark. On August 12, 2022, the Company entered into an amendment to the Term Loan Facility (the “Sixth Term Loan Amendment”). The Sixth Term Loan Amendment amended certain terms, provisions and covenants of the Term Loan Facility, including among other things: (i) a waiver of the fixed charge coverage ratio requirements for up to $ 100.0 million of restricted payments made in connection with the Company’s 2022 stock repurchase program for its common stock; (ii) the addition of a minimum liquidity requirement of $ 150.0 million in order to make selected restricted payments, including those made under the 2022 stock repurchase program; (iii) the modification of certain covenant and reporting-related terms, including an increase in the allowance for permitted purchase money indebtedness from $ 50.0 million to $ 70.0 million; (iv) the addition of a prepayment premium of 1.0 % through the first anniversary of the Sixth Term Loan Amendment effective date; and (v) the addition and modification of several provisions to replace LIBOR with SOFR as the interest rate benchmark. The weighted average interest rate on all borrowings outstanding as of September 30, 2022 and December 31, 2021 was 7.0 % and 7.9 %, respectively. ABL Facility Under the terms of the ABL Facility, up to $ 425.0 million may be borrowed, subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory. As of September 30, 2022, the borrowing base was calculated to be $ 425.0 million, and the Company had $ 150.0 million outstanding in addition to a letter of credit in the amount of $ 1.4 million, with $ 273.6 million of remaining availability. Borrowings under the ABL Facility bear interest at SOFR or a base rate, plus an applicable SOFR margin of 1.5 % to 2 % or base rate margin of 0.5 % to 1 %, as defined in the ABL Facility credit agreement. Additionally, borrowings as of September 30, 2022 incurred interest at a weighted average rate of 4.8 %. The average monthly unused commitment is subject to an unused commitment fee of 0.25 % to 0.375 %. Interest and fees are payable in arrears at the end of each month, or, in the case of SOFR loans, at the end of each interest period. The ABL Facility matures on the earlier of (i) October 22, 2026 and (ii) to the extent the debt under the Term Loan Facility remains outstanding, 90 days prior to the final maturity of the Term Loan Facility, which matures on September 19, 2024. Borrowings under the ABL Facility are collateralized by accounts receivable and inventory, and further secured by the Company, Liberty LLC, and R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the Company, as parent guarantors. Term Loan Facility The Term Loan Facility provides for a $ 175.0 million term loan, of which $ 105.2 million remained outstanding as of September 30, 2022. Amounts outstanding bear interest at SOFR or a base rate, plus an applicable margin of 7.625 % or 6.625 %, respectively, and borrowings as of September 30, 2022 incurred interest at a rate of 10.18 %. The Company is required to make quarterly principal payments of 1 % per annum of the outstanding principal balance, commencing on December 31, 2017, with final payment due at maturity on September 19, 2024. The Term Loan Facility is collateralized by the fixed assets of LOS and its subsidiaries, and is further secured by the Company, Liberty LLC, and R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the Company, as parent guarantors. The Credit Facilities include certain non-financial covenants, including but not limited to restrictions on incurring additional debt and certain distributions. Moreover, the ability of the Company to incur additional debt and to make distributions is dependent on maintaining a maximum leverage ratio. The Term Loan Facility requires mandatory prepayments upon certain dispositions of property or issuance of other indebtedness, as defined, and annually a percentage of excess cash flow ( 25 % to 50 %, depending on leverage ratio, of consolidated net income less capital expenditures and other permitted payments, commencing with the year ending December 31, 2018). Certain mandatory prepayments and optional prepayments are subject to a prepayment premium of 1 % of the prepaid principal declining to 0 % after the first anniversary of the Sixth Term Loan Amendment effective date. The Credit Facilities are not subject to financial covenants unless liquidity, as defined in the respective credit agreements, drops below a specific level. Under the ABL Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined in the credit agreement governing the ABL Facility, of 1.0 to 1.0 for each period if excess availability is less than 10 % of the borrowing base or $ 12.5 million, whichever is greater. Under the Term Loan Facility, the Company is required to maintain a minimum fixed charge coverage ratio, as defined, of 1.2 to 1.0 for each trailing twelve-month period if the Company’s liquidity, as defined, is less than $ 25.0 million for at least five consecutive business days. The Company was in compliance with these covenants as of September 30, 2022. 13 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Maturities of debt are as follows: ($ in thousands) Remainder of 2022 $ 438 2023 $ 1,750 2024 $ 252,965 2025 $ — 2026 $ — $ 255,153 Note 9— Fair Value Measurements and Financial Instruments The fair values of the Company’s assets and liabilities represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction on the reporting date. These fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability on the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. The Company discloses the fair values of its assets and liabilities according to the quality of valuation inputs under the following hierarchy: • Level 1 Inputs: Quoted prices (unadjusted) in an active market for identical assets or liabilities. • Level 2 Inputs: Inputs other than quoted prices that are directly or indirectly observable. • Level 3 Inputs: Unobservable inputs that are significant to the fair value of assets or liabilities. The classification of an asset or liability is based on the lowest level of input significant to its fair value. Those that are initially classified as Level 3 are subsequently reported as Level 2 when the fair value derived from unobservable inputs is inconsequential to the overall fair value, or if corroborating market data becomes available. Assets and liabilities that are initially reported as Level 2 are subsequently reported as Level 3 if corroborating market data is no longer available. Transfers occur at the end of the reporting period. There were no transfers into or out of Levels 1, 2, and 3 during the nine months ended September 30, 2022 and 2021. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued liabilities, long-term debt, and finance and operating lease obligations. These financial instruments do not require disclosure by level. The carrying values of all of the Company’s financial instruments included in the accompanying unaudited condensed consolidated balance sheets approximated or equaled their fair values on September 30, 2022 and December 31, 2021. • The carrying values of cash and cash equivalents, accounts receivable and accounts payable (including accrued liabilities) approximated fair value on September 30, 2022 and December 31, 2021, due to their short-term nature. • The carrying value of amounts outstanding under long-term debt agreements with variable rates approximated fair value on September 30, 2022 and December 31, 2021, as the effective interest rates approximated market rates. Nonrecurring Measurements Certain assets and liabilities are measured at fair value on a nonrecurring basis. These items are not measured at fair value on an ongoing basis but may be subject to fair value adjustments in certain circumstances. These assets and liabilities include those acquired through the PropX Acquisition, which are required to be measured at fair value on the acquisition date in accordance with ASC Topic 805 . See Note 3—The PropX Acquisition. As of September 30, 2022, the Company recorded $ 2.5 million of land and $ 11.4 million of buildings of two properties that met the held for sale criteria, to assets held for sale at a total fair value of $ 11.2 million, which are included in prepaid and other current assets in the accompanying unaudited condensed consolidated balance sheet. The Company estimated the fair value of the properties based on a purchase and sale agreement and a communicated selling price, which are Level 3 inputs. Recurring Measurements The fair values of the Company’s cash equivalents measured on a recurring basis pursuant to ASC 820-10 Fair Value Measurements and Disclosures are carried at estimated fair value. Cash equivalents consist of money market accounts which the Company has classified as Level 1 given the active market for these accounts. As of September 30, 2022 and December 31, 2021, the Company had cash equivalents, measured at fair value, of $ 0.3 million and $ 0.3 million, respectively. 14 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Nonfinancial assets The Company estimates fair value to perform impairment tests as required on long-lived assets. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and would generally be classified within Level 3 in the event that such assets were required to be measured and recorded at fair value within the unaudited condensed consolidated financial statements. No such measurements were required as of September 30, 2022 and December 31, 2021 as no triggering event was identified. Credit Risk The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade receivables. The Company’s cash and cash equivalent balances on deposit with financial institutions total $ 24.0 million and $ 20.0 million as of September 30, 2022 and December 31, 2021, respectively, which exceeded FDIC insured limits. The Company regularly monitors these institutions’ financial condition. The majority of the Company’s customers have payment terms of 45 days or less. As of September 30, 2022 and December 31, 2021, customer A accounted for 10.5 % and 11.8 %, respectively, of total consolidated accounts receivable and unbilled revenue. During the three and nine months ended September 30, 2022 and 2021, no customers accounted for 10% of consolidated revenues. The Company mitigates the associated credit risk by performing credit evaluations and monitoring the payment patterns of its customers. As of September 30, 2022 and December 31, 2021, the Company had $ 0.9 million in allowance for credit losses as follows: ($ in thousands) Allowance for credit losses at December 31, 2021 $ 884 Credit Losses: Current period provision — Amounts written off — Allowance for credit losses at September 30, 2022 $ 884 15 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 10— Equity Restricted Stock Units Restricted stock units (“RSUs”) granted pursuant to the Long Term Incentive Plan (“LTIP”), if they vest, will be settled in shares of the Company’s Class A Common Stock. RSUs were granted with vesting terms up to five years . Changes in non-vested RSUs outstanding under the LTIP during the nine months ended September 30, 2022 were as follows: Number of Units Weighted Average Grant Date Fair Value per Unit Non-vested as of December 31, 2021 2,741,061 $ 11.04 Granted 1,726,959 12.90 Vested ( 1,350,246 ) 11.00 Forfeited ( 103,539 ) 10.23 Outstanding at September 30, 2022 3,014,235 $ 12.15 Performance Restricted Stock Units Performance restricted stock units (“PSUs”) granted pursuant to the LTIP, if they vest, will be settled in shares of the Company’s Class A Common Stock. PSUs were granted with a three year cliff vesting schedule, subject to a performance target compared to an index of competitors ’ results over the three year period as designated in the award. The Company records compensation expense based on the Company’s best estimate of the number of PSUs that will vest at the end of the performance period. If such performance targets are not met, or are not expected to be met, no compensation expense is recognized and any recognized compensation expense is reversed. Changes in non-vested PSUs outstanding under the LTIP during the nine months ended September 30, 2022 were as follows: Number of Units Weighted Average Grant Date Fair Value per Unit Non-vested as of December 31, 2021 1,306,945 $ 12.45 Granted 412,920 12.47 Vested ( 329,277 ) 14.93 Forfeited — — Outstanding at September 30, 2022 1,390,588 $ 11.87 Stock-based compensation is included in cost of services and general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations. The Company recognized stock-based compensation expense of $ 6.1 million and $ 17.1 million for the three and nine months ended September 30, 2022, respectively. The Company recognized stock-based compensation of $ 4.2 million and $ 15.1 million for the three and nine months ended September 30, 2021, respectively. There was approximately $ 36.2 million of unrecognized compensation expense relating to outstanding RSUs and PSUs as of September 30, 2022. The unrecognized compensation expense will be recognized on a straight-line basis over the weighted average remaining vesting period of two years . Dividends On April 2, 2020, the Company suspended future quarterly dividends until business conditions warrant reinstatement. As of September 30, 2022 dividends had not been reinstated by the Company. Subsequent to quarter end, the Company reinstated a quarterly dividend of $ 0.05 per share of Class A Common Stock, refer to Note 17—Subsequent Events for more information. As of September 30, 2022 and December 31, 2021, the Company had $ 0.1 million and $ 0.2 million of dividends payable related to RSUs to be paid upon vesting, respectively. Dividends related to forfeited RSUs will be forfeited. Share Repurchase Program On July 25, 2022, the Company’s Board of Directors authorized and the Company announced a share repurchase program that allows the Company to repurchase up to $ 250.0 million of the Company’s Class A Common Stock beginning immediately and continuing through and including July 31, 2024. The shares may be repurchased from time to time in open market or 16 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) privately negotiated transactions or by other means in accordance with applicable state and federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including management’s assessment of the intrinsic value of the Company’s Class A Common Stock, the market price of the Company’s Class A Common Stock, general market and economic conditions, available liquidity, compliance with the Company’s debt and other agreements, applicable legal requirements, and other considerations. The exact number of shares to be repurchased by the Company is not guaranteed, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company expects to fund the repurchases by using cash on hand, borrowings under its revolving credit facility and expected free cash flow to be generated through July 2024. During the nine months ended September 30, 2022, Liberty LLC purchased and retired 4,702,166 LLC Units from the Company for $ 70.1 million, and the Company repurchased and retired 4,702,166 shares of Class A Common Stock for $ 70.1 million or $ 14.91 average price per share including commissions, under the share repurchase program. As of September 30, 2022, $ 180.0 million remained authorized for future repurchases of Class A Common Stock under the share repurchase program. 17 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 11— Net Income (Loss) per Share Basic net income (loss) per share measures the performance of an entity over the reporting period. Diluted net income (loss) per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. The Company uses the “if-converted” method to determine the potential dilutive effect of its Class B Common Stock and the treasury stock method to determine the potential dilutive effect of outstanding restricted stock and RSUs. The following table reflects the allocation of net income (loss) to common stockholders and net loss per share computations for the periods indicated based on a weighted average number of common stock outstanding: Three Months Ended Nine Months Ended (In thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Basic Net Income (Loss) Per Share Numerator: Net income (loss) attributable to Liberty Energy Inc. stockholders $ 146,953 $ ( 38,890 ) $ 246,733 $ ( 123,655 ) Denominator: Basic weighted average common shares outstanding 185,508 178,311 185,414 171,402 Basic net income (loss) per share attributable to Liberty Energy Inc. stockholders $ 0.79 $ ( 0.22 ) $ 1.33 $ ( 0.72 ) Diluted Net Income (Loss) Per Share Numerator: Net income (loss) attributable to Liberty Energy Inc. stockholders $ 146,953 $ ( 38,890 ) $ 246,733 $ ( 123,655 ) Effect of exchange of the shares of Class B Common Stock for shares of Class A Common Stock 258 — 389 — Diluted net income (loss) attributable to Liberty Energy Inc. stockholders $ 147,211 $ ( 38,890 ) $ 247,122 $ ( 123,655 ) Denominator: Basic weighted average shares outstanding 185,508 178,311 185,414 171,402 Effect of dilutive securities: Restricted stock units 326 — 910 — Class B Common Stock 4,073 — 4,141 — Diluted weighted average shares outstanding 189,907 178,311 190,465 171,402 Diluted net income (loss) per share attributable to Liberty Energy Inc. stockholders $ 0.78 $ ( 0.22 ) $ 1.30 $ ( 0.72 ) In accordance with GAAP, diluted weighted average common shares presented above do not include certain weighted average shares of Class B Common Stock and restricted stock units, because to do so would have had an antidilutive effect, as follows: Three Months Ended Nine Months Ended (In thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Weighted average shares of Class B Common Stock — 1,860 — 8,558 Weighted average shares of restricted stock units — 3,256 — 3,470 Note 12— Income Taxes The Company is a corporation and is subject to taxation in the United States, Canada and various state, local and provincial jurisdictions. Liberty LLC is treated as a partnership, and its income is passed through to its owners for income tax purposes. Liberty LLC’s members, including the Company, are liable for federal, state and local income taxes based on their share of Liberty LLC’s pass-through taxable income. 18 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) The Company may distribute cash from foreign subsidiaries to its U.S. parent as business needs arise. The Company has not provided for deferred income taxes on the undistributed earnings from certain foreign subsidiaries, as such earnings are considered to be indefinitely reinvested. If such earnings were to be distributed, any income and/or withholding tax would not be significant. The effective global income tax rate applicable to the Company for the nine months ended September 30, 2022 was 1.5 %, compared to ( 7.8 )%, for the period ended September 30, 2021. The Company’s effective tax rate is less than the statutory federal income tax rate of 21.0% due to the Company’s full valuation allowance on its U.S. net deferred tax assets while calculating income tax expense on Canada operations that are not subject to a valuation allowance. The Company’s effective tax rate is also less than the statutory rate because of the non-controlling interest’s share of Liberty LLC’s pass-through results for federal, state and local income tax reporting, upon which no taxes are payable by the Company. The Company recognized an income tax expense of $ 2.6 million and $ 3.6 million during the three and nine months ended September 30, 2022, respectively. The Company recognized an income tax expense of $ 0.8 million and $ 9.4 million during the three and nine months ended September 30, 2021, respectively, which included the impact of recording a valuation allowance on a portion of the Company’s net deferred tax assets. Per the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted on March 27, 2020, net operating losses (“NOL”) incurred in 2019 and 2020 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has applied for and expects to receive a NOL carryback refund to recover $ 5.5 million of cash taxes paid by the Company in 2018. This amount has been reflected as a receivable in prepaids and other current assets line item in the accompanying unaudited condensed consolidated balance sheets. The remaining deferred tax asset for net operating losses available for carryforward are presented net of the Company’s valuation allowance. The Company recognized a deferred tax liability in the amount of $ 0.6 million as of September 30, 2022 and December 31, 2021. The Company also recognized a deferred tax asset related to foreign jurisdictions in the amount of $ 0.3 million and $ 0.6 million as of September 30, 2022 and December 31, 2021, respectively. Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company evaluated its deferred tax assets as of September 30, 2022 and considered both positive and negative evidence in applying the guidance of ASC 740 Income Taxes (“ASC 740”) related to the realizability of its deferred tax assets. Consistent with the prior quarter, in accordance with ASC 740, the objective negative evidence of remaining in a three year cumulative pre-tax book loss position, primarily due to COVID-19 related losses, outweighed the consideration of the Company’s subjective positive evidence of expected future profitability in evaluating the realizability of its deferred tax assets. The CHIPS and Science Act of 2022 (“CHIPS”) and the Inflation Reduction Act (“IRA”) of 2022 were recently signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of both CHIPS and IRA, but at present does not expect that any of the provisions included would result in a material impact to the Company’s deferred tax assets, liabilities, or income taxes payable. Tax Receivable Agreements In connection with the IPO, on January 17, 2018, the Company entered into two Tax Receivable Agreements (the “TRAs”) with R/C Energy IV Direct Partnership, L.P. and the then existing owners that continued to own Liberty LLC Units (each such person and any permitted transferee, a “TRA Holder” and together, the “TRA Holders”). The TRAs generally provide for the payment by the Company of 85% of the net cash savings, if any, in U.S. federal, state, and local income tax and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes) that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the IPO as a result, as applicable to each TRA Holder, of (i) certain increases in tax basis that occur as a result of the Company’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s Liberty LLC Units in connection with the IPO or pursuant to the exercise of redemption or call rights, (ii) any net operating losses available to the Company as a result of the Corporate Reorganization, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRAs. During the nine months ended September 30, 2022, exchanges of Liberty LLC Units and shares of Class B Common Stock initially resulted in a net increase of $ 6.5 million in deferred tax assets, and an increase of $ 5.5 million, in amounts payable under the TRAs, all of which are subject to the valuation allowance and remeasurement of TRA liability discussed below, and which are recorded through equity. There were no redemptions of Liberty LLC units for the three months ended 19 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) September 30, 2022. In addition, the Company did not make any TRA payments for the nine months ended September 30, 2022. At September 30, 2022 and December 31, 2021, the Company ’ s liability under the TRAs was $ 70.8 million and $ 37.6 million, respectively, all of which is presented as a component of long-term liabilities, and the related deferred tax asset totaled $ 97.8 million and $ 91.3 million, respectively, of which a valuation allowance on the net deferred tax asset has been recorded. The Company also remeasured the liability under the TRAs as of September 30, 2022 and recorded a loss on remeasurement of liabilities subject to the TRAs for the nine months ended September 30, 2022 of $ 33.2 million recorded as part of continuing operations. The increase in the liability under the TRA is primarily driven by increased pre-tax book earnings, current additions of property and equipment and amortization of expected tax benefits that are subject to the valuation allowance, which are expected to be realized in the foreseeable future. Note 13— Defined Contribution Plan The Company sponsors a 401(k) defined contribution retirement plan covering eligible employees. The Company has historically made matching contributions at a rate of $ 1.00 for each $1.00 of employee contribution, subject to a cap of 6 % of the employee’s salary and federal limits. Contributions made by the Company wer e $ 6.8 million and $ 5.4 million for the three months ended September 30, 2022 and 2021, respectively, and $ 18.8 million and $ 13.3 million for the nine months ended September 30, 2022 and 2021, respectively. Note 14— Related Party Transactions OneStim Acquisition and Related Transaction On December 31, 2020 the Company acquired certain assets and liabilities of Schlumberger Technology Corporation (“Schlumberger”) and Schlumberger Canada Limited OneStim® business (“OneStim”), which provides hydraulic fracturing pressure pumping services in onshore United States and Canada (the “OneStim Acquisition”). As of September 30, 2022 Schlumberger owned 23,069,461 shares of Class A Common Stock of the Company, or approximately 12.6 % of the issued and outstanding shares of Common Stock. In conjunction with closing the OneStim Acquisition, the Company entered into a transition services agreement with Schlumberger under which Schlumberger provides certain administrative transition services until the Company fully integrates the acquired business. The Company incurred $ 0.0 million and $ 5.7 million of fees payable to Schlumberger for such transaction services during the three and nine months ended September 30, 2021. No fees were incurred during the three and nine months ended September 30, 2022. During 2021, a subsidiary of the Company and Schlumberger entered into a property swap agreement under which the Company exchanged with Schlumberger a property acquired in the OneStim Acquisition and $ 4.9 million in cash for a separate property that the Company will utilize with its existing operations. The Company did not recognize any gain or loss on the transaction. Following the OneStim Acquisition, in the normal course of business, the Company purchases chemicals, proppant and other equipment and maintenance parts from Schlumberger and its subsidiaries. During the three and nine months ended September 30, 2022, total purchases from Schlumberger were approximately $ 7.4 million and $ 15.5 million, respectively. During the three and nine months ended September 30, 2021, total purchases from Schlumberger were approximately $ 6.5 million and $ 26.4 million, respectively. As of September 30, 2022 amounts due to Schlumberger were $ 3.8 million and $ 1.1 million included in accounts payable and accrued liabilities, respectively. As of December 31, 2021 amounts due to Schlumberger were $ 2.7 million and $ 1.1 million, included in accounts payable and accrued liabilities, respectively, in the unaudited condensed consolidated balance sheet. Franklin Mountain Energy, LLC Effective on June 15, 2021, Audrey Robertson was appointed to the board of directors of the Company. Ms. Robertson serves as the Chief Financial Officer of Franklin Mountain Energy, LLC (“Franklin Mountain”). During the three and nine months ended September 30, 2022 the Company performed hydraulic fracturing services for Franklin Mountain in the amount of $ 55.5 million or 4.7 % and $ 79.0 million or 2.7 % of the Company’s revenues for such periods, respectively. During the three and nine months ended September 30, 2021 the Company performed hydraulic fracturing services for Franklin Mountain in the amount of $ 7.0 million or 1.1 % and $ 7.0 million or 0.4 % of the Company’s revenues for such periods, respectively. Amounts included in unbilled revenue from Franklin Mountain as of September 30, 2022 and December 31, 2021 were $ 26.1 million and $ 0.0 million , respectively. Receivables from Franklin Mountain as of September 30, 2022 and December 31, 2021 were $ 0.0 million . 20 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Liberty Resources LLC Liberty Resources LLC, an oil and gas exploration and production company, and its successor entity (collectively, the “Affiliate”) has certain common ownership and management with the Company. The amounts of the Company’s revenue related to hydraulic fracturing services provided to the Affiliate for the three months ended September 30, 2022 and 2021 was $ 10.3 million and $ 0.0 million , respectively, and $ 10.3 million and $ 1.2 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, there were $ 10.3 million outstanding accounts receivable with the Affiliate. PropX Acquisition During 2016, Liberty Holdings entered into a future commitment to invest and become a non-controlling minority member in PropX, the provider of proppant logistics equipment. Effective October 26, 2021, the Company completed the purchase of all membership interest in PropX, refer to Note 3—PropX Acquisition for further discussion of the transaction. During the three and nine months ended September 30, 2021, prior to the PropX Acquisition, the Company leased proppant logistics equipment from PropX for $ 3.2 million and $ 7.3 million, respectively. R/C IV Liberty Big Box Holdings, L.P., a Riverstone Holdings LLC (“Riverstone”) fund and a former significant stockholder of the Company, held a greater than 10 % equity interest in PropX. Christopher Wright, the Chief Executive Officer, Michael Stock, the Chief Financial Officer and Ron Gusek, the President of the Company, held a less than 5 % equity interest in PropX through Big Box Proppant Investments LLC. Cary Steinbeck, a director of the Company, served on the PropX board of the directors and held a less than 5 % indirect equity interest in PropX. In addition, Brett Staffieri, a Riverstone appointed director, served on the board of the directors of the Company until June 15, 2021 and on the PropX board of directors until the acquisition date. The PropX Acquisition was reviewed and approved by the disinterested members of the Board and pursuant to the Company’s related party transactions policy. Secondary Offering by Selling Stockholder On April 29, 2022, the Company, Liberty LLC, Schlumberger, and BofA Securities, Inc. and J.P. Morgan Securities LLC (together, the “Underwriters”), entered into an underwriting agreement, dated as of April 29, 2022, pursuant to which Schlumberger sold 14,500,000 shares of Class A Common Stock at a price of $ 15.50 per share to the Underwriters (the “Sale”). The Sale closed on May 3, 2022. Following the Sale, Schlumberger held 35,101,961 shares of Class A Common Stock. The Company did not receive any proceeds from the Sale. Note 15— Commitments & Contingencies Purchase Commitments (tons and gallons are not in thousands) The Company enters into purchase and supply agreements to secure supply and pricing of proppants, chemicals, and equipment. As of September 30, 2022 and December 31, 2021, the agreements commit the Company to purchas e 1,664,421 and 89,317 tons, respectively, of proppant through March 31, 2024. Amounts below also include commitments to pay for transport fees on minimum amounts of proppants. Additionally, related proppant transload service commitments extend into 2023. Future proppant, transload, equipment and mancamp commitments are as follows: ($ in thousands) Remainder of 2022 $ 44,491 2023 47,349 2024 4,200 2025 — 2026 — Thereafter — $ 96,040 Certain supply agreements contain a clause whereby in the event that the Company fails to purchase minimum volumes, as defined in the agreement, during a specific time period, a shortfall fee may apply. In circumstances where the Company does not make the minimum purchase required under the contract, the Company and its suppliers have a history of amending such minimum purchase contractual terms and in rare cases does the Company incur shortfall fees. If the Company were unable to make any of the minimum purchases and the Company and its suppliers cannot come to an agreement to avoid such fees, the Company could incur shortfall fees in the amounts of $ 17.0 million, $ 9.8 million, and $ 0.7 million for the remainder of 2022 21 Table of Contents LIBERTY ENERGY INC. Notes to Condensed Consolidated Financial Statements (Unaudited) and the years ended 2023 and 2024, respectively. Based on forecasted levels of activity, the Company does not currently expect to incur significant shortfall fees. Included in the commitments for the remainder of 2022 are $ 8.5 million of payments expected to be made to Schlumberger, in conjunction with a permissive use agreement provided by Schlumberger, in the fourth quarter of 2022 for the use of certain light duty trucks, heavy tractors and field equipment used to various degrees in frac and wireline operations. The Company is in negotiations with the third-party owner of such equipment to lease or purchase some or all of such aforementioned vehicles and equipment, subject to agreement on terms and conditions. No gain or loss is expected upon consummation of any such agreement. Litigation From time to time, the Company is subject to legal and administrative proceedings, settlements, investigations, claims and actions. The Company’s assessment of the likely outcome of litigation matters is based on its judgment of a number of factors including experience with similar matters, past history, precedents, relevant financial and other evidence and facts specific to the matter. Notwithstanding the uncertainty as to the final outcome, based upon the information currently available, management does not believe any matters in aggregate will have a material adverse effect on its financial position or results of operations. Note 16— Selected Quarterly Financial Data The following tables summarizes consolidated changes in equity for the three months ended September 30, 2022 and 2021: Shares of Class A Common Stock Shares of Class B Common Stock Class A Common Stock, Par Value Class B Common Stock, Par Value Additional Paid in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders ’ equity Noncontrolling Interest Total Equity Balance—June 30, 2022 186,859 326 $ 1,869 $ 3 $ 1,384,134 $ ( 56,174 ) $ ( 2,263 ) $ 1,327,569 $ 2,447 $ 1,330,016 Offering Costs — — — — 485 — — 485 — 485 Share repurchases ( 4,702 ) ( 47 ) ( 69,987 ) — ( 70,034 ) ( 60 ) ( 70,094 ) Stock-based compensation expense 6,100 — — 6,100 12 6,112 Vesting of restricted stock units 2 — — — — — — — — Tax withheld on vesting of restricted stock units — — — — ( 1 ) — — ( 1 ) ( 1 ) Currency translation adjustment — — — — — — ( 6,332 ) ( 6,332 ) ( 11 ) ( 6,343 ) Net income — — — — — 146,953 — 146,953 310 147,263 Balance—September 30, 2022 182,159 326 $ 1,822 $ 3 $ 1,320,731 $ 90,779 $ ( 8,595 ) $ 1,404,740 $ 2,698 $ 1,407,438 Shares of Class A Common Stock Shares of Class B Common Stock Class A Common Stock, Par Value Class B Common Stock, Par Value Additional Paid in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders ’ equity Noncontrolling Interest Total Equity Balance—June 30, 2021 178,310 $ 1,860 $ 1,783 $ 19 $ 1,274,031 $ ( 61,475 ) $ 2,454 $ 1,216,812 $ 12,622 $ 1,229,434 Offering Costs — — — — ( 159 ) — — ( 159 ) — ( 159 ) Stock-based compensation expense — — — — 4,201 — — 4,201 44 4,245 Currency translation adjustment — — — — — — ( 2,263 ) ( 2,263 ) ( 24 ) ( 2,287 ) Net loss — — — — — ( 38,890 ) — ( 38,890 ) ( 489 ) ( 39,379 ) Balance—September 30, 2021 178,310 1,860 1,783 19 1,278,073 ( 100,365 ) 191 1,179,701 12,153 $ 1,191,854 Note 17— Subsequent Events On October 18, 2022, the Company’s board of directors approved a quarterly dividend of $ 0.05 per share of Class A Common Stock, and a distribution of $ 0.05 per Liberty LLC Unit, to be paid on December 20, 2022 to holders of record as of December 6, 2022. The Company will use the proceeds from the Liberty LLC distribution to pay the dividend. No other significant subsequent events have occurred that would require recognition or disclosure in the unaudited condensed consolidated financial statements. 22 Table of Contents Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs, and expected performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in “Cautionary Note Regarding Forward-Looking Statements,” the Annual Report under the heading “Item 1A. Risk Factors,” and in “Part II – Other Information, Item 1A.–Risk Factors” included herein. We assume no obligation to update any of these forward-looking statements. Overview The Company, together with its subsidiaries, is a leading integrated oilfield services and technology company focused on providing innovative hydraulic fracturing services and related technologies to onshore oil and natural gas E&P companies in North America. We offer customers hydraulic fracturing services, together with complementary services including wireline services, proppant delivery solutions, data analytics, related goods (including our sand mine operations), and technologies that will facilitate lower emission completions, thereby helping our customers reduce their emissions profile. We have grown from one active hydraulic fracturing fleet in December 2011 to over 40 active fleets as of September 30, 2022. We provide our services primarily in the Permian Basin, the Eagle Ford Shale, the DJ Basin, the Williston Basin, the San Juan Basin, the Powder River Basin, the Haynesville Shale, the SCOOP/STACK, the Marcellus Shale, Utica Shale, and the Western Canadian Sedimentary Basin. Additionally, we operate two sand mines in the Permian Basin. On December 31, 2020, the Company acquired certain assets and liabilities of Schlumberger’s OneStim business, which provides hydraulic fracturing pressure pumping services in onshore United States and Canada, including its pressure pumping, pumpdown perforating and Permian frac sand business, in exchange for consideration resulting in a total of 66,326,134 shares of the Class A Common Stock being issued in connection with the OneStim Acquisition. As of October 18, 2022, Schlumberger owned 12.6% of the issued and outstanding shares of our Common Stock. The combined company delivers best-in-class completion services for the sustainable development of unconventional resource plays in the United States and Canada onshore markets. On October 26, 2021, the Company acquired PropX in exchange for $11.9 million in cash and 3,405,526 shares of Class A Common Stock and 2,441,010 shares of Class B Common Stock, and 2,441,010 Liberty LLC Units, for total consideration of $103.0 million, based on the Class A Common Stock closing price of $15.58 on October 26, 2021, subject to customary post-closing adjustments. The Liberty LLC Units are redeemable for an equivalent number of shares of Class A Common Stock at any time, at the election of the shareholder. Founded in 2016, PropX is a leading provider of last-mile proppant delivery solutions including proppant handling equipment and logistics software across North America. PropX offers innovative environmentally friendly technology with optimized dry and wet sand containers and wellsite proppant handling equipment that drive logistics efficiency and reduce noise and emissions. We believe that PropX wet sand handling technology is a key enabler of the next step of cost and emissions reductions in the proppant industry. PropX also offers customers the latest real-time logistics software, PropConnect, for sale or as hosted software as a service. We believe technical innovation and strong relationships with our customer and supplier bases distinguish us from our competitors and are the foundations of our business. We expect that E&P companies will continue to focus on technological innovation as completion complexity and fracture intensity of horizontal wells increases, particularly as customers are increasingly focused on reducing emissions from their completions operations. We remain proactive in developing innovative solutions to industry challenges, including developing: (i) our databases of U.S. unconventional wells to which we apply our proprietary multi-variable statistical analysis technologies to provide differential insight into fracture design optimization; (ii) our Liberty Quiet Fleet® design which significantly reduces noise levels compared to conventional hydraulic fracturing fleets; (iii) hydraulic fracturing fluid systems tailored to the specific reservoir properties in the basins in which we operate; (iv) our dual fuel dynamic gas blending fleets that allow our engines to run diesel or a combination of diesel and natural gas, to optimize fuel use, reduce emissions and lower costs; (v) the successful test of digiFrac™, our innovative, purpose-built electric frac pump that has approximately 25% lower CO2e emission profile than the Tier IV DGB; and (vi) our PropX wet sand handling technology which eliminates the need to dry sand, enabling the deployment of mobile mines nearer to wellsites. In addition, our integrated supply chain includes proppant, chemicals, equipment, logistics and integrated software which we believe promotes wellsite efficiency and leads to more pumping hours and higher productivity throughout the year to better service our customers. In order to achieve our technological objectives, we carefully manage our liquidity and debt position to promote operational flexibility and invest in the business throughout the full commodity cycle in the regions we operate. 23 Table of Contents Recent Trends and Outlook Current global macroeconomic concerns include rising interest rates, elevated inflation levels, and Chinese Covid lockdowns. Despite these headwinds, oil and gas markets remained tight in the third quarter. As we look ahead, risks to the delicate balance in oil and gas markets appear to come from both demand and supply. With regards to demand, while a mild recession may modestly impact the global demand for energy, and may already be reflected in prices, a global economic downturn could result in increased demand destruction, further pressuring commodity prices. At the same time, global supply risks are also present. OPEC+ preemptive cuts to production quotas may result in a decline in production from key producers including Saudi Arabia and the United Arab Emirates. Currently, Russian oil exports have been modestly curbed since the Ukraine invasion, however, impending sanctions on Russian seaborne crude could further lower global oil supplies. Low levels of spare production capacity, worldwide oil and gas commercial inventories, and global strategic petroleum reserves further exacerbate supply concerns. Together, these factors may strengthen the demand for secure North American energy. Today’s commodity prices continue to offer returns for E&P operators, even after the decline in oil and gas prices in recent months. The combination of capital discipline among many public operators and tight supply chains, particularly in the frac services market, have constrained activity levels to deliver only modest U.S. oil production growth. The limited capital being deployed is expected to be primarily directed towards the buildout of next generation frac fleet capacity at levels roughly sufficient to offset aging equipment with next generation fleets in demand. We believe that the current frac market is relatively tight with near full utilization of available capacity. Tight service supply has made service quality and reliability important for customers. Given that we pride ourselves on both our service quality and fleet modernization program, these two factors may further strengthen Liberty’s competitive position. During the third quarter of 2022, the posted WTI price traded at an average of $93.06 per barrel (“Bbl”), as compared to the third quarter of 2021 average of $70.58 per Bbl, and second quarter of 2022 average of $108.83 per Bbl. In addition, the average domestic onshore rig count for the United States and Canada was 942 rigs reported in the third quarter of 2022, up from the third quarter of 2021 of 634 and an increase from the second quarter of 2022 of 810, according to a report from Baker Hughes. 24 Table of Contents Results of Operations Three months ended September 30, 2022 compared to three months ended September 30, 2021 Three months ended September 30, Description 2022 2021 Change (in thousands) Revenue $ 1,188,247 $ 653,727 $ 534,520 Cost of services, excluding depreciation, depletion, and amortization shown separately 874,453 593,683 280,770 General and administrative 50,473 32,281 18,192 Transaction, severance and other costs 1,767 1,556 211 Depreciation, depletion, and amortization 82,848 65,852 16,996 Gain on disposal of assets (4,277) (79) (4,198) Operating income (loss) 182,983 (39,566) 222,549 Other expense (income), net 33,148 (940) 34,088 Net income (loss) before income taxes 149,835 (38,626) 188,461 Income tax expense 2,572 753 1,819 Net income (loss) 147,263 (39,379) 186,642 Less: Net income (loss) attributable to non-controlling interests 310 (489) 799 Net income (loss) attributable to Liberty Energy Inc. stockholders $ 146,953 $ (38,890) $ 185,843 Revenue Our revenue increased $534.5 million , or 81.8% , to $1.2 billion for the three months ended September 30, 2022 compared to $653.7 million for the three months ended September 30, 2021. The increase in revenue is attributable to higher service pricing and an activity-driven increase in fleet utilization and efficiency commensurate with increased demand for hydraulic fracturing services. Cost of Services Cost of services (excluding depreciation, depletion, and amortization) increased $280.8 million , or 47.3% , to $874.5 million for the three months ended September 30, 2022 compared to $593.7 million for the three months ended September 30, 2021. The increase in expense was primarily related to increases in materials and parts consumption and higher labor costs related to higher fleet utilization as well as ongoing inflationary increases impacting costs for materials, labor, and maintenance parts. General and Administrative General and administrative expenses increased $18.2 million , or 56.4% , to $50.5 million for the three months ended September 30, 2022 compared to $32.3 million for the three months ended September 30, 2021 primarily related to increases in performance-based variable compensation, labor cost inflation, and corporate costs related to increased activity. Transaction, Severance and Other Costs Transaction, severance and other costs of $1.8 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively, consist of integration cost, investment banking, legal, accounting, and other professional services provided in connection with the OneStim Acquisition and PropX Acquisition. Depreciation, Depletion, and Amortization Depreciation, depletion, and amortization expense increased $17.0 million , or 25.8% , to $82.8 million for the three months ended September 30, 2022 compared to $65.9 million for the three months ended September 30, 2021. The increase in 2022 was due to additional equipment placed in service since the prior year period and additional depreciation from property acquired in the PropX Acquisition. 25 Table of Contents Gain on Disposal of Assets The Company recognized a gain on disposal of assets of $4.3 million for the three months ended September 30, 2022 primarily as a result of the sale of used field equipment and light duty trucks in a strong used vehicle and equipment market compared to a gain of $0.1 million for the three months ended September 30, 2021 due to miscellaneous equipment disposals. All disposals recorded during the three months ended September 30, 2022 and 2021 were in the normal course of business. Operating Income (Loss) The Company recorded operating income of $183.0 million for the three months ended September 30, 2022 compared to operating loss of $39.6 million for the three months ended September 30, 2021, an increase in operating results of $222.5 million, or 562.5%. The increase in operating income is primarily due to the $534.5 million, or 81.8%, increase in total revenue only partially offset by a $312.0 million increase in total operating expenses, the significant components of which are discussed above. Other Expense (Income), net The Company recognized other expense of $33.1 million for the three months ended September 30, 2022 compared to other income of $0.9 million for the three months ended September 30, 2021. Other expense (income), net is comprised of loss (gain) on remeasurement of liability under the TRAs, gain on investments, and interest expense, net. The Company remeasured the liability under the TRAs resulting in a loss of $28.9 million for the three months ended September 30, 2022, compared to a gain of $4.9 million for the three months ended September 30, 2021. A $2.5 million gain on investments was recorded during the three months ended September 30, 2022, compared to no gain for the three months ended September 30, 2021. Additionally, interest expense, net increased $2.8 million as a result of increased borrowings under the credit facility along with higher interest rates. Net Income (loss) before Income Taxes The Company realized net income before income taxes of $149.8 million for the three months ended September 30, 2022 compared to net loss before income taxes of $38.6 million for the three months ended September 30, 2021. The increase in income is primarily attributable to an increase in revenue, as discussed above, related to the increase in activity and service pricing. Income Tax Expense Income tax expense increased $1.8 million to $2.6 million for the three months ended September 30, 2022, at an effective rate of 1.7%, compared to a tax expense of $0.8 million, at an effective rate of (1.9)%, recognized during the three months ended September 30, 2021. The increase in income tax expense is primarily attributable to the increase in Company’s foreign operations as a valuation allowance was recorded on the Company’s U.S. net deferred tax assets, beginning in the second quarter of 2021. 26 Table of Contents Nine months ended September 30, 2022 compared to nine months ended September 30, 2021 Nine months ended September 30, Description 2022 2021 Change (in thousands) Revenue $ 2,923,636 $ 1,787,047 $ 1,136,589 Cost of services, excluding depreciation, depletion, and amortization shown separately 2,258,190 1,614,574 643,616 General and administrative 130,953 88,043 42,910 Transaction, severance and other costs 5,293 12,173 (6,880) Depreciation, depletion, and amortization 234,815 191,122 43,693 Gain on disposal of assets (3,041) (1,076) (1,965) Operating income (loss) 297,426 (117,789) 415,215 Other expense, net 46,667 3,276 43,391 Net income (loss) before income taxes 250,759 (121,065) 371,824 Income tax expense 3,637 9,402 (5,765) Net income (loss) 247,122 (130,467) 377,589 Less: Net income (loss) attributable to non-controlling interests 389 (6,812) 7,201 Net income (loss) attributable to Liberty Energy Inc. stockholders $ 246,733 $ (123,655) $ 370,388 Revenue Our revenue increased $1.1 billion, or 63.6%, to $2.9 billion for the nine months ended September 30, 2022 compared to $1.8 billion for the nine months ended September 30, 2021. The increase in revenue is attributable to higher service pricing and an activity-driven increase in fleet utilization and efficiency commensurate with increased demand for hydraulic fracturing services. Cost of Services Cost of services (excluding depreciation, depletion, and amortization) increased $643.6 million, or 39.9%, to $2.3 billion for the nine months ended September 30, 2022 compared to $1.6 billion for the nine months ended September 30, 2021. The higher expense was primarily related to increases in materials and parts consumption and higher labor costs related to higher fleet utilization as well as inflationary increases impacting costs for materials, labor, and maintenance parts. General and Administrative General and administrative expenses increased $42.9 million, or 48.7%, to $131.0 million for the nine months ended September 30, 2022 compared to $88.0 million for the nine months ended September 30, 2021 primarily related to increases from reinstated bonus programs which had been temporarily suspended during the first quarter of 2020 as a result of the COVID-19 pandemic, labor cost inflation, and corporate costs related to increased levels of activity. Transaction, Severance and Other Costs Transaction, severance and other costs decreased $6.9 million, or 56.5%, to $5.3 million for the nine months ended September 30, 2022 compared to $12.2 million for the nine months ended September 30, 2021. The costs incurred in the nine months ended September 30, 2021 primarily related to integration costs, investment banking, legal, accounting, and other professional services provided in connection with the OneStim Acquisition and PropX Acquisition. Such costs were lower during the nine months ended September 30, 2022 as the integration efforts move towards completion. Depreciation, Depletion, and Amortization Depreciation, depletion, and amortization expense increased $43.7 million, or 22.9%, to $234.8 million for the nine months ended September 30, 2022 compared to $191.1 million for the nine months ended September 30, 2021. The increase in 2022 was due to additional equipment placed in service since the prior year period and additional depreciation from property acquired in the PropX Acquisition. 27 Table of Contents Gain on disposal of assets Gain on disposal of assets increased $2.0 million, or 182.6%, to $3.0 million for the nine months ended September 30, 2022, compared to $1.1 million for the nine months ended September 30, 2021 due to miscellaneous equipment disposals in the normal course of business. The increase was a result of the sale of used field equipment and light duty trucks in a strong used vehicle and equipment market offset by the loss on sale of one and plan of sale for two other non-strategic facilities acquired in the OneStim Acquisition Operating Income (Loss) The Company recorded operating income of $297.4 million for the nine months ended September 30, 2022 compared to operating loss of $117.8 million for the nine months ended September 30, 2021, the operating income is primarily due to the $1.1 billion, or 63.6%, increase in total revenue partially offset by a $721.4 million increase in total operating expenses, the significant components of which are discussed above. Other Expense, net Other expense, net increased $43.4 million to $46.7 million for the nine months ended September 30, 2022 compared to $3.3 million for the nine months ended September 30, 2021. Other expense, net is comprised of loss on remeasurement of liability under the TRAs, gain on investments, and interest expense, net. The Company remeasured the liability under the TRAs resulting in a loss of $33.2 million for the nine months ended September 30, 2022, compared to a gain of $8.3 million for the nine months ended September 30, 2021. A $2.5 million gain on investments was recorded during the nine months ended September 30, 2022, compared to no gain for the nine months ended September 30, 2021. Additionally, interest expense increased $4.4 million as a result of increased borrowings under the credit facility along with higher interest rates. Net Income (Loss) before Income Taxes The Company realized net income before income taxes of $250.8 million for the nine months ended September 30, 2022 compared to net loss before income taxes of $121.1 million for the nine months ended September 30, 2021. The increase in results is primarily attributable to an increase in revenue, as discussed above, related to the increase in activity and service pricing. Income Tax Expense Income tax expense decreased $5.8 million to $3.6 million for the nine months ended September 30, 2022, at an effective rate of 1.5%, compared to $9.4 million, at an effective rate of (7.8)%, recognized during the nine months ended September 30, 2021. This decrease in income tax expense is primarily attributable to the Company recording a valuation allowance on its U.S. net deferred tax assets, beginning in the second quarter of 2021, resulting in income tax expense for that period, while in subsequent periods no tax expense or benefit is recognized on U.S. state and federal income or loss. Comparison of Non-GAAP Financial Measures We view EBITDA and Adjusted EBITDA as important indicators of performance. We define EBITDA as net income before interest, income taxes, and depreciation, depletion, and amortization. We define Adjusted EBITDA as EBITDA adjusted to eliminate the effects of items such as non-cash stock-based compensation, new fleet or new basin start-up costs, fleet lay-down costs, costs of asset acquisitions, gain or loss on the disposal of assets, bad debt reserves, transaction, severance, and other costs, the loss or gain on remeasurement of liability under our tax receivable agreements, the gain or loss on investments and other non-recurring expenses that management does not consider in assessing ongoing performance. Our board of directors, management, investors, and lenders use EBITDA and Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation, depletion, and amortization) and other items that impact the comparability of financial results from period to period. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business in addition to measures calculated under GAAP. 28 Table of Contents Note Regarding Non-GAAP Financial Measures EBITDA and Adjusted EBITDA are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial performance and results of operations. Net income (loss) is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as an analytical tool due to exclusion of some but not all items that affect the most directly comparable GAAP financial measures. You should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for an analysis of our results as reported under GAAP. Because EBITDA and Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The following tables present a reconciliation of EBITDA and Adjusted EBITDA to our net loss, which is the most directly comparable GAAP measure for the periods presented: Three and nine months ended September 30, 2022 compared to three and nine months ended September 30, 2021: EBITDA and Adjusted EBITDA Three Months Ended September 30, Nine Months Ended September 30, Description 2022 2021 Change 2022 2021 Change (in thousands) Net income (loss) $ 147,263 $ (39,379) $ 186,642 $ 247,122 $ (130,467) $ 377,589 Depreciation, depletion, and amortization 82,848 65,852 16,996 234,815 191,122 43,693 Interest expense, net 6,773 4,007 2,766 15,959 11,528 4,431 Income tax expense 2,572 753 1,819 3,637 9,402 (5,765) EBITDA $ 239,456 $ 31,233 $ 208,223 $ 501,533 $ 81,585 $ 419,948 Stock-based compensation expense 6,112 4,245 1,867 17,126 15,091 2,035 Fleet start-up and lay-down costs 7,420 — 7,420 13,174 — 13,174 Transaction, severance and other costs 1,767 1,556 211 5,293 12,173 (6,880) Gain on disposal of assets (4,277) (79) (4,198) (3,041) (1,076) (1,965) Provision for credit losses — — — — 745 (745) Loss (gain) on remeasurement of liability under tax receivable agreements 28,900 (4,947) 33,847 33,233 (8,252) 41,485 Gain on investments $ (2,525) $ — $ (2,525) $ (2,525) $ — $ (2,525) Adjusted EBITDA $ 276,853 $ 32,008 $ 244,845 $ 564,793 $ 100,266 $ 464,527 EBITDA was $239.5 million for the three months ended September 30, 2022 compared to $31.2 million for the three months ended September 30, 2021. Adjusted EBITDA was $276.9 million for the three months ended September 30, 2022 compared to $32.0 million for the three months ended September 30, 2021. The increases in EBITDA and Adjusted EBITDA primarily resulted from improved market conditions and activity levels as described above under the captions Revenue , Cost of Services , and General and Administrative Expenses for the Three Months Ended September 30, 2022 compared to the Three Months Ended September 30, 2021 . EBITDA was $501.5 million for the nine months ended September 30, 2022 compared to $81.6 million for the nine months ended September 30, 2021. Adjusted EBITDA was $564.8 million for the nine months ended September 30, 2022 compared to $100.3 million for the nine months ended September 30, 2021. The increases in EBITDA and Adjusted EBITDA primarily resulted from improved market conditions and activity levels as described above under the captions Revenue , Cost of Services , and General and Administrative Expenses for the Nine months ended September 30, 2022 compared to the Nine months ended September 30, 2021 . 29 Table of Contents Liquidity and Capital Resources Overview Historically, our primary sources of liquidity to date have been cash flows from operations, proceeds from our IPO, and borrowings under our Credit Facilities. We expect to fund operations and organic growth with cash flows from operations and available borrowings under our Credit Facilities. We monitor the availability of capital resources such as equity and debt financings that could be leverage for current or future financial obligations including those related to acquisitions, capital expenditures, working capital and other liquidity requirements. We may incur additional indebtedness or issue equity in order to meet our capital expenditure activities and liquidity requirements, as well as to fund growth opportunities that we pursue, including via acquisition, such as with the OneStim Acquisition and the PropX Acquisition. Our primary uses of capital have been capital expenditures to support organic growth and funding ongoing operations, including maintenance and fleet upgrades. Cash and cash equivalents increased by $4.0 million to $24.0 million as of September 30, 2022 compared to $20.0 million as of December 31, 2021, while working capital excluding cash and current liabilities under debt and lease arrangements increased $224.1 million. We have $425.0 million committed under the ABL Facility subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory available to finance working capital needs. As of September 30, 2022, the borrowing base was calculated to be $425.0 million, and the Company had $150.0 million outstanding, in addition to a letter of credit in the amount of $1.4 million, with $273.6 million of remaining availability. Additionally, we have $105.2 million borrowings remaining on the Term Loan Facility, which was originally $175.0 million. The ABL Facility has a maturity date of the earlier of (a) October 22, 2026 and (b) to the extent the debt under the Term Loan Facility remains outstanding 90 days prior to the final maturity of the Term Loan Facility, which matures on September 19, 2024. On July 18, 2022, the Company entered into an amendment to the ABL Facility (the “Seventh ABL Amendment”). The Seventh ABL Amendment amended certain terms, provisions, and covenants of the ABL Facility, including among other things: (i) increasing the maximum borrowing amount by $75.0 million to $425.0 million, subject to certain borrowing base limitations based on percentage of eligible accounts receivable and inventory, (ii) modifying certain covenant and reporting-related baskets, and (iii) replacing LIBOR with the secured overnight financing rate (“SOFR”) as the interest rate benchmark. On August 12, 2022, the Company entered into an amendment to the Term Loan Facility (the “Sixth Term Loan Amendment”). The Sixth Term Loan Amendment amended certain terms, provisions and covenants of the Term Loan Facility, including among other things: (i) a waiver of the fixed charge coverage ratio requirements for up to $100.0 million of restricted payments made in connection with the Company’s 2022 stock repurchase program for its common stock; (ii) the addition of a minimum liquidity requirement of $150.0 million in order to make selected restricted payments, including those made under the 2022 stock repurchase program; (iii) the modification of certain covenant and reporting-related terms, including an increase in the allowance for permitted purchase money indebtedness from $50.0 million to $70.0 million; (iv) the addition of a prepayment premium of 1.0% through the first anniversary of the Sixth Term Loan Amendment effective date; and (v) the addition and modification of several provisions to replace LIBOR with SOFR as the interest rate benchmark. The Credit Facilities contain covenants that restrict our ability to take certain actions. At September 30, 2022, the Company was in compliance with all debt covenants. See Note 8 —Debt to the consolidated financial statements included in “Item 1. Financial Statements (unaudited)” for further details. We have no material off balance sheet arrangements as of September 30, 2022, except for purchase commitments under supply agreements as disclosed above under “Item 1. Financial Statements—Note 15—Commitments & Contingencies.” As such, we are not materially exposed to any other financing, liquidity, market, or credit risk that could arise if we had engaged in such financing arrangements. Share Repurchase Program Under our share repurchase program, the Company is authorized to repurchase up to $250.0 million of outstanding Class A Common Stock through and including July 31, 2024. Shares may be repurchased from time to time for cash in the open market transactions, through block trades, in privately negotiated transactions, through derivative transactions or by other means in accordance with applicable federal securities laws. The timing and the amount of repurchases will be determined by the Company at its discretion based on an evaluation of market conditions, capital allocation alternatives and other factors. The share repurchase program does not require us to purchase any dollar amount or number of shares of our Class A Common Stock and may be modified, suspended, extended or terminated at any time without prior notice. The Company expects to fund the repurchases by using cash on hand, borrowings under its revolving credit facility and expected free cash flow to be generated over the next two years. 30 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated: Nine Months Ended September 30, Description 2022 2021 Change (in thousands) Net cash provided by operating activities $ 292,610 $ 80,142 $ 212,468 Net cash used in investing activities (333,875) (119,319) (214,556) Net cash provided by financing activities 45,642 5,149 40,493 Analysis of Cash Flow Changes Between the Nine Months Ended September 30, 2022 and 2021 Operating Activities . Net cash provided by operating activities was $292.6 million for the nine month s ended September 30, 2022, compared to $80.1 million for the nine months ended September 30, 2021. The $212.5 million increase in cash from operating activities is primarily attributable to a $1.1 billion increase in revenues, offset by a $679.6 million increase in cash operating expenses and a $238.5 million decrease in cash from changes in working capital for the nine months ended September 30, 2022, compared to a $2.8 million increase in cash from changes in working capital for the nine months ended September 30, 2021. Investing Activities . Net cash used in investing activities was $333.9 million for the nine months ended September 30, 2022, compared to $119.3 million for the nine months ended September 30, 2021. Cash used in investing activities was higher during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 as the Company continued to invest in equipment, including building new digiFrac™ fleets and deploying additional fleets, to support increased customer demand in next generation equipment and technology. Financing Activities . Net cash provided by financing activities was $45.6 million for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $5.1 million for the nine months ended September 30, 2021. The $40.5 million increase in cash provided by financing activities was primarily due to net borrowings of $132.0 million on the ABL Facility during the nine months ended September 30, 2022, compared to $16.0 million net borrowings on the ABL Facility for the nine months ended September 30, 2021. Additionally, there was a $1.4 million decrease in payments on finance lease liabilities as the asset value of finance leases active for the full period has decreased since September 30, 2021. These changes were offset by a $70.1 million increase in cash payments made in connection with share repurchases for the nine months ended September 30, 2022, compared to cash payments of $0.0 million for the nine months ended September 30, 2021. Cash Requirements Our material cash commitments consist primarily of obligations under long-term debt, TRAs, finance and operating leases for property and equipment, cash used to pay for repurchases of shares of our Class A Common Stock, and purchase obligations as part of normal operations. We have no material off balance sheet arrangements as of September 30, 2022, except for obligations of $44.5 million payable within 2022, $47.3 million in 2023, and $4.2 million payable thereafter. See Note 15 —Commitments & Contingencies to the unaudited condensed consolidated financial statements included in “Item 1. Financial Statements (Unaudited)” for information regarding scheduled contractual obligations. There have been no other material changes to cash requirements since the year ended December 31, 2021. Income Taxes The Company is a corporation and is subject to U.S. federal, state, and local income tax on its share of Liberty LLC’s taxable income. The Company is also subject to Canada federal and provincial income tax on its foreign operations. The combined effective tax rate applicable to the Company for the nine months ended September 30, 2022 and 2021 was 1.5% and (7.8)%, respectively. The Company’s effective tax rate is significantly less than the federal statutory income tax rate of 21.0% due to the Company recording a valuation allowance on its U.S. net deferred tax assets as of September 30, 2022, due to entering into a three year cumulative pre-tax book loss position, primarily as a result of COVID-19 related losses in 2021. The Company’s effective tax rate is also less than the statutory rate because of foreign operations for 2021, and the non-controlling interest’s share of Liberty LLC’s pass-through results for federal, state and local income tax reporting, upon which no taxes are payable by the Company for the nine months ended September 30, 2022 and 2021. The Company recognized income tax expense of $2.6 million and $3.6 million for the three and nine months ended September 30, 2022, respectively, and $0.8 million and $9.4 million for the three and nine months ended September 30, 2021, respectively, which included the impact of recording a valuation allowance on a portion of the Company’s net deferred tax assets. Per the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted on March 27, 2020, net operating losses (“NOL”) incurred in 2019, and 2020 may be carried back to each of the five preceding taxable years to generate a refund of 31 Table of Contents previously paid income taxes. The Company has previously applied for and expects to receive a NOL carryback refund to recover $5.5 million of cash taxes paid by the Company in 2018. This amount has been reflected as a receivable in the prepaids and other current assets line item in the accompanying audited consolidated balance sheets. Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities, and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. We recorded a valuation allowance in the second quarter of 2021, against all of our deferred tax assets as of December 31, 2020 and continue to record a valuation allowance for the quarter ended September 30, 2022. We intend to continue to maintain a full valuation allowance on our net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next few quarters, including as soon as the fourth quarter of 2022, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion or all of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to the income tax expense for the period the release is recorded. In addition, release of the valuation allowance would result in an increase in the tax receivable agreement liability and an increase in the tax receivable agreement loss for the period the release is recorded. For the quarter ended September 30, 2022, the unrecognized TRA liability is approximately $50 million. The valuation allowance as of December 31, 2021 was $91.3 million and no additional income tax benefit or expense has been recorded as a result of the valuation allowance through the quarter ended September 30, 2022. Refer to Note 12— Income Taxes to the consolidated financial statements for additional information related to income tax expense. Tax Receivable Agreements Refer to Note 12— Income Taxes to the consolidated financial statements for additional information related to tax receivable agreements. Critical Accounting Estimates The Company’s unaudited condensed consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions (see Note 2—Significant Accounting Policies to the unaudited consolidated financial statements in this Form 10-Q and Note 2—Significant Accounting Policies and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report). A critical accounting estimate is one that requires our most difficult, subjective or complex estimates and assessments and is fundamental to our results of operations. We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the current facts and circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There have been no material changes in our critical accounting estimates since our Annual Report. 32 Table of Contents