What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-10 compared with 2022-02-22 · 170 added, 165 removed, 205 unchanged (62% of the section changed)

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For discussion of year ended December 31, 2020, as well as the year ended 2021 compared to the year ended December 31, 2020, refer to Part II, Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2021 Annual Report.

We are an independent provider of hydraulic fracturing services and wireline services and related goods to onshore oil and natural gas E&P companies in North America.

The Company, together with its subsidiaries, is a leading integrated energy 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 December 31, 2022.

We provide our services primarily in the Permian Basin, the Eagle Ford Shale, the DJ Basin, the Williston Basin, the San Juan Basin and the Powder River Basin.

Following the completion of the OneStim Acquisition (as defined below) we now also provide services in the Haynesville Shale, the SCOOP/STACK, the Marcellus Shale, Utica Shale, and the Western Canadian Sedimentary Basin.

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 February 18, 2022, Schlumberger owned 30.5% 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.

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(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;

and (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.

(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.

Recent Trends and Outlook

During the year 2021, the posted WTI price traded at an average of $68.13 per barrel (“Bbl”), as compared to the 2020 average of $39.16 per Bbl and the 2019 average of $56.99 Bbl.

The recovery of energy demand is also reflected in the incremental improvement to rig count, as the average domestic onshore rig count for the United States and Canada was 704 rigs reported in the fourth quarter of 2021, up from the average in the fourth quarter of 2020 of 384, according to a report from Baker Hughes, a GE Company.

E&P operators are responding to oil and gas price signals.

The public operators are maintaining discipline and we expect will show only modest production growth this year, while the private operators are likely reacting more robustly to strong commodity prices.

The transformative work our team accomplished in 2021 positions us well as we believe our industry is beginning an upcycle driven by rapidly tightening markets for oil & gas.

Years of reduced global investment in upstream oil and gas production is now colliding with record global demand for natural gas and natural gas liquids today, and potential record global demand for oil later this year.

Oil and gas are central to the global economy which is well along the way of recovering from the global COVID-19 pandemic.

Within the frac market, two years of supply attrition and cannibalization plus constraints from labor shortages, and a secular shift towards next generation frac fleet technologies has led to tightness in the supply of fleets.

Liberty has focused on finding the right long-term customer partnerships for the future and has been very disciplined in holding our active frac fleet count steady until financial returns justify significant additional fleet deployments.

During 2021, we worked on the integration of the OneStim Acquisition into Liberty, which was exacerbated by COVID-impacted supply chain and difficult labor challenges.

Integration-related costs are still with us today, impacting our financial results.

However, we made improvements in these costs during January 2022, and believe these costs will lessen during 2022.

We expect sequential revenue growth in the first quarter of 2022, along with improvement in our margins as integration costs start to fade away.

We will also benefit from increased pricing in the first quarter of 2022, driven by a pass-through of inflationary costs and higher net service pricing.

We expect modest rises in pricing during subsequent quarters in 2022, along with the opportunity for margin growth associated with lowering our cost of operations and increasing efficiencies.

We believe the fundamental outlook for North American hydrocarbons remains healthy.

E&P customers continue to see attractive drilling returns, particularly in oil, even as breakeven prices have increased from the pandemic lows.

Major operators are redirecting capital spending to North America and domestic E&P operators’ pronouncements of returns targets infer a continuation of resource development to at least offset natural production declines.

As North American oil and gas production reaches new heights, we expect to experience a rising level of frac demand to simply keep production flat.

While some industry pullback in natural gas regions is possible, due to decreasing prices, demand in oilier areas continues to outstrip supply and we do not expect this possible pullback will have an impact on overall frac demand in 2023.

While demand currently remains strong, we acknowledge there is an elevated recession risk looming in global markets.

However, we believe the impact of a possible recession on the industry in 2023 would be relatively muted due to disruptions in global oil supply, rather low spare global production capacity, and increased demand from the gradual reopening of China and rising global travel.

We believe oil supply growth remains challenged as the release of U.S.

strategic petroleum reserves subsides, the impact of the Russian oil products export embargo hits in the first quarter of 2023, and reduced investment across the Russian industry gradually impacts production.

In addition to the overall strong demand for frac supply, E&P operators are also focused on obtaining top tier equipment and service providers.

Demand for natural gas powered fleets, in an effort to reduce fuel costs and emissions is strong and the

transition to natural gas-powered fleets is happening at a measured pace, which so far is roughly aligned with the attrition of the industry’s older generation diesel frac capacity.

During the year 2022, the posted WTI price traded at an average of $94.90 per barrel (“Bbl”), as compared to the 2021 average of $68.13 per Bbl, and the 2020 average of $39.16 per Bbl.

In addition, the average domestic onshore rig count for the United States and Canada was 947 rigs reported in the fourth quarter of 2022, up from the average in the fourth quarter of 2021 of 704, according to a report from Baker Hughes.

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, 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 were 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.

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.

Increase in Drilling Efficiency and Service Intensity of Completions

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Unconventional resources are increasingly being targeted through the use of horizontal drilling.

According to Baker Hughes, as reported on February 11, 2022, horizontal rigs accounted for approximately 94% of all rigs drilling in the United States and Canada, up from 77% as of December 26, 2014.

According to Baker Hughes, as reported on January 27, 2023, horizontal rigs accounted for approximately 91% of all rigs drilling in the United States and Canada, up from 77% as of December 26, 2014.

Over the past several years, North American E&P companies have benefited from improved drilling economics driven by technologies that reduce the number of days, and the cost, of drilling wells.

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As wellbores have increased in length, the number of frac stages and/or the number of perforation clusters (frac initiation points) has also increased.

Further, E&P companies have improved production from each stage by applying increasing amounts of proppant in each stage, which better connects the well to the

Further, E&P companies have improved production from each stage by applying increasing amounts of proppant in each stage, which better connects the well to the resource.

The aggregate effect of increased number of stages and the increasing amount of proppant in each stage has greatly increased the total amount of proppant used in each well, according to Liberty’s FracTrends database, from six million pounds per well in 2014 to over 20 million pounds per well in 2022.

Further efficiency gains are being sought via the “simul-frac” technique.

Further efficiency gains are being sought via the “simul-frac”

Utilizing a larger frac fleet (1.25x to 2x the normal horsepower), operators are fracturing stages in two separate wells on a pad simultaneously as a single operation.

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Costs of Conducting Our Business

The principal expenses involved in conducting our business are direct cost of personnel, services and materials used in the provision of services, general and administrative expenses, and depreciation and amortization.

The principal expenses involved in conducting our business are direct cost of personnel, services, and materials used in the provision of services, general and administrative expenses, and depreciation, depletion, and amortization.

A large portion of the costs we incur in our business are variable based on the number of hydraulic fracturing jobs and the requirements of services provided to our customers.

We manage the level of our fixed costs, except depreciation and amortization, based on several factors, including industry conditions and expected demand for our services.

We manage the level of our fixed costs, except depreciation, depletion, and amortization, based on several factors, including industry conditions and expected demand for our services.

How We Evaluate Our Operations

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We analyze our revenue by comparing actual monthly revenue to our internal projections for a given period and to prior periods to assess our performance.

We also assess our revenue in relation to the number of fleets we have deployed (revenue per average active fleet) from period to period.

Operating Income

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We view EBITDA and Adjusted EBITDA as important indicators of performance.

We define EBITDA as net income (loss) before interest, income taxes, depreciation and amortization.

We define Adjusted EBITDA as EBITDA adjusted to eliminate the effects of items such as non-cash stock based compensation expense, new fleet or new basin start-up costs, fleet lay-down costs, costs of asset acquisition, gain or loss on the disposal of assets, asset impairment charges, bad debt reserves, and non-recurring expenses that management does not consider in assessing ongoing operating performance.

We define EBITDA as net income (loss) before interest, income taxes, 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.

See “Comparison of Non-GAAP Financial Measures” for more information and a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

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Revenue $ 4,149,228 $ 2,470,782 $ 1,678,446

Cost of services, excluding depreciation and amortization shown separately 2,249,926 857,981 1,391,945

Cost of services, excluding depreciation, depletion, and amortization shown separately 3,149,036 2,249,926 899,110

General and administrative 180,040 123,406 56,634

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Depreciation, depletion, and amortization 323,028 262,757 60,271

Loss (gain) on disposal of assets 779 (411) 1,190

Operating loss (181,224) (177,026) (4,198)

Other (income) expense, net (3,436) 14,505 (17,941)

Net loss before taxes (177,788) (191,531) 13,743

Income tax expense (benefit) 9,216 (30,857) 40,073

Net loss (187,004) (160,674) (26,330)

Net loss attributable to non-controlling interests (7,760) (45,091) 37,331

Net loss attributable to Liberty Oilfield Services Inc.

(Gain) loss on disposal of assets (4,603) 779 (5,382)

Operating income (loss) 495,890 (181,224) 677,114

Other expense (income), net 96,381 (3,436) 99,817

Net income (loss) before income taxes 399,509 (177,788) 577,297

Income tax (benefit) expense (793) 9,216 (10,009)

Net income (loss) 400,302 (187,004) 587,306

Net income (loss) attributable to non-controlling interests 700 (7,760) 8,460

Net income (loss) attributable to Liberty Energy Inc.

stockholders $ 399,602 $ (179,244) $ 578,846

Our revenue increased $1.7 billion, or 68%, to $4.1 billion for the year ended December 31, 2022 compared to $2.5 billion for the year ended December 31, 2021.

The increase is attributable to higher fleet utilization and service prices, as well as additional fleets and service lines obtained through the OneStim Acquisition, which drove higher revenue, commensurate with the energy demand recovery.

The increase in revenue is attributable to higher service pricing, the reactivation of several fleets during the year, 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 and amortization) increased $1.4 billion, or 162%, to $2.2 billion for the year ended December 31, 2021 compared to $0.9 billion for the year ended December 31, 2020.

The higher expense was primarily related to the increase in activity, as discussed above, as well as increases in material, personnel, and repairs and maintenance costs related to global supply chain challenges, inflationary pressures and material prices.

The Company also reinstated bonus programs and the 401(k) match program, both of which we temporarily suspended during 2020.

General and Administrative Expenses

General and administrative expenses increased $39.3 million, or 47%, to $123.4 million for the year ended December 31, 2021 compared to $84.1 million for the year ended December 31, 2020 primarily related to an increase in personnel benefits due to additional headcount commensurate with the acquisitions of OneStim and PropX.

The furlough and flexible cost structure implemented in 2020 also ended prior to 2021.

Additionally, during 2021, the Company reinstated bonus programs and the 401(k) match program, both of which we temporarily suspended during 2020.

Cost of services (excluding depreciation, depletion, and amortization) increased $0.9 billion, or 40%, to $3.1 billion for the year ended December 31, 2022 compared to $2.2 billion for the year ended December 31, 2021.

The increase in expense was primarily related to increases in materials and parts consumption and higher labor costs related to additional fleets and 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 $56.6 million, or 46%, to $180.0 million for the year ended December 31, 2022 compared to $123.4 million for the year ended December 31, 2021 primarily related to an increase in performance-based variable compensation, labor cost inflation, and corporate costs related to increased levels of activity.

Transaction, Severance and Other Costs

Transaction costs were $15.1 million for the year ended December 31, 2021 compared to $8.5 million for the year ended December 31, 2020.

Such costs incurred primarily relate to investment banking, legal, accounting, other professional services provided and integration costs in connection with the acquisitions of OneStim and PropX.

Severance and other costs were $0 during the year ended December 31, 2021 compared to $12.6 million for the year ended December 31, 2020 which were related to one time severance costs and insurance and other benefits for furloughed employees.

The Company did not lay-off or furlough any employees during 2021.

Transaction, severance and other costs of $5.8 million and $15.1 million for the years ended December 31, 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.

Such costs were lower during the year ended December 31, 2022 as the integration efforts were completed during the year.

Depreciation, Depletion, and Amortization

Depreciation, depletion, and amortization expense increased $60.3 million, or 23%, to $323.0 million for the year ended December 31, 2022 compared to $262.8 million for the year ended December 31, 2021.

The increase in 2021 was due to the addition of active fleets and other property from the acquisitions of OneStim and PropX.

Loss (gain) on Disposal of Assets

The Company recorded a loss on disposal of assets of $0.8 million for the year ended December 31, 2021 compared to a gain of $0.4 million for the year ended December 31, 2020.

In an effort to consolidate operations in certain basins after the OneStim Acquisition, the Company sold three real estate properties during the fourth quarter of 2021, which collectively resulted in a small loss on sale, along with regular sales of equipment that was no longer being used.

During 2020, the Company reduced the number of light duty pick-ups used in fleets based on lower levels of activity;

and the Company realized gains upon sale commensurate with lease terminations.

Operating Loss

Operating loss increased $4.2 million, or 2.4%, to $181.2 million for the year ended December 31, 2021 compared to operating loss of $177.0 million for the year ended December 31, 2020.

The increased operating loss is primarily due to the cost of services rising at a slightly higher rate than revenue increases through the rebound in activity levels in 2021.

Other (Income) Expense, net

The Company recorded other income, net of $3.4 million for the year ended December 31, 2021 compared to other expense, net of $14.5 million during the year ended December 31, 2020.

Other (income) expense, net is comprised of gain on remeasurement of liability under the TRAs and interest expense, net.

During the second quarter of 2021, the Company entered into a three-year cumulative pre-tax book loss primarily due to COVID-19 related losses and recognized a valuation allowance on a portion of its deferred tax assets in accordance with ASC 740.

As a result of the recognition of a valuation allowance, the Company also remeasured the liability under the TRAs resulting in a gain of $19.0 million during the year ended December 31, 2021.

Interest expense, net was consistent between periods, increasing $1.1 million as a result of increased borrowings under the credit facility and lower interest income during the year ended December 31, 2021 compared to the year ended December 31, 2020.

Net Loss Before Taxes

Net loss before taxes decreased $13.7 million, or 7.2%, to $177.8 million for the year ended December 31, 2021 compared $191.5 million for the year ended December 31, 2020.

The decrease in loss is primarily due to the gain recognized upon remeasurement of the TRAs during the year ended December 31, 2021 as compared to the year ended December 31, 2020 partially offset by the increase in operating loss discussed above.

Income Tax Expense (Benefit)

Tax expense of $9.2 million was recognized for the year ended December 31, 2021, an effective rate of (5.2)%, compared to an income tax benefit of $30.9 million, at an effective rate of 16.1%, recognized for the year ended December 31, 2020.

The income tax expense is primarily attributable to the full valuation allowance recorded on the net deferred tax assets as of June 30, 2021, and Canada income and provincial taxes.

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.

(Gain) Loss on Disposal of Assets

The Company recorded a gain on disposal of assets of $4.6 million for the year ended December 31, 2022 due to miscellaneous equipment disposals and sales of facilities in the normal course of business, compared to a loss of $0.8 million for the year ended December 31, 2021.

The gain as of December 31, 2022 was a result of the sale of used field equipment and light duty trucks in a strong used vehicle and equipment market offset by a loss on sale of two non-strategic facilities acquired in the OneStim Acquisition and a loss on plan of sale for two other non-strategic facilities.

The loss as of December 31, 2021 related to the sale of three non-strategic facilities acquired in the OneStim Acquisition, which collectively resulted in a small loss on sale, along with regular sales of equipment that was no longer being used.

Operating Income (Loss)

The Company recorded operating income of $495.9 million for the year ended December 31, 2022 compared to operating loss of $181.2 million for the year ended December 31, 2021.

The operating income is primarily due to the $1.7 billion, or 68%, increase in total revenue partially offset by a $1.0 billion increase in total operating expenses, the significant components of which are discussed above.

Other Expense (Income), net

The Company recorded other expense, net of $96.4 million for the year ended December 31, 2022 compared to other income, net of $3.4 million during the year ended December 31, 2021.

Other expense (income), net is comprised of loss on remeasurement of liability under the TRAs, gain on investments, and interest expense, net.

As a result of the valuation allowance on the U.S.

net deferred tax assets, discussed below, the Company remeasured the liability under the TRAs resulting in a loss of $76.2 million during the year ended December 31, 2022, compared to a gain of $19.0 million for the year ended December 31, 2021.

A $2.5 million gain on investments was recorded during the year ended December 31, 2022, compared to no gain for the year ended December 31, 2021.

Additionally, interest expense, net increased between periods, increasing $7.1 million as a result of increased borrowings and higher interest rates under the credit facility during the year ended December 31, 2022 compared to the year ended December 31, 2021.

Net Income (Loss) Before Income Taxes

The Company realized net income before income taxes of $399.5 million for the year ended December 31, 2022 compared to a net loss before income taxes of $177.8 million for the year ended December 31, 2021.

The increase in results is primarily attributable to an increase in revenue, as discussed above, related to the fleet deployments and an increase in activity and service pricing.

Income Tax (Benefit) Expense

The Company recognized an income tax benefit of $0.8 million for the year ended December 31, 2022, at an effective rate of (0.2)%, compared to income tax expense of $9.2 million, at an effective rate of (5.2)%, recognized for the year ended December 31, 2021.

The decrease in income tax expense is primarily attributable to the Company releasing the valuation allowance on its U.S.

net deferred tax assets in the current year, compared to the prior year recording of a valuation allowance on its U.S.

net deferred tax assets.

Comparison of Non-GAAP Financial Measures

We view EBITDA and Adjusted EBITDA as important indicators of performance.

We define EBITDA as net income (loss) (the most directly comparable GAAP financial measure) before interest, income taxes, depreciation, depletion and amortization.

We define Adjusted EBITDA as EBITDA adjusted to eliminate the effects of items such as non-cash stock based compensation expense, 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 and non-recurring expenses that management does not consider in assessing ongoing performance.

We define EBITDA as net income (loss) before interest, income taxes, and depreciation, depletion, and amortization.

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.

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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 is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA.

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.

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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 income, which is the most directly comparable GAAP measure for the periods presented:

The following tables present a reconciliation of EBITDA and Adjusted EBITDA to our net income (loss), which is the most directly comparable GAAP measure for the periods presented:

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021:

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(in thousands)

Net loss $ (187,004) $ (160,674) $ (26,330)

Depreciation and amortization 262,757 180,084 82,673

Net income (loss) $ 400,302 $ (187,004) $ 587,306

Depreciation, depletion, and amortization 323,028 262,757 60,271

Interest expense, net 22,715 15,603 7,112

Income tax expense (benefit) 9,216 (30,857) 40,073

Income tax (benefit) expense (793) 9,216 (10,009)

EBITDA $ 745,252 $ 100,572 $ 644,680

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Transaction, severance and other costs 5,837 15,138 (9,301)

Loss (gain) on disposal of assets 779 (411) 1,190

(Gain) loss on disposal of assets (4,603) 779 (5,382)

Provision for credit losses — 745 (745)

Gain on remeasurement of liability under tax receivable agreement (19,039) — (19,039)

Loss (gain) on remeasurement of liability under tax receivable agreements 76,191 (19,039) 95,230

Gain on investments $ (2,525) $ — $ (2,525)

Adjusted EBITDA $ 860,267 $ 120,892 $ 739,375

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Liquidity and Capital Resources

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.

Historically, our primary sources of liquidity to date have been cash flows from operations, proceeds from our IPO, and borrowings under our ABL Facility and Term Loan Facility (collectively, the “Credit Facilities”).

We expect to fund operations and organic growth with cash flows from operations and available borrowings under our ABL Facility.

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 acquisitions of OneStim and PropX.

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 equivalent s decreased by $49.0 million to $20.0 million as of December 31, 2021 compared to $69.0 million as of December 31, 2020, while working capital excluding cash and current liabilities under debt and lease arrangements decreased $104.5 million.

We have $350.0 million committed under the ABL Facility (net of any outstanding letters of credit), subject to certain borrowing base limitations based on a percentage of eligible accounts receivable and inventory (with the ability to request an increase in the size of the ABL Facility by $75 million) available to finance working capital needs.

Cash and cash equivalent s increased by $23.7 million to $43.7 million as of December 31, 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 $221.3 million.

As of December 31, 2022, we had $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 December 31, 2022, the borrowing base was calculated to be $425.0 million, and the Company had $115.0 million outstanding, in addition to a letter of credit in the amount of $2.6 million, with $307.4 million of remaining availability.

Additionally, we have $106.5 million borrowings remaining on the Term Loan Facility, which was originally $175.0 million.

On October 22, 2021, the Company entered into an amendment to the ABL Facility (the “Revolving Credit Agreement Amendment”).

The Revolving Credit Agreement Amendment further amends the credit agreement and guaranty and security agreement originally entered into by the parties on September 19, 2017, which governs the Company’s ABL Facility.

Along with other revisions, the Revolving Credit Agreement Amendment (i) expanded the definition of borrowing base to include certain eligible US investment grade accounts, Canadian accounts solely after a specified event, and both chemical and spare parts inventory;

(ii) increased the maximum revolver amount from $250.0 million to $350.0 million (with the ability to request an increase in the size of the ABL Facility by $75 million);

(iii) increased certain indebtedness baskets;

(iv) provided additional flexibility for a potential future internal structuring;

(v) added new lenders to the facility;

and (vi) extended the maturity date to 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.

The ABL Facility was initially scheduled to mature on the earlier to occur of (i) September 19, 2022 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.

On October 22, 2021, the Company entered into a Fifth Amendment to Credit Agreement, Second Amendment to Guaranty and Security Agreement and Termination of Right of First Offer Letter.

The Term Loan Credit Agreement Amendment further amends the credit agreement and guaranty and security agreement and terminates the Right of First Offer Letter originally entered into by the parties on September 19, 2017, which governs the Company’s Term Loan Facility.

Along with other revisions, the Term Loan Credit Agreement Amendment (i) increased certain indebtedness baskets;

(ii) provided additional flexibility for a potential future internal structuring;

(iii) extended the maturity date through September 19, 2024;

and (iv) terminated a right of first offer in favor of the Term Loan Facility lenders.

The Term Loan Facility was initially scheduled to mature on September 19, 2022.

Additionally, as of December 31, 2022, we have $104.7 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.

On November 4, 2022, the Company entered into an amendment to the Term Loan Facility (the “Seventh Term Loan Amendment”).

The Seventh Term Loan Amendment amended the restricted payments negative covenant of the Term Loan Facility so that the fixed charge coverage ratio requirements for dividend payments are waived, so long as the total of dividends paid and payments made in connection with the Company’s 2022 stock repurchase program does not exceed $100.0 million.

During the fourth quarter of 2022 the restricted payments negative covenant pertaining to the fixed charge coverage ratio requirements were satisfied and the $100.0 million limit no longer applied.

Subsequent to the fiscal year end, on January 23, 2023, the Company entered into an Eighth Amendment to the ABL Facility (the “Eighth ABL Amendment”).

The Eighth ABL Amendment amends certain terms, provisions and covenants of the ABL Facility, including, among other things:

(i) increasing the maximum revolver amount from $425.0 million to $525.0 million (the “Upsized Revolver”);

(ii) increasing the amount of the accordion feature from $75.0 million to $100.0 million;

(iii) extending the maturity date from October 22, 2026 to January 23, 2028;

(iv) modifying the dollar amounts of various credit facility triggers and tests proportionally to the Upsized Revolver;

(v) permitting repayment under the Term Loan Facility prior to February 10, 2023;

and (vi) increasing certain indebtedness, intercompany advance, and investment baskets.

The Eighth ABL Amendment also includes an agreement from the Wells Fargo Bank, National Association, as administrative agent, to release its second priority liens and security interests on all collateral that served as first priority collateral under the Term Loan Facility, with such release to occur within 120 days after January 23, 2023.

Additionally, on January 23, 2023 the Company withdrew $106.7 million on the ABL Facility and used the proceeds to pay off the Term Loan Facility.

The balance of the Term Loan Facility upon pay off was $104.7 million and included $0.9

million of accrued interest and a $1.1 million prepayment premium or 1% of the principal.

Additionally, there were $0.2 million in bank and legal fees included in the pay off.

As such, the only outstanding debt facility after January 23, 3023 is the ABL Facility.

Refer to “Our current and future indebtedness could adversely affect our financial condition” included in “Item 1A.

Risk Factors” above for further details on the outstanding balance of the ABL Facility as of the filing date.

The Credit Facilities contain covenants that restrict our ability to take certain actions.

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Financial Statements and Supplementary Data” for further details.

We have no material off balance sheet arrangements as of December 31, 2022, except for purchase commitments under supply agreements as disclosed below under Note 15—Commitments & Contingencies in “Item 8.

Financial Statements and Supplementary Data.” 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.

Additionally, on January 24, 2023 the Board authorized and the Company announced an increase to the share repurchase program that increased the Company’s cumulative repurchase authorization to $500.0 million.

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.

The following table summarizes our cash flows for the periods indicated:

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Net cash provided by operating activities

$ 530,364 $ 135,467 $ 394,897

Net cash used in investing activities

Net cash provided by (used in) financing activities 2,056 (28,868) 30,924

(450,656) (186,494) (264,162)

Net cash (used in) provided by financing activities

(55,770) 2,056 (57,826)

Analysis of Cash Flow Changes Between the Years Ended December 31, 2022 and December 31, 2021

Operating Activities .

Net cash provided by operating activities was $135.5 million for the year ended December 31, 2021, compared to net cash provided by operating activities of $85.4 million for the year ended December 31, 2020.

The $50.0 million increase in cash from operating activities was primarily attributable to a $1.5 billion increase in revenues, offset by a $1.4 billion increase in cash operating expenses and a $46.9 million increase in cash from changes in working capital for the year ended December 31, 2021, compared to a $63.3 million increase in cash from changes in working capital for the year ended December 31, 2020.

Net cash provided by operating activities was $530.4 million for the year ended December 31, 2022, compared to $135.5 million for the year ended December 31, 2021.

The $394.9 million increase in cash from operating activities is primarily attributable to a $1.7 billion increase in revenues, offset by a $0.9 billion increase in cash operating expenses and a $277.9 million decrease in cash from changes in working capital for the year ended December 31, 2022, compared to a $46.9 million increase in cash from changes in working capital for the year ended December 31, 2021.

Investing Activities .

Net cash used in investing activities was $450.7 million for the year ended December 31, 2022, compared to $186.5 million for the year ended December 31, 2021.

The $86.2 million increase in cash used in investment activities related to a decrease in spend in 2020 starting in the second quarter and remaining throughout the year due to the COVID-19 pandemic.

Investing increased during 2021 when the markets recovered to pre-pandemic levels and $11.9 million was used in the fourth quarter for the PropX Acquisition.

Cash used in investing activities was higher during the year ended December 31, 2022, compared to the year ended December 31, 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 $2.1 million for the year ended December 31, 2021, compared to net cash used in financing activities of $28.9 million for the year ended December 31, 2020.

The $30.9 million change in financing activities was primarily due to net borrowings of $18.0 million on the ABL Facility during the year ended December 31, 2021, compared to no borrowings on the ABL Facility for the year ended December 31, 2020.

Additionally, there was a $5.8 million decrease in dividends and per unit distributions to non-controlling interest unitholders as a result of the suspension of the dividend in April 2020.

Other distributions and advance payments to non-controlling interest unitholders was a net receipt of $1.4 million during the year ended December 31, 2021, compared to net payment of $6.8 million during the year ended December 31, 2020 due to a decrease in payments made under the TRAs.

These decreases were offset by a $2.6 million increase in payments made for tax withholding on restricted stock unit vesting as a larger number of units vested at a higher stock price in 2021 compared to 2020.

Net cash used in financing activities was $55.8 million for the year ended December 31, 2022, compared to net cash provided by financing activities of $2.1 million for the year ended December 31, 2021.

The $57.8 million change in cash used in financing activities was primarily due to $125.3 million of cash payments made in connection with share repurchases for the year ended December 31, 2022, compared to none in the year ended December 31, 2021 as the Company reinstated the share buyback program.

Additionally, the Company reinstated quarterly dividends during the fourth quarter of 2022 resulting in a $9.0 million increase in dividends and per unit distributions to non-controlling interest unitholders.

The increases in cash outflows as a result of reinstated shareholder return programs were offset by net borrowings of $97.0 million

on the ABL Facility during the year ended December 31, 2022, compared to $18.0 million net borrowings on the ABL Facility for the year ended December 31, 2021.

Other changes in financing activity included a $6.1 million increase in payments made for tax withholding on restricted stock unit vesting as a larger number of units vested at a higher stock price in 2022 compared to 2021, and a slight decrease in other distributions and advance payments received from non-controlling interest holders.

Cash Requirements

Our material cash commitments consists primarily of obligations under long-term debt, TRAs, finance and operating leases for property and equipment, and purchase obligations as part of normal operations.

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.

Certain amounts included in our contractual obligations as of December 31, 2022 are based on our estimates and assumptions about these obligations, including pricing, volumes and duration.

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Financial Statements and Supplementary Data” for information regarding scheduled maturities of finance and operating leases.

As of December 31, 2021, we had expected cash payments for estimated interest on our long-term debt and finance lease obligations of $10.6 million payable within the next twelve months and $17.4 million payable thereafter.

As of December 31, 2022, we had expected cash payments for estimated interest on our finance lease obligations of $2.3 million payable within the next twelve months and $3.4 million payable thereafter.

Effective January 23, 2023 the Company withdrew $106.7 million on the ABL Facility and used the proceeds to pay off the Term Loan Facility.

The balance of the Term Loan Facility upon pay off was $104.7 million and included $0.9 million of accrued interest and a $1.1 million prepayment premium.

As such, the only outstanding debt facility after January 23, 3023 is the ABL Facility.

As of December 31, 2022, we had purchase obligations of $158.7 million payable within the next twelve months and $44.8 million payable thereafter.

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Financial Statements and Supplementary Data” for information regarding scheduled contractual obligations.

We currently do not expect to make any payments under the TRAs within the next twelve months, future amounts payable under the TRAs are dependent upon future events.

As of December 31, 2022, we do not expect to make any payments under the TRAs within the next twelve months, future amounts payable under the TRAs are dependent upon future events.

See Note 12 —Income Taxes to the consolidated financial statements included in “Item 8.

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In weak economic environments, we may experience delays in collection from our customers.

Due to the impact of the COVID-19 pandemic on the industry, we have experienced delays in customer payments and agreed to extended payment terms, however, we have not experienced any material non-payment events.

In the past, including as a result of the COVID-19 pandemic on the industry, we have experienced delays in customer payments and agreed to extended payment terms, however, we have not experienced any material non-payment events.

Tax Receivable Agreements

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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 of the TRA Holders, of (i) certain increases in tax basis that occur as a result of the Company’s acquisition (or deemed acquisition for 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 recognizes (or is deemed to recognize in certain circumstances) in periods after the IPO as a result, as applicable to each of the TRA Holders, 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 Holders’ Liberty LLC Units in connection with the IPO or pursuant to the exercise of the right of each Liberty Unit Holder (the “Redemption Right”), subject to certain limitations, to cause Liberty LLC to acquire all or a portion of its Liberty LLC Units for, at Liberty LLC’s election, (A) shares of our Class A Common Stock at the specific redemption ratio or (B) an equivalent amount of cash, or, upon the exercise of the Redemption Right, the right of the Company (instead of Liberty LLC) to, for administrative convenience, acquire each tendered Liberty LLC Unit directly from the redeeming Liberty Unit Holder (the “Call Right”) for, at its election, (1) one share of Class A Common Stock or (2) an equivalent amount of cash, (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.

On January 31, 2023, the last redemption of the Liberty LLC Units occurred.

With respect to obligations the Company expects to incur under the TRAs (except in cases where the Company elects to terminate the TRAs early, the TRAs are terminated early due to certain mergers, asset sales, or other changes of control or the Company has available cash but fails to make payments when due), generally the Company may elect to defer payments due under the TRAs if the Company does not have available cash to satisfy its payment obligations under the TRAs or if its contractual obligations limit its ability to make such payments.

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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 taxes on its foreign operations.

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 year ended December 31, 2022 and 2021 was (0.2)% and (5.2)%, 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 December 31, 2021, 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 years ended December 31, 2021 and 2020.

The Company recognized income tax expense of $9.2 million and an income tax benefit of $30.9 million for the years ended December 31, 2021 and 2020, respectively.

The Company’s effective tax rate is significantly less than the federal statutory income tax rate of 21.0% due to the Company releasing the valuation allowance on its U.S.

net deferred tax assets as of December 31, 2022, primarily due to entering into a three-year cumulative pre-tax book income position and improved operating results.

For 2021, the Company’s effective tax rate is less than the statutory rate due to the Company recording a valuation allowance on its U.S.

net deferred tax assets as well as tax on foreign operations, 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.

The Company recognized an income tax benefit of $(0.8) million and income tax expense of $9.2 million for the years ended December 31, 2022 and 2021, respectively.

The Company’s effective tax rate can be volatile and may change with, among other things, the amount of jurisdiction pre-tax income or loss, ability to utilize foreign tax credits, excess tax benefits or deficiencies from share-based compensation and changes in tax laws in the jurisdictions that we operate.

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.

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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.

In the year ended December 31, 2022, we released a valuation allowance on our U.S.

net deferred tax assets.

As of December 31, 2021, the Company’s net deferred tax assets were primarily comprised of U.S.

NOL, investment in Liberty LLC, and TRA tax attributes of $91.3 million.

For the year ended December 31, 2022, the Company recorded a tax benefit of $91.3 million related to the release of the valuation allowance on U.S.

net deferred tax assets that are more like than not to be recognized.

In addition, the release of the valuation allowance resulted in an increase in the tax receivable agreement liability and a loss on remeasurement of liability under tax receivable agreements of $76.2 million for the year ended December 31, 2022.

Refer to Note 12— Income Taxes to the consolidated financial statements for additional information related to income tax expense.

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Financial Statements and Supplementary Data.

Business Combinations :

Business combinations are accounted for using the acquisition method of accounting in accordance with the ASC Topic 805 - Business Combinations, as amended by Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business.

The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values.

Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 850 - Fair Value Measurements, using discounted cash flows and other applicable valuation techniques.

Any acquisitions related costs incurred by the Company are expensed as incurred.

Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill if the definition of a business is met.

Operating results of an acquired business are included in our results of operations from the date of acquisition.

Revenue Recognition:

Revenue from hydraulic fracturing services is recognized as specific services are provided in accordance with contractual arrangements.

If our assessment of performance under a particular contract changes, our revenue and / or costs under that contract may change.

If our assessment of performance under a particular contract change, our revenue and / or costs under that contract may change.

In connection with ASC Topic 842 - Leases (“Topic 842”), the Company determined that certain of its service revenue contracts contain a lease component.

The Company elected to adopt a practical expedient available to lessors, which allows the Company to combine the lease and service component for certain of the Company’s service contracts when the service component is the predominant component and continues to account for the combined component under ASC Topic 606 - Revenue from Contracts with Customers .

Accounts Receivable:

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments.

Specifically, this new guidance requires using a forward looking, expected loss model for trade and other receivables, held-to-maturity debt securities, loans, and other instruments.

Under ASU 2016-13, a company recognizes as an allowance, the estimate of lifetime expected credit losses, which is expected to result in more timely recognition of such losses.

The Company applies historic loss factors to its receivable portfolio segments that were not expected to be further impacted by current economic developments, and an additional economic conditions factor to portfolio segments anticipated to experience greater losses in the current economic environment.

The Company continuously evaluates customers based on risk characteristics, such as historical losses and current economic conditions.

Due to the cyclical nature of the oil and gas industry, the Company often evaluates its customers’ estimated losses on a case-by-case basis.

It is reasonably possible that our estimates of the allowance for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining the allowance.

Inventory consists of raw materials used in the hydraulic fracturing process, such as proppants, chemicals and field service equipment maintenance parts, and is stated at the lower of cost or net realizable value, determined using the weighted average cost method.

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When alternative courses of action to recover the carrying amount of the asset group are under consideration, estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence, which require us to apply judgment.

If the carrying amount of the asset is not recoverable based on its estimated undiscounted cash flows expected to result from the use and eventual disposition, an impairment loss is recognized in an amount by which its carrying amount

exceeds its estimated fair value.

The inputs used to determine such fair value are primarily based upon internally developed cash flow models.

Our cash flow models are based on a number of estimates regarding future operations that may be subject to significant variability, are sensitive to changes in market conditions, and are reasonably likely to change in the future.

During the year ended December 31, 2020, as a result of negative market indicators including the COVID-19 pandemic, the increased supply of low-priced oil, and customer cancellations, the Company concluded these triggering events could indicate possible impairment of property and equipment.

The Company performed a quantitative and qualitative impairment analysis and determined that no impairment had occurred as of March 31, 2020.

As of December 31, 2020, the Company concluded that no additional triggering events occurred and the conclusion reached at March 31, 2020 is still appropriate.

Such analysis required management to make estimates and assumptions based on historical data and consideration of future market conditions.

Given the uncertainty inherent in any projection, heightened by the possibility of unforeseen additional effects of COVID-19, actual results may differ from the estimates and assumptions used, or conditions may change, which could result in impairment charges in the future.

No impairment was recognized during the years ended December 31, 2022 and 2021.

The Company adopted Accounting Standards Update (“ASU”) No.

2016-02, Leases ASC Topic 842 effective January 1, 2019.

We elected the modified retrospective transition method under ASC Topic 842 and as such information prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period ( ASC Topic 840-Leases ).

We carried forward the historical lease classifications and assessment of initial direct costs, account for lease and non-lease components as a single component, and exclude leases with an initial term of less than 12 months in the lease assets and liabilities.

For leases entered into after January 1, 2019, the Company determines if an arrangement is a lease at inception and evaluates identified leases for operating or finance lease treatment.

In accordance with ASC Topic 842, Leases , the Company determines if an arrangement is a lease at inception and evaluates identified leases for operating or finance lease treatment.

Operating or finance lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

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Thereafter, any excess purchase price will be recorded as a reduction to retained earnings.

Foreign Currency Translation:

Effective January 1, 2021, the Company commenced operations in Canada and therefore added a critical accounting policy for foreign currency translation.

See Note 2―Significant Accounting Policies in the accompanying audited consolidated financial statements included herein and incorporated by reference into this offering memorandum.

Recent Accounting Pronouncements

See Note 2—Significant Accounting Policies— Recently Issued Accounting Standards to the consolidated financial statements included in “Item 8.

Financial Statements and Supplementary Data” for a discussion of recent accounting pronouncements.

All Class A Common Stock shares repurchased are retired upon repurchase.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis