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Item 7. Management’s Discussion and Analysis

2024-02-09 compared with 2023-02-10 · 154 added, 175 removed, 200 unchanged (62% of the section changed)

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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 offer customers hydraulic fracturing services, together with complementary services including wireline services, proppant delivery solutions, field gas processing and treating, CNG delivery, 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, 2023.

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.

We provide our services primarily in the Permian Basin, the Williston Basin, the Eagle Ford Shale, the Haynesville Shale, the Appalachian Basin (Marcellus Shale and Utica Shale), the Western Canadian Sedimentary Basin, the DJ Basin, and the Anadarko Basin.

Our operations also extend to a few smaller shale basins, including the Uinta Basin, the Powder River Basin, and the San Juan Basin, as well as to two sand mines in the Permian Basin.

In early 2023, the Company launched Liberty Power Innovations LLC (“LPI”), an integrated alternative fuel and power solutions provider for remote applications.

LPI provides CNG supply, field gas processing and treating, and well site fueling and logistics.

LPI was formed with the initial focus on supporting Liberty’s transition towards our next generation digiFleets℠ and dual fuel fleets, as CNG fueling services are limited in the market, yet critical to maintaining highly efficient well site operations.

Currently, LPI is primarily focused on supporting an industry transition to natural gas fueled technologies, serving as a key enabler of the next step of cost and emissions reductions in the oilfield.

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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(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.

(iv) our dual fuel dynamic gas blending (“DGB”) 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) our digiFleets℠, comprising of digiFrac℠ and digiPrime℠ pumps, our innovative, purpose-built electric and hybrid frac pumps that have approximately 25% lower CO2e emission profile than the Tier IV DGB;

(vi) our wet sand handling technology which eliminates the need to dry sand, enabling the deployment of mobile mines nearer to wellsites;

and (vii) the launch of LPI to support the transition to our digiFleets as well as the transition to lower costs and emissions in the oilfield..

In addition, our integrated supply chain includes proppant, chemicals, equipment, natural gas fueling services, 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.

Recent Trends and Outlook

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.

Entering 2024, we believe the fundamental outlook for the frac industry is stable.

Service prices remain relatively steady as the industry’s supply of marketed fleets was right sized in response to lower completions activity.

Many fleets exited the market both from accelerated attrition of older equipment and the deliberate idling of underutilized fleets to match customer demand.

Operators continue to demand technologies that provide significant emissions reductions and fuel savings.

We believe E&P operators are now better served with larger, well capitalized integrated frac companies that can meet their technical demands and more complex needs.

Engineering and innovation have led to rising shale productivity.

Service companies have worked with operators to drive efficiencies, including faster completions, longer laterals and completion design

optimization, helping to offset the gradual decline in reservoir quality.

The trend toward higher intensity fracs should raise demand for horsepower, which is expected to keep frac assets well utilized and drive service company returns during 2024.

Global oil and gas markets continue to contend with commodity price fluctuations, owing to developments in geopolitics, interest rates, and macroeconomic data.

Range bound oil prices have not meaningfully changed E&P operator plans to deliver flat to modest production growth for 2024.

Further, as North American oil production continues to reach record levels, more frac activity may be required during 2024 and future years to offset production decline.

Near term natural gas markets are under pressure, but domestic power demand growth and increased liquified natural gas exports are currently expected to lead to improved conditions in 2025.

During the year 2023, the posted WTI price traded at an average of $77.58 per barrel (“Bbl”), as compared to the 2022 average of $94.90 per Bbl, and the 2021 average of $68.13 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.

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.

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.

In addition, the average domestic onshore rig count for the United States and Canada was 781 rigs reported in the fourth quarter of 2023, down from the average in the fourth quarter of 2022 of 947, according to a report from Baker Hughes.

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.

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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 that PropX wet sand handling technology and logistics 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, as a hosted software as a service.

On April 6, 2023, LPI accelerated its expansion by acquiring Siren, a Permian focused integrated natural gas compression and CNG delivery business with 16 MMcf per day of natural gas compression capacity at two expandable Permian sites and transportation, logistics, and pressure reduction services, for cash consideration of $75.7 million, after post-closing adjustments and net of cash received.

LPI currently delivers fuel to customers in both the drilling and completions markets, and its logistics system is designed to deliver CNG, renewable natural gas, or hydrogen to remote locations.

We believe that the added natural gas compression capability is a key enabler of the next step of cost and emissions reductions in the industry.

Increase in Drilling Efficiency and Service Intensity of Completions

Over the past decade, E&P companies have focused on exploiting the vast resource potential available across many of North America’s unconventional resource plays through the application of horizontal drilling and completion technologies, including the use of multi-stage hydraulic fracturing, in order to increase recovery of oil and natural gas.

As E&P companies have improved drilling and completion techniques to maximize return and efficiency, we believe that their “break-even oil prices” continue to decline.

These improvements in well economics have kept U.S.

Shale oil and gas production competitive even as oil and gas prices have declined.

As E&P companies have improved drilling and completion techniques to maximize return and efficiency, we believe that well economics have improved and unconventional oil and gas production is globally competitive.

Liberty has been a significant partner with our customers in driving these continued improvements.

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To complete the well, hydraulic fracturing is applied in stages along the wellbore to break-up the resource so that oil and gas can be produced.

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

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 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 2023.

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.

When compared to typical zipper-frac operations, this new method allows for more lateral feet to be completed in a day.

This emerging trend will allow operators to complete a pad of wells quicker, thereby shortening the time from spud to first production.

Further efficiency gains are being sought via the “simul-frac,” “trimul-frac,” and other techniques.

When compared to typical zipper-frac operations, these methods allow operators to complete a pad of wells quicker, thereby shortening the time from spud to first production.

These industry trends continue to keep our customers as important suppliers to the global oil and natural gas markets, which directly benefit hydraulic fracturing companies like us that have the expertise and innovative technology to effectively service today’s more efficient oilfield drilling activity and the increasing complexity and intensity of well completions.

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How We Generate Revenue

We currently generate revenue through the provision of hydraulic fracturing and wireline services and goods, including sand from our Permian Basin sand mines.

We currently generate revenue through the provision of hydraulic fracturing, wireline services and goods, including sand from our Permian Basin sand mines, proppant delivery and logistics, and natural gas compression and delivery.

These services and goods are provided under a variety of contract structures, primarily master service agreements (“MSAs”) as supplemented by statements of work, pricing agreements and specific quotes.

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• Adjusted EBITDA;

• Net Income Before Taxes;

• Net Income;

• Earnings per Share.

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

Operating Income

We analyze our operating income, which we define as revenues less direct operating expenses, depreciation and amortization and general and administrative expenses, to measure our financial performance.

We analyze our operating income, which we define as revenues less direct operating expenses, depreciation, depletion, and amortization and general and administrative expenses, to measure our financial performance.

We believe operating income is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets.

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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, 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.

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, provision for credit losses, transaction, severance, and other costs, the gain or loss 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, the most comparable financial measures calculated and presented in accordance with GAAP.

Results of Operations

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Depreciation, depletion, and amortization 421,514 323,028 98,486

(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.

Gain on disposal of assets, net (6,994) (4,603) (2,391)

Operating income 760,579 495,890 264,689

Other expense, net 25,689 96,381 (70,692)

Net income before income taxes 734,890 399,509 335,381

Income tax expense (benefit) 178,482 (793) 179,275

Net income 556,408 400,302 156,106

Net income attributable to non-controlling interests 91 700 (609)

Net income attributable to Liberty Energy Inc.

stockholders $ 556,317 $ 399,602 $ 156,715

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 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.

Our revenue increased $598.7 million, or 14%, to $4.7 billion for the year ended December 31, 2023 compared to $4.1 billion for the year ended December 31, 2022.

The increase in revenue was primarily attributable to higher service pricing, the reactivation of several fleets not fully reflected in the prior year, and an activity-driven increase in fleet efficiency commensurate with consistent demand for hydraulic fracturing services.

Cost of Services

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.

Cost of services (excluding depreciation, depletion, and amortization) increased $200.3 million, or 6%, to $3.3 billion for the year ended December 31, 2023 compared to $3.1 billion for the year ended December 31, 2022.

The increase in expense was primarily related to increases in materials and parts consumption and higher labor costs related to reactivated fleets and higher fleet efficiency during the year ended December 31, 2023.

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.

General and administrative expenses increased $41.4 million, or 23%, to $221.4 million for the year ended December 31, 2023 compared to $180.0 million for the year ended December 31, 2022 primarily related to increases from labor cost inflation, various corporate costs related to increased levels of activity, and increased share-based compensation expense related to Company performance.

Transaction, Severance and Other Costs

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.

Transaction, severance and other costs decreased $3.8 million, or 65%, to $2.1 million for the year ended December 31, 2023 compared to $5.8 million for the year ended December 31, 2022.

The costs incurred during the year ended December 31, 2023 primarily related to integration cost, legal, accounting, and other professional services provided in connection with the Siren Acquisition, while costs incurred during the year ended December 31, 2022 related to ongoing integration costs from prior period acquisitions.

Depreciation, Depletion, and Amortization

Depreciation, depletion, and amortization expense increased $98.5 million, or 30%, to $421.5 million for the year ended December 31, 2023 compared to $323.0 million for the year ended December 31, 2022.

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.

The increase in 2023 was due to additional equipment placed in service not fully reflected in the prior year, including the deployment of our digiTechnologies SM .

Gain on Disposal of Assets, net

The Company recorded a gain on disposal of assets, net of $7.0 million for the year ended December 31, 2023 compared to $4.6 million for the year ended December 31, 2022.

The gain recognized in the year ended December 31, 2023 was primarily the result of the Company selling used field equipment and light duty trucks in a strong used vehicle and equipment market.

The gain recognized in the year ended 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 a previous acquisition and a loss on plan of sale for two other non-strategic facilities.

Operating Income

The Company recorded operating income of $760.6 million for the year ended December 31, 2023 compared to $495.9 million for the year ended December 31, 2022.

The change in operating income was primarily due to the $598.7 million, or 14%, increase in total revenue partially offset by a $334.0 million increase in total operating expenses, the significant components of which are discussed above.

Other Expense, net

Other expense, net decreased by $70.7 million to $25.7 million for the year ended December 31, 2023 compared to $96.4 million during the year ended December 31, 2022.

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

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

net deferred tax assets the Company remeasured the liability under the TRAs resulting in a loss of $76.2 million, offset by a $2.5 million gain on investments during the year ended December 31, 2022, compared to a $1.8 million gain on remeasurement of the liability under the TRAs, due to a change in the overall expected effective tax rate, during the year ended December 31, 2023.

Interest income—related party increased $2.0 million related to an extension of credit executed in December 2022 and extended in August 2023.

These decreases were partially offset by the $6.8 million increase in interest expense, net as a result of new finance leases added and higher interest rates under the ABL Facility during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Net Income Before Income Taxes

The Company realized net income before income taxes of $734.9 million for the year ended December 31, 2023 compared to $399.5 million for the year ended December 31, 2022.

The increase in results was primarily attributable to the increase in revenues and the decrease in other expense, net, as noted above, partially offset by the increase in operating expenses discussed above.

Income Tax Expense (Benefit)

The Company recognized income tax expense of $178.5 million for the year ended December 31, 2023, an effective rate of 24.3%, compared to an income tax benefit of $0.8 million, an effective rate of (0.2)%, recognized for the year ended December 31, 2022.

The increase in income tax expense was primarily attributable to the Company recording taxes on the Company ’ s U.S.

activity during the year ended December 31, 2023, compared to the release of a valuation allowance on its U.S.

net deferred tax assets during the year ended December 31, 2022 largely offsetting taxes on 2022 activity.

Comparison of Non-GAAP Financial Measures

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

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

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 gain or loss 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.

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

Net income 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 (loss), 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, which is the most directly comparable GAAP financial measure for the periods presented:

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022:

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(in thousands)

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

Net income $ 556,408 $ 400,302 $ 156,106

Depreciation, depletion, and amortization 421,514 323,028 98,486

Interest expense, net 27,506 22,715 4,791

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

Income tax expense 178,482 (793) 179,275

EBITDA $ 1,183,910 $ 745,252 $ 438,658

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Transaction, severance, and other costs 2,053 5,837 (3,784)

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

Gain on disposal of assets, net (6,994) (4,603) (2,391)

Provision for credit losses 808 — 808

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

(Gain) loss on remeasurement of liability under tax receivable agreements (1,817) 76,191 (78,008)

Gain on investments — (2,525) 2,525

Adjusted EBITDA $ 1,213,068 $ 860,267 $ 352,801

EBITDA was $745.3 million for the year ended December 31, 2022 compared to $100.6 million for the year ended December 31, 2021.

Adjusted EBITDA was $860.3 million for the year ended December 31, 2022 compared to $120.9 million for the year ended December 31, 2021.

The increases in EBITDA and Adjusted EBITDA primarily resulted from improved market conditions and increased activity levels as described above under the captions Revenue , Cost of Services, and General and Administrative Expenses for the Year Ended December 31, 2022, Compared to Year Ended December 31, 2021 .

EBITDA was $1.2 billion for the year ended December 31, 2023 compared to $745.3 million for the year ended December 31, 2022.

Adjusted EBITDA was $1.2 billion for the year ended December 31, 2023 compared to $860.3 million for the year ended December 31, 2022.

The increases in EBITDA and Adjusted EBITDA primarily resulted from increased activity levels in 2023 as described above under the captions Revenue , Cost of Services, and General and Administrative Expenses for the Year Ended December 31, 2023, Compared to Year Ended December 31, 2022 .

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 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 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 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.

Our primary sources of liquidity consist of cash flows from operations and borrowings under our ABL Facility.

We expect to fund operations and organic growth with these sources.

We monitor the availability and cost of capital resources such as equity and debt financings that could be leveraged for current or future financial obligations including those related to acquisitions, capital expenditures, working capital, and other liquidity requirements.

Our primary uses of capital have been capital expenditures to support organic growth and funding ongoing operations, including maintenance and fleet upgrades, as well as the repurchases of, and dividends on, shares of our Class A Common Stock.

Cash and cash equivalent s decreased by $6.9 million to $36.8 million as of December 31, 2023 compared to $43.7 million as of December 31, 2022, while working capital excluding cash and current liabilities under debt and lease arrangements increased $42.2 million.

On September 19, 2017, the Company entered into two credit agreements, (i) a revolving line of credit up to $250.0 million, subsequently increased to $525.0 million, see below, (the “ABL Facility”) and (ii) a $175.0 million term loan (the “Term Loan Facility”, and together with the ABL Facility the “Credit Facilities”).

As of December 31, 2023, we had $525.0 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, 2023, the borrowing base was calculated to be $420.3 million, and the Company had $140.0 million outstanding, in addition to a letter of credit in the amount of $2.6 million, with $277.7 million of remaining availability.

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”).

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:

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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.

The Eighth ABL Amendment also includes an agreement from 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.

This release was completed during the three months ended June 30, 2023.

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

The amount paid included the balance of the Term Loan Facility upon payoff of $104.7 million, $0.9 million of accrued interest, and a $1.1 million prepayment premium.

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

The ABL Facility contains covenants that restrict our ability to take certain actions.

At December 31, 2023, we were in compliance with all debt covenants.

See Note 8 —Debt to the consolidated financial statements included in “Item 8.

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.

See Note 8 —Debt to the consolidated financial statements included in Part II, Item 8 of this Annual Report for further details.

We have no material off balance sheet arrangements as of December 31, 2023, except for purchase commitments under supply agreements as disclosed below under Note 15—Commitments & Contingencies in Part II, Item 8 of this Annual Report.

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.

Under our share repurchase program, the Company was initially authorized to repurchase up to $250.0 million of outstanding Class A Common Stock through and including July 31, 2024.

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.

Furthermore, on January 23, 2024, the Board authorized and the Company announced an increase to the share repurchase program that increased the Company’s cumulative repurchase authorization to $750.0 million and extended the authorization through July 31, 2026.

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.

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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 Company expects to fund any repurchases by using cash on hand, borrowings under its revolving credit facility and expected free cash flow to be generated through the duration of the share repurchase program.

During the year ended December 31, 2023, the Company repurchased and retired shares of Class A Common Stock for $203.1 million, under the share repurchase program.

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

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(672,328) (450,656) (221,672)

Net cash (used in) provided by financing activities

Net cash used in financing activities

(349,315) (55,770) (293,545)

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Operating Activities .

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.

Net cash provided by operating activities was $1.0 billion for the year ended December 31, 2023, compared to $530.4 million for the year ended December 31, 2022.

The $484.2 million increase in cash from operating activities is primarily attributable to a $598.7 million increase in revenues, offset by a $280.7 million increase in cash operating expenses, interest expense, net, and income tax, and a $111.7 million decrease in cash from changes in working capital for the year ended December 31, 2023, compared to a $277.9 million decrease in cash from changes in working capital for the year ended December 31, 2022.

Investing Activities .

Net cash used in investing activities was $672.3 million for the year ended December 31, 2023, compared to $450.7 million for the year ended December 31, 2022.

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.

Cash used in investing activities was higher during the year ended December 31, 2023, compared to the year ended December 31, 2022 as the Company continued to invest in equipment, including the new digiTechnologies SM suite, to support increased customer demand in next generation equipment and technology.

Additionally, during the year ended December 31, 2023, the Company acquired Siren for $75.7 million in cash, net of cash received and normal post-closing matters, refer to Note 3—Acquisitions to the consolidated financial statements in Part II, Item 8 of this Annual Report for additional information related to the Siren Acquisition.

Financing Activities .

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.

Net cash used in financing activities was $349.3 million for the year ended December 31, 2023, compared to net cash used in financing activities of $55.8 million for the year ended December 31, 2022.

The $293.5 million change in cash used in financing activities was primarily due to a $77.8 million increase in cash payments made in connection with share repurchases to $203.1 million for the year ended December 31, 2023, compared to $125.3 million for the year ended December 31, 2022.

Additionally, cash paid for quarterly dividends increased $28.5 million to $37.7 million for the year ended December 31, 2023, compared to $9.2 million for the year ended December 31, 2022.

Net pay down of $79.7 million on the Credit Facilities during the year ended December 31, 2023, including the $104.7 million pay off and termination of the Term Loan Facility, contributed to the financing cash outflow during the year ended December 31, 2023, compared to $95.3 million of net borrowings on the Credit Facilities for the year ended December 31, 2022.

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.

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, and dividends on, 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, 2023 are based on our estimates and assumptions about these obligations, including pricing, volumes and duration.

We have no material off balance sheet arrangements as of December 31, 2023, except for purchase commitments under supply agreements disclosed below.

See Note 8 —Debt to the consolidated financial statements included in “Item 8.

Financial Statements and Supplementary Data” for information regarding scheduled maturities of our long-term debt.

See Note 6 —Leases to the consolidated financial statements included in “Item 8.

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

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.

See Note 15 —Commitments & Contingencies to the consolidated financial statements included in “Item 8.

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

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.

Financial Statements and Supplementary Data” for information regarding the TRAs.

See Note 8 —Debt to the consolidated financial statements included in Part II, Item 8 of this Annual Report for information regarding scheduled maturities of our long-term debt.

See Note 6 —Leases to the consolidated financial statements included in Part II, Item 8 of this Annual Report for information regarding scheduled maturities of finance and operating leases.

As of December 31, 2023, the Company had expected cash payments for estimated interest on our finance lease obligations of $12.2 million payable within the next twelve months and $16.9 million payable thereafter.

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

The balance of the Term Loan Facility at 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 as of December 31, 2023 was the ABL Facility.

As of December 31, 2023, the Company has purchase obligations of $143.9 million payable within the next twelve months and $13.0 million payable thereafter.

See Note 15 —Commitments & Contingencies to the consolidated financial statements in Part II, Item 8 of this Annual Report for information regarding scheduled contractual obligations.

As of December 31, 2023, the Company expects to make a $5.2 million payment under the TRAs within the next twelve months.

Future amounts payable under the TRAs are dependent upon future events.

See No te 12 —Income Taxes to the consolidated financial statements included in Part II, Item 8 of this Annual Report for information regarding the TRAs.

During the year ended December 31, 2023, the Company expanded certain equipment lease facilities and entered into a new equipment lease facility with an additional lessor resulting in new finance lease obligations of $160.5 million.

The term on these new leases range from two to five years.

The Company had finance lease obligations of $51.1 million payable within the next twelve months and $151.6 million payable thereafter.

There have been no other material changes to cash requirements during the year ended December 31, 2023.

Other Factors Affecting Liquidity

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

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.

In the past, we have experienced delays in customer payments and periodically agreed to extended payment terms, however, we have not experienced any material non-payment events.

Tax Receivable Agreements

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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 releasing the valuation allowance on its U.S.

The effective global income tax rate applicable to the Company for the year ended December 31, 2023 was 24.3% compared to (0.2)% for the year ended December 31, 2022.

The Company’s effective tax rate is greater than the statutory federal income tax rate of 21.0% due to the Company’s Canadian operations, state income taxes in the states the Company operates, as well as nondeductible executive compensation.

For 2022, the Company’s effective tax rate was less than the statutory federal income tax rate due to the Company releasing the valuation allowance recorded in a previous year 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 recognized income tax expense of $178.5 million and an income tax benefit of $0.8 million for the years ended December 31, 2023 and 2022, 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.

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.

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.

In the year ended December 31, 2023, the Company’s net deferred tax liabilities were $102.3 million.

The Company has not recorded a valuation allowance against the deferred tax assets for the year ended December 31, 2023.

Refer to Note 12— Income Taxes to the consolidated financial statements in Part II, Item 8 of this Annual Report for additional information related to income tax expense.

Critical Accounting Policies and Estimates

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We believe the following are the critical accounting policies used in the preparation of our consolidated financial statements, as well as the significant estimates and judgments affecting the application of these policies.

This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in “Item 8.

Financial Statements and Supplementary Data.

This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8 of this Annual Report.

Revenue Recognition:

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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 .

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.

weighted average cost method.

Net realizable value is determined based on our estimates of selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation, each of which require us to apply judgment.

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Costs that either establish or increase the efficiency, productivity, functionality or life of a fixed asset are capitalized and depreciated over the remaining useful life of the asset.

Impairment of long-lived and other intangible assets:

Impairment of long-lived assets:

Long-lived assets, such as property and equipment, right-of-use lease assets and intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

Recoverability is assessed using undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets.

Possible indicators of impairment may include events or changes in circumstances affecting the manner in which the assets are being used, historical and estimated future profitability measures, and other adverse events or changes that could affect the value of the assets.

If a triggering event is identified, recoverability is assessed using undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets.

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.

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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.

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

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.

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

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

All Class A Common Stock shares repurchased to date have been 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