Ron Gusek: Yes. Look, from — probably from going back to six years now, I guess, 2018, we made a pretty conscious decision around getting into some vertical integration around manufacturing capacity. That started with our ST9 acquisition and a decision around bringing in-house the ability to control the design and ultimately manufacture and assembly of a pump. As we fast forward to today, we’re in the middle of this transition to next-generation equipment. We control the design of digiFrac from the ground up. We’ve done the same with digiPrime. And it makes sense for us now to control that entire packaging process and particularly the engineering design and control of that in-house. And so LAT a very conscious decision for us to do exactly that, which is to be able to take — the feedback we’re hearing from the field, the input from our customers, opportunities we identify for even advancing the technology beyond where we are today — implementing that in our engineering design and then handling some amount of that packaging internal to our organization.
We still have some great third-party packagers out there that have been partners for a long time. We’ll continue to work closely with them as well, but we’re going to do some amount of that baseload work internally and particularly retain control over the engineering, design and innovation in that side of things.
Arun Jayaram: Great. Thanks.
Operator: Our next question comes from Scott Gruber with Citigroup. Please go ahead.
Scott Gruber: Yes, good morning. A question here. With Waha Gas turning negative, I’m just curious whether you have any frac contract set up where you supply the fuel costs such that you can directly benefit from negative gas prices or is the benefit to Liberty mainly indirect the rate resiliency for e-frac and dual fuel, that lower negative gas prices provided and growth opportunities for LPI. Just kind of wondering how the benefit flows to Liberty.
Chris Wright: Yes. Today, it’s indirect. Today, we don’t capture the benefit of that. But will we in the future, you bet we will. And think of it even outside the oilfield. We’re going to sell electricity. Gas is going to be an input cost, and we’re going to sell it in different places and different setups with different commercial arrangements. So yes, we’re excited by that. But right now, that benefit — well, that benefit goes to our customers, but of course, they also have the downside of selling gas into that market. So no, today, we don’t benefit from that. But it, of course, is just a further tailwind of why it just makes more sense when you can do it to power large industrial machinery with natural gas instead of diesel.
Diesel is an awesome fuel that powers the world and it will for decades to come. But when you’ve got infrastructure and when you can bring gas and you can take large machinery and powered on gas versus diesel. It’s just cheaper, more abundant, lower cost, lower pollutants and lower greenhouse gas emissions.
Scott Gruber: Got it. And then I wanted to circle back on your comments regarding private potentially picking up activity later in the year. Is that mainly just kind of a function of time with privates need to accumulate more cash following the rebound in oil or is there a egress factor here, particularly in the Permian, do you think privates wait for Matterhorn to start up and see better egress for natural gas out of the basin?
Chris Wright: Well, look, it’s a bit of a combination of all of those, but I do think Matterhorn matters because — look, in the Permian, incredible basin, but it’s a lot of pretty gassy production. So oil drives economics, but gas matters too. So yes, when we get more pipeline capacity and there’s value or less negative value from gas, definitely in addition to oil prices, that will further improve economics of drilling. And look, we’re not expecting some huge surge or increase in activity. But on the margin, if you were a private operator, would you be more likely to produce later this year than earlier this year. If oil prices were similar, yes, definitely later this year is going to be a better decision.
Scott Gruber: That make sense. Thanks, Chris.
Chris Wright: Thanks. Yes, good guestions.
Operator: Our next question comes from Derek Podhaizer with Barclays. Please go ahead.
Derek Podhaizer: Hi, good morning, guys. I wanted to go back to LPI. You talked about the opportunities outside of oil and gas, looking specifically at the AI data centers. Could you help frame this market opportunity for us? And how you think about that potential earnings power over the medium term? I mean will we be talking about decade-long PPAs, just more stable earnings. Just a little bit more how to think about that AI part of the business.
Chris Wright: Yes. It’s going to be a different business. But key for us, it’s going to take the same expertise and the same technology we’re developing today. That for us has always been the excitement of this. We’re not taking a flyer on some crazy idea. We have always thought for our frac operations it’s just essential to control the power of your fleet. And so for us, we’re building that infrastructure to deliver fuel, generate electricity and run our operations, but we’ve known from the start that, hey, by developing that expertise and that ability to power our own fleet, of course, we can do all sorts of different things with those. And look, it’s early on. These are — we’re in dialogues now. But this year is mostly about developing the technology, the expertise and the delivery of that remote electricity to our frac fleets.
It’s not outside oil and gas, that’s not a 2024 thing. We probably see the start of that next year. But to your original question, yes, are they going to be some larger projects? Are there going to be some more stable many, many year contracts, yes, there will be. And so to us it’s development expertise that helps our core business that will always be a key part of our core business. But yes, it’s going to give us a leg up and an entree into a marketplace that just — that is struggling already with the dearth of power. You’ve got customers for your data center or for your industrial operations, but it’s hard to get affordable near-term additional power to any industrial activities in this country. We should not be in this situation, but we are, and we’re going to be in this situation for years, many years.
So for us, yes, we should probably give more color later. But yes, it will be a long-term, a little bit more — probably a fair amount more stable leg of a high return profitable business for Liberty.
Derek Podhaizer: Understood. That’s helpful. Switching back over to frac. Just want to think about the fleet count for the remainder of the year. And maybe just the interplay of adding additional digiFleets. You talked about six going to 10, retiring Tier 2 diesel fleets, I think you guys had 100 Tier 4 diesel fleets being upgraded to the dual-fuel DGB — and just getting a sense of what’s going towards incremental fleets versus replacement fleets. So just your overall view of high-grading the fleet mix as we work through the year and how that may help the ramp that you’re expecting in the back half of the year?
Chris Wright: Yes. Today, it’s all about replacement fleets. We’re not adding new fleet capacity into the marketplace as it is today. And in fact, we don’t have any plans to for later this year. So this is about replacing existing equipment with next-generation equipment that has a lower operating cost and a higher profitability. Ron, do you want to add anything or comment on that, but it’s definitely not about going from six today to 10 digiFleets, that’s not four new fleets going to the marketplace. That’s zero new fleets going into the marketplace.
Derek Podhaizer: Got it. Great. Appreciate the color. I’ll turn it back.
Chris Wright: Thanks.
Operator: Our next question comes from Marc Bianchi with TD Cowen. Please go ahead.
Marc Bianchi: Thank you. I wanted to first clarify on the EBITDA outlook for the year to be flat. Should we be taking that message as a literal comment? So you did $1.2 billion of EBITDA in 2023. Is the expectation that it’s $1.2 billion in 2024 or could it be down 5% to 10%, and it’s still sort of is close enough to being flat that it would qualify for that statement?
Michael Stock: We’ve been very specific flattish, Marc, flattish. So yes, so yes. So no, it’s not saying it’s a little flat, $1.2 billion to $1.2 billion. No, it is going to be flattish so kind of within the rounding area that you discussed.
Marc Bianchi: Got it. Got it. Okay. And then that still would imply some improvement in the back half. And it sounds like from what you’re saying, there’s a bit of what we just talked about with the digiFleet deployments helping some sort of customer-specific things helping and maybe a little bit of help from higher oil activity or maybe that’s not the case. If you could just kind of clarify what the macro outlook is in the back half that’s driving your results.
Chris Wright: Yes. And so we’ve talked about Q2 versus Q1. Q3 historically is probably the best quarter of the year. I don’t see any reason to expect that to be different this year. But yeah, that’s why our guidance is flattish. We don’t have a crystal ball. We don’t know what will go on in Q4. We don’t know specifically Q3. But if the activity stayed flattish where it is today, for us, we still have from internal improvements in our business and cost efficiencies and new technology deployment, we can still grow EBITDA in that environment. And typically, you face somewhat of a roll down in Q4, we probably see a little of that this year, but probably not so much because activity today is sort of flat production at best. So I think activities — if there’s a bias to change in activity six or 12 months from now, it’s more likely to be up and down.
But that’s why our guide was sort of, oh, we’re just flattish. We don’t have a crystal ball for the end of the year. But in the current existing marketplace, how would Liberty perform, annual EBITDA would be flattish compared to last year.
Marc Bianchi: Yes. Makes sense. And then, Michael, just one more on the free cash for the year, could you just talk to what we should be thinking of from a conversion of EBITDA perspective? Because first quarter looked like you had a pretty big working cap headwind. And I think earlier in the last call, you said you would expect that to be flat for the year. But just if we could talk about it in kind of how many dollars of EBITDA ultimately convert into free cash would be helpful.
Michael Stock: We don’t give those details. Things move around. But yes, you always get a build of working capital in the first quarter because of kind of Q4, the last 6 weeks is always the lowest part of the quarter and the opposite spectrum. We will see with growth in revenue, obviously, growth in topline, you’re going to see a slight usage aside sort of build in working capital in Q2. You’re going to see a kind of a release of working capital in Q4. So yeah, as we said over the course of the year, working capital will be about sort of flat for the year. But I mean, those free cash flow numbers are not quarterly driven. They sort of — they have some little bit of sort of up and downs with it.
Marc Bianchi: Okay. Thanks very much. I’ll turn it back.
Chris Wright: Thanks, Marc.
Operator: Our next question comes from Keith MacKey with RBC Capital Markets. Please go ahead.
Keith MacKey: Thanks. Good morning. Just wanted to start out with customer consolidation, I didn’t really hear that as a factor in the outlook. But certainly, there is a lot of rig activity that is subject to consolidation, particularly in the Permian. And we have noticed a slight downtick in rigs that are associated with consolidation versus the overall Permian rig count. And so certainly, they have to run the businesses independently before the deals close, but not necessarily the way they would have if there was no deal. So can you just talk about your exposure to customer consolidation and any potential impacts, positive or negative that you could see from the upcoming consolidation?
Chris Wright: Look, your comments, I think are correct. There’s been a continual consolidation at some pace the last 12 or 18 months, probably still continues. It does lead to incrementally a little bit less activity. That’s probably why our production run rate today is that flattish, where last year we grew nearly 1 million barrels a day or over 1 million barrels a day in total liquids production. So a little bit lower activity. There’ll be an offset of that, of course, because noncore assets are going to be sold off and new privates or existing privates will get bigger and it will fill a little bit of that gap, not happening today right now. But the bigger customers, bigger, more sophisticated customers on balance, that probably benefits Liberty, that’s a better match for us than probably for most of the rest of the marketplace.
