LIBERTY ENERGY INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and related notes. The following
discussion contains "forward-looking statements" that reflect our future plans,
estimates, beliefs, and expected performance. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of a variety of risks and uncertainties, including those described in
"Cautionary Note Regarding Forward-Looking Statements," the Annual Report under
the heading "Item 1A. Risk Factors," and in "Part II - Other Information, Item
1A. Risk Factors" included therein. We assume no obligation to update any of
these forward-looking statements.

Insight

We are an independent provider of hydraulic fracturing and wireline services,
proppant and proppant delivery solutions, and related equipment to onshore oil
and natural gas E&P companies in North America. We have grown from one active
hydraulic fracturing fleet in December 2011 to over 30 active fleets as of March
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, 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 April 20,
2022, Schlumberger owned 26.5% 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. We expect that E&P companies will continue to focus on
technological innovation as completion complexity and fracture intensity of
horizontal wells increases, particularly as customers are increasingly focused
on reducing emissions from their completions operations. We remain proactive in
developing innovative solutions to industry challenges, including developing:
(i) our databases of U.S. unconventional wells to which we apply our proprietary
multi-variable statistical analysis technologies to provide differential insight
into fracture design optimization; (ii) our Liberty Quiet Fleet® design which
significantly reduces noise levels compared to conventional hydraulic fracturing
fleets; (iii) hydraulic fracturing fluid systems tailored to the specific
reservoir properties in the basins in which we operate; (iv) our dual fuel
dynamic gas blending fleets that allow our engines to run diesel or a
combination of diesel and natural gas, to optimize fuel use, reduce emissions
and lower costs; (v) the successful test of digiFrac™, our innovative,
purpose-built electric frac pump that has approximately 25% lower CO2e emission
profile than the Tier IV DGB; and (vi) our PropX wet sand handling technology
which eliminates the need to dry sand, enabling the deployment of mobile mines
nearer to wellsites. In addition, our integrated supply chain includes proppant,
chemicals, equipment, logistics and integrated software which we believe
promotes wellsite efficiency and leads to more pumping hours and higher
productivity throughout the year to better service our customers. In order to
achieve our technological objectives, we carefully manage our liquidity and debt
position to promote operational flexibility and invest in the business
throughout the full commodity cycle.

Recent trends and perspectives

Restrained global investment since the last oil and gas downturn has led to
supply challenges at a time where worldwide demand for energy is growing and
expected to surpass pre-pandemic levels in 2022. Relatively low and declining
oil and gas inventories have led to persistent upward pressure on commodity
prices, even prior to the Russian invasion of Ukraine. Although Russian export
volumes of oil and gas have been only modestly impacted so far, uncertainty
regarding potential future impacts of sanctions and buyer aversion to Russian
hydrocarbons presents significant risk to future supply and demand balances. We
believe that the modest increases in OPEC supply and release of global emergency
oil reserves are not sufficient
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to supply a rebounding world economy and that North American oil and gas are
critical in the coming years. However, given the rising COVID-19 cases, mobility
restrictions in Asia and the Federal Reserve signaling a sharp rise in interest
rates, general economic uncertainty persists.

The frac services market is seeing robust activity improvement and a tightening
of the supply-demand balance. Drilled but uncompleted well inventory has
stabilized after a steep, continuous decline from pandemic-elevated levels.
Available frac capacity is nearing full utilization as demand has increased and
supply is limited due to continued equipment attrition, labor shortages, supply
chain constraints and very low investment in recent years. While the first
quarter benefited from the increase in activity, we continue to face operational
challenges including labor shortages, sand supply tightness and logistics
bottlenecks.

During the first quarter of 2022, the posted WTI price traded at an average of
$95.18 per barrel ("Bbl"), as compared to the first quarter of 2021 average of
$58.09 per Bbl, and fourth quarter of 2021 average of 77.33 per Bbl. In
addition, the average domestic onshore rig count for the United States and
Canada was 816 rigs reported in the first quarter of 2022, up from the first
quarter of 2021 of 522 and the fourth quarter of 2021 of 704, according to a
report from Baker Hughes.

Operating results

Three months completed March 31, 2022 compared to the three months ended March 31, 2021

                                                                     Three months ended March 31,
Description                                                   2022                2021              Change
                                                                            (in thousands)
Revenue                                                   $  792,770       

$552,032 $240,738
Cost of services, excluding depreciation and impairment presented separately

                                             670,019            498,935            171,084
General and administrative                                    38,318             26,359             11,959
Transaction, severance and other costs                         1,334              7,621             (6,287)
Depreciation, depletion and amortization                      74,588             62,056             12,532
Loss (gain) on disposal of assets                              4,672               (720)             5,392
Operating income (loss)                                        3,839            (42,219)            46,058
Other expense, net                                             8,489              3,754              4,735
Net loss before income taxes                                  (4,650)           (45,973)            41,323
Income tax expense (benefit)                                     830             (7,357)             8,187
Net loss                                                      (5,480)           (38,616)            33,136

Less: Net loss attributable to non-controlling interests (104)

      (4,411)             4,307

Net loss attributable to Liberty Energy Inc. shareholders ($5,376)

  $ (34,205)         $  28,829


Revenue

Our revenue increased $240.7 million, or 43.6%, to $792.8 million for the three
months ended March 31, 2022 compared to $552.0 million for the three months
ended March 31, 2021. The increase is attributable to higher service prices and
increased fleet utilization, commensurate with the demand recovery and
tightening of the market for our frac services.

Cost of services

Cost of services (excluding depreciation, depletion, and amortization) increased
$171.1 million, or 34.3%, to $670.0 million for the three months ended March 31,
2022 compared to $498.9 million for the three months ended March 31, 2021. The
higher expense was primarily related to the increase in activity from higher
fleet utilization, as discussed above, and inflationary pressure on material,
personnel, and repairs and maintenance costs.

General and administrative

General and administrative expenses increased $12.0 million, or 45.4%, to $38.3
million for the three months ended March 31, 2022 compared to $26.4 million for
the three months ended March 31, 2021, primarily related to increased personnel
costs from reinstated bonus programs which had been temporarily suspended during
the first quarter of 2021 as a result of the COVID-19 pandemic, and additional
corporate costs attributable to increased levels of activity.

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Transaction, severance pay and other costs

Transaction, severance and other costs decreased $6.3 million, or 82.5%, to $1.3
million for the three months ended March 31, 2022 compared to $7.6 million for
the three months ended March 31, 2021. The costs incurred in the three months
ended March 31, 2021 primarily related to investment banking, legal, accounting,
other professional services provided and integration costs in connection with
the OneStim Acquisition. Such costs were significantly lower during the three
months ended March 31, 2022 as the integration efforts move towards completion.

Depreciation, depletion and amortization

Depreciation, depletion and amortization expense increased $12.5 million, or
20.2%, to $74.6 million for the three months ended March 31, 2022 compared to
$62.1 million for the three months ended March 31, 2021. The increase in 2022
was due to additional equipment placed in service since the prior year period
and additional depreciation from property acquired in the PropX Acquisition.

Loss (gain) on disposal of assets

The Company recorded a loss on disposal of assets of $4.7 million for the three
months ended March 31, 2022 primarily as a result of plans to sell two
non-strategic facilities acquired in the OneStim Acquisition compared to a gain
of $0.7 million for the three months ended March 31, 2021 due to miscellaneous
equipment disposals in the normal course of business.

Operating profit (loss)

The Company recorded operating income of $3.8 million for the three months ended
March 31, 2022 compared to operating loss of $(42.2) million for the three
months ended March 31, 2021. The decrease in loss is primarily due to the $240.7
million, or 43.6%, increase in total revenue partially offset by a $194.7
million increase in total operating expenses, the significant components of
which are discussed above.

Other expenses, net

Other expense, net increased by $4.7 million, or 126.1%, to $8.5 million for the
three months ended March 31, 2022 compared to $3.8 million for the three months
ended March 31, 2021. Other expense, net is comprised of loss on remeasurement
of liability under the TRAs and interest expense, net. During the first quarter
of 2022, the Company remeasured the liability under the TRAs resulting in a loss
of $4.2 million. Interest expense, net was consistent between periods,
increasing $0.6 million as a result of increased borrowings under the credit
facility.

Net Loss before Income Taxes

Lower net loss before income taxes $41.3 millioni.e. 89.9%, at $4.7 million
for the three months ended March 31, 2022 compared to $46.0 million for the three months ended March 31, 2021. The decrease in the loss is mainly attributable to an increase in revenues, as indicated above, related to the increase in the pricing of activities and services.

Income tax expense (benefits)

We recognized an income tax expense of $0.8 million for the three months ended
March 31, 2022, an effective rate of (17.8)%, compared to a benefit of $7.4
million for the three months ended March 31, 2021, an effective rate of 16.0%.
The income tax expense is primarily attributable due to the Company recording a
valuation allowance on its U.S. net deferred tax assets and excluding any U.S.
tax benefit on U.S. losses while calculating income tax expense on Canada
operations that are not subject to a valuation allowance.

Comparison of Non-GAAP Financial Measures

We view EBITDA and Adjusted EBITDA as important indicators of performance. We
define EBITDA as net income before interest, income taxes, and depreciation,
depletion and amortization. We define Adjusted EBITDA as EBITDA adjusted to
eliminate the effects of items such as non-cash stock based compensation, new
fleet or new basin start-up costs, fleet lay-down costs, costs of asset
acquisitions, gain or loss on the disposal of assets, bad debt reserves,
transaction, severance, and other costs, the loss or gain on remeasurement of
liability under our tax receivable agreements and other non-recurring expenses
that management does not consider in assessing ongoing performance.

Our board of directors, management, investors, and lenders use EBITDA and
Adjusted EBITDA to assess our financial performance because it allows them to
compare our operating performance on a consistent basis across periods by
removing the effects of our capital structure (such as varying levels of
interest expense), asset base (such as depreciation, depletion and amortization)
and other items that impact the comparability of financial results from period
to period. We present EBITDA and Adjusted EBITDA because we believe they provide
useful information regarding the factors and trends affecting our business in
addition to measures calculated under GAAP.
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Note regarding non-GAAP financial measures

EBITDA and Adjusted EBITDA are not financial measures presented in accordance
with GAAP. We believe that the presentation of these non-GAAP financial measures
will provide useful information to investors in assessing our financial
performance and results of operations. Net income (loss) is the GAAP measure
most directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial
measures should not be considered as alternatives to the most directly
comparable GAAP financial measure. Each of these non-GAAP financial measures has
important limitations as an analytical tool due to exclusion of some but not all
items that affect the most directly comparable GAAP financial measures. You
should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for
an analysis of our results as reported under GAAP. Because EBITDA and Adjusted
EBITDA may be defined differently by other companies in our industry, our
definitions of these non-GAAP financial measures may not be comparable to
similarly titled measures of other companies, thereby diminishing their utility.

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

Three months ended March 31, 2022 compared to three months ended March 31, 2021:
EBITDA and Adjusted EBITDA
                                                                       Three Months Ended March 31,
Description                                                     2022                 2021             Change
                                                                              (in thousands)
Net loss                                                   $   (5,480)           $ (38,616)         $ 33,136
Depreciation, depletion and amortization                       74,588               62,056            12,532
Interest expense, net                                           4,324                3,754               570
Income tax expense (benefit)                                      830               (7,357)            8,187
EBITDA                                                     $   74,262            $  19,837          $ 54,425
Stock based compensation expense                                6,813                4,947             1,866
Fleet start-up costs                                              585                    -               585
Transaction, severance and other                                1,334                7,621            (6,287)
Loss (gain) on disposal of assets                               4,672                 (720)            5,392

Loss on remeasurement of liability under tax receivable
agreements                                                      4,165                    -             4,165
Adjusted EBITDA                                            $   91,831            $  31,685          $ 60,146


EBITDA was $74.3 million for the three months ended March 31, 2022 compared to
$19.8 million for the three months ended March 31, 2021. Adjusted EBITDA was
$91.8 million for the three months ended March 31, 2022 compared to $31.7
million for the three months ended March 31, 2021. The increases in EBITDA and
Adjusted EBITDA primarily resulted from improved market conditions and activity
levels as described above under the captions Revenue, Cost of Services, and
General and Administrative Expenses for the Three Months Ended March 31, 2022,
Compared to the Three Months Ended March 31, 2021.

Cash and capital resources

Insight

Historically, our primary sources of liquidity to date have been cash flows from
operations, proceeds from our IPO, and borrowings under our Credit Facilities.
We expect to fund operations and organic growth with cash flows from operations
and available borrowings under our Credit Facilities. We monitor the
availability of capital resources such as equity and debt financings that could
be leverage for current or future financial obligations including those related
to acquisitions, capital expenditures, working capital and other liquidity
requirements. We may incur additional indebtedness or issue equity in order to
meet our capital expenditure activities and liquidity requirements, as well as
to fund growth opportunities that we pursue, including via acquisition, such as
with the OneStim Acquisition and the PropX Acquisition. Our primary uses of
capital have been capital expenditures to support organic growth and funding
ongoing operations, including maintenance and fleet upgrades.

Cash and cash equivalents increased by $12.9 million to $32.9 million as of
March 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 $64.4 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. As of March 31, 2022, the

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borrowing base was calculated to be $298.3 million, and the Company had $108.0
million outstanding, in addition to a letter of credit in the amount of $1.4
million, with $189.0 million of remaining availability. Additionally, we have
$106.0 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.

The credit facilities contain covenants that restrict our ability to take certain actions. To March 31, 2022we complied with all covenants.

See Note 8 – Debt to the consolidated financial statements included in “Item 1. Financial statements (unaudited)” for further details.

Cash flow

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

                                                                  Three Months Ended March 31,
Description                                                2022                 2021              Change
                                                                         (in thousands)
Net cash provided by operating activities             $   14,552            $  27,528          $ (12,976)
Net cash used in investing activities                    (90,857)             (23,787)           (67,070)
Net cash provided by (used in) financing activities       88,958               (3,266)            92,224

Analysis of variations in cash flows between the three months ended March 31, 2022 and 2021

Operating Activities. Net cash provided by operating activities was $14.6
million for the three months ended March 31, 2022, compared to $27.5 million for
the three months ended March 31, 2021. The $13.0 million decrease in cash from
operating activities is primarily attributable to a $240.7 million increase in
revenues, offset by a $182.1 million increase in cash operating expenses and a
$71.1 million decrease in cash from changes in working capital for the three
months ended March 31, 2022, compared to a $8.0 million increase in cash from
changes in working capital for the three months ended March 31, 2021.

Investing Activities. Net cash used in investing activities was $90.9 million
for the three months ended March 31, 2022, compared to $23.8 million for the
three months ended March 31, 2021. Cash used in investing activities was higher
during the three months ended March 31, 2022 as the Company continues to invest
in equipment, including digiFrac, compared to more limited capital spending
during the three months ended March 31, 2021.

Financing Activities. Net cash provided by financing activities was $89.0
million for the three months ended March 31, 2022, compared to net cash used in
financing activities of $3.3 million for the three months ended March 31, 2021.
The $92.2 million change in financing activities was primarily due to net
borrowings of $90.0 million on the ABL Facility during the three months ended
March 31, 2022, compared to no borrowings on the ABL Facility for the three
months ended March 31, 2021. Additionally, there was a $1.1 million decrease in
payments on finance lease liabilities as the number of finance leases has
decreased since March 31, 2021.

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. We have no material off
balance sheet arrangements as of March 31, 2022, except for obligations of $20.0
million payable within 2022 and $1.4 million payable thereafter. See Note
15-Commitments & Contingencies to the unaudited condensed consolidated financial
statements included in "Item 1. Financial Statements (Unaudited)" for
information regarding scheduled contractual obligations. There have been no
material changes to cash requirements since the year ended December 31, 2021.

Income taxes

The Company is a corporation and is subject to U.S. federal, state, and local
income tax on its share of Liberty LLC's taxable income. The Company is also
subject to Canada federal and provincial income tax on its foreign operations.
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The combined effective tax rate applicable to the Company for the three months
ended March 31, 2022 and 2021 was (17.8)% and 16.0%, 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 March 31, 2022, due to entering into a three year
cumulative pre-tax book loss position, primarily as a result of COVID-19 related
losses in 2021. The Company's effective tax rate is also less than the statutory
rate because of foreign operations for 2021, and the non-controlling interest's
share of Liberty LLC's pass-through results for federal, state and local income
tax reporting, upon which no taxes are payable by the Company for the three
months ended March 31, 2022 and 2021. The Company recognized income tax expense
of $0.8 million for the three months ended March 31, 2022 and an income tax
benefit of $7.4 million for the three months ended March 31, 2021.

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.

Refer to Note 12 – Income taxes to the consolidated financial statements for additional information regarding income tax expense.

Agreements on tax claims

Refer to Note 12 – Income taxes to the consolidated financial statements for additional information relating to tax receivable agreements.

Significant Accounting Policies and Estimates

The unaudited condensed consolidated financial statements are prepared in
accordance with GAAP, which require us to make estimates and assumptions (see
Note 2-Significant Accounting Policies to the unaudited condensed consolidated
financial statements included in the Annual Report). We believe that some of our
accounting policies involve a higher degree of judgment and complexity than
others. As of December 31, 2021, our critical accounting policies included
business combinations, revenue recognition, estimating the recoverability of
accounts receivable, inventory valuation, accounting for income taxes, property
and equipment, leases, tax receivable agreements, share repurchases, accounting
for long-lived assets, and foreign currency translation. These critical
accounting policies are discussed more fully in the Annual Report.

There have been no changes in our assessment of our critical accounting policies since December 31, 2021.

Off-balance sheet arrangements

We have no material off balance sheet arrangements as of March 31, 2022, except
for purchase commitments under supply agreements as disclosed above under "Item
1. Financial Statements-Note 15-Commitments & Contingencies." As such, we are
not materially exposed to any other financing, liquidity, market, or credit risk
that could arise if we had engaged in such financing arrangements.
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