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Liberty Oilfield Services Inc. (LBRT 1.27%)
Q4Â 2018 Earnings Conference Call
Feb. 06, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good morning, and welcome to the Liberty Oilfield Services Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.
Some of our comments today may include forward-looking statements, reflecting the Company's view about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the Company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in the Company's earnings release and other public filings.
Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and pre-tax return on capital employed, are not a substitute for GAAP measures, and may not be comparable to similar measures of other companies. A reconciliation of net income-to-EBITDA and adjusted EBITDA and the calculation of pre-tax return on capital employed, as discussed on this call, are presented in the Company's earnings release, which is available on its website.
I would now like to turn the conference over to Liberty's CEO, Chris Wright. Please go ahead.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, everyone, and thank you for joining us. We're pleased to discuss with you today our fourth quarter and full-year 2018 results. In partnership with our customers, the Liberty team continues to focus on driving technology innovations and high-efficiency operations, which are a win for Liberty and a win for our customers.
2018 was Liberty's first year as a public company, and we welcome our new investors to the Liberty family. Liberty was built on the idea of bringing great people together with a singular focus on building the best frac company, to support our customers and bring technology innovations to the shale revolution. The unique people and culture that we've created at Liberty drive us forward in this goal every day.
We are pleased to report strong 2018 financial results. We had significant growth in all key metrics, including revenue up 45% to $2.16 billion, net income before taxes up 72% to $289 million, and adjusted EBITDA up 56% to $438 million. Our strong cash generation in 2018 enabled us to invest in growth and return $95 million of cash to shareholders in the form of quarterly dividends, distributions and the repurchase of 4% of our total outstanding post-IPO shares. All of this was achieved while reducing our net debt to only $3 million at year-end.
Liberty was built for long-term success with a focus on superior returns on invested capital, maintaining a strong balance sheet, and investing for the future. Liberty demonstrated this in 2018 by delivering a pre-tax return on capital employed of 39% in the year of strong growth, while generating significant free cash flow and returning cash to shareholders. In 2019 and into the future, we will continue this relentless focus to provide the best service and technology to our customers, environment and culture for our employees, close partnerships with our suppliers, and superior returns to our shareholders. Strong cash generation in the fourth quarter enabled us to execute on returning $35 million of cash to shareholders in the form of a quarterly dividend and repurchasing 1.5% of our total outstanding post-IPO shares while reducing our net debt to $3 million.
The fourth of 2018 was challenging from a fleet utilization perspective. A number of customers made last-minute decisions to defer completions in the fourth quarter due to a combination of capital budget and cash flow management decisions brought on in part by the rapid drop in the commodity price in November and December. While this was disruptive to our fourth quarter work calendar, we believe the focus on capital discipline by operators is ultimately a positive factor for the services industry, as we move toward a sustainable production environment that could ultimately lead to less volatile activity levels and perhaps even a steadier commodity price.
With these challenges, our fourth quarter revenue was $473 million and net income was $34 million or $0.27 per fully diluted share. Adjusted EBITDA for the quarter was $72 million or $13 million per average active frac fleet on an annualized basis. Premium service quality coupled with basin and customer diversity provides the Company the opportunity to continue generating strong returns on capital employed regardless of how the market unfolds in 2019.
The fourth quarter customer project deferrals provided Liberty a solid backdrop for utilization at the start of 2019. In fact, in January, we pumped the highest monthly volume of sand in the Company's history. We are currently projecting sequential revenue growth in the first quarter in the single-digit percentage range and adjusted EBITDA to be approximately flat, as increased utilization is offset by pricing decreases.
Due to the rapid commodity price decline at the end of 2018, our customers are still finalizing budgets for 2019 and we expect to have a much clearer picture of full-year 2019 completions demand by the end of the first quarter. Utilization of our frac fleets is expected to remain strong due to the partnerships we have forged with our customers, but the potential timing of price improvement is not clear at this point. We are focused on generating strong returns on capital and free cash flow in 2019 while investing in technology and growing our competitive advantage.
On the technology front, we continue to focus on opportunities to improve safety and drive efficiency. Through a partnership with one of our key suppliers, Liberty will be deploying a new articulating flow line that allows for quick, safe transitions between wellheads on a multi-well pad. The new system eliminates the need for a zipper manifold and significantly reduces the amount of treating iron required, replacing those components with a single flow line and hydraulic quick connect at the wellhead (inaudible) is simplified and potential exposure for personnel is reduced.
When we rolled out our quiet frac fleets in 2016, we integrated an innovative fire suppression system into every frac pump. We recently finished the engineering to enhance our traditional pumps with this new safety feature and expect all Liberty frac pumps to be equipped with on-board fire suppression by the end of 2019.
We expect capital expenditures in 2019 to be approximately $175 million, a decrease of 36% from 2018. The budget includes $65 million for the completion of the deferred fleets 23 and 24, $65 million of maintenance capital, and about $45 million for technology, fleet efficiency improvements, and facilities. While we are taking delivery of the final equipment for fleets in 23 and 24 in early 2019, they will not be deployed without the correct combination of strategic customer demand and market dynamics. We may end 2019 with one or both fleets awaiting deployment.
Liberty's strong financial results, favorable long-term outlook and strong balance sheet support a balanced strategy of growth and returning capital to our stockholders. Liberty is committed to compounding long-term stockholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate. We are excited by the opportunities in front of us and the positive long-term outlook for the shale revolution and the benefits that this brings to our industry and the country as a whole.
I will now hand the call over to Michael Stock, our CFO, to discuss our financial results.
Michael Stock -- Chief Financial Officer and Treasurer
Good morning. We're exceptionally proud of Liberty's financial performance in our first year as a publicly traded company. For full year 2018, revenue increased 45% to $2.16 billion from $1.49 billion in 2017. This was a driven by an increase in average frac fleet 41% and an increase of efficiency across active fleets. Net income totaled $249 million in the full year or $1.81 per fully diluted earnings per share. Full-year adjusted EBITDA increased 56% to $438 million from $281 million in 2017. Annualized adjusted EBITDA per fleet increased to $20.6 million in the full year compared to $18.6 million in 2017.
We are very pleased with our operation team's year-over-year efficiency increases, which were achieved during a period of significant capacity growth. The high fleet throughput efficiency that we achieved is a win for both our customers and Liberty. We can lower their completion costs, speed their product to market and increase their returns on capital employed. As we've said, we are returns focused company and return on capital employed is a key metric we use to measure the business. For the full year 2018, our pre-tax return on capital employed was 39%. Moving (ph) to public in early 2018, we stated that our goal as a company from the beginning was very simple, to build a frac company with a distinct competitive advantage. We believe that superior results will achieve when you bring the best people together and bind them to the unique culture, a singular focus. We achieved this by marrying operational excellence with technology and a strong balance sheet. We're focused on what is important to our customers, the cost to deliver a barrel of oil to the surface. We work in partnership with them to improve completions efficiency every day and believe that our financial results for 2018 underline the effectiveness of this plan.
Our strong cash generation in 2018 enabled us to invest in growth, return $95 million of cash to shareholders in the form of quarterly dividends, distributions and the repurchase of 4% of our total outstanding shares in our first year as a public company. All of this was achieved while reducing our net debt to only $3 million at year-end and delivering on significant profitable growth.
As Chris mentioned, the fourth quarter was challenging from a customer scheduling perspective. Last-minute project deferrals due the company's managing to announce budgets and cash flow balancing caused a significant increase in white space on the calendar. Typically, we would have far more visibility into these schedule changes and therefore been able to fill these gaps. We expect to gain a lot more clarity into our customer's full-year completion plans as we get through earning season and the customer top line budgets flow through to asset-level completion plans. We are pleased with the performance of our team during a challenging fourth quarter, and the Liberty operations team worked tirelessly in the face of very unusual customer scheduling choppiness to provide exceptional execution for our clients.
The fourth quarter 2018 revenue decreased 15% to $473 million from $559 million in the third quarter. Net income totaled $34 million in the fourth quarter compared to net income of $66 million in the third quarter. Fourth quarter adjusted EBITDA decreased to $72 million from $117 million in the third quarter. Annualized adjusted EBITDA per fleet decreased to $13 million in the fourth quarter compared to $21 million in the third quarter.
General and administrative expenses totaled $25 million for the quarter, of 5% of revenues, included stock-based compensation expense of $1.6 million. Interest expense and associated fees totaled $3.5 million for the quarter, and fourth quarter income tax expense totaled $4 million compared to $12 million in the third quarter.
We ended the year with a cash balance of $103 million and a roughly equal amount of total debt of $106 million. At year-end, we had no borrowings drawn under our ABL credit facility and total liquidity, including availability under the credit facility, was $328 million.
As we have discussed previously, in order to seek the best long-term returns for our shareholders, we will follow a prudent strategy of maintaining a strong balance sheet, investing in compelling growth opportunities and returning capital to shareholders when appropriate. In the fourth quarter, we paid a quarterly dividend of $0.05 per share and we also repurchased 1.75 million shares, reducing our total outstanding post-IPO share count by 1.5%. As of December 31, 2018, the total remaining availability under our original $100 million share repurchase authorization was $17 million, all of which was used to repurchase shares in January of 2019.
Additionally, our Board of Directors approved on January 22, 2019, an additional authorization to repurchase shares of Liberty's Class A common stock in the amount not to exceed $100 million through January 31, 2021. Our Board of Directors has also declared a quarterly cash dividend and distribution of $0.05 per share, to be paid on March 20, 2019 to holders of record as of March 6, 2019.
As we look forward into 2019, we are very positive about how Liberty is positioned, continue its mission to drive best-in-class returns. Geographically diverse footprint, long-term customer partnerships and highly efficient operations position us well to produce solid returns even in a challenging market.
In 2019, we expect general and administrative expense to maintain a run rate similar to the second half of 2018, and tax rates for the year are estimated to be 16% to GAAP book tax rate, 24% for the fully diluted as-if-converted EPS calculation, and 14% for the cash tax effect.
I will turn the call back to Chris before we open up for Q&A.
Chris Wright -- Chief Executive Officer and Chairman of the Board
I'd like to close with some thoughts on the shale revolution. We understand the investment community's concerns with the oil and gas industries relatively poor returns on capital in recent years. I think it's helpful to understand how we got here. The first successful test of shale gas occurred only 20 years ago in the Barnett Shale. Shale gas exploration and production reached critical mass only a little more than a decade ago and for shale oil, it was far less than a decade ago. Since then, US oil production has more than doubled, significantly altering world oil markets. Shale gas has also transformed world natural gas markets, switching the US from one of the world's largest importers of natural gas to one of the world's largest exporters. And in change this fast and this large in one of the world's largest and most important industries leads to significant disruption. We believe that the industry is in the process of exiting the dot-com phase of the shale revolution or the primary focus was on growth and optimism was pervasive.
This appending is yielding winners and losers. Like in the dot-com boom, there have been more losers than winners. However, the pace of innovation has been impressive. While some companies have been disciplined with their shareholders' capital during this period, we expect to see increasing investment discipline and returns across the value chain, as we move out of the early stage dot-com phase of the shale revolution.
Thanks for listening to -- listening in today. I will turn it back to the operator for questions.
Questions and Answers:
Operator
We will now begin the question-and-answer session. (Operator Instructions) The first question will come from James West of Evercore ISI. Please go ahead.
James West -- Evercore ISI -- Analyst
Hi. Good morning, guys.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, James.
Michael Stock -- Chief Financial Officer and Treasurer
Good morning, James.
James West -- Evercore ISI -- Analyst
And Chris, I appreciate your perspective on the shale revolution here, I think you're right, and I hope you're right on we're exiting the dot-com phase of the revolution on oil shale because as you pointed out returns have been atrocious for the industry and then not so good for you guys. You guys are capital disciplined and returns focused, but for an industry overall, it's been a pretty bad run here. So, I wanted to ask -- the question in top of my mind is, OK, so we've gone through an air pocket here with -- in the pressure pumping business, it's unclear how this year is going to ultimately unfold in terms of pricing and returns on assets. But how are you seeing behavior of your competitors? You guys are certainly disciplined, but I don't know with everybody else is and so perhaps if you could comment on kind of what you're seeing in the marketplace right now.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Yes. We'll do, James. And look -- we hear stuff from our customers, we hear stuff, you know, around the -- in the Board. So what I'm going to get -- give you is sort of a sense of what's going on. But in the broad sweep, last -- from last summer, sort of the peak of activity level and a very high peak it was, probably 20%, say 70, 80, 90 frac fleets that were fracking last summer are not fracking today, overnight; probably, some of them -- a few of them are back, but they weren't fracking in December. So that's a pretty significant decline. And as you have a fleet that's getting pushed out of work, it doesn't immediately just lay the guys off or park the equipment, they try to find new work, they want to keep that fleet going. It takes a few strikes or -- if they are failing or the pricing is so egregious, but for those -- people get laid off and the equipment really gets parked, and now you've shrunk supply in the marketplace. So I think we're seeing a fair amount of supply come out of the marketplace. So I should think a lot of the reactions of our competitors had probably mostly been rational. There's many more frac -- many less frac fleets available to frac today. There is less demand for them. So the market is soft, but you know -- for a market to get better, you either have to have an increase in demand or decrease in supply, and what's really been going on the last six months and I suspect we'll see continue the next few months, is a reduction in the available supply looking for work.
James West -- Evercore ISI -- Analyst
Right. Okay, great. And then, another topic on top of mind is consolidation in the industry, and I know you guys have a fleet that's unique and perhaps you may not be interested in mixing your assets with other assets. But could you maybe comment on what you see in the M&A market and if this is a possible outcome for the industry. I mean -- I know, we have a lot of new public companies including yourself that maybe don't want to be consolidated or consolidate, but it seems to me we need some consolidation to get the overall return profile for pressure (inaudible).
Chris Wright -- Chief Executive Officer and Chairman of the Board
Of course, predictions are hard, especially about the future. But I think you're going to see some of the least efficient players including the levered ones struggle a bit in today's environment. So we might see some consolidation. We might see -- certainly, there's plenty of rumors and chatter; I think, there's a lot of that dialog going on. Yes, there was a little bit of consolidation and one or two less frac players by the end of the year, that would certainly improve the market and that's probably a reasonable chance that happens.
James West -- Evercore ISI -- Analyst
Okay. All right. Great, guys. I appreciate it. Thank you.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks, James.
Operator
The next question will come from Sean Meakim of JPMorgan. Please go ahead.
Sean Christopher Meakim -- JP Morgan Chase & Co, Research Division -- Analyst
Thank you. Good morning.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, Sean.
Michael Stock -- Chief Financial Officer and Treasurer
Good morning, Sean.
Sean Christopher Meakim -- JP Morgan Chase & Co, Research Division -- Analyst
So -- we could just dive in a little bit more into the drivers of your 1Q guide. Just thinking between volumes, efficiencies, pricing. Where is -- where would you say leading-edge pricing is for your fleet today versus where your average fleet is experiencing? How much do you think efficiency can help you month over month as budgets get set? Just thinking about those different -- unpack those pieces little for us as you think about your guidance for the first quarter, please?
Chris Wright -- Chief Executive Officer and Chairman of the Board
You bet, Sean. So as we said in the late summer, whatever market is very strong, we saw some erosion in Q3 in activity level as we've talked about our last call; we saw a more significant erosion in Q4 and when these (technical difficulty) pushed out of market and when they're trying to get new work that pushes pressure on pricing. Surprisingly, I don't know, from last fall or something maybe pricing declined more than 10%. Half of that is the decrease in commodity prices -- think of the compression for example on sand prices. That is a plus (technical difficulty) customers. But you know, maybe, 5% of that is coming out of our variable margin.
So that's -- of course, that makes the market tougher, but activity level, we had these -- schedule changes, there are normal for this industry. They happen all the time. But we usually know them with some advance, and as you've heard us say before, there is excess demand for Liberty. We can always move fleets somewhere else if we know the schedule change. What bit us in the fourth quarter was very short notice changes in behavior. It didn't allow us to redeploy those fleets or efficiently redeploy it; that hurts. Now, that goes on in Q4. In Q1 today, every fleet, all 22 fleets we have, are fracking, as I'm talking to you today. And I'd say, we've got good reason to believe that will continue -- that will continue as far out as we can see.
I think we feel pretty good about fleet utilization this year even though the market is softer. We will keep our fleets busy. We've been in very close communication with our customers. They're somewhat apologetic for the vagaries of this changing market, exiting the dot-com phase that sometimes makes very rapid decisions required. But pricing is compressed, and Sean, I guess to your most important question, I would say, across our fleets today, they're all pretty close or roughly in line with leading-edge pricing. I think the compression in pricing, as probably mostly happened, I would suspect we're at a bottom. Our dialogs with customers about pricing now is when we might bring them back up. But I don't see -- that's not next week, next month, but we don't have wide price disparity in the fleets today.
Sean Christopher Meakim -- JP Morgan Chase & Co, Research Division -- Analyst
Got it. Thank you. That's very helpful. And so then, just to expand on a little bit. How would you characterize your ability to drive improved EBITDA per fleet if we are able to stabilize at roughly current pricing levels? So like, in other words, we've talked previously about a range of EBITDA per fleet in 2018 that was maybe low to high-20s. We've had this downdraft here in the back half of '18 into '19. What does that range look like without pricing improvement in '19 as you drive volumes and improve your efficiency and how confident are you in 1Q as a bottom for that metric?
Chris Wright -- Chief Executive Officer and Chairman of the Board
Of course, we don't know pricing. Again, I suspect by the time we get to year-end, we've probably got -- there's probably a drift in the other direction in pricing, from here to there. We don't know the timing of that. You've heard sort of our guide of what we think happens this quarter and that's reflective of this tough pricing. There's two things we can do about that. One is schedule, is to keep the fleets busy. Customers have worked -- customer have worked faster than they thought, we thought ahead on that. We found ways to either slide up the work to follows that with that customer or insert work from others to keep these fleets busy. And the second big -- in Q4, our fleets actually had awesome throughput on every day they fracked. The problem was it was just way too many days they didn't frac. So that's why we gave the haptic (ph) to our operations team for even with these big schedule gaps, still running like a well-oiled machine on the days they're fracking. But as you've heard us say before, this huge driver, that's a win for us and win for our customers, is driving increased efficiency, throughput every day in the field, and we continue with huge focus on that, and I'm going to let Ron Gusek, elaborate a little bit on a few of the highlights of what's going on with us on increased throughput.
Ron Gusek -- President
Yes, Sean. I might just add a few things in there, just around efficiency thoughts. I mean, obviously, we continue to work on training and those sorts of things with our crews. We've had crews that have been working together for years and years now. The tenure, the experience together continues to allow for efficiency improvements just among the guys out there; new technology, Chris alluded to the quick connect system that we're working on. So with this idea of tracking all of the time that we're spending out on location and where we have opportunity for improvement, we continue to work on technology initiatives that allow us to get rid of those and those extra minutes there and buying more time to pump. So the quick connect initiative being one of those. I'd love to say, we've solved all the equipment problems that exist out there, but we still continue to see meaningful opportunity there. We think we've talked about our work on the blenders that we've been doing to improve up-time on what is the single point of failure inside of our frac fleet. We continue to do a large amount of work on pumps and pump design with the goal of ensuring increased up-time there and reduced maintenance time. And then of course, we continue to do a lot of work with our customers. As our customer partnerships continue to get more and more mature, we grow together and find opportunities for improved efficiency there. So all of those things together, still a plenty of room for efficiency improvement there. The Permian, for example, looking fantastic right now. We've had many fleets that have been running through Q4, pumping more than 1,200 minutes a day, but that still leaves us 200-plus minutes a day that we can find there. So lots of opportunity I think on the efficiency side yet.
Sean Christopher Meakim -- JP Morgan Chase & Co, Research Division -- Analyst
Great. Thank you guys for that feedback.
Chris Wright -- Chief Executive Officer and Chairman of the Board
You bet, Sean.
Operator
The next question will come from Jud Bailey of Wells Fargo. Please go ahead.
Judson Edwin Bailey -- Wells Fargo Securities, LLC, Research Division -- Analyst
Thanks. Good morning, guys.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, Jud.
Judson Edwin Bailey -- Wells Fargo Securities, LLC, Research Division -- Analyst
Wonder if I could follow-up on kind of Sean's line of questioning. The guidance for revenue, I think, you said up single-digit. Could you give us a sense of kind of what your expectation would be, how to think about activity against that? I mean, you cited I think January pumping hours were a record. Do you -- would you think about your pumping hours being -- sand pump rather, would we think that being up 5% to 10% to get to that kind of revenue number? How are you thinking about the volume growth relative to the revenue expectations?
Michael Stock -- Chief Financial Officer and Treasurer
Yes. I think you're about right there on Sean's line (ph). I think we're sort of -- you're probably talking Q-over-Q of order 10% up volumetrically to get to that single-digit revenue growth.
Judson Edwin Bailey -- Wells Fargo Securities, LLC, Research Division -- Analyst
Okay. And I guess my next question is to get that, how do you feel about your visibility for the first quarter and I guess for all 2019, as you sit here today, how would you characterize visibility on the calendar, both near term and then over the rest of '19?
Chris Wright -- Chief Executive Officer and Chairman of the Board
You know, Jud, in spite of the rapid collapse -- the shrinkage in activity collapse is absolutely the wrong word. We feel pretty good. I mean, we are completely booked as far as we look out in the later this spring and certainly in the dialogs with our customers. I would say pull or interest from our customers right now is larger than the fleets we have running. So we are in decisions about what are we going to say yes to, what are we not going to say yes to. So I would say we feel pretty confident that utilization of our fleets will be very good. There is demand for well more than the 22 Liberty fleets that are fracking today.
Judson Edwin Bailey -- Wells Fargo Securities, LLC, Research Division -- Analyst
Okay, thank you for that. Chris, if I could slip in one more, based on that last comment, if you've got that much demand, is it fair to think that fleets 23 and 24 could try and work in the back half of the year? Is it a price discussion or is it just no one willing to commit that far down the road at this point?
Chris Wright -- Chief Executive Officer and Chairman of the Board
Oh, no. I mean, Jud, we could put both fleets to work next month. No problem at all. And we are in dialogs about that, but we probably -- but I think it's unlikely that we do. So, yes, it is -- it's a combination of price, which means what are we going to make right now and customer partnerships. Is it a strategic customer, does it matter for our long-term position, what's the right balance there to do that.
So it's not a question of could we find work to put the fleets out. We can get -- we have a pull on that today. But I think will be slow, cautious, disciplined -- I don't know the right word, in deploying those. As we said in our press release, it's a very real possibility that one or both of those fleets is still idle at the end of the year. More likely one of them will be outside then, but I don't know. It's not -- a year ago, we had such; it was very good current economics, we had good customer relationships, there was no reason to hold back on that. Today, we're more on a bubble. Profitability at current levels is meaningfully lower than it was in that we think is representative of mid-cycle.
So, we're not anxious to deploy every horsepower we can into today's market, but we respect the customer relationships we have and where they might go in the future. So it's always a balance. We deploy a fleet, again it's -- that's a 10-year asset and the humans in it are going to have 10 years longer than that. So we're looking longer term at it, but of course it reflects current pricing as well.
Ron Gusek -- President
Let me color a bit, Jud. I mean, I think we're being very judicious when we look at it. We believe and discussions with our customers and with people -- E&P operators that are (ph) currently our customers, but there is going to be a very strong focus on customer -- on capital discipline, on staying within budgets, looking at cash flow. So we want to be very careful and we look through their asset -- how they roll down their completions to their assets. What the back end of the year is going to look like? We want to make sure that we got a very clear view of where they are in the sort of spin cycle for the year. Otherwise, we -- you could end up with sort of a rather choppy Q4. So we're being very sort of judicious as we look at that and whether or not we can look at some new -- some clients who want to expand and can we do that with a little flex capacity, especially if we looking at whether or not we've got some other clients that may slow down sort of in the Q4 period. So, if we've got flex capacity, we can sort of use over the summer, we may stretch a little bit and then still only have the 22 fleets through Q4 and that will be very solid utilization. So we're looking at that very a great amount of detail this year.
Judson Edwin Bailey -- Wells Fargo Securities, LLC, Research Division -- Analyst
Okay, well listen, I appreciate the color on this. I'll turn it back.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks, Jud.
Operator
The next question will come from George O'Leary with Tudor, Pickering & Holt & Company. Please go ahead.
George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst
Good morning, guys.
Michael Stock -- Chief Financial Officer and Treasurer
Good morning, George.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, George.
George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst
Trying to come at the the utilization question and kind of frac activity question from a slightly different angle, if you guys could frame maybe the average days worked or average days pumping per fleet in the fourth quarter of '18 or utilization percentage maybe ball-parking that? And then, what you would need to achieve to keep the EBITDA flat quarter-over-quarter in light of the pricing decreases? I think that would be super helpful.
Michael Stock -- Chief Financial Officer and Treasurer
Yes, George, if you looked at that Q-over-Q, Q3 to Q4, we were down probably 10% to 15% from a utilization standpoint.
George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst
And then for the first, more or less how many basis points or how many incremental days per spread do you think you might need to pump to keep EBITDA flat? I think January is good, but just trying to think through the progression of the whole quarter?
Michael Stock -- Chief Financial Officer and Treasurer
We'll probably be up of order 10%, maybe high single-digits to 10 points going into Q1.
George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst
Okay, great. That's super helpful. And then I just kind of had a giving else focus on efficiency and adding bells and whistles to the frac fleet. I can add nerdier question born more out of curiosity than anything else, but -- replacing the zipper manifold is interesting. Zipper manifold is typically rented on the well side. I'm just curious if this new, I believe you referred to it as an articulating arm. Is that a new rental product or is that something you'll be purchasing from a CapEx perspective to bolt-on to your fleets?
Michael Stock -- Chief Financial Officer and Treasurer
We'll be purchasing it for. So it will be CapEx bolted-on to our fleets.
George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst
Okay, thanks very much. Rest of my questions have been answered. I'll turn it back over.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks, George.
Operator
The next question will come from Scott Gruber of Citigroup. Please go ahead.
Scott Gruber -- Citigroup -- Analyst
Yes, good morning.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, Scott.
Michael Stock -- Chief Financial Officer and Treasurer
Good morning, Scott.
Scott Gruber -- Citigroup -- Analyst
Coming back to the activity outlook, I know there's been several questions on this front. I wanted to ask another one. Chris, you mentioned a full calendar as we go through 1Q and it sounds like into 2Q, does that mean there's line of sight to getting back to the mid 2018 rate of stages per fleet per month in 2Q or 3Q?
Chris Wright -- Chief Executive Officer and Chairman of the Board
Absolutely. I'd say, we're there today or close to it. I mean, we run 22 fleets and pumped record amount of sand in January. So I think stage throughput and activity levels right now are good. We are in winter, so we're going to have disturbances but boy so far winter has been very smooth -- winter has been very smooth.
Scott Gruber -- Citigroup -- Analyst
Got it. And then just help me square a couple other numbers then. You had mentioned roughly a 5% net pricing hit, I believe. Previously, you guys had talked about a mid-20s EBITDA per fleet when you were running at call it full utilization. But the EBITDA guide for 1Q was essentially flat. So at first take, I would assume that you would apply that 5% of pricing hit to the mid-20s on EBITDA, but there seems to be a gap in 1Q for already at that level of utilization. So can you just help me think about that calculus?
Chris Wright -- Chief Executive Officer and Chairman of the Board
Yes. We had some pricing erosion in Q3, we had some more pricing erosion in Q4, so the total price erosion, I'm going to talk about from which start to which end. But in round numbers, if we went from mid-20s EBITDA to mid-teens or below mid-teens, that's probably a 12% net price reduction to us. The price reduction to customers over that time period is even larger because material costs are going down. Revenues -- to get that flat revenues through the last six or eight months, you got to grow your activity level. Again, even without margin compression just because of the largest cost of a frac is sand and that price is compressed a lot. But to your point, pricing from the peak to now is net to us is maybe declined close to 10% and 5% and down (ph). Yes, in Q3 -- Q2, we had almost a dreamy alignment of schedule so that the days fracked per month per every fleet was incredibly high. We've got a couple more fleets running now I think than we did at the end of Q2. We didn't have quite that dreamy of the schedule alignment in January but boy throughput on an average day, I would say, is good or better.
Scott Gruber -- Citigroup -- Analyst
Got it. And then one last one -- answer to this maybe nothing because you guys do a number of things well and have a great strategy. But as we move out of the dot-com phases you called it, do you think about changing anything with regard to your strategy?
Chris Wright -- Chief Executive Officer and Chairman of the Board
We always think about changing our strategy. Look, the marketplace changes what's most -- which customers are peak customers, chain customers, plans or views of the world or the right way to do things changes, we're always in dialog with our customers, we're always challenging ourselves internally. So, yes, I think probably more of our change, you know, technology or culture is kind of behind in the doors, so we don't talk about all of it, but absolutely, look, think of how much as -- how much of the oil and gas world's changed in the last 10 years. Is Liberty going to look a bit -- a little bit different five years from now? Yes. Is the principle that guide us different? No.
Michael Stock -- Chief Financial Officer and Treasurer
One of the things, Scott, obviously, we have almost quadrupled in the last two-and-a-half years, right. So (inaudible) invest in growth phase, we are now focusing as we going to (inaudible) focus on efficiency, focus on effectiveness allows us to spend a lot of time focusing on getting a lot better internally and there is a huge amount of -- a number of things that we can do with that.
Scott Gruber -- Citigroup -- Analyst
Great. I appreciate all the color. Thank you.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks, Scott.
Operator
The next question will come from Connor Lynagh of Morgan Stanley. Please go ahead.
Connor Lynagh -- Morgan Stanley -- Analyst
Yes, thanks. Good morning.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, Connor.
Michael Stock -- Chief Financial Officer and Treasurer
Good morning, Connor.
Connor Lynagh -- Morgan Stanley -- Analyst
I was wondering if you could give us a little more color on the technology investment. You guys are referring to obviously pretty significant portion of the capital budget this year. So I think you already sort of alluded to some of the things we're talking about. But if you could give us a sense of how much capital is going to what -- the relative -- how you think about the returns on that investment?
Michael Stock -- Chief Financial Officer and Treasurer
Yes, I think probably -- probably 40% of that investment is going toward the new articulating arm, the fire suppression systems that Ron discussed in detail. Other items we doing there is sort of improvement in blended technology, rolling out new dry glove, drive fast skids, facility upgrades and ERP upgrade, mix -- it just as a number of different sort of as we move forward and that's one of the things we're focusing on this year. I mean, you have to invest in this because we can be doing this call in five years' time, we want these things to pay dividends. Is your efficiency upgrades in the site, the building, right. How do we get ways and that's one of the things that we focus on every day. So, yes, and we look at every investment as you -- and look at the return on that investments whether it's strikes -- risk cost reduction to the bottom line, improved efficiency, improved throughput and a number of other ways and a lot of its investing people. So I think we look at always different ways that way.
Connor Lynagh -- Morgan Stanley -- Analyst
Yes. Got it. Maybe just shifting more to the capital return side of things. So it seems -- if things already are potentially improved seasonally, you will be generating a decent amount of free cash flow this year. How do you think about -- are you planning to execute the entire $100 million buyback? Are you planning on any changes to the dividend policy -- and just walk through how you think about that?
Michael Stock -- Chief Financial Officer and Treasurer
No, We kind of -- we look at these decisions sort of as we march through the year. Yes, this is an interesting year, right. This could be challenging. We'll see where the commodity market goes. At the moment, we are not seeing a dislocation on asset pricing, but if that happens, we want to make sure that we have the balance sheet available to take advantage of that, just like we did in the last downturn. Our dividend policy, as we said, when we announce it, we intend for that to be a regular event. We will assess -- we will look at that every quarter, but we have no plans at the moment of changing it. And when we look at the buyback policy, as it makes sense, as far as the share price in the balance sheet.
Connor Lynagh -- Morgan Stanley -- Analyst
Got it. Thanks for the color.
Chris Wright -- Chief Executive Officer and Chairman of the Board
You bet. Thanks, Connor.
Operator
The next question will come from Stephen Gengaro of Stifel. Please go ahead.
Stephen Gengaro -- Stifel -- Analyst
Thanks. Good morning, gentlemen.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Good morning, Stephen.
Stephen Gengaro -- Stifel -- Analyst
Just -- I wanted to just follow up on two things quickly, the first being the potential sort of EBITDA per fleet numbers at current pricing -- kind of current frac pricing, current frac sand pricing. Any ballpark you will be willing to throw out there?
Michael Stock -- Chief Financial Officer and Treasurer
Well, the guidance we've given for Q1 is obviously almost a flat EBITDA per fleet from Q4, around just over $13 million a fleet. And again, I think what we'll do is, we haven't given any further guidance on that side of the world, but we would hope to see efficiency increases and we'll look to see how the supply demand market comes together and -- where we can move prices up in the future.
Stephen Gengaro -- Stifel -- Analyst
Okay, thank you. And then just the other quick question. Geographically, any material shift to where your assets are versus prior quarter? I don't think so, we just wanted to be sure.
Chris Wright -- Chief Executive Officer and Chairman of the Board
No, there isn't, there isn't. We have opportunities in every basin we're in. So they've all got challenges but, yes -- not, not huge differences between the basins as we sit here today and no movement of assets on our end.
Stephen Gengaro -- Stifel -- Analyst
Very good. Thank you.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks, Stephen.
Blake Gendron -- Wolfe Research -- Analyst
The next question will come from Blake Gendron of Wolfe Research. Please go ahead.
Hi, good morning. Thanks for taking my question.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Hi, Blake.
Blake Gendron -- Wolfe Research -- Analyst
My first is on, it is pretty compelling when you talked about a vision for a steadier state US line completions market, and in that paradigm, you're going to get to returns -- you're going to get to a sort of return level where growth is the answer, but what would it take for you guys after you deploy the 24th spread to just take a step back and say, we're going to stop growing and just take cash off the table.
Chris Wright -- Chief Executive Officer and Chairman of the Board
The growth, it did depends on the outlook for the market, and I should say, we don't believe that the oil and gas ever become steady, but we do believe that there are some forces that might make it steadier. I think you build asset that last a long time like a well, you get a cyclical industry but spending is more curtailed in the high cash flow, high prices times and we -- at US, look, we've driven oil price down because US production over the last five years has grown more than total demand in world oil. Obviously, that's not going to continue. I think US oil production will grow meaningfully in the years ahead, but not likely at the crazy breakneck speed it's been the last five years. So as people move toward not outspends for growth as was common at the start of the shale revolution, I think we'll get a little bit slower growth in US oil production. Therefore, a little bit -- probably steadier level of activity -- not steady, but steadier. And so, I think we will continue the strategy the same that as we generate cash every year what to do with those dollars, what's the best return; sometimes it's going to be buying back our stock, sometimes it's going to be building more frac fleets, sometimes it's going to be burnishing of balance sheet because there is other investment opportunities and huge throughout all those is going to be returning cash to shareholders.
So it's not like 24 fleets we stop, nothing about there -- there's no reason to do that but. But returning -- I am probably rambling because it's so depends on the particular circumstances and the opportunities in front of us. But will Liberty return a lot of cash to shareholders in the coming five years? Yes. Will we not grow at all? Unlikely that we will not grow at all. We will likely continue to grow, but in today's climate, you know, that balance of where to deploy capital, it's much less toward growth.
Michael Stock -- Chief Financial Officer and Treasurer
Like mid single-digit market share in the frac market with deep relationships with our customers and we really value the fact of the service and then partnership with them. As those customers -- as we build with those customers, you know, that pull (inaudible) and through 24. So, yes, there is an organic growth strategy there and there has been in places beginning in it and we will continue.
Chris Wright -- Chief Executive Officer and Chairman of the Board
But we are not a growth for growth's sake. We've grown very fast (ph). We just finished our seventh commercial year in business. So we've said, we grew quite fast, but it was not we set out to grow at a breakneck pace, we set out to do things differently and provide a differential level of service and a differential return on capital. And by executing on that, the pull or demand for Liberty is great, the cash generation was large and so we -- it made sense and we funded relatively rapid growth. But we're not -- for us, the goal is -- objective isn't to be bigger, it's to be better.
Blake Gendron -- Wolfe Research -- Analyst
Got it. That makes sense. And I think, the more encouraging aspect of the steadier state is just better visibility and it will allow you to make those capital allocation decisions a bit easier. My second question -- and this is more of a Bakken sort of nuance completion design question. I'm going to single out -- specifically as a relatively new adopter of plug and perf as opposed to sliding sleeves. It's been a factor that's helped your throughput story in the Bakken specifically, but any sort of meaningful shift in completion design up there, that could potentially pressure the throughput side of the story up there?
Chris Wright -- Chief Executive Officer and Chairman of the Board
No. I think like all the other basins, it's seen the benefits of higher throughput, just lower well costs and when you're zippering, you get this stress interaction among the fractures and offset wells. It also helps steer your fractures to the right place and the reservoir you want them, because I think -- used to joke as a frac modeler, fracs don't like fracs, just like fracs modelers didn't like frac modelers. But no -- obviously with sliding sleeves, you can get faster, easier throughput. When we arrived in the Bakken, 70% of wells were completed with sliding sleeves. One of the reasons for that, when you get well done much faster, you can frac well in a day and a half instead of a week. It's not a week anymore, but with single wells it was.
So we were pushing against the tide there that by going to plug and perf on single HBP wells, you slowed the completion of a well. You had to invest several more days and more money to produce those wells, but you increased well cost 10% or 12%, and you increase productivity and EURs by 40-plus percent. So we think the trade-offs were strongly in favor of doing it, and it's why almost everyone -- there's probably two companies in the Bakken that still use sliding sleeves and we don't have guys have partnered with them on multiple things, you can see them moving, they're probably going to be one remaining after them.
On the long-run, you want to get the maximum recovery, greatest economic returns, plug and perf is almost always the right way to go. And plug and perf today is quite different than it was five or seven years ago. I mean, originally, we were trying to get three to five individual fracs in each stage, that's why it was better than sliding sleeves. Today -- and we run diagnostics and these -- we call stream limited entry perforating that we published papers on, we're getting a dozen or more individual fractures in each frac stage. So the density of plumbing and contact to the rock is just compelling.
Blake Gendron -- Wolfe Research -- Analyst
All right. Got it. Thanks.
Chris Wright -- Chief Executive Officer and Chairman of the Board
So, it's a long-winded answer.
Operator
The next question will come from Marc Bianchi of Cowen. Please go ahead.
Marc Bianchi -- Cowen and Company, LLC, Research Division -- Analyst
Hi, thanks. Most of my question has been answered. I just wanted to ask a little bit more on first quarter. January you mentioned was the highest monthly volume in sand for the Company. As you put together the guidance here for first quarter, what's the expectation of the progression from January through the remainder of the quarter?
Chris Wright -- Chief Executive Officer and Chairman of the Board
You know, I would say, flattish. We've got all of our fleets running at high pace today and see no reason to believe that won't be the case in February and March.
Marc Bianchi -- Cowen and Company, LLC, Research Division -- Analyst
Got it.
Chris Wright -- Chief Executive Officer and Chairman of the Board
And flattish is the nice change from Q4.
Marc Bianchi -- Cowen and Company, LLC, Research Division -- Analyst
Sure, sure. Is the -- I suspect that would imply the kind of exit rate profitability that you would have would be pretty consistent with what you're guiding to here in the first quarter. Is that fair assumption?
Chris Wright -- Chief Executive Officer and Chairman of the Board
I think it is.
Marc Bianchi -- Cowen and Company, LLC, Research Division -- Analyst
Okay, great. Thanks, Chris. I'll turn it back.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks, so much, Marc. Appreciate the question.
Operator
And this concludes our question-and-answer session. I would now like to turn the conference back over to Chris Wright for any closing remarks.
Chris Wright -- Chief Executive Officer and Chairman of the Board
Thanks for everyone for investing the time to dialog with Liberty today, and your interest in following the Company. Interesting times in the marketplace. So a longer Q&A section, but a great dialog and we look forward to the rest of the year in 2019. Take care.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.
Duration: 55 minutes
Call participants:
Chris Wright -- Chief Executive Officer and Chairman of the Board
Michael Stock -- Chief Financial Officer and Treasurer
James West -- Evercore ISI -- Analyst
Sean Christopher Meakim -- JP Morgan Chase & Co, Research Division -- Analyst
Ron Gusek -- President
Judson Edwin Bailey -- Wells Fargo Securities, LLC, Research Division -- Analyst
George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst
Scott Gruber -- Citigroup -- Analyst
Connor Lynagh -- Morgan Stanley -- Analyst
Stephen Gengaro -- Stifel -- Analyst
Blake Gendron -- Wolfe Research -- Analyst
Marc Bianchi -- Cowen and Company, LLC, Research Division -- Analyst
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