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Liberty Oilfield Services Inc. (LBRT 2.69%)
Q1Â 2019 Earnings Call
May. 01, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to the Liberty Oilfield Services First Quarter 2019 Earnings Conference Call. (Operator Instructions) 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 earning 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 & Chairman of the Board
Good morning, everyone, and thank you for joining us. We're pleased to discuss with you today our first quarter 2019 results. Despite facing a challenging market, we are proud to have delivered a sequential 13% increase in revenue to $535 million and adjusted EBITDA increase of 18% to $85 million and a net income before income taxes increase of 27% to $41 million after adjusting for gain loss on disposal of assets. In the quarter, our fully diluted earnings per share was $0.26. We were able to execute this financial performance due to the excellence of our operations and supply chain teams. Even with some significant winter weather, our fleets performed at summerlike efficiencies, and we pumped a record volume of profit in the quarter. These strong financial results enabled us to continue the organic growth of our asset base while returning $24 million of cash to shareholders in the form of quarterly dividends, distributions and the repurchase of 1% of our total outstanding shares. With our focus on long-term success, we continue our commitment to achieve superior returns on invested capital, maintain a strong balance sheet and invest for the future. We delivered a pre-tax return on capital employed for the 12 months ended March 31, 2019, of 33% while generating significant free cash flow and returning cash to shareholders.
Our first quarter 2019 results reflect a rebound in our activity from the fleet utilization challenges experienced in the fourth quarter of 2018. We have balanced the demand for Liberty's differentiated services with market pricing dynamics to produce acceptable returns on our fully utilized frac fleet. Based on visibility with our customer activity pipeline for the year, demand for Liberty fleets remains high. And at the end of the first quarter, we activated our new Tier 4 frac fleet, taking the active fleet count to 23 at quarter end. This additional fleet was deployed to the long-term customer that it was projected to work for when it was ordered in 2018. Pricing of a like-for-like frac job is down meaningfully in 2019 from the average price in 2018. A significant portion of this decline to the operator is structural due to the significant growth of regional sand supply and the consequential reduction in market price of both Northern White and regional sand. This, in conjunction with the move to more pad development in the Permian and the inherent efficiencies that this delivers, has driven a structural decline in pricing that helps our customers without hurting us. However, another part of the price decline was not structural but cyclical in nature and relates to service pricing. Entering the fourth quarter of 2018, there was an oversupply of STACK frac fleets in the market which, combined with the additional reduction in customer activity, led to a rapid reduction of pricing for frac services.
These reductions worked their way through our fleet repricing negotiations in the fourth quarter 2018 through to the middle of the first quarter of 2019. While there continues to be an oversupply of frac fleet to the market, we believe that roughly 20% of the frac fleets that were active in the summer of 2018 are now either idle or in the process of being idled. As supply of active frac equipment balances with demand, we expect pricing to potentially improve later this year. Working in concert with customers, Liberty continues to drive innovation and operational efficiency across our entire fleet. This performance translates to strong demand for Liberty's high-efficiency fleets that delivered differential frac services. We are focused on generating strong returns on capital and free cash flow in 2019 while continuing to invest in technology and growing our competitive advantages.
We are taking delivery of the final equipment for fleet 24 in the current quarter, but it will not be deployed without the correct combination of strategic customer demand and market dynamics. Q1 was a strong start to the year. While there remains more total demand for Liberty fleets than we have supply, challenges aligned with schedules may lead to some inefficiencies. Together with some price reductions rolling through for a full quarter in Q2, we expect flat to slightly down results in the near term. However, results have the potential to strengthen later in the year. Premium service quality, coupled with basin and customer diversity, provides the company the opportunity to continue generating strong returns on capital employed. On the technology front, we continue to focus on opportunities to improve safety and drive efficiency. This is a long-term commitment that has been a key part of Liberty's DNA from day 1.
These investments range from software and big data investments to help our customers design more productive wells, natural gas-fueled and quiet fleets to be responsive to the communities where we work and investments to improve throughput and reduce the cost of operations of our fleets that improve both Liberty's and our customers' economics. These are ongoing multiyear investments in innovation and will continue to drive our efficiencies and returns wherever we are in the cycle. Liberty's financial results, favorable long-term outlook and strong balance sheet support our balanced strategy of disciplined growth and returning capital to our stockholders. Liberty is committed to compounding shareholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate. We are excited by the growth opportunities in front of us and the positive long-term outlook for the shale revolution and the benefit 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 -- CFO & Treasure
Good morning, everyone. We're pleased with the performance of our team during a challenging first quarter. Liberty operations and supply chain teams executed at the level that drives customers to want Liberty as their partner. This is evidenced by the fact we pumped the highest quarterly volume of profit in our history in the midst of a softer patch in the industry. For the first quarter 2019, revenue increased 13% to $535 million from $473 million in the fourth quarter of 2018. Net income after tax totaled $34 million in the first quarter, the same as the fourth quarter. Pretax net income increased 27% to $41 million after adjusting for the loss of gain on disposal of assets.
First quarter adjusted EBITDA increased $85 million -- to $85 million from $72 million in the fourth quarter. Annualized adjusted EBITDA per fleet increased to $15 million in the first quarter compared to $13 million in the fourth quarter. General and administrative expenses totaled $22 million for the quarter or 4% of revenue and included stock-based compensation expense of $2 million. Interest expense and associated fees totaled $4.2 million for the quarter and compared to $3.5 million in the prior quarter. And first quarter income tax expense totaled $6 million compared to $4 million in the fourth quarter.
We ended the quarter with a cash balance of $59 million and net debt of $47 million. At quarter end, we had no borrowings under our ABL credit facility. And total liquidity, including availability under the credit facility, was $292 million. As we've discussed previously, in order to seek the best long-term returns for our shareholders, we will follow a proven strategy of maintaining a strong balance sheet, investing in compelling growth opportunities and returning capital to shareholders when appropriate. In the first quarter, we paid dividend to shareholders and distributions to unitholders of $0.05 per share for total dividends and distributions of $5.6 million. Our Board of Directors announced on April 23, 2019, a cash dividend of $0.05 per share of Class A Common Stock to be paid on June 20, 2019, to holders of record as of June 6, 2019.
A distribution of $0.05 per unit has also been approved for holders of units in Liberty LLC, which will use the same record and payment date. Our Board approved $100 million share repurchase plan in September 2018, which is fully completed in January '19. On January 22, 2019, the Board approved an additional $100 million share repurchase plan, which expires on January 31, 2021. During the quarter ended March 31, 2019, Liberty repurchased, returned and retired 1.3 million shares of Class A Common Stock for $18 million. The total remaining authorization of future common share repurchases as of March 31, 2019, was $99 million.
In Q1 2019, we adopted a new lease accounting standard, ASC Topic 842. The impact of this was a recording of a lease use asset and corresponding lease use liability on order of $100 million onto the balance sheet. As we look forward into 2019, we are very positive for how Liberty is positioned to continue its mission to drive best-in-class returns. Our geographical diverse footprint, long-term customer partnerships and highly efficient operations position us well to produce solid returns even in a challenging market.
And I'll turn the call back to Chris before we open for Q&A.
Chris Wright -- Chief Executive Officer & Chairman of the Board
As Yogi Berra said, "Predictions are hard, particularly about the future." But our best guess is that we may see a continual -- continued gradual decline in available frac capacity actively marketed due to ongoing fleet idling in response to current forecast returns for many players in the space. Capital discipline may drive a modest market improvement over the next several quarters. As we look further into the future, we tend to agree with comments made by others during this earnings season that there is a significant amount of horsepower in the general market that is at the point of needing significant reinvestment to remain competitive.
The most likely result is that a portion of this aged equipment will be permanently retired over the next few years. However, we are not making any decisions based on this idea. Our focus is on driving improvements in our technologies and operations that allow us to increase our returns, independent of any price movement. These medium- to long-term efforts will only bear fruit very gradually, but they are top of mind for us every day as we pursue our mission to build a truly differential frac company. Thanks for joining us today.
We'll open it up for questions.
Questions and Answers:
Operator
(Operator Instructions) The first question comes from Sean Meakim of JPMorgan. Please go ahead.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Thanks. Good morning.
Sean Meakim -- JPMorgan -- Analyst
morning.So to start, I guess, Chris, could you maybe give us a sense of your confidence level in terms of 4Q being a bottom for EBITDA per-fleet profitability? And I'm just curious if there's any other pieces that we should be considering in the quarter in terms of start-up drag from fleet 23, how that can influence the second quarter or even the third quarter? Trying to get a sense of the other moving parts. I hear you on the medium to long term, some of the many opportunities that are out there. But in the near term, what are the levers are there to drive profitability and, let's say, a flat pricing environment next couple of quarters?
Chris Wright -- Chief Executive Officer & Chairman of the Board
Well, look, the improvement -- first of all, fleet start-up costs are relatively modest in all of these quarters. They're less than 2% of our EBITDA, so I don't think they're a driver either way. Q4 was challenging really from a utilization perspective. As we said 3 months ago, the challenge in Q4 was short-term notice from customers on major changes in schedule. That -- we had higher -- obviously, higher average prices in Q4 than we did in Q1, but significant utilization challenges is what drove that result down. And, yes, I think it's a fair statement we expect that to be the bottom in EBITDA per fleet. Q1, the story, basically, was very high utilization and good efficiency. Always room for improvement on those, but I would say very proud of the team for the utilization and the efficiency that was delivered in Q1.
Sean Meakim -- JPMorgan -- Analyst
Okay. Understood. Thank you for that. So then -- and the Permian, specifically, how has your customer mix changed over the last couple of quarters? Or -- I'm not sure if it's largely the same and folks have gotten back to work. And as you think about a big part of the incremental demand that tightened the market last year and has helped that oversupply situation today has been private ANPs. I'm just curious how you see their behavior factoring into the setup for the back half of the year.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Yes. So in the Permian, our customer base is very much the same. Changes in customer makeup at Liberty happen very slowly. We tend to have long-term partnerships, and we're slow in changing horses in the customer department. So no, none of the changes there would be due to different customers. Your comments about privates, I think, are quite relevant because our expectation is that the publics with announced CapEx budgets, we probably see a meaningful dropoff again in Q4 from them. If you run a highly efficient operations, people have a budget. You run efficiently, tend to spend the budget a little bit quicker. So we do expect to see some of the same challenges in Q4 from that. What we're doing this year is a better tracking of their expenditures versus budget and just tighter communication to understand that dynamics of that further out. There is excess demand for Liberty, so I believe we will have others to fill gaps that I think will inevitably open in Q4. Privates are likely meaningful part of that as well. That depends on oil prices. Oil prices right now, I think you see an increase in activity from privates. If oil is $48 going into Q4, I think we won't. But there certainly will be activity in Q4. As long as we know well in advance, we can make calendar and schedule responses. But I think we're going to see some of the same noise and movement and struggles in Q4 this year as we did last year and as we probably will next year as well.
Sean Meakim -- JPMorgan -- Analyst
Make sounds great. Thank you.
Operator
The next question comes from John Daniel of Simmons Energy. Please go ahead.
john daniel -- simmons energy -- Analyst
Hey guys. Great quarter. I just have 2 quick questions on just sort of rebuild, et cetera. Can you speak to what your remanufacturing efforts are going to be in 2019 and how that would compared to what you did over the last couple of years?
Chris Wright -- Chief Executive Officer & Chairman of the Board
If you look at our fleet age, I think this is our eighth commercial year in business, so early fleets. They -- some of them are absolutely in the rebuild cycle. And those efforts are ongoing, and they were ongoing last year, too. Might they be a little bit greater this year? Quite -- yes, I suspect they will.
Michael stock -- CFO & Treasure
John, it's Michael. I think, as we said, about $65 million of -- we think of capitalized maintenance, and that's really the rebuild cycle moving from about $2.5 million to $3 million on average of fleet. So a little going on this year for fleets getting rebuilt.
john daniel -- simmons energy -- Analyst
Okay. Can -- I'm just trying to oversimplify this because I'm not very smart. But how many fleets would you -- or pumps would you expect to rebuild? Because you're spreading that out over all units. Because the narrative is that the lower-performing people can't reinvest, right, and you guys are not an underperforming player. I'm just curious if you can say ,Okay, look, of our 23 fleets, we're going to effectively rebuild 2 or 3 every year going forward.
Michael stock -- CFO & Treasure
Yes. That's about right, John, I mean, I think we're probably sort of in that 10% range. Again, I think it will depend -- we've got a fairly steady sort of aging fleets between sort of -- most of what we've done is newbuilds. And the equipment that we've picked up of Sanjel was sort of a relatively 2.5-year average fleet age when we bought it. So, yes, so I think it's going to be relatively steady. Some years, you'll see 2 fleets. Some years, you'll see 3 fleets. You might see 8% to 12%, but I think it will depend on cycle. And also just -- a lot of it is just how busy you are and how you can kind of bring that -- bring those equipment out of the field.
Chris Wright -- Chief Executive Officer & Chairman of the Board
And John, I'll also add, as you probably heard us say before, when be build a new fleet or design a new fleet, our whole mindset is total cost of ownership over the life of the fleet. You can get fleets cheaper and you can save in the short term, but you pay for that in the long term. And that's just not our mentality, right? So when we're designing these fleets, we're thinking about what is its 10 year -- what are the next 10 years on this fleet going to look like? Now we're never perfect on that, but that's how we do it. And you've also got issues. When I was talking about fleets and some of them aging that are more than 10 years old, right? There were just different fundamental components. 10 years from now, 15 years from now, we'll probably have better fundamental components than we have today. So then as fleets get very old, even if they are maintained, you get -- essentially, there's a slow obsolescence factor in addition to if you didn't maintain them well and you didn't make the decisions when you first built them.
john daniel -- simmons energy -- Analyst
Fair enough. Last one for me, just on the age of rising costs for ESG investing. How are you guys looking at dual fuel kits on your fleets? Like what percent of them are dual fuel today? And as stuff comes through and gets rebuild, are you automatically putting in dual kits, what you're doing there?
Chris Wright -- Chief Executive Officer & Chairman of the Board
Yes. So we've always been intrigued by that. There's a lot of things to like about dual fuel. Number one on that is natural gas is cheaper than diesel, right? So when you've got availability to natural gas, it's a cheaper way to run a frac operation. Definitely, it's got lower emissions, and again, not just in CO2 emissions, but SOx and NOx and particulate emissions. So look, in a perfect world, look at United States electricity grid, right? We don't use oil to make any electricity, and natural gas is our biggest source. So natural gas is a preferred fuel. Close to half of our fleets or pumps are dual fuel, so we're not running at that level today because to do that, you've got to have gas in the field, right? So probably half of our dual fuel fleets are actually running with that capability. But certainly, we hope to see, we expect to see and we work with our customers to see an increasing consumption of natural gas to power like -- to power frac fleets.
Michael stock -- CFO & Treasure
And John, pretty much everything we build is dual fuel now and have been for a number of years.
john daniel -- simmons energy -- Analyst
Okay. Thank you so much.
Michael stock -- CFO & Treasure
Thanks John.
Operator
The next question comes from George O'Leary of Tudor, Pickering, Holt. Please go ahead.
Georgia leary -- -- Analyst
Good Morning guys.
Michael stock -- CFO & Treasure
Hi George
Georgia leary -- -- Analyst
First question, really, just a clarifying question. When you mentioned that profits could be flatter or slightly down quarter-over-quarter, which is understandable, given where pricing likely exited the quarter versus where it entered the quarter in Q1, was that per-fleet profitability or overall EBITDA? Just trying to make sure I didn't misunderstand that.
Michael stock -- CFO & Treasure
So I said that's overall EBITDA, George, so overall EBITDA we're thinking but very similar to fleet profitability. There's not a lot of difference. We only had sort of 1/3 of a fleet additional for Q1 '22.
Chris Wright -- Chief Executive Officer & Chairman of the Board
It just depends on the dynamics. You mentioned the price, right? Average price is almost, for sure, going to be down in Q2 over Q1, not a lot, but it's going to be down. And we had, I would say, exceptional utilization and operational performance in Q1, maybe unusual for winter season, but our guidance gets more seasoned, do not getting better. And so it's hard to go too much higher form that in the short run. And so could there be a little more scheduling channel in Q2 or whatever that's another headwind factor? Yes, that's certainly possible.
Georgia leary -- -- Analyst
Okay. That's very helpful. But my next -- that was a good segue. My next question was going to be if you think about it in terms of hours or sand pumped per fleet per month, how much better can you actually get? Or might we be reaching kind of near-term full efficiencies? So I think you answered that question, but I'll let you respond if not.
Chris Wright -- Chief Executive Officer & Chairman of the Board
On near term. On long term, is there room for significant growth and efficiencies? Absolutely. That's technology development here. That's operating procedures. That's customer relationships. So, no, we still see a fair amount of room for improvement on that, and, look, that's really been a Liberty mission our entire history. You look at number of hours a day we're pumping from 7 years ago and 5 years ago, it's lumpy, of course, because we're in the real-world upward trend. And we certainly expect that upward trend to continue. But to clarify your other point, yes, in the short run, are there brand-new things that are going to really drive it up in Q2 over Q1? Not in the short run. So later this year, I think we'll see some more positive developments there.
Michael stock -- CFO & Treasure
Yes. And, George, that was just a -- really, a modeling clarification for you all. As we've always said, you get little uptake winter over summer on average year. I just don't think it will be as pronounced anywhere near as pronounced this year as is on average. So just kind of trying to message that.
Georgia leary -- -- Analyst
Okay. That's help -- very helpful clarification. I'll piggyback on one of John's question. On the dual fuel side, half your pumps shows commitment to that. How do you -- and I know how you framed it historically. Just curious for your updated thoughts on e-frac versus dual fuel and why one makes sense over the other.
Ron Gusek -- President
George, this is Ron. I think we've always said from the e-frac standpoint, it's a technology we continue to keep an eye on. And I think when we see the rates and the circumstances come together that makes sense for us, we will be prepared to roll out a -- and likely. But at this point in time, just given what we see the trade-offs as, I think we still feel we're far better served by running dual fuel. We've tackled the noise problem. We have the quiet fleets out there already. We don't really face a footprint challenge or anything like that. And for those customers who do want to run gas, we have that capability today. So I think we've checked all those boxes at this point in time. And when and if we have demand, rest assured, we feel like we're on top of what e-frac technology will be. And when the time comes, we'll be prepared to put something in the market.
Georgia leary -- -- Analyst
Thanks very much for the color, Ron, good music too.
Operator
The next question comes from Angie Sedita of Goldman Sachs. Please go ahead.
Angie Sedita -- Goldman Sachs -- Analyst
Hi. Good morning guys.So, Chris, your comments, potential upside and pricing for later this year. Want to dig into that a little bit. Is that solely driven by lower supply? Can you give us a little bit of color that supply and activity.
Chris Wright -- Chief Executive Officer & Chairman of the Board
So our guess is that the dominant driver and maybe the sole driver is lower supply. The market today is less oversupplied than it was 2 months ago and much less oversupplied than it was 4 months ago, so we're seeing supply removed from the market. With customers with lower budgets and aggressive production targets, it's critical to them to have high throughput, reliable, efficient operations. So maybe there's even a little bit of SKU in there in that to pull on Liberty fleets right now is actually quite strong. We're -- there are plenty of people we like, we know, we like to work where we don't have the capacity for today.
So, yes, we are -- we don't know the future, as I said. So if we'll go to $70 and privates go crazy, maybe you'll see increased activity late in the year, but it's not obvious that that's going to happen. Our sort of general macro assumption is relatively flattish activity from here and probably a rockier fourth quarter. Now our macro is no better than anybody else's, so don't take that to the bank. But when we say that we expect a little bit firming market, that's supply exiting the market.
Angie Sedita -- Goldman Sachs -- Analyst
Okay. And then is the thought that we could see additional fleets coming out in Q2? Or do you think that's generally behind us? And if we did see some movement in pricing, when do you expect when these fleets to come back into the market?
Chris Wright -- Chief Executive Officer & Chairman of the Board
Yes. I think we'll see a bit of both of those. I suspect we'll still see fleet exiting the market. I think there are still a number of players. If you're not generating meaningfully positive cash flow when you're aging a capital-intensive asset, that doesn't make a lot of sense. And I think we've seen a lot of the players in the market that have been quite rational and have responded to that in a rational way. So, no, I don't think the idling of fleets and leg of capacity is over. But if prices moved up meaningfully, would some of those come back? I certainly expect they would. I certainly expect they would. We don't expect radical price changes either way going forward. But our dialogues with customers and potential customers, if there's a bias from where price is now, it's up a little bit. It's not down a little bit, and it's not flat for the rest of the year but modest, very modest changes that we might see.
Angie Sedita -- Goldman Sachs -- Analyst
Okay, OK. Fair enough. And then clearly, we're talking about retiring fleets and just some idling of your fleets. I mean, what are you hearing or any views that you have on overall attrition as we go into the end of 2019 and 2020?
Chris Wright -- Chief Executive Officer & Chairman of the Board
We're probably not hearing anything different than you're hearing, right? I think it's a fleet age thing and an operating profitability thing. If you have a fleet, it's not really cutting its base, not operationally performing great, you're not making any cash with it, are you going to spend large money to rebuild that fleet? I think a number of people will say no. It's better to have a slightly smaller but higher average quality fleet than I've got today, but we have no quantitative insight in there that you or others don't have.
Angie Sedita -- Goldman Sachs -- Analyst
Fair enough. Thanks turn it over.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Thanks Jenny.
Operator
(Operator Instructions) The next question comes from Vebs Vaishnav of Howard Weil. Please go ahead.
Vebs Vaishnav -- Howard Weil -- Analyst
Hey good morning guys and Congratulations on a very good quarter. So just thinking about 24th fleet, how likely does that go to work this year?
Chris Wright -- Chief Executive Officer & Chairman of the Board
Thanks Vince.
Vebs Vaishnav -- Howard Weil -- Analyst
So it's -- that is a granular decision for us, not a macro decision for us. So I mentioned earlier, we're in a number of dialogues with existing customers, with customers we've been talking to for a while, maybe aren't existing customers that are interested in Liberty capacity. And so for us to deploy that fleet, we've had to feel comfortable it's going to a strategic customer that's going to be a great long-term home for it and that all of our existing fleets we can keep deployed and active with uncertainties that will come in demand. So there's a number of boxes that need to be checked for that to happen. That's certainly very -- certainly could happen this year, but very likely -- but just as likely, it certainly might not happen this year. But again, for us, it's not a macro call. Well, it's a macro call on the whole fleet utilization and a micro call on a particular opportunity.
Got it. Got it. And as I think about CapEx, maybe for next year, so is it fair way of thinking, let's say, $5 million of fleet on, call it, 23, 24 fleets and some additional CapEx on top of it?
Michael stock -- CFO & Treasure
No. I mean, if you think about it -- are you talking about capital maintenance, Vebs?
Vebs Vaishnav -- Howard Weil -- Analyst
Yes, sir.
Michael stock -- CFO & Treasure
No. So I think $5 million is probably too high, right? I think we still then will probably average around there, kind of $3 million. It will be somewhere between $2.5 million and $3.5 million. We don't have the budget yet of what we're going to rebuild. But I wouldn't expect it to go to $5 million. you're going to see some investments and technology improvements. Just like we did this year, we'll finish out the articulating arm rollout. There's a number of other technologies that we're looking at to really reduce the cost of operation. So you're going to see some investments in there. Will it be in the order of what we did this year, which was in the order of $40 million? I think it will be around in that zip code I would have -- it's possible. So -- and then it just comes down to is there any demand for new fleets, if there's going to be any disruption of new fleets.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Yes. We are not like near the trigger to order new fleets right now. That's not in the front burner of Liberty right now. But, yes, next year is a ways away. But I would say obviously, relative to cash flow next year, is CapEx likely to be relatively modest? That's likely.
Vebs Vaishnav -- Howard Weil -- Analyst
Got it. And I think that's been asked but just want to have some more color on pricing. So you guys think pricing should be improving later in the year. You guys talked about 2Q average pricing lower sequentially. And then you guys also talked about in the fourth quarter, you think publics E&Ps could drop activity because of budget discussion. So just like trying to reconcile is basically what you're saying is pricing is going to be up in 3Q and then like then flattish in 4Q. Or how are you guys thinking about it?
Chris Wright -- Chief Executive Officer & Chairman of the Board
Okay. So, yes, I guess to clarify what I already said. So we expect average pricing down sequentially in Q2, not that there's -- not that existing prices are going down. We just had price reduction that happened in Q1, maybe the middle of Q1 that now are going to flow through for a whole quarter. And I don't want to say that I -- kind of a table, like the frac prices are going to be up in Q3 and down or flat in Q4. I don't know about that, but the best guess is probably pretty close to flattish this year.
I'm just saying in our dialogues, in our world, the potential dialogues about future pricing, there's definitely much more likely that there are modest upward bumps as opposed to any downward bumps. So -- but I don't know if that's true for the whole market. That may not unfold as well. It depends how the market unfolds. But we had a pretty rapid reset of pricing that I think is -- absent some big exogenous shock, I think it's bottomed. And, yes, I suspect if there's a little movement from here, it's more likely up than down. But that's a very qualified, very modest statement. Don't -- I don't want to imply anything more than that.
Vebs Vaishnav -- Howard Weil -- Analyst
That makes sense. So but thank you for taking my questions.
Operator
The next question comes from Stephen Gengaro from Stifel. Please go ahead.
Stephen Gengaro -- Stifel -- Analyst
Thanks and good morning gentlemen. Two things, if you don't mind. The first, just a follow-up on Vebs' question. On the pricing front, is it fair that the bigger degradation in price was sort of 4Q, 1Q as opposed to what we're seeing flowing into 2Q on sort of the average price declines?
Chris Wright -- Chief Executive Officer & Chairman of the Board
Yes. That's absolutely fair to say that.
Stephen Gengaro -- Stifel -- Analyst
Okay. So more of this was already reflected in the numbers as opposed to -- you're just sort of highlighting that there's still a slight degradation in 2Q.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Yes. And that's -- look, there was a lot of price resetting in Q4 or at the very beginning of Q1. Think of when the supply and -- that's just commodity prices falling rapidly, even more importantly, just supply and demand in the frac market. There's just way more fleets looking for frac work than there was demand for frac work in Q4 but think at the end of Q4 and going into Q1, so you get the markets work, and so you get pricing response there. So, yes, I would say a large part of the big reset already flowed through Q1, but the later ones and resets that were middle of Q1, a little bit of an impact from there. But a long way to say yes. You said it correctly.
Stephen Gengaro -- Stifel -- Analyst
Okay. Great. Just making sure. And then secondly, when you talk about some of the maintenance requirements, is there anything over the next couple of quarters that's abnormal that sort of takes a fleet out of the mix for any period of time outside of what we would kind of consider normal as we model this going forward?
Michael stock -- CFO & Treasure
No.
Chris Wright -- Chief Executive Officer & Chairman of the Board
No.
Stephen Gengaro -- Stifel -- Analyst
Okay good. Perfect. Thanks for the clarification.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Thank you. Thanks lot.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Wright for closing remarks.
Chris Wright -- Chief Executive Officer & Chairman of the Board
Thanks, everyone, for joining us today, for your interest in Liberty and for your interest in this industry that literally powers all the other industries and makes the world go round. Have a great day, and we look forward to talking to you 3 months from now.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Duration: 40 minutes
Call participants:
Chris Wright -- Chief Executive Officer & Chairman of the Board
Michael stock -- CFO & Treasure
Sean Meakim -- JPMorgan -- Analyst
john daniel -- simmons energy -- Analyst
Georgia leary -- -- Analyst
Ron Gusek -- President
Angie Sedita -- Goldman Sachs -- Analyst
Vebs Vaishnav -- Howard Weil -- Analyst
Stephen Gengaro -- Stifel -- Analyst
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