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Liberty Oilfield Services inc (NYSE:LBRT)
Q2 2021 Earnings Call
Jul 28, 2021, 10:10 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Liberty Oilfield Services Second Quarter 2021 Earnings Conference Call.

[Operator Instructions]

Some of our comments today may include forward-looking statements, reflecting the company's views 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

Good morning, everyone, and thank you for joining us to discuss our second quarter 2021 operational and financial results. We've a little problem with the I/O today, so we apologize if the quality is not up to the usual standard.

Liberty delivered another quarter of solid improvement, as we start to exit the COVID downturn. The second quarter marks the anniversary of the extraordinary events of the year-ago, where business activity plunged on the back of a collapse in oil demand. I want to first thank the Liberty family for navigating this downturn with the utmost tenacity, dedication and commitment throughout these trying times. We are now starting to see the strength of our business one year out from the depths of the cycle, with the transformative actions we've taken over the past year, including the OneStim acquisition.

Second quarter revenue was $581 million, representing a 5% sequential increase or approximately a 9% increase when excluding seasonality in Canada, where basin activity was impacted by spring break-up. With the acquisition of OneStim, this is the first year in our history we had geographic exposure in Canada, where the spring break-up seasonality will now impact our sequential revenue comparison.

Adjusted EBITDA in the second quarter was $37 million, compared to $32 million in the first quarter. Results included the restoration of field personnel variable compensation one quarter ahead of our plan, resulting in $8 million increase to personnel costs. Excluding this cost, adjusted EBITDA would have been $45 million. This equates to a 41% sequential increase in profitability, adjusted for the variable compensation restoration on a 5% gain in revenue.

While the results improved in higher activity levels with staff fleets still in the low-30s, we were also navigating the macroeconomic supply and demand shocks triggered by the pandemic and related reopenings, that are creating supply chain constraints and labor shortage. A swift economic recovery is leading to strong demand for workers across many industries with not enough folks to fill open positions. There are several million workers still out of the labor force that were in the labor force pre-COVID. The effect of these missing workers is causing disruption in many labor intensive sectors of our economy. Supply chains in many industries were also disrupted or overwhelmed by a lack of compliments or shortages in raw materials. As customers both legacy and new ramped during the quarter, effective completion crew scheduling was challenging with producers and service company dealing with supply chain interruptions, staffing and transportation shortages.

Liberty was not immune from staffing issues and the industry supply chain challenges; for example, trucking shortages. Trucking is strained by the dual impact of high demand for licensed drivers across several industries, coupled with scheduling changes due to completion delays from some customers. Within our customer base, we are also seeing operators transitioning from completing DUCs, or drilled but uncompleted wells, to new well construction, leading to its own challenges that gave rise to difficulties in calendar coordination and above-normal intra-basin fleet movements.

All in, we are not yet back to Liberty's usual executional efficiency in the field, but is improving every month. This opportunity motivate and excites us. The transitory impacts of the pandemic-driven supply demand shocks on labor and supply chain challenges will pass. The robust demand in global energy demand and supportive commodity price environment is increasing the demand for frac services, and we believe we are in the early innings of an up cycle.

The Liberty team worked hard to welcome a hugely expanded customer portfolio, but we still have the work optimizing our calendar and streamlining service delivery. As we look at Q3, we anticipate benefits from continued progress in these areas and as a larger percent of our work migrates to fully dedicated fleets and fewer intra-basin fleet movements. Some customer relationships are expanding as we can now work with key customers across North America, given our expanded geographic reach and a premier technology service offering.

As I mentioned earlier, we restored our variable compensation programs one quarter ahead of pace. The reopening of the economy is happening faster than folks are returning to labor force. Ultimately, wages are rising and we opted to reinstate our variable compensation plan one quarter ahead of schedule to remain competitive in the labor market.

Importantly, we also recognize that our employees make significant sacrifices throughout the last year. Their dedication and commitment to the Liberty family during these trying times was foundational to maintaining our partnerships with customers and suppliers, and also helping other folks navigate a challenging time. Looking ahead, the improving macroeconomic backdrop should support these compensation increases.

The industry has seen market improvement over the past year since the depths of the downturn. Global economic growth continued [Phonetic] strong. The forward outlook is also strong, as countries more fully reopen partially offset by the impact of global supply chain constraints and virus variant concerns. Commodity markets remain constructive, as sustained economic expansion drives rising energy demand, while years of relative underinvestment in the energy sector constraints supply outside of OPEC+. In fact, the rapid rebound in oil demand has already passed pre-pandemic highs in major Asian countries. This is evidenced by the recent significant draws in global oil inventories.

Looking forward, the recent announcement by OPEC+ for a gradual reinstatement of prior oil supply through the rest of 2021 and into 2022 is expected to be more than offset by projected increases in global oil demand. This should support a continued increase in demand for North American completion services.

Exploration and production capital spending widely increases in 2022, as operators work toward attaining modest oil growth next year. They will need to address both the decline in the inventory of DUCs and the impact of decline curves on their production base, a modest increase in U.S. oil and gas production requires an increase in frac activity from today's levels, the combined impact of improved E&P economics with greater potential for free cash flow generation, increased completion service demand, and tightness in next-generation frac equipment is expected to underpin a more disciplined frac market and continued modest rises in service prices.

The economic rebound across North America, coupled with supply constraints in the labor force and some supply chains, have led to a rise in inflation and wage growth. It is important that frac service pricing continues to rebound from the extreme pandemic lows. The backdrop for pricing discussions with our customers has strengthened throughout the year, just as our teams sacrificed over the past year to support our customers. The partnership works both ways and we are committed to remaining disciplined in the current environment.

We continue to have positive dialogs with our customers to full pass-through incremental inflationary costs, in addition to the net frac pricing increases. This process is gradual and we expect gradual improvements to continue phasing in over the next 12 to 18 months. It is noteworthy that service prices tend to lag broader inflationary increases across the value chain, but the increases are necessary to facilitate the next phase of growth and take all of your investment.

Technology, backed by the distinguished team of engineers and innovators, has been among the key differentiators that has allowed us to grow into the second largest North American frac company from our founding only a decade ago. During the second quarter, we held our first Investor Day, where we spent a day exploring the technology that makes Liberty special from our in-depth downhole technologies to how we create operational efficiencies and the evolution toward next-generation equipment. For those of you who have not seen this, I would encourage you to spend some time streaming the webcast available on our website and get to know our team, our technology and our unique culture that drives innovation and collaboration.

We also announced a successful field test of our digiFrac electric frac pump during the quarter. The results were incredible. Final field testing was completed on a three well pad with 24-hour operations in the Delaware Basin. digiFrac represented around 10% of the pumping capacity. The work of building the industry's first purpose-built, fully integrated electric frac pump truly shine, as the system became a preferred capacity for rate changes and adjustments made in real time. digiFrac allows quick, easy, precise adjustments of pumping rate using our micro control system.

What does this mean? It means that it allows for on-demand precision rate control that was simply not possible before. digiFrac quickly became the go-to pump for precise rate control on locations. This is the value of owning and developing the technology, to have the motors, the gears, the drivetrain fully integrated into the pump. With the electric frac site from the OneStim acquisition, we will provide a fully electrified solution for our customers, agnostic of the power source, whether it 's the grid or Liberty's gas reciprocating engines, or both.

Importantly, digiFrac will also drive ESG objectives for our customers, as they continue to look for ways to minimize their footprint, offering at least 20% less emissions relative to the next best technology in the market. Together, having high-power density, precise control and a noteworthy reduction in emissions, makes digiFrac the best in the market and our customers are taking notice. We've already begun the commercialization process for digiFrac in 2022, with deep collaboration and conversations with customers for fleet roll-out.

In early June, we released our inaugural EFG report, entitled Bettering Human Lives. Liberty's leadership in ESG is well known, as it has been part of our DNA since day one. However, we wanted to broaden the conversation around ESG by going far beyond the narrow focus of our company and asking only how we can reduce negative impacts. Of course, maximizing positive impacts is a critical part of the balance for a valuated process.

Our report provides an overview of where the world gets energy and how that's changed over time. We also cover the huge problem of energy poverty and the cost to human well being of rising energy prices, or falling energy reliability. We directly discuss the role of fossil fuels in modern society and how are we as a company advancing human liberty.

I'm humbled by the response this report has garnered. The conversations spurred by our report have been enriching and uplifting. We're proud of the efforts of our industry and our company in being a part of the solution toward reaching billions of underserved people with lower cost of energy. By looking at the data, we know progress of the human condition has been enabled by the surge in plentiful, affordable energy, saving lives, and it is important to recognize the unintended consequences of climate change mitigation with a realistic lens. We've welcome the market's focus on ESG, as it aligns with the principles we've long held at Liberty. But, it is critical to bring the same analysis, supported by the data to ESG decisions, just as we do in other areas.

Our team's focus digital technology has been critical to the immense improvements in shale well productivity and efficiency over the last decade, and we continue to strive to advance our customers' ESG goals as well. We take these responsibilities very seriously and will continue to drive the conversation going forward. We are excited by the opportunity ahead of us.

I'm so proud of the Liberty team, coming together through a year of incredible change. We created opportunity in the face of adversity and we believe we are now going through an inflection point. Our focus is on operational execution through the rippling effects of the pandemic and harvesting gains as we embrace the early innings of the cyclical recovery.

With that, I'd like to turn the call over to Michael Stock, our CFO, to discuss our financial results.

Michael Stock -- Chief Financial Officer

Good morning, everybody.

We are pleased with the performance of our team in the second quarter, delivering solid results while continuing to integrate the OneStim business and managing a ramp in customer activity. This marks the first quarter we've operated entirely under the Liberty umbrella, after the cut over from Schlumberger's Liberty Internal Systems at the end of February. It's incredible to see what a difference a year has made. Just one year ago, in the second quarter, we were sitting in only $88 million of revenue on the back of a dramatic drop in worldwide oil market, widespread shutdowns from shale producers, and the near halt of North American fracking.

Revenue in the second quarter of 2021 is over six times than it was a year ago. I'm so proud of the Liberty team that has navigated the roller coaster of the last 12 months with dedication and focus, as we have ramped up our frac activity and made such great progress in our OneStim acquisition integration [Phonetic].

Now, let's take a deeper look at the results in the quarter.

In the second quarter of 2021, revenue increased 5% to $581 million from $552 million in the first quarter, reflecting the combination of increased activity across all U.S. basins, more than offsetting Canadian spring break-up seasonality events. Excluding Canadian seasonality, revenues were an approximate 9% sequential increase on relatively flat staff fleet activity [Phonetic], and our team works diligently to bring new basin activity online with multiple operators. The underlying business improvement was encouraging and supports a picture of continued improvement, despite utilization challenges arising and, supply chain challenges and the labor shortages, as Chris described.

Importantly, our teams are reinvigorated by the activity increase and we expect utilization to show continued improvement in the third quarter, as we streamline customer scheduling and actively managing through labor challenges.

Our net loss, after-tax, was $52 million. Net loss included a valuation allowance adjustment of certain deferred tax assets and related TRA impacts, negatively impacting results by a negative $21 billion [Phonetic]. These accounting adjustments were necessary in applying debt standards that were primarily driven by COVID-19-related losses. The results also included transaction and other costs of $3 million, a $0.7 million [Phonetic] increase in bad debt reserves.

Fully diluted net loss per share was $0.29 in the second quarter, compared to $0.21 in the first quarter. The quarter was negatively affected by approximately $0.12 per share by deferred asset valuation allowance adjustments.

Second quarter adjusted EBITDA increased to $37 million from $32 million in the first quarter. The improvement in adjusted EBITDA primarily reflects an increase in business activity in the second quarter. Second quarter adjusted EBITDA would have been $45 million, when we neglect to restore variable compensation one quarter ahead of scheduled pace [Phonetic], due to the impact of [Indecipherable] industry. Labor supply is very high and we're completely delighted with a variety of [Indecipherable], as economic activity increases.

General and administrative expenses totaled $29 million and included $5.9 million of stock-based compensation and $27 million of accounts receivable allowance. Excluding these items, underlying G&A expense only increased modestly by $1.3 million from the first quarter, despite IT and other costs related to the onboarding of legacy OneStim employees.

Net interest expense and associated fees totaled $3.8 million for the second quarter. We also recorded an adjusted $3.3 million related to the tax receivable agreement. Again, this was related to the deferred tax valuation, I referred to early. Income tax expense totaled $16 million, again reflecting the impact of the valuation adjustments, resulted in a $24 million of tax expense, more than offsetting what would have been a projected $8 million tax benefit related to operational second quarter results.

We ended the quarter with a cash balance of $31 million, reflecting a decrease from first quarter levels as working capital increased. Total debt was $106 million, net of deferred financing costs. There were no borrowings drawn on the ABL credit facility, and total liquidity available under the credit facility was $277 million at the end of the quarter.

In June, Riverstone successfully monetized the final part of acreage position in Liberty to receive new [Phonetic] stock offering, culminating into tenured partnership with us soon [Phonetic]. This transaction effectively completes Liberty's evolution to a fully publicly traded company with owning 1% of shares not trading [Phonetic] in public markets. We've grateful fulfilment they're our longest tenured shareholder over the years and are excited to [Indecipherable].

Capital expenditures were $38 million for the quarter. We focus on being disciplined with the timing of basement drilling recovery [Phonetic] balancing second quarter EBITDA and capital expenditures at nearly equivalent basis. We continue our disciplined approach for investing into the up cycle, with capital expenditures targeted for technology investments, maintenance capex and gross capex toward next generation [Technical Issues].

As we discussed in our Investor Day, we have a strong foundation to build upon to successfully execute in the next cycle. Our philosophy remains the same, to grow and support our business and our people with a disciplined approach to investments while maintaining balance sheet strength and drive higher long-term returns for shareholders over the cycles.

As we look forward, we are excited by the core strengths of our business, our geographic diversity, and integrated service offerings, supported by our [Indecipherable] electric pump, digiFrac, and [Indecipherable] fleet next-generation dual fuel equipment, unmatched subset of technologies that drive customer engagement, and the unwavering focus on automation and operational efficiency through [Indecipherable]. This unique combination of assets will drive financial results in the coming cycle.

With that, I will now turn the call back to Chris, before we open for Q&A.

Chris Wright -- Chief Executive Officer

Thanks, Michael.

We read main reports surprised by the rapidity of the surging demand for oil and natural gas. This should not be a surprise. Energy enables every other life activity. As people rebound from COVID, they bring with desire to better their lives and visit their families and friends. Global oil demand last year dropped 89% [Phonetic], natural gas demand dropped 2%, and electricity demand only 1%. All three will almost certainly hit record highs next year or in 2023. Energy matters.

I thank the Liberty family and the ecosystem that gives our customers and suppliers for their efforts that betters human lives.

I'll now turn it back to the operator to take your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session.

[Operator Instructions]

The first question is from Ian MacPherson with Piper Sandler. Please go ahead.

Ian Macpherson -- Piper Sandler -- Analyst

Hey, good morning, Chris and Michael.

Chris Wright -- Chief Executive Officer

Good morning, Ian.

Ian Macpherson -- Piper Sandler -- Analyst

Michael, I wanted to -- I'd really -- talk about the moving dynamics into Q3. You talked about more dedicated work, fewer move fleet moves, and probably just a more concentrated calendar for Q3 than you had in Q2, and then we'll also have the reversal of the adverse Canadian seasonality. And you've spoken repeatedly about just the methodical price increases.

So, I would imagine that all of that combines to a healthy rate of top-line improvement that we should expect for Q3. And I just wonder if you might bracket that for us.

Michael Stock -- Chief Financial Officer

Yes, Ian, we would be talking about that. We've got to get, as we move toward getting rid of the some of the noise out of the calendar, the widespread utilization improvement, there is going to be slow improvement as we go through the year. I think that -- all of that is going to get run out of the system by early next year, as we sort of [Indecipherable] new customers and new basins.

The Canadian seasonality will reverse. I think we're probably expecting it to come back to the, sort of, the highs of Q1, exactly in Q3, that we will gain some positivity from there. I must say we're getting slow in incremental price increases. Yes. So, I think we'll see a slow increase there. I think the slow and steady rooms are right at the moment with what we're looking at this year as we put in the partly [Phonetic] created platform to really take advantage of where we are going into the cycle in '22 and '23.

Ian Macpherson -- Piper Sandler -- Analyst

Yes. And I'm still not hearing you message anything particular with regards to incremental fleet additions in the back half at this point, correct?

Chris Wright -- Chief Executive Officer

No, Ian. Look, our view is we're very loyal to our customers and the partners we have. Economics are still not there for us to want to chase revenue or new business, for new businesses' sake. So, there's many, there is a pretty strong pull right now for new capacity, just as market activity is increasing. And for us, it's always a combination of the pricing, the economics, the strategic relationships. So, yes. this could be, the industry is growing doesn't necessarily mean that Liberty's fleet count is going to grow. That's just a bottom-up decision for us.

Ian Macpherson -- Piper Sandler -- Analyst

Understood. Thanks, Chris.

But, it sounds like digiFrac is indeed moving forward, so that's more likely a first half '22 commercialization as you see it today?

Chris Wright -- Chief Executive Officer

End of the first half. End of the first half, by the time we're out in the field commercially operating.

Ian Macpherson -- Piper Sandler -- Analyst

Got it. Okay, OK. Thank you, both.

Chris Wright -- Chief Executive Officer

Thanks, Ian.

Michael Stock -- Chief Financial Officer

Thanks, Ian.

Operator

The next question is from Neil Mehta with Goldman Sachs. Please go ahead.

Atidrip Modak -- Goldman Sachs -- Analyst

Hey, this is Ati on for Neil.

Chris Wright -- Chief Executive Officer

Hey, Ati.

Atidrip Modak -- Goldman Sachs -- Analyst

So, on the missing workforce comment [Phonetic]-- hey -- could you provide some color on that. So, are you competing with other industries, or are there just folks trying to look to rejoin the force, but -- or have they found jobs? What's really happening there?

Chris Wright -- Chief Executive Officer

Yes. This is a economywide problem. Labor intensive industries, right now, are stressed. And for oil and gas employment, for the field crews, the most important people in our business -- in a two big competing industries, it's construction and trucking, both local trucking, Amazon's surging demand for local drivers and long-haul trucking, and construction. And both of those industries are booming right now, booming.

So, yes. Labor market, particularly in the area of our field operations, very tight right now. Yes, thank you. Again, a great question. Liberty's always had, I think, a great place to work and a great culture. We've never been stressed for competition for labor, anything like we are today. Now, with Liberty, I think we've got great culture, great people and we'll get through it. But, yes, it's just a challenge we haven't faced at this level before.

Atidrip Modak -- Goldman Sachs -- Analyst

Great, thanks.

Operator

The next question is from Connor Lynagh with Morgan Stanley. Please go ahead.

Chris Wright -- Chief Executive Officer

Connor, you might be muted, we can't hear anything.

Daniel Allard -- Morgan Stanley -- Analyst

Hey, thanks, good morning. This is Dan on from Connor's team. How are you guys?

Chris Wright -- Chief Executive Officer

Hey, Dan. Doing well, Dan.

Daniel Allard -- Morgan Stanley -- Analyst

So, I just wanted to ask -- so, as you laid out in the press release that OneStim is kind of transitioning from the integration phase to the operational phase.

I was wondering what, kind of, some of the near-term opportunities are? And if you could, kind of, give a little bit more color on -- kind of, expand a little bit on the operational and capital efficiency opportunities you were talking about in terms of technology integration, automation?

Chris Wright -- Chief Executive Officer

You bet. Look, I'll on start with the human side, always the most important side.

You take two very proud teams with different legacies, different histories, different procedures. So, one of the big things we won, indeed when we took over -- you know, we just took this over in January 1, not great what's happening. But customers, that are Schlumberger's customers hired those crews, those humans and those procedures, and they do some things differently than us. Some of the way we do things is better; we want to move that improvement over their fleets. Some of the way they do things are better than the way we do things and we want to move those procedures over to our fleets. But, that's human culture, that's thousands of people working across the country. So, that's a slow methodical process to lead to improvement and minimize the friction of transition and changing processes. But, it's incredibly important; and again, thrilled by the humans, thrilled by the new learnings.

There is a number of things. I, maybe, mostly point you to our Investor Day, where we went in detail and probably lead that dozen technologies. And a key thing there is, you can also meet the people that are leading those teams, that are doing that work. But, there are simple, straightforward things like engine idle reduction, which is a fuel saving technology; but, these are engines you can't just shut off and turn on, so you have to have a smart algorithm about when to shut them off, when to turn them on, and under what environmental conditions. In the cold winter, that's a different algorithm, a different answer than it is in heat, or dusty, or windy; all different conditions.

We've got our continued progress in major iron or monobore technology, different ways to do that, flexible hoses. We have a project we talked extensively at Investor Day, we call Project 1440; that's 1440 minutes in a day and every minute, why are we pumping and what do we do about that. So, look, again, it's technologies and ideas from both sides, both legacy sides of the company. Now, there's just one, Liberty. So, a number of exciting efforts there and I think I would have the rest of the time if I went down that road.

Michael Stock -- Chief Financial Officer

I have one point, Dan, as well. There are Increasing amounts of integrations between wireline frac on site, increased number of [Indecipherable] wireline units with customers. In early next year [Phonetic], it's a great for both sides on the learning, as we say. One of the key things we're focusing on this year is really the sort of integration between the frac and wireline systems to reduce downtime and increase completion throughput, as we go through the year. So, it's a very specific project that Ron and this team are working on that. [Indecipherable]. They are just one other item, I had to [Indecipherable].

Daniel Allard -- Morgan Stanley -- Analyst

Yeah, thank you, both. That's great color.

And then, quickly on, kind of, digiFrac and next-gen equipment. So, you guys have laid out two scenarios, kind of, a slower and faster transition scenario in the Investor Day presentation. I was just wondering if you could go over what the puts and takes are, in terms of what might merit a faster or slower transition? Is it more customer-specific or contract terms-specific, or is the macro backdrop kind of a bigger factor?

And maybe that answer is different for a new-build digiFrac fleet versus, kind of, just some some upgrades to traditional capacity. But, yes, any color on the puts and takes in those two scenarios you laid out would be great.

Chris Wright -- Chief Executive Officer

I think here we avoid getting to details. I think you laid out the three factors, who is the customer; what is the future of that customer; what is the depth of the relationship between Liberty and that customer; what are the economics, both short-term profitability of it, and commitment in visibility, the long-term efficient employment, where we own a frac as many days as possible and get as much done every day as possible. And those are the two dominant drivers.

And then, as you mentioned, the macro is a big part of that too. We're cautious investors when we get to late cycle; and we're more aggressive investors when it's the beginning of the cycle, just stronger economics to invest early on in the cycle than there is in mid or late cycle. But, again, I can't give any other specific color. It's not as simple quantitative formula; it's relationship, partnership and returns on capital deployed.

Michael Stock -- Chief Financial Officer

And I'll just give a little color on that.

It's a combination of what we're doing at the moment. We are continue with our upgrade preparations Tier 4 DGB, this year, (i.e.) we plans with our customers, then we are discussing the next generation of regular customers moving into a fully electric, sort of, natural gas fleet, where you can call a rig. The key thing there is we've got great access to fuel gas and residual fuel gas, which drive some of the base cost savings on their side of the business.

So, again, if the combination proceeds, then we've got a little different driver. But, yes, it's very -- really exciting times at the moment as far as having the, what we think is actually by far way the base technologies in both the flexible dual fuel and the very large fewer new generation design for electricity comb. So, I think that combination goes well here.

Chris Wright -- Chief Executive Officer

Yes, the right answer is very different, for different customers, different circumstances, different geographic segments.

Liberty was, I wouldn't say, that first mover in dual fuel frac technology from really to star of our company. Early on, we -- our big effort was to convince customers of the benefit of it and we've dual-fuel technology that wasn't fully utilized as dual-fuel. Now, the acceptance of that is very strong. And now, depends on this one the other way, that should make the marketplace fun.

Daniel Allard -- Morgan Stanley -- Analyst

Thank you, both. I'll turn it back.

Operator

The next question is on George O'Leary with TPH and Company. Please go ahead.

George O'Leary -- TPH and Company -- Analyst

Good morning, guys.

Michael Stock -- Chief Financial Officer

Good morning, George.

George O'Leary -- TPH and Company -- Analyst

First question, kind of an extension of the prior question.

How would you describe customer appetite for contracts associated with e-frac equipment or your digFrac offering? It seems like some of your peers have gotten some contracts signed up at least optically good economics. But, just what's customer appetite for contracting for even Tier 4 DGB or new build digiFrac fleet?

Chris Wright -- Chief Executive Officer

Yes. Let's say, customer interest in cutting-edge frac technology and fleets is very strong, very strong.

Michael Stock -- Chief Financial Officer

I think the willingness to sign up for contracts is also there. I think that depends on the lengths of time we had with the customer and we would see [Indecipherable] things with that relationship.

George O'Leary -- TPH and Company -- Analyst

Okay, that's helpful.

And then, how would you describe what drives the customer decision to pursue an e-frac solution or a Tier 4 DGB solution? What are kind of the puts and takes that benefits one versus the other; maybe some of the headwinds on one technology offering versus the other?

Chris Wright -- Chief Executive Officer

Yes, it's ultimately -- I mean, the interest is driven by two things. One is lower emissions in a smaller environmental footprint; certainly, our industry has been moving forward in that direction for a decade, this is that continued evolution. I should say three things. And second one is lower long-term operating costs; the cost difference between gas and diesel is pretty large right now. So, the more natural gas you're using for energy, for your fleets versus diesel, the lower year fuel costs are. And the third is a properly designed next-generation fleet that's more automated and can do more with software behind it, can deliver better operational performance as well. So, those are the three factors in varying degree that drive interest in the technology.

And then, the trade-off. Of course, everything in life has a trade-off. The trade-off is the cost of a little bit higher; they're not widely higher, but they're little bit higher, and end-time commitment and surety of work need to be higher as well.

George O'Leary -- TPH and Company -- Analyst

Thanks very much, Chris and Michael.

Chris Wright -- Chief Executive Officer

Thanks, George.

Operator

The next question is from Chase Mulvehill with Bank of America. Please go ahead.

Chase -- Bank of America -- Analyst

Hey, this is Chase on for Chase. Good morning, everybody.

Chris Wright -- Chief Executive Officer

Hey, Chase.

Michael Stock -- Chief Financial Officer

Good morning, Chase.

Chase -- Bank of America -- Analyst

Hey, I hope everybody is doing well.

I've got a couple of questions. The first one around pricing. In the press release and obviously in the prepared remarks, you talked about your conversations with customers ongoing about pushing price. I guess, number one, are the conversations around net pricing increases or just enough pricing to offset inflation?

And then, number two is, when should we expect these pricing increases to show up in Liberty's results? Do you think it's kind of more of a second half of this year catalyst or more so kind of first half of next year?

Chris Wright -- Chief Executive Officer

It's continual and it's both inflation pass-throughs and net pricing. Look, the quarter, we just finished and we talked about struggles mostly with utilization in calendar; never like to see that happen, but that's just life. We have 5% increase in sequential revenue and a 40% increase in sequential EBITDA, if we use the same labor cost payments. So, pricing is coming through not hugely in Q2. But, we had net pricing improvements in Q2; we'll have more in Q3 and more beyond that in Q4, and probably means than more next year. So, it's a continual, gradual process; continual, gradual process.

We worked abruptly in adjusting prices with our customers. We had oil prices just collapse. We worked in that partnership mode and then in partnership mode coming out the other side. While the shape of this downturn -- the down in pricing was abrupt and the rebound is slow and gradual.

Chase -- Bank of America -- Analyst

In that $8 million personnel cost increase that you noted here, was that a full quarter impact or 2Q -- in 2Q?

And so, as we think of 3Q, should that step-up from $8 million, or is that fully in margins in 2Q and so don't really step that up in the 3Q?

Michael Stock -- Chief Financial Officer

Chase, that was fully in Q2. So, on that variable compensation, that really isn't going to step up; that will continue through all quarters going forward. I think you're going to see in general some low-single digit increase in labor costs going through second half of the year, as well, I think, in general, across the board. I think that's part of the wider economy.

Chase -- Bank of America -- Analyst

Got it.

And then, last one here. When we think about fleet reactivations, I mean, obviously, it doesn't sound like you've got it in the back half of this year. But, as we step into 2022, I would assume that modest increase in activity to point to [Phonetic] and then you have to reactivate some fleets.

So, when we think about this, can you maybe talk about how much capital or capex will be required to reactivate some fleets in 2022? And maybe, I don't know if you just want to kind of characterize like, what it would cost to reactivate your next-gen fleets?

Chris Wright -- Chief Executive Officer

Yes, the fleet reactivation is not on. Yes, in January 1; and no, before then. It's just -- for us, everything is always bottom-up. There is customer dialogs. There is a lot of pull right now; the most important thing about a lot of pull right now is,it accelerates the movement in pricing; still not huge, still going to be phased in, not abrupt; but, there is, -- that's a pull for increase in pricing. As the price is meaningful enough and the customer is the right customer, we will reactivate. We have capacity, but it's just about the full picture economics for us.

And I'll turn it over to Michael to comment a little bit on reactivation costs.

Michael Stock -- Chief Financial Officer

Really, Chase, reactivation costs for the next few fleets is going to be minimal. I think -- one, they want their util cost; they came over from adjoining [Indecipherable] ready-to-go position. We might incur probably a couple of million dollars as we move into monobore and some of the next-generation high equipment. That would be about it.

Chase -- Bank of America -- Analyst

Yes, perfect. I'll turn it over. Appreciate the color.

Michael Stock -- Chief Financial Officer

Thanks, Chase.

Operator

[Operator Instructions]

The next question is from John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel -- Daniel Energy Partners -- Analyst

Hey, thank you, guys. Just two from me and the first one's a housekeeping.

But, when you refer to the staff fleets in the low-30s for both Q1, Q2 -- when during Q2 with the Canadian break-up to those, would they still consider staff fleets or do you look to, how did you treat the crews in that? That's for definitional purposes.

Michael Stock -- Chief Financial Officer

Their roll down is sort of an annual roll downs. So, yes, we consider them staff fleets. And we do actually staff Canadian fleets slightly different; on that, we'll have an underlying base of full-time employees and we do have a number of contractors; they come in and out; I mean, often from the East Coast, sort of, the New Brunswick Nova Scotia areas, sort of a combination of folks that help run those crews during the busy periods.

Staffing was ramping up a little bit, up and down with those fleets as they come along. But, we've got an underlying -- sort of, we've a long term 10-year-plus experience base [Indecipherable].

John Daniel -- Daniel Energy Partners -- Analyst

But, your staffed Canadian fleets dropped in Q2, just given breakup, or did you really create the same flat? Do you follow my question?

Michael Stock -- Chief Financial Officer

Then, we had to exclude dropping personnel costs on. But, John, that's what we considered and we still consider them a liable fleet and a liable staffing.

John Daniel -- Daniel Energy Partners -- Analyst

Perfect.

And then, the next one is just on digiFrac, as you did the successful pad. Does that customer then keep that unit? You sent it back to Magnolia for touch up work or does customer take it to test it out? Just how does that play out over the next couple of quarters with testing?

Chris Wright -- Chief Executive Officer

So, that particular pump, yes, it will go to another customer. Yes, well, they will be doing some demo runs. And of course, we're taking a ton of data on it for how we can tweak in further improvement.

Michael Stock -- Chief Financial Officer

And then, ultimately, I guess, it will get rebuild into a final commercial pump, where the majority, I think, it's reused. [Indecipherable]. Think about rebuilding. If you're taking sort of a race car and you're taking your engine out of problem, rebuilding into reusing majority of that. Okay.

John Daniel -- Daniel Energy Partners -- Analyst

But, if you look at the multiple customers that had tested and the success that you had on the first pad, would you envision, Chris -- might be too optimistic -- but, a bidding work for that first fleet from some of the customers who tried it?

Chris Wright -- Chief Executive Officer

I think bidding will be the wrong way to look at it. But, yes, the pull is significant. And for us as customers, you'd probably take your turn. It's a big decision about who is going to get the first few fleets, what are the terms and conditions, and who is the right partners. But, yes, the interest for digiFrac, number of hands in air will certainly be well above the number of fleets we will build in the near term. I think, already, we find the right partners.

John Daniel -- Daniel Energy Partners -- Analyst

Yes, OK, perfect. Guys, thanks for putting me in.

Chris Wright -- Chief Executive Officer

John, thanks so much. Appreciate it.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Chris Wright -- Chief Executive Officer

Thanks for everyone's time today, interest in Liberty. We look forward to talking to you in three months and let's keep powering the world. Take care, everyone.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Chris Wright -- Chief Executive Officer

Michael Stock -- Chief Financial Officer

Ian Macpherson -- Piper Sandler -- Analyst

Atidrip Modak -- Goldman Sachs -- Analyst

Daniel Allard -- Morgan Stanley -- Analyst

George O'Leary -- TPH and Company -- Analyst

Chase -- Bank of America -- Analyst

John Daniel -- Daniel Energy Partners -- Analyst

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