Executive Summary / Key Takeaways

• Liberty Energy Inc. (NYSE: LBRT) is undergoing a strategic transformation, leveraging its technological leadership in hydraulic fracturing to aggressively expand into distributed power generation, targeting high-growth sectors like AI data centers. This dual strategy aims to diversify revenue streams and enhance long-term shareholder value.
• Despite a challenging oilfield services market marked by softening activity and pricing pressures, Liberty's core completions business demonstrated operational resilience in Q3 2025, with revenue of $947 million and Adjusted EBITDA of $128 million, while achieving record pumping efficiency and safety.
• The company is making substantial investments in its Liberty Power Innovations (LPI) segment, aiming to deliver over one gigawatt of power generation capacity by the end of 2027, primarily utilizing highly efficient natural gas reciprocating engines. This expansion is supported by a robust pipeline of opportunities and strategic partnerships.
• Liberty maintains a strong balance sheet and a disciplined capital allocation strategy, prioritizing growth investments in LPI while moderating completions CapEx. The recent 13% increase in its quarterly cash dividend underscores management's confidence in future cash flow generation.
• Technological differentiation, including AI-driven automation (StimCommander, Forge) and advanced DigiFleets, provides Liberty with a significant competitive moat in both its core and emerging businesses, driving efficiency, extending asset life, and offering superior value to customers.

From Oilfield Leader to Diversified Energy Innovator

Liberty Energy Inc. (NYSE: LBRT), originally founded in 2011 as Liberty Oilfield Services Inc., has established itself as a premier provider of hydraulic fracturing services and related technologies to onshore oil and natural gas exploration and production (E&P) companies across North America and Australia. The company's journey from a single active fracturing fleet in December 2011 to approximately 40 active fleets by September 30, 2025, underscores its operational prowess and growth trajectory. A pivotal moment in its evolution was the rebranding to Liberty Energy Inc. in April 2022, signaling a broader strategic vision beyond traditional oilfield services. This transformation is now accelerating with a significant push into distributed power generation through Liberty Power Innovations (LPI).

The broader energy landscape is experiencing unprecedented shifts. Global electricity demand surged by 4% in 2024, outstripping overall energy system growth, driven by the escalating demands of AI compute loads, industrial reshoring, and widespread electrification. Simultaneously, the traditional grid infrastructure faces mounting reliability and capacity challenges due to decades of underinvestment and the integration of intermittent renewable sources. This confluence of factors creates a compelling "generational opportunity" for Liberty to leverage its deep expertise in deploying and maintaining heavy equipment in remote, harsh environments into a new, less cyclical power generation business.

Technological Edge: The Core of Liberty's Moat

Liberty's competitive advantage is deeply rooted in its relentless pursuit of technological innovation, which underpins both its core completions business and its burgeoning power segment. The company's proprietary DigiFleets, comprising DigiFrac and DigiPrime pumps, represent a significant leap forward. These purpose-built electric and hybrid frac pumps offer approximately 25% lower CO2e emissions compared to Tier IV Dynamic Gas Blending (DGB) fleets, alongside substantial fuel savings and enhanced operational efficiencies. DigiPrime units, in particular, have achieved outstanding performance, setting new company records for pumping hours, horsepower hours, and proppant volumes.

A key differentiator is Liberty's AI-driven automation ecosystem. Its StimCommander software provides intelligent rate and pressure control, enabling faster and more consistent stage execution, reducing time on location, and improving hydraulic efficiency by 5% to 10%. This is further enhanced by Forge, Liberty's cloud-based platform, which uses continuous AI optimization to analyze billions of data points, turning raw data into predictive intelligence. Forge models the evolving behavior of every asset, driving compounding performance gains and integrating insights from FracPulse, Liberty's real-time monitoring and analytics system. These technologies have demonstrably extended asset lifespans, with engine life expectancy increasing 27%, fluid ends 40%, and power ends an impressive 37% over the last two years.

In its LPI power generation business, Liberty primarily deploys natural gas reciprocating engines. These engines are favored for their high thermal efficiency, converting approximately 44% of available energy into electricity, significantly outperforming gas turbines which typically convert about one-third. This efficiency translates directly into lower fuel consumption and enhanced competitiveness in the power market. The modular design of these units allows for rapid deployment and scalability, crucial for meeting the dynamic needs of customers. While gas turbines may be considered for applications requiring higher power density or fuel flexibility, gas recips form the core of Liberty's strategy due to their longevity (overhaul times of 60,000 to 80,000 hours, equating to decades of lifespan) and cost-effectiveness. Liberty's strategic alliances, such as with Oklo Inc. (OKLO) for small modular nuclear reactors, further illustrate its long-term vision for integrated, low-carbon power solutions.

Competitive Positioning in a Dynamic Landscape

Liberty operates in a highly competitive oilfield services market, contending with global giants like Halliburton (HAL), Schlumberger (SLB), Baker Hughes (BKR), and Weatherford International (WFRD). While these larger competitors offer broader global reach and diversified service portfolios, Liberty distinguishes itself through its North American regional specialization, integrated supply chain, and customer-centric service model. Its in-house sand mines provide a qualitative edge in cost structure and supply chain reliability, particularly in key basins like the Permian.

Against competitors, Liberty's technological advancements, such as its DigiFleets and AI-driven automation, allow it to maintain resilient pricing for its next-generation assets, even as conventional fleets face significant pricing pressure. The company's strong engineering and geosciences team positions it as a go-to partner for optimizing frac designs, a service few competitors can match. This focus on delivering superior operational efficiency and value helps Liberty outperform the market and strengthen long-term customer relationships, even when competitors resort to price-based market share defense.

In the emerging distributed power market, Liberty aims to replicate its competitive success. Its modular power solutions, combined with expertise in power plant engineering, procurement, and construction (EPC) management (bolstered by the IMG Energy Solutions acquisition), and PJM utility market operations, provide a robust platform. The company's strong relationships with suppliers like Cummins (CMI) and Caterpillar (CAT), cultivated over years in the oilfield services sector, ensure timely access to critical power generation components, offering a significant advantage in a market where lead times for such equipment can be extensive.

Financial Performance: Resilience Amidst Headwinds

Liberty's financial performance in the third quarter of 2025 reflected a challenging market, with revenue decreasing 17% sequentially to $947.4 million from $1.1 billion in Q3 2024. This decline was primarily attributable to reduced activity levels and a decrease in service and materials pricing. Net income for the quarter was $43.1 million, down from $73.8 million in Q3 2024, while Adjusted EBITDA stood at $128 million, compared to $247.8 million in the prior year period.

Despite these headwinds, Liberty demonstrated cost discipline. Cost of services decreased by 8% to $769.8 million, commensurate with lower activity. General and administrative expenses remained largely consistent at $58.3 million. A notable positive was a $68.4 million gain on investments in equity securities, contributing significantly to other income. For the nine months ended September 30, 2025, revenue decreased 12% to $3 billion, and net income was $134.2 million, compared to $264.1 million in the prior year period. The effective global income tax rate for the nine months ended September 30, 2025, was 24.7%.

Capital Allocation and Liquidity: Fueling Future Growth

Liberty maintains a "fortress balance sheet" to navigate market uncertainties and fund its strategic growth initiatives. As of September 30, 2025, cash and cash equivalents were $13.5 million, with total liquidity, including credit facility availability, at $146 million. The company's new $750 million revolving credit facility, established in July 2025, provides ample financial flexibility, with Liberty in compliance with all debt covenants.

Capital expenditures are strategically shifting towards LPI. For 2025, total capital expenditures are expected to be approximately $525 million to $550 million. Looking ahead to 2026, completions CapEx is expected to moderate to effectively maintenance levels, with no additional Digi capacity deployed, while LPI investments will significantly increase. Liberty aims to deliver approximately 500 megawatts of generation by the end of 2026 and a cumulative one gigawatt by the end of 2027. The estimated cost for installed generation is around $1.5 million to $1.6 million per megawatt. Financing for large power projects is anticipated to be 70% project-specific, non-recourse debt, backed by long-term energy service agreements, with the balance from cash flow and corporate debt.

Liberty remains committed to shareholder returns, having distributed $13 million through cash dividends in Q3 2025 and increasing its quarterly cash dividend by 13% to $0.09 per share. Share repurchases are viewed opportunistically, with the company reserving debt for funding growth rather than buybacks, especially given its focus on maintaining balance sheet strength.

Outlook and Strategic Trajectory

Management anticipates market headwinds in completions to persist in the near term, with global oil oversupply expected to peak in the first half of 2026. However, a stabilization of industry activity and a modest improvement are expected later in 2026, driven by the need to offset natural production declines and favorable long-term natural gas demand from LNG export capacity expansion. The outlook for next-generation fleets remains strong, as operators continue to prioritize fuel savings, emissions benefits, and operational efficiencies.

The LPI power business is poised for significant growth. Liberty's sales pipeline for power opportunities has more than doubled, with conversations for long-duration partnerships, often exceeding 15 years, particularly with data center customers. The company is confident in converting these opportunities, with initial power generation deployments commencing in late 2025 and operations beginning in Q1 2026. Michael Stock projects LPI to achieve approximately 500 megawatts of generation by the end of 2026 and a cumulative one gigawatt by the end of 2027.

Key Risks and Mitigations

Liberty operates in inherently cyclical markets, exposed to commodity price volatility, geopolitical tensions, and macroeconomic uncertainties. The current environment presents risks of sustained pricing pressure in completions and potential delays in power project timelines. Tariffs on steel and aluminum products are driving up production costs, potentially impacting competitiveness.

Liberty mitigates these risks through a multi-faceted approach. In completions, it reallocates horsepower to simul-frac offerings for long-term partners, leveraging its full suite of integrated services and AI-driven analytics to drive efficiency and maintain market share. The company's focus on next-generation technology and operational excellence helps it withstand pricing pressures better than conventional fleets. For LPI, Liberty emphasizes long-term, take-or-pay energy service agreements with investment-grade counterparties, often involving project-specific, non-recourse debt. Its modular construction approach and strong supplier relationships enable rapid deployment and cost-effective execution, mitigating supply chain and labor risks. The company's "fortress balance sheet" and disciplined capital allocation further provide resilience against market downturns.

Conclusion

Liberty Energy Inc. stands at a pivotal juncture, strategically transforming from a leading oilfield services provider into a diversified energy solutions company. Its core investment thesis is built on the successful execution of a dual strategy: maintaining leadership and driving efficiency in a maturing, yet essential, completions business, while aggressively expanding into the high-growth distributed power generation market. This transformation is powered by Liberty's deep technological moat, including AI-driven automation, highly efficient DigiFleets, and modular natural gas reciprocating engines, which deliver quantifiable benefits in cost reduction, operational efficiency, and asset longevity.

Despite near-term market headwinds in its completions segment, Liberty's operational resilience, disciplined capital allocation, and robust balance sheet position it to capitalize on the immense opportunities in power generation. The company's commitment to delivering over one gigawatt of power capacity by 2027, backed by strategic partnerships and a clear financing strategy, signals a compelling long-term growth trajectory. Liberty's ability to leverage its established competitive advantages—technological innovation, strong customer and supplier relationships, and operational excellence—across both its core and emerging businesses will be crucial for unlocking significant shareholder value in the years ahead.