QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | ||
☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | |||
Emerging growth company | |||||
Page | |||
• | the severity and duration of world health events, including the recent outbreak of the novel coronavirus (“COVID-19”) pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which is negatively impacting our business; |
• | the current significant surplus in the supply of oil and actions by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations; |
• | uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for our services; |
• | the level of production and resulting market prices for crude oil, natural gas and other hydrocarbons; |
• | changes in general economic and geopolitical conditions; |
• | competitive conditions in our industry; |
• | operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions; |
• | our ability to successfully implement technological developments and enhancements, including the new DuraStim® fleets and associated power solutions; |
• | the effects of current and future litigation, including the Logan Lawsuit, the Boca Raton Lawsuit and the Chang Lawsuit (each defined herein); |
• | the timing and outcome of, including potential expense associated with, the SEC pending investigation; |
• | the potential impact on our business and stock price of any announcements regarding the SEC's pending investigation, the Logan Lawsuit, the Boca Raton Lawsuit or the Chang Lawsuit; |
• | the material weaknesses in our internal controls over financial reporting and disclosure controls and procedures described under Part I, Item 4, “Controls and Procedure” in this Form 10-Q; |
• | matters related to the Company's expanded audit committee review and related findings, as well as the implementation and effectiveness of the Company's remediation plan; and |
March 31, 2020 | December 31, 2019 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable - net of allowance for credit losses of $5,340 and $1,049, respectively | ||||||||
Inventories | ||||||||
Prepaid expenses | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
PROPERTY AND EQUIPMENT - net of accumulated depreciation | ||||||||
OPERATING LEASE RIGHT-OF-USE ASSETS | ||||||||
OTHER NONCURRENT ASSETS: | ||||||||
Goodwill | ||||||||
Other noncurrent assets | ||||||||
Total other noncurrent assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | $ | ||||||
Operating lease liabilities | ||||||||
Finance lease liabilities | ||||||||
Accrued and other current liabilities | ||||||||
Accrued interest payable | ||||||||
Total current liabilities | ||||||||
DEFERRED INCOME TAXES | ||||||||
LONG-TERM DEBT | ||||||||
NONCURRENT OPERATING LEASE LIABILITIES | ||||||||
Total liabilities | ||||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Preferred stock, $0.001 par value, 30,000,000 shares authorized, none issued, respectively | ||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized,100,777,670 and 100,624,099 shares issued, respectively | ||||||||
Additional paid-in capital | ||||||||
Retained earnings | ||||||||
Total shareholders’ equity | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
REVENUE - Service revenue | $ | $ | ||||||
COSTS AND EXPENSES | ||||||||
Cost of services (exclusive of depreciation and amortization) | ||||||||
General and administrative (inclusive of stock-based compensation) | ||||||||
Depreciation and amortization | ||||||||
Impairment expense | ||||||||
Loss on disposal of assets | ||||||||
Total costs and expenses | ||||||||
OPERATING INCOME (LOSS) | ( | ) | ||||||
OTHER EXPENSE: | ||||||||
Interest expense | ( | ) | ( | ) | ||||
Other expense | ( | ) | ( | ) | ||||
Total other expense | ( | ) | ( | ) | ||||
INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ||||||
INCOME TAX (EXPENSE) BENEFIT | ( | ) | ||||||
NET INCOME (LOSS) | $ | ( | ) | $ | ||||
NET INCOME (LOSS) PER COMMON SHARE: | ||||||||
Basic | $ | ( | ) | $ | ||||
Diluted | $ | ( | ) | $ | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||
Basic | ||||||||
Diluted | ||||||||
Three Months Ended March 31, 2020 | |||||||||||||||||||
Common Stock | |||||||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Total | |||||||||||||||
BALANCE - January 1, 2020 | $ | $ | $ | $ | |||||||||||||||
Stock-based compensation cost | — | — | — | ||||||||||||||||
Issuance of equity awards, net | — | ||||||||||||||||||
Tax withholdings paid for net settlement of equity awards | — | — | ( | ) | — | ( | ) | ||||||||||||
Net loss | — | — | — | ( | ) | ( | ) | ||||||||||||
BALANCE - March 31, 2020 | $ | $ | $ | $ | |||||||||||||||
Three Months Ended March 31, 2019 | |||||||||||||||||||
Common Stock | |||||||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||
BALANCE - January 1, 2019 | $ | $ | $ | ( | ) | $ | |||||||||||||
Stock-based compensation cost | — | — | — | ||||||||||||||||
Issuance of equity awards, net | — | — | |||||||||||||||||
Net income | — | — | — | ||||||||||||||||
BALANCE - March 31, 2019 | $ | $ | $ | $ | |||||||||||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | ( | ) | $ | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Impairment expense | ||||||||
Deferred income tax expense (benefit) | ( | ) | ||||||
Amortization of deferred debt issuance costs | ||||||||
Stock-based compensation | ||||||||
Provision for credit losses | ||||||||
Loss on disposal of assets | ||||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Other current assets | ( | ) | ||||||
Inventories | ( | ) | ||||||
Prepaid expenses | ||||||||
Accounts payable | ||||||||
Accrued and other current liabilities | ( | ) | ( | ) | ||||
Accrued interest | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Proceeds from sale of assets | ||||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from borrowings | ||||||||
Repayments of borrowings | ( | ) | ||||||
Payment of finance lease obligation | ( | ) | ||||||
Repayments of insurance financing | ( | ) | ||||||
Proceeds from exercise of equity awards | ||||||||
Tax withholdings paid for net settlement of equity awards | ( | ) | ||||||
Net cash provided by (used in) financing activities | ( | ) | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||
CASH AND CASH EQUIVALENTS - Beginning of period | ||||||||
CASH AND CASH EQUIVALENTS - End of period | $ | $ | ||||||
($ in thousands) | |||
March 31, 2020 | |||
Balance - January 1, 2020 | $ | ||
Allowance for credit losses during the period | |||
Amounts written off | |||
Balance - March 31, 2020 | $ | ||
($ in thousands) | ||||||||||||||||||||
Estimated fair value measurements | ||||||||||||||||||||
Balance | Quoted prices in active market (Level 1) | Significant other observable inputs (Level 2) | Significant other unobservable inputs (Level 3) | Total gains (losses) | ||||||||||||||||
March 31, 2020: | ||||||||||||||||||||
Property and equipment, net | $ | $ | $ | $ | $ | ( | ) | |||||||||||||
Goodwill | $ | $ | $ | $ | $ | ( | ) | |||||||||||||
December 31, 2019: | ||||||||||||||||||||
Property and equipment, net | $ | $ | $ | $ | $ | ( | ) | |||||||||||||
Goodwill | $ | $ | $ | $ | $ | |||||||||||||||
($ in thousands) | ||||||||
2020 | 2019 | |||||||
ABL Credit Facility | $ | $ | ||||||
Total debt | ||||||||
Less current portion of long-term debt | ||||||||
Total long-term debt | $ | $ | ||||||
($ in thousands) | ||||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 and thereafter | ||||
Total | $ | |||
Three Months Ended March 31, 2020 | ||||||||||||
Pressure Pumping | All Other | Total | ||||||||||
Service revenue | $ | $ | $ | |||||||||
Adjusted EBITDA | $ | $ | ( | ) | $ | |||||||
Depreciation and amortization | $ | $ | $ | |||||||||
Capital expenditures | $ | $ | $ | |||||||||
Total assets at March 31, 2020 | $ | $ | $ | |||||||||
Three Months Ended March 31, 2019 | ||||||||||||
Pressure Pumping | All Other | Total | ||||||||||
Service revenue | $ | $ | $ | |||||||||
Adjusted EBITDA | $ | $ | ( | ) | $ | |||||||
Depreciation and amortization | $ | $ | $ | |||||||||
Goodwill at December 31, 2019 | $ | $ | $ | |||||||||
Capital expenditures | $ | $ | $ | |||||||||
Total assets at December 31, 2019 | $ | $ | $ | |||||||||
Three Months Ended March 31, 2020 | ||||||||||||
Pressure Pumping | All Other | Total | ||||||||||
Net income (loss) | $ | $ | ( | ) | $ | ( | ) | |||||
Depreciation and amortization | ||||||||||||
Impairment expense | ||||||||||||
Interest expense | ||||||||||||
Income tax expense | ( | ) | ( | ) | ||||||||
Loss on disposal of assets | ||||||||||||
Stock-based compensation | ||||||||||||
Other expense | ||||||||||||
Other general and administrative expense(1) | ||||||||||||
Retention bonus and severance expense | ||||||||||||
Adjusted EBITDA | $ | $ | ( | ) | $ | |||||||
Three Months Ended March 31, 2019 | ||||||||||||
Pressure Pumping | All Other | Total | ||||||||||
Net income (loss) | $ | $ | ( | ) | $ | |||||||
Depreciation and amortization | ||||||||||||
Interest expense | ||||||||||||
Income tax expense | ||||||||||||
Loss on disposal of assets | ||||||||||||
Stock-based compensation | ||||||||||||
Other expense | ||||||||||||
Deferred IPO bonus expense | ||||||||||||
Adjusted EBITDA | $ | $ | ( | ) | $ | |||||||
(1) | Other general and administrative expense relates to nonrecurring professional fees paid to external consultants in connection with the Company's expanded audit committee review. |
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Numerator (both basic and diluted) | ||||||||
Net income (loss) relevant to common stockholders | $ | ( | ) | $ | ||||
Denominator | ||||||||
Denominator for basic income (loss) per share | ||||||||
Dilutive effect of stock options | ||||||||
Dilutive effect of performance share units | ||||||||
Dilutive effect of restricted stock units | ||||||||
Denominator for diluted income (loss) per share | ||||||||
Basic income (loss) per share | $ | ( | ) | $ | ||||
Diluted income (loss) per share | $ | ( | ) | $ | ||||
(In thousands) | ||||||
2020 | 2019 | |||||
Stock options | ||||||
Restricted stock units | ||||||
Performance stock units | ||||||
Total | ||||||
Number of Shares | Weighted Average Exercise Price | ||||||
Outstanding at January 1, 2020 | $ | ||||||
Granted | $ | ||||||
Exercised | $ | ||||||
Forfeited | ( | ) | $ | ||||
Expired | $ | ||||||
Outstanding at March 31, 2020 | $ | ||||||
Exercisable at March 31, 2020 | $ | ||||||
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Outstanding at January 1, 2020 | $ | ||||||
Granted | $ | ||||||
Vested | ( | ) | $ | ||||
Forfeited | ( | ) | $ | ||||
Canceled | $ | ||||||
Outstanding at March 31, 2020 | $ | ||||||
Period Granted | Target Shares Outstanding at January 1, 2020 | Target Shares Granted | Target Shares Vested | Target Shares Forfeited | Target Shares Outstanding at March 31, 2020 | Weighted Average Grant Date Fair Value per Share | |||||||||||||
2017 | ( | ) | $ | ||||||||||||||||
2018 | ( | ) | $ | ||||||||||||||||
2019 | ( | ) | $ | ||||||||||||||||
2020 | ( | ) | $ | ||||||||||||||||
Total | ( | ) | ( | ) | $ | ||||||||||||||
($ in thousands) | ||||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Total undiscounted future lease payments | ||||
Less: amount representing interest | ( | ) | ||
Present value of future lease payments (lease obligation) | $ | |||
◦ | Growth Capital. We cancelled substantially all our planned growth capital expenditures for the remainder of 2020. |
◦ | Other Expenditures. We significantly reduced our maintenance expenditures and field level consumable costs due to our reduced activity levels. We have been seeking lower pricing for our expendable items, materials used in day-to-day operations and large component replacement parts. Also, we have been internalizing certain support services that were outsourced. |
◦ | Labor Force Reductions. We have reduced our workforce by over 60% due to the changing activity levels for our services. We will continue to make appropriate adjustments to our workforce to reflect outlook related to activity levels. |
◦ | Compensation Related Costs. The directors and officers have voluntarily reduced compensation at different levels up to 20%. We have taken efforts to manage work schedules, primarily related to hourly employees, to minimize overtime costs. |
◦ | Working Capital. We have negotiated more favorable payment terms with certain of our larger vendors and are continuing to increase our diligence in collecting and managing our portfolio of accounts receivables. |
Three Months Ended March 31, 2020 | ||||||||||||
Pressure Pumping | All Other | Total | ||||||||||
Net income (loss) | $ | 4,308 | $ | (12,112 | ) | $ | (7,804 | ) | ||||
Depreciation and amortization | 38,969 | 1,236 | 40,205 | |||||||||
Impairment expense | 15,559 | 1,095 | 16,654 | |||||||||
Interest expense | 1 | 1,280 | 1,281 | |||||||||
Income tax expense | — | (909 | ) | (909 | ) | |||||||
Loss on disposal of assets | 19,815 | 39 | 19,854 | |||||||||
Stock-based compensation | — | 471 | 471 | |||||||||
Other expense | — | 3 | 3 | |||||||||
Other general and administrative expense(1) | — | 5,135 | 5,135 | |||||||||
Retention bonus and severance expense | 12 | 21 | 33 | |||||||||
Adjusted EBITDA | $ | 78,664 | $ | (3,741 | ) | $ | 74,923 | |||||
Three Months Ended March 31, 2019 | ||||||||||||
Pressure Pumping | All Other | Total | ||||||||||
Net income (loss) | $ | 98,094 | $ | (28,289 | ) | $ | 69,805 | |||||
Depreciation and amortization | 31,783 | 1,334 | 33,117 | |||||||||
Interest expense | — | 1,903 | 1,903 | |||||||||
Income tax expense | — | 21,892 | 21,892 | |||||||||
Loss on disposal of assets | 19,006 | 222 | 19,228 | |||||||||
Stock-based compensation | — | 1,829 | 1,829 | |||||||||
Other expense | — | 187 | 187 | |||||||||
Deferred IPO bonus expense | 2,157 | 157 | 2,314 | |||||||||
Adjusted EBITDA | $ | 151,040 | $ | (765 | ) | $ | 150,275 | |||||
(1) | Other general and administrative expense relates to nonrecurring professional fees paid to external consultants in connection with the Company's expanded audit committee review. |
(in thousands, except for percentages) | Three Months Ended March 31, | Change | |||||||||||||
2020 | 2019 | Variance | % | ||||||||||||
Revenue | $ | 395,069 | $ | 546,179 | $ | (151,110 | ) | (27.7 | )% | ||||||
Cost of services (1) | 300,848 | 381,523 | (80,675 | ) | (21.1 | )% | |||||||||
General and administrative expense (2) | 24,937 | 18,524 | 6,413 | 34.6 | % | ||||||||||
Depreciation and amortization | 40,205 | 33,117 | 7,088 | 21.4 | % | ||||||||||
Impairment expense | 16,654 | — | 16,654 | 100.0 | % | ||||||||||
Loss on disposal of assets | 19,854 | 19,228 | 626 | 3.3 | % | ||||||||||
Interest expense | 1,281 | 1,903 | (622 | ) | (32.7 | )% | |||||||||
Other expense | 3 | 187 | (184 | ) | (98.4 | )% | |||||||||
Income tax expense (benefit) | (909 | ) | 21,892 | (22,801 | ) | (104.2 | )% | ||||||||
Net income (loss) | $ | (7,804 | ) | $ | 69,805 | $ | (77,609 | ) | (111.2 | )% | |||||
Adjusted EBITDA (3) | $ | 74,923 | $ | 150,275 | $ | (75,352 | ) | (50.1 | )% | ||||||
Adjusted EBITDA Margin (3) | 19.0 | % | 27.5 | % | (8.5 | )% | (30.9 | )% | |||||||
Pressure pumping segment results of operations: | |||||||||||||||
Revenue | $ | 386,919 | $ | 532,064 | $ | (145,145 | ) | (27.3 | )% | ||||||
Cost of services | $ | 294,224 | $ | 371,105 | $ | (76,881 | ) | (20.7 | )% | ||||||
Adjusted EBITDA (3) | $ | 78,664 | $ | 151,040 | $ | (72,376 | ) | (47.9 | )% | ||||||
Adjusted EBITDA Margin (4) | 20.3 | % | 28.4 | % | (8.1 | )% | (28.5 | )% | |||||||
(1) | Exclusive of depreciation and amortization. |
(2) | Inclusive of stock-based compensation. |
(3) | For definitions of the non-GAAP financial measures of Adjusted EBITDA and Adjusted EBITDA margin and reconciliation of Adjusted EBITDA to our most directly comparable financial measures calculated in accordance with GAAP, please read "How We Evaluate Our Operations". |
(4) | The non-GAAP financial measure of Adjusted EBITDA margin for the pressure pumping segment is calculated by taking Adjusted EBITDA for the pressure pumping segment as a percentage of our revenue for the pressure pumping segment. |
Three Months Ended March 31, | ||||||||
($ in thousands) | 2020 | 2019 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 61,724 | $ | 36,085 | ||||
Investing activities | $ | (46,557 | ) | $ | (177,885 | ) | ||
Financing activities | $ | (20,486 | ) | $ | 88,618 | |||
• | Appointed new executive officers with extensive public company experience to improve the tone at the top, communication with the Board and compliance with policies within the Company. |
• | Enhanced certain of the Company’s policies, including the Code of Ethics and Conduct, Expense Reimbursement, Travel and Entertainment, and Delegation of Responsibilities and Authority. Additionally, the Company enhanced or implemented control activities to monitor compliance with such policies. |
• | Designed and implemented control activities related to the identification of, approval of, and disclosure of related party transactions. |
• | Designed and implemented control activities related to the identification and approval of potential conflicts of interest. |
• | Designed and implemented control activities related to the evaluation of whistleblower allegations. |
• | Formed a disclosure committee and appointed a Chief Disclosure Officer to provide improved corporate governance related to disclosures the Company provides to the public and other external parties. |
3.1 | ||
3.2 | ||
10.1 | ||
10.2+ | ||
10.3+ | ||
10.4+ | ||
10.5+ | ||
10.6+ | ||
10.7+ | ||
10.8+ | ||
10.9+ | ||
10.10+ | ||
10.11+ | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
104* | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
+ | Indicates management contracts or compensatory plans or arrangements. |
* | Filed herewith. |
** | Furnished herewith. |
SIGNATURES | ||||||
Date: | July 2, 2020 | By: | /s/ Phillip A. Gobe | |||
Phillip A. Gobe | ||||||
Chief Executive Officer and Chairman of the Board | ||||||
(Principal Executive Officer) | ||||||
By: | /s/ Darin G. Holderness | |||||
Darin G. Holderness | ||||||
Chief Financial Officer | ||||||
(Principal Financial Officer) | ||||||
By: | /s/ Elo Omavuezi | |||||
Elo Omavuezi | ||||||
Chief Accounting Officer | ||||||
(Principal Accounting Officer) | ||||||
1. | I have reviewed this Quarterly Report on Form 10-Q of ProPetro Holding Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
/s/ Phillip A. Gobe |
Phillip A. Gobe Chief Executive Officer and Chairman (Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of ProPetro Holding Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
/s/ Darin G. Holderness |
Darin G. Holderness Chief Financial Officer (Principal Financial Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for credit losses | $ 5,340 | $ 1,049 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, authorized (in shares) | 200,000,000 | 200,000,000 |
| Common stock, issued (in shares) | 100,777,670 | 100,624,099 |
| Common Stock, shares outstanding ( in shares ) | 100,777,670 | 100,624,099 |
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, authorized (in shares) | 30,000,000 | 30,000,000 |
| Preferred stock, issued (in shares) | 0 | 0 |
Basis of Presentation |
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements of ProPetro Holding Corp. and its subsidiary (the "Company," "we," "us" or "our") have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission ("SEC") for interim financial information and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements. Those adjustments (which consisted of normal recurring accruals) that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been made. Results of operations for such interim periods are not necessarily indicative of the results of operations for a full year due to changes in market conditions and other factors. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Form 10-K filed with the SEC (our "Form 10-K"). Risks and Uncertainties As an oilfield services company, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the novel coronavirus (“COVID-19”) pandemic has, and is anticipated to continue to have, an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to the COVID-19 pandemic has resulted in a dramatic decline in the demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a collapse starting in early March 2020 as a direct result of failed negotiations between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia. In response to the global economic slowdown, OPEC had recommended a decrease in production levels in order to accommodate reduced demand. Russia rejected the recommendation of OPEC as a concession to U.S. producers. After the failure to reach an agreement, Saudi Arabia, a dominant member of OPEC, and other Persian Gulf OPEC members announced intentions to increase production and offer price discounts to buyers in certain geographic regions. As the breadth of the COVID-19 health crisis expanded throughout the month of March 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately. The associated impact on the energy industry has been adverse and continued to be exacerbated by the unresolved conflict regarding production. In the second week of April 2020, OPEC, Russia and certain other petroleum producing nations (“OPEC+”), reconvened to discuss the matter of production cuts in light of unprecedented disruption and supply and demand imbalances that expanded since the failed negotiations in early March 2020. Tentative agreements were reached to cut production by up to 10 million barrels of oil per day with allocations to be made among the OPEC+ participants. Some of these production cuts went into effect in the first half of May 2020, however, commodity prices remain depressed as a result of an increasingly utilized global storage network and near-term demand loss attributable to the COVID-19 health crisis and related economic slowdown. The combined effect of COVID-19 and the energy industry disruptions led to a decline in WTI crude oil prices of approximately 67 percent from the beginning of January 2020, when prices were approximately $62 per barrel, through the end of March 2020, when they were just above $20 per barrel. Overall crude oil price volatility has continued despite apparent agreement among OPEC+ regarding production cuts and as of June 29, 2020, the WTI price for a barrel of crude oil was approximately $40. Despite a significant decline in drilling and completion activities by U.S. producers starting in mid-March 2020, domestic supply is exceeding demand which has led to significant operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the Gulf Coast region. The combined effect of the aforementioned factors is anticipated to have an adverse impact on the industry in general and our operations specifically. Since March 2020, we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity. The more significant actions that we have taken included: (i) canceling substantially all of our growth capital projects, (ii) significantly reducing our maintenance expenditures and field level consumable costs, (iii) reducing our workforce to follow our activity levels, (iv) efforts to manage our compensation costs, such as compensation reductions and management of work schedules to reduce overtime costs and (v) negotiating more favorable payment terms with certain of our larger vendors and proactively managing our portfolio of accounts receivable. Revenue Recognition The Company’s services are sold based upon contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following is a description of the principal activities, separated by reportable segment and all other, from which the Company generates its revenue. Pressure Pumping — Pressure pumping consists of downhole pumping services, which includes hydraulic fracturing (inclusive of acidizing services) and cementing. Hydraulic fracturing is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of shale wellbores. The process involves the injection of water, sand and chemicals under high pressure into shale formations. Our hydraulic fracturing contracts have one performance obligation, contracted total stages, satisfied over time. We recognize revenue over time using a progress output method, unit-of-work performed method, which is based on the agreed fixed transaction price and actual stages completed. We believe that recognizing revenue based on actual stages completed faithfully depicts how our hydraulic fracturing services are transferred to our customers over time. Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid is injected under pressure into formations to form or expand fissures. Our acidizing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize acidizing revenue at a point-in-time, upon completion of the performance obligation. Our cementing services use pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole. Our cementing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize cementing revenue at a point-in-time, upon completion of the performance obligation. The transaction price for each performance obligation for all our pressure pumping services is fixed per our contracts with our customers. All Other— All other consists of our coiled tubing and drilling, which are all downhole well stimulation and completion/remedial services. The performance obligation for each of the services has a fixed transaction price which is satisfied at a point-in-time upon completion of the service when control is transferred to the customer. Accordingly, we recognize revenue at a point-in-time, upon completion of the service and transfer of control to the customer. Accounts Receivable Accounts receivables are stated at the amount billed and billable to customers. At March 31, 2020 and December 31, 2019, accrued revenue (unbilled receivable) included as part of our accounts receivable was $21.6 million and $37.0 million, respectively. At March 31, 2020, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing operations was $16.3 million, which is expected to be completed and recognized in one month following the current period balance sheet date, in our pressure pumping reportable segment. Allowance for Credit Losses As of March 31, 2020, the Company had $5.3 million allowance for credit losses. The allowance for credit losses of $4.3 million, recorded during the three months ended March 31, 2020, was the result of the application of ASU 2016-13 to the Company’s accounts receivables as of March 31, 2020 in consideration of both historic collection experience and the expected impact of currently deteriorating economic conditions for the oil and gas industry. We evaluated the historic loss experience on our accounts receivable and also considered separately, customers with receivable balances that may be further impacted by current economic developments and market conditions. A substantial amount of the Company’s allowance for credit losses relates to a customer facing significant liquidity constraints for which the expected credit loss was separately evaluated. While the Company has not experienced significant credit losses in the past and has not yet seen material changes to the payment patterns of its customers, the Company cannot predict with any certainty the degree to which the impacts of the coronavirus ("COVID-19") pandemic, including the potential impact of periodically adjusted borrowing base limits, level of hedged production, or unforeseen well shut-downs may af fect the ability of its customers to timely pay receivables when due. Accordingly, in future periods, the Company may revise its estimates of expected credit losses. The table below shows a summary of allowance for credit losses during for the three months ended March 31, 2020.
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Recently Issued Accounting Standards |
3 Months Ended |
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Mar. 31, 2020 | |
| Accounting Policies [Abstract] | |
| Recently Issued Accounting Standards | Recently Issued Accounting Standards Recently Issued Accounting Standards Adopted in 2020 In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable and lease receivables. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarified that receivables arising from operating leases are not within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842. ASU 2016-13 and ASU 2018-19 are effective for annual periods beginning after December 15, 2019. Effective January 1, 2020, the Company adopted ASU 2016-13 using the modified-retrospective approach, which allows for a cumulative-effect adjustment to the consolidated condensed balance sheet as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. The Company continuously evaluates customers based on risk characteristics, such as historical losses and current economic conditions. Due to the cyclical nature of the oil and gas industry, the Company often evaluates its customers’ estimated losses on a combination of historical losses and on case-by-case basis. While there was no material impact to our consolidated financial statements as a result of adoption of ASU 2016-13, as a result of deteriorating economic conditions for the oil and gas industry brought on by the COVID-19 pandemic, during the first quarter of 2020, the Company recorded a provision for credit losses of $4.3 million, included in general and administrative expenses in the accompanying condensed consolidated statement of operations, in accordance with the new standard. Refer to “Allowance for Credit Losses” within Note 1 for additional disclosures required under ASU 2016-13. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020 and determined the adoption of this standard did not impact the Company’s condensed consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under this ASU, an entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, although the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for impairment tests in fiscal years beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Effective January 1, 2020, we adopted this guidance and the adoption did not materially affect the Company's condensed consolidated financial statements. See Note 3 for additional disclosures relating to our goodwill impairment. Recently Issued Accounting Standards Not Yet Adopted in 2020 In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect ASU 2019-12 to have a material effect on the Company’s condensed consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s condensed consolidated financial statements.
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Fair Value Measurement |
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| Fair Value Measurements | Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used, when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions other market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows: Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Level 2 — Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis Our financial instruments include cash and cash equivalents, accounts receivable and accounts payable, accrued expenses and long-term debt. The estimated fair value of our financial instruments at March 31, 2020 and December 31, 2019 approximated or equaled their carrying values as reflected in our condensed consolidated balance sheets. Assets Measured at Fair Value on a Nonrecurring Basis Assets measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019, respectively, are set forth below:
During the three months ended March 31, 2020, the negative future near-term outlook resulting from the continued idling of our Permian drilling assets and current market prices were indicative of potential impairment, resulting in the Company comparing the carrying value of the Permian drilling assets with its estimated fair value. We determined that the carrying value of the Permian drilling assets was greater than its estimated fair value, accordingly impairment expense of approximately $1.1 million was recorded for our Permian drilling assets during the three months ended March 31, 2020. The carrying value for our Permian drilling assets after the impairment expense was approximately $0.8 million. In 2019, the Company entered an agreement with its equipment manufacturer granting the Company the option to purchase additional 108,000 hydraulic horsepower (“HHP”) of DuraStim® equipment, with the purchase option expiring at different times through April 30, 2021. The option fee of $6.1 million, classified as a deposit for property and equipment as part of our pressure pumping reportable segment has been fully impaired and written off as of March 31, 2020, because it is not probable that the Company will exercise the option to purchase the equipment given the current depressed crude oil prices and other market conditions that have resulted in a decline in the demand for our hydraulic fracturing services. The total non-cash property and equipment impairment charges recorded during the three months ended March 31, 2020 and 2019 in our hydraulic fracturing and drilling segments was $7.2 million and $0, respectively. We generally apply fair value techniques to our reporting units on a nonrecurring basis associated with valuing potential impairment loss related to goodwill. Our estimate of the reporting unit fair value is based on a combination of income and market approaches, Level 1 and 3, respectively, in the fair value hierarchy. The income approach involves the use of a discounted cash flow method, with the cash flow projections discounted at an appropriate discount rate. The market approach involves the use of comparable public companies' market multiples in estimating the fair value. Significant assumptions include projected revenue growth, capital expenditures, utilization, gross margins, discount rates, terminal growth rates, and weight allocation between income and market approaches. If the reporting unit's carrying amount exceeds its fair value, we consider goodwill impaired, and the impairment loss is calculated and recorded in the period. There were no additions to, or disposal of, goodwill during the three months ended March 31, 2020 and 2019. During the three months ended March 31, 2020, the depressed crude oil prices and crude oil storage challenges faced in the U.S. oil and gas industry triggered the Company to perform an interim goodwill impairment test, and as a result, we compared the carrying value of the goodwill in our hydraulic fracturing reporting unit with the estimated fair value. Our impairment test also considered other relevant factors, including market capitalization and market participants' view of the oil and gas industry in reaching our conclusion that that carrying value of our goodwill in our pressure pumping reportable segment of $9.4 million is fully impaired. Accordingly, we recorded a goodwill impairment expense of $9.4 million during the three months ended March 31, 2020. There was no goodwill impairment expense during the three months ended March 31, 2019.
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Long-Term Debt |
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| Long-Term Debt | Long-Term Debt ABL Credit Facility Our revolving credit facility (“ABL Credit Facility”), as amended, has a total borrowing capacity of $300 million (subject to the Borrowing Base limit), with a maturity date of December 19, 2023. The ABL Credit Facility has a borrowing base of 85% of monthly eligible accounts receivable less customary reserves (the "Borrowing Base"), as redetermined monthly. The Borrowing Base as of March 31, 2020 was approximately $161.9 million. The ABL Credit Facility includes a Springing Fixed Charge Coverage Ratio to apply when excess availability is less than the greater of (i) 10% of the lesser of the facility size or the Borrowing Base or (ii) $22.5 million. Under this facility we are required to comply, subject to certain exceptions and materiality qualifiers, with certain customary affirmative and negative covenants, including, but not limited to, covenants pertaining to our ability to incur liens, indebtedness, changes in the nature of our business, mergers and other fundamental changes, disposal of assets, investments and restricted payments, amendments to our organizational documents or accounting policies, prepayments of certain debt, dividends, transactions with affiliates, and certain other activities. Borrowings under the ABL Credit Facility are secured by a first priority lien and security interest in substantially all assets of the Company. Borrowings under the ABL Credit Facility accrue interest based on a three-tier pricing grid tied to availability, and we may elect for loans to be based on either LIBOR or base rate, plus the applicable margin, which ranges from 1.75% to 2.25% for LIBOR loans and 0.75% to 1.25% for base rate loans, with a LIBOR floor of zero. The weighted average interest rate for our ABL Credit Facility for the three months ended March 31, 2020 was 3.9%. Total debt consisted of the following at March 31, 2020 and December 31, 2019, respectively:
The loan origination costs relating to the ABL Credit Facility are classified as an asset in our balance sheet. Annual Maturities — Scheduled remaining annual maturities of total debt are as follows at March 31, 2020:
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Reportable Segment Information |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reportable Segment Information | Reportable Segment Information The Company has four operating segments for which discrete financial information is readily available: hydraulic fracturing (inclusive of acidizing), cementing, coiled tubing and drilling. In March 2020, the Company shut down its flowback operating segment and subsequently disposed of the assets for approximately $1.6 million. These operating segments represent how the Chief Operating Decision Maker evaluates performance and allocates resources. In accordance with Accounting Standards Codification ("ASC") 280—Segment Reporting, the Company has one reportable segment (pressure pumping) comprised of the hydraulic fracturing and cementing operating segments. All other operating segments and corporate administrative expense (inclusive of our total income tax expense and interest expense) are included in the ‘‘all other’’ category in the table below. Total corporate administrative expense for the three months ended March 31, 2020 and 2019 was $10.3 million and $29.7 million, respectively. Our hydraulic fracturing operating segment revenue approximated 94.8% and 95.9% of our pressure pumping revenue during the three months ended March 31, 2020 and and 2019, respectively. Inter-segment revenues are not material and are not shown separately in the table below. The Company manages and assesses the performance of the reportable segment by its adjusted EBITDA (earnings before other income (expense), interest, taxes, depreciation and amortization, stock-based compensation expense, severance, impairment expense, (gain)/loss on disposal of assets and other unusual or nonrecurring expenses or (income)). A reconciliation from segment level financial information to the consolidated statement of operations is provided in the table below ($ in thousands):
Reconciliation of net income (loss) to adjusted EBITDA ($ in thousands):
(1) Other general and administrative expense relates to nonrecurring professional fees paid to external consultants in connection with the Company's expanded audit committee review.
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| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) Per Share | Net Income (Loss) Per Share Basic net income (loss) per common share is computed by dividing the net income (loss) relevant to the common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share uses the same net income (loss) divided by the sum of the weighted average number of shares of common stock outstanding during the period, plus dilutive effects of options, performance and restricted stock units outstanding during the period calculated using the treasury method and the potential dilutive effects of preferred stocks (if any) calculated using the if-converted method. The table below shows the calculations for the three months ended March 31, 2020 and 2019, (in thousands, except for per share data).
As shown in the table below, the following stock options, restricted stock units and performance stock units outstanding as of March 31, 2020 and 2019, respectively, have not been included in the calculation of diluted income (loss) per common share because they will be anti-dilutive to the calculation of diluted net income (loss) per common share.
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Stock-Based Compensation |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation | Stock-Based Compensation Stock Options There were no new stock option grants during the three months ended March 31, 2020 and 2019. As of March 31, 2020, the aggregate intrinsic value for our outstanding stock options was approximately $0.3 million, and the aggregate intrinsic value for our exercisable stock options was $0.3 million. The remaining exercise period for the outstanding and exercisable stock options as of March 31, 2020, was 4.5 years and 4.6 years, respectively. A summary of the stock option activity for the three months ended March 31, 2020 is presented below.
Restricted Stock Units During the three months ended March 31, 2020, we granted a total of 949,214 restricted stock units ("RSUs") to employees, officers and directors pursuant to the ProPetro Holding Corp. 2017 Incentive Award Plan (the "Incentive Plan"), which generally vest ratably over a three-year vesting period, in the case of awards to employees and officers, and generally vest in full after one year, in the case of awards to directors. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award. Each RSU represents the right to receive one share of common stock. The grant date fair value of the RSUs is based on the closing share price of our common stock on the date of grant. As of March 31, 2020, the total unrecognized compensation expense for all RSUs was approximately $10.5 million, and is expected to be recognized over a weighted average period of approximately 2.4 years. The following table summarizes RSUs activity during the three months ended March 31, 2020:
Performance Share Units During the three months ended March 31, 2020, we granted 966,242 performance share units ("PSUs") to certain key employees and officers under the Incentive Plan. The actual number of shares of common stock that may be issued under the PSUs ranges from 0% up to a maximum of 200% of the target number of PSUs granted to the participant, based on our total shareholder return ("TSR") relative to a designated peer group, generally at the end of a three year period. In addition to the TSR conditions, vesting of the PSUs is generally subject to the recipient’s continued employment through the end of the applicable performance period. Compensation expense is recorded ratably over the corresponding requisite service period. The grant date fair value of PSUs is determined using a Monte Carlo probability model. Grant recipients do not have any shareholder rights until performance relative to the peer group has been determined following the completion of the performance period and shares have been issued. The following table summarizes information about PSUs activity during the three months ended March 31, 2020:
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Related-Party Transactions |
3 Months Ended |
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Mar. 31, 2020 | |
| Related Party Transactions [Abstract] | |
| Related-Party Transactions | Related-Party Transactions Corporate Office Building The Company rented its corporate office building and the associated real property from an entity, in which a former executive officer of the Company has an equity interest. The rent expense incurred on our corporate office building is approximately $0.1 million per year. During the three months ended March 31, 2020, the total improvements on our corporate office building that we rent from the related party was approximately $0.2 million. In April 2020, the Company acquired the corporate office building and the associated real property for approximately $1.5 million. Operations and Maintenance Yards The Company also leases five yards from an entity, which certain former executive officers, an executive officer and a director of the Company have equity interests and the total annual rent expense for each of the five yards was approximately $0.03 million, $0.03 million, $0.1 million, $0.1 million, and $0.2 million, respectively. The Company also leased a yard from another entity, which a certain executive officer of the Company has an equity interest, and with annual lease expense of approximately $0.1 million. Transportation and Equipment Rental For the three months ended March 31, 2020 and 2019, the Company incurred costs for transportation services with an entity, in which a former executive officer of the Company has an equity interest, of approximately $0 and $0.1 million, respectively. The Company also rented equipment in Elk City, Oklahoma for our flowback operations from an entity, which a former executive officer of the Company has an equity interest. During the three months ended March 31, 2019, the Company incurred equipment rental costs of approximately $0.05 million. This rental arrangement was terminated in January 2020. Other Services The Company obtains equipment maintenance and repair services from an entity that has a family relationship with an executive officer of the Company. During the three months ended March 31, 2020, the Company incurred approximately $0.3 million for equipment maintenance and repair services associated with this related party. At March 31, 2020, the Company had approximately $0.2 million in payables to the above related parties. As of December 31, 2019, there were no outstanding payables in connection with transactions to the above related parties. Pioneer On December 31, 2018, we consummated the purchase of certain pressure pumping assets and real property in connection with Pioneer Natural Resources USA, Inc. (“Pioneer”) and Pioneer Pumping Services (the "Pioneer Pressure Pumping Acquisition"). In connection with the Pioneer Pressure Pumping Acquisition, Pioneer acquired 16.6 million shares of our common stock. We terminated our crew camp facility lease with Pioneer in July 2019, and the total payment to Pioneer in 2019 in connection with the crew camp facility lease was approximately $0.1 million. Revenue from services provided to Pioneer accounted for approximately $127.4 million and $159.9 million of our total revenue during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services we provided, amounted to approximately $77.7 million and the amount due to Pioneer was $0. During the three months ended March 31, 2020 and 2019, the Company reimbursed Pioneer approximately $2.6 million and $0, respectively, for our portion of the retention bonuses paid to former Pioneer employees that were subsequently employed by the Company in connection with the Pioneer Pressure Pumping Acquisition. As of December 31, 2019, the balance due from Pioneer for services provided and billed amounted to approximately $61.7 million and the amount due to Pioneer was $0.
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Leases |
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| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | Leases Operating Leases Description of Lease In March 2013, we entered into a ten year real estate lease contract (the "Real Estate Lease") with a commencement date of April 1, 2013, as part of the expansion of our equipment yard. The lease is with an entity in which a director of the Company has a noncontrolling equity ownership interest. During the three months ended March 31, 2020 and 2019, the Company made lease payments of approximately $0.1 million and $0.1 million, respectively. The assets and liabilities under this contract are equally allocated between our cementing and coiled tubing segments. In addition to the contractual lease period, the contract includes an optional renewal of up to ten years, and in management's judgment the exercise of the renewal option is not reasonably assured. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Real Estate Lease does not contain variability in payments resulting from either an index change or rate change. Effective January 1, 2019, the remaining lease term in our present value estimate of the minimum future lease payments was four years. Consistent with the requirements of the new lease standard, ASC 842, we have determined the Real Estate Lease to be an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. We did not account for the land separately from the building of the real estate lease because we concluded that the accounting effect was insignificant. As of March 31, 2020, the weighted average discount rate and remaining lease term was approximately 6.7% and 3.0 years, respectively. As of March 31, 2020, our total operating lease right-of-use asset cost was approximately $1.2 million, and accumulated amortization was approximately $0.3 million. For the three months ended March 31, 2020 and 2019, we recorded operating lease cost of approximately $0.1 million and $0.1 million, respectively, in our statement of operations. Finance Leases Description of Ground Lease In 2018, we entered into a ten year land lease contract (the "Ground Lease") with an exclusive option to purchase the land exercisable beginning one year from the commencement date of October 1, 2018 through the end of the contractual lease term. The Ground Lease did not include any residual value guarantee, covenants or financial restrictions. Further, the Ground Lease did not contain variability in payments resulting from either an index change or rate change. The remaining lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was approximately 1.2 years, assuming we will exercise our option to purchase the land immediately after the option becomes exercisable. In March 2020, the Company exercised its option and purchased the land associated with the Ground Lease for approximately $2.5 million. For the three months ended March 31, 2020 and 2019, the interest on our finance lease was approximately $0 and $0.03 million, respectively. The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for our operating lease as of March 31, 2020 are as follows:
The total cash paid for amounts included in the measurement of our operating and finance lease liabilities during the three months ended March 31, 2020 was approximately $0.1 million and $0.03 million, respectively. During the three months ended March 31, 2019, total cash paid for amounts included in the measurement of our operating and finance lease liabilities was approximately $0.1 million and $0.1 million, respectively. Short-Term Leases We elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less ("short-term leases") from our balance sheet and continue to record short-term leases as a period expense. For the three months ended March 31, 2020, our short-term leases and lodging expense was approximately $0.3 million and $2.1 million, respectively. During the three months ended March 31, 2019 our short-term leases and lodging expense was approximately $0.3 million and $2.2 million, respectively. At March 31, 2020, the total remaining lease commitments for all of our short-term leases and lodging commitments was approximately $5.1 million.
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| Leases | Leases Operating Leases Description of Lease In March 2013, we entered into a ten year real estate lease contract (the "Real Estate Lease") with a commencement date of April 1, 2013, as part of the expansion of our equipment yard. The lease is with an entity in which a director of the Company has a noncontrolling equity ownership interest. During the three months ended March 31, 2020 and 2019, the Company made lease payments of approximately $0.1 million and $0.1 million, respectively. The assets and liabilities under this contract are equally allocated between our cementing and coiled tubing segments. In addition to the contractual lease period, the contract includes an optional renewal of up to ten years, and in management's judgment the exercise of the renewal option is not reasonably assured. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Real Estate Lease does not contain variability in payments resulting from either an index change or rate change. Effective January 1, 2019, the remaining lease term in our present value estimate of the minimum future lease payments was four years. Consistent with the requirements of the new lease standard, ASC 842, we have determined the Real Estate Lease to be an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. We did not account for the land separately from the building of the real estate lease because we concluded that the accounting effect was insignificant. As of March 31, 2020, the weighted average discount rate and remaining lease term was approximately 6.7% and 3.0 years, respectively. As of March 31, 2020, our total operating lease right-of-use asset cost was approximately $1.2 million, and accumulated amortization was approximately $0.3 million. For the three months ended March 31, 2020 and 2019, we recorded operating lease cost of approximately $0.1 million and $0.1 million, respectively, in our statement of operations. Finance Leases Description of Ground Lease In 2018, we entered into a ten year land lease contract (the "Ground Lease") with an exclusive option to purchase the land exercisable beginning one year from the commencement date of October 1, 2018 through the end of the contractual lease term. The Ground Lease did not include any residual value guarantee, covenants or financial restrictions. Further, the Ground Lease did not contain variability in payments resulting from either an index change or rate change. The remaining lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was approximately 1.2 years, assuming we will exercise our option to purchase the land immediately after the option becomes exercisable. In March 2020, the Company exercised its option and purchased the land associated with the Ground Lease for approximately $2.5 million. For the three months ended March 31, 2020 and 2019, the interest on our finance lease was approximately $0 and $0.03 million, respectively. The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for our operating lease as of March 31, 2020 are as follows:
The total cash paid for amounts included in the measurement of our operating and finance lease liabilities during the three months ended March 31, 2020 was approximately $0.1 million and $0.03 million, respectively. During the three months ended March 31, 2019, total cash paid for amounts included in the measurement of our operating and finance lease liabilities was approximately $0.1 million and $0.1 million, respectively. Short-Term Leases We elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less ("short-term leases") from our balance sheet and continue to record short-term leases as a period expense. For the three months ended March 31, 2020, our short-term leases and lodging expense was approximately $0.3 million and $2.1 million, respectively. During the three months ended March 31, 2019 our short-term leases and lodging expense was approximately $0.3 million and $2.2 million, respectively. At March 31, 2020, the total remaining lease commitments for all of our short-term leases and lodging commitments was approximately $5.1 million.
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Commitments and Contingencies |
3 Months Ended |
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Mar. 31, 2020 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Commitments and Contingencies Commitments As of March 31, 2020, the Company has an agreement with its equipment manufacturer granting the Company the option to purchase additional 108,000 HHP of DuraStim® equipment, with the purchase option expiring at different times through April 30, 2021. The option fee of $6.1 million, which was classified as a deposit for property and equipment when the agreement was entered into in 2019, has been impaired and written off as of March 31, 2020 as it is not probable that we will exercise our option to purchase the equipment given the current market conditions and the depressed oil and gas industry. As of March 31, 2020, the total outstanding contractual commitments entered into as part of normal course of business for supply of certain equipment and other assets was approximately $1.2 million. The Company enters into purchase agreements with its sand suppliers (the "Sand suppliers") to secure supply of sand as part of its normal course of business. The agreements with the Sand suppliers require that the Company purchase a minimum volume of sand, constituting substantially all of its sand requirements, from the Sand suppliers, otherwise certain penalties may be charged. Under certain of the purchase agreements, a shortfall fee applies if the Company purchases less than the minimum volume of sand. The shortfall fee represents liquidated damages and is either a fixed percentage of the purchase price for the minimum volumes or a fixed price per ton of unpurchased volumes. Under one of the purchase agreements, the Company is obligated to purchase a specified percentage of its overall sand requirements, or it must pay the supplier the difference between the purchase price of the minimum volumes under the purchase agreement and the purchase price of the volumes actually purchased. Our minimum volume commitments under the purchase agreements are either based on a percentage of our total usage or fixed minimum quantity. Our agreements with the Sand suppliers expire at different times prior to April 30, 2022. During the three months ended March 31, 2020, no shortfall fee has been recorded. One of the Sand suppliers (“SandCo”) we entered into an agreement with to purchase sand (“Texas sand”) has an indirect relationship with a former executive officer of the Company, because beginning in 2018, the Texas sand was sourced from a mine located on land owned by an entity (“LandCo”) in which the former executive officer of the Company has a 44% noncontrolling equity interest in the LandCo. The total sand purchased from SandCo during the three months ended March 31, 2020 and 2019 was approximately $5.3 million and $9.5 million, respectively, and the estimated indirect benefit to the former executive officer of the Company was approximately $0.2 million and $0.3 million, respectively. As of March 31, 2020 and December 31, 2019, the Company had issued letters of credit of approximately $1.5 million and $1.5 million, respectively, under the Company's ABL Credit Facility relating to the Company's casualty insurance policy. Contingent Liabilities In September 2019, a complaint, captioned Richard Logan, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. ProPetro Holding Corp., et al., (the “Logan Lawsuit”), was filed against the Company and certain of its current and former officers and directors in the U.S. District Court for the Western District of Texas. In April 2020, Lead Plaintiffs Nykredit Portefølje Administration A/S, Oklahoma Firefighters Pension and Retirement System, Oklahoma Law Enforcement Retirement System, Oklahoma Police Pension and Retirement System, and Oklahoma City Employee Retirement System, and additional named plaintiff Police and Fire Retirement System of the City of Detroit, individually and on behalf of a putative class of shareholders who purchased the Company’s common stock between March 17, 2017 and March 13, 2020, filed a second amended class action complaint in the U.S. District Court for the Western District of Texas in the Logan Lawsuit, alleging violations of Sections 10(b) and 20(a) of the Exchange Act, as amended, and Rule l0b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act, as amended, based on allegedly inaccurate or misleading statements, or omissions of material facts, about the Company’s business, operations and prospects. In January 2020, Boca Raton Firefighters’ and Police Pension Fund (“Boca Raton”) filed a shareholder derivative suit in the U.S. District Court for the Western District of Texas (the “Boca Raton Lawsuit”) against certain of the Company’s current and former officers and directors (the “Boca Raton Defendants”). The Company was named as a nominal defendant only. The claims include (i) breaches of fiduciary duties, (ii) unjust enrichment and (iii) contribution. Boca Raton did not quantify any alleged damages in its complaint but, in addition to attorneys’ fees and costs, Boca Raton seeks various forms of relief, including (i) damages sustained by the Company as a result of the Boca Raton Defendants’ alleged misconduct, (ii) punitive damages and (iii) equitable relief in the form of improvements to the Company’s governance and controls. In April 2020, Jye-Chun Chang filed a shareholder derivative suit in the U.S. District Court for the Western District of Texas (the “Chang Lawsuit”) against certain of the Company’s current and former officers and directors (the “Chang Defendants”). The Company was named as a nominal defendant only. The claims include (i) violations of section 14(a) of the Exchange Act, (ii) breach of fiduciary duties, (iii) unjust enrichment, (iv) abuse of control, (v) gross mismanagement and (vi) waste of corporate assets. Chang did not quantify any alleged damages in its complaint but, in addition to attorneys’ fees and costs, Chang seeks various forms of relief, including (i) declaring that Chang may sustain the action on behalf of the Company, (ii) declaring that the Chang Defendants breached their fiduciary duties to the Company, (iii) damages sustained by the Company as a result of the Chang Defendants’ alleged misconduct, (iv) equitable relief in the form of improvements to the Company’s governance and controls and (v) restitution. In October 2019, the Company received a letter from the SEC indicating that the SEC had opened an investigation into the Company and requesting that the Company provide certain information and documents, including documents related to the Company's expanded audit committee review and related events. The Company has cooperated and expects to continue to cooperate with the SEC’s investigation. We are presently unable to predict the duration, scope or result of the Logan Lawsuit, the Boca Raton Lawsuit, the Chang Lawsuit, the SEC investigation, or any other related lawsuit or investigation. As of March 31, 2020, no provision was made by the Company in connection with these pending lawsuits and the SEC investigation as they are still at early stages and the final outcomes cannot be reasonably estimated. Environmental The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Company continues to monitor the status of these laws and regulations. Currently, the Company has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of the Company's business, material costs could be incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of the Company's liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification. Regulatory Audits In 2019, the Texas Comptroller of Public Accounts commenced a routine audit of the Company's gross receipts and sales, excise and use taxes for the periods of July 2015 through December 2018. As of March 31, 2020, although the audit is still ongoing, we do not believe that any material tax liability will arise from the audit.
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Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Subsequent Events Stockholder Rights Plan On April 10, 2020, the board of directors of the Company adopted a short-term stockholder rights plan (the “Rights Plan”). The Rights Plan provides for the issuance of one right for each outstanding share of the Company’s common stock held by stockholders of record on April 24, 2020. In general, the rights will become exercisable only if a person or group acquires beneficial ownership of 10% (or 20% in the case of certain passive investors) or more of the Company’s outstanding common stock or announces a tender or exchange offer that would result in such ownership. If the rights become exercisable, all holders of rights (other than any triggering person) will be entitled to acquire shares of common stock at a 50% discount, or the Company may exchange each right held by such holders for one share of common stock. The Rights Plan will expire on March 31, 2021. The Rights Plan may also be terminated, or the rights may be redeemed, prior to the scheduled expiration of the Rights Plan under certain other circumstances.
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Basis of Presentation - (Policies) |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements of ProPetro Holding Corp. and its subsidiary (the "Company," "we," "us" or "our") have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission ("SEC") for interim financial information and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements. Those adjustments (which consisted of normal recurring accruals) that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been made. Results of operations for such interim periods are not necessarily indicative of the results of operations for a full year due to changes in market conditions and other factors. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Form 10-K filed with the SEC (our "Form 10-K").
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| Revenue Recognition | Revenue Recognition The Company’s services are sold based upon contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following is a description of the principal activities, separated by reportable segment and all other, from which the Company generates its revenue. Pressure Pumping — Pressure pumping consists of downhole pumping services, which includes hydraulic fracturing (inclusive of acidizing services) and cementing. Hydraulic fracturing is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of shale wellbores. The process involves the injection of water, sand and chemicals under high pressure into shale formations. Our hydraulic fracturing contracts have one performance obligation, contracted total stages, satisfied over time. We recognize revenue over time using a progress output method, unit-of-work performed method, which is based on the agreed fixed transaction price and actual stages completed. We believe that recognizing revenue based on actual stages completed faithfully depicts how our hydraulic fracturing services are transferred to our customers over time. Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid is injected under pressure into formations to form or expand fissures. Our acidizing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize acidizing revenue at a point-in-time, upon completion of the performance obligation. Our cementing services use pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole. Our cementing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize cementing revenue at a point-in-time, upon completion of the performance obligation. The transaction price for each performance obligation for all our pressure pumping services is fixed per our contracts with our customers. All Other— All other consists of our coiled tubing and drilling, which are all downhole well stimulation and completion/remedial services. The performance obligation for each of the services has a fixed transaction price which is satisfied at a point-in-time upon completion of the service when control is transferred to the customer. Accordingly, we recognize revenue at a point-in-time, upon completion of the service and transfer of control to the customer.
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| Accounts Receivable | Accounts Receivable Accounts receivables are stated at the amount billed and billable to customers.
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| Allowance for Credit Losses | Allowance for Credit Losses As of March 31, 2020, the Company had $5.3 million allowance for credit losses. The allowance for credit losses of $4.3 million, recorded during the three months ended March 31, 2020, was the result of the application of ASU 2016-13 to the Company’s accounts receivables as of March 31, 2020 in consideration of both historic collection experience and the expected impact of currently deteriorating economic conditions for the oil and gas industry. We evaluated the historic loss experience on our accounts receivable and also considered separately, customers with receivable balances that may be further impacted by current economic developments and market conditions. A substantial amount of the Company’s allowance for credit losses relates to a customer facing significant liquidity constraints for which the expected credit loss was separately evaluated. While the Company has not experienced significant credit losses in the past and has not yet seen material changes to the payment patterns of its customers, the Company cannot predict with any certainty the degree to which the impacts of the coronavirus ("COVID-19") pandemic, including the potential impact of periodically adjusted borrowing base limits, level of hedged production, or unforeseen well shut-downs may af fect the ability of its customers to timely pay receivables when due. Accordingly, in future periods, the Company may revise its estimates of expected credit losses.
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| Recently Issued Accounting Standards | Recently Issued Accounting Standards Recently Issued Accounting Standards Adopted in 2020 In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable and lease receivables. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarified that receivables arising from operating leases are not within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842. ASU 2016-13 and ASU 2018-19 are effective for annual periods beginning after December 15, 2019. Effective January 1, 2020, the Company adopted ASU 2016-13 using the modified-retrospective approach, which allows for a cumulative-effect adjustment to the consolidated condensed balance sheet as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. The Company continuously evaluates customers based on risk characteristics, such as historical losses and current economic conditions. Due to the cyclical nature of the oil and gas industry, the Company often evaluates its customers’ estimated losses on a combination of historical losses and on case-by-case basis. While there was no material impact to our consolidated financial statements as a result of adoption of ASU 2016-13, as a result of deteriorating economic conditions for the oil and gas industry brought on by the COVID-19 pandemic, during the first quarter of 2020, the Company recorded a provision for credit losses of $4.3 million, included in general and administrative expenses in the accompanying condensed consolidated statement of operations, in accordance with the new standard. Refer to “Allowance for Credit Losses” within Note 1 for additional disclosures required under ASU 2016-13. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020 and determined the adoption of this standard did not impact the Company’s condensed consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under this ASU, an entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, although the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for impairment tests in fiscal years beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Effective January 1, 2020, we adopted this guidance and the adoption did not materially affect the Company's condensed consolidated financial statements. See Note 3 for additional disclosures relating to our goodwill impairment. Recently Issued Accounting Standards Not Yet Adopted in 2020 In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect ASU 2019-12 to have a material effect on the Company’s condensed consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s condensed consolidated financial statements.
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| Fair Value Measurement | Fair Value Measurement Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used, when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions other market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows: Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. Level 2 — Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Assets and Liabilities Measured at Fair Value on a Recurring Basis Our financial instruments include cash and cash equivalents, accounts receivable and accounts payable, accrued expenses and long-term debt. The estimated fair value of our financial instruments at March 31, 2020 and December 31, 2019 approximated or equaled their carrying values as reflected in our condensed consolidated balance sheets.
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Basis of Presentation - (Tables) |
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||
| Summary of Allowance for Credit Losses | The table below shows a summary of allowance for credit losses during for the three months ended March 31, 2020.
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Fair Value Measurement - (Tables) |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair Value on Nonrecurring Basis | Assets measured at fair value on a nonrecurring basis at March 31, 2020 and December 31, 2019, respectively, are set forth below:
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Long-Term Debt - (Tables) |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Debt | Total debt consisted of the following at March 31, 2020 and December 31, 2019, respectively:
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| Annual Maturities of Debt | Scheduled remaining annual maturities of total debt are as follows at March 31, 2020:
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Reportable Segment Information - (Tables) |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Segment Information | A reconciliation from segment level financial information to the consolidated statement of operations is provided in the table below ($ in thousands):
Reconciliation of net income (loss) to adjusted EBITDA ($ in thousands):
(1) Other general and administrative expense relates to nonrecurring professional fees paid to external consultants in connection with the Company's expanded audit committee review.
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Net Income (Loss) Per Share - (Tables) |
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| Calculations of Net Income (Loss) Per Share | The table below shows the calculations for the three months ended March 31, 2020 and 2019, (in thousands, except for per share data).
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| Schedule of Antidilutive Securities | As shown in the table below, the following stock options, restricted stock units and performance stock units outstanding as of March 31, 2020 and 2019, respectively, have not been included in the calculation of diluted income (loss) per common share because they will be anti-dilutive to the calculation of diluted net income (loss) per common share.
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Stock-Based Compensation - (Tables) |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Options, Activity | A summary of the stock option activity for the three months ended March 31, 2020 is presented below.
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| Schedule of RSUs, Activity | The following table summarizes RSUs activity during the three months ended March 31, 2020:
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| Schedule of Performance Shares, Activity | The following table summarizes information about PSUs activity during the three months ended March 31, 2020:
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Leases - (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Finance Lease Maturity | The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for our operating lease as of March 31, 2020 are as follows:
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| Operating Lease Maturity | The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for our operating lease as of March 31, 2020 are as follows:
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Basis of Presentation - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| Allowance for credit loss | $ 5,340 | $ 1,049 | |
| Contract with customer, asset, net | 21,600 | $ 37,000 | |
| Allowance for credit losses during the period | $ 4,291 | $ 0 | |
Basis of Presentation - Accounts Receivable (Details) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01 $ in Millions |
Mar. 31, 2020
USD ($)
|
|---|---|
| Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | |
| Revenue, remaining performance obligation | $ 16.3 |
| Revenue, remaining performance obligation, expected timing of satisfaction, period | 1 month |
Basis of Presentation - Allowance for Credit Losses (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Accounts Receivable, Allowance for Credit Loss [Roll Forward] | ||
| Beginning balance | $ 1,049 | |
| Allowance for credit losses during the period | 4,291 | $ 0 |
| Amounts written off | 0 | |
| Ending balance | $ 5,340 | |
Recently Issued Accounting Standards - (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Accounting Policies [Abstract] | ||
| Allowance for credit losses during the period | $ 4,291 | $ 0 |
Long-Term Debt - Schedule of Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Total debt | $ 110,000 | $ 130,000 |
| Less current portion of long-term debt | 0 | 0 |
| Total long-term debt | 110,000 | 130,000 |
| Revolving Credit Facility | Line of Credit | ABL Credit Facility | ||
| Debt Instrument [Line Items] | ||
| Total debt | $ 110,000 | $ 130,000 |
Long-Term Debt - Maturities of Long-term Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| 2020 | $ 0 | |
| 2021 | 0 | |
| 2022 | 0 | |
| 2023 | 110,000 | |
| 2024 and thereafter | 0 | |
| Total debt | $ 110,000 | $ 130,000 |
Reportable Segment Information - Additional Information (Details) $ in Millions |
3 Months Ended | |
|---|---|---|
|
Mar. 31, 2020
USD ($)
segment
|
Mar. 31, 2019
USD ($)
|
|
| Revenue, Major Customer [Line Items] | ||
| Number of operating segments | segment | 4 | |
| Number of reportable segments | segment | 1 | |
| Administrative fees expense | $ | $ 10.3 | $ 29.7 |
| Pressure pumping | ||
| Revenue, Major Customer [Line Items] | ||
| Concentration risk (as a percent) | 94.80% | 95.90% |
| Flowback operating segment | Discontinued Operations | ||
| Revenue, Major Customer [Line Items] | ||
| Consideration for disposal of assets | $ | $ 1.6 | |
Reportable Segment Information - Reconciliation of segment information (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
| Segment Reporting Information [Line Items] | |||
| Service revenue | $ 395,069 | $ 546,179 | |
| Adjusted EBITDA | 74,923 | 150,275 | |
| Depreciation and amortization | 40,205 | 33,117 | |
| Goodwill | 0 | $ 9,425 | |
| Capital expenditures | 40,096 | 86,147 | |
| Total assets | 1,399,890 | 1,436,111 | |
| Pressure Pumping | |||
| Segment Reporting Information [Line Items] | |||
| Service revenue | 386,919 | 532,064 | |
| Adjusted EBITDA | 78,664 | 151,040 | |
| Depreciation and amortization | 38,969 | 31,783 | |
| Goodwill | 9,425 | ||
| Capital expenditures | 39,268 | 82,035 | |
| Total assets | 1,347,189 | 1,381,811 | |
| All Other | |||
| Segment Reporting Information [Line Items] | |||
| Service revenue | 8,150 | 14,115 | |
| Adjusted EBITDA | (3,741) | (765) | |
| Depreciation and amortization | 1,236 | 1,334 | |
| Goodwill | 0 | ||
| Capital expenditures | 828 | $ 4,112 | |
| Total assets | $ 52,701 | $ 54,300 | |
Stock-Based Compensation - Summary Of Stock Option Activity (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2020
$ / shares
shares
| |
| Number of Shares | |
| Outstanding beginning balance (in shares) | shares | 4,300,088 |
| Granted (in shares) | shares | 0 |
| Exercised (in shares) | shares | 0 |
| Forfeited (in shares) | shares | (69,673) |
| Expired (in shares) | shares | 0 |
| Outstanding ending balance (in shares) | shares | 4,230,415 |
| Exercisable ending balance (in shares) | shares | 4,092,276 |
| Weighted Average Exercise Price | |
| Outstanding beginning balance (in dollars per share) | $ / shares | $ 5.03 |
| Granted (in dollars per share) | $ / shares | 0 |
| Exercised (in dollars per share) | $ / shares | 0 |
| Forfeited (in dollars per share) | $ / shares | 14.00 |
| Expired (in dollars per share) | $ / shares | 0 |
| Outstanding ending balance (in dollars per share) | $ / shares | 4.88 |
| Exercisable ending balance (in dollars per share) | $ / shares | $ 4.58 |
Stock-Based Compensation - Summary Of RSU Activity (Details) - Restricted stock units |
3 Months Ended |
|---|---|
|
Mar. 31, 2020
$ / shares
shares
| |
| Number of Shares | |
| Outstanding at Beginning of Period (in shares) | shares | 613,217 |
| Vested (in shares) | shares | (64,615) |
| Forfeited (in shares) | shares | (270,316) |
| Canceled (in shares) | shares | 0 |
| Outstanding at End of Period (in shares) | shares | 1,227,500 |
| Weighted Average Grant Date Fair Value | |
| Outstanding at Beginning of Period (in dollars per share) | $ 18.75 |
| Granted (in dollars per share) | 7.74 |
| Vested (in dollars per share) | 21.57 |
| Forfeited (in dollars per share) | 16.18 |
| Canceled (in dollars per share) | 0 |
| Outstanding at End of Period (in dollars per share) | $ 10.65 |
Leases - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | ||||
|---|---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Jan. 01, 2019 |
Oct. 01, 2018 |
Mar. 31, 2013 |
|
| Operating Leases | |||||
| Lease term (in years) | 3 years | ||||
| Discount rate (as a percent) | 6.70% | ||||
| ROU asset | $ 1,200 | ||||
| Accumulated amortization | 300 | ||||
| Lease expense | 100 | $ 100 | |||
| Finance Leases | |||||
| Interest expense | 0 | 30 | |||
| Cash paid for operating lease | 100 | 100 | |||
| Cash paid for finance lease | 30 | 100 | |||
| Purchase of land associated with ground lease | 47,290 | 178,912 | |||
| Short-Term Leases | |||||
| Asset lease | 300 | 300 | |||
| Lodging lease expense | 2,100 | $ 2,200 | |||
| Lease commitment | $ 5,100 | ||||
| Real Estate Lease | |||||
| Operating Leases | |||||
| Term of contract (in years) | 10 years | ||||
| Renewal term (in years) | 10 years | ||||
| Lease term (in years) | 4 years | ||||
| Ground Lease | |||||
| Finance Leases | |||||
| Term of contract (in years) | 10 years | ||||
| Lease term (in years) | 1 year 2 months 12 days | ||||
| Land | Ground Lease | |||||
| Finance Leases | |||||
| Purchase of land associated with ground lease | $ 2,500 | ||||
Leases - Lease Maturity (Details) $ in Thousands |
Mar. 31, 2020
USD ($)
|
|---|---|
| Operating | |
| 2020 | $ 277 |
| 2021 | 377 |
| 2022 | 389 |
| 2023 | 97 |
| 2024 | 0 |
| Total undiscounted future lease payments | 1,140 |
| Less: amount representing interest | (111) |
| Present value of future lease payments (lease obligation) | $ 1,029 |
Commitments and Contingencies - Narrative (Details) $ in Millions |
3 Months Ended | ||
|---|---|---|---|
|
Mar. 31, 2020
USD ($)
hp
|
Mar. 31, 2019
USD ($)
|
Dec. 31, 2019
USD ($)
|
|
| Obligation with Joint and Several Liability Arrangement [Line Items] | |||
| Deposit on property and equipment | $ 6.1 | ||
| Supplies expense | 5.3 | $ 9.5 | |
| Estimated indirect benefit | 0.2 | $ 0.3 | |
| Letters of credit | $ 1.5 | $ 1.5 | |
| DuraStim | |||
| Obligation with Joint and Several Liability Arrangement [Line Items] | |||
| Purchase options, property and equipment | hp | 108,000 | ||
| Equipment and Other Assets | |||
| Obligation with Joint and Several Liability Arrangement [Line Items] | |||
| Deposit on property and equipment | $ 1.2 | ||
| Former Executive Officer | LandCo | |||
| Obligation with Joint and Several Liability Arrangement [Line Items] | |||
| Noncontrolling equity interest (as a percent) | 44.00% | ||
Subsequent Events - (Details) - Rights Plan - Subsequent Event |
Apr. 10, 2020 |
|---|---|
| Subsequent Event [Line Items] | |
| Stockholder Rights Plan, percentage of beneficial ownership which triggers the Plan | 10.00% |
| Discount on common stock if trigger is tripped | 50.00% |
| Passive investors | |
| Subsequent Event [Line Items] | |
| Stockholder Rights Plan, percentage of beneficial ownership which triggers the Plan | 20.00% |