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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38035
______________________________
ProPetro Holding Corp.
(Exact name of registrant as specified in its charter)
______________________________
Delaware
 
26-3685382
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1706 South Midkiff,
Midland, Texas 79701
(Address of principal executive offices)
(432) 688-0012
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
PUMP
New York Stock Exchange
Preferred Stock Purchase Rights
N/A
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of the registrant’s common shares, par value $0.001 per share, outstanding at June 29, 2020, was 100,889,230.



PROPETRO HOLDING CORP.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

-i-


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
          This Quarterly Report on Form 10-Q (this "Form 10-Q") contains forward-looking statements that are intended to be covered by the safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical facts, and give our expectations or forecasts of future events as of the effective date of this Form 10-Q. Words such as "may," "could," "plan," "project," "budget," "predict," "pursue," "target," "seek," "objective," "believe," "expect," "anticipate," "intend," "estimate," "will," "should" and similar expressions are generally to identify forward-looking statements. These statements include, but are not limited to statements about our business strategy, industry, future profitability and future capital expenditures. Such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those implied or projected by the forward-looking statements. Factors that could cause our actual results to differ materially from those contemplated by such forward-looking statements include:
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;
changes in the long-term supply of, and demand for, oil and natural gas;
actions taken by our customers, suppliers, competitors and third-party operators;
changes in the availability and cost of capital;
our ability to successfully implement our business plan;
large or multiple customer defaults, including defaults resulting from actual or potential insolvencies;
the price and availability of debt and equity financing (including changes in interest rates);
our ability to complete growth projects on time and on budget;
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;
changes in our tax status;
technological changes;
our ability to successfully implement technological developments and enhancements, including the new DuraStim® fleets and associated power solutions;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
acts of terrorism, war or political or civil unrest in the United States or elsewhere;
the effects of existing and future laws and governmental regulations (or the interpretation thereof);
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;

-ii-


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
our ability to successfully execute on our plans and objectives.
          Whether actual results and developments will conform with our expectations and predictions contained in forward-looking statements is subject to a number of risks and uncertainties which could cause actual results to differ materially from such expectations and predictions, including, without limitation, in addition to those specified in the text surrounding such statements, the risks described under Part II, Item 1A, "Risk Factors" in this Form 10-Q and elsewhere throughout this report, the risks described under Part I, Item 1A, "Risk Factors" in our Form 10-K for the year ended December 31, 2019, filed with the SEC (the "Form 10-K") and elsewhere throughout that report, and other risks, many of which are beyond our control.
          Readers are cautioned not to place undue reliance on our forward-looking statements, which are made as of the effective date of this Form 10-Q. We do not undertake, and expressly disclaim, any duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. Investors are also advised to carefully review and consider the various risks and other disclosures discussed in our SEC reports, including the risk factors described in the Form 10-K.

-iii-


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
143,717

 
$
149,036

Accounts receivable - net of allowance for credit losses of $5,340 and $1,049, respectively
 
222,378

 
212,183

Inventories
 
3,296

 
2,436

Prepaid expenses
 
7,934

 
10,815

Other current assets
 
637

 
1,121

Total current assets
 
377,962

 
375,591

PROPERTY AND EQUIPMENT - net of accumulated depreciation
 
1,018,660

 
1,047,535

OPERATING LEASE RIGHT-OF-USE ASSETS
 
921

 
989

OTHER NONCURRENT ASSETS:
 
 
 
 
Goodwill
 

 
9,425

Other noncurrent assets
 
2,347

 
2,571

Total other noncurrent assets
 
2,347

 
11,996

TOTAL ASSETS
 
$
1,399,890

 
$
1,436,111

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
198,437

 
$
193,096

Operating lease liabilities
 
309

 
302

Finance lease liabilities
 

 
2,831

Accrued and other current liabilities
 
26,916

 
36,343

Accrued interest payable
 
263

 
394

Total current liabilities
 
225,925

 
232,966

DEFERRED INCOME TAXES
 
101,729

 
103,041

LONG-TERM DEBT
 
110,000

 
130,000

NONCURRENT OPERATING LEASE LIABILITIES
 
720

 
799

Total liabilities
 
438,374

 
466,806

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
 
101

 
101

Additional paid-in capital
 
826,644

 
826,629

Retained earnings
 
134,771

 
142,575

Total shareholders’ equity
 
961,516

 
969,305

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
1,399,890

 
$
1,436,111


See notes to condensed consolidated financial statements
1

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)



 
 
Three Months Ended March 31,
 
 
2020
 
2019
REVENUE - Service revenue
 
$
395,069

 
$
546,179

COSTS AND EXPENSES
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
300,848

 
381,523

General and administrative (inclusive of stock-based compensation)
 
24,937

 
18,524

Depreciation and amortization
 
40,205

 
33,117

Impairment expense
 
16,654

 

Loss on disposal of assets
 
19,854

 
19,228

Total costs and expenses
 
402,498

 
452,392

OPERATING INCOME (LOSS)
 
(7,429
)
 
93,787

OTHER EXPENSE:
 
 
 
 
Interest expense
 
(1,281
)
 
(1,903
)
Other expense
 
(3
)
 
(187
)
Total other expense
 
(1,284
)
 
(2,090
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(8,713
)
 
91,697

INCOME TAX (EXPENSE) BENEFIT
 
909

 
(21,892
)
NET INCOME (LOSS)
 
$
(7,804
)
 
$
69,805

 
 
 
 
 
NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
Basic
 
$
(0.08
)
 
$
0.70

Diluted
 
$
(0.08
)
 
$
0.67

 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
 
Basic
 
100,687

 
100,232

Diluted
 
100,687

 
104,123



See notes to condensed consolidated financial statements
2

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)



 
 
Three Months Ended March 31, 2020
 
 
Common Stock
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Retained Earnings
 
Total
BALANCE - January 1, 2020
 
100,624

 
$
101

 
$
826,629

 
$
142,575

 
$
969,305

Stock-based compensation cost
 

 

 
471

 

 
471

Issuance of equity awards, net
 
154

 

 

 

 

Tax withholdings paid for net settlement of equity awards
 

 

 
(456
)
 

 
(456
)
Net loss
 

 

 

 
(7,804
)
 
(7,804
)
BALANCE - March 31, 2020
 
100,778

 
$
101

 
$
826,644

 
$
134,771

 
$
961,516


 
 
Three Months Ended March 31, 2019
 
 
Common Stock
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Retained Earnings (Accumulated Deficit)
 
Total
BALANCE - January 1, 2019
 
100,190

 
$
100

 
$
817,690

 
$
(20,435
)
 
$
797,355

Stock-based compensation cost
 

 

 
1,829

 

 
1,829

Issuance of equity awards, net
 
104

 

 
552

 

 
552

Net income
 

 

 

 
69,805

 
69,805

BALANCE - March 31, 2019
 
100,294

 
$
100

 
$
820,071

 
$
49,370

 
$
869,541


 
 
Three Months Ended March 31,
 
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
(7,804
)
 
$
69,805

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
40,205

 
33,117

Impairment expense
 
16,654

 

Deferred income tax expense (benefit)
 
(1,312
)
 
21,083

Amortization of deferred debt issuance costs
 
135

 
134

Stock-based compensation
 
471

 
1,829

Provision for credit losses
 
4,291

 

Loss on disposal of assets
 
19,854

 
19,228

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(14,486
)
 
(154,516
)
Other current assets
 
1,138

 
(274
)
Inventories
 
(860
)
 
482

Prepaid expenses
 
2,920

 
759

Accounts payable
 
10,080

 
45,324

Accrued and other current liabilities
 
(9,431
)
 
(1,366
)
Accrued interest
 
(131
)
 
480

Net cash provided by operating activities
 
61,724

 
36,085

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(47,290
)
 
(178,912
)
Proceeds from sale of assets
 
733

 
1,027

Net cash used in investing activities
 
(46,557
)
 
(177,885
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings
 

 
90,000

Repayments of borrowings
 
(20,000
)
 

Payment of finance lease obligation
 
(30
)
 

Repayments of insurance financing
 

 
(1,934
)
Proceeds from exercise of equity awards
 

 
552

Tax withholdings paid for net settlement of equity awards
 
(456
)
 

Net cash provided by (used in) financing activities
 
(20,486
)
 
88,618

NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(5,319
)
 
(53,182
)
CASH AND CASH EQUIVALENTS - Beginning of period
 
149,036

 
132,700

CASH AND CASH EQUIVALENTS - End of period
 
$
143,717

 
$
79,518



See notes to condensed consolidated financial statements
3

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - 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.

-4-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)


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

-5-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)


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.
($ in thousands)
 
 
March 31, 2020
Balance - January 1, 2020
$
1,049

Allowance for credit losses during the period
4,291

Amounts written off

Balance - March 31, 2020
$
5,340


Note 2 - 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

-6-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Recently Issued Accounting Standards (Continued)


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.
Note 3 - 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:
($ 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
 
$
750

 
$

 
$
750

 
$

 
$
(7,229
)
Goodwill
 
$

 
$

 
$

 
$

 
$
(9,425
)
December 31, 2019:
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
$
2,000

 
$

 
$
2,000

 
$

 
$
(3,405
)
Goodwill
 
$

 
$

 
$

 
$

 
$



-7-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3 - Fair Value Measurement (Continued)

          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.
Note 4 - 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:

-8-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 4 - Long-Term Debt (Continued)


($ in thousands)
 
 
 
 
 
 
2020
 
2019
ABL Credit Facility
 
$
110,000

 
$
130,000

Total debt
 
110,000

 
130,000

Less current portion of long-term debt
 

 

Total long-term debt
 
$
110,000

 
$
130,000


          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:
($ in thousands)
 
 
2020
 
$

2021
 

2022
 

2023
 
110,000

2024 and thereafter
 

Total
 
$
110,000



-9-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5 - 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):
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2020
 
 
Pressure Pumping
 
All Other
 
Total
Service revenue
 
$
386,919

 
$
8,150

 
$
395,069

Adjusted EBITDA
 
$
78,664

 
$
(3,741
)
 
$
74,923

Depreciation and amortization
 
$
38,969

 
$
1,236

 
$
40,205

Capital expenditures
 
$
39,268

 
$
828

 
$
40,096

Total assets at March 31, 2020
 
$
1,347,189

 
$
52,701

 
$
1,399,890

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
 
 
Pressure Pumping
 
All Other
 
Total
Service revenue
 
$
532,064

 
$
14,115

 
$
546,179

Adjusted EBITDA
 
$
151,040

 
$
(765
)
 
$
150,275

Depreciation and amortization
 
$
31,783

 
$
1,334

 
$
33,117

Goodwill at December 31, 2019
 
$
9,425

 
$

 
$
9,425

Capital expenditures
 
$
82,035

 
$
4,112

 
$
86,147

Total assets at December 31, 2019
 
$
1,381,811

 
$
54,300

 
$
1,436,111



-10-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5- Reportable Segment Information (Continued)


Reconciliation of net income (loss) to adjusted EBITDA ($ in thousands):
 
 
 
 
 
 
 
 
 
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.

-11-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 6 - 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).
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Numerator (both basic and diluted)
 
 
 
 
Net income (loss) relevant to common stockholders
 
$
(7,804
)
 
$
69,805

 
 
 
 
 
Denominator
 
 
 
 
Denominator for basic income (loss) per share
 
100,687

 
100,232

Dilutive effect of stock options
 

 
3,160

Dilutive effect of performance share units
 

 
555

Dilutive effect of restricted stock units
 

 
176

Denominator for diluted income (loss) per share
 
100,687

 
104,123

 
 
 
 
 
Basic income (loss) per share
 
$
(0.08
)
 
$
0.70

Diluted income (loss) per share
 
$
(0.08
)
 
$
0.67


             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.
(In thousands)
 
 
 
 
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Stock options
 
4,230

 

Restricted stock units
 
1,228

 

Performance stock units
 
1,051

 

Total
 
6,509

 




-12-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




Note 7 - 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.
 
 
Number of Shares
 
Weighted
Average
Exercise
Price
Outstanding at January 1, 2020
 
4,300,088

 
$
5.03

Granted
 

 
$

Exercised
 

 
$

Forfeited
 
(69,673
)
 
$
14.00

Expired
 

 
$

Outstanding at March 31, 2020
 
4,230,415

 
$
4.88

Exercisable at March 31, 2020
 
4,092,276

 
$
4.58



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:

 
Number of
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2020
 
613,217

 
$
18.75

Granted
 
949,214

 
$
7.74

Vested
 
(64,615
)
 
$
21.57

Forfeited
 
(270,316
)
 
$
16.18

Canceled
 

 
$

Outstanding at March 31, 2020
 
1,227,500

 
$
10.65



-13-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Stock-Based Compensation (Continued)

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:
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
 
151,492

 

 
(151,492
)
 

 

 
$
10.73

2018
 
156,576

 

 

 
(72,254
)
 
84,322

 
$
27.51

2019
 
214,553

 

 

 
(88,235
)
 
126,318

 
$
34.82

2020
 

 
966,242

 

 
(125,391
)
 
840,851

 
$
9.42

Total
 
522,621

 
966,242

 
(151,492
)
 
(285,880
)
 
1,051,491

 
$
13.92


          The total stock compensation expense for the three months ended March 31, 2020 and 2019 for all stock awards was $0.5 million and $1.8 million, respectively. The total unrecognized compensation expense as of March 31, 2020 was approximately $20.7 million, and is expected to be recognized over a weighted average period of approximately 2.4 years.

-14-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 8 - 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.


-15-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 9 - 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:
 
 
 
($ in thousands)
 
 
2020
 
$
277

2021
 
377

2022
 
389

2023
 
97

2024
 

Total undiscounted future lease payments
 
1,140

Less: amount representing interest
 
(111
)
Present value of future lease payments (lease obligation)
 
$
1,029



-16-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Leases (Continued)


          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.
Note 10 - 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

-17-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10 - Commitments and Contingencies (Continued)


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.

-18-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 11 - 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.


-19-


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
          The financial information, discussion and analysis that follow should be read in conjunction with our condensed consolidated financial statements and the related notes included in the Form 10-K as well as the financial and other information included therein.
          Unless otherwise indicated, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to the "Company," "we," "our," "us" or like terms refer to ProPetro Holding Corp. and its subsidiary.
Overview
          We are a growth-oriented, Midland, Texas-based oilfield services company providing hydraulic fracturing and other complementary services to leading upstream oil and gas companies engaged in the exploration and production ("E&P") of North American unconventional oil and natural gas resources. Our operations are primarily focused in the Permian Basin, where we have cultivated long-standing customer relationships with some of the region's most active and well-capitalized E&P companies. The Permian Basin is widely regarded as one of the most prolific oil-producing area in the United States, and we believe we are currently one of the largest providers of hydraulic fracturing services in the region by hydraulic horsepower ("HHP").
          We expect to receive the remaining 54,000 HHP of the DuraStim® fleet, which has been fully paid for by us, before the end of 2020. Our total HHP as of March 31, 2020 was 1,469,000 HHP which comprised of 1,415,000 HHP of conventional HHP and 54,000 HHP of the new DuraStim® hydraulic fracturing technology.
          Our competitors include many large and small oilfield services companies, including RPC, Inc., Halliburton Company, Patterson-UTI Energy Inc., Nextier Oilfield Solutions Inc., Inc., Liberty Oilfield Services Inc., Superior Energy Services Inc., Schlumberger Limited, FTS International Inc. and a number of private companies. Although we believe price is a key factor in E&P companies' criteria in choosing a service provider, we believe that other important factors include operational efficiency, technical expertise, service and equipment quality, and health and safety standards. While we seek to price our services competitively, we believe many of our customers elect to work with us based on our deep local roots, operational expertise, the capability of our modern fleet to handle the most complex Permian Basin well completions, and commitment to safety and reliability.
          Our substantial market presence in the Permian Basin positions us well to capitalize on drilling and completion activity in the region. Historically, our operational focus has been in the Permian Basin's Midland sub-basin, where our customers have primarily operated. However, with increasing levels of Delaware sub-basin activity, we have recently expanded our presence in the Delaware sub-basin in response to demand from our customers. Given our dedicated relationships with a variety of Delaware sub-basin operators, we believe that we are uniquely positioned to capture large addressable growth opportunity as the basin develops. Over time, we expect the Permian Basin's Midland and Delaware sub-basins to continue to command a disproportionate share of future North American E&P spending.
          Through our pressure pumping segment (which also includes our cementing operations), we primarily provide hydraulic fracturing services to E&P companies in the Permian Basin. Our modern hydraulic fracturing fleet has been designed to handle Permian Basin specific operating conditions and the region's increasingly high-intensity well completions, which are characterized by longer horizontal wellbores, more stages per lateral and increasing amounts of proppant per well. The majority of our fleet has been delivered in recent years, and we continue to fully maintain our equipment to ensure optimal performance and reliability.
           In addition to our core pressure pumping segment operations, which includes our cementing operations, we also offer a suite of complementary well completion and production services, including coiled tubing and other services. We believe these complementary services create operational efficiencies for our customers and could allow us to capture a greater portion of their capital spending across the lifecycle of a well.
Commodity Price and Other Economic Conditions
          The oil and gas industry has traditionally been volatile and is influenced by a combination of long-term, short-term and cyclical trends, including domestic and international supply and demand for oil and gas, current and expected future prices for oil and gas and the perceived stability and sustainability of those prices, and capital investments of E&P companies toward their development and production of oil and gas reserves. The oil and gas industry is also impacted by general domestic and international economic conditions, political instability in oil producing countries, government regulations (both in the United States and internationally), levels of consumer demand, adverse weather conditions, and other factors that are beyond our control.
          The global public health crisis associated with the 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

-20-


activity attributable to COVID-19 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 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 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, or BOPD, 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 activity by U.S. producers starting in mid-March 2020, domestic supply continues to exceed 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 a continuing adverse impact on the industry in general and our operations specifically.
          The Permian Basin rig count has decreased significantly from approximately 403 at the beginning of 2020 to 175 in May 2020, according to Baker Hughes, and may continue to decline if current market conditions do not improve. As a result of the depressed market conditions and events, the Company expects a material adverse impact on the services we provide resulting from our customers shutting down completions of wells and pricing pressure from our customers to reduce the prices of our services. We expect the reduction in the number of wells completion activities and the pricing pressure from our customers to have a negative impact on our future revenue, results of operations and cash flows.
          Although the oil and gas market is currently depressed, we still believe the Permian Basin, our primary area of operation, is the leading basin with the lowest break-even production cost in the United States. If the market rebounds, we believe there will be increased demand for pressure pumping services in the Permian Basin where we operate. If the depressed oil prices and the current depressed economic conditions remain for a longer period of time, and our future cash flows are negatively impacted, we may record additional asset impairment charges in future periods.
          Our results of operations have historically reflected seasonal tendencies, typically in the fourth quarter, relating to holiday seasons, inclement winter weather and exhaustion of our customers' annual budgets. As a result, we typically experience declines in our operating results in November and December, even in a stable commodity price and operations environment. The seasonal tendencies and the current depressed oil and gas market conditions could result in a longer recovery time in the oil and gas industry thereby significantly impacting on revenue, results of operations and cash flows for a longer period of time beyond 2020.
Actions to Address the Economic Impact of COVID-19 and Decline in Commodity Prices
          Since March 2020, we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position, liquidity and the efficient continuity of our operations as follows:
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.

-21-


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.
          We are continuing to evaluate and consider additional cost saving measures. We will continue to prioritize the safety and welfare of our employees and customers through these turbulent times.
How We Evaluate Our Operations 
          Our management uses a variety of financial metrics, Adjusted EBITDA or Adjusted EBITDA margin, to evaluate and analyze the performance of our various operating segments.
Adjusted EBITDA and Adjusted EBITDA margin
          We view Adjusted EBITDA and Adjusted EBITDA margin as important indicators of performance. We define EBITDA as our earnings, before (i) interest expense, (ii) income taxes and (iii) depreciation and amortization. We define Adjusted EBITDA as EBITDA, plus (i) loss/(gain) on disposal of assets, (ii) loss/(gain) on extinguishment of debt, (iii) stock-based compensation, and (iv) other unusual or non‑recurring (income)/expenses, such as impairment charges, severance, costs related to our initial public offering and costs related to asset acquisitions or one-time professional fees. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of our revenues.
          Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures utilized by our management and other users of our financial statements such as investors, commercial banks, and research analysts, to assess our financial performance because it allows us and other users to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization), nonrecurring (income)/expenses and items outside the control of our management team (such as income taxes). Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools and should not be considered as an alternative to net income/(loss), operating income/(loss), cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP.
Note Regarding Non-GAAP Financial Measures
          Adjusted EBITDA and Adjusted EBITDA margin are not financial measures presented in accordance with GAAP (“non-GAAP”), except when specifically required to be disclosed by GAAP in the financial statements. We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors in assessing our financial condition and results of operations because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure, asset base, nonrecurring expenses (income) and items outside the control of the Company. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA.  Adjusted EBITDA and Adjusted EBITDA margin should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider Adjusted EBITDA or Adjusted EBITDA margin in isolation or as a substitute for an analysis of our results as reported under GAAP. Because Adjusted EBITDA and Adjusted EBITDA margin may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

-22-


Reconciliation of net income (loss) to Adjusted EBITDA ($ in thousands):
 
 
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.


-23-


Results of Operations 
          We conducted our business through four operating segments: hydraulic fracturing, 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. For reporting purposes, the hydraulic fracturing and cementing operating segments are aggregated into our one reportable segment—pressure pumping. All other operating segments and corporate administrative expenses (inclusive of our total income tax expense and interest expense) are included in the ‘‘all other’’ category. Total corporate administrative expense (inclusive of our total income tax expense and interest 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 2019, respectively.
          The following table sets forth the results of operations for the periods presented:
(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