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•	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;

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•	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

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          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.

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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

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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

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

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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.

           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		$	—			$	—			$	—			$	—			$	—

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          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.

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:

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($ 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

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          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

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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.

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          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			—

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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

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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

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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

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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

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          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.

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

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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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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.

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◦	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.

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◦	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.

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(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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(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.

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•	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.

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•	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.

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