Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 5, 2021

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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 June 30, 2021
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 July 28, 2021, was 103,259,971.



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 facts contained in this Form 10-Q are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (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 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 actions taken 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;
actions taken by the Biden Administration, such as executive orders or new regulations, that may negatively impact the future production of oil and natural gas in the United States and may adversely affect our future operations;
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, including the rate of inflation;
the effects of existing and future laws and governmental regulations (or the interpretation thereof) on us and our customers;
cost increases and supply chain constraints related to our services;
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;
technological changes, including lower emissions oilfield services equipment and similar advancements;
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 effects of consolidation on our customers or competitors;
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;
regulatory and related policy actions intended by federal, state and/or local governments to reduce fossil fuel use and associated carbon emissions, or to drive the substitution of renewable forms of energy for oil and gas, may over time reduce demand for oil and gas and therefore the demand for our services;
-ii-


new or expanded regulations that materially limit our customers’ access to federal and state lands for oil and gas development, thereby reducing demand for our services in the affected areas;
growing demand for electric vehicles that result in reduced demand for gasoline and therefore the demand for our services;
our ability to successfully implement technological developments and enhancements, including the new DuraStim® hydraulic fracturing equipment 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 current and future litigation, including the Logan Lawsuit and the Shareholder Derivative Lawsuit (each defined herein);
the timing and outcome of, including potential expense associated with, the pending U.S. Securities and Exchange Commission (the "SEC") investigation;
the potential impact on our business and stock price of any announcements regarding the SEC's pending investigation, the Logan Lawsuit or the Shareholder Derivative Lawsuit; 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, 2020, 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)
June 30, 2021 December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 72,701  $ 68,772 
Accounts receivable - net of allowance for credit losses of $140 and $1,497, respectively
138,309  84,244 
Inventories 2,641  2,729 
Prepaid expenses 3,469  11,199 
Other current assets 14  782 
Total current assets 217,134  167,726 
PROPERTY AND EQUIPMENT - net of accumulated depreciation 847,512  880,477 
OPERATING LEASE RIGHT-OF-USE ASSETS
562  709 
OTHER NONCURRENT ASSETS:
Other noncurrent assets 1,578  1,827 
Total other noncurrent assets 1,578  1,827 
TOTAL ASSETS $ 1,066,786  $ 1,050,739 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 136,364  $ 79,153 
Operating lease liabilities 351  334 
Accrued and other current liabilities 20,062  24,676 
Total current liabilities 156,777  104,163 
DEFERRED INCOME TAXES 64,980  75,340 
NONCURRENT OPERATING LEASE LIABILITIES 286  465 
Total liabilities 222,043  179,968 
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, 103,227,040 and 100,912,777 shares issued, respectively
103  101 
Additional paid-in capital 837,971  835,115 
Retained earnings 6,669  35,555 
Total shareholders’ equity 844,743  870,771 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,066,786  $ 1,050,739 
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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
REVENUE - Service revenue
$ 216,887  $ 106,109  $ 378,345  $ 501,178 
COSTS AND EXPENSES
Cost of services (exclusive of depreciation and amortization)
162,837  68,193  286,215  369,041 
General and administrative (inclusive of stock-based compensation) 17,529  20,331  37,731  45,269 
Depreciation and amortization 33,243  40,173  66,721  80,377 
Impairment expense       16,654 
Loss on disposal of assets 15,025  8,734  28,076  28,588 
Total costs and expenses 228,634  137,431  418,743  539,929 
OPERATING LOSS (11,747) (31,322) (40,398) (38,751)
OTHER EXPENSE:
Interest expense (159) (791) (335) (2,072)
Other (expense)/Income (302) (267) 1,487  (271)
Total other (expense)/Income (461) (1,058) 1,152  (2,343)
LOSS BEFORE INCOME TAXES (12,208) (32,380) (39,246) (41,094)
INCOME TAX BENEFIT 3,697  6,460  10,360  7,370 
NET LOSS $ (8,511) $ (25,920) $ (28,886) $ (33,724)
NET LOSS PER COMMON SHARE:
Basic $ (0.08) $ (0.26) $ (0.28) $ (0.33)
Diluted $ (0.08) $ (0.26) $ (0.28) $ (0.33)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 102,398  100,821  101,976  100,754 
Diluted 102,398  100,821  101,976  100,754 

See notes to condensed consolidated financial statements.
-2-

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


Six Months Ended June 30, 2021
Common Stock
Shares Amount Additional Paid-In Capital Retained Earnings Total
BALANCE - January 1, 2021 100,913  $ 101  $ 835,115  $ 35,555  $ 870,771 
Stock-based compensation cost —  —  2,487  —  2,487 
Issuance of equity awards, net 1,145  1  (1) —   
Tax withholdings paid for net settlement of equity awards —  —  (5,614) —  (5,614)
Net loss —  —  —  (20,375) (20,375)
BALANCE - March 31, 2021 102,058  $ 102  $ 831,987  $ 15,180  $ 847,269 
Stock-based compensation cost —  —  2,909  —  2,909 
Issuance of equity awards, net 1,169  1  (1) —   
Tax withholdings paid for net settlement of equity awards —  —  (159) —  (159)
Proceeds from exercise of stock awards —  —  3,235  —  3,235 
Net loss —  —  —  (8,511) (8,511)
BALANCE - June 30, 2021 103,227  $ 103  $ 837,971  $ 6,669  $ 844,743 

Six Months Ended June 30, 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 
Stock-based compensation cost —  —  2,962  —  2,962 
Issuance of equity awards, net 111  —  —  —  — 
Tax withholdings paid for net settlement of equity awards —  —  (129) —  (129)
Net loss —  —  —  (25,920) (25,920)
BALANCE - June 30, 2020 100,889  $ 101  $ 829,477  $ 108,851  $ 938,429 

See notes to condensed consolidated financial statements.
-3-

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Six Months Ended June 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (28,886) $ (33,724)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 66,721  80,377 
Impairment expense   16,654 
Deferred income tax benefit (10,360) (7,773)
Amortization of deferred debt issuance costs 269  270 
Stock-based compensation 5,396  3,433 
Provision for credit losses 140  448 
Loss on disposal of assets 28,076  28,588 
Changes in operating assets and liabilities:
Accounts receivable (53,762) 146,181 
Other current assets 325  1,613 
Inventories 89  (369)
Prepaid expenses 7,711  5,833 
Accounts payable 44,933  (135,592)
Accrued and other current liabilities 828  (8,635)
Accrued interest   (394)
Net cash provided by operating activities 61,480  96,910 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (52,187) (80,702)
Proceeds from sale of assets 1,267  2,677 
Net cash used in investing activities (50,920) (78,025)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of borrowings   (130,000)
Payment of finance lease obligation   (30)
Repayments of insurance financing (4,093)  
Proceeds from exercise of equity awards 3,235   
Tax withholdings paid for net settlement of equity awards (5,773) (585)
Net cash used in financing activities (6,631) (130,615)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,929  (111,730)
CASH AND CASH EQUIVALENTS - Beginning of period 68,772  149,036 
CASH AND CASH EQUIVALENTS - End of period $ 72,701  $ 37,306 

See notes to condensed consolidated financial statements.
-4-

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, 2020 included in our Form 10-K filed with the SEC (our "Form 10-K").
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, aggregated into our one reportable segment—"Pressure Pumping," and "all other" category, 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 with our customers have one performance obligation, which is the contracted total stages, satisfied over time. We recognize revenue over time using a progress output, 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. In addition, certain of our hydraulic fracturing equipment is entitled to daily idle fee charges if a customer were to idle committed hydraulic fracturing equipment. The Company recognizes revenue related to idle fee charges on a daily basis as the performance obligations are met.
Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid or similar chemicals are 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 or sale of the acid or chemical 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 coiled tubing operations, which are downhole well completion/remedial services. The performance obligation for these 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 June 30, 2021 and December 31, 2020, accrued revenue (unbilled receivable) included as part of our accounts receivable was $14.1 million and $8.6 million, respectively. At June 30, 2021, the transaction price allocated to the remaining performance obligation for our partially
-5-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)
completed hydraulic fracturing operations was $26.5 million, which is expected to be completed and recognized within one month following the current period balance sheet date, in our pressure pumping reportable segment.
Allowance for Credit Losses
          As of June 30, 2021, the Company had $0.1 million allowance for credit losses. Our allowance for credit losses is based on the evaluation of both our historic collection experience and the expected impact of any potential 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 negatively impacted by current economic developments and market conditions. 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 COVID-19 pandemic, including the potential impact of periodically adjusted borrowing base limits, level of hedged production, or unforeseen well shut-downs may affect 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 the six months ended June 30, 2021:
(in thousands)
Balance - January 1, 2021 $ 1,497 
Provision for credit losses during the period 140 
Write-off during the period (1,497)
Balance - June 30, 2021 $ 140 
Note 2 - Recently Issued Accounting Standards
Recently Issued Accounting Standards Adopted in 2021
           In December 2019, the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. Effective January 1, 2021, we adopted this guidance and the adoption did not materially affect the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted in 2021
            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 ("FV") 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:


-6-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Fair Value Measurement (Continued)
          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, accounts payable, accrued and other current liabilities, and long-term debt (if any). The estimated fair value of our financial instruments at June 30, 2021, and December 31, 2020, approximated or equaled their carrying values as reflected in our condensed consolidated balance sheets.
Assets Measured at Fair Value on a Nonrecurring Basis
            In the first quarter of 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. In the first quarter of 2020, we determined that the carrying value of the Permian drilling assets was greater than its estimated fair value. Accordingly, impairment expense of $1.1 million was recorded for our Permian drilling assets during the three months ended March 31, 2020. There was no impairment of assets during the six months ended June 30, 2021.
          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 July 31, 2022, as amended. The option fee of $6.1 million, classified as a deposit for property and equipment as part of our pressure pumping reportable segment, was fully impaired and written off in the first quarter of 2020 because it was not probable that the Company will exercise the option to purchase the equipment given the then 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 six months ended June 30, 2021, and 2020 in our hydraulic fracturing and drilling segments was $0 and $7.2 million, 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 disposals of, goodwill during the six months ended June 30, 2021. In the first quarter of 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 was fully impaired during the first quarter of 2020. Accordingly, during the six months ended June 30, 2020, we recorded goodwill impairment of approximately $9.4 million.


-7-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Long-Term Debt
Asset-Based Loan ("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 June 30, 2021, was approximately $71.8 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 loan origination costs relating to the ABL Credit Facility are classified as an asset in our balance sheet. There were no borrowings under the ABL Credit Facility as of June 30, 2021, and December 31, 2020.
Note 5 - Reportable Segment Information
          The Company has three operating segments for which discrete financial information is readily available: hydraulic fracturing (inclusive of acidizing), cementing and coiled tubing. These operating segments represent how the Chief Operating Decision Maker evaluates performance and allocates resources.
          In accordance with the FASB Accounting Standards Codification ("ASC") 280—Segment Reporting, the Company has one reportable segment (pressure pumping) comprised of the hydraulic fracturing and cementing operating segments. The coiled tubing operating segment and corporate administrative expense (inclusive of our total income tax expense (benefit), other (income) and expense and interest expense) are included in the "all other" category in the table below. Total corporate administrative expense for the three and six months ended June 30, 2021, was $6.5 million and $11.6 million, respectively. The corporate administrative expense for the three and six months ended June 30, 2020, was $10.6 million and $20.9 million, respectively.
          Our hydraulic fracturing operating segment revenue approximated 93.7% and 93.5% of our pressure pumping revenue during the three and six months ended June 30, 2021, respectively. During the three and six months ended June 30, 2020, our hydraulic fracturing operating segment revenue approximated 89.7% and 93.7% of our pressure pumping revenue, 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 expense, income taxes, depreciation and amortization, stock-based compensation expense, severance and related expense, 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):
-8-

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

Three Months Ended June 30, 2021
Pressure Pumping All Other Total
Service revenue $ 213,461  $ 3,426  $ 216,887 
Adjusted EBITDA $ 46,826  $ (11,133) $ 35,693 
Depreciation and amortization $ 32,256  $ 987  $ 33,243 
Capital expenditures $ 30,744  $ 29  $ 30,773 
Total assets at June 30, 2021 $ 1,029,140  $ 37,646  $ 1,066,786 
Three Months Ended June 30, 2020
Pressure Pumping All Other Total
Service revenue $ 103,815  $ 2,294  $ 106,109 
Adjusted EBITDA $ 34,030  $ (8,620) $ 25,410 
Depreciation and amortization $ 38,910  $ 1,263  $ 40,173 
Capital expenditures $ 10,034  $ 1,846  $ 11,880 
Total assets at December 31, 2020 $ 1,009,631  $ 41,108  $ 1,050,739 
Six Months Ended June 30, 2021
Pressure Pumping All Other Total
Service revenue $ 371,652  $ 6,693  $ 378,345 
Adjusted EBITDA $ 78,697  $ (22,988) $ 55,709 
Depreciation and amortization $ 64,770  $ 1,951  $ 66,721 
Capital expenditures $ 60,766  $ 2,334  $ 63,100 
Total assets at June 30, 2021 $ 1,029,140  $ 37,646  $ 1,066,786 
Six Months Ended June 30, 2020
Pressure Pumping All Other Total
Service revenue $ 490,735  $ 10,443  $ 501,178 
Adjusted EBITDA $ 112,696  $ (12,362) $ 100,334 
Depreciation and amortization $ 77,879  $ 2,498  $ 80,377 
Capital expenditures $ 49,301  $ 2,674  $ 51,975 
Total assets at December 31, 2020 $ 1,009,631  $ 41,108  $ 1,050,739 


-9-

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 June 30, 2021
Pressure Pumping All Other Total
Net loss $ (809) $ (7,702) $ (8,511)
Depreciation and amortization 32,256  987  33,243 
Interest expense   159  159 
Income tax benefit   (3,697) (3,697)
Loss (gain) on disposal of assets 15,379  (354) 15,025 
Stock-based compensation   2,909  2,909 
Other expense   302  302 
Other general and administrative expense(1)
  (3,737) (3,737)
Adjusted EBITDA $ 46,826  $ (11,133) $ 35,693 
Three Months Ended June 30, 2020
Pressure Pumping All Other Total
Net loss $ (13,528) $ (12,392) $ (25,920)
Depreciation and amortization 38,910  1,263  40,173 
Interest expense   791  791 
Income tax benefit   (6,460) (6,460)
Loss on disposal of assets 8,587  147  8,734 
Stock-based compensation   2,962  2,962 
Other expense   267  267 
Other general and administrative expense(1)
  4,802  4,802 
Retention bonus and severance expense 61    61 
Adjusted EBITDA $ 34,030  $ (8,620) $ 25,410 


-10-

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

Six Months Ended June 30, 2021
Pressure Pumping All Other Total
Net loss $ (14,484) $ (14,402) $ (28,886)
Depreciation and amortization 64,770  1,951  66,721 
Interest expense   335  335 
Income tax benefit   (10,360) (10,360)
Loss (gain) on disposal of assets 28,411  (335) 28,076 
Stock-based compensation   5,396  5,396 
Other income   (1,487) (1,487)
Other general and administrative expense (1)
  (4,698) (4,698)
Retention bonus and severance expense   612  612 
Adjusted EBITDA $ 78,697  $ (22,988) $ 55,709 
Six Months Ended June 30, 2020
Pressure Pumping All Other Total
Net loss $ (9,220) $ (24,504) $ (33,724)
Depreciation and amortization 77,879  2,498  80,377 
Impairment expense 15,559  1,095  16,654 
Interest expense 1  2,071  2,072 
Income tax benefit   (7,370) (7,370)
Loss on disposal of assets 28,402  186  28,588 
Stock-based compensation   3,433  3,433 
Other expense   271  271 
Other general and administrative expense (1)
  9,937  9,937 
Retention bonus and severance expense 75  21  96 
Adjusted EBITDA $ 112,696  $ (12,362) $ 100,334 
(1)Other general and administrative expense, (net of reimbursement from insurance carriers) relates to nonrecurring professional fees paid to external consultants in connection with the Company's pending SEC investigation and shareholder litigation, net of insurance recoveries. During the three and six months ended June 30, 2021, we received reimbursement of approximately $5.1 million and $6.7 million, respectively, from our insurance carriers in connection with the SEC investigation and shareholder litigation.


-11-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Net Loss Per Share
          Basic net loss per common share is computed by dividing the net loss relevant to the common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share uses the same net 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 and six months ended June 30, 2021 and 2020, (in thousands, except for per share data):
Three Months Ended June 30,
2021 2020
Numerator (both basic and diluted)
Net loss relevant to common stockholders $ (8,511) $ (25,920)
Denominator
Denominator for basic loss per share 102,398  100,821 
Dilutive effect of stock options    
Dilutive effect of performance share units    
Dilutive effect of restricted stock units    
Denominator for diluted loss per share 102,398  100,821 
Basic loss per share $ (0.08) $ (0.26)
Diluted loss per share $ (0.08) $ (0.26)
Six Months Ended June 30,
2021 2020
Numerator (both basic and diluted)
Net loss relevant to common stockholders $ (28,886) $ (33,724)
Denominator
Denominator for basic loss per share 101,976  100,754 
Dilutive effect of stock options    
Dilutive effect of performance share units    
Dilutive effect of restricted stock units    
Denominator for diluted loss per share 101,976  100,754 
Basic loss per share $ (0.28) $ (0.33)
Diluted loss per share $ (0.28) $ (0.33)


-12-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
             As shown in the table below, the following stock options, restricted stock units and performance stock units outstanding as of June 30, 2021 and 2020, respectively, have not been included in the calculation of diluted loss per common share for the three and six months ended June 30, 2021 and 2020 because they will be anti-dilutive to the calculation of diluted net loss per common share:
(In thousands)
2021 2020
Stock options 995  4,224 
Restricted stock units 1,380  1,269 
Performance stock units 1,489  1,051 
Total 3,864  6,544 
Note 7 - Stock-Based Compensation
Stock Options
          There were no new stock option grants during the six months ended June 30, 2021. As of June 30, 2021, the aggregate intrinsic value for our outstanding stock options was $3.0 million, and the aggregate intrinsic value for our exercisable stock options was $3.0 million. The aggregate intrinsic value for the exercised stock options during the six months ended June 30, 2021 was approximately $18.7 million. The remaining exercise period for both the outstanding and exercisable stock options as of June 30, 2021 was 4.1 years.

          A summary of the stock option activity for the six months ended June 30, 2021 is presented below:
Number of Shares Weighted
Average
Exercise
Price
Outstanding at January 1, 2021 4,200,341  $ 4.82 
Granted   $  
Exercised (3,128,798) $ 3.39 
Forfeited   $ 14.00 
Expired (76,306) $ 14.00 
Outstanding at June 30, 2021 995,237  $ 8.61 
Exercisable at June 30, 2021 995,237  $ 8.61 
Restricted Stock Units
         During the six months ended June 30, 2021, we granted a total of 787,287 restricted stock units ("RSUs") to employees, officers and directors pursuant to the ProPetro Holding Corp. 2020 Long Term Incentive Plan (the "2020 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 June 30, 2021, the total unrecognized compensation expense for all RSUs was approximately $9.8 million, and is expected to be recognized over a weighted average period of approximately 2.1 years.


-13-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Stock-Based Compensation (Continued)
          The following table summarizes RSUs activity during the six months ended June 30, 2021:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2021 1,165,369  $ 8.50 
Granted 787,287  $ 9.85 
Vested (570,428) $ 8.58 
Forfeited (2,037) $ 10.96 
Canceled   $  
Outstanding at June 30, 2021 1,380,191  $ 9.23 
Performance Share Units
           During the six months ended June 30, 2021, we granted 553,876 performance share units ("PSUs") to certain key employees and officers as new awards under the 2020 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 six months ended June 30, 2021:
Period
Granted
Target Shares Outstanding at January 1, 2021 Target
Shares
Granted
Target Shares Vested Target
Shares
Forfeited
Target Shares Outstanding at June 30, 2021 Weighted
Average
Grant Date
FV Per
Share
2018 84,322    (84,322)     $ 27.51 
2019 126,318        126,318  $ 27.49 
2020 808,638        808,638  $ 8.30 
2021   553,876      553,876  $ 15.37 
Total 1,019,278  553,876  (84,322)   1,488,832  $ 12.56 
Weighted Average FV Per Share $ 12.27  $ 15.37  $ 27.51  $   $ 12.56 
          The total stock-based compensation expense for the six months ended June 30, 2021 and 2020 for all stock awards was $5.4 million and $3.4 million, respectively. The total unrecognized stock-based compensation expense as of June 30, 2021 was approximately $20.9 million, and is expected to be recognized over a weighted average period of approximately 2.1 years.


-14-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Related-Party Transactions
Corporate Office Building
          Prior to April 2020, 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 for approximately $0.1 million per year. 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, in which certain former executive officers 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 its drilling yard from another entity, in which a certain former executive officer of the Company has an equity interest, for an annual lease expense of approximately $0.1 million. In November 2020, we terminated the drilling yard lease.
Equipment Rental and Other Services
         The Company obtains equipment maintenance services from an entity that has a family relationship with an executive officer of the Company. During the six months ended June 30, 2021 and 2020, the Company incurred approximately $0 and $0.3 million, respectively, for equipment maintenance services associated with this related party.
         At June 30, 2021 and December 31, 2020, the Company had no outstanding payables or receivables to or from the above related party transactions.
Pioneer
          On December 31, 2018, we consummated the purchase of certain pressure pumping assets and real property from Pioneer Natural Resources USA, Inc. ("Pioneer") and Pioneer Pumping Services (the "Pioneer Pressure Pumping Acquisition"). In connection with the Pioneer Pressure Pumping Acquisition, Pioneer received 16.6 million shares of our common stock and approximately $110.0 million in cash.
          Revenue from services provided to Pioneer (including idle fees) accounted for approximately $130.7 million and $64.3 million of our total revenue during the three months ended June 30, 2021 and 2020, respectively. Revenue from services provided to Pioneer (including idle fees) accounted for approximately $217.0 million and $191.6 million of our total revenue during the six months ended June 30, 2021 and 2020, respectively.
          In connection with the Pioneer Pressure Pumping Acquisition, the Company agreed to reimburse Pioneer for our portion of the retention bonuses paid to former Pioneer employees that were subsequently employed by the Company. During the six months ended June 30, 2021 and 2020, the Company reimbursed Pioneer approximately $0 and $2.7 million, respectively.
          As of June 30, 2021, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services (including idle fees) we provided, amounted to approximately $84.9 million and the amount due to Pioneer was $0. As of December 31, 2020, the balance due from Pioneer for services (including idle fees) we provided amounted to approximately $41.7 million and the amount due to Pioneer was $0.


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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 former director of the Company has a noncontrolling equity ownership interest. During the six months ended June 30, 2021 and 2020, the Company made lease payments of approximately $0.1 million and $0.2 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.
         We accounted for our 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 June 30, 2021, the weighted average discount rate and remaining lease term was 6.7% and 1.8 years, respectively.