Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

May 4, 2023

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
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, a 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 May 1, 2023, was 115,231,367.



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 within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Form 10-Q are forward-looking statements. 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:

changes in general economic and geopolitical conditions, including increasing interest rates, the rate of inflation and potential economic recession;
central bank policy actions, bank failures and associated liquidity risks and other factors;
the severity and duration of any world events and armed conflict, including the Russian-Ukraine war and associated repercussions to supply and demand for oil and gas and the economy generally;
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;
the level of production and resulting market prices for crude oil, natural gas and other hydrocarbons;
the effects of existing and future laws and governmental regulations (or the interpretation thereof) on us, our suppliers and our customers;
cost increases and supply chain constraints related to our services;
competitive conditions in our industry;
our ability to attract and retain employees;
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 and the possible loss of customers or work to our competitors;
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, including integrating the recently acquired wireline business from the Silvertip Acquisition (as defined herein) and execution of other potential mergers and acquisitions;
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 increasing interest rates) for the Company and our customers;
our ability to complete growth projects on time and on budget;
increases in tax rates or types of taxes enacted that specifically impact E&P and related operations resulting in changes in the amount of taxes owed by us;
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 our new Tier IV DGB and electric hydraulic fracturing equipment, and other lower-emissions equipment we may acquire or that may be sought by our customers;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control, such as fires, which risks may be self-insured, or may not be fully covered under our insurance programs;
exposure to cyber-security events which could cause operational disruptions or reputational harm;
acts of terrorism, war or political or civil unrest in the United States or elsewhere; and
the effects of current and future litigation.
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, 2022, 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 date of this Form 10-Q. We do not undertake, and expressly disclaim, any duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. Investors are also advised to carefully review and consider the various risks and other disclosures discussed in our SEC reports, including the risk factors described in the Form 10-K.
-iii-

PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 31, 2023 December 31, 2022
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted cash $ 44,793  $ 88,862 
Accounts receivable - net of allowance for credit losses of $202 and $419, respectively
290,125  215,925 
Inventories 17,732  5,034 
Prepaid expenses 9,211  8,643 
Short-term investment, net 6,489  10,283 
Other current assets 343  38 
Total current assets 368,693  328,785 
PROPERTY AND EQUIPMENT - net of accumulated depreciation 941,200  922,735 
OPERATING LEASE RIGHT-OF-USE ASSETS
4,654  3,147 
OTHER NONCURRENT ASSETS:
Goodwill 23,624  23,624 
Intangible assets - net of amortization 54,913  56,345 
Other noncurrent assets 1,067  1,150 
Total other noncurrent assets 79,604  81,119 
TOTAL ASSETS $ 1,394,151  $ 1,335,786 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 246,141  $ 234,299 
Accrued and other current liabilities 57,352  49,027 
Operating lease liabilities 986  854 
Total current liabilities 304,479  284,180 
DEFERRED INCOME TAXES 73,073  65,265 
LONG-TERM DEBT 30,000  30,000 
NONCURRENT OPERATING LEASE LIABILITIES 3,676  2,308 
Total liabilities 411,228  381,753 
COMMITMENTS AND CONTINGENCIES (Note 12)
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, 115,170,545 and 114,515,008 shares issued, respectively
115  114 
Additional paid-in capital 970,675  970,519 
Retained earnings (accumulated deficit) 12,133  (16,600)
Total shareholders’ equity 982,923  954,033 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,394,151  $ 1,335,786 
See notes to condensed consolidated financial statements.
-1-

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

Three Months Ended March 31,
2023 2022
REVENUE - Service revenue
$ 423,570  $ 282,680 
COSTS AND EXPENSES
Cost of services (exclusive of depreciation and amortization) 280,486  197,271 
General and administrative (inclusive of stock-based compensation) 28,746  31,707 
Depreciation and amortization 50,798  31,854 
Loss on disposal of assets 22,080  16,117 
Total costs and expenses 382,110  276,949 
OPERATING INCOME 41,460  5,731 
OTHER INCOME (EXPENSE):
Interest expense (667) (134)
Other income (expense) (3,704) 10,357 
Total other income (expense) (4,371) 10,223 
INCOME BEFORE INCOME TAXES 37,089  15,954 
INCOME TAX EXPENSE (8,356) (4,137)
NET INCOME $ 28,733  $ 11,817 
NET INCOME PER COMMON SHARE:
Basic $ 0.25  $ 0.11 
Diluted $ 0.25  $ 0.11 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 114,881  103,683 
Diluted 115,331  105,384 

See notes to condensed consolidated financial statements.
-2-

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
Three Months Ended March 31, 2023
Common Stock
Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Total
BALANCE - January 1, 2023 114,515  $ 114  $ 970,519  $ (16,600) $ 954,033 
Stock-based compensation cost —  —  3,536  —  3,536 
Issuance of equity awards, net 656  1  (1) —   
Tax withholdings paid for net settlement of equity awards —  —  (3,379) —  (3,379)
Net income —  —  —  28,733  28,733 
BALANCE - March 31, 2023 115,171  $ 115  $ 970,675  $ 12,133  $ 982,923 
Three Months Ended March 31, 2022
Common Stock
Shares Amount Additional Paid-In Capital Accumulated Deficit Total
BALANCE - January 1, 2022 103,437  $ 103  $ 844,829  $ (18,630) $ 826,302 
Stock-based compensation cost —  —  11,364  —  11,364 
Issuance of equity awards, net 562  1  419  —  420 
Tax withholdings paid for net settlement of equity awards —  —  (2,691) —  (2,691)
Net income —  —  —  11,817  11,817 
BALANCE - March 31, 2022 103,999  $ 104  $ 853,921  $ (6,813) $ 847,212 

See notes to condensed consolidated financial statements.
-3-

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

Three Months Ended March 31,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,733  $ 11,817 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 50,798  31,854 
Deferred income tax expense 7,807  3,826 
Amortization of deferred debt issuance costs 64  134 
Stock-based compensation 3,536  11,364 
Loss on disposal of assets 22,080  16,117 
Unrealized loss on short-term investment 3,794   
Changes in operating assets and liabilities:
Accounts receivable (74,199) (44,032)
Other current assets (468) 156 
Inventories (6,366) 1,653 
Prepaid expenses (548) 1,707 
Accounts payable 29,823  (10,035)
Accrued and other current liabilities 7,978  609 
Accrued interest 28   
Net cash provided by operating activities 73,060  25,170 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (114,839) (64,323)
Proceeds from sale of assets 1,089  275 
Net cash used in investing activities (113,750) (64,048)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of equity awards   419 
Tax withholdings paid for net settlement of equity awards (3,379) (2,691)
Net cash used in financing activities (3,379) (2,272)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (44,069) (41,150)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of period 88,862  111,918 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of period $ 44,793  $ 70,768 












See notes to condensed consolidated financial statements.
-4-

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the condensed consolidated balance sheets:
Three Months Ended March 31,
2023 2022
Summary of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 26,498  $ 70,768 
Restricted cash 18,295   
Total cash, cash equivalents and restricted cash — End of period $ 44,793  $ 70,768 


See notes to condensed consolidated financial statements.
-5-

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 subsidiaries (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, 2022, 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—"Completion Services," from which the Company generates its revenue and "All Other" category.
Completion Services — Completion services consists of downhole pumping services, which includes hydraulic fracturing, cementing and wireline operations.
Hydraulic fracturing is an oil well completion technique, which is part of the overall well completion process. It 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 accurately depicts how our hydraulic fracturing services are transferred to our customers over time. In addition, certain of our hydraulic fracturing equipment may be entitled to reservation fee charges if a customer were to reserve committed hydraulic fracturing equipment. The Company recognizes revenue related to reservation 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.
Wireline services (including pumpdown) are oil well completion techniques, which are part of the well completion process. Our wireline services utilize equipment with a drum of wireline to deploy perforating guns in the well to perforate the casing, cement, and formation. Once the well is perforated, the well can be fractured. Pumpdown utilizes pressure pumping equipment to pump water into the well to deploy perforating guns attached to wireline through the lateral section of a well. Our wireline 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 accurately depicts how our wireline services are transferred to our customers over time. In addition, certain of our wireline equipment is entitled to daily equipment charges while the equipment is on the customer’s locations. The Company recognizes revenue related daily equipment charges on a daily basis as the performance obligations are met.
The transaction price for each performance obligation for all our completion services is fixed per our contracts with our customers.
-6-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)
All Other— All other consists of coiled tubing services, which are complementary downhole well completion/remedial services. The performance obligation for these services had a fixed transaction price which was satisfied at a point-in-time upon completion of the service when control was transferred to the customer. Accordingly, we recognized revenue at a point-in-time, upon completion of the service and transfer of control to the customer. Effective September 1, 2022, we shut down our coiled tubing operations, and disposed of all our coiled tubing assets.
Restricted Cash and Customer Cash Advance
Our restricted cash relates to a cash advance received from a customer in connection with our contract with the customer to provide electric hydraulic fracturing equipment and services. The cash advance from the customer will be credited towards the customer’s invoice as our revenue performance obligations are met over the contract period. Our restricted cash balances as of March 31, 2023 and December 31, 2022, were $18.3 million and $10.0 million, respectively.
The cash advance received represents a contract liability in connection with the performance of certain completion services. The cash advance (contract liability) balances, which are included in accrued and other current liabilities in our condensed consolidated balance sheets, were $22.0 million and $10.0 million as of March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023, we recognized $1.0 million in revenue from the amount outstanding as of December 31, 2022.
Accounts Receivable
Accounts receivables are stated at the amount billed and billable to customers. At March 31, 2023 and December 31, 2022, accrued revenue (unbilled receivable) included as part of our accounts receivable was $91.0 million and $51.9 million, respectively. At March 31, 2023, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing and wireline operations was $54.7 million, which is expected to be completed and recognized as revenue within one month following the current period balance sheet date.
Allowance for Credit Losses
As of March 31, 2023, the Company had $0.2 million allowance for credit losses. Our allowance for credit losses is based on the evaluation of both our historic collection experience and the economic outlook 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 or future economic developments and market conditions. While the Company has not experienced significant credit losses in the past and has not yet seen material adverse changes to the payment patterns of its customers, the Company cannot predict with any certainty the degree to which the impacts of depressed economic activities, 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 three months ended March 31, 2023:
(in thousands)
Balance - January 1, 2023 $ 419 
Provision for credit losses during the period  
Write-off during the period (217)
Balance - March 31, 2023 $ 202 


-7-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)
Change in Accounting Estimates
Current trends in hydraulic fracturing equipment operating conditions such as larger pads, changes to job design and increased pumping hours per day have resulted in shorter useful lives for certain critical components that are included in our property and equipment assets. These recent trends necessitated a review of useful lives of our critical components like fluid ends, power ends, hydraulic fracturing units and other components in the first quarter of 2023. We determined that the estimated useful life of fluid ends is now less than one year, resulting in our determination that costs associated with the replacement of these components will no longer be capitalized, but instead recorded in inventories and amortized to cost of services over their estimated useful life. We have also shortened the estimated useful lives of power ends to two years from five years and hydraulic fracturing units to ten years from fifteen years. This change in accounting estimates was made effective January 1, 2023 and accounted for prospectively. The net effect of this change for the three months ended March 31, 2023 was a $3.6 million decrease in net income, or $0.03 per basic and diluted share. Additionally, effective January 1, 2023, if we experience premature failures in certain major components that are capitalized, we will fully depreciate any remaining book value of such components.

Note 2 - Recently Issued Accounting Standards
There were no recently issued Accounting Standards Updates ("ASU") by the Financial Accounting Standards Board ("FASB") that were adopted or that have not yet been adopted in 2023.
Note 3 - Silvertip Acquisition
On November 1, 2022 (the "Silvertip Acquisition Date"), the Company entered into a purchase and sale agreement with New Silvertip Holdco, LLC, pursuant to which the Company acquired 100% of the outstanding limited liability company interests of Silvertip Completion Services Operating, LLC ("Silvertip"), a wireline services company in the Permian Basin, in exchange for total consideration of $148.1 million (the "Silvertip Purchase Price") consisting of 10.1 million shares of our common stock valued at $106.7 million, $30.0 million of cash, the payoff of $7.2 million of assumed debt, and the payment of $4.1 million of certain closing and transaction costs (the "Silvertip Acquisition"). The Silvertip Acquisition positions the Company as a more integrated completions-focused oilfield services provider headquartered in the Permian Basin.
The Company accounted for the Silvertip Acquisition using the acquisition method of accounting. The Silvertip Purchase Price was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair value at the Silvertip Acquisition Date. The estimated fair values of certain assets and liabilities, including accounts receivable, require significant judgments and estimates. The measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs.
The following table summarizes the fair value of the consideration transferred in the Silvertip Acquisition and the Silvertip Purchase Price to the fair value of the assets acquired and liabilities assumed (which are included within the accompanying condensed consolidated balance sheets) as of the Silvertip Acquisition Date:


-8-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Silvertip Acquisition (Continued)
(in thousands)
Total Purchase Consideration:
Cash consideration $ 30,000 
Equity consideration 106,736 
Debt payments and closing costs 11,320 
Total consideration $ 148,056 
Cash and cash equivalents $ 2,681 
Accounts receivable and unbilled revenue 21,079 
Inventories 1,209 
Prepaid expenses 2,476 
Other current assets 1,059 
Property and equipment (1)
52,478 
Intangible assets:
Trademark/trade name (2)
10,800 
Customer relationships (2)
46,500 
Goodwill 23,624 
Operating lease right-of-use asset 2,783 
Total identifiable assets acquired 164,689 
Accounts payable 7,659 
Accrued and other current liabilities 6,178 
Operating lease liability 2,796 
Total liabilities assumed 16,633 
Total purchase consideration $ 148,056 
(1)Remaining useful lives ranging from less than one to 22 years
(2)Definite lived intangibles with amortization period of 10 years.

The goodwill arising from the Silvertip Acquisition is attributable to the expected operational synergies resulting from our integrated service offerings. The goodwill arising from the Silvertip Acquisition has been allocated to our wireline operations and is included in our wireline operating segment.
Note 4 - Fair Value Measurements
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:
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.


-9-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Fair Value Measurements (Continued)
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
The fair values of cash, cash equivalents and restricted cash, accounts receivable, accounts payable, accrued and other current liabilities, and long-term debt are estimated to be approximately equivalent to carrying amounts as of March 31, 2023 and December 31, 2022 and have been excluded from the table below.
Assets measured at fair value on a recurring basis as of March 31, 2023 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, 2023:
Short-term investment $ 6,489  $ 6,489  $   $   $ (3,794)
December 31, 2022:
Short-term investment $ 10,283  $ 10,283  $   $   $ (1,570)
Short-term investment— On September 1, 2022, the Company received 2.6 million common shares of STEP Energy Services Ltd. ("STEP") with an estimated fair value of $11.8 million as part of the consideration for the sale of our coiled tubing assets to STEP. The shares were treated as an investment in equity securities measured at fair value using Level 1 inputs based on observable prices on the Toronto Stock Exchange and are shown under current assets in our condensed consolidated balance sheets. As of March 31, 2023, the fair value of the short-term investment was estimated at $6.5 million, and the unrealized loss resulting from the fluctuation in stock price was $3.8 million during the three months ended March 31, 2023. There were no unrealized gains or losses resulting from non-cash foreign currency translation during the three months ended March 31, 2023. The unrealized loss resulting from stock price fluctuation is included in other income (expense) in our condensed consolidated statements of operations.
Assets Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis. These items are not measured at fair value on an ongoing basis but may be subject to fair value adjustments in certain circumstances. These assets and liabilities include those acquired through the Silvertip Acquisition, which are required to be measured at fair value on the acquisition date according to the FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations.
Whenever events or circumstances indicate that the carrying value of long-lived assets may not be recoverable, the Company reviews the carrying value of long‑lived assets, such as property and equipment and other assets to determine if they are recoverable. If any long‑lived assets are determined to be unrecoverable, an impairment expense is recorded in the period. No impairment of property and equipment was recorded during the three months ended March 31, 2023 and 2022.


-10-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 - Fair Value Measurements (Continued)
We added $23.6 million of goodwill during the year ended December 31, 2022. There were no additions to goodwill during the three months ended March 31, 2023 and 2022. The wireline operating segment is the only segment with goodwill at March 31, 2023 and December 31, 2022. We conducted our annual impairment test of goodwill in accordance with ASC 850, Intangibles—Goodwill and Other, as of December 31, 2022 and determined that no impairment to the carrying value of goodwill for our reporting unit (wireline operating segment) was required. There were no goodwill impairment losses during the three months ended March 31, 2023 and 2022.
Note 5 - Intangible Assets
Intangible assets consist of customer relationships and trademark/trade name. Intangible assets are amortized on a straight‑line basis with a useful life of ten years. Amortization expense included in net income for the three months ended March 31, 2023 and 2022 was $1.4 million and $0, respectively. The Company’s intangible assets subject to amortization consisted of the following:
($ in thousands)
March 31, 2023 December 31, 2022
Intangible assets acquired:
Trademark/trade name $ 10,800  $ 10,800 
Customer relationships 46,500  46,500 
Total intangible assets acquired 57,300  57,300 
Accumulated amortization:
Trademark/trade name (450) (180)
Customer relationships (1,937) (775)
Total accumulated amortization (2,387) (955)
Intangible assets — net $ 54,913  $ 56,345 
The average amortization period for our remaining intangible assets is approximately 9.6 years. Estimated remaining amortization expense for each of the subsequent fiscal years is expected to be as follows:
($ in thousands)
Year Estimated future amortization expense
2023 $ 4,298 
2024 5,730 
2025 5,730 
2026 5,730 
2027 and beyond 33,425 
Total $ 54,913 
Note 6 - Long-Term Debt
Asset-Based Loan ("ABL") Credit Facility
Our revolving credit facility, as amended in 2018, had a total borrowing capacity of $300.0 million (subject to the borrowing base limit), with a maturity date of December 19, 2023. The revolving credit facility had a borrowing base of 85% of monthly eligible accounts receivable less customary reserves, as redetermined monthly. The revolving credit facility, included a springing fixed charge coverage ratio to apply when excess availability was less than the greater of (i) 10% of the lesser of the facility size or the borrowing base or (ii) $22.5 million. Borrowings under this revolving credit facility accrued interest based on a three-tier pricing grid tied to availability, and we had the option to elect for loans to be based on either LIBOR or base rate,


-11-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Long-Term Debt (Continued)
plus the applicable margin, which ranged 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.
Effective April 13, 2022, the Company entered into an amendment and restatement of its revolving credit facility (as amended and restated, "ABL Credit Facility"). The ABL Credit Facility decreased the borrowing capacity to $150.0 million (subject to the Borrowing Base (as defined below) limit), with the maturity date extended to April 13, 2027. The ABL Credit Facility has a borrowing base of 85% to 90%, depending on the credit ratings of our accounts receivable counterparties, of monthly eligible accounts receivable less customary reserves (the "Borrowing Base"), as redetermined monthly. The Borrowing Base as of March 31, 2023, was approximately $140.3 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) $10.0 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 the Secured Overnight Financing Rate ("SOFR") or the base rate, plus the applicable margin, which ranges from 1.50% to 2.00% for SOFR loans and 0.50% to 1.00% for base rate loans. The weighted average interest rate for our ABL Credit Facility for the three months ended March 31, 2023 was 5.84%.
The loan origination costs relating to the ABL Credit Facility are classified as an asset in the condensed consolidated balance sheets. As of March 31, 2023 and December 31, 2022, we had borrowings of $30.0 million outstanding under our ABL Credit Facility.
Note 7 - Reportable Segment Information
The Company currently has three operating segments for which discrete financial information is readily available: hydraulic fracturing (inclusive of acidizing), cementing and wireline. These operating segments represent how the Chief Operating Decision Maker evaluates performance and allocates resources.
On September 1, 2022, the Company shut down its coiled tubing operations and disposed of its coiled tubing assets to STEP as part of a strategic repositioning, and recorded a loss on disposal of $13.8 million. The divestiture of our coiled tubing assets did not qualify for presentation and disclosure as discontinued operations, and accordingly, we have recorded the resulting loss from the disposal of assets in our condensed consolidated statement of operations. Following the divestiture of our coiled tubing operations, which were historically included in the "All Other" category, and the Silvertip Acquisition, which resulted in our new wireline operations in 2022, we have three operating segments. All three remaining operating segments are now aggregated into Completion Services, which is our only reportable segment.
In accordance with ASC 280—Segment Reporting, the Company has one reportable segment (Completion Services) comprised of the hydraulic fracturing, cementing and wireline operating segments. The Silvertip Acquisition which resulted in the addition of a new wireline operating segment, and the disposal of our coiled tubing operations (previously included in the "All Other" category), collectively resulted in a change to the structure and composition of our reportable segment and "All Other" category. Our previous Pressure Pumping reportable segment is now renamed "Completion Services" because of the inclusion of the new wireline completion services. In addition, we have reclassified all our corporate overhead costs (inclusive of income taxes and interest expense) previously included in the "All Other" category to the Completion Services reportable segment. As a result of the change in the structure and composition of our reportable segment, we have restated our segment disclosure for the three months ended March 31, 2022 to include corporate costs in our Completion Services reportable segment to make this period comparable to the three months ended March 31, 2023. Total corporate administrative expense for the three months ended March 31, 2023 and 2022 was $25.4 million and $17.3 million, respectively.
Our hydraulic fracturing operating segment revenue approximated 79.0% and 93.6% of our Completion Services revenue during the three months ended March 31, 2023 and 2022, respectively. Our cementing operating segment revenue approximated 6.3% and 6.4% of our Completion Services revenue during the three months ended March 31, 2023 and 2022, respectively. Revenue from our wireline operating segment approximated 14.7% of our Completion Services revenue during the three months ended March 31, 2023.


-12-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Reportable Segment Information (Continued)

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, retention bonuses, 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 statements of operations is provided in the table below (in thousands):
Three Months Ended March 31, 2023
Completion Services All Other Total
Service revenue $ 423,570  $   $ 423,570 
Adjusted EBITDA $ 119,165  $   $ 119,165 
Depreciation and amortization $ 50,798  $   $ 50,798 
Capital expenditures $ 97,170  $   $ 97,170 
Total assets at March 31, 2023 $ 1,394,151  $   $ 1,394,151 
Three Months Ended March 31, 2022
Completion Services All Other Total
Service revenue $ 277,112  $ 5,568  $ 282,680 
Adjusted EBITDA $ 65,972  $ 561  $ 66,533 
Depreciation and amortization $ 31,012  $ 842  $ 31,854 
Capital expenditures $ 71,602  $ 126  $ 71,728 
Total assets December 31, 2022 $ 1,335,501  $ 285  $ 1,335,786 



-13-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Reportable Segment Information (Continued)

Reconciliation of net income (loss) to adjusted EBITDA (in thousands):
Three Months Ended March 31, 2023
Completion Services All Other Total
Net income $ 28,733  $   $ 28,733 
Depreciation and amortization 50,798    50,798 
Interest expense 667    667 
Income tax expense 8,356    8,356 
Loss on disposal of assets 22,080    22,080 
Stock-based compensation 3,536    3,536 
Other expense (3)
3,704    3,704 
Other general and administrative expense, (net) (1)
946    946 
Retention bonus and severance expense 345    345 
Adjusted EBITDA $ 119,165  $   $ 119,165 
Three Months Ended March 31, 2022
Completion Services All Other Total
Net income (loss) $ 12,083  $ (266) $ 11,817 
Depreciation and amortization 31,012  842  31,854 
Interest expense 134    134 
Income tax expense 4,137    4,137 
Loss (gain) on disposal of assets 16,132  (15) 16,117 
Stock-based compensation 11,364    11,364 
Other income (2)
(10,357)   (10,357)
Other general and administrative expense, (net) (1)
1,447    1,447 
Severance expense 20    20 
Adjusted EBITDA $ 65,972  $ 561  $ 66,533 

(1)Other general and administrative expense, (net of reimbursement from insurance carriers) primarily relates to nonrecurring professional fees paid to external consultants in connection with our audit committee review, SEC investigation, shareholder litigation, legal settlement to a vendor and other legal matters, net of insurance recoveries. During the three months ended March 31, 2023 and 2022, we received reimbursement of approximately $0.3 million and $1.0 million, respectively, from our insurance carriers in connection with the SEC investigation and shareholder litigation.
(2)Includes a $10.7 million net tax refund (net of advisory fees) received in March 2022 from the Texas Comptroller of Public Accounts in connection with limited sales, excise and use tax audit of the period July 1, 2015 through December 31, 2018.
(3)Includes $3.8 million unrealized loss on short-term investment.


-14-

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

Note 8 - Net Income Per Share
Basic net income per common share is computed by dividing the net income relevant to the common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share uses the same net income 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, 2023 and 2022, (in thousands, except for per share data):
Three Months Ended March 31,
2023 2022
Numerator (both basic and diluted)
Net income relevant to common stockholders $ 28,733  $ 11,817 
Denominator
Denominator for basic income per share 114,881  103,683 
Dilutive effect of stock options   186 
Dilutive effect of performance share units 170  828 
Dilutive effect of restricted stock units 280  687 
Denominator for diluted income per share 115,331  105,384 
Basic income per common share $ 0.25  $ 0.11 
Diluted income per common share $ 0.25  $ 0.11 
As shown in the table below, the following stock options, restricted stock units and performance stock units outstanding as of March 31, 2023, have not been included in the calculation of diluted income per common share for three months ended March 31, 2023 and 2022 because they will be anti-dilutive to the calculation of diluted net income per common share:
(In thousands) Three Months Ended March 31,
2023 2022
Stock options 426  500 
Restricted stock units 1,084  277 
Performance stock units   160 
Total 1,510  937 
Note 9 - Stock-Based Compensation
Stock Options
There were no new stock option grants during the three months ended March 31, 2023. As of March 31, 2023, there was no aggregate intrinsic value for our outstanding or exercisable stock options because the closing stock price as of March 31, 2023 was below the cost to exercise these options. No stock options were exercised during the three months ended March 31, 2023. The weighted average remaining contractual term for the outstanding and exercisable stock options as of March 31, 2023 was approximately 2.2 years.
A summary of the stock option activity for the three months ended March 31, 2023 is presented below (in thousands, except for weighted average price):


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PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Stock-Based Compensation (Continued)
Number of Shares Weighted
Average
Exercise
Price
Outstanding at January 1, 2023 488  $ 14.00 
Granted   $  
Exercised   $  
Forfeited   $  
Expired (126) $ 14.00 
Outstanding at March 31, 2023 362  $ 14.00 
Exercisable at March 31, 2023 362  $ 14.00 
Restricted Stock Units
During the three months ended March 31, 2023, we granted 914,507 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 March 31, 2023, the total unrecognized compensation expense for all RSUs was approximately $15.8 million, and is expected to be recognized over a weighted average period of approximately 2.3 years.
The following table summarizes RSUs activity during the three months ended March 31, 2023 (in thousands, except for fair value):
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Outstanding at January 1, 2023 1,268  $ 10.91 
Granted 915  $ 9.75 
Vested (434) $ 10.41 
Forfeited (5) $ 10.90 
Canceled   $  
Outstanding at March 31, 2023 1,743  $ 10.43 
Performance Share Units
During the three months ended March 31, 2023, we granted 454,788 performance share units ("PSUs") to certain key employees and officers as new awards under the 2020 Incentive Plan. Each PSU earned represents the right to receive either one share of common stock or, as determined by the administrator in its sole discretion, a cash amount equal to fair market value of one share of common stock or amount of cash on the day immediately preceding the settlement date. 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.


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PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Stock-Based Compensation (Continued)
The following table summarizes information about PSUs activity during the three months ended March 31, 2023 (in thousands, except for weighted average fair value):
Period
Granted
Target Shares Outstanding at January 1, 2023 Target
Shares
Granted
Target Shares Vested Target
Shares
Forfeited
Target Shares Outstanding at March 31, 2023
2020 809    (493) (315)  
2021 632        632 
2022 316        316 
2023   455      455 
Total 1,757  455  (493) (315) 1,403 
Weighted Average FV Per Share $ 12.72  $ 14.40  $ 8.30  $ 8.30  $ 15.81 
The total stock-based compensation expense for the three months ended March 31, 2023 and 2022 for all stock awards was $3.5 million and $11.4 million, respectively. The total unrecognized stock-based compensation expense as of March 31, 2023 was approximately $27.6 million, and is expected to be recognized over a weighted average period of approximately 2.0 years.
Note 10 - Related-Party Transactions
Operations and Maintenance Yards
The Company rents five yards from an entity, in which a director of the Company has an equity interest 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.
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. On March 31, 2022, we entered into an amended and restated pressure pumping services agreement (the "A&R Pressure Pumping Services Agreement"), which was initially entered into in connection with the Pioneer Pressure Pumping Acquisition. The A&R Pressure Pumping Services Agreement was effective January 1, 2022 through December 31, 2022. The A&R Pressure Pumping Services Agreement reduced the number of contracted fleets from eight fleets to six fleets, modified the pressure pumping scope of work and pricing mechanism for contracted fleets, and replaced the idle fees arrangement with equipment reservation fees (the "Reservation fees"). As part of the Reservation fees arrangement, the Company was entitled to receive compensation for all eligible contracted fleets that were made available to Pioneer at the beginning of every quarter in 2022 through the term of the A&R Pressure Pumping Services Agreement. The A&R Pressure Pumping Services Agreement expired at the conclusion of its term and was replaced by the Fleet One Agreement and Fleet Two Agreement described below.
On October 31, 2022, we entered into two pressure pumping services agreements (the "Fleet One Agreement" and "Fleet Two Agreement") with Pioneer, pursuant to which we will provide hydraulic fracturing services with two committed fleets, subject to certain termination and release rights. The Fleet One Agreement was effective as of January 1, 2023 and will terminate on August 31, 2023. The Fleet Two Agreement was effective as of January 1, 2023 and was originally planned to terminate on the one year anniversary of the date on which the fleet dedicated thereunder converted from a Tier II diesel Simul-Frac fleet to a Tier IV dual fuel zipper fleet, which was expected to occur in May 2023. In February 2023, Pioneer provided the Company notice (i) stating that Pioneer intended to release the fleet under the Fleet Two Agreement effective upon the completion of operations on the pad where the performance of Services (as defined in the Fleet Two Agreement) is in progress on May 12, 2023 (the "Release Date") and (ii) requesting that the Company agree to the termination of the Fleet Two Agreement as of the Release Date. The Company agreed with such request, and, as a result, the Fleet Two Agreement will be terminated as of the Release Date.
Revenue from services provided to Pioneer (including Reservation fees) accounted for approximately $54.3 million and $123.5 million of our total revenue during the three months ended March 31, 2023 and 2022, respectively.


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

Note 10 - Related-Party Transactions (Continued)
As of March 31, 2023, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services we provided, amounted to approximately $35.8 million and the amount due to Pioneer was $0. As of December 31, 2022, the balance due from Pioneer for services we provided amounted to approximately $46.2 million and the amount due to Pioneer was $0.
Note 11 - Leases
Operating Leases
Description of Lease
In March 2013, we entered into a ten-year real estate lease contract (the "Real Estate One Lease") with a commencement date of April 1, 2013, as part of the expansion of our equipment yard. During the three months ended March 31, 2023 and 2022, the Company made lease payments of approximately $0.1 million and $0.1 million, respectively. The assets and liabilities under this contract are included in our Completion Services reportable segment. In addition to the contractual lease period, the contract included an optional renewal of up to ten years, and the Real Estate One Lease was not renewed at the end of the term, March 1, 2023. The Real Estate One Lease did not include a residual value guarantee, covenants or financial restrictions nor did it provide for variability in payments resulting from either an index change or rate change.
We accounted for our Real Estate One Lease as an operating lease. This conclusion 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 One Lease because we concluded that the accounting effect was insignificant.
As part of our expansion of our hydraulic fracturing equipment maintenance program, we entered into a two year maintenance facility real estate lease contract (the "Maintenance Facility Lease") with a commencement date of March 14, 2022. During the three months ended March 31, 2023 and 2022, the Company made lease payments of approximately $0.1 million and $0.03 million, respectively. In addition to the contractual lease period, the contract includes an optional renewal for three additional periods of one year each, 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 Maintenance Facility Lease does not contain variability in payments resulting from either an index change or rate change.
We accounted for our Maintenance Facility Lease as 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 Maintenance Facility Lease because we concluded that the accounting effect was insignificant. As of March 31, 2023, the weighted average discount rate and remaining lease term was approximately 3.4% and 0.9 years, respectively.
In August 2022 and December 2022, we entered into three year equipment leases (the "Electric Fleet Lease") for a total of four fleets with 60,000 hydraulic horsepower ("HHP") per fleet. The Electric Fleet Lease contains an option to purchase the equipment at any time during the period of the lease. The leases have not yet commenced. We currently do not control the assets under the Electric Fleet Lease because they are currently being manufactured by the vendor and we have not taken possession of the assets. The manufacturing and delivery of the electric fleets is estimated to take up to ten months from the lease execution date. Given that the Company has not yet taken possession of the assets under the Electric Fleet Lease, the Company has not accounted for the right of use and lease obligation on its balance sheet as of March 31, 2023.
In October 2022, we entered into a real estate lease contract for five years, four months (the "Real Estate Two Lease"), with a commencement date of March 1, 2023. During the three months ended March 31, 2023, the Company made lease payments of approximately $0.03 million. The assets and liabilities under this contract are included in our Completion Services reportable segment. In addition to the contractual lease period, the contract includes two optional renewals of one year each, 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 Two Lease does not contain variability in payments resulting from either an index change or rate change.
We accounted for our Real Estate Two Lease as 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 Two Lease because we concluded that the accounting effect was insignificant. As of March 31, 2023, the weighted average discount rate and remaining lease term was approximately 6.3% and 5.1 years, respectively.
As part of the Silvertip Acquisition, we assumed two real estate leases (the "Silvertip One Lease" and "Silvertip Two Lease," and collectively the "Silvertip Leases") with remaining terms of four years, nine months and six years, one month, respectively, from the Silvertip Acquisition Date. During the three months ended March 31, 2023, we extended the Silvertip One Lease for


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PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 - Leases (Continued)
an additional sixteen months. During the three months ended March 31, 2023, the Company made lease payments of approximately $0.05 million and $0.1 million on the Silvertip One Lease and Silvertip Two Lease, respectively. The assets and liabilities under these contracts are recorded in our wireline operating segment. The Silvertip Leases do not have any renewal options, residual value guarantees, covenants or financial restrictions. Further, the Silvertip Leases do not contain variability in payments resulting from either an index change or rate change.
We accounted for our Silvertip Leases as operating leases. This conclusion 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 Silvertip Leases because we concluded that the accounting effect was insignificant. As of March 31, 2023, the weighted average discount rate and remaining lease term was approximately 3.6% and 5.7 years, respectively.
In January 2023, we entered into a three year equipment lease (the "Power Equipment Lease") for certain power generation equipment. The Power Equipment Lease has not yet commenced. We currently do not control the assets under the lease and have not taken possession of the assets. Therefore, the Company has not accounted for the right of use and lease obligation in its balance sheet as of March 31, 2023.
In March 2023, we entered into a real estate lease contract for five years, eight months (the "Silvertip Three Lease"), with a commencement date in April 2023. Since the lease had not commenced because the Company has not taken possession of the asset as of March 31, 2023, the Company has not accounted for the right of use and lease obligation on its balance sheet as of March 31, 2023. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Silvertip Three Lease does not contain variability in payments resulting from either an index change or rate change.
As of March 31, 2023, the total operating lease right-of-use asset cost was approximately $6.4 million, and accumulated amortization was approximately $1.8 million. As of December 31, 2022, our total operating lease right-of-use asset cost was approximately $4.6 million, and accumulated amortization was approximately $1.5 million. For the three months ended March 31, 2023 and 2022, we recorded operating lease cost of approximately $0.3 million and $0.1 million, respectively, in our statements of operations.
Maturity Analysis of Lease Liabilities
The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for our operating lease as of March 31, 2023 are as follows:
($ in thousands) Totals
2023 $ 897 
2024 951 
2025 907 
2026 914 
2027 923 
2028 624 
Total undiscounted future lease payments 5,216 
Less: amount representing interest (554)
Present value of future lease payments (lease obligation) $ 4,662 
The total cash paid for amounts included in the measurement of our operating lease liability during the three months ended March 31, 2023 was approximately $0.3 million. During the three months ended March 31, 2023, we recorded a non-cash lease obligation totaling approximately $1.8 million as a result of our execution of the Real Estate Two Lease and our extension of the Silvertip Two Lease. During the three months ended March 31, 2022, total cash paid for amounts included in the measurement of our operating lease liability was approximately $0.1 million. During the three months ended March 31, 2022, we recorded a non-cash lease obligation of approximately $0.6 million as a result of our execution of the Maintenance Facility Lease.


-19-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 - Leases (Continued)
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 lease") from our balance sheet and continue to record short-term leases as a period expense. For the three months ended March 31, 2023 and 2022 our short-term lease expense was approximately $0.3 million and $0.2 million, respectively.
Note 12 - Commitments and Contingencies
Commitments
We entered into certain commitments for fixed assets, consumables and services incidental to the ordinary conduct of our business, generally for quantities required for our operations and at competitive market prices. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. We entered into contractual arrangements with our equipment manufacturers to purchase and convert Tier IV DGB equipment, with total cost of approximately $41.9 million for the remainder of 2023. We also entered into the Electric Fleet Lease, which contains options to extend the lease or purchase the equipment at the end of the lease. The lease payments are expected to commence when the Company takes possession of the electric hydraulic fracturing fleets during the second half of 2023. The total estimated contractual commitment in connection with the Electric Fleet Lease arrangements is approximately $99.2 million, which excludes the cost associated with the option to purchase the equipment at the end of the lease. We also entered into the Power Equipment Lease. The lease payments are expected to commence when the Company takes possession of the power generation equipment during the second half of 2023. The total estimated contractual commitment in connection with the Power Equipment Lease is approximately $59.6 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, based primarily on a certain percentage of our sand requirements from our customers or in certain situations based on predetermined fixed minimum volumes, otherwise certain penalties (shortfall fees) may be charged. 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. Our agreements with the Sand Suppliers expire at different times prior to December 31, 2025. Our sand agreement with one of our Sand Suppliers that will expire on December 31, 2023 has a take-or-pay commitment of $24.4 million for the remainder of 2023. During the three months ended March 31, 2023 and 2022, no shortfall fee was recorded.
As of March 31, 2023, the Company had issued letters of credit of approximately $6.0 million under the revolving credit facility in connection with the Company’s casualty insurance policy.
Contingent Liabilities
Legal Matters
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 then current and former officers and directors in the U.S. District Court for the Western District of Texas.
In July 2020, a third amended class action complaint was filed in the Logan Lawsuit by 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. Plaintiffs sued 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 or purchased the Company's common stock pursuant to the Company's initial public offering in March 2017. Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule l0b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act of 1933 against the Company, certain former officers and current and former directors, alleging that the defendants made allegedly inaccurate or misleading statements or omissions about the Company's business, operations and prospects. On September 13, 2021, the Court partially granted and partially denied motions to dismiss filed by the Company and the individual defendants.
On August 11, 2022, the Company agreed to a proposed settlement of the claims in the Logan Lawsuit, which the court has preliminarily approved. Under the proposed settlement agreement, the Company's insurers have paid a cash sum into a


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PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12 - Commitments and Contingencies (Continued)

settlement fund to be distributed to members of the putative class. A final approval hearing before the court, originally scheduled for April 11, 2023, was rescheduled by the court to be held on May 11, 2023.
In May 2020, the U.S. District Court for the Western District of Texas consolidated two shareholder derivative lawsuits previously filed against the Company and certain of its current and former officers and directors into a single lawsuit captioned In re ProPetro Holding Corp. Derivative Litigation (the "Shareholder Derivative Lawsuit"). In August 2020, the plaintiffs in the Shareholder Derivative Lawsuit filed a consolidated complaint alleging (i) breaches of fiduciary duties, (ii) unjust enrichment and (iii) contribution. The plaintiffs did not quantify any alleged damages in their complaint but, in addition to attorneys’ fees and costs, they sought various forms of relief, including (i) damages sustained by the Company as a result of the alleged misconduct, (ii) punitive damages and (iii) equitable relief in the form of improvements to the Company’s governance and controls. On September 15, 2021, the Court granted the Company's motion to dismiss the complaint in its entirety, without prejudice.
On November 19, 2021, the Company received a demand letter from a law firm representing one of the purported shareholders that previously filed the dismissed Shareholder Derivative Lawsuit. The demand letter alleged facts and claims substantially similar to the Shareholder Derivative Lawsuit. The Company's board of directors (the "Board") constituted a committee to evaluate the demand letter and recommend a course of action to the Board, and the committee retained counsel to assist with its review. The committee concluded its investigation and recommended that the Board reject the demand letter. In October 2022, the Board accepted the committee's recommendation and rejected the demand letter.
Environmental and Equipment Insurance
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.
The Company is self-insured up to $10 million per occurrence for certain losses arising from or attributable to fire and/or explosion at the wellsites. No accrual was recorded in our financial statements in connection with this self-insurance strategy because the occurrence of fire and/or explosion cannot be reasonably estimated.
Regulatory Audits
In 2020, the Texas Comptroller of Public Accounts (the "Comptroller") commenced a routine audit of the Company's motor vehicle and other related fuel taxes for the periods of July 2015 through December 2020. As of March 31, 2023, the audit is still ongoing and the final outcome cannot be reasonably estimated.
In May 2022, the Company received a notification from the Comptroller that it will commence a routine audit of the Company's gross receipt taxes, which typically covers up to a four-year period. As of March 31, 2023, the audit is still ongoing and the final outcome cannot be reasonably estimated.
In March 2023, the Company received a notification from the Comptroller that it will commence a routine audit of the Company's direct payment sales tax, which typically covers up to a four-year period. As of March 31, 2023, the audit is yet to commence, and as such, the final outcome cannot be reasonably estimated.


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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The financial information, discussion and analysis that follow should be read in conjunction with our consolidated financial statements and the related notes included in the Form 10-K as well as the financial and other information included therein.
Unless otherwise indicated, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to the "Company," "we," "our," "us" or like terms refer to ProPetro Holding Corp. and its subsidiaries.
Overview
We are a leading integrated oilfield services company, located in Midland, Texas, focused on providing innovative hydraulic fracturing, wireline and other complementary oilfield completion services to leading upstream oil and gas companies engaged in the exploration and production ("E&P") of North American oil and natural gas resources. Our operations are primarily focused in the Permian Basin, where we have cultivated longstanding customer relationships with some of the region's most active and well-capitalized E&P companies. The Permian Basin is widely regarded as one of the most prolific oil-producing areas in the United States, and we believe we are one of the leading providers of completion services in the region.
Our completion services segment includes hydraulic fracturing, wireline and cement operations. Our hydraulic fracturing operations account for the significant portion of our operations, and our hydraulic fracturing operations revenue is approximately 79.0% of our total revenues, while wireline and cement accounts for our remaining revenues. Our total available hydraulic horsepower ("HHP") in our hydraulic fracturing operations as of March 31, 2023, was 1,355,000 HHP, which was comprised of 340,000 HHP of our Tier IV Dynamic Gas Blending ("DGB") equipment and 1,015,000 HHP of conventional Tier II equipment. Our hydraulic fracturing fleets range from approximately 50,000 to 80,000 HHP depending on the job design and customer demand at the wellsite. Our equipment has been designed to handle the operating conditions commonly encountered in the Permian Basin and the region’s increasingly high-intensity well completions (including simultaneous hydraulic fracturing ("Simul-Frac"), which involves fracturing multiple wellbores at the same time), which are characterized by longer horizontal wellbores, more stages per lateral and increasing amounts of proppant per well. With the industry transition to lower emissions equipment and Simul-Frac, in addition to several other changes to our customers' job designs, we believe that our available capacity could decline if we decide to reconfigure our fleets to increase active HHP and backup HHP at wellsites. In addition, in September 2021, August 2022 and December 2022, we committed to additional conversions of our Tier II equipment to Tier IV DGB, and purchase of new Tier IV DGB equipment. As such, we entered into conversion and purchase arrangements with our equipment manufacturers for a total 362,500 HHP of Tier IV DGB equipment and as of March 31, 2023, we have received 250,000 HHP of the converted and new Tier IV DGB equipment and expect to receive the remaining 112,500 HHP by the second quarter of 2023. In August 2022 and December 2022, we entered into a three-year electric fleet leases for a total of four fleets with 60,000 HHP per fleet. We expect to take delivery of the electric fleets at different times during the second half of 2023. We currently have 23 wireline units and 26 cement units.
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 exchange for 16.6 million shares of our common stock and $110.0 million in cash. In connection with the Pioneer Pressure Pumping Acquisition, we became a long-term service provider to Pioneer under a pressure pumping services agreement (the "Pioneer Services Agreement"), providing pressure pumping and related services to Pioneer for a term of up to ten years, with eight committed fleets; provided, Pioneer had the right to terminate the Pioneer Services Agreement, in whole or in part, effective as of December 31 of each of the calendar years of 2022, 2024 and 2026. Under the Pioneer Services Agreement, the Company was entitled to receive compensation if Pioneer were to idle committed fleets. The Pioneer Services Agreement was superseded by the agreement below.
On March 31, 2022, we entered into an amended and restated pressure pumping services agreement (the "A&R Pressure Pumping Services Agreement") in place of the Pioneer Services Agreement that was entered into in connection with the Pioneer Pressure Pumping Acquisition. The A&R Pressure Pumping Services Agreement, which was effective from January 1, 2022 to December 31, 2022, reduced the number of contracted fleets from eight fleets to six fleets, modified the pressure pumping scope of work and pricing mechanism for contracted fleets, and replaced the idle fees arrangement with equipment reservation fees (the "Reservation fees"). As part of the Reservation fees arrangement, the Company was entitled to receive compensation for all eligible contracted fleets that were made available to Pioneer at the beginning of every quarter in 2022 through the term of the A&R Pressure Pumping Services Agreement. This agreement expired at the conclusion of its term and was replaced by the Fleet One Agreement and Fleet Two Agreement described below.
On October 31, 2022, we entered into the Fleet One Agreement and the Fleet Two Agreement with Pioneer, pursuant to which we will provide hydraulic fracturing services with two committed fleets, subject to certain termination and release rights. The Fleet One Agreement was effective as of January 1, 2023 and will terminate on August 31, 2023. The Fleet Two Agreement was effective as of January 1, 2023 and was originally planned to terminate on the one year anniversary of the date on which the fleet dedicated thereunder converted from a Tier II diesel Simul-Frac fleet to a Tier IV dual fuel zipper fleet, which was


-22-


expected to occur in May 2023. In February 2023, Pioneer provided the Company notice (i) stating that Pioneer intended to release the fleet under the Fleet Two Agreement effective upon the completion of operations on the pad where the performance of Services (as defined in the Fleet Two Agreement) is in progress on May 12, 2023 (the "Release Date") and (ii) requesting that the Company agree to the termination of the Fleet Two Agreement as of the Release Date. The Company agreed with such request, and, as a result, the Fleet Two Agreement was terminated as of the Release Date.
Effective September 1, 2022, we disposed of our coiled tubing assets to STEP Energy Services Ltd. ("STEP") and shut down our coiled tubing operations. We received cash of approximately $2.8 million and 2.6 million common shares of STEP valued at $11.9 million as consideration. Upon the sale of our coiled tubing assets, we recorded a loss on sale of $13.8 million.
On November 1, 2022, we consummated the acquisition of all of the outstanding limited liability company interests of Silvertip, which provides wireline perforation and ancillary services solely in the Permian Basin in exchange for 10.1 million shares of our common stock valued at $106.7 million, $30.0 million of cash, the payoff of $7.2 million of assumed debt, and the payment of certain other closing and transaction costs. At March 31, 2023, we had 23 wireline units available to provide wireline perforation and ancillary services. The Silvertip Acquisition positions the Company as a more resilient and diversified completions-focused oilfield services provider headquartered in the Permian Basin.

Our competitors include many large and small oilfield services companies, including Halliburton Company, Liberty Energy Inc., ProFrac Holding Corp., Nextier Oilfield Solutions Inc., Patterson-UTI Energy Inc., RPC, Inc., and a number of private and locally-oriented businesses. The markets in which we operate are highly competitive. To be successful, an oilfield services company must provide services that meet the specific needs of oil and natural gas E&P companies at competitive prices. Competitive factors impacting sales of our services are price, reputation, technical expertise, emissions profile, service and equipment design and quality, and health and safety standards. Although we believe our customers consider all of these factors, we believe price is a key factor in an E&P company's criteria in choosing a service provider. However, we have recently observed the energy industry and our customers shift to lower emissions equipment, which we believe will be an increasingly important factor in an E&P company's selection of a service provider. The transition to lower emissions equipment has been challenging for companies in the oilfield service industry because of the capital requirements. While we seek to price our services competitively, we believe many of our customers elect to work with us based on our operational efficiencies, productivity, equipment portfolio and quality, reliability, ability to manage multifaceted logistics challenges, commitment to safety and the ability of our people to handle the most complex Permian Basin well completions.
Our substantial market presence in the Permian Basin positions us well to capitalize on drilling and completion activity in the region. Primarily, our operational focus has been in the Permian Basin's Midland sub-basin, where our customers have operated. However, we have increased our operations in the Delaware sub-basin and are well-positioned to support further increases to our activity in this area in response to demand from our customers. Over time, we expect the Permian Basin's Midland and Delaware sub-basins to continue to command a disproportionate share of future North American E&P spending.
Through our Completion Services segment, which includes our hydraulic fracturing, cementing and wireline operations, we primarily provide hydraulic fracturing services to E&P companies in the Permian Basin. During the three months ended March 31, 2023, our hydraulic fracturing, cementing and wireline operations accounting for 79.0%, 6.3% and 14.7% of our total revenue, respectively. Our equipment has been designed to handle Permian Basin specific operating conditions and the region's increasingly high-intensity well completions, which are characterized by longer horizontal wellbores, more frac stages per lateral and increasing amounts of proppant per well. We plan to continually reinvest in our equipment to ensure optimal performance and reliability.
Our hydraulic fracturing, wireline and cementing operations have been aggregated into one reportable segment: "Completion Services." In connection with our divestiture of our coiled tubing operations and the Silvertip Acquisition, we have revised our reportable segment presentation from Pressure Pumping to Completion Services and have restated prior periods accordingly. Our now discontinued coiled tubing, drilling and flowback operations were aggregated into the "All Other" category.

Commodity Price and Other Economic Conditions
The oil and gas industry has traditionally been volatile and is characterized by a combination of long-term, short-term and cyclical trends, including domestic and international supply and demand for oil and gas, current and expected future prices for oil and gas and the perceived stability and sustainability of those prices, and capital investments of E&P companies toward their development and production of oil and gas reserves. The oil and gas industry is also impacted by general domestic and international economic conditions such as supply chain disruptions and inflation, political instability in oil producing countries, government regulations (both in the United States and internationally), levels of consumer demand, adverse weather conditions, and other factors that are beyond our control.


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