The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the accompanying financial
statements and related notes. The following discussion contains "forward-looking
statements" that reflect our future plans, estimates, beliefs, and expected
performance. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of a variety of risks and
uncertainties, including those described in "Cautionary Note Regarding
Forward-Looking Statements," our Annual Report under the heading "Item 1A. Risk
Factors," and in Part II - Other Information, Item 1A. Risk Factors included
herein. We assume no obligation to update any of these forward-looking
statements.
Overview
We are an independent provider of hydraulic fracturing services and goods to
onshore oil and natural gas exploration and production ("E&P") companies in
North America. We have grown from one active hydraulic fracturing fleet in
December 2011 to 24 active fleets in the first quarter of 2020, including the
addition of one fleet in January 2020. We provide our services primarily in the
Permian Basin, the Eagle Ford Shale, the DJ Basin, the Williston Basin, the San
Juan Basin, and the Powder River Basin.
Recent Trends and Outlook
During the first quarter, the COVID-19 pandemic emerged and put large downward
pressure on the global economy and oil demand, as the global response to
COVID-19 has predominantly resulted in various forms of lockdown measures to
limit the spread of the disease. COVID-19, combined with the initial failure of
OPEC+ to come to agreement driving oil supply upward beginning in April, led to
a historic collapse in global oil prices. The estimated collapse in worldwide
demand for oil is now approximately 30 million barrels a day, and oil storage is
rapidly reaching capacity. West Texas Intermediate ("WTI") crude oil price has
declined approximately 75% since January 2020. In response, OPEC+ has
subsequently agreed to substantial production cuts. North American operators
have begun to shut-in production due to both price and storage capacity
constraints. In addition, these operators have announced significant cuts to
planned 2020 capital expenditures that have led to a plunging rig count and the
most abrupt curtailment of frac activity ever.
The extent and duration of the continued global impact of the COVID-19 pandemic
is unknown. The destruction of demand for oil caused by the COVID-19 lockdowns
began to have a negative impact on the North American oil and gas sector in the
later part of the first quarter. With the worldwide economic disruptions
continuing and the rapid filling of remaining oil storage capacity, we
anticipate this magnitude of previously unseen market imbalances to create a
period characterized by uncertain, fluid and volatile operating conditions on a
historic scale for the North American energy industry. We are unable to predict
the degree and duration of many factors that may impact our future operating
results. These factors include, but may not be limited to, the effectiveness of
global and regional efforts to combat the virus; sovereign and market responses
to the continuing effects of the pandemic; and business and consumer behavior as
lockdown measures are relaxed. The volatile global economic conditions stemming
from the pandemic, the liquidity situation for North American oil producers and
the reaction of international oil producers could also exacerbate the risk
factors identified in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019. The impacts of the COVID-19 pandemic may also materially
adversely affect our results in a manner that is either not currently known or
that we do not currently consider to be a significant risk to our business. See
also the risk factor relating to COVID-19 disclosed in Item. 1A-Risk Factors of
this quarterly report.
In response to these developments, the continued duration and ultimate severity
of which is unknown, we have taken the following steps to protect our employees,
customers and business. During February 2020 we formed a COVID-19 response team
to implement safety procedures and contingency plans at both our customer
locations and in our facilities to ensure our ability to continue providing safe
and efficient services to our customers, while protecting the health of both
employees and customers.
We have been proactive in protecting our business during these unprecedented
events. We moved quickly to preserve cash and protect our balance sheet and
announced strategic actions earlier this month to align our cost structure with
demand for frac services. Regrettably, for the first time in the Company's
history we undertook a reduction of our personnel and staffed fleet count by
approximately 50%. We also suspended variable compensation plans and our 401(k)
match, implemented base salary reductions, executive and director compensation
reductions, operating cost rationalization, reduction of planned 2020 capital
expenditures, and suspended our quarterly dividend. Further, we have implemented
a company-wide employee furlough plan that flexes our cost structure to align
with the uncertain level of frac demand in the coming months.
Prior to the emergence of the COVID-19 pandemic, the pricing dynamic for
hydraulic fracturing services entering into 2020 was challenging. Demand for
hydraulic fracturing services and goods is predominantly influenced by the level
of drilling and completion activity by E&P companies, which, in turn, depends
largely on the current and anticipated profitability of developing oil and
natural gas reserves, the availability of capital to E&P companies, and takeaway
capacity in each basin. During 2018 and 2019, and continuing into 2020, E&P
companies have increasingly come under investor pressure for better
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returns than those achieved over the last decade which has negatively impacted
the demand for fracturing services. As a result, debt and equity capital
markets, which previously funded drilling and completions activity beyond E&P
companies' operating cash flow, tightened, causing an increased level of capital
discipline that has resulted in a lower level of drilling and completions
expenditures. 2019 E&P capital expenditures were lower than those in 2018, and
going into 2020 capital expenditures were expected to be less than 2019. During
March and April 2020, in response to falling oil prices from excess worldwide
supply and exacerbated by the unprecedented decline in demand for oil as a
result of the global response to the COVID-19 pandemic, North American E&P
companies announced significant planned 2020 capital expenditure budget
reductions widely forecast to be 40% lower than 2020 capital expenditure budgets
originally announced during the December 2019 to January 2020 reporting cycle.
Total industry horizontal frac stages in North America were up marginally in
2019, 6% from 2018, compared to a 34% increase in 2018 from 2017, according to
Coras Research, LLC. However, efficiency gains across the industry have raised
the number of frac stages completed by each fleet, which implies a decrease in
the active frac fleets needed to meet demand. The slowing pace of frac activity
led to progressively lower demand for frac fleets through the second half of
2019, resulting in pricing pressure on our services. The substantial oversupply
of frac equipment in the second half of 2019 was the pricing backdrop for 2020
dedicated fleet negotiations. While the Company and many of its competitors have
announced reductions in fleet count in response to COVID-19 induced market
developments, the timing, depth and duration of fleet count reductions, combined
with the demand factors described above, will impact pricing for hydraulic
fracturing services in future periods.
The price of WTI crude oil has decreased from 2019. In the first quarter of
2020, the price of WTI averaged $45.34 compared with an average of $56.84 for
the fourth quarter of 2019 and an average of $54.82 for the first quarter of
2019. Additionally, in the first quarter of 2020, the horizontal rig count in
North America averaged 703 compared to 715 in the fourth quarter of 2019 and 919
in the first quarter of 2019, according to a report by Baker Hughes, a GE
company. Subsequent to March 31, 2020, the price of WTI has averaged $16.71
through April 24, 2020, and the most recent Baker Hughes horizontal rig count
for North America was 426 rigs reported as of April 24, 2020.
While we cannot predict with any certainty when demand for, or pricing of, our
frac services will increase, we would not expect demand or pricing to improve
until worldwide oil supply better balances with demand. As such, there is
significant uncertainty in the market about the timing and level of customers'
drilling and completion activity in 2020. Based on our current visibility into
our customers' plans for the remainder of 2020, we believe decreased levels of
demand will likely persist at least through the second and third quarters of
2020.
Results of Operations
Three months ended March 31, 2020 compared to three months ended March 31, 2019
                                                                    Three months ended March 31,
Description                                                  2020               2019              Change
                                                                           (in thousands)
Revenue                                                  $ 472,344          $ 535,148          $ (62,804)
Cost of services, excluding depreciation and
amortization shown separately                              392,716            429,299            (36,583)
General and administrative                                  28,613             22,088              6,525
Depreciation and amortization                               44,831             38,387              6,444
(Gain) loss on disposal of assets                             (102)             1,223             (1,325)
Operating income                                             6,286             44,151            (37,865)
Interest expense, net                                        3,608              4,182               (574)
Net income before income taxes                               2,678             39,969            (37,291)
Income tax expense                                             261              6,060             (5,799)
Net income                                                   2,417             33,909            (31,492)

Less: Net income attributable to non-controlling
interests                                                      697             15,788            (15,091)
Net income attributable to Liberty Oilfield Services
Inc. stockholders                                        $   1,720          $  18,121          $ (16,401)


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Revenue
Our revenue decreased $62.8 million, or 11.7%, to $472.3 million for the three
months ended March 31, 2020 compared to $535.1 million for the three months
ended March 31, 2019. The decrease was due to an 13.7% decrease in revenue per
average active fleet, partially offset by a 2.2% increase in average active
fleets deployed. Our revenue per average active fleet decreased to approximately
$20.7 million for the three months ended March 31, 2020 as compared to
approximately $24.0 million for the three months ended March 31, 2019, with 22.8
and 22.3 average active fleets deployed during those respective periods. The
decrease in revenue per average active fleet is due to the oversupply of staffed
frac fleets combined with reduced demand from lower customer activity industry
wide, resulting in lower prices for our services.
As mentioned above in Recent Trends and Outlook, in April 2020, we reduced our
staffed fleet count by approximately 50% and have further implemented furloughs
to match customer activity levels which are expected to remain suppressed in the
coming months as customers have adjusted their completion plans in light of
market imbalances resulting from the COVID-19 pandemic.
Cost of Services
Cost of services (excluding depreciation and amortization) decreased $36.6
million, or 8.5%, to $392.7 million for the three months ended March 31, 2020
compared to $429.3 million for the three months ended March 31, 2019, which is
consistent with the decrease in operations and revenues discussed above. The
decrease in expense is primarily attributed to a decrease in material costs of
$32.6 million or 11.9% due to the lower cost for local sand for the three months
ended March 31, 2020 compared to the same period in 2019.
General and Administrative
General and administrative expenses increased $6.5 million, or 29.5%, to $28.6
million for the three months ended March 31, 2020 compared to $22.1 million for
the three months ended March 31, 2019 primarily related to an increase in
allowance for credit losses of $2.5 million and, to a lesser extent, due to
increased accounting, legal and information technology costs for the three
months ended March 31, 2020. In addition, non-cash stock based compensation
expense increased to $3.0 million for the three months ended March 31, 2020
compared to $2.0 million for the comparable period in 2019.
Depreciation and Amortization
Depreciation and amortization expense increased $6.4 million, or 16.8%, to $44.8
million for the three months ended March 31, 2020 compared to $38.4 million for
the three months ended March 31, 2019, due to one additional hydraulic
fracturing fleet being deployed as well as an increase in finance lease assets.
(Gain) loss on disposal of assets
(Gain) loss on disposal of assets increased $1.3 million to a gain of $0.1
million for the three months ended March 31, 2020 compared to a loss of $1.2
million for the three months ended March 31, 2019, attributed to the disposition
of assets, primarily related to light duty vehicles.
Operating Income
We realized operating income of $6.3 million for the three months ended March
31, 2020 compared to $44.2 million for the three months ended March 31, 2019, a
decrease of $37.9 million, or 85.8%. The decrease is primarily due to the $62.8
million, or 11.7%, decrease in total revenue only partially offset by a $24.9
million decrease in total operating expenses, the significant components of
which are discussed above. The decline in operating income was significantly
impacted by reduced customer work particularly during March 2020 as a result of
the COVID-19 pandemic.
Interest Expense, net
Interest expense, net was consistent between periods, decreasing slightly by
$0.6 million during the three months ended March 31, 2020 compared to the three
months ended March 31, 2019.
Net Income before Income Taxes
We realized net income before income taxes of $2.7 million for the three months
ended March 31, 2020 compared to $40.0 million for the three months ended March
31, 2019. The decrease is primarily attributable to a decrease in revenue, as
discussed above, related to the decrease in pricing and activity, offset by the
deployment of one additional hydraulic fracturing fleet during the twelve months
ended March 31, 2020.
Income Tax Expense
We recognized tax expense of $0.3 million for the three months ended March 31,
2020, at an effective rate of 9.7%, compared to $6.1 million, at an effective
rate of 15.2%, recognized during the three months ended March 31, 2019. This
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decrease in income tax expense is attributable to the net decrease in operating
income, the significant components of which are discussed above.
Although the Company's tax rate was 9.7% for the three months ended March 31,
2020, the Company expects the effective tax rate to be approximately 16.2% for
the full year ended December 31, 2020. The rate is lower for the three months
ended March 31, 2020 due to discrete items recorded related to the Company's
response to the CARES Act. The CARES Act allowed the Company to carry back NOLs
incurred during the year ended December 31, 2019 which allowed for the
recognition of tax attributes during the three months ended March 31, 2020.
Comparison of Non-GAAP Financial Measures
We view EBITDA and Adjusted EBITDA as important indicators of performance. We
define EBITDA as net income before interest, income taxes, and depreciation and
amortization. We define Adjusted EBITDA as EBITDA adjusted to eliminate the
effects of items such as new fleet or new basin start-up costs, costs of asset
acquisitions, gain or loss on the disposal of assets, asset impairment charges,
allowance for credit losses, and nonrecurring expenses that management does not
consider in assessing ongoing performance.
Our board of directors, management, investors, and lenders use EBITDA and
Adjusted EBITDA to assess our financial performance because it allows them to
compare our operating performance on a consistent basis across periods by
removing the effects of our capital structure (such as varying levels of
interest expense), asset base (such as depreciation and amortization), and other
items that impact the comparability of financial results from period to period.
We present EBITDA and Adjusted EBITDA because we believe they provide useful
information regarding the factors and trends affecting our business in addition
to measures calculated under GAAP.
Note Regarding Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA are not financial measures presented in accordance
with GAAP. We believe that the presentation of these non-GAAP financial measures
will provide useful information to investors in assessing our financial
performance and results of operations. Net income is the GAAP measure most
directly comparable to EBITDA and Adjusted EBITDA. Our non-GAAP financial
measures should not be considered as alternatives to the most directly
comparable GAAP financial measure. Each of these non-GAAP financial measures has
important limitations as an analytical tool due to exclusion of some but not all
items that affect the most directly comparable GAAP financial measures. You
should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for
an analysis of our results as reported under GAAP. Because EBITDA and Adjusted
EBITDA may be defined differently by other companies in our industry, our
definitions of these non-GAAP financial measures may not be comparable to
similarly titled measures of other companies, thereby diminishing their utility.
The following tables present a reconciliation of EBITDA and Adjusted EBITDA to
our net income, which is the most directly comparable GAAP measure for the
periods presented:
Three months ended March 31, 2020 compared to three months ended March 31, 2019:
EBITDA and Adjusted EBITDA
                                           Three Months Ended March 31,
Description                            2020           2019           Change
                                                  (in thousands)
Net income                          $  2,417       $ 33,909       $ (31,492)
Depreciation and amortization         44,831         38,387           6,444
Interest expense                       3,608          4,182            (574)
Income tax expense                       261          6,060          (5,799)
EBITDA                              $ 51,117       $ 82,538       $ (31,421)
Fleet start-up costs                       -          1,054          (1,054)

(Gain) loss on disposal of assets       (102)         1,223          (1,325)
Provision for credit losses            2,523              -           2,523

Adjusted EBITDA                     $ 53,538       $ 84,815       $ (31,277)


EBITDA was $51.1 million for the three months ended March 31, 2020 compared to
$82.5 million for the three months ended March 31, 2019. Adjusted EBITDA was
$53.5 million for the three months ended March 31, 2020 compared to $84.8
million for the three months ended March 31, 2019. The decreases in EBITDA and
Adjusted EBITDA resulted from decreases in revenue only partially offset by a
decreases in operating expenses. See factors described under the captions
Revenue and Cost of Services above.
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Liquidity and Capital Resources
Overview
Historically, our primary sources of liquidity have been cash flows from
operations, proceeds from our IPO, and borrowings under our Credit Facilities.
We expect to fund operations and organic growth with cash on hand, cash flows
from operations and available borrowings under our Credit Facilities. We may
incur additional indebtedness or issue equity securities in order to fund growth
opportunities that we pursue via acquisition. Our primary uses of capital have
been capital expenditures to support organic growth and funding ongoing
operations, including maintenance and fleet upgrades.
In response to the COVID-19 pandemic, we took significant steps to enhance our
financial position through an uncertain duration of reduced activity levels. We
reduced our planned 2020 capital expenditures budget by approximately 50% to
between $70 and $90 million. We reduced our fleet and personnel count by
approximately 50% and significantly reduced cash compensation costs through a
combination of suspended variable compensation plans and matching 401(k)
contributions as well as reductions to base salaries. We suspended our quarterly
dividend in April 2020. We also implemented a furlough program that enables the
Company to better align personnel costs with customer activity levels. While the
Company is unable to accurately foresee future impacts from the COVID-19
pandemic, including the potential impact of periodically adjusted borrowing base
limits, levels of hedged production, or unforeseen well shut-ins on our
customers' ability to timely pay receivables when due, we believe our financial
resources and liquidity levels, along with various contingency plans to reduce
costs, are sufficient to manage the impact currently anticipated from the
pandemic.
Consistent with seasonal trends as first quarter activity increases from fourth
quarter, cash and cash equivalents temporarily decreased by $56.2 million to
$56.5 million as of March 31, 2020 compared to $112.7 million as of December 31,
2019, while working capital excluding cash increased $68.4 million. We have no
debt maturities beyond a 1% quarterly amortization payment of $0.4 million until
September of 2022. We believe that our operating cash flow and available
borrowings under our Credit Facilities will be sufficient to fund our operations
for at least the next twelve months.

Cash Flows
The following table summarizes our cash flows for the periods indicated:
                                                     Three Months Ended March 31,
Description                                      2020            2019           Change
                                                            (in thousands)

Net cash provided by operating activities $ 231 $ 49,494

  $ (49,263)
Net cash used in investing activities          (45,078)        (66,184)

21,106

Net cash used in financing activities (11,312) (27,934)

16,622

Net decrease in cash and cash equivalents $ (56,159) $ (44,624)

$ (11,535)




Analysis of Cash Flow Changes Between the Three Months Ended March 31, 2020 and
2019
Operating Activities. Net cash provided by operating activities was $0.2 million
for the three months ended March 31, 2020, compared to $49.5 million for the
three months ended March 31, 2019. The $49.3 million decrease in cash from
operating activities is primarily attributable to $55.3 million cash used due to
increases in working capital for the three months ended March 31, 2020, compared
to $28.5 million cash used due to increases in working capital for the three
months ended March 31, 2019. In addition to this decrease of $26.8 million,
lower revenue of $62.8 million partially offset by lower cost of services of
$36.6 million and higher general and administrative expenses of $6.5 million
reduced cash provided by operating activities.
Investing Activities. Net cash used in investing activities was $45.1 million
for the three months ended March 31, 2020, compared to $66.2 million for the
three months ended March 31, 2019. The decrease in net cash used in investing
activities is attributable to the Company deploying one fleet during the three
months ended March 31, 2020 compared to deploying one fleet and purchasing
additional pump down and spare equipment to add to existing fleets during the
three months ended March 31, 2019.
Financing Activities. Net cash used in financing activities was $11.3 million
for the three months ended March 31, 2020, compared to net cash used in
financing activities of $27.9 million for the three months ended March 31, 2019.
The $16.6 million decrease in cash used in financing activities was primarily
due to $18.4 million used to repurchased shares of Class A Common Stock during
the three months ended March 31, 2019 compared to no repurchases in the three
months ended March
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31, 2020, offset by $2.8 million in payments made under the TRAs in the current
period compared to $0.2 million in the prior period.
ABL Facility
The Company's ABL Facility provides for a line of credit up to $250.0 million,
subject to certain borrowing base limitations based on a percentage of eligible
accounts receivable and inventory. As of March 31, 2020, the borrowing base was
calculated to be $203.0 million, and the Company had no borrowings outstanding,
except for letter of credit in the amount of $0.3 million, resulting in $202.7
million of availability. Borrowings under the ABL Facility bear interest at
LIBOR or a base rate, plus an applicable LIBOR margin of 1.5% to 2.0% or base
rate margin of 0.5% to 1.0%, as defined in the ABL Facility credit agreement.
The average monthly unused commitment is subject to an unused commitment fee
of 0.375% to 0.5%. Interest and fees are payable in arrears at the end of each
month, or, in the case of LIBOR loans, at the end of each interest period. The
ABL Facility matures on the earlier of (i) September 19, 2022 and (ii) to the
extent the debt under the Term Loan Facility remains outstanding, 90 days prior
to the final maturity of the Term Loan Facility, which matures on September 19,
2022. Borrowings under the ABL Facility are collateralized by accounts
receivable and inventory, and further secured by the Company, Liberty LLC, and
R/C IV Non-U.S. LOS Corp., a Delaware corporation and a subsidiary of the
Company, as parent guarantors.
Income Taxes
The Company is a corporation and is subject to U.S. federal, state, and local
income tax on its share of Liberty LLC's taxable income.
The Company recognized income tax expense of $0.3 million, effective combined
U.S. federal and state income tax rate applicable to the Company of 9.7%, for
the three months ended March 31, 2020 compared to $6.1 million, combined
effective rate of 15.2%, for the three months ended March 31, 2019. Although the
Company's tax rate is 9.7% for the three months ended March 31, 2020, the
Company expects the effective tax rate to be approximately 16.2% for the full
year ended December 31, 2020. The rate is lower for the three months ended March
31, 2020 due to discrete items recorded related to the Company's response to the
CARES Act. The CARES Act allowed the Company to carry back NOLs incurred during
the year ended December 31, 2019 which allowed for the recognition of tax
attributes during the three months ended March 31, 2020.
The Company's effective tax rate is significantly less than the statutory
federal tax rate of 21.0% primarily because no taxes are payable by the Company
for the non-controlling interest's share of Liberty LLC's pass-through results
for federal, state, and local income tax reporting.
Tax Receivable Agreements
In connection with the IPO, on January 17, 2018, the Company entered into two
TRAs with the TRA Holders. The TRAs generally provide for the payment by the
Company of 85% of the net cash savings, if any, in U.S. federal, state, and
local income tax and franchise tax (computed using simplifying assumptions to
address the impact of state and local taxes) that the Company actually realizes
(or is deemed to realize in certain circumstances) in periods after the IPO as a
result, as applicable to each of the TRA Holders, of (i) certain increases in
tax basis that occur as a result of the Company's acquisition (or deemed
acquisition for U.S. federal income tax purposes) of all or a portion of such
TRA Holders' Liberty LLC Units in connection with the IPO or pursuant to the
exercise of the right of each Liberty Unit Holder (the "Redemption Right"),
subject to certain limitations, to cause Liberty LLC to acquire all or a portion
of its Liberty LLC Units for, at Liberty LLC's election, (A) shares of our Class
A Common Stock at the specific redemption ratio or (B) an equivalent amount of
cash, or, upon the exercise of the Redemption Right, the right of Liberty Inc.
(instead of Liberty LLC) to, for administrative convenience, acquire each
tendered Liberty LLC Unit directly from the redeeming Liberty Unit Holder for,
at its election, (1) one share of Class A Common Stock or (2) an equivalent
amount of cash, (ii) any net operating losses available to the Company as a
result of the Corporate Reorganization, and (iii) imputed interest deemed to be
paid by the Company as a result of, and additional tax basis arising from, any
payments the Company makes under the TRAs.
With respect to obligations the Company expects to incur under the TRAs (except
in cases where the Company elects to terminate the TRAs early, the TRAs are
terminated early due to certain mergers, asset sales, or other changes of
control, or the Company has available cash but fails to make payments when due),
generally the Company may elect to defer payments due under the TRAs if the
Company does not have available cash to satisfy its payment obligations under
the TRAs or if its contractual obligations limit its ability to make such
payments. Any such deferred payments under the TRAs generally will accrue
interest. In certain cases, payments under the TRAs may be accelerated and/or
significantly exceed the actual benefits, if any, the Company realizes in
respect of the tax attributes subject to the TRAs. The Company accounts for
amounts payable under the TRAs in accordance with ASC Topic 450, Contingencies.
If the Company experiences a change of control (as defined under the TRAs) or
the TRAs otherwise terminate early, the Company's obligations under the TRAs
could have a substantial negative impact on its liquidity and could have the
effect of
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delaying, deferring or preventing certain mergers, asset sales, or other forms
of business combinations or changes of control. There can be no assurance that
we will be able to finance our obligations under the TRAs.
During the three months ended March 31, 2020, there were no redemptions of
Liberty LLC units, which resulted in no increase in the amount payable under the
TRAs.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements are prepared in accordance with
GAAP, which require us to make estimates and assumptions (see Note 2-Significant
Accounting Policies to the consolidated and combined financial statements
included in the Annual Report). We believe that some of our accounting policies
involve a higher degree of judgment and complexity than others. As of
December 31, 2019, our critical accounting policies included leases, revenue
recognition, estimating the recoverability of accounts receivable, inventory
valuation, accounting for income taxes, and accounting for long-lived
assets. These critical accounting policies are discussed more fully in the
Annual Report.
Effective January 1, 2020, the Company adopted ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments (see Note 2-Significant Accounting Policies to the condensed
consolidated financial statements included in this Quarterly Report). There have
been no other changes in our evaluation of our critical accounting policies
since December 31, 2019.
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements as of March 31, 2020, except
for purchase commitments under supply agreements as disclosed above under "Item
1. Financial Statements - Note 13-Commitments & Contingencies." As such, we are
not materially exposed to any other financing, liquidity, market, or credit risk
that could arise if we had engaged in such financing arrangements.
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