The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto presented in this Quarterly Report and the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in Item 1A. "Risk Factors" in our Form 10-K for the year endedDecember 31, 2022 , filed with theSecurities and Exchange Commission , or theSEC , onFebruary 24, 2023 and the section entitled "Forward-Looking Statements" appearing elsewhere in this Quarterly Report.
Overview
We are an integrated, growth-oriented energy services company focused on providing products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserve as well as the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through our infrastructure services businesses. Our primary business objective is to grow our operations and create value for stockholders through organic growth opportunities and accretive acquisitions. Our suite of services includes well completion services, infrastructure services, natural sand proppant services, drilling services and other services. Our well completion services division provides hydraulic fracturing, sand hauling and water transfer services. Our infrastructure services division provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. Our natural sand proppant services division mines, processes and sells natural sand proppant used for hydraulic fracturing. Our drilling services division currently provides rental equipment, such as mud motors and operational tools, for both vertical and horizontal drilling. In addition to these service divisions, we also provide aviation services, equipment rentals, crude oil hauling services, remote accommodations and equipment manufacturing. We believe that the services we offer play a critical role in increasing the ultimate recovery and present value of production streams from unconventional resources as well as in maintaining and improving electrical infrastructure. Our complementary suite of services provides us with the opportunity to cross-sell our services and expand our customer base and geographic positioning. The growth of our industrial businesses is ongoing. We offer infrastructure engineering services focused on the transmission and distribution industry and also have equipment manufacturing operations and offer fiber optic services. Our equipment manufacturing operations provide us with the ability to repair much of our existing equipment in-house, as well as the option to manufacture certain new equipment we may need in the future. Our fiber optic services include the installation of both aerial and buried fiber. We are continuing to explore other opportunities to expand our industrial business lines. Although demand across our three largest segments improved during 2022 and remained strong during the three months endedMarch 31, 2023 , we continue to address the external challenges in today's economic environment as we remain disciplined with our spending and are focused on continuing to improve our operational efficiencies and cost structure and on enhancing value for our stockholders. Overview of Our Industries Oil and Natural Gas Industry The oil and natural gas industry has traditionally been volatile and is influenced by a combination of long-term, short-term and cyclical trends, including the domestic and international supply and demand for oil and natural gas, current and expected future prices for oil and natural gas and the perceived stability and sustainability of those prices, production depletion rates and the resultant levels of cash flows generated and allocated by exploration and production companies to their drilling, completion and related services and products budgets. The oil and natural gas industry is also impacted by general domestic and international economic conditions, political instability in oil producing countries, government regulations (both inthe United States and elsewhere), levels of customer demand, the availability of pipeline capacity, storage capacity, shortages of equipment and materials and other conditions and factors that are beyond our control. Demand for most of our oil and natural gas products and services depends substantially on the level of expenditures by companies in the oil and natural gas industry. The levels of capital expenditures of our customers are predominantly driven by the prices of oil and natural gas. In March andApril 2020 , concurrent with the COVID-19 pandemic and quarantine orders in theU.S. and worldwide, oil prices dropped sharply to below zero dollars per barrel for the first time in history due to factors including significantly reduced demand and a shortage of storage facilities. In 2021,U.S. oil production stabilized as 27 -------------------------------------------------------------------------------- commodity prices increased and demand for crude oil rebounded. We saw improvements in the oilfield services industry and in both pricing and utilization of our well completion and drilling services during 2022. During the first quarter of 2023, pricing for crude oil and natural gas declined from levels seen in 2022, which may slow down completion activities for our customers and, as a result, reduce demand for our well completion services. Further, the ongoing war and related humanitarian crisis inUkraine could continue to have an adverse impact on the global energy markets and volatility of commodity prices. In response to market conditions, we have temporarily shut down our cementing and acidizing operations and flowback operations beginning inJuly 2019 , our contract drilling operations beginning inDecember 2019 , our rig hauling operations beginning inApril 2020 , our coil tubing, pressure control and full service transportation operations beginning inJuly 2020 and our crude oil hauling operations beginning inJuly 2021 . We continue to monitor the market to determine if and when we can recommence these services. We are currently operating three of our six pressure pumping fleets. Subject to market conditions, supply chain constraints and liquidity requirements, we have plans to upgrade one spread to Tier 4 dual fuel as well as upgrade two fleets to Tier 2 dual fuel, giving us a total of four dual fuel fleets by year-end 2023. Continuing supply chain disruptions have resulted in backlogs of equipment and replacement parts for our and our competitors' pressure pumping fleets, which we expect to persist through at least the first half of 2023. Any of these factors may result in the delay of our plans to activate, convert or upgrade our existing pressure pumping fleets in the second half of 2023, which may adversely impact our business, financial condition and cash flow.
Natural Sand Proppant Industry
In our natural sand proppant services business, we experienced a significant decline in demand for our sand proppant in the second half of 2019 and throughout 2020 as a result of completion activity falling due to lower oil demand and pricing, increased capital discipline by our customers, budget exhaustion and the COVID-19 pandemic. Activity rebounded modestly in 2021 and continued to increase throughout 2022 as we saw an increase in the volume of sand sold. Supply constraints from labor shortages have negatively affectedWest Texas in-basin mine operations and increased demand for Northern White frac sand for the region in 2022. Demand from oil and gas companies inWestern Canada and theMarcellus Shale was also strong in 2022. The increase in activity in 2022 resulted in an increase in demand and pricing for our sand, which continued throughout the first quarter of 2023. However, as discussed above, pricing for crude oil and natural gas declined from levels seen in 2022, which may impact completion activities for our customers and demand for our sand proppant services. As a result of adverse market conditions, production at our Muskie sand facility inPierce County, Wisconsin has been temporarily idled sinceSeptember 2018 . Our contracted capacity has provided a baseline of business, which has kept our Taylor and Piranha plants operating and our costs competitive.
Energy Infrastructure Industry
Our infrastructure services business provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. We offer a broad range of services on electric transmission and distribution, or T&D, networks and substation facilities, which include engineering, design, construction, upgrade, maintenance and repair of high voltage transmission lines, substations and lower voltage overhead and underground distribution systems. Our commercial services include the installation, maintenance and repair of commercial wiring. We also provide storm repair and restoration services in response to storms and other disasters. We provide infrastructure services primarily in the northeast, southwest, midwest and western portions ofthe United States . We currently have agreements in place with private utilities, public IOUs and Co-Ops. During 2022, operational improvements combined with increased crew count drove enhanced results in our infrastructure services division. Although our average crew count declined slightly from approximately 93 crews throughout the fourth quarter of 2022 to approximately 88 crews throughout the first quarter of 2023, operational efficiencies drove improved results. Funding for projects in the infrastructure space remains strong with added opportunities expected from theInfrastructure Investment and Jobs Act, which was signed into law onNovember 15, 2021 . We anticipate the federal spending to begin fueling additional projects in this sector beginning in late 2023. We continue to focus on operational execution and pursue opportunities within this sector as we strategically structure our service offerings for growth, intending to increase our infrastructure services activity and expand both our geographic footprint and depth of projects, especially in fiber maintenance and installation projects. 28 -------------------------------------------------------------------------------- We work for multiple utilities primarily across the northeastern, southwestern, midwestern and western portions ofthe United States . We believe that we are well-positioned to compete for new projects due to the experience of our infrastructure management team, combined with our vertically integrated service offerings. We are seeking to leverage this experience and our service offerings to grow our customer base and increase our revenues in the continentalUnited States over the coming years. Our infrastructure services business has been adversely impacted by the outstanding amounts owed to us by thePuerto Rico Electric Power Authority , or PREPA, for services performed by our subsidiary,Cobra Acquisitions LLC , or Cobra, inPuerto Rico to restore PREPA's electrical grid damaged by Hurricane Maria. As ofMarch 31, 2023 , PREPA owed us approximately$227.0 million for services performed excluding approximately$163.2 million of interest charged on these delinquent balances. See Note 2. Basis of Presentation and Significant Accounting Policies-Accounts Receivable of our unaudited condensed consolidated financial statements. PREPA is currently subject to bankruptcy proceedings, which were filed inJuly 2017 and are currently pending in theU.S. District Court for the District of Puerto Rico . As a result, PREPA's ability to meet its payment obligations under the contracts is largely dependent upon funding from theFederal Emergency Management Agency , or FEMA, or other sources. OnSeptember 30, 2019 , we filed a motion with theU.S. District Court for the District of Puerto Rico seeking recovery of the amounts owed to us by PREPA, which motion was stayed by the Court. OnMarch 25, 2020 , we filed an urgent motion to modify the stay order and allow our recovery of approximately$62 million in claims related to a tax gross-up provision contained in the first contract. This emergency motion was denied onJune 3, 2020 and the Court extended the stay of our motion. OnDecember 9, 2020 , the Court again extended the stay of our motion and directed PREPA to file a status report byJune 7, 2021 . OnApril 6, 2021 , we filed a motion to lift the stay order. Following this filing, PREPA initiated discussion with Cobra, which resulted in PREPA and Cobra filing a joint motion to adjourn all deadlines relative to theApril 6, 2021 motion until theJune 16, 2021 omnibus hearing as a result of PREPA's understanding that FEMA would be releasing a report in the near future relating to the first contract. The joint motion was granted by the Court onApril 14, 2021 . OnMay 26, 2021 , FEMA issued a Determination Memorandum related to the first contract between Cobra and PREPA in which, among other things, FEMA raised two contract compliance issues and, as a result, concluded that approximately$47 million in costs were not authorized costs under the contract. OnJune 14, 2021 , the Court issued an order adjourning Cobra's motion to lift the stay order to a hearing onAugust 4, 2021 and directing Cobra and PREPA to meet and confer in good faith concerning, among other things, (i) theMay 26, 2021 Determination Memorandum issued by FEMA and (ii) whether and when a second determination memorandum is expected. The parties were further directed to file an additional status report, which was filed onJuly 20, 2021 . OnJuly 23, 2021 , with our aid, PREPA filed an appeal of the entire$47 million that FEMA de-obligated in theMay 26, 2021 Determination Memorandum. FEMA approved the appeal in part and denied the appeal in part. FEMA found that staffing costs of$24.4 million are eligible for funding. OnAugust 4, 2021 , the Court denied Cobra'sApril 6, 2021 motion to lift the stay order, extended the stay of our motion seeking recovery of amounts owed to Cobra and directed the parties to file an additional joint status report, which was filed onJanuary 22, 2022 . OnJanuary 26, 2022 , the Court extended the stay and directed the parties to file a further status report byJuly 25, 2022 . OnJune 7, 2022 , Cobra filed a motion to lift the stay order. OnJune 29, 2022 the Court denied Cobra's motion and extended the stay toJanuary 2023 . OnNovember 21, 2022 , FEMA issued a Determination Memorandum related to the 100% federal funded portion of the second contract between Cobra and PREPA in which FEMA concluded that approximately$5.6 million in costs were not authorized costs under the contract. OnDecember 21, 2022 , FEMA issued a Determination Memorandum related to the 90% federal cost share portion of the second contract between Cobra and PREPA in which FEMA concluded that approximately$68.1 million in costs were not authorized costs under the contract. PREPA filed a first-level administrative appeal of theNovember 21, 2022 Determination Memorandum and has indicated that they will review theDecember 21, 2022 Determination Memorandums and, to the extent they feel plausible, file a first-level administrative appeal of the unauthorized amounts. OnJanuary 7, 2023 , Cobra and PREPA filed a joint status report with the Court, in which PREPA requested that the Court continue the stay throughJuly 31, 2023 and Cobra requested that the stay be lifted. OnJanuary 18, 2023 , the Court entered an order extending the stay and directing the parties to file a further status report addressing (i) the status of any administrative appeals in connection with the November and December determination memorandums regarding the second contract, (ii) the status of the criminal proceedings against the former Cobra president and the FEMA official that concluded inDecember 2022 , and (iii) a summary of the outstanding and unpaid amounts arising from the first and second contracts and whether PREPA disputes Cobra's entitlement to these amounts with the Court byJuly 31, 2023 . OnJanuary 20, 2023 , Cobra submitted a certified claim for approximately$379 million to FEMA pursuant to the federal Contract Disputes Act. OnFebruary 1, 2023 , FEMA notified Cobra that it had reviewed the claim and determined that no contract, expressed or implied, exists between FEMA and Cobra. OnMarch 27, 2023 , Cobra was notified that FEMA had approved$233 million in Cobra invoices related to theDecember 21, 2022 Determination Memorandum. The 90% federal cost share of this approved amount was$210 million , which was obligated and made available for draw down onMarch 27, 2023 . Of this$210 million , approximately$99 million has been represented by both PREPA and FEMA as intended to pay Cobra for outstanding invoices and the remaining$111 million is a reimbursement to PREPA for payments already made on Cobra invoices. OnMarch 29, 2023 , Cobra filed a notice of appeal with the CivilianBoard of Contract Appeals related to the certified 29 --------------------------------------------------------------------------------
claim submitted in
We believe all amounts charged to PREPA were in accordance with the terms of the contracts. Further, we believe these receivables are collectible. However, in the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the amounts owed to us or (iii) otherwise does not pay amounts owed to us for services performed, the receivable may not be collected and our financial condition, results of operations and cash flows would be materially and adversely affected. In addition, government contracts are subject to various uncertainties, restrictions and regulations, including oversight audits and compliance reviews by government agencies and representatives. In this regard, onSeptember 10, 2019 , theU.S. District Court for the District of Puerto Rico unsealed an indictment that charged the former president of Cobra with conspiracy, wire fraud, false statements and disaster fraud. Two other individuals were also charged in the indictment. The indictment focused on the interactions between a former FEMA official and the former President of Cobra. Neither we nor any of our subsidiaries were charged in the indictment. OnMay 18, 2022 , the former FEMA official and the former president of Cobra each pled guilty to one-count information charging gratuities related to a project that Cobra never bid upon and was never awarded or received any monies for. OnDecember 13, 2022 , the Court sentenced the former Cobra president to custody of theBureau of Prisons for six months and one day, a term of supervised release of six months and a fine of$25,000 . The Court sentenced the FEMA official to custody of theBureau of Prisons for six months and one day, a term of supervised release of six months and a fine of$15,000 . The Court also dismissed the indictment against the two defendants. We do not expect any additional activity in the criminal proceeding. Given the uncertainty inherent in the criminal litigation, however, it is not possible at this time to determine the potential impacts that the sentencings could have on us. PREPA has stated in Court filings that it may contend the alleged criminal activity affects Cobra's entitlement to payment under its contracts with PREPA. It is unclear what PREPA's position will be going forward. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information regarding these investigations and proceedings. Further, as noted above, our contracts with PREPA have concluded and we have not obtained, and there can be no assurance that we will be able to obtain, one or more contracts with other customers to replace the level of services that we provided to PREPA.
First Quarter 2023 Financial Overview
•Total revenue for the first quarter of 2023 increased by$54.0 million , or 87%, to$116.3 million from$62.3 million for the first quarter of 2022. The increase in total revenue is primarily due to an increase in well completions, driven primarily by increased utilization and pricing for our services.
•Net income for the first quarter of 2023 was
•Net cash flow provided by operating activities for the first quarter of 2023 was$3.2 million , as compared to net cash flow used in operating activities of$2.4 million for the first quarter of 2022. •Adjusted EBITDA (as defined and reconciled below) for the first quarter of 2023 increased by$21.4 million , or 230%, to$30.7 million from$9.3 million for the first quarter of 2022. See "Non-GAAP Financial Measures" below for a reconciliation of net income to Adjusted EBITDA. 30
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Results of Operations
Three Months EndedMarch 31, 2023 Compared to Three Months EndedMarch 31, 2022 Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Revenue: Well completion services $ 67,300$ 23,874 Infrastructure services 28,280 23,009 Natural sand proppant services 12,467 9,179 Drilling services 1,825 2,855 Other services 7,032 4,732 Eliminations (584) (1,351) Total revenue 116,320 62,298
Cost of revenue:
Well completion services (exclusive of depreciation and
amortization of
52,515 22,870
Infrastructure services (exclusive of depreciation and
amortization of
22,487 18,903
Natural sand proppant services (exclusive of depreciation,
depletion and accretion of
7,860 7,788
Drilling services (exclusive of depreciation and
amortization of
2,031 2,532
Other services (exclusive of depreciation and amortization
of
4,684 3,664 Eliminations (584) (1,277) Total cost of revenue 88,993 54,480 Selling, general and administrative expenses 8,383 8,668 Depreciation, depletion, amortization and accretion 12,956 17,167 Gains on disposal of assets, net (361) (196) Operating income (loss) 6,349 (17,821) Interest expense, net (3,289) (2,349) Other income, net 8,624 9,041 Income (loss) before income taxes 11,684 (11,129) Provision for income taxes 3,333 3,688 Net income (loss) $ 8,351$ (14,817) Revenue. Revenue for the three months endedMarch 31, 2023 increased$54.0 million , or 87%, to$116.3 million from$62.3 million for the three months endedMarch 31, 2022 . The increase in total revenue is primarily attributable to an increase in well completions revenue during the three months endedMarch 31, 2023 primarily due to increased utilization and pricing. Revenue derived from related parties was$0.2 million for the three months endedMarch 31, 2023 and$0.3 million for the three months endedMarch 31, 2022 . Revenue by operating division was as follows: Well Completion Services. Well completion services division revenue increased$43.4 million , or 182%, to$67.3 million for the three months endedMarch 31, 2023 from$23.9 million for the three months endedMarch 31, 2022 . The increase in our well completion services revenue was primarily driven by a 189% increase in the number of stages completed from 699 for the three months endedMarch 31, 2022 to 2,018 for the three months endedMarch 31 , 31 -------------------------------------------------------------------------------- 2023 as well as an increase in both pricing for our services and sand and chemical materials revenue. An average of 3.6 of our fleets were active for the three months endedMarch 31, 2023 as compared to an average of 1.6 fleets for the three months endedMarch 31, 2022 . Infrastructure Services. Infrastructure services division revenue increased$5.3 million , or 23%, to$28.3 million for the three months endedMarch 31, 2023 from$23.0 million for the three months endedMarch 31, 2022 primarily due to operational execution, an increase in crew count, improved pricing for our services and an increase in storm restoration activity. Average crew count was 88 crews for the three months endedMarch 31, 2023 , as compared to 85 crews for the three months endedMarch 31, 2022 . Natural Sand Proppant Services. Natural sand proppant services division revenue increased$3.3 million , or 36%, to$12.5 million for the three months endedMarch 31, 2023 , from$9.2 million for the three months endedMarch 31, 2022 primarily due to an 45% increase in the average price per ton of sand sold from$21.44 per ton during the three months endedMarch 31, 2022 to$31.02 per ton during the three months endedMarch 31, 2023 , and a 19% increase in tons of sand sold from 328,591 tons for the three months endedMarch 31, 2022 to 391,439 tons for the three months endedMarch 31, 2023 . Drilling Services. Drilling services division revenue decreased$1.1 million , or 38%, to$1.8 million for the three months endedMarch 31, 2023 as compared to$2.9 million for the three months endedMarch 31, 2022 . The decrease is primarily due to a decline utilization for our directional drilling business from 48% for the three months endedMarch 31, 2022 to 30% for the three months endedMarch 31, 2023 . Other Services. Other services revenue, consisting of revenue derived from our aviation, equipment rental, remote accommodation and equipment manufacturing businesses, increased approximately$2.3 million , or 49%, to$7.0 million for the three months endedMarch 31, 2023 , from$4.7 million for the three months endedMarch 31, 2022 . Inter-segment revenue, consisting primarily of revenue derived from our well completion segment, was$0.4 million and$0.3 million for the three months endedMarch 31, 2023 and 2022, respectively. Revenue from our accommodations business increased$1.9 million primarily due to an increase in rooms rented during the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . Additionally, an average of 287 pieces of equipment were rented to customers during the three months endedMarch 31, 2023 , an increase of 29% from an average of 222 pieces of equipment rented to customers during the three months endedMarch 31, 2022 , resulting in an increase to revenue of$0.3 million . Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion expense). Cost of revenue, exclusive of depreciation, depletion, amortization and accretion expense, increased$34.5 million from$54.5 million , or 87% of total revenue, for the three months endedMarch 31, 2022 to$89.0 million , or 77% of total revenue, for the three months endedMarch 31, 2023 . The increase is primarily due to an increase in activity in our well completions divisions. Cost of revenue by operating division was as follows: Well Completion Services. Well completion services division cost of revenue, exclusive of depreciation and amortization expense, increased$29.6 million , or 130%, to$52.5 million for the three months endedMarch 31, 2023 from$22.9 million for the three months endedMarch 31, 2022 , primarily due to an increase in utilization and the cost of consumables. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of$4.8 million and$6.4 million for the three months endedMarch 31, 2023 and 2022, respectively, was 78% and 96% for the three months endedMarch 31, 2023 and 2022, respectively. The decrease as a percentage of revenue is primarily due to an increase in utilization as well as improved pricing. Infrastructure Services. Infrastructure services division cost of revenue, exclusive of depreciation and amortization expense, increased$3.6 million , or 19%, to$22.5 million for the three months endedMarch 31, 2023 from$18.9 million for the three months endedMarch 31, 2022 , primarily due to an increase in activity. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of$3.4 million and$4.3 million for the three months endedMarch 31, 2023 and 2022, respectively, was 80% and 82% for the three months endedMarch 31, 2023 and 2022, respectively. The decline as a percentage of revenue is primarily due to improved pricing, an increase in storm restoration activity as well as a decline in labor related costs as a result of improved efficiency of our crews.
Natural Sand Proppant Services. Natural sand proppant services division cost
of revenue, exclusive of depreciation, depletion and accretion expense,
increased
32 --------------------------------------------------------------------------------March 31, 2023 from$7.8 million for the three months endedMarch 31, 2022 . As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of$1.2 million and$1.8 million for the three months endedMarch 31, 2023 and 2022, respectively, was 63% and 85% for the three months endedMarch 31, 2023 and 2022, respectively. The decrease as a percentage of revenue is primarily due to an 45% increase in price per ton of sand sold. Drilling Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, decreased$0.5 million , or 20%, to$2.0 million for the three months endedMarch 31, 2023 from$2.5 million for the three months endedMarch 31, 2022 . As a percentage of revenue, our drilling services division cost of revenue, exclusive of depreciation and amortization expense of$1.4 million and$1.7 million for the three months endedMarch 31, 2023 and 2022, respectively, was 111% and 86% for the three months endedMarch 31, 2023 and 2022, respectively. The increase is primarily due to a decline in utilization. Other Services. Other services division cost of revenue, exclusive of depreciation and amortization expense, increased$1.0 million , or 27%, to$4.7 million for the three months endedMarch 31, 2023 from$3.7 million for the three months endedMarch 31, 2022 primarily due to increased activity. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of$2.2 million and$2.9 million for the three months endedMarch 31, 2023 and 2022, respectively, was 67% and 77% for the three months endedMarch 31, 2023 and 2022, respectively. The decrease is primarily due to an increase in utilization.
Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses represent the costs associated with managing and supporting our operations. The table below presents a breakdown of SG&A expenses for the periods indicated (in thousands):
Three Months Ended March 31, 2023 March 31, 2022 Cash expenses: Compensation and benefits$ 4,277 $ 2,983 Professional services 1,929 3,637 Other(a) 1,911 1,906 Total cash SG&A expense 8,117 8,526 Non-cash expenses: Bad debt provision (381) (99) Stock based compensation 647 241 Total non-cash SG&A expense 266 142 Total SG&A expense$ 8,383 $ 8,668
a. Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs.
Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion, amortization and accretion decreased$4.2 million , or 24%, to$13.0 million for the three months endedMarch 31, 2023 from$17.2 million for the three months endedMarch 31, 2022 . The decrease is primarily attributable to a decline in property and equipment depreciation expense as a result of existing assets being fully depreciated.
Gains on Disposal of Assets, Net. Gains on the disposal of assets were
Operating Income (Loss). We reported operating income of$6.3 million for the three months endedMarch 31, 2023 compared to an operating loss of$17.8 million for the three months endedMarch 31, 2022 . The increase in operating income is primarily due to an increase in activity and pricing for our well completions division. Interest Expense, Net. Interest expense, net increased$1.0 million , or 43%, to$3.3 million for the three months endedMarch 31, 2023 from$2.3 million for the three months endedMarch 31, 2022 . The increase is primarily due to an increase in the interest rate under our revolving credit facility. Other Income, Net. Other income decreased$0.4 million to$8.6 million for the three months endedMarch 31, 2023 compared to$9.0 million for the three months endedMarch 31, 2022 . 33 -------------------------------------------------------------------------------- Income Taxes. We recorded income tax expense of$3.3 million on pre-tax income of$11.7 million for the three months endedMarch 31, 2023 compared to$3.7 million on pre-tax losses of$11.1 million for the three months endedMarch 31, 2022 . Our effective tax rates were 29% and 33% for the three months endedMarch 31, 2023 and 2022, respectively. The effective tax rates for the three months endedMarch 31, 2023 and 2022 differed from the statutory rate of 21% primarily due to the mix of earnings betweenthe United States andPuerto Rico as well as changes in the valuation allowance. Non-GAAP Financial Measures Adjusted EBITDA Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as net income (loss) before depreciation, depletion, amortization and accretion, gains on disposal of assets, stock based compensation, interest expense, net, other income (expense), net (which is comprised of interest on trade accounts receivable and certain legal expenses) and provision for income taxes, further adjusted to add back interest on trade accounts receivable. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industries depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net loss or cash flows from operating activities as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We believe that Adjusted EBITDA is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet debt service requirements. The following tables provide a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income or (loss) for each of our operating segments for the specified periods (in thousands).
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