PROPETRO HOLDING CORP.
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
subsidiary.
Overview
We are a Midland, Texas -based oilfield services company providing hydraulic
fracturing and other complementary 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 largest providers of hydraulic
fracturing services in the region by hydraulic horsepower ("HHP").
Our total available HHP as of March 31, 2022 , was 1,423,000 HHP, which was
comprised of 140,000 HHP of our Tier IV Dynamic Gas Blending ("DGB") equipment,
1,175,000 HHP of conventional Tier II equipment and 108,000 HHP of our DuraStim®
electric hydraulic fracturing equipment. Our fleet could range from
approximately 50,000 to 80,000 HHP depending on the job design and customer
demand at the wellsite. With the industry transition to lower emissions
equipment and simultaneous hydraulic fracturing ("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 the wellsites. In addition, in September
2021 , we committed to additional conversions of our Tier II equipment to Tier IV
DGB. As such, we entered into a conversion arrangement with our equipment
manufacturers for 125,000 HHP of Tier IV DGB equipment and during the period
ended March 31, 2022 , we received 50,000 HHP of the converted Tier IV DGB
equipment and expect to receive the remaining 75,000 HHP at different times
through the second quarter of 2022.
In 2019, we entered into a purchase commitment for 108,000 HHP of DuraStim®
electric powered hydraulic fracturing equipment. Our DuraStim® equipment is yet
to be commercialized. Given current market conditions, including continued
supply chain disruptions and inflation, and other factors impacting further
development of DuraStim®, we do not currently anticipate deploying our DuraStim®
equipment in its current configuration for additional field trials during 2022.
If we are not able to successfully commercialize the DuraStim® equipment, or
deploy the equipment for alternative uses, which we are currently evaluating, we
will incur impairment losses on the carrying value of the DuraStim® equipment.
As of March 31, 2022 , the carrying value of our DuraStim® equipment is
approximately $88 million . In addition to DuraStim® fleets, we are also
evaluating other electric and alternative pressure pumping solutions.
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 and continues through December 31, 2022 . The A&R
Pressure Pumping Services Agreement reduced the number of contracted fleets to
six fleets from eight 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 will be entitled to receive
compensation for all eligible contracted fleets that are made available to
Pioneer at the beginning of every quarter in 2022 through the term of the A&R
Pressure Pumping Services Agreement.
Our competitors include many large and small oilfield services companies,
including Halliburton Company, Liberty Energy Inc., 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 service industry because of
the significant capital investment required for next generation equipment and
the current pricing environment with the service industry, which remains in
recovery phase. 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,
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equipment quality, reliability, ability to manage multifaceted logistics
challenges, commitment to safety and the ability of our people to handle the
most complex
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 recently 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 pressure pumping segment (which also includes our cementing
operations), we primarily provide hydraulic fracturing services to E&P companies
in the Permian Basin . Our hydraulic fracturing fleet has been designed to handle
the operating conditions commonly experienced in the Permian Basin and the
region's increasingly high-intensity well completions (including 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.
In addition to our core pressure pumping segment operations, which
includes our cementing operations, we also offer coiled tubing services. Through
our coiled tubing services segment, we seek to create operational efficiencies
for our customers, which could allow us to capture a greater portion of their
capital spending across the lifecycle of a well.
Commodity Price and Other Economic Conditions
The oil and gas industry has traditionally been volatile and is influenced
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 global supply chain disruptions and inflation, war and
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.
In February 2022 , Russia launched a large-scale invasion of Ukraine that has
led to significant armed hostilities. As a result, the United States , the United
Kingdom , the member states of the European Union and other public and private
actors have levied severe sanctions on Russian financial institutions,
businesses and individuals. This conflict, and the resulting sanctions, has
contributed to significant increases and volatility in the prices for oil and
natural gas. The geopolitical and macroeconomic consequences of this invasion
and associated sanctions remain uncertain, and such events, or any further
hostilities in Ukraine or elsewhere, could severely impact the world economy and
the oil and gas industry and may adversely affect our financial condition.
The global public health crisis associated with the COVID-19 pandemic also
has had an adverse effect on global economic activity and the oil and gas
industry. Some of the challenges resulting from the COVID-19 pandemic that have
impacted our business include restrictions on movement of personnel and
associated gatherings, shortage of skilled labor, cost inflation and supply
chain disruptions. In light of the COVID-19 pandemic, most companies, including
our customers in the Permian Basin , reacted by closely managing their operating
budget and exercising capital discipline. In addition, OPEC+ has indicated that
they will continue with their plans to manage production levels by gradually
increasing crude oil output.
The Russia -Ukraine war, and the adverse impacts of the COVID-19 pandemic in
recent years, have resulted in volatility in supply and demand dynamics for
crude oil and associated volatility in crude oil pricing. In 2022, global crude
oil prices have exceeded $100 per barrel, which is the highest prices have been
in the last ten years. We believe that the recent surge in global crude oil
prices is partly due to the lack of reinvestment in the oil and gas industry in
the last two years, coupled with adverse impact of the Russia -Ukraine war, which
has led to various sanctions in Russian crude oil supply and businesses. With
the significant increase in global crude oil prices, including WTI crude oil
prices, there has been an increase in the Permian Basin rig count from
approximately 179 at the beginning of 2021 to approximately 323 at the end of
March 2022 , according to Baker Hughes . Following the increase in rig count and
WTI crude oil price, the oilfield service industry has experienced increased
demand for its pressure pumping services, and improved pricing. As a result of
the growing demand for pressure pumping services and significant cost inflation
across the industry, we negotiated pricing increases with certain of our
customers and effective as of January 1, 2022 , we increased pricing for most of
our pressure pumping services, depending on job design. Although we are
currently operating in an improved pricing environment, the rapid increase in
cost inflation and supply chain tightness could adversely impact our future
profitability, if we are unable to timely pass-through the cost increases to our
customers.
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Government regulations and investors are demanding the oil and gas industry
transition to a lower emissions operating environment, including the upstream
and oilfield service companies. As a result, we are working with our customers
and equipment manufacturers to transition to a lower emissions profile.
Currently, a number of lower emission solutions for pumping equipment, including
Tier IV DGB, electric, direct drive gas turbine and other technologies have been
developed, and we expect additional lower emission solutions will be developed
in the future. We are continually evaluating these technologies and other
investment and acquisition opportunities that would support our existing and new
customer relationships. The transition to lower emissions equipment is quickly
evolving and will be capital intensive. Over time, we may be required to convert
substantially all of our conventional Tier II equipment to lower emissions
equipment. If we are unable to quickly transition to lower emissions equipment
and meet our and our customers' emissions goals, the demand for our services
could be adversely impacted.
The Permian Basin rig count increase, WTI crude oil price increase and
costs inflation could be indicative of an energy market recovery. If the rig
count and market conditions continue to improve, including improved customers'
pricing and labor availability, and we are able to meet our customers' lower
emissions equipment demands, we believe our operational and financial results
will also continue to improve. However, if market conditions do not improve, and
we are unable to increase our pricing or pass-through future cost increases to
our customers, there could be a material adverse impact on our business, results
of operations and cash flows.
Our results of operations have historically reflected seasonal tendencies,
typically in the fourth quarter, relating to the holiday season, inclement
winter weather and exhaustion of our customers' annual budgets. As a result, we
typically experience declines in our operating and financial results in November
and December, even in a stable commodity price and operations environment.
How We Evaluate Our Operations
Our management uses Adjusted EBITDA or Adjusted EBITDA margin to evaluate and analyze the performance of our various operating segments.
Adjusted EBITDA and Adjusted EBITDA Margin
We view Adjusted EBITDA and Adjusted EBITDA margin as important indicators
of performance. We define EBITDA as our earnings, before (i) interest expense,
(ii) income taxes and (iii) depreciation and amortization. We define Adjusted
EBITDA as EBITDA, plus (i) loss/(gain) on disposal of assets, (ii) stock-based
compensation, and (iii) other unusual or nonrecurring (income)/expenses, such as
impairment charges, severance, costs related to asset acquisitions, insurance
recoveries and one-time professional fees on legal settlements. Adjusted EBITDA
margin reflects our Adjusted EBITDA as a percentage of our revenues.
Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures
utilized by our management and other users of our financial statements such as
investors, commercial banks, and research analysts, to assess our financial
performance because it allows us and other users 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), nonrecurring (income)/expenses and items
outside the control of our management team (such as income taxes). Adjusted
EBITDA and Adjusted EBITDA margin have limitations as analytical tools and
should not be considered as an alternative to net income/(loss), operating
income/(loss), cash flow from operating activities or any other measure of
financial performance presented in accordance with GAAP.
Note Regarding Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA margin are not financial measures
presented in accordance with GAAP ("non-GAAP"), except when specifically
required to be disclosed by GAAP in the financial statements. We believe that
the presentation of Adjusted EBITDA and Adjusted EBITDA margin provide useful
information to investors in assessing our financial condition and results of
operations because it allows them to compare our operating performance on a
consistent basis across periods by removing the effects of our capital
structure, asset base, nonrecurring expenses (income) and items outside the
control of the Company. Net income (loss) is the GAAP measure most directly
comparable to Adjusted EBITDA. Adjusted EBITDA and Adjusted EBITDA margin
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 analytical tools because they exclude some, but not all, items
that affect the most directly comparable GAAP financial measures. You should not
consider Adjusted EBITDA or Adjusted EBITDA margin in isolation or as a
substitute for an analysis of our results as reported under GAAP. Because
Adjusted EBITDA and Adjusted EBITDA margin 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.
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Reconciliation of net income (loss) to Adjusted EBITDA (in thousands):
Three Months Ended
Pressure Pumping All Other Total
Net income (loss) $ 29,370 $ (17,553) $ 11,817
Depreciation and amortization 30,930 924 31,854
Interest expense - 134 134
Income tax expense - 4,137 4,137
Loss (gain) on disposal of assets 16,421 (304) 16,117
Stock-based compensation - 11,364 11,364
Other income(2) - (10,357) (10,357)
Other general and administrative expense(1) 274 1,193 1,467
Adjusted EBITDA $ 76,995 $ (10,462) $ 66,533 Three Months Ended
Pressure Pumping All Other Total
Net loss $ (13,675) $ (6,700) $ (20,375)
Depreciation and amortization 32,513 965 33,478
Interest expense - 176 176
Income tax benefit - (6,663) (6,663)
Loss on disposal of assets 13,032 20 13,052
Stock-based compensation - 2,487 2,487
Other income - (1,789) (1,789)
Other general and administrative expense, (net)(1) - (961) (961)
Severance expense - 612 612
Adjusted EBITDA $ 31,870 $ (11,853) $ 20,017
(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 and shareholder litigation, net of insurance recoveries. During
the three months ended March 31, 2022 and 2021, we received reimbursement of
approximately $1.0 million and $1.6 million , respectively, from our insurance
carriers in connection with the SEC investigation and shareholder litigation.
(2)Includes $10.7 million of net tax refund (net of advisory fees) received from
the Texas Comptroller of Public Accounts in connection with limited sales,
excise, and use tax beginning July 1, 2015 through December 31, 2018 .
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--------------------------------------------------------------------------------Results of Operations
We conducted our business through three operating segments: hydraulic
fracturing, cementing and coiled tubing. For reporting purposes, the hydraulic
fracturing and cementing operating segments are aggregated into our one
reportable segment-pressure pumping. The coiled tubing operating segment and
corporate administrative expenses (inclusive of our total income tax expense
(benefit), other (income) and expense and interest expense) are included in the
"all other" category. Total corporate administrative expense for the three
months ended March 31, 2022 and 2021 was $17.3 million and $5.0 million ,
respectively.
Our hydraulic fracturing operating segment revenue approximated 93.6% and
93.3% of our pressure pumping revenue during the three months ended March 31,
2022 and 2021, respectively.
The following table sets forth the results of operations for the periods presented:
(in thousands, except for percentages) Change
Three Months Ended March 31, Increase (Decrease)
2022 2021 $ %
Revenue $ 282,680 $ 161,458 $ 121,222 75.1 %
Less (Add):
Cost of services (1) 197,271 123,378 73,893 59.9 %
General and administrative expense (2) 31,707 20,201 11,506 57.0 %
Depreciation and amortization 31,854 33,478 (1,624) (4.9) %
Loss on disposal of assets 16,117 13,052 3,065 23.5 %
Interest expense 134 176 (42) (23.9) %
Other income (10,357) (1,789) 8,568 478.9 %
Income tax expense (benefit) 4,137 (6,663) (10,800) (162.1) %
Net income (loss) $ 11,817 $ (20,375) $ 32,192 158.0 %
Adjusted EBITDA (3) $ 66,533 $ 20,017 $ 46,516 232.4 %
Adjusted EBITDA Margin (3) 23.5 % 12.4 % 11.1 % 89.5 %
Pressure pumping segment results of
operations:
Revenue $ 277,112 $ 158,191 $ 118,921 75.2 %
Cost of services $ 192,633 $ 119,768 $ 72,865 60.8 %
Adjusted EBITDA (3) $ 76,995 $ 31,870 $ 45,125 141.6 %
Adjusted EBITDA Margin (4) 27.8 % 20.1 % 7.7 % 38.3 %
(1)Exclusive of depreciation and amortization.
(2)Inclusive of stock-based compensation.
(3)For definitions of the non-GAAP financial measures of Adjusted EBITDA and
Adjusted EBITDA margin and reconciliation of Adjusted EBITDA to our most
directly comparable financial measures calculated in accordance with GAAP,
please read "How We Evaluate Our Operations". Included in our Adjusted EBITDA is
reservation and idle fees of $6.8 million and $4.3 million for the three months
ended March 31, 2022 and 2021, respectively.
(4)The non-GAAP financial measure of Adjusted EBITDA margin for the pressure
pumping segment is calculated by taking Adjusted EBITDA for the pressure pumping
segment as a percentage of our revenue for the pressure pumping segment.
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Three Months Ended
Revenues. Revenues increased 75.1%, or $121.2 million , to $282.7
million during the three months ended March 31, 2022 , as compared to $161.5
million during the three months ended March 31, 2021 . Our pressure pumping
segment revenues increased 75.2%, or $118.9 million , for the three months ended
March 31, 2022 , as compared to the three months ended March 31, 2021 . The
increases were primarily attributable to the significant increase in our
existing and new customers' activity levels, resulting in higher demand for
pressure pumping services and improved pricing. As a result of our customers'
increased activity levels, our effectively utilized fleet count rose to
approximately 13.7 active fleets during the three months ended March 31, 2022 ,
from approximately 10.3 active fleets for the three months ended March 31, 2021 .
Included in our revenue for the three months ended March 31, 2022 and 2021 was
revenue generated from reservation and idle fees charged to our customer of
approximately $6.8 million and $4.3 million , respectively.
Revenues from services other than pressure pumping increased 70.4%, or $2.3
million , to $5.6 million for the three months ended March 31, 2022 , as compared
to $3.3 million for the three months ended March 31, 2021 . The increase in
revenue from services other than pressure pumping was primarily attributable to
improved pricing and the increase in utilization experienced by our coiled
tubing operations, which was driven by increased E&P completions activity.
Cost of Services. Cost of services increased 59.9%, or $73.9 million , to
$197.3 million for the three months ended March 31, 2022 , as compared to $123.4
million during the three months ended March 31, 2021 . Cost of services in our
pressure pumping segment increased $72.9 million for the three months ended
March 31, 2022 , as compared to the three months ended March 31, 2021 . These
increases were primarily attributable to the significantly increased activity
levels resulting from the increased demand for our services. As a percentage of
pressure pumping segment revenues (including reservation and idle fees),
pressure pumping cost of services was 69.5% for the three months ended March 31,
2022 , as compared to 75.7% for the three months ended March 31, 2021 . Excluding
reservation and idle fees revenue of $6.8 million and $4.3 million recorded
during the three months ended March 31, 2022 and 2021, respectively, our
pressure pumping cost of services as a percentage of pressure pumping revenues
decreased to 71.2% during the three months ended March 31, 2022 , as compared to
77.8% for the three months ended March 31, 2021 . The decrease in the percentages
was a result of increased operational efficiencies, reduction in operational
downtime and improved pricing across our customer base.
General and Administrative Expenses. General and administrative expenses
increased 57.0%, or $11.5 million , to $31.7 million for the three months ended
March 31, 2022 , as compared to $20.2 million for the three months ended
March 31, 2021 . The net increase was primarily attributable to an increase
during 2022 in (i) stock-based compensation expense of $8.9 million , which was
primarily attributable to the non-recurring incremental stock-based compensation
associated with the acceleration of stock awards upon resignation of a former
executive, (ii) non-recurring legal fees, incurred in connection with pending
shareholder litigation, of approximately $2.4 million , and (iii) consulting and
professional fees of approximately $1.0 million , which was partially offset by a
net decrease of approximately $0.8 million in other general administrative
expenses.
Depreciation and Amortization. Depreciation and amortization decreased
4.9%, or $1.6 million , to $31.9 million for the three months ended March 31,
2022 , as compared to $33.5 million for the three months ended March 31, 2021 .
The decrease was primarily attributable to the decrease in our fixed asset base,
partly attributable to the disposal of certain fixed assets during the period.
Loss on Disposal of Assets. Loss on the disposal of assets increased
23.5%, or $3.1 million , to $16.1 million for the three months ended March 31,
2022 , as compared to $13.1 million for the three months ended March 31, 2021 .
The increase was primarily attributable to the significant increase in our
utilization levels, resulting in an increase in the operational intensity on our
pressure pumping equipment. Upon sale or retirement of property and equipment,
including replaced fluid and power ends, the cost and related accumulated
depreciation of such assets or components are removed from the balance sheet and
the net amount is recognized as loss on disposal of assets.
Interest Expense. There was no significant change in interest expense.
Interest expense was relatively flat at $0.1 million for the three months ended
March 31, 2022 , as compared to $0.2 million for the three months ended March 31,
2021 . During the three months ended March 31, 2022 and three months ended
March 31, 2021 , the Company had a zero debt balance, and the interest expense in
the three months ended March 31, 2022 , and 2021, primarily relates to the
amortization of our capitalized loan origination cost.
Other Income. Other income increased 478.9%, or
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Income Taxes. Total income tax expense was $4.1 million resulting in an
effective tax rate of 25.9% for the three months ended March 31, 2022 , as
compared to income tax benefit of $6.7 million or an effective tax rate of 24.6%
for the three months ended March 31, 2021 . The change to an income tax expense
recorded during the three months ended March 31, 2022 , compared to an income tax
benefit during the three months ended March 31, 2021 , is primarily attributable
to the Company projecting a pre-tax income in 2022, as compared to a pre-tax
loss in 2021.
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Liquidity and Capital Resources
Our liquidity is currently provided by (i) existing cash balances, (ii)
operating cash flows and (iii) borrowings under our ABL Credit Facility (as
defined below). Our cash is primarily used to fund our operations, support
growth opportunities and satisfy future debt payments, if any. Our Borrowing
Base (as defined below), as redetermined monthly, is tied to 85.0% to 90% of
eligible accounts receivable. Changes to our operational activity levels and our
customers' credit ratings have an impact on our total eligible accounts
receivable, which could result in significant changes to our Borrowing Base and
therefore our availability under our ABL Credit Facility. We believe our
remaining monthly availability under our ABL Credit Facility will be adversely
impacted if the current depressed oil and gas market conditions continue or
worsen.
As of March 31, 2022 , we had no borrowings under our revolving credit
facility, and our total liquidity was approximately $127.2 million , consisting
of cash and cash equivalents of $70.8 million and $56.4 million of availability
under our revolving credit facility.
As of April 30, 2022 , we had no borrowings under our ABL Credit Facility,
and our total liquidity was approximately $144.8 million , consisting of cash and
cash equivalents of $63.2 million and $81.6 million of availability under our
ABL Credit Facility.
In 2020, when demand for our services was significantly depressed
following the rapidly rising health crisis associated with the COVID-19 pandemic
and the energy industry disruptions, the Company experienced a significant
decrease in its liquidity. However, with the gradual recovery in the energy
industry, improvements in our pricing and an increase in demand for our
services, our liquidity position has gradually improved, although we expect our
overall liquidity to decline during 2022 as we make additional capital
investments. Moreover, the current market conditions resulting from the COVID-19
pandemic have and may in the future change rapidly and there could be a new
outbreak of a COVID-19 variant that could result in travel restrictions,
business closures and institution of quarantining and/or other activity
restrictions, which could negatively impact our future operations, revenue,
profitability and cash flows if not contained or if the vaccines currently
distributed and administered to people are not as effective as anticipated in
curbing the spread of any such new COVID-19 variant.
The industry transition to lower emissions pressure pumping equipment
could require us to make significant investment in DGB or electric solutions in
order to continue to meet our current and future customers' equipment demand. If
we are unable to timely reinvest in lower emissions equipment, the future demand
for our pressure pumping services may be adversely impacted, which could
negatively impact our future operations, revenue, profitability and cash flows.
There can be no assurance that our operations and other capital resources
will provide cash in sufficient amounts to maintain planned or future levels of
capital expenditures. Future cash flows are subject to a number of variables,
and are highly dependent on the drilling, completion, and production activity by
our customers, which in turn is highly dependent on oil and natural gas prices.
Depending upon market conditions and other factors, we may issue equity and debt
securities or take other actions necessary to fund our business or meet our
future long-term liquidity requirements.
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 borrowing base under our revolving credit
facility, as amended in 2018, was $60.1 million as of March 31, 2022 . 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 the 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, 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. There were no borrowings under the
revolving credit facility for the three months ended March 31, 2022 .
Effective April 13, 2022 , the Company entered into an amendment 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 limit), with a 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 April 30, 2022 , was approximately
$86.6 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,
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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 loan origination costs relating to the ABL Credit Facility are
classified as an asset in our balance sheet. There were no borrowings under the
revolving credit facility as of
Future Sources and Use of Cash and Contractual Obligations
Capital expenditures incurred were $71.7 million during the three months
ended March 31, 2022 , as compared to $32.3 million during the three months ended
March 31, 2021 . The significant portion of our total capital expenditures
incurred were comprised of primarily maintenance and conversion capital
expenditures.
Our future material use of cash will be to fund our capital expenditures.
Capital expenditures for 2022 are projected to be primarily related to
maintenance capital expenditures to support our existing pressure pumping
assets, costs to convert some existing equipment to lower emissions pressure
pumping equipment, strategic purchases and other ancillary equipment purchases,
subject to market conditions and customer demand. Our future capital
expenditures depend on our projected operational activity, emission requirements
and planned conversions to lower emissions equipment, among other factors, which
could vary significantly throughout the year. We could incur significant
additional capital expenditures if our projected activity levels increase during
the course of the year, inflation and supply chain tightness continues to
adversely impact our operations or we invest in new or different lower emissions
equipment. The Company will continue to evaluate the emissions profile of its
fleet over the coming years and may, depending on market conditions, convert or
retire additional conventional Tier II equipment in favor of lower emissions
equipment. The Company's decisions regarding the retirement or conversion of
equipment or the addition of lower emissions equipment will be subject to a
number of factors, including (among other factors) the availability of
equipment, including parts and major components, supply chain disruptions,
prevailing and expected commodity prices, customer demand and requirements and
the Company's evaluation of projected returns on conversion or other capital
expenditures. Depending on the impacts of these factors, the Company may decide
to retain conventional equipment for a longer period of time or accelerate the
retirement, replacement or conversion of that equipment.
We anticipate our capital expenditures will be funded by existing cash, cash flows from operations, and if needed, borrowings under our ABL Credit Facility. Our cash flows from operations will be generated from services we provide to our customers.
In the normal course of business, we enter into various contractual
obligations and incur expenses in connection with routine growth and maintenance
capital expenditures that impact our future liquidity. There were no other known
future material contractual obligations as of March 31, 2022 .
Cash and Cash Flows
The following table sets forth the historical cash flows for the three
months ended
Three Months Ended March 31,
(in thousands) 2022 2021
Net cash provided by operating activities $ 25,170 $ 17,008
Net cash used in investing activities $ (64,048) $ (22,270)
Net cash used in financing activities $ (2,272) $ (7,651) Cash Flows From Operating Activities
Net cash provided by operating activities was $25.2 million for the three
months ended March 31, 2022 , compared to $17.0 million for the three months
ended March 31, 2021 . The net increase of approximately $8.2 million was
primarily due to the increase in our activity levels resulting from the increase
in the demand for our services, driven by increased crude oil prices, net tax
refund received, and partially offset with the timing of collections of our
receivables from customers and payments to vendors.
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--------------------------------------------------------------------------------Cash Flows From Investing Activities
Net cash used in investing activities increased to $64.0 million for the
three months ended March 31, 2022 , from $22.3 million for the three months ended
March 31, 2021 . The increase was primarily attributable to our investment in
lower emissions Tier IV DGB equipment.
Cash Flows From Financing Activities
Net cash used in financing activities decreased to $2.3 million for the
three months ended March 31, 2022 , from $7.7 million for the three months ended
March 31, 2021 . The net decrease in cash used in financing activities during the
three months ended March 31, 2022 , was primarily a result of the reduction in
the amount of net settlement of equity awards and no repayments of insurance
financing in 2022, compared to the three months ended March 31, 2021 .
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of
Critical Accounting Policies and Estimates
There have been no material changes during the three months ended March
31, 2022 to the methodology applied by our management for critical accounting
policies previously disclosed in our Form 10-K. Please refer to Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Estimates" in our Form 10-K for a
discussion of our critical accounting policies and estimates.
Recently Issued Accounting Standards
Disclosure concerning recently issued accounting standards is incorporated by reference to Note 2 of our Condensed Consolidated Financial Statements (Unaudited) contained in this Form 10-Q.
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