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 toProPetro Holding Corp. and its subsidiary. Overview We are aMidland, 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 unconventional oil and natural gas resources. Our operations are primarily focused in thePermian Basin , where we have cultivated long-standing 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 area inthe 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 ofJune 30, 2021 , was 1,423,000 HHP, which was comprised of 50,000 HHP of our new Tier IV Dynamic Gas Blending ("DGB") equipment, 1,265,000 HHP of conventional Tier II equipment and 108,000 HHP of our new 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, in addition to several other changes to our customers' job designs, we believe that our available fleet capacity could decline if we decide to reconfigure our fleets to increase active HHP and backup HHP at the wellsites based on our customers' operational needs or as we retire and replace our conventional Tier II equipment. In 2019, we entered into a purchase commitment for 108,000 HHP of DuraStim® electric powered hydraulic fracturing equipment. During the second quarter of 2021, we increased the scope of our DuraStim® equipment field trials by increasing the number of DuraStim® pumps deployed to our customer's wellsites. As we continue with our field trials, the ideal number of DuraStim® pumps that constitute a fleet will depend on a combination of factors, including the ultimate operating performance of DuraStim® pumps following the completion of testing, the particular shale formation where a well is completed, customer service requirements and job design. The Company had set a goal to fully commercialize its first DuraStim® fleet in the second half of 2021, subject to the completion of successful testing. Largely due to supply chain disruptions impacting the continuing testing process, the timing for the Company's ultimate decisions regarding DuraStim® commercialization may be extended We also have an option to purchase up to an additional 108,000 HHP of DuraStim® hydraulic fracturing equipment in the future throughJuly 31, 2022 . We currently have two gas turbines, that could provide electrical power to our DuraStim® fleet. The electrical power sources for future DuraStim® fleets are still being evaluated and could be supplied by the Company or a third-party supplier. Our competitors include many large and small oilfield services companies, including Halliburton Company, Liberty Oilfield Services Inc., Nextier Oilfield Solutions Inc., Patterson-UTI Energy Inc., RPC, Inc., FTS International 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 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 our customers consider all of these factors, we believe price is a key factor in E&P companies' 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 capital requirements, and the continuing depressed pricing experienced by the service industry. While we seek to price our services competitively, we believe many of our customers elect to work with us based on our operational efficiencies, productivity, equipment quality, reliability, ability to manage complex logistics challenges, commitment to safety and the ability of our people to handle the most complexPermian Basin well completions. Our substantial market presence in thePermian Basin positions us well to capitalize on drilling and completion activity in the region. Primarily, our operational focus has been in thePermian Basin's Midland sub-basin, where our customers have operated. However, we are well-positioned to increase our activity in theDelaware sub-basin in response to demand from our customers. Over time, we expect thePermian Basin's Midland andDelaware 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 thePermian Basin . Our hydraulic fracturing fleet has been designed to handle Permian -19-
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Basin specific operating conditions and the region's increasingly high-intensity well completions (including simultaneous hydraulic fracturing), 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. We believe our coiled tubing services create operational efficiencies for our customers and 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 supply chain disruptions and inflation , political instability in oil producing countries, government regulations (both inthe United States and internationally), levels of consumer demand, adverse weather conditions, and other factors that are beyond our control. The global public health crisis associated with the COVID-19 pandemic has and could continue to have an adverse effect on global economic activity for the immediate future, has resulted in travel limitations, business closures and the institution of quarantining and other restrictions on movement and business operations in many communities. In 2020, the combined effect of COVID-19 and the energy industry disruptions led to a significant decline in WTI crude oil prices to approximately$21 per barrel at the end ofMarch 2020 . In 2021, with OPEC+ managing production levels, the development and administration of COVID-19 vaccines and the lifting of COVID-19 restrictions in certain areas (both inthe United States and internationally), there has been a significant recovery in the energy industry and overall economic activities from its lowest point in 2020. However, the demand for crude oil increased rapidly during the first half of 2021 and is expected to continue to increase, but there has been no significant increase in oil and gas production inthe United States , which has led to WTI crude oil prices increasing to approximately$72 as ofJuly 28, 2021 . The oil and gas industry has not fully recovered as evidenced by continued depressed pricing for most oilfield services, including our services, and shortages of skilled labor force in thePermian Basin . However, we still believe thePermian Basin , our primary area of operation, is the leading basin with the lowest break-even production cost inthe United States . Accordingly, thePermian Basin rig count increased significantly from approximately 124 at the beginning ofAugust 2020 to approximately 243 at the end ofJuly 2021 , according toBaker Hughes . 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. -20- --------------------------------------------------------------------------------
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. -21-
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Reconciliation of net income (loss) to Adjusted EBITDA (in thousands):
Three
Months Ended
Pressure Pumping All Other Total Net loss$ (809) $ (7,702) $ (8,511) Depreciation and amortization 32,256 987 33,243 Interest expense - 159 159 Income tax benefit - (3,697) (3,697) Loss (gain) on disposal of assets 15,379 (354) 15,025 Stock-based compensation - 2,909 2,909 Other expense - 302 302 Other general and administrative expense(1) - (3,737) (3,737) Adjusted EBITDA$ 46,826 $ (11,133) $ 35,693 Three
Months Ended
Pressure Pumping All Other Total Net loss$ (13,528) $ (12,392) $ (25,920) Depreciation and amortization 38,910 1,263 40,173 Interest expense - 791 791 Income tax benefit - (6,460) (6,460) Loss on disposal of assets 8,587 147 8,734 Stock-based compensation - 2,962 2,962 Other expense - 267 267 Other general and administrative expense(1) - 4,802 4,802 Retention bonus and severance expense 61 - 61 Adjusted EBITDA$ 34,030 $ (8,620) $ 25,410 -22-
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Months Ended
Pressure Pumping All Other Total Net loss$ (14,484) $ (14,402) $ (28,886) Depreciation and amortization 64,770 1,951 66,721 Interest expense - 335 335 Income tax benefit - (10,360) (10,360) Loss (gain) on disposal of assets 28,411 (335) 28,076 Stock-based compensation - 5,396 5,396 Other income - (1,487) (1,487) Other general and administrative expense (1) - (4,698) (4,698) Retention bonus and severance expense - 612 612 Adjusted EBITDA$ 78,697 $ (22,988) $ 55,709 Six
Months Ended
Pressure Pumping All Other Total Net loss$ (9,220) $ (24,504) $ (33,724) Depreciation and amortization 77,879 2,498 80,377 Impairment expense 15,559 1,095 16,654 Interest expense 1 2,071 2,072 Income tax benefit - (7,370) (7,370) Loss on disposal of assets 28,402 186 28,588 Stock-based compensation - 3,433 3,433 Other expense - 271 271 Other general and administrative expense (1) - 9,937 9,937 Retention bonus and severance expense 75 21 96 Adjusted EBITDA$ 112,696 $ (12,362) $ 100,334 (1)Other general and administrative expense, (net of reimbursement from insurance carriers) relates to nonrecurring professional fees paid to external consultants in connection with the Company's pendingSEC investigation and shareholder litigation, net of insurance recoveries. During the three and six months endedJune 30, 2021 , we received reimbursement of approximately$5.1 million and$6.7 million , respectively, from our insurance carriers in connection with theSEC investigation and shareholder litigation. -23- --------------------------------------------------------------------------------
Results of Operations
We conducted our business through three operating segments: hydraulic fracturing, cementing and coiled tubing. InMarch 2020 , the Company shut down its flowback operating segment and subsequently disposed of the assets for approximately$1.6 million . InSeptember 2020 , the Company disposed of all of its drilling rigs and ancillary assets for approximately$0.5 million and shut down its drilling operations. 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 and six months endedJune 30, 2021 was$6.5 million and$11.6 million , respectively. The corporate administrative expense for the three and six months endedJune 30, 2020 was$10.6 million and$20.9 million , respectively. Our hydraulic fracturing operating segment revenue approximated 93.7% and 93.5% of our pressure pumping revenue during the three and six months endedJune 30, 2021 , respectively. During the three and six months endedJune 30, 2020 , our hydraulic fracturing operating segment revenue approximated 89.7% and 93.7% of our pressure pumping revenue, respectively. The following table sets forth the results of operations for the periods presented: (in thousands, except for percentages) Three Months Ended Change June 30, Increase (Decrease) 2021 2020 $ % Revenue$ 216,887 $ 106,109 $ 110,778 104.4 % Less (Add): Cost of services (1) 162,837 68,193 94,644 138.8 % General and administrative expense (2) 17,529 20,331 (2,802) (13.8) % Depreciation and amortization 33,243 40,173 (6,930) (17.3) % Loss on disposal of assets 15,025 8,734 6,291 72.0 % Interest expense 159 791 (632) (79.9) % Other expense 302 267 35 13.1 % Income tax benefit (3,697) (6,460) (2,763) (42.8) % Net loss$ (8,511) $ (25,920) $ (17,409) (67.2) % Adjusted EBITDA (3)$ 35,693 $ 25,410 $ 10,283 40.5 % Adjusted EBITDA Margin (3) 16.5 % 23.9 % (7.4) % (31.0) % Pressure pumping segment results of operations: Revenue$ 213,461 $ 103,815 $ 109,646 105.6 % Cost of services$ 159,490 $ 65,991 $ 93,499 141.7 % Adjusted EBITDA (3)$ 46,826 $ 34,030 $ 12,796 37.6 % Adjusted EBITDA Margin (4) 21.9 % 32.8 % (10.9) % (33.2) % (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 idle fees of$1.0 million and$32.6 million for the three months endedJune 30, 2021 and 2020, 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. -24- --------------------------------------------------------------------------------
Three Months Ended
Revenues. Revenues increased 104.4%, or$110.8 million , to$216.9 million during the three months endedJune 30, 2021 , as compared to$106.1 million during the three months endedJune 30, 2020 . Our pressure pumping segment revenues increased 105.6%, or$109.6 million , for the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 . The increases were primarily attributable to the significant increase in demand for pressure pumping services, following the rebound from the depressed oil prices and slowdown in economic activity resulting from the COVID-19 pandemic. The increase in demand for our pressure pumping services resulted in a significant increase in our average effectively utilized fleet count to approximately 13.1 active fleets during the three months endedJune 30, 2021 from approximately 4.0 active fleets for the three months endedJune 30, 2020 . Included in our revenue for the three months endedJune 30, 2021 and 2020 was revenue generated from idle fees charged to our customer of approximately$1.0 million and$32.6 million , respectively. Revenues from services other than pressure pumping increased 49.3%, or$1.1 million , to$3.4 million for the three months endedJune 30, 2021 , as compared to$2.3 million for the three months endedJune 30, 2020 . The increase in revenue from services other than pressure pumping was primarily attributable to the increase in utilization experienced by our coiled tubing operations, which was driven by increased E&P completions activity following the rebound from the depressed oil prices and impact of the COVID-19 pandemic. Cost of Services. Cost of services increased 138.8%, or$94.6 million , to$162.8 million for the three months endedJune 30, 2021 , as compared to$68.2 million during the three months endedJune 30, 2020 . Cost of services in our pressure pumping segment increased$93.5 million for the three months endedJune 30, 2021 , as compared to the three months endedJune 30, 2020 . These increases were primarily attributable to the significantly increased activity levels resulting from the increased demand for our services following the rebound from the depressed oil prices and economic slowdown caused by the COVID-19 pandemic that negatively impacted E&P completions activity in 2020. As a percentage of pressure pumping segment revenues (including idle fees), pressure pumping cost of services was 74.7% for the three months endedJune 30, 2021 , as compared to 63.6% for the three months endedJune 30, 2020 . Our revenue during the three months endedJune 30, 2020 , included significant idle fee revenue. Excluding idle fees revenue of$1.0 million and$32.6 million recorded during the three months endedJune 30, 2021 and 2020, respectively, our pressure pumping cost of services as a percentage of pressure pumping revenues decreased to 75.1% during the three months endedJune 30, 2021 , as compared to 92.7% for the three months endedJune 30, 2020 . The decrease was a result of increased customer activity levels, which is consistent with our fleet utilization. General and Administrative Expenses. General and administrative expenses decreased 13.8%, or$2.8 million , to$17.5 million for the three months endedJune 30, 2021 , as compared to$20.3 million for the three months endedJune 30, 2020 . The net decrease was primarily attributable to a decrease in (i) nonrecurring advisory and professional fees of$8.5 million paid to external consultants in connection with the Company's pendingSEC investigation and shareholder litigation, (ii) legal and professional fees of$2.6 million , partially offset by net increases of$3.8 million in payroll expenses and 4.5 million in other remaining general and administrative expenses. Depreciation and Amortization. Depreciation and amortization decreased 17.3%, or$6.9 million , to$33.2 million for the three months endedJune 30, 2021 , as compared to$40.2 million for the three months endedJune 30, 2020 . The decrease was primarily attributable to the decrease in our fixed asset base, partly attributable to the impairment of certain fixed assets in 2020. Loss on Disposal of Assets. Loss on the disposal of assets increased 72.0%, or$6.3 million , to$15.0 million for the three months endedJune 30, 2021 , as compared to$8.7 million for the three months endedJune 30, 2020 . The increase was primarily attributable to the significant increase in utilization resulting in an increase in the operational intensity on our equipment. Upon sale or retirement of property and equipment, including certain major components of our pressure pumping equipment that are replaced, the cost and related accumulated depreciation are removed from the balance sheet and the net amount is recognized as loss on disposal of assets. Interest Expense. Interest expense decreased 79.9%, or$0.6 million , to$0.2 million for the three months endedJune 30, 2021 , as compared to$0.8 million for the three months endedJune 30, 2020 . The decrease in interest expense was primarily attributable to the decrease in our average debt balance during the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 . During the three months endedJune 30, 2021 , the Company had a zero debt balance, and the interest expense in the three months endedJune 30, 2021 , relates to the amortization of our capitalized loan origination cost. Other Expense. There was no significant change in other expense. Other expense was$0.3 million for the three months endedJune 30, 2021 , as compared to$0.3 million for the three months endedJune 30, 2020 . A significant portion of our other expense consists of our lender's commitment fees. -25- -------------------------------------------------------------------------------- Income Taxes. Total income tax benefit was$3.7 million resulting in an effective tax rate of 30.3% for the three months endedJune 30, 2021 , as compared to income tax expense of$6.5 million or an effective tax rate of 20.0% for the three months endedJune 30, 2020 . The income tax benefit recorded in the three months endedJune 30, 2021 is primarily attributable to the Company projecting a pre-tax loss in 2021 as compared to pre-tax income in 2020. Furthermore, the change in the effective tax rate from 20.0% to 30.3% in the three months endedJune 30, 2021 was primarily attributable to nondeductible expenses and discrete items such as stock compensation expense reducing the benefit recorded for the pre-tax loss. The following table sets forth the results of operations for the periods presented: (in thousands, except for percentages) Six Months Ended Change June 30, Increase (Decrease) 2021 2020 $ % Revenue$ 378,345 $ 501,178 $ (122,833) (24.5) % Less (Add): Cost of services (1) 286,215 369,041 (82,826) (22.4) % General and administrative expense (2) 37,731 45,269 (7,538) (16.7) % Depreciation and amortization 66,721 80,377 (13,656) (17.0) % Impairment expense - 16,654 (16,654) (100.0) % Loss on disposal of assets 28,076 28,588 (512) (1.8) % Interest expense 335 2,072 (1,737) (83.8) % Other (income)/expense (1,487) 271 1,758 (648.7) % Income tax benefit (10,360) (7,370) 2,990 40.6 % Net loss$ (28,886) $ (33,724) $ (4,838) (14.3) % Adjusted EBITDA (3)$ 55,709 $ 100,334 $ (44,625) (44.5) % Adjusted EBITDA Margin (3) 14.7 % 20.0 % (5.3) % (26.5) % Pressure pumping segment results of operations: Revenue$ 371,652 $ 490,735 $ (119,083) (24.3) % Cost of services$ 279,258 $ 360,215 $ (80,957) (22.5) % Adjusted EBITDA (3)$ 78,697 $ 112,696 $ (33,999) (30.2) % Adjusted EBITDA Margin (4) 21.2 % 23.0 % (1.8) % (7.8) % (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 idle fees of$5.3 million and$34.1 million for the six months endedJune 30, 2021 and 2020, 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. Six Months EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 Revenues. Revenues decreased 24.5%, or$122.8 million , to$378.3 million during the six months endedJune 30, 2021 , as compared to$501.2 million during the six months endedJune 30, 2020 . Our pressure pumping segment revenues decreased 24.3%, or$119.1 million , for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . The decreases were primarily attributable to the significant pricing discounts we provided our customers beginningApril 2020 , and in part due to substantially all of our customers directly sourcing certain consumables like sand, chemical, and diesel. Our average effectively utilized fleet count during the six months endedJune 30, 2021 , was approximately 11.7 active fleets, compared to 11.1 during the six months endedJune 30, 2020 . Included in our revenue for the six months endedJune 30, 2021 and 2020 was revenue generated from idle fees charged to our customer of approximately$5.3 million and$34.1 million , respectively. Revenues from services other than pressure pumping decreased 35.9%, or$3.8 million , to$6.7 million for the six months endedJune 30, 2021 , as compared to$10.4 million for the six months endedJune 30, 2020 . The decrease in revenues from services other than pressure pumping was primarily attributable to the disposal of our flowback operations inMarch 2020 . -26- -------------------------------------------------------------------------------- Cost of Services. Cost of services decreased 22.4%, or$82.8 million , to$286.2 million for the six months endedJune 30, 2021 , as compared to$369.0 million during the six months endedJune 30, 2020 . Cost of services in our pressure pumping segment decreased$81.0 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . These decreases were primarily attributable to the significant reduction in the consumables (like sand, chemical and diesel) we sourced for customers and also our cost optimization strategies following the depressed oil prices and economic slowdown caused by the COVID-19 pandemic. As a percentage of pressure pumping segment revenues (including idle fees), pressure pumping cost of services increased to 75.1% for the six months endedJune 30, 2021 , as compared to 73.4% for the six months endedJune 30, 2020 . The increase in our cost of services percentage was primarily attributable to pricing pressure on our services resulting in customer discounts, partially offset by the idle fees revenue. Excluding idle fees revenue of$5.3 million and$34.1 million recorded during the six months endedJune 30, 2021 and 2020, respectively, our pressure pumping cost of services as a percentage of pressure pumping revenues decreased to 76.2% during the six months endedJune 30, 2021 , as compared to 78.9% for the six months endedJune 30, 2020 . The decrease was a result of increased operational efficiencies and reduction in certain consumables provided to customers. General and Administrative Expenses. General and administrative expenses decreased 16.7%, or$7.5 million , to$37.7 million for the six months endedJune 30, 2021 , as compared to$45.3 million for the six months endedJune 30, 2020 . The net decrease was primarily attributable to a decrease in (i) nonrecurring advisory and professional fees of$14.6 million paid to external consultants in connection with the Company's pendingSEC investigation and shareholder litigation, (ii) legal and professional fees of approximately$2.7 million , which was partially offset by a net increase of approximately$9.0 million paid in payroll expenses, and$0.8 million in other remaining general and administrative expenses. Depreciation and Amortization. Depreciation and amortization decreased 17.0%, or$13.7 million , to$66.7 million for the six months endedJune 30, 2021 , as compared to$80.4 million for the six months endedJune 30, 2020 . The decrease was primarily attributable to the overall decrease in our fixed asset base in 2020, partly attributable to the impairment of certain fixed assets in 2020. Impairment Expense. There was no impairment expense during the six months endedJune 30, 2021 . During the six months endedJune 30, 2020 depressed market conditions, crude oil prices and negative near-term outlook for the utilization of certain of our equipment resulted in the Company recording an impairment expense of$16.7 million , of which$9.4 million relates to goodwill impairment and$7.2 million relates to property and equipment impairment. Loss on Disposal of Assets. Loss on the disposal of assets was relatively flat with a slight decrease of 1.8%, or$0.5 million , to$28.1 million for the six months endedJune 30, 2021 , as compared to$28.6 million for six months endedJune 30, 2020 . Interest Expense. Interest expense decreased 83.8%, or$1.7 million , to$0.3 million for the six months endedJune 30, 2021 , as compared to$2.1 million for the six months endedJune 30, 2020 . The decrease in interest expense was primarily attributable to the decrease in our average debt balance during the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 . Other (Income)/Expense. Other income increased to approximately$1.5 million for the six months endedJune 30, 2021 , as compared to$0.3 million in expense for the six months endedJune 30, 2020 . The increase in other income is primarily attributable to the net refund of approximately$2.1 million to the Company from the sales and excise and use tax audit and partially offset by an expense related to our lender's commitment fees during six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . Income Taxes. Total income tax benefit was$10.4 million resulting in an effective tax rate of 26.4% for the six months endedJune 30, 2021 , as compared to income tax expense of$7.4 million or an effective tax rate of 17.9% for the six months endedJune 30, 2020 . The income tax benefit recorded in the six months endedJune 30, 2021 is primarily attributable to the Company projecting a pre-tax loss in 2021 as compared to pre-tax income in 2020. Furthermore, the change in the effective tax rate from 17.9% to 26.4% in the six months endedJune 30, 2021 was primarily attributable to nondeductible expenses and discrete items such as stock compensation expense reducing the benefit recorded for the pre-tax loss. -27-
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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, if any. Our primary uses of cash will be to continue to fund our operations, support growth opportunities and satisfy future debt payments, if any. Our borrowing base, as redetermined monthly, is tied to 85.0% of eligible accounts receivable. Changes to our operational activity levels 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 ofJune 30, 2021 , we had no borrowings under our ABL Credit Facility, and our total liquidity was approximately$140.8 million , consisting of cash and cash equivalents of$72.7 million and$68.1 million of availability under our ABL Credit Facility. As ofJuly 28, 2021 , our total liquidity was approximately$140.0 million , consisting of cash and cash equivalents of$70.8 million and$69.2 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 led by depressed WTI crude oil prices, the Company experienced a significant decrease in its liquidity. In 2021, we have experienced a gradual recovery in the energy industry and crude oil prices resulting from the reduction in the COVID-19 infection rate following the administration of COVID-19 vaccines, which we believe will improve the demand for crude oil and consequently the demand for our pressure pumping services, thus improving our future liquidity. However, the current market conditions resulting from the COVID-19 pandemic could rapidly change and there could be a new outbreak of a COVID-19 variant or the vaccines may not be as effective as anticipated, which could negatively impact the demand for our services and our future revenue, results of operations and cash flows. There can be no assurance that 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 ABL Credit Facility, as amended, has a total borrowing capacity of$300 million (subject to the Borrowing Base limit), with a maturity date ofDecember 19, 2023 . The ABL Credit Facility has a borrowing base of 85% of monthly eligible accounts receivable less customary reserves (the "Borrowing Base"). The Borrowing Base as ofJune 30, 2021 was approximately$71.8 million and was approximately$72.9 million as ofJuly 28, 2021 . The ABL Credit Facility includes a Springing Fixed Charge Coverage Ratio to apply when excess availability is less than the greater of (i)10% of the lesser of the facility size or the Borrowing Base or (ii)$22.5 million . Under this facility we are required to comply, subject to certain exceptions and materiality qualifiers, with certain customary affirmative and negative covenants, including, but not limited to, covenants pertaining to our ability to incur liens, indebtedness, changes in the nature of our business, mergers and other fundamental changes, disposal of assets, investments and restricted payments, amendments to our organizational documents or accounting policies, prepayments of certain debt, dividends, transactions with affiliates, and certain other activities. Borrowings under the ABL Credit Facility are secured by a first priority lien and security interest in substantially all assets of the Company. Borrowings under the ABL Credit Facility accrue interest based on a three-tier pricing grid tied to availability, and we may elect for loans to be based on either LIBOR or base rate, plus the applicable margin, which ranges from 1.75% to 2.25% for LIBOR loans and 0.75% to 1.25% for base rate loans, with a LIBOR floor of zero. There were no borrowings under the ABL Credit Facility for the six months endedJune 30, 2021 . InJuly 2017 , theUnited Kingdom's Financial Conduct Authority , which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. At the present time, the ABL Credit Facility is subject to LIBOR rates but has a term that extends beyond the end of 2021 when LIBOR will be phased out. We have not yet pursued any technical amendment or other contractual alternative to address this matter. We are currently evaluating the potential impact of eventual replacement of the LIBOR interest rate, although our ABL Credit Facility agreement allows us to elect an alternative rate (base rate) to accrue interest. -28-
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Future Sources and Use of Cash and Contractual Obligations
Our future primary use of cash will be to fund capital expenditures. Capital expenditures for 2021 are projected to be primarily related to maintenance capital expenditures to support our existing assets, including costs to convert our existing conventional Tier II equipment to lower emissions Tier IV DGB equipment. We expect that our currently anticipated capital expenditures will be funded by existing cash, cash flows from operations, and, if needed, borrowings under our ABL Credit Facility. However, as noted elsewhere in this quarterly report, we will continually evaluate opportunities to improve our service offerings and other investment and acquisition opportunities that we believe would enhance the competitiveness of our business. Depending upon market conditions and other factors, we may issue equity and debt securities or take other actions necessary to fund our future investment or acquisitions. In addition, we have option agreements with our equipment manufacturer to purchase additional 108,000 HHP of DuraStim® hydraulic fracturing equipment throughJuly 31, 2022 . We believe the cost to acquire the DuraStim® hydraulic fracturing equipment will be comparable to our previously purchased DuraStim® hydraulic fracturing equipment. Currently, because of ongoing testing and commercialization efforts, we cannot reasonably determine whether or not we will exercise these options before they expire. 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 ofJune 30, 2021 . Cash and Cash Flows
The following table sets forth the historical cash flows for the six
months ended
Six Months Ended June 30, (in thousands) 2021 2020
Net cash provided by operating activities
Net cash used in investing activities$ (50,920)
Net cash used in financing activities$ (6,631)
Cash Flows From Operating Activities
Net cash provided by operating activities was$61.5 million for the six months endedJune 30, 2021 , compared to net cash provided by operating activities of$96.9 million for the six months endedJune 30, 2020 . The net decrease of$35.4 million was primarily due to decreased profitability and the timing of collections of our receivables from customers and payments to vendors. Our effectively utilized fleet count was relatively flat with a slight increase to approximately 11.7 active fleets during the six months endedJune 30, 2021 from approximately 11.1 active fleets for the six months endedJune 30, 2020 . Cash Flows From Investing Activities Net cash used in investing activities decreased to$50.9 million for the six months endedJune 30, 2021 , from$78.0 million for the six months endedJune 30, 2020 . The decrease was primarily attributable to the lower maintenance capital expenditures driven primarily by equipment redundancies. Cash Flows From Financing Activities Net cash used in financing activities was$6.6 million for the six months endedJune 30, 2021 , and net cash provided by financing activities was$130.6 million for the six months endedJune 30, 2020 . The net decrease in cash from financing activities during the six months endedJune 30, 2021 was primarily driven by no repayments of borrowings under our ABL Credit Facility, compared to repayment of borrowings under our ABL Credit Facility of$130 million during the six months endedJune 30, 2020 . Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of
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Critical Accounting Policies and Estimates
There have been no material changes during the six months endedJune 30, 2021 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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