What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-03-05 · 206 added, 346 removed, 741 unchanged (43% of the section changed)

8 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

10 unchanged sentences

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Related-party transactions — Refer to Note 13 to the financial statements

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Related-party transactions — Refer to Note 13 to the consolidated financial statements

Critical Audit Matter Description

The Company engages in various related party transactions, including leasing real estate, renting of equipment, purchasing assets, obtaining equipment maintenance and repair services, and providing pressure pumping and related services.

We identified related-party transactions as a critical audit matter because of the Company’s material weaknesses reported in the Company’s internal controls processes as of the year ended December 31, 2019, related to the identification and approval of transactions involving related parties or potential conflicts of interest.

result, of these previously identified internal control matters, we believe the risk that related-party transactions were not timely identified and properly disclosed by the Company in the financial statements was elevated and required us to exercise significant auditor judgment when designing and performing audit procedures on related-party transactions.

The Company engages in various related party transactions, including leasing real estate, renting equipment, purchasing assets, obtaining equipment maintenance and repair services, and providing pressure pumping and related services.

We identified related-party transactions as a critical audit matter because of the number of related-party transactions and potential conflicts of interest.

As a result, we believe the risk that related-party transactions were not timely identified and properly disclosed by the Company in the financial statements was elevated and required us to

exercise significant auditor judgment and an increased extent of effort when designing and performing audit procedures on related-party transactions.

How the Critical Audit Matter Was Addressed in the Audit

1 unchanged sentence

• We evaluated the completeness of related-party transactions by obtaining the Company’s list of related-party relationships and transactions and performing the following:

◦ Comparing it to public filings, external news, third-party information or research reports, selected vendor and customer websites, questionnaires completed by the Company’s directors and officers, and other sources.

◦ Comparing it to public filings, external news, third-party information or research reports, questionnaires completed by the Company’s directors and officers, and other sources.

◦ Searching for potential related-party transactions within the accounts receivable, accounts payable, and vendor listings master files and journal entries by searching for the name, vendor identification numbers, and customer identification numbers of the related parties.

3 unchanged sentences

Houston, Texas

March 5, 2021

February 25, 2022

We have served as the Company's auditor since 2013.

7 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated March 5, 2021 , expressed an unqualified opinion on those consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 25, 2022 , expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

15 unchanged sentences

Houston, Texas

March 5, 2021

February 25, 2022

PROPETRO HOLDING CORP.

8 unchanged sentences

Prepaid expenses

11,199 10,815

Other current assets

15 unchanged sentences

Operating lease liabilities

Finance lease liabilities

Accrued interest payable

Total current liabilities

2 unchanged sentences

61,052 75,340

LONG-TERM DEBT

NONCURRENT OPERATING LEASE LIABILITIES

7 unchanged sentences

844,829 835,115

Retained earnings

(Accumulated deficit) Retained earnings

( 18,630 ) 35,555

29 unchanged sentences

( 614 ) ( 2,383 ) ( 7,141 )

Other expense

Other Income /(expense)

873 ( 874 ) ( 717 )

Total other expense

Total other Income /(expense)

259 ( 3,257 ) ( 7,858 )

15 unchanged sentences

(In thousands)

Preferred Stock Common Stock

Shares Amount Preferred

Capital Shares Amount Additional

Shares Amount Additional

Capital Retained Earnings (Accumulated

3 unchanged sentences

Issuance of equity award—net 434 1 1,163 — 1,164

Issuance of common stock — — — 16,600 16 204,496 — 204,512

— — — — — — 173,862 173,862

Net income — — — 163,010 163,010

BALANCE - December 31, 2019 100,624 $ 101 $ 826,629 $ 142,575 $ 969,305

1 unchanged sentence

Issuance of equity awards—net 289 — — — —

Issuance of common stock — — — — — — — —

Net income — — — — — — 163,010 163,010

Tax withholdings paid for net settlement of equity — — ( 614 ) — ( 614 )

Net loss — — — ( 107,020 ) ( 107,020 )

BALANCE - December 31, 2020 100,913 $ 101 $ 835,115 $ 35,555 $ 870,771

Stock‑based compensation cost — — 11,519 — 11,519

— — — — — 9,100 — 9,100

Issuance of equity awards—net 2,524 2 4,015 — 4,017

— — — 289 — — — —

Tax withholdings paid for net settlement of equity — — ( 5,820 ) — ( 5,820 )

— — — — — — ( 107,020 ) ( 107,020 )

Net loss — — — ( 54,185 ) ( 54,185 )

BALANCE - December 31, 2021 103,437 $ 103 $ 844,829 $ ( 18,630 ) $ 826,302

12 unchanged sentences

Deferred income tax (benefit) expense ( 14,288 ) ( 27,701 ) 48,758

Amortization of deferred revenue rebate

Amortization of deferred debt issuance costs

29 unchanged sentences

Proceeds from borrowings

— 110,000 77,378

Repayments of borrowings

3 unchanged sentences

Proceeds from insurance financing

6,821 — 5,824

Repayments of insurance financing

( 5,473 ) ( 1,348 ) ( 4,547 )

Payment of debt issuance costs

— — ( 1,732 )

Proceeds from exercise of equity awards

4,017 — 1,164

Tax withholdings paid for net settlement of equity awards ( 5,820 ) ( 614 ) —

Net cash (used in) provided by financing activities

Net cash used in financing activities

( 7,276 ) ( 125,171 ) 56,345

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 80,264 ) 16,336 108,751

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 43,146 ( 80,264 ) 16,336

CASH AND CASH EQUIVALENTS — Beginning of year

18 unchanged sentences

The pressure pumping assets acquired included hydraulic fracturing pumps of 510,000 hydraulic horsepower ("HHP"), four coiled tubing units and the associated equipment maintenance facility.

In connection with the acquisition, we became a long-term service provider to Pioneer under a pressure pumping services agreement (the “Pioneer Services Agreement”), providing pressure pumping and related services for a term of up t o 10 years;

provid ed, that Pioneer has the right to terminate the Pioneer Services Agreement, in whole or in part, effective as of December 31 of each of the calendar years of 2022, 2024 and 2026.

In connection with the acquisition, we became a long-term service provider to Pioneer under a pressure pumping services agreement (the "Pioneer Services Agreement"), providing pressure pumping and related services for a term of up to 10 years;

provided, that Pioneer has the right to terminate the Pioneer Services Agreement, in whole or in part, effective as of December 31 of each of the calendar years of 2022, 2024 and 2026.

Pioneer can increase the number of committed fleets prior to December 31, 2022.

2 unchanged sentences

At the present, we have eight fleets committed to Pioneer.

Risks and Uncertainties

The global public health crisis associated with the COVID-19 pandemic has and is anticipated to continue to have an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities.

The slowdown in global economic activity attributable to COVID-19 has resulted in a dramatic decline in the demand for energy which directly impacts our industry and the Company.

In addition, global crude oil prices experienced a collapse starting in early March 2020 as a direct result of failed negotiations between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”).

As the breadth of the COVID-19 health crisis expanded throughout the month of March 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately.

The associated impact on the energy industry has been adverse and continued to be exacerbated by the depressed demand in the energy sector and uncertainty in global production levels.

In response to the global economic slowdown and depressed demand in the oil and gas industry, OPEC+ has made adjustments to production levels with the objective of rebalancing the energy market.

After the March 2020 failed negotiations, OPEC+ subsequently agreed to cut production by 7.7 million barrels of oil per day (“BOPD”).

In January 2021, OPEC+ reconvened to discuss the matter of production cuts in light of unprecedented disruption and supply and demand imbalances.

Agreements were reached to gradually increase production by 0.5 million BOPD, starting in January 2021, and adjusting the production reduction from 7.7 million BOPD to 7.2 million BOPD.

OPEC+ members have shown compliance with previously agreed upon production levels, and we have seen recovery in crude oil prices from its low point in 2020.

The combined effect of COVID-19 and the energy industry disruptions led to a decline in the West Texas Intermediate (“WTI”) crude oil prices of approximately 67 percent from the beginning of January 2020, when prices were approximately $62 per barrel, through the end of March 2020, when they were just above $20 per barrel.

Overall, with OPEC+ managing production levels and with the development and distribution of COVID-19 vaccines, there has been a gradual recovery in crude oil prices from the low point in March 2020.

However, with the uncertainty in the global market resulting from the COVID-19 pandemic, the risk that currently developed vaccines may not be successful in preventing the COVID-19 virus or the outbreak of a new virus, the global demand for crude oil could continue to be depressed and crude oil prices could decline.

As of March 3, 2021, the WTI price for

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND HISTORY (Continued)

a barrel of crude oil was approximately $62.

If the market continues to be depressed, the aforementioned factors are anticipated to have an adverse impact on the industry in general and our operations specifically.

Since March 2020, we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity.

The more significant actions that we have taken included:

(i) canceling substantially all of our growth capital projects, (ii) significantly reducing our maintenance expenditures and field level consumable costs, (iii) reducing our workforce to follow our activity levels, and (iv) negotiating more favorable payment terms with certain of our larger vendors and proactively managing our portfolio of accounts receivable.

SIGNIFICANT ACCOUNTING POLICIES

4 unchanged sentences

Use of Estimates — Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period.

Such estimates include, but are not limited to, allowance for credit losses, useful lives for depreciation of property and equipment, estimates of fair value of property and equipment, estimates related to fair value of reporting units for purposes of assessing goodwill, estimates related to deferred tax assets and liabilities, including any related valuation allowances, and estimates of fair value of stock‑based compensation and leases.

Such estimates include, but are not limited to, allowance for credit losses, useful lives for depreciation of property and equipment, estimates of fair value of property and equipment, estimates related to fair value of reporting units for purposes of assessing goodwill (if any), estimates related to deferred tax assets and liabilities, including any related valuation allowances, and estimates of fair value of stock‑based compensation.

Actual results could differ from those estimates.

1 unchanged sentence

The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

The following is a description of the principal activities, separated into our one reportable segment and “all other,” from which the Company generates its revenue.

The following is a description of the principal activities, aggregated into our one reportable segment—"Pressure Pumping" and "all other" category, from which the Company generates its revenue.

Pressure Pumping — Pressure pumping consists of downhole pumping services, which includes hydraulic fracturing (inclusive of acidizing services) and cementing.

Hydraulic fracturing is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of wellbores.

The process involves the injection of water, sand and chemicals under high pressure into formations.

Hydraulic fracturing contracts with our customer have one performance obligation, which is the contracted total stages, satisfied over time.

Hydraulic fracturing is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of shale wellbores.

The process involves the injection of water, sand and chemicals under high pressure into shale formations.

Our hydraulic fracturing contracts with our customers have one

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

performance obligation, which is the contracted total stages, satisfied over time.

We recognize revenue over time using a progress output, unit-of-work performed method, which is based on the agreed fixed transaction price and actual stages completed.

We believe that recognizing revenue based on actual stages completed faithfully depicts how our hydraulic fracturing services are transferred to our customers over time.

Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid is injected under pressure into formations to form or expand fissures.

Acidizing provides downhole solutions, and contracts with customers have one performance obligation, which is satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer.

In addition, certain of our hydraulic fracturing equipment is entitled to daily idle fee charges if a customer were to idle committed hydraulic fracturing equipment.

The Company recognizes revenue related to idle fee charges on a daily basis as the performance obligations are met.

Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid or similar chemicals are injected under pressure into formations to form or expand fissures.

Our acidizing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service or sale of acid or chemical when control is transferred to the customer.

Jobs for these services are typically short term in nature, with most jobs completed in less than a day.

1 unchanged sentence

Our cementing services use pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole.

Cementing involves well bonding solutions, and contracts with customers have one performance obligation, which is satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer.

Jobs for these services are

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

typically short term in nature, with most jobs completed in less than a day.

Our cementing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer.

Jobs for these services are typically short term in nature, with most jobs completed in less than a day.

We recognize cementing revenue at a point-in-time, upon completion of the performance obligation.

The transaction price for each performance obligation for all our pressure pumping services are fixed per our contract with customer.

All Other — All other services consist of coiled tubing operations, which are downhole well completion/remedial services.

The performance obligation for each of the services has a fixed transaction price which is satisfied at a point-in-time upon completion of the service when control is transferred to the customer.

The transaction price for each performance obligation for all our pressure pumping services is fixed per our contracts with our customers.

All Other — All other consists of coiled tubing operations, which are downhole well completion/remedial services.

The performance obligation for these services has a fixed transaction price which is satisfied at a point-in-time upon completion of the service when control is transferred to the customer.

Accordingly, we recognize revenue at a point-in-time, upon completion of the service and transfer of control to the customer.

Accounts Receivable — Accounts receivables are stated at the amount billed and billable to customers.

Payment is typically due in full, upon completion of the job for all of our services to customers.

At December 31, 2021 and 2020 accrued revenue (unbilled receivable) included as part of our accounts receivable was $ 19.4 million and $ 8.6 million, respectively.

At December 31, 2020, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing operations was $ 14.7 million, which is expected to be completed and recognized in approximately one month following the current period balance sheet date, in our pressure pumping reportable segment.

At December 31, 2021, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing operations was $ 16.8 million, which is expected to be completed and recognized within one month following the current period balance sheet date, in our pressure pumping reportable segment.

At December 31, 2020 the transaction price allocated to the remaining performance obligation for our then partially completed hydraulic fracturing operations was $ 14.7 million, which was recorded as part of our pressure pumping segment revenue for the year ended December 31, 2021.

As of December 31, 2021, the Company had $ 0.2 million allowance for credit losses.

Our allowance for credit losses is based on the evaluation of both our historic collection experience and the expected impact of currently deteriorating economic conditions in the oil and gas industry.

We evaluated the historic loss experience on our accounts receivable and also considered separately customers with receivable balances that may be negatively impacted by current economic developments and market conditions.

Our allowance for credit losses is based on the evaluation of both our historic collection experience and economic outlook for the oil and gas industry.

While the Company has not experienced significant credit losses in the past and has not yet seen material changes to the payment patterns of its customers, the Company cannot predict with any certainty the degree to which the impacts of the COVID-19 pandemic, including the potential impact of periodically adjusted borrowing base limits, level of hedged production, or unforeseen well shut-downs may affect the ability of its customers to timely pay receivables when due.

Accordingly, in future periods, the Company may revise its estimates of expected credit losses.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

The table below shows a summary of allowance for credit losses during the year ended December 31, 2021:

($ in thousands)

1 unchanged sentence

Balance - January 1, 2021 $ 1,497 $ 1,049 $ 100

Provision for credit losses during the period 4,291 949 114

Provision for credit losses no longer required ( 3,843 ) — ( 457 )

Provision for credit losses during the period—net 282 448 949

Write-off during the period ( 1,562 ) — —

Balance - December 31, 2021 $ 217 $ 1,497 $ 1,049

4 unchanged sentences

Leasehold improvements

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

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, less proceeds from disposal, is recognized as a gain or loss in the statement of operations.

A significant portion of our loss on disposal of assets relates to replacement of major components like fluid and power ends.

The Company recorded a loss on disposal of assets of $ 64.6 million , $ 58.1 million and $ 106.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

2 unchanged sentences

In this circumstance, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset group exceeds the fair value of the asset group.

No impairment expense was recorded during the year ended December 31, 2021.

Property and equipment impairment loss of $ 27.5 million and $ 1.1 million was recorded during the year ended December 31, 2020 relating to our pressure pumping and drilling assets, respectively.

Property and equipment impairment loss of $ 1.2 million and $ 2.2 million was recorded during the year ended December 31, 2019 relating to our drilling and flowback asset groups, respectively.

No impairment expense was recorded during the year ended December 31, 2018.

Our drilling and flowback asset groups are included in the “all other” category in our reportable segment disclosure.

5 unchanged sentences

If the fair value of the reporting unit exceeds the carrying value, no further testing is performed.

If the fair value of the reporting unit is less than the carrying value, we consider goodwill to be impaired, and the amount of impairment loss is estimated and recorded in the statement of operations.

If the fair value of the reporting unit is less

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

than the carrying value, we consider goodwill to be impaired, and the amount of impairment loss is estimated and recorded in the statement of operations.

In 2011, we acquired Technology Stimulation Services, LLC ("TSS") for $ 24.4 million.

2 unchanged sentences

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets and liabilities assumed were recorded at their fair values as of the acquisition date.

There were no additions to goodwill during the y ear ended December 31, 2021.

In the first quarter of 2020, we performed an interim impairment test and concluded that goodwill was fully impaired.

As a result of our interim impairment test, we recorded goodwill impairment expense of $ 9.4 million during the year ended December 31, 2020.

Based on our goodwill impairment tests as of December 31, 2019 and 2018, we concluded that the goodwill related to TSS acquisition was no t impaired.

As a result of our interim impairment test during the first quarter of 2020, we recorded goodwill impairment expense of $ 9.4 million during the year ended December 31, 2020, which fully wrote off our goodwill carrying value.

There were no good will impairments during the year ended December 31, 2019.

Intangible Assets — Intangible assets with finite useful lives are amortized on a basis that reflects the pattern in which the economic benefits of the intangible assets are realized, which is generally on a straight‑line basis over the asset’s estimated useful life.

3 unchanged sentences

We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized.

In making such a determination, we consider all positive and negative evidence, including future reversals

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

of existing taxable temporary differences, projected future taxable income, and the results of recent operations.

In making such a determination, we consider all positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and the results of recent operations.

If we determine that we would not be able to fully realize our deferred tax assets in the future, we would record a valuation allowance.

8 unchanged sentences

Total compensation cost is measured on the grant date using fair value estimates.

Insurance Financing — The Company annually renews its commercial insurance policies and records a prepaid insurance asset and amortizes it monthly over the coverage period.

The Company may choose to finance a portion of the premiums and will make repayments monthly over the financing period in equal installments.

Insurance Financing — The Company annually renews its commercial insurance policies, and may choose to either directly pay the insurance premium or finance a portion of the premium.

If the Company finances a portion of the premium, a prepaid insurance asset is recorded and amortized monthly over the relevant period.

Concentration of Credit Risk — The Company’s assets that are potentially subject to concentrations of credit risk are cash and cash equivalents and trade accounts receivable.

1 unchanged sentence

The Company monitors the financial condition of the financial institutions in which accounts are maintained and has not experienced any losses in such accounts.

The receivables of the Company are spread over a number of customers, a majority of which are credible operators and suppliers to the oil and natural gas industries.

The receivables of the Company are with credible operators in the oil and natural gas industries.

The Company performs ongoing evaluations as to the financial condition of its customers with respect to trade receivables.

Recently Issued Accounting Standards Adopted in 2020

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments-Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments , which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses.

The new impairment model applies to most financial assets, including trade accounts receivable and lease receivables.

In November 2018, the FASB issued ASU No.

2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses , which clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification (“ASC”) 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost , and should be accounted for in accordance with ASC 842.

ASU 2016-13 and ASU 2018-19 are effective for annual periods beginning after December 15, 2019.

Effective January 1, 2020, the Company adopted ASU 2016-13 using the modified-retrospective approach, which allows for a cumulative-effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective.

Periods prior to the adoption date that are presented for comparative purposes were not adjusted.

The Company continuously evaluates customers based on risk characteristics, such as historical losses and current economic conditions.

Due to the cyclical nature of the oil and gas industry, the Company often evaluates its customers’ estimated losses on a combination of historical losses and on case-by-case basis.

There was no material impact to our consolidated financial statements as a result of adoption of ASU 2016-13.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement , which eliminates, adds and modifies certain disclosure requirements for fair value measurements.

The Company adopted ASU 2018-13 on January 1, 2020 and determined the adoption of this standard did not impact the Company’s consolidated financial statements.

PROPETRO HOLDING CORP.

1 unchanged sentence

SIGNIFICANT ACCOUNTING POLICIES (Continued)

In January 2017, the FASB issued ASU No.

2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment , which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test.

As a result, under this ASU, an entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, although the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

This ASU is effective for impairment tests in fiscal years beginning after December 15, 2019, on a prospective basis.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

Effective January 1, 2020, we adopted this guidance and the adoption did not materially affect the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted in 2020

In December 2019, the FASB issued ASU No.

Recently Issued Accounting Standards Adopted in 2021

In December 2019, the FASB Accounting Standards Update ("ASU") issued ASU No.

2019-12, Income Taxes (Topic 740):

2 unchanged sentences

ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company does not expect ASU 2019-12 to have a material effect on the Company’s consolidated financial statements.

Effective January 1, 2021, we adopted this guidance and the adoption did not materially affect the Company’s condensed consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted in 2021

In March 2020, the FASB issued ASU No.

22 unchanged sentences

The hierarchy is broken down into three levels based on the observability of inputs as follows:

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS (Continued)

Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

2 unchanged sentences

Level 2 — Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS (Continued)

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

2 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Our financial instruments include cash and cash equivalents, accounts receivable and accounts payable, accrued liabilities and long-term debt.

The estimated fair value of our financial instruments — cash and cash equivalent, accounts receivable and accounts payable and accrued liabilities at December 31, 2020 and 2019 approximated or equaled their carrying value as reflected in our consolidated balance sheets because of their short‑term nature.

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued and other current liabilities, and long-term debt (if any).

The estimated fair value of our financial instruments at December 31, 2021 and 2020 approximated or equaled their carrying value as reflected in our consolidated balance sheets.

Assets Measured at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis at December 31, 2020 and 2019, respectively, are set forth below ($ in thousands):

Estimated fair value measurements

Quoted prices in

active market

Significant other

observable inputs

Significant other

unobservable inputs

Property and equipment, net

$ — $ — $ — $ —

Property and equipment, net

$ 2,000 $ — $ 2,000 $ —

Whenever events or circumstances indicate that the carrying value of long‑lived assets may not be recoverable, the Company reviews the carrying value of long‑lived assets, such as property and equipment and other assets to determine if they are recoverable.

If any long‑lived assets are determined to be unrecoverable, an impairment is recorded in the period.

Asset recoverability is estimated using undiscounted future net cash flows at the lowest identifiable level, excluding interest expense and nonrecurring other income and expense adjustments.

During the year, the Company determined the lowest level of identifiable cash flows to be at the asset group level.

In the first quarter of 2020, we determined that the carrying value of our Permian drilling assets were greater than its estimated fair value because of the negative future near-term outlook resulting from the continued idling of our Permian drilling assets and the depressed market conditions .

Our fair value estimate for our drilling assets was determined using a market transaction, which represents a level 2 in the fair value measurement hierarchy.

Accordingly, an impairment expense of $ 1.1 million was recorded for our Permian drilling assets during the year ended December 31, 2020.

Prior to the impairment expense, our Permian drilling net carrying value was $ 1.8 million.

During the fourth quarter of 2020, we shut down our drilling operations and disposed all of the drilling assets.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS (Continued)

In 2019, the Company entered an agreement with its equipment manufacturer granting the Company the option to purchase an additional 108,000 hydraulic horsepower (“HHP”) of DuraStim® equipment, with the purchase option expiring at different times throu gh July 31, 2022, as amended.

The option fee of $ 6.1 million, classified as a deposit for property and equipment as part of our pressure pumping reportable segment, was fully impaired and written off in the first quarter of 2020 because it was not probable that the Company will exercise the option to purchase the equipment given the depressed crude oil prices and other market conditions that have resulted in a decline in the demand for our hydraulic fracturing services.

The estimated fair value of our DuraStim® equipment option was based on unobservable inputs, which represents a level 3 in the fair value measurement hierarchy.

Prior to the impairment expense, our carrying value for the option fee equipment deposit was $ 6.1 million.

As of December 31, 2020, we have fully impaired the carrying value of the equipment deposit related to the option fees.

In light of the energy industry transition to lower emissions equipment, the Company made a strategic decision to retire approximately 150,000 HHP of conventional Tier II pressure pumping equipment.

As of December 31, 2020, we recorded an impairment expense of approximately $ 21.3 million, which is a full write-off of the net carrying value of the conventional Tier II pressure pumping equipment that we are reasonably certain will be permanently retired, in our pressure pumping reportable segment.

The total non-cash property and equipment impairment charges recorded during the years ended December 31, 2020, 2019 and 2018 in our hydraulic fracturing, flowback and drilling segments was $ 28.6 million, $ 3.4 million and $ 0 , respectively.

We generally apply fair value techniques to our reporting units on a nonrecurring basis associated with valuing potential impairment loss related to goodwill.

There was no impairment of assets during the year ended December 31, 2021.

During the year ended December 31, 2020, we recorded property and equipment impairment loss of approximately $ 28.6 million in connection with the depressed utilization of our pressure pumping and drilling assets .

During the year ended December 31, 2019, we recorded property and equipment impairment loss of approximately $ 3.4 million in connection with our drilling and flowback assets, in our “all other” segment.

We generally apply fair value techniques to our reporting units on a nonrecurring basis associated with valuing potential impairment loss related to goodwill, if any.

Our estimate of the reporting unit fair value is based on a combination of income and market approaches, Level 1 and 3, respectively, in the fair value hierarchy.

8 unchanged sentences

Accordingly, we recorded a goodwill impairment expense of $ 9.4 million in March 2020, resulting in a full write off of our goodwill.

Based on our annual goodwill impairment test on December 31, 2019 and 2018, we determined that there was no impairment of goodwill.

There were no good will impairment during the year ended December 31, 2019.

PROPETRO HOLDING CORP.

15 unchanged sentences

LONG‑TERM DEBT

ABL Credit Facility

Asset-Based Loan ( " ABL ") Credit Facility

Our revolving credit facility ("ABL Credit Facility"), as amended, has a total borrowing capacity of $ 300 million (subject to the Borrowing Base limit), with a maturity date of December 19, 2023.

The ABL Credit Facility has a borrowing base, as determined monthly, of 85 % of monthly eligible accounts receivable less customary reserves (the “Borrowing Base”).

The ABL Credit Facility has a borrowing base of 85 % of monthly eligible accounts receivable less customary reserves (the "borrowing base"), as redetermined monthly.

The borrowing base as of December 31, 2021 was approximately $ 61.1 million.

3 unchanged sentences

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 .

The weighted average interest rate for our borrowings under the ABL Credit Facility for the year ended December 31, 2020 was 3.6 %.

The loan origination costs relating to the ABL Credit Facility are classified as an asset in the balance sheet.

The fair value of the ABL Credit Facility approximates its carrying value.

In March 2020, we obtained a waiver from our lenders under the ABL Credit Facility to extend the time period for us to provide our lenders the Company’s audited financial statements for the year ended December 31, 2019 to July 31, 2020, which we have provided to our lenders.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total debt consisted of the following:

($ in thousands)

ABL Credit Facility

$ — $ 130,000

Total debt — 130,000

Less current portion of long-term debt

Total long-term debt

$ — $ 130,000

There were no borrowings under the ABL Credit Facility as of December 31, 2021, and 2020.

ACCRUED AND OTHER CURRENT LIABILITIES

6 unchanged sentences

$ 20,767 $ 24,676

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EMPLOYEE BENEFIT PLAN

The Company has a 401(k) plan, modified effective January 1, 2019, whereby all employees with sixty days of service may contribute up to $ 19,500 to the plan annually.

The Company has a 401(k) plan, modified effective January 1, 2019, and the Company matches 100 % of the employee contributions up to 6 % of gross salary, up to the annual limit.

The employees vest in the Company contributions to the 401(k) plan 25 % per year, beginning in the employee’s first year of service, with full vesting occurring after four years of service.

The employees are fully vested in their contributions when made.

The Company matches 100 % of the employee contributions up to 6 % of gross salary, up to the annual limit.

Effective April 1, 2022, the Company modified its 401(k) plan to allow for immediate vesting of the Company’s contributions.

During the years ended December 31, 2021, 2020 and 2019, the recorded expense under the plan was $ 2.8 million, $ 2.1 million and $ 3.0 million, respectively.

1 unchanged sentence

The Company has three operating segments for which discrete financial information is readily available:

hydraulic fracturing, cementing and coiled tubing.

hydraulic fracturing (inclusive of acidizing), cementing and coiled tubing.

These operating segments represent how the Chief Operating Decision Maker evaluates performance and allocates resources.

In December 2021, the Company disposed of two turbine generators included in our pressure pumping reportable segment for total cash proceeds of approximately $ 36.0 million.

The net book value of the two turbines prior to the disposal was approximately $ 39.5 million, resulting in loss on disposal of approximately $ 3.5 million.

In September 2020, the Company shut down its drilling operations and disposed of all of its drilling rigs and ancillary assets for approximately $ 0.5 million.

1 unchanged sentence

Our drilling and flowback operations were included in our “all other” category.

In August 2018, we divested our surface air drilling operations, included in our “all other” category.

The divestiture or disposal of our surface drilling assets did not qualify for presentation and disclosure as discontinued operations, and accordingly, during the year ended December 31, 2018, we recorded the resulting loss associated with the asset disposal of $ 0.3 million as part of our loss on disposal of asset in our consolidated statement of operations.

The shutdown of these operations resulted in a reduction in the number of our current operating segments to three .

The shutdown of the drilling and flowback operations resulted in a reduction in the number of our current operating segments to three .

The change in the number of our operating segments did not impact our reportable segment information reported for the years presented.

In accordance with ASC 280— Segment Reporting , the Company has one reportable segment (pressure pumping) comprised of the hydraulic fracturing and cementing operating segments.

All other operating segments and corporate administrative expense (inclusive of our stock-based compensation expense, income tax expense and interest expense) are included in the ‘‘all other’’ category in the tables below.

In accordance with FASB ASC 280— Segment Reporting , the Company has one reportable segment (pressure pumping) comprised of the hydraulic fracturing and cementing operating segments.

The coiled tubing operating segment and corporate administrative expense (inclusive of our total income tax expense (benefit), other (income) and expense and interest expense) are included in the "all other" category in the tables below.

Total corporate administrative expense for the years ended December 31, 2021, 2020 and 2019 was $ 38.5 million , $ 31.6 million and $ 113.0 million, respectively.

Our hydraulic fracturing operating segment revenue approximated 93.3 %, 94.2 % and 95.6 % of our pressure pumping revenue for the years ended December 31, 2021, 2020 and 2019, respectively.

Inter-segment revenues are not material and are not shown separately in the table below.

The Company manages and assesses the performance of the reportable segment by its adjusted EBITDA (earnings before other income (expense), interest expense, income taxes, depreciation and amortization, stock-based compensation expense, severance and related expense, impairment expense, (gain)/loss on disposal of assets and other unusual or nonrecurring expenses or (income)).

PROPETRO HOLDING CORP.

1 unchanged sentence

REPORTABLE SEGMENT INFORMATION (Continued)

Our hydraulic fracturing operating segment revenue approximated 94.2 %, 95.6 % and 95.4 % of our pressure pumping revenue for the years ended December 31, 2020, 2019 and 2018, respectively.

Inter-segment revenues are not material and are not shown separately in the table below.

The Company manages and assesses the performance of the reportable segment by its adjusted EBITDA.

We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization (EBITDA), plus (i) loss/(gain) on disposal of assets, (ii) loss/(gain) on extinguishment of debt, (iii) stock-based compensation, and (iv) other unusual or nonrecurring (income)/expenses, such as impairment charges, severance, costs related to our initial public offering (“IPO”), costs related to asset acquisitions, costs related to SEC investigation and class action lawsuits and one-time professional fees.

A reconciliation from segment level financial information to the consolidated statement of operations is provided in the table below (in thousands):

6 unchanged sentences

$ 129,478 $ 3,899 $ 133,377

Impairment expense

$ 36,907 $ 1,095 $ 38,002

Capital expenditures

12 unchanged sentences

$ 78,154 $ 3,091 $ 81,245

$ 9,425 $ — $ 9,425

Total assets $ 1,009,631 $ 41,108 $ 1,050,739

6 unchanged sentences

$ 139,348 $ 5,956 $ 145,304

Impairment expense $ — $ 3,405 $ 3,405

Capital expenditures

7 unchanged sentences

Year ended December 31, 2021

Net income (loss)

$ ( 68,271 ) $ ( 38,749 ) $ ( 107,020 )

Net loss $ ( 12,723 ) $ ( 41,462 ) $ ( 54,185 )

Depreciation and amortization

1 unchanged sentence

Interest expense

1 2,382 2,383

Income tax benefit — ( 14,252 ) ( 14,252 )

Loss on disposal of assets

56,659 1,477 58,136

Impairment expense 36,907 1,095 38,002

Loss (gain) on disposal of assets 64,903 ( 257 ) 64,646

Stock‑based compensation

— 11,519 11,519

Other expense

Other income — ( 873 ) ( 873 )

Other general and administrative expense (1)

— ( 6,471 ) ( 6,471 )

Retention bonus and severance expense 75 1,065 1,140

Severance expense 30 602 632

Adjusted EBITDA

2 unchanged sentences

Year ended December 31, 2020

Net income (loss)

$ 281,090 $ ( 118,080 ) $ 163,010

Net loss $ ( 68,271 ) $ ( 38,749 ) $ ( 107,020 )

Depreciation and amortization

2 unchanged sentences

1 2,382 2,383

Income tax expense

— 50,494 50,494

Income tax benefit — ( 27,480 ) ( 27,480 )

Loss on disposal of assets

6 unchanged sentences

— 13,038 13,038

Deferred IPO bonus, retention bonus and severance expense 7,093 2,110 9,203

Retention bonus and severance expense 75 1,065 1,140

Adjusted EBITDA

9 unchanged sentences

Income tax expense — 50,494 50,494

— 51,255 51,255

Loss on disposal of assets

106,178 633 106,811

Impairment expense — 3,405 3,405

Stock‑based compensation

2 unchanged sentences

Other general and administrative expense (1)

Deferred IPO bonus

— 25,208 25,208

Deferred IPO bonus, retention bonus and severance expense 7,093 2,110 9,203

Adjusted EBITDA

$ 533,760 $ ( 14,691 ) $ 519,069

(1) During the years ended December 31, 2020 and 2019, other general and administrative expense primarily relates to nonrecurring professional fees paid to external consultants in connection with the Company’s expanded audit committee review, SEC investigation and shareholder litigation.

All nonrecurring professional fees incurred after the end of June 2020 are in connection with the pending SEC investigation and shareholder litigation.

The other general and administrative expense during the year ended December 31, 2018 primarily relates to legal settlements.

(1) During the years ended December 31, 2021, 2020 and 2019, 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 years ended December 31, 2021, 2020 and 2019, we received reimbursement of approximately $ 9.8 million, $ 0.6 million and $ 0 , respectively, from our insurance carriers in connection with the SEC investigation and shareholder litigation.

PROPETRO HOLDING CORP.

47 unchanged sentences

(the "Stock Option Plan") pursuant to which our Board of Directors may grant stock options to our consultants, directors, executives and employees.

No awards have been granted under the Stock Option Plan following our IPO, and no further awards will be granted under the Stock Option Plan.

No awards have been granted under the Stock Option Plan following our Initial Public Offering ("IPO"), and no further awards will be granted under the Stock Option Plan.

2017 Incentive Award Plan

1 unchanged sentence

2017 Incentive Award Plan (the "2017 Incentive Plan") pursuant to which our Board of Directors was authorized to grant stock options, restricted stock units ("RSUs"), performance stock units ("PSUs"), or other stock-based and cash awards to consultants, directors, executives and employees.

The 2017 Incentive Plan originally authorized up to 5,800,000 shares of common stock to be issued under awards granted pursuant to the plan.

The 2017 Incentive Plan originally authorized up to 5,800,000 shares of common stock to be issued with respect to awards granted pursuant to the plan.

No awards have been granted under the 2017 Incentive Plan following approval of the 2020 Incentive Plan (as defined below), and no further awards will be granted under the 2017 Incentive Plan.

2020 Long Term Incentive Plan

2 unchanged sentences

The 2020 Incentive Plan authorizes up to 4,650,000 shares of common stock to be issued under awards granted pursuant to the plan.

The 2020 Incentive Plan became effective October 22, 2020, and as of such date no further awards will be granted under the 2017 Incentive Plan on or after October 22, 2020.

The 2020 Incentive Plan became effective October 22, 2020, and as of such date no further awards will be granted under the 2017 Incentive Plan.

The 2017 Incentive Plan and the 2020 Incentive Plan are herein collectively referred to as the "Incentive Plans".

16 unchanged sentences

As of December 31, 2021, the aggregate intrinsic value for our outstanding stock options was $ 1.6 million, and the aggregate intrinsic value for our exercisable stock options was $ 1.6 million.

There were no exercises of stock options during the year ended December 31, 2020.

The remaining contractual term for the outstanding and exercisable stock options as of December 31, 2020, was 2.5 years and 2.4 years, respectively.

On March 13, 2020, the Company modified the stock options previously granted to two former officers in connection with one such former officer’s separation agreement and the other former officer’s amended employment arrangement.

Such modifications extended the exercise period such that all vested but unexercised stock options held by such former officers shall not be forfeited or cancelled on the ninety-first day following the former officers’ respective separation dates but rather shall remain outstanding and exercisable until the one-year anniversary of such former officers’ separation date.

In connection with a former officer’s separation agreement, on December 31, 2020, the Company modified the stock options previously granted to such former officer to (i) accelerate the vesting of the stock options granted to such former officer in 2017 pursuant to the 2017 Incentive Plan and (ii) extend the exercise period applicable to all vested but unexercised stock options held by such former officer such that all such stock options shall not be forfeited or cancelled on the ninety-first day following the former officer’s separation date but rather shall remain outstanding and exercisable until June 14, 2023.

As a result of these modifications, we recorded an incremental stock expense of $ 2.0 million during the year ended December 31, 2020.

For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $ 2.3 million, $ 0.5 million and $ 0.6 million, respectively, in compensation expense related to stock options.

A summary of the stock option activity during the year ended December 31, 2020 is presented below:

The aggregate intrinsic value for the exercised stock options during the year ended December 31, 2021 was $ 19.8 million.

The remaining contractual term for the outstanding and exercisable stock options as of December 31, 2021, w as 4.1 years and 4.1 years , respectively.

A summary of the stock option activity during the year ended December 31, 2021 is presented below (in thousands, except for exercise price):

Outstanding at January 1, 2021 4,200 $ 4.82

4 unchanged sentences

Restricted Stock Units

In 2020, we granted 1,185,832 RSUs to key employees, officers and directors pursuant to the Incentive Plan, which generally vest ratably over a three-year vesting period, in the case of awards to employees and officers, and generally vest in full after one year, in the case of awards to directors.

In 2021, we granted 851,885 RSUs to employees, officers and directors pursuant to the 2020 Incentive Plan, which generally vest ratably over a three-year vesting period, in the case of awards to employees and officers, and generally vest in full after one year, in the case of awards to directors.

RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award.

Each RSU represents the right to receive one share of common stock.

The grant date fair value of the RSUs was based on the closing share price of our common stock on the date of grant.

Each RSU represents the right to receive either one share of common stock or, as determined by the administrator in its sole discretion, a cash amount equal to the fair market value of one share of common stock on the day immediately preceding the settlement date.

The grant date fair value of the RSUs is based on the closing share price of our common stock on the date of grant.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized stock compensation expense for RSUs of approximately $ 6.2 million, $ 5.1 million and $ 3.5 million, respectively.

As of December 31, 2021, the total unrecognized compensation expense for all RSUs was approximately $ 7.4 million, and is expected to be recognized over a weighted-average period of approximately 1.8 years.

PROPETRO HOLDING CORP.

1 unchanged sentence

STOCK‑BASED COMPENSATION (Continued)

On October 30, 2020, the Company modified the RSUs previously granted to a former officer in 2019 and 2020 to accelerate the vesting of such RSUs in connection with his separation agreement.

On December 31, 2020, the Company modified the RSUs previously granted to a former officer in 2018, 2019 and 2020 to accelerate the vesting of such RSUs in connection with his separation agreement.

As a result of these modifications, we recorded an incremental stock expense of $ 0.1 million during the year ended December 31, 2020.

As of December 31, 2020, the total unrecognized compensation expense for all RSUs was approximately $ 5.9 million, and is expected to be recognized over a weighted-average period of approximately 1.8 years.

The following table summarizes the RSUs activity during the year December 31, 2020:

The following table summarizes the RSUs activity during the year December 31, 2021 (in thousands, except for fair value):

Shares Weighted

7 unchanged sentences

Performance Stock Units

In 2020, we granted 1,007,058 PSUs (excluding PSUs that were administratively cancelled and regranted) to certain key employees and officers as new awards under the 2017 Incentive Plan.

The actual number of shares of common stock that may be issued under the PSUs ranges from zero up to a maximum of 200 % of the target number of PSUs granted to the participant, based on our total shareholder return (“TSR”) relative to a designated peer group from January 1, 2020 through December 31, 2022.

In 2021, we granted 650,774 P SUs to certain key employees and officers as new awards under the 2020 Incentive Plan.

Each PSU earned represents the right to receive either one share of common stock or, as determined by the administrator in its sole discretion, a cash amount equal to the fair market value of one share of common stock or amount of cash on the day immediately preceding the settlement date.

The actual number of shares of common stock that may be issued under the PSUs ranges from 0 % up to a maximum of 200 % of the target number of PSUs granted to the participant, based on our total shareholder return ("TSR") relative to a designated peer group, generally at the end of a three-year period.

In addition to the TSR conditions, vesting of the PSUs is generally subject to the recipient’s continued employment through the end of the applicable performance period.

Compensation expense is recorded ratably over the corresponding requisite service period.

The grant date fair value of PSUs was determined using a Monte Carlo probability model.

The grant date fair value of PSUs is determined using a Monte Carlo probability model.

Grant recipients do not have any shareholder rights until performance relative to the peer group has been determined following the completion of the performance period and shares have been issued.

In connection with a former officer’s separation agreement, on October 30, 2020, the Company modified the PSUs previously granted to such former officer in 2019 and 2020 to provide for deemed satisfaction of the service requirement applicable to such PSUs as of October 30, 2020 such that such PSUs shall remain outstanding and eligible to vest based on our TSR relative to a designated peer group over the applicable performance period.

In connection with a former officer’s separation agreement, on December 31, 2020, the Company modified the PSUs previously granted to such former officer in 2018, 2019 and 2020 to provide for deemed satisfaction of the service requirement applicable to such PSUs as of December 31, 2020 such that such PSUs shall remain outstanding and eligible to vest based on our TSR relative to a designated peer group over the applicable performance period.

As a result of these modifications, we recorded an incremental stock expense of $ 0.1 million during the year ended December 31, 2020.

For the years ended December 31, 2020, 2019 and 2018 the Company recognized stock compensation expense for the PSUs of approximately $ 1.7 million, $ 3.8 million and $ 2.0 million, respectively.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK‑BASED COMPENSATION (Continued)

The following table summarizes the PSU activity during the year ended December 31, 2020:

For the years ended December 31, 2021, 2020 and 2019 the Company recognized stock compensation expense for the PSUs of approximatel y $ 5.5 million, $ 1.7 million and $ 3.8 million, respectively.

The following table summarizes information about PSUs activity during the year ended December 31, 2021 (in thousands, except for fair value):

Granted Target Shares Outstanding at January 1, 2021 Target

1 unchanged sentence

Forfeited Target Shares Outstanding at December 31, 2021 Weighted

Fair Value per

Share for Outstanding Shares

2018 84 — ( 84 ) — — $ 27.51

5 unchanged sentences

The total stock compensation expense for the years ended December 31, 2021, 2020 and 2019 for all stock awards was approximately $ 11.5 million , $ 9.1 million and $ 7.8 million, respectively.

The total unrecognized compensation expense for all stock awards as of December 31, 2020, is approximately $ 11.1 million, and is expected to be recognized over a weighted-average period of approximately 1.8 years.

The total unrecognized stock-based compensation expense as of December 31, 2021 was approximately $ 16.4 million , and is expected to be recognized over a weighted-average period of approximatel y 1.8 years.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of the provision for income taxes are as follows:

9 unchanged sentences

$ ( 14,252 ) $ ( 27,480 ) $ 50,494

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (Continued)

Reconciliation between the amounts determined by applying the federal statutory rate of 21% for years ended December 31, 2021, 2020 and 2019 to income tax (benefit) expense is as follows:

5 unchanged sentences

State taxes, net of federal benefit

154 2,504 1,874

Non-deductible expenses

4 unchanged sentences

1,038 ( 1,322 ) 188

( 1,322 ) 188 1,260

Total income tax (benefit) expense

$ ( 14,252 ) $ ( 27,480 ) $ 50,494

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (Continued)

Deferred tax assets and liabilities are recognized for estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements.

4 unchanged sentences

Allowance for credit losses 46 316

Lease liabilities

Goodwill and other intangible assets

5 unchanged sentences

Valuation allowance

( 1,693 ) ( 868 )

Total deferred tax assets — net

16 unchanged sentences

Utilization of net operating loss carryforwards may be limited due to past or future ownership changes.

As of December 31, 2020, we determined that $ 0.9 million valuation allow ance was necessary against our state deferred tax assets.

As of December 31, 2021, we determined that $ 1.7 million valuation allowance was necessary against our state deferred tax assets.

The Company’s U.S.

federal income tax returns for the year ended December 31, 2017, and through the most recent filing remain open to examination by the Internal Revenue Service under the applicable U.S.

federal statute of

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (Continued)

limitations provisions.

federal income tax returns for the y ear ended December 31, 2018, and through the most recent filing remain open to examination by the Internal Revenue Service under the applicable U.S.

federal statute of limitations provisions.

The various states in which the Company is subject to income tax are generally open to examination for the tax years ended December 31, 2017, and through the most recent filing.

5 unchanged sentences

RELATED‑PARTY TRANSACTIONS

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED-PARTY TRANSACTIONS (Continued)

Corporate Office Building

The Company rented its corporate office building and the associated real property from an entity, in which a former executive officer of the Company has an equity interest.

The rent expense on our corporate office building was approximately $ 0.1 million per year.

Prior to April 2020, the Company rented its corporate office building and the associated real property from an entity, in which a former executive officer of the Company has an equity interest for approximately $ 0.1 million per year.

In April 2020, the Company acquired the corporate office building and associated real property for approximately $ 1.5 million.

1 unchanged sentence

The Company also rents five yards from an entity, in which certain former executive officers and a director of the Company have equity interests and total annual rent expense for each of the five yards was approximately $ 0.03 million, $ 0.03 million, $ 0.1 million, $ 0.1 million, and $ 0.2 million, respectively.

The Company also leased our drilling yard from another entity, in which a certain former executive officer of the Company has an equity interest, and with annual lease expense of $ 0.1 million.

The Company also leased its drilling yard from another entity, in which a certain former executive officer of the Company has an equity interest, for an annual lease expense of approximately $ 0.1 million during 2020 .

In November 2020, we terminated the drilling yard lease.

Transportation and Equipment Rental

No transportation services were provided by a related party during the year ended December 31, 2020.

For the years ended December 31, 2019 and 2018, the Company incurred costs for transportation services with an entity, in which a former executive officer of the Company had an equity interest, of approximately $ 0.2 million, and $ 0.4 million, respectively.

During the year ended December 31, 2018, the partner in the entity with the former executive officer reimbursed the Company approximately $ 0.05 million for the use of the Company’s personnel to operate the transportation equipment.

The Company rented equipment in Elk City, Oklahoma for our flowback operations from an entity, in which a former executive officer of the Company has an equity interest.

For the years ended December 31, 2019 and 2018, the Company incurred and paid $ 0.2 million and $ 0.2 million, respectively.

This rental arrangement was terminated in January 2020, and accordingly, there was no expense incurred from this related party arrangement during the year ended December 31, 2020.

The Company obtains equipment maintenance services from an entity that has a family relationship with an executive officer of the Company.

During the year ended December 31, 2020, the Company incurred approximately $ 1.2 million for equipment maintenance services associated with this related party.

At December 31, 2020 and 2019, the Company had approximately $ 0 and $ 0 , respectively, as outstanding payables in connection with transactions to all of the above related parties.

There were no receivables at December 31, 2020 and 2019 from the above related party transactions.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED-PARTY TRANSACTIONS (Continued)

PT Petroleum, LLC

For the year ended December 31, 2018, the Company provided services to PT Petroleum, LLC, an entity in which a director was an officer, of approximately $ 16.7 million.

On December 31, 2018, we consummated the purchase of certain pressure pumping assets and real property from Pioneer 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.

In July 2019, we terminated our crew camp facility lease entered into with Pioneer in connection with the Pioneer Pressure Pumping Acquisition, and the total crew camp facility lease payments to Pioneer in 2019 were approximately $ 0.1 million.

Equipment Rental and Other Services

The Company obtained equipment maintenance services from an entity that has a family relationship with an executive officer of the Company.

During the year ended December 31, 2021 and 2020, the Company incurred approximately $ 0 and $ 1.2 million, respectively, for equipment maintenance services associated with this related party.

At December 31, 2021 and 2020, the Company had no outstanding payables or receivables to or from the above related party.

On December 31, 2018, we consummated 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.

Revenue from services provided to Pioneer (including idle fees) accounted for approximately $ 473.8 million, $ 335.4 million and $ 524.2 million of our total revenue during the years ended December 31, 2021, 2020 and 2019, respectively.

In connection with the Pioneer Pressure Pumping Acquisition, the Company agreed to reimburse Pioneer for our portion of the retention bonuses paid to former Pioneer employees that were subsequently employed by the Company.

During years ended December 31, 2020 and 2019, the Company fully reimbursed Pioneer approximately $ 2.7 million and $ 4.2 million for our portion of the retention bonuses paid to former Pioneer employees that were subsequently employed by the Company.

During the year ended December 31, 2019, Pioneer fully reimbursed the Company approximately $ 2.5 million for severance payments made on their behalf, in connection with the Pioneer Pressure Pumping Acquisition.

As of December 31, 2020, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services (including idle fees) we provided, amounted to $ 41.7 million and the amount due to Pioneer was $ 0 .

As of December 31, 2019, the balance due from Pioneer for services (including idle fees) we provided amounted to approximately $ 61.7 million and the amount due to Pioneer was $ 0 .

In connection with the Pioneer Pressure Pumping Acquisition, the Company agreed to reimburse Pioneer for a certain portion of the retention bonuses paid to former Pioneer employees that were subsequently employed by the Company.

During years ended December 31, 2021, 2020 and 2019, the Company fully reimbursed Pioneer approximately $ 0 , $ 2.7 million and $ 4.2 million respectively.

As of December 31, 2021, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services (including idle fees) we provided, amounted to $ 62.1 million a nd the amount due to Pioneer was $ 0 .

As of December 31, 2020, the balance due from Pioneer for services (including idle fees) we provided amo unted to approximately $ 41.7 million and the amount due to Pioneer was $ 0 .

On January 1, 2019, we implemented ASC 842, using the modified retrospective transition method and elected not to restate prior years.

4 unchanged sentences

Below is a description of our operating and finance leases.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (Continued)

Operating Leases

4 unchanged sentences

The assets and liabilities under this contract are equally allocated between our cementing and coiled tubing segments.

In addition to the contractual lease period, the contract includes an optional renewal of up to 10 years, and in management’s judgment the exercise of the renewal option is not reasonably assured.

In addition to the contractual lease period, the contract includes an optional renewal of up to ten years , and in management’s judgment the exercise of the renewal option is not reasonably assured.

The contract does not include a residual value guarantee, covenants or financial restrictions.

Further, the Real Estate Lease does not contain variability in payments resulting from either an index change or rate change.

Effective January 1, 2019, the remaining lease term in our present value estimate of the minimum future lease payments was four years .

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (Continued)

Consistent with the requirements of the new lease standard, ASC 842, we have determined the Real Estate Lease to be an operating lease.

Effective January 1, 2019, the remaining lease term in our present value estimate of the minimum future lease payments was approximately four years .

We accounted for our Real Estate Lease to be an operating lease.

Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term.

We did not account for the land separately from the building of the real estate lease because we concluded that the accounting effect was insignificant.

As of December 31, 2020, the weighted average discount rate and remaining lease term was 6.7 % and 2.3 years, respectively.

In January 2019, we entered into a four-year real estate lease contract with Pioneer, a related party, (the “Crew Camp Lease”) with a commencement date of January 1, 2019 for purposes of providing housing to Company personnel.

The contract does not include a residual value guarantee, covenants or financial restrictions.

Further, the Crew Camp Lease does not contain variability in payments resulting from either an index change or rate change.

The lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was four-years .

We determined the Crew Camp Lease to be an operating lease.

However, effective July 1, 2019, the Crew Camp Lease was terminated in connection with our disposal of our camp assets located at the leased real estate for $ 5.0 million.

In connection with the Crew Camp Lease termination, we derecognized the right-of-use asset and lease liability of $ 0.5 million and $ 0.5 million, respectively.

Prior to the termination, the total operating lease cost recorded during the year ended December 31, 2019, in connection with the Crew Camp Lease was $ 0.1 million.

Effective July 1, 2019, we disposed of our camp assets and entered into a twelve month lodging arrangement, to rent a certain number of rooms daily, including related services, for a fixed rate and accordingly, we recorded a gain on sale in our statement of operations during the year ended December 31, 2019 of approximately $ 4.2 million.

As of December 31, 2020, our total operating lease right-of-use asset cost was $ 1.2 million, and accumulated amortization was $ 0.5 million.

As of December 31, 2019, our total operating lease right-of-use asset cost was $ 1.2 million, and accumulated amortization was $ 0.3 million.

For the years ended December 31, 2020 and 2019, we recorded operating lease cost of $ 0.3 million and $ 0.4 million, respectively, in our statement of operations.

During the year ended December 31, 2018, our operating lease expense, under legacy GAAP, ASC 840, was $ 1.7 million.

As of December 31, 2021, the weighted average discount rate and remaining lease term was 6.7 % and 1.3 years, re spectively.

As of December 31, 2021, our total operating lease right-of-use asset cost wa s $ 1.2 million, and accumulated amortization was $ 0.8 million.

As of December 31, 2020, our total operating lease right-of-use ass et cost was $ 1.2 million, and accumulated amortization was $ 0.5 million.

For the years ended December 31, 2021, 2020 and 2019 we recorded operating lease cost of $ 0.3 million, $ 0.3 million and $ 0.4 million respectively, in our statement of operations.

Finance Leases

1 unchanged sentence

In 2018, we entered into a ten-year land lease contract (the “Ground Lease”) with an exclusive option to purchase the land exercisable beginning one year from the commencement date of October 1, 2018 through the end of the contractual lease term.

The Ground Lease does not include any residual value guarantee, covenants or financial restrictions.

Further, the Ground Lease does not contain variability in payments resulting from either an index change or rate change.

In March 2020, the Company exercised its option and purchased the land associated with the Ground Lease for approximately $ 2.5 million.

Prior to the exercise of our purchase option, the interest on our finance lease for the years ended December 31, 2020 and 2019 was approximately $ 0 and 0.1 million, respectively.

The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for operating lease as of December 31, 2021 are as follows:

($ in thousands)

($ in thousands) Totals

Total undiscounted future lease payments 487

1 unchanged sentence

Present value of future lease payments (lease obligation) $ 466

The total cash paid in connection with our operating and finance lease liabilities during the year ended December 31, 2020 was $ 0.4 million and $ 0.03 million, respectively.

During the year ended December 31, 2019, the total cash paid in connection with our operating and finance lease liabilities was $ 0.4 million and $ 0.4 million,

The total cash paid for amounts included in the measurement of our operating lease liability during the year ended December 31, 2021 was approximately $ 0.4 million .

During the year ended December 31, 2020, the total cash paid for amounts included in the measurement of our operating and finance lease liabilities was approximately $ 0.4 million and $ 0.03 million, respectively.

The non-cash lease obligation we recorded effective January 1, 2019, upon adopting the new lease standard, ASC 842, was $ 2.0 million and $ 3.1 million for operating and finance leases, respectively.

PROPETRO HOLDING CORP.

1 unchanged sentence

LEASES (Continued)

respectively.

The non-cash lease obligation we recorded effective January 1, 2019, upon adopting the new lease standard, ASC 842, was $ 2.0 million and $ 3.1 million for operating and finance leases, respectively.

The non-cash changes to our lease liabilities during the year ended December 31, 2019, relate to the derecognition of the lease liability of $ 0.5 million, in connection with the Crew Camp Lease termination on July 1, 2019.

Short-Term Leases

We elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less (“short-term leases”) from our balance sheet and continue to record short-term leases as a period expense.

For the year ended December 31, 2020 and 2019, our short-term asset lease expense was approximately $ 1.0 million and $ 1.3 million, respectively.

At December 31, 2020, the total remaining commitments and other obligations for all of our short-term lease and lodging arrangements was $ 6.0 million.

We elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less ("short-term lease") from our balance sheet and continue to record short-term leases as a period expense.

For the years ended December 31, 2021 and 2020, our short-term asset lease expense was approximately $ 0.6 million and $ 1.0 million, respectively.

In April 2021, we entered into a short-term lease arrangement to lease our turbine (the “Equipment Lease”) with a commencement date of June 1, 2021 through September 30, 2021.

We classified the Equipment Lease as an operating lease, and during the year ended December 31, 2021, we recognized approximately $ 3.0 million in lease income recorded as part of our pressure pumping segment revenue on our statements of operat ions.

COMMITMENTS AND CONTINGENCIES

As of December 31, 2020, the Company has an agreement with its equipment manufacturer granting the Company the option to purchase additional 108,000 HHP of DuraStim® equipment, with the purchase option expiring at different times through July 31, 2022, as amended.

The option fee of $ 6.1 million, which we have classified as a deposit for property and equipment when the agreement was entered into in 2019, has been impaired and written off during the year ended December 31, 2020, as it was not probable that we will exercise our option to purchase the equipment given the current market conditions and the depressed oil and gas industry.

As of December 31, 2020, there were no additional contractual capital commitments entered into as part of normal course of business for supply of certain equipment.

The Company enters into purchase agreements with its sand suppliers (the “Sand suppliers”) to secure supply of sand in the normal course of its business.

The agreements with the Sand suppliers require that we purchase certain sand volumes, which is based on a certain percentage of our overall sand requirements and agreed minimum volumes;

otherwise, certain penalties may be charged.

Under certain of the purchase agreements, a shortfall fee applies if we purchase less than the agreed percentage of our sand requirements or agreed minimum volumes.

The shortfall fee represents liquidated damages and is either a fixed percentage of the purchase price for the minimum volumes or a fixed price per ton of unpurchased volumes.

Our current agreements with Sand suppliers expire at different times prior to April 30, 2022.

During the years ended December 31, 2020, 2019 and 2018, no shortfall fees have been recorded.

One of the Sand suppliers (“SandCo”) we entered into an agreement with to purchase sand (“Texas sand”) has an indirect relationship with a former executive officer of the Company, because beginning in 2018, the Texas sand was sourced from a mine located on land owned by an entity (“LandCo”) in which the former executive officer has a 44 % noncontrolling equity interest in the LandCo.

During the year ended December 31, 2020, the total sand purchased from SandCo through the time the former executive was associated with the Company was approximately $ 5.3 million.

During the year ended December 31, 2019, the total sand purchased from SandCo was approximately $ 44.3 million.

As of December 31, 2020 and 2019, the Company had issued le tters of credit of $ 3.7 million and $ 1.5 million, respectively, under the Company's ABL Credit Facility relating to the Company's casualty insurance policy.

During the year ended December 31, 2020, we accrued severance expense of approximately $ 1.0 million relating to the resignation of a former executive officer of the Company, which was included as part of our general and administrative expense in our statement of operations.

We entered into certain commitments for fixed assets, consumables and services incidental to the ordinary conduct of our business, generally for quantities required for our operations and at competitive market prices.

These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements.

As of December 31, 2021, t here were no outstanding contractual commitments.

At December 31, 2021, the total remaining commitments and other obligations for all of our short-term lease and l odging arrangements was $ 3.7 million .

The Company enters into purchase agreements with its sand suppliers (the " Sand Suppliers " ) to secure supply of sand as part of its normal course of business.

The agreements with the Sand Suppliers require that the Company purchase a minimum volume of sand, based primarily on a certain percentage of our sand requirements from our customers or in certain situations based on predetermined fixed minimum volumes, otherwise certain penalties (shortfall fees) may be charged.

The shortfall fee represents liquidated damages and is either a fixed percentage of the purchase price for the mi nimum volumes or a fixed price per ton of unpurchased volumes.

Our agreements with Sand Suppliers expire at different times prior to December 31, 2025.

During the years ended December 31, 2021, 2020 and 2019, no shortfall fee was recorded.

However, one of our Sand Suppliers has filed a suit against us that includes claims related to alleged shortfall fees.

The suit is in the early stages, and we are contesting the claims.

While we cannot reasonably estimate the outcome of the matter at this time, in the opinion of management, the ultimate disposition of the action will not have a materially adverse effect on the Company.

One of the Sand Suppliers ( " SandCo " ) we entered into an agreement to purchase sand ( " Texas Sand " ) has an indirect relationship with a former executive officer of the Company, because beginning in 2018, the Texas Sand was sourced from a mine located on land owned by an entity in which the former executive officer of the Company has a 44 % noncontrolling equity interest.

The total sand purchased from SandCo during the three months ended March 31, 2020 (the period the former executive was associated with the Company) was approximately $ 5.3 million.

As of December 31, 2021 and 2020, the Company had issued le tters of credit of $ 3.7 million and $ 3.7 million, respectively, under the ABL Credit Facility in connection with the Company's casualty insurance policy.

Contingent Liabilities

Legal Matters

In September 2019, a complaint, captioned Richard Logan, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v.

1 unchanged sentence

District Court for the Western District of Texas.

In July 2020, the Logan Lawsuit Lead Plaintiffs Nykredit Portefølje Administration A/S, Oklahoma Firefighters Pension and Retirement System, Oklahoma Law Enforcement Retirement System, Oklahoma Police Pension and Retirement System, and Oklahoma City Employee Retirement System, and additional named plaintiff Police and Fire Retirement System of the City of Detroit, individually and on behalf of a putative class of shareholders who purchased the Company’s common stock between March 17, 2017 and March 13, 2020, filed a

PROPETRO HOLDING CORP.

1 unchanged sentence

COMMITMENTS AND CONTINGENCIES (Continued)

Pension and Retirement System, and Oklahoma City Employee Retirement System, and additional named plaintiff Police and Fire Retirement System of the City of Detroit, individually and on behalf of a putative class of shareholders who purchased the Company’s common stock between March 17, 2017 and March 13, 2020, filed a third amended class action complaint in the U.S.

third amended class action complaint in the U.S.

District Court for the Western District of Texas, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule l0b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act of 1933, as amended, based on allegedly inaccurate or misleading statements, or omissions of material facts, about the Company’s business, operations and prospects against the Company, and certain of its current and former officers and directors.

In August 2020, the Company filed a motion to dismiss the Logan Lawsuit and in September 2020, the plaintiffs filed their opposition.

In October 2020, the Company filed its reply brief in support of the motion to dismiss.

On September 13, 2021, the Court partially granted and partially denied motions to dismiss filed by the Company and the individual defendants.

Discovery is still ongoing.

In May 2020, the U.S.

3 unchanged sentences

The plaintiffs did not quantify any alleged damages in its complaint but, in addition to attorneys’ fees and costs, they seek various forms of relief, including (i) damages sustained by the Company as a result of the alleged misconduct, (ii) punitive damages and (iii) equitable relief in the form of improvements to the Company’s governance and controls.

In October 2020, the Company and other defendants filed motions to dismiss the Shareholder Derivative Lawsuit and in December 2020, the plaintiffs filed their opposition.

In January 2021, the Company and other defendants filed reply briefs in support of the motions to dismiss.

On September 15, 2021, the Court granted the Company's motion to dismiss the complaint in its entirety, without prejudice.

On November 19, 2021, the Company received a demand letter from a law firm representing one of the purported shareholders of the Company that previously filed the dismissed Shareholder Derivative Lawsuit.

The demand letter alleged facts and claims substantially similar to the Shareholder Derivative Lawsuit.

The Board of Directors has constituted a committee to evaluate the demand letter and recommend a course of action to the Board of Directors, and the committee has retained counsel to assist with its review.

The committee’s review is ongoing.

In October 2019, the Company received a letter from the SEC indicating that the SEC had opened an investigation into the Company, which followed the SEC’s issuance of a formal order of investigation, and requesting that the Company provide certain information and documents, including documents related to the Company's expanded audit committee review and related events.

The Company has cooperated and expects to continue to cooperate with the SEC’s investigation.

We are presently unable to predict the duration, scope or result of the Logan Lawsuit, the Shareholder Derivative Lawsuit, the SEC investigation, or any other related lawsuit or investigation.

As of December 31, 2020, no provision was made by the Company in connection with these pending lawsuits and the SEC investigation as they are still at early stages and the final outcomes cannot be reasonably estimated.

Environmental

In November 2021, the Company entered a settlement with the SEC resolving the investigation.

The Company was not required to pay any monetary penalty and has no ongoing undertakings in connection with the settlement.

We are presently unable to predict the duration, scope or result of the Logan Lawsuit, or any other related lawsuit or investigation.

As of December 31, 2021, no provision was made by the Company in connection with this pending lawsuit as the final outcome cannot be reasonably estimated.

Environmental and Equipment Insurance

The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment.

4 unchanged sentences

The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of the Company's liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

Effective November 2021 and in connection with our equipment insurance program renewal, the Company will self-insure up to $ 10 million per occurrence for certain losses arising from or attributable to fire and/or explosion at the wellsites.

Regulatory Audits

In 2020, the Texas Comptroller of Public Accounts commenced a routine audit of the Company's motor vehicle and other related fuel taxes for the periods of July 2015 through December 2020.

As of December 31, 2020, the audit is still at an early stage and the final outcome cannot be reasonably estimated.

In 2021, the Texas Comptroller of Public Accounts completed a routine audit of gross receipts, and sales, excise and use taxes for the periods of July 2015 through December 2018.

The net refund to the Company from the sales and excise and use tax audit was approximately $ 2.1 million, which will be recorded in our financial statements in the first quarter of 2021, the period when the refund was received by the Company.

In 2020, the Texas Comptroller of Public Accounts (the “Comptroller”) commenced a routine audit of the Company's motor vehicle and other related fuel taxes for the periods of July 2015 through December 2020.

As of December 31, 2021, the audit is still ongoing and the final outcome cannot be reasonably estimated.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES (Continued)

In January 2022, we entered into a settlement agreement with the Comptroller for a $ 10.7 million tax refund, net of consulting fees, in connection with certain limited sales and use tax for the audit period July 1, 2015 through December 31, 2018.

The net refund will be recorded in our first quarter of 2022, the period the refund is expected to be received by the Company.

During the year December 31, 2021, the net refund received by the Company from the sales and excise and use tax audit was approximately $ 2.1 million, which was recorded as part of other income in the statement of operations .

QUARTERLY FINANCIAL DATA (UNAUDITED)

24 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data