What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-25 · 482 added, 282 removed, 665 unchanged (53% of the section changed)

3 unchanged sentences

ProPetro Holding Corp.

and Subsidiary

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ProPetro Holding Corp.

and Subsidiary (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively, referred to as, the "financial statements").

and Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively, referred to as, the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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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

Impairment of Long-Lived Assets — Refer to Note 2 and 5 to the consolidated financial statements

Critical Audit Matter Description

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.

The Company reviews the carrying value of long-lived assets such as property and equipment and other assets, whenever events or circumstances indicate that the carrying value of long-lived assets may not be recoverable.

The Company’s evaluation of the recoverability of assets involves the comparison of undiscounted future cash flows attributable to the asset over the Company’s estimated carrying amount of such asset.

As a result of a triggering event for the quarter ended June 30, 2022, management deemed it necessary to assess the recoverability of its DuraStim® hydraulic fracturing equipment.

The Company determined that the DuraStim® hydraulic fracturing equipment was impaired and an impairment expense of approximately $57.5 million was recorded for the three months ended June 30, 2022.

The estimated fair value of the DuraStim® hydraulic fracturing equipment was determined using the cost approach and significant unobservable inputs, including cost Index curve selection,

trend factor calculation, replacement cost, normal useful life, functional obsolescence selections, and minimum percent good, among others.

We identified the impairment of DuraStim® hydraulic fracturing equipment as a critical audit matter because of the significant estimates and assumptions management makes to evaluate the recoverability of these assets.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions related to cost index curve selection, trend factor calculation, replacement cost, normal useful life, functional obsolescence selection, and minimum percent good.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures for related-party transactions included the following, among others:

• 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, 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.

◦ Inspecting the Company’s minutes from meetings of the Board of Directors and related committees.

◦ Making inquiries of executive officers, key members of management, and the Audit Committee of the Board of Directors regarding related party transactions.

Our audit procedures related to the fair value of DuraStim® hydraulic fracturing equipment included the following, among others:

• We tested the operating effectiveness of controls over management’s evaluation of the recoverability of long-lived assets.

• With the assistance of our fair value specialists:

– We evaluated the reasonableness of the valuation analysis, including estimates of cost index curve selection, trend factor calculation, replacement cost, normal useful life, functional obsolescence selections, and minimum percent good by (1) evaluating the source information and assumptions used by management, (2) testing the mathematical accuracy of the valuation analysis, and (3) developing independent estimates and comparing our estimates to those used by management.

• We considered any events occurring after the impairment date that may indicate a different valuation for the assets impaired.

• We considered events and circumstances and performed procedures to ensure the accuracy of the triggering event date.

Acquisition — Silvertip Completion Services Operating, LLC — Fair value of assets acquired and liabilities assumed - Refer to Notes 1, 2, and 4 to the financial statements

Critical Audit Matter Description

The Company completed the acquisition of Silvertip Completion Operating Services, LLC ("Silvertip") for a total purchase consideration of $148.1 million on November 1, 2022 (the "Acquisition").

The Company accounted for the Acquisition using the acquisition method of accounting for business combinations.

Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective estimated fair values.

The largest asset classes acquired include property and equipment consisting mainly of pumpdown pumps, pumpdown wireline trucks, vehicles, pressure control and wireline equipment, and intangible assets consisting of customer relationships and trademark/trade name.

The method for determining fair value varied depending on the type of the asset or liability and involved management making significant estimates related to assumptions such as future cash flows, discount rate, attrition rate, royalty rate, cost index curve selection, trend factor calculation, replacement cost, normal useful life, and minimum percent good.

We identified the valuation of property and equipment and intangible assets arising out of the Acquisition as a critical audit matter because of the estimates and assumptions management makes to determine the fair value of these assets.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions related to future cash flows, discount rate, attrition rate, royalty rate, cost index curve selection, trend factor calculation, replacement cost, normal useful life, and minimum percent good.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the fair value of property and equipment and intangible assets acquired as part of the Acquisition included the following, among others:

• We tested the effectiveness of controls over business combinations.

• With the assistance of our fair value specialists:

– For property and equipment, we evaluated the reasonableness of the valuation methodology and significant assumptions including estimates of cost index curve selection, trend factor calculation, replacement cost, normal useful life, and minimum percent good by (1) evaluating the source information and assumptions used by management, (2) testing the mathematical accuracy of the calculation, and (3) comparing our estimates to those used by management.

– For intangible assets, we evaluated the reasonableness of the valuation methodology and significant assumptions including discount rate, attrition rate, and royalty rate by (1) evaluating the source information and assumptions used by management, (2) testing the mathematical accuracy of the calculation, and (3) comparing our estimates to those used by management.

– For intangible assets, we evaluated whether the estimated future cash flows used in the income approach were consistent with projections used by the Company, as well as evidence obtained in other areas of the audit

• We considered any events or transactions occurring after the Acquisition date that may indicate a different valuation for the assets acquired and liabilities assumed.

/s/ DELOITTE & TOUCHE LLP

5 unchanged sentences

ProPetro Holding Corp.

and Subsidiary

and Subsidiaries

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of ProPetro Holding Corp.

and Subsidiary (the "Company" ) 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 (COSO).

and Subsidiaries (the "Company") as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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, 2022, of the Company and our report dated February 23, 2023, expressed an unqualified opinion on those consolidated financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Silvertip Completion Services Operating, LLC, which was acquired on November 1, 2022 and whose financial statements constitute 13.0% and 2.4% of total assets and revenue, respectively of the consolidated financial statement amounts as of and for the year ended December 31, 2022.

Accordingly, our audit did not include the internal control over financial reporting at Silvertip Completion Services Operating, LLC.

Basis for Opinion

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CURRENT ASSETS:

Cash and cash equivalents

$ 111,918 $ 68,772

Cash, cash equivalents and restricted cash $ 88,862 $ 111,918

Accounts receivable - net of allowance for credit losses of $ 419 and $ 217 , respectively

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Prepaid expenses

Short-term investment, net 10,283 —

Other current assets

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OTHER NONCURRENT ASSETS:

Goodwill 23,624 —

Intangible assets - net of amortization 56,345 —

Other noncurrent assets

12 unchanged sentences

65,265 61,052

LONG-TERM DEBT

NONCURRENT OPERATING LEASE LIABILITIES

7 unchanged sentences

970,519 844,829

(Accumulated deficit) Retained earnings

Accumulated deficit

( 16,600 ) ( 18,630 )

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General and administrative (inclusive of stock‑based compensation) 111,760 82,921 86,768

82,921 86,768 105,076

Depreciation and amortization

6 unchanged sentences

1,282,292 943,210 920,475

OPERATING (LOSS) INCOME

OPERATING INCOME (LOSS)

( 2,591 ) ( 68,696 ) ( 131,243 )

OTHER EXPENSE:

OTHER INCOME (EXPENSE):

Interest expense

4 unchanged sentences

9,977 259 ( 3,257 )

(LOSS) INCOME BEFORE INCOME TAXES ( 68,437 ) ( 134,500 ) 213,504

INCOME TAX BENEFIT/ (EXPENSE)

INCOME (LOSS) BEFORE INCOME TAXES 7,386 ( 68,437 ) ( 134,500 )

INCOME TAX (EXPENSE) BENEFIT

( 5,356 ) 14,252 27,480

NET (LOSS) INCOME

NET INCOME (LOSS)

$ 2,030 $ ( 54,185 ) $ ( 107,020 )

NET (LOSS) INCOME PER COMMON SHARE:

NET INCOME (LOSS) PER COMMON SHARE:

$ 0.02 $ ( 0.53 ) $ ( 1.06 )

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Issuance of equity award—net 289 — — — —

Net income — — — 163,010 163,010

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

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

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

1 unchanged sentence

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

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

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

Net loss — — — ( 54,185 ) ( 54,185 )

1 unchanged sentence

Stock‑based compensation cost — — 21,881 — 21,881

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

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

Net loss — — — ( 54,185 ) ( 54,185 )

Issuance of equity—net 11,078 11 107,688 — 107,699

Tax withholdings paid for net settlement of equity awards — — ( 3,879 ) — ( 3,879 )

Net income — — — 2,030 2,030

BALANCE - December 31, 2022 114,515 $ 114 $ 970,519 $ ( 16,600 ) $ 954,033

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income $ ( 54,185 ) $ ( 107,020 ) $ 163,010

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net income (loss) $ 2,030 $ ( 54,185 ) $ ( 107,020 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Impairment expense 57,454 — 38,002

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

Deferred income tax expense (benefit) 4,213 ( 14,288 ) ( 27,701 )

Amortization of deferred debt issuance costs

4 unchanged sentences

102,150 64,646 58,136

Unrealized loss on short-term investment 1,570 — —

Non-cash income from settlement with equipment manufacturer ( 2,668 ) — —

Changes in operating assets and liabilities:

8 unchanged sentences

27,428 51,764 ( 95,697 )

Accrued liabilities

1,246 ( 18,527 ) 13,088

Accrued and other current liabilities 22,602 1,246 ( 18,527 )

Accrued interest

5 unchanged sentences

( 319,683 ) ( 143,523 ) ( 100,603 )

Silvertip Acquisition, net of cash acquired ( 38,639 ) — —

Proceeds from sale of assets

7 unchanged sentences

Payment of finance lease obligation

— ( 30 ) ( 272 )

Proceeds from insurance financing

1 unchanged sentence

— ( 5,473 ) ( 1,348 )

Payment of debt issuance costs

Proceeds from exercise of equity awards

4,017 — 1,164

Tax withholdings paid for net settlement of equity awards ( 3,879 ) ( 5,820 ) ( 614 )

Net cash used in financing activities

Net cash provided by (used in) financing activities

26,260 ( 7,276 ) ( 125,171 )

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

CASH AND CASH EQUIVALENTS — Beginning of year

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 23,056 ) 43,146 ( 80,264 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of year

111,918 68,772 149,036

CASH AND CASH EQUIVALENTS — End of year

CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of year

$ 88,862 $ 111,918 $ 68,772

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PROPETRO HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2022 , 2021 AND 2020

(In thousands)

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheets:

2022 2021 2020

Summary of cash, cash equivalents and restricted cash

Cash and cash equivalents $ 78,862 $ 111,918 $ 68,772

Restricted cash 10,000 — —

Total cash, cash equivalents and restricted cash — End of year $ 88,862 $ 111,918 $ 68,772

See notes to consolidated financial statements.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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ProPetro Holding Corp.

("Holding"), a Texas corporation was formed on April 14, 2007, to serve as a holding company for its wholly owned subsidiary ProPetro Services, Inc.

("Services"), a Texas corporation.

Services offers hydraulic fracturing, cementing and coiled tubing services to oil and gas producers, located primarily in Texas, New Mexico and Utah.

Holding was converted and incorporated to a Delaware Corporation on March 8, 2017.

Unless otherwise indicated, references in these notes to consolidated financial statements to "ProPetro Holding Corp.," "the Company," "we," "our," "us" or like terms refer to ProPetro Holding Corp.

and Services.

On December 31, 2018, we consummated the purchase of pressure pumping and related assets of Pioneer Natural Resources USA, Inc.

("Holding"), a Texas corporation was formed on April 14, 2007, and it is a holding company for its wholly owned subsidiaries ProPetro Services, Inc., a Texas corporation ("Services"), and Silvertip Completion Services Operating, LLC, a Delaware limited liability company ("Silvertip").

Services and Silvertip together offer hydraulic fracturing, wireline, cementing and other complementary services to oil and gas producers, located primarily in Texas, New Mexico and Utah.

Holding was converted and incorporated as a Delaware Corporation on March 8, 2017.

On November 1, 2022, we consummated the acquisition of all of the outstanding limited liability company interests of Silvertip, which provides wireline perforation and ancillary services solely in the Permian Basin in exchange for 10.1 million shares of our common stock valued at $ 106.7 million, $ 30.0 million of cash, the payoff of $ 7.2 million of assumed debt, and the payment of certain other closing and transaction costs ("the Silvertip Acquisition").

Unless otherwise indicated, references in these notes to consolidated financial statements to "ProPetro Holding Corp.," "the Company," "we," "our," "us" or like terms refer to ProPetro Holding Corp., Servi ces, and Silvertip.

On December 31, 2018, we consummated the purchase of certain pressure pumping and related assets of Pioneer Natural Resources USA, Inc.

( " Pioneer " ) and Pioneer Pumping Services, LLC (the " Pioneer Pressure Pumping Acquisition " ).

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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 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.

Pursuant to the Pioneer Services Agreement, the Company is entitled to receive compensation if Pioneer were to idle committed fleets ("idle fees");

however, we are first required to use all economically reasonable effort to deploy the idled fleets to another customer.

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

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, with eight committed fleets;

provided, with Pioneer having 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 and the right to increase the number of committed fleets prior to December 31, 2022 .

Under the Pioneer Services Agreement, the Company was entitled to receive compensation if Pioneer were to idle committed fleets ( " idle fees " );

however, we were first required to use all economically reasonable effort to deploy the idled fleets to another customer.

This agreement was superseded by the agreement below.

On March 31, 2022, we entered into an amended and restated A&R Pressure Pumping Services Agreement in place of the Pioneer Services Agreement.

The A&R Pressure Pumping Services Agreement, which was effective from January 1, 2022 to December 31, 2022, reduced the number of committed fleets from eight fleets to six fleets, modified the pressure pumping scope of work and pricing mechanism for contracted fleets, and replaced the idle fees arrangement with equipment reservation fees (the "Reservation fees").

As part of the Reservation fees arrangement, the Company was entitled to receive compensation for all eligible committed fleets that were made available to Pioneer at the beginning of every quarter in 2022 through the term of the A&R Pressure Pumping Services Agreement.

This agreement expired at the conclusion of its term and was replaced by the Fleet One Agreement and the Fleet Two Agreement described below.

On October 31, 2022, we entered into two pressure pumping services agreements with Pioneer, pursuant to which we will provide hydraulic fracturing services with two committed fleets, subject to certain termination and release rights.

The Fleet One Agreement was effective as of January 1, 2023 and will terminate on August 31, 2023.

The Fleet Two Agreement was effective as of January 1, 2023 and was originally planned to terminate on the one year anniversary of the date on which the fleet dedicated thereunder converted from a Tier II diesel simultaneous hydraulic fracturing ("Simul-Frac") fleet to a Tier IV dual fuel zipper fleet, which was expected to occur in May 2023.

In February 2023, Pioneer provided the Company notice (i) stating that Pioneer intended to release Fleet Two effective upon the completion of operations on the pad where the performance of Services (as defined in the Fleet Two Agreement) is in progress on May 12, 2023 (the " Release Date " ) and (ii) requesting that the Company agree to the termination of the Fleet Two Agreement as of the Release Date.

The Company agreed with such request, and, as a result, the Fleet Two Agreement will be terminated as of the Release Date.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements are as follows:

Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Holding and its wholly owned subsidiary, Services.

Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Holding and its wholly owned subsidiaries, Services and Silvertip.

All intercompany accounts and transactions have been eliminated in consolidation.

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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 (if any), estimates related to deferred tax assets and liabilities, including any related valuation allowances, and estimates of fair value of stock‑based compensation.

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, intangible assets, 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.

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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, 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 shale wellbores.

The following is a description of the principal activities, aggregated into our one reportable segme nt—"Completion Services," from which the Company generates its revenues and "All Other" category.

Completion Services — Completion services consists of downhole pumping services, which includes hy draulic fracturing, cementin g and wireline operations.

Hydraulic fracturi ng is an oil well completion technique, which is part of the overall well completions process.

It is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of shale w ellbores.

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.

Our hydraulic fracturing contracts with our customers have one 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.

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.

In addition, certain of our hydraulic fracturing equipment may be entitled to reservation or idle fee charges if a customer were to reserve or idle committed hydraulic fracturing equipment.

The Company recognizes revenue related to reservation or 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.

6 unchanged sentences

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 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.

Wireline services (including pumpdown) are oil well completion techniques, which are part of the well completions services.

Our wireline services utilize equipment with a drum of wireline to deploy perforating guns in the well to perforate the casing, cement, and formation.

Once the well is perforated, the well can be fractured.

Pumpdown utilizes pressure pumping equipment to pump water into the well to deploy perforating guns attached to wireline through the lateral section of a well.

Our wireline contracts with our customers have one performance obligation, which is the

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 wireline services are transferred to our customers over time.

In addition, certain of our wireline equipment is entitled to daily equipment charges while the equipment is on the customer’s locations.

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

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

All Other — All Other consists o f other complementary services such as coiled tubing, drilling and flowback operations, which are downhole well completion/remedial services.

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

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

Cash, Cash Equivalents and Restricted Cash — All highly liquid investments with an original maturity of three months or less.

Our restricted cash relates to cash received from a customer in connection with our contract with the customer to provide electric hydraulic fracturing services.

The restricted cash advance from the customer will be credited towards the customer’s invoice as our revenue performance obligations are met over the contract period.

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

At December 31, 2022 and 2021 accrued revenue (unbilled receivable) included as part of our accounts receivable was $ 51.9 million and $ 19.4 million, respectively.

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.

At December 31, 2022, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing and wireline operations was $ 38.7 million, which is expected to be completed and recognized within one month following the current period balance sheet date, in our Completion Services reportable segment.

At December 31, 2021 the transaction price allocated to the remaining performance obligation for our then partially completed hydraulic fracturing and wireline operations was $ 16.8 million , which was recorded as part of our Completion Services segment revenue for the year ended December 31, 2022.

As of December 31, 2022, the Company had $ 0.4 million allowance for credit losses.

1 unchanged sentence

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 or future economic developments and market conditions.

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.

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 depressed economic activities, 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, 2022:

2 unchanged sentences

Balance - January 1, 2022 $ 217 $ 1,497 $ 1,049

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

Provision for credit losses during the period 202 282 448

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

3 unchanged sentences

Depreciation — Depreciation of property and equipment is provided on the straight‑line method over the following estimated useful lives:

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

Buildings and property improvements

Leasehold improvements

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.

Upon sale or retirement of property and equipment, including certain major components of our completion services 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.

3 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.

D uring the year ended December 31, 2022, w e recorded impairment expense of approximately $ 57.5 million in connection with our DuraStim® hydraulic fracturing equipment which remained idle because the pumps did not meet the manufacturer's specifications or our expectations.

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.

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

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 completions and drilling assets, respectively.

The Company accounts for long‑lived assets to be disposed of at the lower of their carrying amount or fair value, less cost to sell once management has committed to a plan to dispose of the assets.

4 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

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.

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 calculated and recorded in the statement of operations.

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

The assets acquired from TSS were recorded as $ 15.0 million of equipment with the excess of the purchase price over fair value of the assets recorded as goodwill of $ 9.4 million.

The acquisition complemented our existing pressure pumping business.

The acquisition complemented our existing business.

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 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.

On November 1 2022, we acquired Silvertip for $ 148.1 million.

We accounted for the Silvertip Acquisiton as a business combination using the acquisition method of accounting.

Goodwill of $ 23.6 million was recorded as of the Silvertip Acquisition Date (as defined below), which represents the excess of the purchase price over the fair value of the assets and liabilities assumed.

The acquisition complemented our existing business.

Based on our goodwill impairment test as of December 31, 2022, we concluded that the goodwill related to the Silvertip Acquisition was not impaired.

The goodwill related to the Silvertip Acquisition of $ 23.6 million is recorded in our wireline operating segment.

There were no goodwill impairment losses during the years ended December 31, 2022 and 2021.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible Assets — Intangible assets consist of customer relationships and trademark/trade name purchased in connection with the Silvertip Acquisition.

In connection with the Silvertip Acquisition, we added intangible assets consisting of $ 46.5 million of customer relationships and $ 10.8 million of trademark/trade name.

Intangible assets are amortized on a basis that reflects the pattern in which the economic benefits of the intangible assets are realized on a straight‑line basis over the asset’s estimated useful life, which is ten years .

No significant residual value is estimated for intangible assets.

Income Taxes — Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.

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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.

Advertising Expense — All advertising costs are expensed as incurred.

For the years ended December 31, 2021, 2020 and 2019, advertising expense was $ 0.8 million , $ 0.4 million and $ 1.2 million, respectively.

Deferred Loan Costs — The Company capitalized certain costs in connection with obtaining its borrowings, including lender, legal, and accounting fees.

Deferred Loan Costs — The Company capitalized certain costs in connection with the amendment and restatement of its revolving credit facility, including lender, legal, and accounting fees.

These costs are being amortized over the term of the related loan using the straight‑line method.

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Stock-Based Compensation — The Company recognizes the cost of stock‑based awards on a straight‑line basis over the requisite service period of the award, which is usually the vesting period under the fair value method.

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

Total compensation cost is measured on the grant date or modification date, as applicable, using fair value estimates.

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.

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

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recently Issued Accounting Standards Adopted in 2022

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

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles.

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

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.

In March 2020, the FASB issued Accounting Standards Update ("ASU") No.

2020-04, Reference Rate Reform , which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate ("LIBOR").

The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified.

This guidance is effective upon issuance and expires on December 31, 2022.

The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s consolidated financial statements.

This guidance was effective upon issuance and expired on December 31, 2022.

Effective January 1, 2022, 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 2022

There were no recently issued ASUs the have not yet been adopted.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CASH FLOWS INFORMATION

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$ 82,452 $ 36,818 $ 14,803

Common stock issued for Silvertip Acquisition $ 106,736 $ — $ —

Non-cash purchases of property and equipment $ 2,668 $ — $ —

Equity securities received in exchange for sale of assets $ 11,853 $ — $ —

SILVERTIP ACQUISITION

On November 1, 2022 (the "Silvertip Acquisition Date"), the Company entered into a purchase and sale agreement with New Silvertip Holdco, LLC, pursuant to which the Company acquired 100 % of the outstanding limited liability company interests of Silvertip, a wireline services company in the Permian Basin, in exchange for total consideration of $ 148.1 million (the "Silvertip Purchase Price") consisting of 10.1 million shares of our common stock valued at $ 106.7 million, $ 30.0 million of cash, the payoff of $ 7.2 million of assumed debt, and the payment of $ 4.1 million of certain closing and transaction costs.

The Silvertip Acquisition positions the Company as a more integrated completions-focused oilfield services provider headquartered in the Permian Basin.

The Company accounted for the Silvertip Acquisition using the acquisition method of accounting.

The Silvertip Purchase Price was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair value at the Silvertip Acquisition Date.

The estimated fair values of certain assets and liabilities, including accounts receivable, require significant judgments and estimates.

The measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs.

The following table summarizes the fair value of the consideration transferred in the Silvertip Acquisition and the Silvertip Purchase Price to the fair value of the assets acquired and liabilities assumed (which are included within the accompanying consolidated balance sheet as of December 31, 2022) as of November 1, 2022, the Silvertip Acquisition Date:

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SILVERTIP ACQUISITION (Continued)

($ in thousands)

Total Purchase Consideration:

Cash consideration $ 30,000

Equity consideration 106,736

Debt payments and closing costs 11,320

Total consideration $ 148,056

Cash and cash equivalents $ 2,681

Accounts receivable and unbilled revenue 21,079

Inventories 1,209

Prepaid expenses 2,476

Other current assets 1,059

Property and equipment (1)

Intangible assets:

Trademark/trade name (2)

Customer relationships (2)

Goodwill 23,624

Operating lease right-of-use asset 2,783

Total identifiable assets acquired 164,689

Accounts payable 7,659

Accrued and other current liabilities 6,178

Operating lease liability 2,796

Total liabilities assumed 16,633

Total purchase consideration $ 148,056

(1) Remaining useful lives ranging from less than one to 22 years.

(2) Definite lived intangibles with amortization period of 10 years.

The goodwill arising from the Silvertip Acquisition is attributable to the expected operational synergies resulting from our integrated service offerings.

The goodwill arising from the Silvertip Acquisition has been allocated to our wireline operations, and are included in our wireline operating segment.

The Company’s transaction costs were recognized separately from the acquisition of assets and assumptions of liabilities in the Silvertip Acquisition, and were expensed as incurred.

These costs are included within general and administrative expenses in our consolidated statements of operations.

The following combined pro forma information assumes the Silvertip Acquisition occurred on January 1, 2021.

The pro forma information presented below is for illustrative purposes only and does not reflect future events that occurred after December 31, 2022 or any operating efficiencies or inefficiencies that may result from the Silvertip Acquisition.

The information is not necessarily indicative of results that would have been achieved had the Company controlled Silvertip during the periods presented.

(unaudited, $ in thousands)

Year Ended December 31,

Revenue $ 1,428,282 $ 1,013,261

Net income ( loss) (1)

26,716 ( 43,957 )

(1) The nonrecurring acquisition costs of $ 2.2 million were included in our pro forma results for the year ended December 31, 2021.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SILVERTIP ACQUISITION (Continued)

The Company’s consolidated statement of operations for the year ended December 31, 2022 includes 61 days of Silvertip operations as the Silvertip Acquisition closed on November 1, 2022.

FAIR VALUE MEASUREMENTS

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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.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

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.

The fair values of cash, cash equivalents and restricted cash, accounts receivable, accounts payable, accrued and other current liabilities, and long-term debt are estimated to be approximately equivalent to carrying amounts as of December 31, 2022 and 2021 and have been excluded from the table below.

Assets measured at fair value on a recurring basis as of December 31, 2022 are set forth below:

(In thousands)

Estimated fair value measurements

Quoted prices in

active market

Significant other

observable inputs

Significant other

unobservable inputs

December 31, 2022:

Short-term investment $ 10,283 $ 10,283 $ — $ — $ ( 1,570 )

December 31, 2021:

Short-term investment $ — $ — $ — $ — $ —

Short-term investment — On September 1, 2022, the Company received 2.6 million common shares of STEP Energy Services (USA) L td.

("STEP") with an estimated fair value of $ 11.8 million as part of the consideration for the sale of our coiled tubing assets to STEP.

The shares were treated as an investment in equity securities measured at fair value using Level 1 inputs based on observable prices on the Toronto Stock Exchange and are shown under current assets in our consolidated balance sheets.

As of December 31, 2022, the fair value of the short-term investment was estimated at $ 10.3 million, and the unrealized loss resulting from the fluctuation in stock price was $ 1.6 million.

Included in the unrealized loss was a loss of $ 0.3 million resulting from non-cash foreign currency translation .

The unrealized l osses resulting from stock price fluctuation and foreign currency translation are included in other income (expense) in our consolidated statements of operations.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis.

These items are not measured at fair value on an ongoing basis but may be subject to fair value adjustments in certain circumstances.

These assets and liabilities include those acquired through the Silvertip Acquisition, which are required to be measured at fair value on the acquisition date according to ASC Topic 805, Business Combinations (see Note 4.

Silvertip Acquisition).

During the year ended December 31, 2022, we recorded impairment expense of approximately $ 57.5 million in connection with our DuraStim® hydraulic fracturing pumps that did not meet the manufacturer's specifications or our expectations.

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.

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 completions (pressure pumping) and drilling assets .

On September 21, 2022, the Company received equipment inventory from the manufacturer of DuraStim® hydraulic fracturing equipment in connection with its settlement of warranty claims for the DuraStim® hydraulic fracturing equipment acquired from the manufacturer.

T he fair value of this equipment inventory received from the manufacturer was estimated to be $ 2.7 million.

The estimated fair value was determined using the cost approach, which represents a Level 3 in the fair value measurement hierarchy.

Our fair value estimate required us to use significant unobservable inputs, including a third party valuation and assumptions related to replacement cost, among others.

Accordingly, we recorded non-cash income of $ 2.7 million, which is presented within other income (expense) in our consolidated statements of operations, and the equipment inventory received included as part of our property and equipment in our consolidated balance sheets .

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.

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If the reporting unit’s carrying amount exceeds its fair value, we consider goodwill impaired, and the impairment loss is calculated and recorded in the period.

There were no additions to, or disposal of, goodwill during the years ended December 31, 2021, 2020 and 2019.

We added $ 23.6 million of goodwill during the year ended December 31, 2022 (see Note 4.

Silvertip Acquisition).

There were no additions to goodwill during the years ended December 31, 2021 and 2020.

There were no write-offs of goodwill during the years ended December 31, 2022, 2021 and 2020.

We conducted our annual impairment test of goodwill as of December 31, 2022 and determined that no impairment to the carrying value of goodwill for our reporting unit (wireline operating segment) was required.

There were no goodwill impairment losses during the years ended December 31, 2022 and 2021.

In the first quarter of 2020, the depressed crude oil prices and crude oil storage challenges faced in the U.S.

oil and gas industry triggered the Company to perform an interim goodwill impairment test, and as a result, we compared the carrying value of the goodwill in our hydraulic fracturing reporting unit with the estimated fair value.

Our interim impairment test also considered other relevant factors, including market capitalization and market participants’ view of the oil and gas industry in reaching our conclusion that the carrying value of our goodwill in our pressure pumping reportable segment of $ 9.4 million was fully impaired during the first quarter of 2020.

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

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

Our interim impairment test also considered other relevant factors, including market capitalization and market participants’ view of the oil and gas industry in reaching our conclusion that the carrying value of our goodwill in our Completion Services reportable segment of $ 9.4 million was fully impaired during the first quarter of 2020.

Accordingly, we recorded a goodwill impairment expense of $ 9.4 million in March 2020.

The wireline operating segment is the only segment which has goodwill at December 31, 2022.

The table below sets forth the changes in the carrying amount of goodwill for the year ended December 31, 2022.

($ in thousands)

Goodwill as of January 1, 2021 — net $ —

Goodwill addition during the year —

Less impairment losses —

Goodwill as of December 31, 2021 — net —

Goodwill addition during the year 23,624

Less impairment losses —

Goodwill as of December 31, 2022 — net $ 23,624

PROPETRO HOLDING CORP.

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During the years ended December 31, 2022 and 2021 and 2020, our depreciation expense was $ 127.2 million, $ 133.4 million and $ 153.3 million respectively.

In December 2021, the Company disposed of two turbine generators, which were included in our Completion Services 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.

INTANGIBLE ASSETS

Intangible assets consist of customer relationships and trademark/trade name.

Intangible assets are amortized on a straight‑line basis with a useful life of ten years .

Amortization expense included in net income (loss) for the years ended December 31, 2022, 2021 and 2020 was $ 1.0 million, $ 0 and $ 0 , respectively.

The Company’s intangible assets subject to amortization consisted of the following:

($ in thousands)

Intangible assets acquired:

Trademark/trade name $ 10,800 $ —

Customer relationships 46,500 —

Total intangible assets acquired 57,300 —

Accumulated amortization:

Trademark/trade name ( 180 ) —

Customer relationships ( 775 ) —

Total accumulated amortization ( 955 ) —

Intangible assets — net

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INTANGIBLE ASSETS (Continued)

Estimated remaining amortization expense subsequent fiscal years is expected to be as follows:

($ in thousands)

Year Estimated future amortization expense

2027 and beyond 33,425

Total $ 56,345

The average amortization period remaining is approximately 9.8 years.

LONG‑TERM DEBT

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 of 85 % of monthly eligible accounts receivable less customary reserves (the "borrowing base"), as redetermined monthly.

Our revolving credit facility, as amended in 2018, had a total borrowing capacity of $ 300 million (subject to the borrowing base limit), with a maturity date of December 19, 2023.

The revolving credit facility had a borrowing base of 85 % of monthly eligible accounts receivable less customary reserves, as redetermined monthly.

The revolving credit facility, included a springing fixed charge coverage ratio to apply when excess availability is less than the greater of (i) 10 % of the lesser of the facility size or the borrowing base or (ii) $ 22.5 million.

Borrowings under this revolving credit facility accrued interest based on a three-tier pricing grid tied to availability, and we had the option to elect for loans to be based on either LIBOR or base rate, plus the applicable margin, which ranged from 1.75 % to 2.25 % for LIBOR loans and 0.75 % to 1.25 % for base rate loans, with a LIBOR floor of zero .

Effective April 13, 2022, the Company entered into an amendment and restatement of its revolving credit facility (as a mended and restated, "ABL Credit Facility").

The ABL Credit Facility decreased the borrowing capacity to $ 150.0 million (subject to the Borrowing Base (as defined below) limit), with the maturity date extended to April 13, 2027.

The ABL Credit Facility has a borrowing base of 85 % to 90 %, depending on the credit ratings of our accounts receivable counterparties, of monthly eligible accounts receivable less customary reserves (the "Borrowing Base"), as redetermined monthly.

The Borrowing Base as of December 31, 2022, was approximately $ 102.3 million.

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Borrowings under the ABL Credit Facility are secured by a first priority lien and security interest in substantially all assets of the Company.

Borrowings under the ABL Credit Facility accrue interest based on a three-tier pricing grid tied to availability, and we may elect for loans to be based on either LIBOR or base rate, plus the applicable margin, which ranges from 1.75 % to 2.25 % for LIBOR loans and 0.75 % to 1.25 % for base rate loans, with a LIBOR floor of zero .

Borrowings under the ABL Credit Facility accrue interest based on a three-tier pricing grid tied to availability, and we may elect for loans to be based on either the Secured Overnight Financing Rate ("SOFR") or the base rate, plus the applicable margin, which ranges from 1.50 % to 2.00 % for SOFR loans and 0.50 % to 1.00 % for base rate loans.

The weighted average interest rate for our ABL Credit Facility for the year ended December 31, 2022 was 5.43 % .

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

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

As of December 31, 2022, we had borrowings of $ 30.0 million outstanding under our ABL Credit Facility.

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

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCRUED AND OTHER CURRENT LIABILITIES

3 unchanged sentences

Accrued payroll and related expenses

Deferred revenue (advance from customer) 10,000 —

Capital expenditure, taxes and others accruals

1 unchanged sentence

$ 49,027 $ 20,767

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EMPLOYEE BENEFIT PLAN

5 unchanged sentences

REPORTABLE SEGMENT INFORMATION

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

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.

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

hydraulic fracturing (inclusive of acidizing), cementing and wireline.

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

In March 2020, the Company shut down its flowback operating segment and subsequently disposed of the assets for approximately $ 1.6 million.

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

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 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)).

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.

On September 1, 2022, the Company shut down its coiled tubing operations and disposed of its coiled tubing assets to STEP as part of a strategic repositioning, and recorded a loss on disposal of $ 13.8 million.

The divestiture of our flowback, drilling and coiled tubing assets did not qualify for presentation and disclosure as discontinued operations, and accordingly, we have recorded the resulting losses from the disposal as part of our loss on disposal of assets in our consolidated statement of operations.

Our flowback, drilling and coiled tubing operations were included in our " All Other " category.

The divestiture of our flowback, drilling and coiled tubing operations that were historically included in the "All Other" category and the Silvertip Acquisition, which resulted in our new wireline operations in 2022, resulted in a net change in the number of operating segments to three .

All three remaining operating segments are now aggregated into Completion Services, which is our only reportable segment.

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

The Silvertip Acquisition which resulted in the addition of a new wireline operating segment, and the disposal of our flowback, drilling and coiled tubing operations (previously included in the " All Other " category), collectively resulted in a change to the structure and composition of our reportable segment and " All Other " category.

Our previous Pressure Pumping reportable segment is now renamed to " Completion Services " because of the inclusion of the new wireline completion services.

In addition, we have reclassified all our corporate overhead costs (inclusive of income taxes and interest expense) previously included in the "A ll other " category to Completion Services reportable segment.

As a result of the change in the structure and composition of our reportable segment, we have restated our segment disclosure for the years ended December 31, 2022, 2021 and 2020 to include corporate costs in our Completion Services reportable segment.

Our hydraulic fracturing operating segment revenue approximated 90.3 % , 93.3 % and 94.2 % of our Completion Services revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

Our cementing operating segment revenue approximated 7.3 %, 6.7 % and 5.8 % of our Completion Services revenue for the years ended December 31, 2022, 2021 and 2020, respectively.

Revenue from our wireline operating segment (resulting from the acquisition of Silvertip in 2022)

PROPETRO HOLDING CORP.

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REPORTABLE SEGMENT INFORMATION (Continued)

approximated 2.4 % of our Completion Services revenue for the year ended December 31, 2022.

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

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

6 unchanged sentences

$ 125,867 $ 2,241 $ 128,108

Impairment expense $ 57,454 $ — $ 57,454

Capital expenditures

$ 362,467 $ 2,849 $ 365,316

Goodwill $ 23,624 $ — $ 23,624

$ 1,335,501 $ 285 $ 1,335,786

6 unchanged sentences

$ 129,780 $ 3,597 $ 133,377

Impairment expense

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

Capital expenditures

12 unchanged sentences

$ 1,018,536 $ 32,203 $ 1,050,739

$ 1,381,811 $ 54,300 $ 1,436,111

PROPETRO HOLDING CORP.

3 unchanged sentences

Year ended December 31, 2022

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

Net income (loss) $ 19,754 $ ( 17,724 ) $ 2,030

Depreciation and amortization

1 unchanged sentence

Interest expense

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

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

1,605 — 1,605

Income tax expense 5,356 — 5,356

Loss on disposal of assets 88,145 14,005 102,150

Impairment expense 57,454 — 57,454

Stock‑based compensation

1 unchanged sentence

Other income (2) (3)

( 11,582 ) — ( 11,582 )

Other general and administrative expense (1)

3 unchanged sentences

$ 318,051 $ ( 1,461 ) $ 316,590

Pumping All Other Total

Services All Other Total

Year ended December 31, 2021

3 unchanged sentences

Interest expense

1 2,382 2,383

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

Loss on disposal of assets 64,549 97 64,646

56,659 1,477 58,136

Impairment expense 36,907 1,095 38,002

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 632 — 632

Adjusted EBITDA

$ 134,309 $ 698 $ 135,007

Pumping All Other Total

Services All Other Total

Year ended December 31, 2020

Net income (loss)

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

Net loss $ ( 99,830 ) $ ( 7,190 ) $ ( 107,020 )

Depreciation and amortization

2 unchanged sentences

2,383 — 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 1,140 — 1,140

Adjusted EBITDA

$ 141,652 $ ( 189 ) $ 141,463

(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.

(1) During the years ended December 31, 2022, 2021 and 2020, 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, shareholder litigation, legal settlement to a vendor and other legal matters, net of insurance recoveries.

During the years ended December 31, 2022, 2021 and 2020, we received reimbursement of approximately $ 10.4 million, $ 9.8 million and $ 0.6 million, respectively, from our insurance carriers in connection with the SEC investigation and shareholder litigation.

(2) Includes a $ 10.7 million net tax refund (net of advisory fees) received in March 2022 from the Texas Comptroller of Public Accounts in connection with limited sales, excise and use tax audit of the period from July 1, 2015 through December 31, 2018.

(3) Includes $ 2.7 million non-cash income from fixed asset inventory received as part of a settlement of warranty claims with an equipment manufacturer and a $ 1.6 million unrealized loss on short-term investment.

PROPETRO HOLDING CORP.

10 unchanged sentences

2.9 % 3.8 % 5.8 %

The above significant customers’ revenue that relates to pressure pumping is below:

The above significant customers’ revenue that relates to Completion Services reportable segment is below:

Year Ended December 31,

12 unchanged sentences

Numerator (both basic and diluted)

Net (loss) income relevant to common stockholders $ ( 54,185 ) $ ( 107,020 ) $ 163,010

Denominator for basic net (loss) income per share 102,655 100,829 100,472

Net income (loss) relevant to common stockholders $ 2,030 $ ( 54,185 ) $ ( 107,020 )

Denominator for basic net income (loss) per share 105,868 102,655 100,829

Dilutive effect of stock options 80 — —

1 unchanged sentence

Dilutive effect of restricted stock units 484 — —

Denominator for diluted net (loss) income per share 102,655 100,829 103,750

Basic net (loss) income per common share $ ( 0.53 ) $ ( 1.06 ) $ 1.62

Diluted net (loss) income per common share $ ( 0.53 ) $ ( 1.06 ) $ 1.57

Denominator for diluted net income (loss) per share 106,939 102,655 100,829

Basic net income (loss) per common share $ 0.02 $ ( 0.53 ) $ ( 1.06 )

Diluted net income (loss) per common share $ 0.02 $ ( 0.53 ) $ ( 1.06 )

PROPETRO HOLDING CORP.

25 unchanged sentences

Stock Options

On June 14, 2013, we granted 2,799,408 stock option awards to certain key employees, officers and directors pursuant to the Stock Option Plan that vested and became exercisable based upon the achievement of a service requirement.

The options vested in 25 % increments for each year of continuous service and an option became fully vested upon the optionee’s completion of the fourth year of service.

The contractual term for the options awarded is 10 years.

The fair value of each option award granted was estimated on the date of grant using the Black-Scholes option-pricing model.

On July 19, 2016, we granted 1,274,549 stock option awards to certain key employees, officers and directors pursuant to the Stock Option Plan which vested in five substantially equal semi-annual installments commencing in December 2016, subject to a continuing services requirement.

The contractual term for the options awarded is 10 years.

We fully accelerated vesting of the options in connection with our IPO.

The fair value of each option award granted was estimated on the date of grant using the Black-Scholes option-pricing model.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK‑BASED COMPENSATION (Continued)

On March 16, 2017, we granted 793,738 stock option awards to certain key employees, officers and directors pursuant to the 2017 Incentive Plan which are scheduled to vest in four substantially equal annual installments, subject to a continuing service requirement.

2 unchanged sentences

There were no new stock option grants during the years ended December 31, 2022, 2021 and 2020.

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.

As of December 31, 2022, there was no aggregate intrinsic value for our outstanding or exercisable stock options because the closing stock price as of December 31, 2022 was below the cost to exercise the options.

The aggregate intrinsic value for the exercised stock options during the year ended December 31, 2022 was $ 2.6 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.

The weighted average remaining contractual term for the outstanding and exercisable stock options as of December 31, 2022, w as 1.9 years and 1.9 years, respec tively.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK‑BASED COMPENSATION (Continued)

A summary of the stock option activity during the year ended December 31, 2022 is presented below (in thousands, except for exercise price):

1 unchanged sentence

( 310 ) $ 3.11

( 76 ) $ 14.00

Outstanding at December 31, 2022 488 $ 14.00

1 unchanged sentence

Restricted Stock Units

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.

In 2022, we granted 863,433 RSUs to employees, officers and directors pursuant to the ProPetro Holding Corp.

2020 Long Term 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 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.

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

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, 2022, 2021 and 2020, the Company recognized stock compensation expense for RSUs of approximately $ 11.1 million, $ 6.2 million and $ 5.1 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK‑BASED COMPENSATION (Continued)

On March 31, 2022, the Company modified the RSUs previously granted to a former officer in 2019, 2020 and 2021 to accelerate the vesting of such RSUs in connection with his separation agreement.

On December 31, 2022, the Company modified the RSUs previously granted to a former officer in 2020, 2021 and 2022 to accelerate the vesting of such RSUs in connection with his separation agreement.

As a result of these modifications, we recorded a net incremental stock expense of $ 1.2 million duri ng the year ended December 31, 2022.

As of December 31, 2022, the total unrecognized compensation expense for all RSUs was approxima tely $ 8.8 million, and is expected to be recognized over a weighted-average period of approximately 1.7 years.

The following table summarizes the RSUs activity during the year December 31, 2022 (in thousands, except for fair value):

10 unchanged sentences

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.

The actual number of shares of common stock that may be issued under the PSUs

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK‑BASED COMPENSATION (Continued)

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.

2 unchanged sentences

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 March 31, 2022, the Company modified the PSUs previously granted to such former officer in 2020 and 2021 to provide for deemed satisfaction of the service requirement applicable to such PSUs as of March 31, 2022, such that such PSUs shall remain outstanding and eligible to vest based on our TSR relative to a d esignated peer group over the applicable performance period.

In connection with a former officer’s separation agreement, on December 31, 2022, the Company modified the PSUs previously granted to such former officer in 2021 and 2022 to provide for deemed satisfaction of the service requirement applicable to such PSUs as of December 31, 2022, 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 a net incremental stock expense of $ 2.6 million during the year ended December 31, 2022.

For the years ended December 31, 2022, 2021 and 2020 the Company recognized stock compensation expense for the PSUs of approximatel y $ 10.8 million, $ 5.5 million and $ 1.7 million, respectively.

2 unchanged sentences

Granted Target Shares Vested Target

Forfeited Target Shares Outstanding at December 31, 2021 Weighted

Forfeited Target Shares Outstanding at December 31, 2022

2019 126 — ( 126 ) — —

5 unchanged sentences

The total stock compensation expense for the years ended December 31, 2022, 2021 and 2020 for all stock awards was approximately $ 21.9 million , $ 11.5 million and $ 9.1 million, respectively.

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.

The total unrecognized stock-based compensation expense as of December 31, 2022 was approximately $ 15.7 million, and is expected to be recognized over a weighted-average period of approximately 1.5 years.

PROPETRO HOLDING CORP.

18 unchanged sentences

State taxes, net of federal benefit

Non-deductible expenses

745 314 3,683

Section 162(m) limitation 3,423 616 3

Stock-based compensation

2 unchanged sentences

( 336 ) 825 868

776 1,167 ( 1,011 )

Total income tax (benefit) expense

8 unchanged sentences

Accrued liabilities

$ 1,280 $ 911

Allowance for credit losses 88 46

21 unchanged sentences

federal net operating loss carryforwards ( " NOLs " ) generated in taxable periods beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility of such NOLs in taxable years beginning after December 31, 2020, is limited to 80% of taxable income.

As of December 31, 2021, the Company had approximately $ 408.0 million of federal NOLs some of which will begin to expire in 2035.

Approximately $ 219.5 million of the Company’s federal NOLs relate to pre-2018 periods.

As of December 31, 2021, the Company’s state net operating losses were approximately $ 50.1 million and will begin to expire in 2024.

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

As of December 31, 2022, the Company had approximately $ 421.7 million of U.S.federal NOLs, some of which will begin to expire in 2035.

Approximately $ 219.5 million of the Company’s U.S.

federal NOLs relate to pre-2018 periods.

As of December 31, 2022, the Company’s state NOLs were approximately $ 50.4 million and will begin to expire in 2024.

Utilization of NOLs carryforwards may be limited due to past or future ownership changes.

As of December 31, 2022, we determined that $ 1.4 million valuation allowance was necessary against our state deferred tax assets.

8 unchanged sentences

Any accrued tax penalties or interest assessments will remain until the uncertain tax position is resolved with the taxing authorities or until the applicable statute of limitations has expired.

RELATED‑PARTY TRANSACTIONS

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RELATED-PARTY TRANSACTIONS (Continued)

Corporate Office Building

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.

RELATED-PARTY TRANSACTIONS

Operations and Maintenance Yards

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 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.

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.

The Company rents five yards from an entity, in which a director of the Company has an equity interest and the 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.

On December 31, 2018, we consummated the Pioneer Pressure Pumping Acquisition with Pioneer and Pioneer Pumping Services.

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.

On March 31, 2022, we entered into an amended and restated pressure pumping services agreement (the "A&R Pressure Pumping Services Agreement"), which was initially entered into in connection with the Pioneer Pressure Pumping Acquisition.

The A&R Pressure Pumping Services Agreement was effective January 1, 2022 through December 31, 2022.

The A&R Pressure Pumping Services Agreement reduced the number of contracted fleets from eight fleets to six fleets, modified the pressure pumping scope of work and pricing mechanism for contracted fleets, and replaced the idle fees arrangement with equipment reservation fees (the "Reservation fees").

As part of the Reservation fees arrangement, the Company will be entitled to receive compensation for all eligible contracted fleets that are made available to Pioneer at the beginning of every quarter in 2022 through the term of the A&R Pressure Pumping Services Agreement.

On October 31, 2022, we entered into two pressure pumping services agreements (the "Fleet One Agreement" and "Fleet Two Agreement") with Pioneer, where we will provide hydraulic fracturing services with two committed fleets, subject to certain termination and release rights.

The Fleet One Agreement was effective as of January 1, 2023 and will terminate on August 31, 2023.

The Fleet Two Agreement was effective as of January 1, 2023 and was originally planned to terminate on the one year anniversary of the date on which the fleet dedicated thereunder converted from a Tier II diesel Simul-Frac fleet to a Tier IV dual fuel zipper fleet, which was expected to occur in May 2023.

In February 2023, Pioneer provided the Company notice (i) stating that Pioneer intended to release Fleet Two effective upon the completion of operations on the pad where the performance of Services (as defined in the Fleet Two Agreement) is in progress on May 12, 2023 and (ii) requesting that the Company agree to the termination of the Fleet Two Agreement as of the Release Date.

The Company agreed with such request, and, as a result, the Fleet Two Agreement will be terminated as of the Release Date.

Revenue from services provided to Pioneer (including reservation and idle fees) accounted for approximately $ 423.7 million, $ 473.8 million and $ 335.4 million of our total revenue during the years ended December 31, 2022, 2021 and 2020, respectively.

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 .

During years ended December 31, 2022, 2021 and 2020, the Company fully reimbursed Pioneer approximately $ 0 , $ 0 and $ 2.7 million respectively.

As of December 31, 2022, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services (including reservation fees) we provided, amounted to $ 46.2 million a nd the amount due to Pioneer was $ 0 .

As of December 31, 2021, the balance due from Pioneer for services (including idle fees) we provided amo unted to approximately $ 62.1 million and the amount due to Pioneer was $ 0 .

10 unchanged sentences

Description of Lease

In March 2013, we entered into a ten-year real estate lease contract (the “Real Estate Lease”) with a commencement date of April 1, 2013, as part of the expansion of our equipment yard.

The lease is with an entity in which a former director of the Company has a noncontrolling equity ownership interest.

In March 2013, we entered into a ten-year real estate lease contract (the " Real Estate One Lease " ) with a commencement date of April 1, 2013, as part of the expansion of our equipment yard.

For the years ended December 31, 2022, 2021 and 2020, the Company made lease payments of approximately $ 0.4 million , $ 0.4 million and $ 0.4 million, respectively.

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 ten years , and in management’s judgment the exercise of the renewal option is not reasonably assured.

The assets and liabilities under this contract are included in our Completion Services reportable segment.

In addition to the contractual lease period, the contract includes an optional renewal of up to ten years , and in management’s judgm ent 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 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.

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

We accounted for our Real Estate One Lease as an operating lease.

This conclusion 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 leases because we concluded that the accounting effect was insignificant.

As of December 31, 2022, the weighted average discount rate and remaining lease ter m was 6.7 % and 0.3 years, re spectively.

As part of our expansion of our hydraulic fracturing equipment maintenance program, we entered into a two year maintenance facility real estate lease contract (the "Maintenance Facility Lease") with a commencement date of March 14, 2022 .

During the year ended December 31, 2022 the Company made lease payments of approximately $ 0.3 million.

In addition to the contractual lease period, the contract includes an optional renewal for three additional periods of one year each, 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 Maintenance Facility Lease does not contain variability in payments resulting from either an index change or rate change.

We accounted for our Maintenance Facility Lease as an operating lease.

This conclusion 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 Maintenance Facility Lease because we concluded that the accounting effect was insignificant.

As of December 31, 2022, the weighted average discount rate and remaining lease term was approximately 3.4 % and 1.2 years, respectively.

In August 2022 and December 2022, we entered into three year equipment leases (the "Electric Fleet Lease") for a total of four fleets with 60,000 HHP per fleet.

The Electric Fleet Lease contains an option to purchase the equipment at any time during the period of the lease.

The leases have not yet commenced.

We currently do not control the assets under the Electric Fleet Lease because they are currently being manufactured by the vendor and we have not taken possession of the assets.

The manufacturing and delivery of the electric fleets is estimated to take up to ten months from the lease execution date.

Given that the Company has not yet taken possession of the assets under the Electric Fleet Lease, the Company has not accounted for the right of use and lease obligation in its balance sheet as of December 31, 2022.

In October 2022, we entered into a real estate lease contract for five years, four months (the "Real Estate Two Lease"), expected to commence in March 2023.

Since the lease had not commenced because the Company has not taken possession of the asset as of December 31, 2022, the Company has not accounted for the right of use and lease obligation in its balance sheet as of December 31, 2022.

In addition to the contractual lease period, the contract includes two optional renewals of one year each, and in management’s judgment the exercise of the renewal options is not reasonably assured.

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

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

As part of the Silvertip Acquisition, we assumed two real estate leases (the "Silvertip Leases") with remaining terms of four years, nine months and six years, one month , respectively, from the Silvertip Acquisition Date.

During the period from November 1, 2022 to December 31, 2022, the Company made lease payments of approximately $ 0.03 million and $ 0.05 million, respectively.

The assets and liabilities under these contracts are recorded in our wireline operating segment.

The Silvertip Leases do not have any renewal options, residual value guarantees, covenants or financial restrictions.

Further, the Silvertip Leases do not contain variability in payments resulting from either an index change or rate change.

We accounted for our Silvertip Leases as operating leases.

This conclusion 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 leases because we concluded that the accounting effect was insignificant.

As of December 31, 2022, the weighted average discount rate and remaining lease term was 2.1 % and 5.5 years, re spectively.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (Continued)

As of December 31, 2022, our total operating lease right-of-use asset cost wa s $ 4.6 million, and accumulated amortization was $ 1.5 million.

5 unchanged sentences

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

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:

The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for operating leases as of December 31, 2022 are as follows:

($ in thousands) Totals

3 unchanged sentences

The total cash paid for amounts included in the measurement of our operating lease liability during the year ended December 31, 2022 was approximately $ 0.7 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

LEASES (Continued)

The non-cash lease obligation we recorded upon execution of the Maintenance Facility Lease was approximately $ 0.6 million.

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

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 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.

For the years ended December 31, 2022, 2021 and 2020 , our short-term asset lease expense was approximately $ 0.8 million, $ 0.6 million and $ 1.0 million, respectively.

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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 entered into contractual arrangements with our equipment manufacturers to purchase and convert Tier IV DGB equipment, with total cost of approximately $ 59.9 million.

The Company also entered into the Electric Fleet Lease, which contains options to extend the lease or purchase the equipment at the end of the lease.

The lease payments are expected to commence when the Company takes possession of the electric hydraulic fracturing pumps during the second half of 2023.

The total estimated contractual commitment in connection with the Electric Fleet Lease arrangements is approximately $ 99.2 million , which excludes the cost associated with the option to purchase the equipment at the end of the lease.

In January 2023, we entered into an equipment lease (the " Power Equipment Lease " ) for certain power generation equipment.

The Power Equipment Lease has not yet commenced.

We currently do not control the assets under the lease and have not taken possession of the assets.

Therefore, the Company has not accounted for the right of use and lease obligation in its balance sheet as of December 31, 2022.

The total estimated contractual commitment in connection with the Power Equipment Lease is approximately $ 59.6 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.

1 unchanged sentence

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.

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

Our sand agreement with one of our Sand Suppliers has a one year take or pay commitment o f $ 31.7 million that will expire on June 12, 2023.

During the years ended December 31, 2022, 2021 and 2020, 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, 2022 and 2021, the Company had issued le tters of credit of $ 6.0 million and $ 3.7 million, respectively, under the ABL Credit Facility in connection with the Company's casualty insurance policy.

4 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES (Continued)

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 July 2020, a third amended class action complaint was filed in the Logan Lawsuit by 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.

Plaintiffs sued 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 or purchased the Company’s common stock pursuant to the Company’s initial public offering in March 2017.

Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule l0b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act of 1933 against the Company, certain former officers and current and former directors, alleging that the defendants made allegedly inaccurate or misleading statements or omissions about the Company's business, operations and prospects.

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.

On August 11, 2022, the Company agreed to a proposed settlement of the claims in the Logan Lawsuit, which the court has preliminarily approved.

Under the proposed settlement agreement, the Company's insurers have paid a cash sum into a settlement fund to be distributed to members of the putative class.

A final approval hearing before the court is scheduled for April 11, 2023.

In May 2020, the U.S.

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Derivative Litigation (the "Shareholder Derivative Lawsuit").

In August 2020, the plaintiffs in the Shareholder Derivative Lawsuit filed a consolidated complaint alleging (i) breaches of fiduciary duties, (ii) unjust enrichment and (iii) contribution.

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 August 2020, the plaintiffs in the

PROPETRO HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES (Continued)

Shareholder Derivative Lawsuit filed a consolidated complaint alleging (i) breaches of fiduciary duties, (ii) unjust enrichment and (iii) contribution.

The plaintiffs did not quantify any alleged damages in their complaint but, in addition to attorneys’ fees and costs, they sought 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.

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.

On November 19, 2021, the Company received a demand letter from a law firm representing one of the purported shareholders 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.

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.

The Company's board of directors (the "Board") constituted a committee to evaluate the demand letter and recommend a course of action to the Board, and the committee retained counsel to assist with its review.

The committee concluded its investigation and recommended that the Board reject the demand letter.

In October 2022, the Board accepted the committee's recommendation and rejected the demand letter.

The Company incurred legal settlements totaling $ 34.1 million during the year December 31, 2022, consisting of the Logan Lawsuit and other settlements.

The Logan Lawsuit settlement of $ 30.0 million was fully covered by insurance and was subsequently paid by the insurance company in October 2022.

Environmental and Equipment Insurance

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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.

The Company is self-insured up to $ 10 million per occurrence for certain losses arising from or attributable to fire and/or explosion at wellsites.

No accrual was recorded in our financial statements in connection with this self-insurance strategy because the occurrence of fire and/or explosion cannot be reasonably estimated.

Regulatory Audits

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As of December 31, 2022, 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)

The following table sets forth our unaudited quarterly results for each of the last four quarters for the years ended December 31, 2021 and 2020.

This unaudited quarterly information has been prepared on the same basis as our annual audited financial statements and includes all adjustments, consisting only of normal recurring adjustments that are necessary to present fairly the financial information for the fiscal quarters presented.

(In thousands, except for per share data)

First Quarter Second Quarter Third Quarter Fourth Quarter

Revenue - Service revenue $ 161,458 $ 216,887 $ 250,099 $ 246,070

Gross profit $ 38,080 $ 54,050 $ 61,409 $ 58,709

$ ( 20,375 ) $ ( 8,511 ) $ ( 5,067 ) $ ( 20,232 )

Net income per common share:

$ ( 0.20 ) $ ( 0.08 ) $ ( 0.05 ) $ ( 0.20 )

Weighted average common shares outstanding:

101,550 102,398 103,257 103,390

First Quarter Second Quarter Third Quarter Fourth Quarter

Revenue - Service revenue $ 395,069 $ 106,109 $ 133,710 $ 154,344

Gross profit $ 94,221 $ 37,916 $ 34,118 $ 38,698

$ ( 7,804 ) $ ( 25,920 ) $ ( 29,184 ) $ ( 44,112 )

Net income per common share:

$ ( 0.08 ) $ ( 0.26 ) $ ( 0.29 ) $ ( 0.44 )

Weighted average common shares outstanding:

100,687 100,821 100,897 100,911

The net refund to the company of $ 10.7 million was recorded as part of other income in our statement of operations during the year December 31, 2022.

During the year December 31, 2021, we recorded a net refund of approximately $ 2.1 million.

In May 2022, the Company received a notification from the Comptroller that it will commence a routine audit of the Company’s gross receipt taxes, which will routinely cover up to a four-year period.

As of December 31, 2022, the audit is still ongoing and the final outcome cannot be reasonably estimated.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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