ProPetro Holding Corp. 10-K

Item 8. Financial Statements and Supplementary Data. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of ProPetro Holding Corp. and Subsidiaries: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of ProPetro Holding Corp. and Subsidiaries (the Company) as of December 31, 2023 , the related consolidated statements of operations, shareholders’ equity and cash flows, for the year then ended, and the related notes (collectively, 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, 2023 , and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 13, 2024, expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. As discussed in Note 11 to the financial statements, the Company changed the composition of its segment information in 2023. We have audited the adjustments necessary to restate the 2022 and 2021 segment information as provided in Note 11. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2022 or 2021 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2022 and 2021 financial statements taken as a whole. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Acquisition — Par Five Energy Services, LLC — Fair value of assets acquired, and liabilities assumed — Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description The Company completed the acquisition of Par Five Energy Services, LLC (“Par Five”) for a total purchase consideration of $25.4 million on December 1, 2023 (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 48 liabilities assumed based on their respective estimated fair values. The largest asset classes acquired include property and equipment consisting mainly of oilfield cementing pumps, vehicles, trailer, tanks, and support equipment. 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 replacement cost, normal useful life and economic obsolescence. We identified the valuation of property and equipment 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 judgement and an increased extent of effort, including the need to involve our internal valuation specialists, when performing audit procedures to evaluate the reasonableness of management’s assumptions such as replacement cost, normal useful life and economic obsolescence. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the fair value of property and equipment acquired as part of the Acquisition included the following, among others: • We obtained an understanding of the relevant controls related to the recording of assets acquired and liabilities assumed in a business combination and tested such controls for design and operating effectiveness. • With the assistance of our internal valuation specialists, we evaluated the reasonableness of the valuation methodology and significant assumptions including estimates of trend factor calculation, replacement cost, normal useful life, and economic obsolescence 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. /s/ RSM US LLP We have served as the Company's auditor since 2023. Houston, Texas March 13, 2024 PCAOB ID: 49 49 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of ProPetro Holding Corp. and Subsidiaries: Opinion on Internal Control over Financial Reporting We have audited ProPetro Holding Corp and Subsidiaries (the Company’s) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company as of and for the year ended December 31, 2023 and our report dated March 13, 2024 expressed an unqualified opinion on those consolidated financial statements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. The Company did not maintain adequate segregation of duties or sufficient compensating management review controls to effectively mitigate an inadequate system access control configuration in its accounting system in which manual journal entry approvers can modify the entries before posting. This deficiency is solely related to manual journal entries and has no impact on system-generated journal entries flowing through its accounting system and other feeder systems. This issue impacts all manual journal entries impacting all affected transaction cycles. Due to this control deficiency, other manual-dependent controls were deemed ineffective. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated March 13, 2024, on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the 50 company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Houston, Texas March 13, 2024 PCAOB ID: 49 51 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of ProPetro Holding Corp. and Subsidiaries Opinion on the Financial Statements We have audited, before the effects of the retrospective adjustments to the disclosures for a change in the composition of reportable segments discussed in Note 11 to the consolidated financial statements, the consolidated balance sheet of ProPetro Holding Corp. and Subsidiaries (the "Company") as of December 31, 2022, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively, referred to as, the "financial statements") (the 2022 and 2021 financial statements before the effects of the retrospective adjustments discussed in Note 11 to the financial statements are not presented herein). In our opinion, the 2022 and 2021 financial statements, before the effects of the retrospective adjustments to the disclosures for a change in the composition of reportable segments discussed in Note 11 to the financial statements, present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We were not engaged to audit, review, or apply any procedures to the retrospective adjustments to the disclosures for a change in the composition of reportable segments discussed in Note 11 to the financial statements, and accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors. Basis of Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & TOUCHE LLP Houston, Texas February 23, 2023 We began serving as the Company's auditor since 2013. In 2023 we became the predecessor auditor. 52 PROPETRO HOLDING CORP. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2023 AND 2022 (In thousands, except share data) 2023 2022 ASSETS CURRENT ASSETS: Cash, cash equivalents and restricted cash $ 33,354 $ 88,862 Accounts receivable - net of allowance for credit losses of $ 236 and $ 419 , respectively 237,012 215,925 Inventories 17,705 5,034 Prepaid expenses 14,640 8,643 Short-term investment, net 7,745 10,283 Other current assets 353 38 Total current assets 310,809 328,785 PROPERTY AND EQUIPMENT - Net of accumulated depreciation 967,116 922,735 OPERATING LEASE RIGHT-OF-USE ASSETS 78,583 3,147 FINANCE LEASE RIGHT-OF-USE ASSETS 47,449 — OTHER NONCURRENT ASSETS: Goodwill 23,624 23,624 Intangible assets - net of amortization 50,615 56,345 Other noncurrent assets 2,116 1,150 Total other noncurrent assets 76,355 81,119 TOTAL ASSETS $ 1,480,312 $ 1,335,786 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 161,441 $ 234,299 Accrued and other current liabilities 75,616 49,027 Operating lease liabilities 17,029 854 Finance lease liabilities 17,063 — Total current liabilities 271,149 284,180 DEFERRED INCOME TAXES 93,105 65,265 LONG-TERM DEBT 45,000 30,000 NONCURRENT OPERATING LEASE LIABILITIES 38,600 2,308 NONCURRENT FINANCE LEASE LIABILITIES 30,886 — OTHER LONG-TERM LIABILITIES 3,180 — Total liabilities 481,920 381,753 COMMITMENTS AND CONTINGENCIES (Note 18) SHAREHOLDERS’ EQUITY: Preferred stock, $ 0.001 par value, 30,000,000 shares authorized, none issued, respectively — — Common stock, $ 0.001 par value, 200,000,000 shares authorized, 109,483,281 and 114,515,008 shares issued and outstanding, respectively 109 114 Additional paid-in capital 929,249 970,519 Retained earnings (accumulated deficit) 69,034 ( 16,600 ) Total shareholders’ equity 998,392 954,033 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,480,312 $ 1,335,786 See notes to consolidated financial statements. 53 PROPETRO HOLDING CORP. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 , 2022 AND 2021 (In thousands, except per share data) 2023 2022 2021 REVENUE - Service revenue $ 1,630,399 $ 1,279,701 $ 874,514 COSTS AND EXPENSES: Cost of services (exclusive of depreciation and amortization) 1,131,801 882,820 662,266 General and administrative expenses (inclusive of stock‑based compensation) 114,354 111,760 82,921 Depreciation and amortization 180,886 128,108 133,377 Impairment expense — 57,454 — Loss on disposal of assets 73,015 102,150 64,646 Total costs and expenses 1,500,056 1,282,292 943,210 OPERATING INCOME (LOSS) 130,343 ( 2,591 ) ( 68,696 ) OTHER (EXPENSE) INCOME: Interest expense ( 5,308 ) ( 1,605 ) ( 614 ) Other (expense) income ( 9,533 ) 11,582 873 Total other (expense) income ( 14,841 ) 9,977 259 INCOME (LOSS) BEFORE INCOME TAXES 115,502 7,386 ( 68,437 ) INCOME TAX (EXPENSE) BENEFIT ( 29,868 ) ( 5,356 ) 14,252 NET INCOME (LOSS) $ 85,634 $ 2,030 $ ( 54,185 ) NET INCOME (LOSS) PER COMMON SHARE: Basic $ 0.76 $ 0.02 $ ( 0.53 ) Diluted $ 0.76 $ 0.02 $ ( 0.53 ) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 113,004 105,868 102,655 Diluted 113,416 106,939 102,655 See notes to consolidated financial statements. 54 PROPETRO HOLDING CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 , 2022 AND 2021 (In thousands) Common Stock Shares Amount Additional Paid‑In Capital Retained Earnings (Accumulated Deficit) Total BALANCE - January 1, 2021 100,913 $ 101 $ 835,115 $ 35,555 $ 870,771 Stock‑based compensation cost — — 11,519 — 11,519 Issuance of equity award—net 2,524 3 4,014 — 4,017 Tax withholdings paid for net settlement of equity awards — — ( 5,820 ) — ( 5,820 ) Net loss — — — ( 54,185 ) ( 54,185 ) BALANCE - December 31, 2021 103,437 $ 104 $ 844,828 $ ( 18,630 ) $ 826,302 Stock‑based compensation cost — — 21,881 — 21,881 Issuance of equity awards—net 11,078 10 107,689 — 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 Stock‑based compensation cost — — 14,450 — 14,450 Issuance of equity—net 763 1 ( 1 ) — — Tax withholdings paid for net settlement of equity awards — — ( 3,543 ) — ( 3,543 ) Share repurchases ( 5,795 ) ( 6 ) ( 51,732 ) — ( 51,738 ) Excise tax on share repurchases — — ( 444 ) — ( 444 ) Net income — — — 85,634 85,634 BALANCE - December 31, 2023 109,483 $ 109 $ 929,249 $ 69,034 $ 998,392 See notes to consolidated financial statements. 55 PROPETRO HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023 , 2022 AND 2021 (In thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 85,634 $ 2,030 $ ( 54,185 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 180,886 128,108 133,377 Impairment expense — 57,454 — Deferred income tax expense (benefit) 27,840 4,213 ( 14,288 ) Amortization of deferred debt issuance costs 359 785 542 Stock‑based compensation 14,450 21,881 11,519 Provision for credit losses 34 202 282 Loss on disposal of assets 73,015 102,150 64,646 Unrealized loss on short-term investment 2,538 1,570 — Non-cash income from settlement with equipment manufacturer — ( 2,668 ) — Changes in operating assets and liabilities: Accounts receivable ( 12,408 ) ( 66,900 ) ( 43,742 ) Other current assets ( 831 ) 354 310 Inventories ( 6,017 ) 124 ( 1,220 ) Prepaid expenses ( 6,143 ) 743 4,463 Accounts payable ( 11,429 ) 27,428 51,764 Accrued and other current liabilities 26,431 22,602 1,246 Accrued interest 383 353 — Net cash provided by operating activities 374,742 300,429 154,714 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 370,869 ) ( 319,683 ) ( 143,523 ) Business acquisitions, net of cash acquired ( 22,215 ) ( 38,639 ) — Proceeds from sale of assets 8,957 8,577 39,231 Net cash used in investing activities ( 384,127 ) ( 349,745 ) ( 104,292 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 30,000 30,000 — Repayments of borrowings ( 15,000 ) — — Payments of finance lease obligation ( 4,663 ) — — Repayments of insurance financing — — ( 5,473 ) Payment of debt issuance costs ( 1,179 ) ( 824 ) — Proceeds from exercise of equity awards — 963 4,017 Tax withholdings paid for net settlement of equity awards ( 3,543 ) ( 3,879 ) ( 5,820 ) Share repurchases ( 51,738 ) — — Net cash (used in) provided by financing activities ( 46,123 ) 26,260 ( 7,276 ) NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 55,508 ) ( 23,056 ) 43,146 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of year 88,862 111,918 68,772 CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of year $ 33,354 $ 88,862 $ 111,918 See notes to consolidated financial statements. 56 PROPETRO HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE YEARS ENDED DECEMBER 31, 2023 , 2022 AND 2021 (In thousands) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheets: 2023 2022 2021 Summary of cash, cash equivalents and restricted cash Cash and cash equivalents $ 33,354 $ 78,862 $ 111,918 Restricted cash — 10,000 — Total cash, cash equivalents and restricted cash — End of year $ 33,354 $ 88,862 $ 111,918 See notes to consolidated financial statements. 57 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND HISTORY ProPetro Holding Corp. ("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 December 1, 2023, we consummated the purchase of the assets and operations of Par Five Energy Services LLC (“Par Five”), which provides cementing services in the Delaware Basin in exchange for $ 25.4 million of cash (the “Par Five Acquisition”) . Par Five’s business complements our existing cementing business and enables us to serve both the Midland and Delaware Basins of the Permian Basin. 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 Holding, Servi ces, and Silvertip. On December 31, 2018, we consummated the purchase of certain pressure pumping assets and real property from Pioneer Natural Resources USA, Inc. (“Pioneer”) and Pioneer Pumping Services, LLC (“Pioneer Pumping Services”) in connection with our purchase of certain pressure pumping assets and real property (the “Pioneer Pressure Pumping Acquisition”) in exchange for 16.6 million shares of our common stock and $ 110.0 million in cash, and concurrently entered into a pressure pumping services agreement (the "Pioneer Services Agreement") with Pioneer. 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. On March 31, 2022, we entered into an amended and restated pressure pumping services agreement (the “A&R Pressure Pumping Services Agreement”) to replace the Pioneer Services Agreement that was entered into in connection with the Pioneer Pressure Pumping Acquisition. This agreement expired at the conclusion of its term and was replaced by the Fleet One Agreement and Fleet Two Agreement described below. On October 31, 2022, we entered into two pressure pumping services agreements (the “Fleet One Agreement” and the “Fleet Two Agreement”) with Pioneer, pursuant to which we provided 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 was terminated on August 31, 2023. The Fleet Two Agreement was effective as of January 1, 2023 and was terminated on May 12, 2023. In October 2023, Pioneer entered into a merger agreement with Exxon Mobil Corporation. 2. 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 subsidiaries, Services and Silvertip. All intercompany accounts and transactions have been eliminated in consolidation. Basis of Presentation — The accompanying consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC") and in conformity with accounting principles generally accepted in the United States of America ("GAAP"). 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, intangible assets, discount rates underlying our lease right-of-use assets and 58 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) liabilities, 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. Revenue Recognition — The Company’s services are sold based upon contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. 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 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 may be entitled to reservation fee charges if a customer were to reserve committed hydraulic fracturing equipment. The Company recognizes revenue related to reservation fee charges on a daily basis as the performance obligations are met. Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid or similar chemicals are injected under pressure into formations to form or expand fissures. Our acidizing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service or sale of acid or chemical when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize acidizing revenue at a point-in-time, upon completion of the performance obligation. Our cementing services use pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole. Our cementing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize cementing revenue at a point-in-time, upon completion of the performance obligation. 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 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. Coiled tubing involves complementary 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. Effective September 1, 2022, we shut down our coiled tubing operations, and disposed of all of our coiled tubing assets. Cash and Cash Equivalents — All highly liquid investments with an original maturity of three months or less. Restricted Cash and Customer Cash Advances — Our restricted cash relates to cash received from a customer in connection with our contract with the customer to provide FORCE SM electric-powered hydraulic fracturing equipment and services. The restricted cash will be used to pay for contractually agreed upon expenditures. The cash advances from the customer will be credited towards the customer’s invoice as our revenue performance obligations are met over the contract period. Our restricted cash balances at December 31, 2023 and 2022 were $ 0 and $ 10.0 million , respectively. 59 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) The cash advances received represent contract liabilities in connection with the performance of certain completion services. The cash advance (contract liability) balances, which are included in accrued and other current liabilities in our consolidated balance sheets, were $ 19.2 million and $ 10.0 million as of December 31, 2023 an d 2022, respectively. During 2023, we recognized revenue of $ 5.7 million from the cash advance amount outstanding at the beginning of the period. We had no cash advance amounts outstanding at the beginning of 2022, and we recognized no associated revenue during 2022. Accounts Receivable — Accounts receivable are stated at the amount billed and billable to customers. At December 31, 2023 and 2022 accrued revenue (unbilled receivable) included as part of our accounts receivable was $ 55.4 million and $ 51.9 million, respectively. At December 31, 2023, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing and wireline operations was $ 33.8 million, which is expected to be completed and recognized within one month following the current period balance sheet date. At December 31, 2022, the transaction price allocated to the remaining performance obligation for our then partially completed hydraulic fracturing and wireline operations was $ 38.7 million, which was recorded as part of revenues for the year ended December 31, 2023. As of December 31, 2023, the Company had $ 0.2 million allowance for credit losses. Our allowance for credit losses is based on the evaluation of both our historic collection experience and economic outlook for the oil and gas industry. We evaluated the historic loss experience on our accounts receivable and also considered separately customers with receivable balances that may be negatively impacted by current 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 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. The table below shows a summary of allowance for credit losses: (in thousands) Year Ended December 31, 2023 2022 2021 Balance - January 1, $ 419 $ 217 $ 1,497 Provision for credit losses during the period 34 202 282 Write-off during the period ( 217 ) — ( 1,562 ) Balance - December 31, $ 236 $ 419 $ 217 Inventories — Inventories, which consists only of raw materials and fluid ends, are stated at lower of average cost and net realizable value. Property and Equipment — The Company’s property and equipment are recorded at cost, less accumulated depreciation. Depreciation — Depreciation of property and equipment is provided on the straight‑line method over the following estimated useful lives: Land Indefinite Buildings and property improvements 5 - 30 years Vehicles 1 ‑ 5 years Equipment 1 ‑ 22 years Leasehold improvements 5 ‑ 20 years 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. The Company recorded a loss on disposal of assets of $ 73.0 million , $ 102.1 million and $ 64.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. 60 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of Long‑Lived Assets — In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360, Accounting for the Impairment or Disposal of Long‑Lived Assets , the Company reviews its long‑lived assets to be held and used whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future undiscounted cash flows attributable to the asset group is less than the carrying amount of such asset group. In this circumstance, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. No impairment expense was recorded during the year ended December 31, 2023. D uring the year ended December 31, 2022 , w e recorded impairment expense of approximately $ 57.5 million in connection with our DuraStim® electric-powered hydraulic fracturing equipment. No impairment expense was recorded during the year ended December 31, 2021. 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. Goodwill — Goodwill is the excess of the consideration transferred over the fair value of the tangible and identifiable intangible assets and liabilities recognized. Goodwill is not amortized. We perform an annual impairment test of goodwill as of December 31, or more frequently if circumstances indicate that impairment may exist. The determination of impairment is made by comparing the carrying amount of a reporting unit with its fair value, which is generally calculated using a combination of market and income approaches. If the fair value of the reporting unit exceeds the carrying value, no further testing is performed. If the fair value of the reporting unit is less than the carrying value, we consider goodwill to be impaired, and the amount of impairment loss is calculated and recorded in the statement of operations. On November 1, 2022, we acquired Silvertip for $ 148.1 million. We accounted for the Silvertip Acquisition 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. As of December 31, 2023 and 2022, our goodwill carrying value was $ 23.6 million and $ 23.6 million, respectively. There were no additions to goodwill during the year ended December 31, 2023. The wireline operating segment is the only segment with goodwill at December 31, 2023 and 2022. We conducted our annual impairment test of goodwill in accordance with ASC 350, Intangibles—Goodwill and Other , as of December 31, 2023 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, 2023 and 2022. 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. Under this method, deferred tax assets and liabilities are determined on the basis of differences between the consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and the results of recent operations. If we determine that we would not be able to fully realize our deferred tax assets in the future, we would record a valuation allowance. 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. Unamortized deferred loan costs associated with loans paid off or refinanced with different lenders are expensed in the period in which such an event occurs. Deferred loan costs are classified as a reduction of 61 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) long‑term debt or in certain instances as an asset in the consolidated balance sheet. Amortization of deferred loan costs is recorded as interest expense in the statement of operations, and during the years ended December 31, 2023, 2022 and 2021, the amount of expense recorded was $ 0.4 million, $ 0.8 million and $ 0.5 million, respectively. 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 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. If the Company finances a portion of the premium, a prepaid insurance asset is recorded and amortized monthly over the relevant period. Concentration of Credit Risk — The Company’s assets that are potentially subject to concentrations of credit risk are cash and cash equivalents and trade accounts receivable. Cash balances are maintained in financial institutions, which at times exceed federally insured limits. The Company monitors the financial condition of the financial institutions in which accounts are maintained and has not experienced any losses in such accounts. The receivables of the Company are with credible operators in the oil and natural gas industries. The Company performs ongoing evaluations as to the financial condition of its customers with respect to trade receivables. Share Repurchases — All shares of common stock repurchased through the Company's share repurchase program are retired upon repurchase. The Company accounts for the purchase price of repurchased common stock in excess of par value ($ 0.001 per share of common stock) as a reduction of additional paid-in capital, and will continue to do so until additional paid-in capital is reduced to zero. Thereafter, any excess purchase price will be recorded as a reduction of retained earnings. Change in Accounting Estimates — Current trends in hydraulic fracturing equipment operating conditions such as larger pads, changes to job design and increased pumping hours per day have resulted in shorter useful lives for certain critical components that are included in our property and equipment assets. These recent trends necessitated a review of useful lives of our critical components like fluid ends, power ends, hydraulic fracturing units and other components in the first quarter of 2023. We determined that the estimated useful life of fluid ends is now less than one year, resulting in our determination that costs associated with the replacement of these components will no longer be capitalized, but instead recorded in inventories and amortized to cost of services over their estimated useful life. We have also shortened the estimated useful lives of power ends to two years from five years and hydraulic fracturing units to ten years from fifteen years . This change in accounting estimates was made effective January 1, 2023 and accounted for prospectively. The net effect of this change for the year ended December 31, 2023, was a $ 19.1 million decrease in net income, or $ 0.17 per basic and diluted share, respectively. Additionally, in connection with the review of our fluid ends and power ends estimated useful life, effective January 1, 2023, we are writing off the remaining book value of power ends that prematurely fail as accelerated depreciation. These write-off amounts were $ 12.5 million, $ 11.8 million, $ 8.4 million and $ 6.0 million for the three months ended March, 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023, respectively. However, to conform to prior year presentation, we have presented these write-off amounts within loss on disposal of assets for the year ended December 31, 2023. In 2022 and 2021, we wrote off the remaining book value of prematurely failed and disposed of power ends to loss on disposal of assets. Recently Issued Accounting Standards In October 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments in the ASU represent changes to clarify or improve disclosure and presentation requirements of a variety of Codification topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. ASU 2023-06 will become effective for each amendment on the effective date of the SEC's corresponding disclosure rule changes. We do not expect ASU 2023-06 to have a material impact on our consolidated financial statements . In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires public entities to disclose on an annual and interim basis, 1) significant segment expenses that are regularly provided to the Chief Operating Decision Maker (the “CODM”) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”) and 2) an amount for other segment items 62 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) representing the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss. This ASU also requires public entities to provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods, clarifies that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss but at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles under GAAP. This ASU also requires disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources, and requires a public entity that has a single reportable segment to provide all the disclosures required by the amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We do not expect ASU 2023-07 to have a material effect on our consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires disaggregation of certain components included in the Company’s effective tax rate and income taxes paid disclosures. The guidance is effective for annual periods beginning after December 15, 2024. We are currently assessing the impact of ASU 2023-09 on our consolidated financial statements but do not expect it will have a material impact. 3. SUPPLEMENTAL CASH FLOWS INFORMATION (in thousands) Year Ended December 31, 2023 2022 2021 Supplemental cash flows disclosures Interest paid $ 4,564 $ 467 $ 72 Income taxes paid $ 1,110 $ 129 $ 196 Supplemental disclosure of non‑cash investing and financing activities Capital expenditures included in accounts payable and accrued liabilities $ 21,604 $ 82,452 $ 36,818 Par Five asset purchase consideration included in other long-term liabilities $ 3,180 $ — $ — 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 $ — 4. BUSINESS ACQUISITIONS Par Five Acquisition On December 1, 2023, the Company completed the acquisition of certain assets and certain liabilities of Par Five. Par Five is an oilfield service company based in Artesia, New Mexico that provides cementing and remediation services across the Permian Basin in Texas and New Mexico. As a result of the acquisition, the Company expanded its operations in the cementing service business unit. The following table summarizes the consideration transferred to Par Five and the recognized amounts of identified assets acquired and liabilities assumed at the acquisition date: (in thousands) Total purchase consideration: Cash $ 22,215 Deferred cash payment 3,180 Total consideration $ 25,395 63 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. BUSINESS ACQUISITIONS (Continued) (in thousands) Recognized amounts of assets acquired and liabilities assumed: Accounts receivable $ 8,712 Inventory 321 Property, plant and equipment 17,175 Accrued liabilities ( 813 ) Total net assets acquired $ 25,395 Preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on information available through the issuance of these consolidated financial statements, and the Company is continuing to evaluate the underlying inputs and assumptions used in the valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the acquisition date. The deferred cash consideration of $ 3.2 million will be used to cover the amount by which the estimated purchase price exceeds the final purchase price, if any. The unused amount is payable to Par Five or its beneficiary on June 1, 2025 and accrues interest at 4.0 % per annum. This obligation is shown within other long-term liabilities in our consolidated balance sheets. As of December 31, 2023, the outstanding amount for this obligation was $ 3.2 million. The fair value of the assets acquired includes account receivables of $ 8.7 million. The gross amount due under contracts is $ 8.7 million, of which none is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of Par Five. The acquired business contributed revenues of $ 4.9 million and net income of $ 1.2 million to the Company for the period from December 1, 2023 to December 31, 2023. The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2022. (unaudited, in thousands) Year Ended December 31, 2023 2022 Revenue $ 1,672,350 $ 1,315,970 Net income 99,536 4,823 The Company had material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and net income. These adjustments included nonrecurring acquisition costs incurred in 2023 but have been adjusted to be reflected in 2022. These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Par Five to reflect the additional depreciation that would have been charged assuming the fair value adjustments to property, plant, and equipment had been applied from January 1, 2022, with the consequential tax effects. For the year ended December 31, 2023, the Company incurred $ 1.3 million of acquisition costs. These expenses are included in general and administrative expenses on the Company’s consolidated income statement for the year ended December 31, 2023 and are reflected in pro forma net income for the year ended December 31, 2022, in the table above. 64 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. BUSINESS ACQUISITIONS (Continued) The Company’s consolidated statement of operations for the year ended December 31, 2023 includes 31 days of Par Five operations as the Par Five Acquisition closed on December 1, 2023. 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 seller closing and transaction costs. The Silvertip Acquisition positions the Company as a more resilient and diversified completions-focused oilfield service 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 the Silvertip Acquisition Date: (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) 52,478 Intangible assets: Trademark/trade name (2) 10,800 Customer relationships (2) 46,500 Goodwill 23,624 Operating lease right-of-use asset 2,783 Total 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. 65 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. BUSINESS ACQUISITIONS (Continued) 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, 2022 2021 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. 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. 5. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used, when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions other market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows: Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment. 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. Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. 66 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. FAIR VALUE MEASUREMENTS (Continued) Assets and Liabilities Measured at Fair Value on a Recurring Basis 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, 2023 and 2022 and have been excluded from the table below. Assets measured at fair value on a recurring basis as of December 31, 2023 are set forth below: (In thousands) Estimated fair value measurements Balance Quoted prices in active market (Level 1) Significant other observable inputs (Level 2) Significant other unobservable inputs (Level 3) Total gains (losses) December 31, 2023: Short-term investment $ 7,745 $ 7,745 $ — $ — $ ( 2,538 ) December 31, 2022: Short-term investment $ 10,283 $ 10,283 $ — $ — $ ( 1,570 ) Short-term investment — On September 1, 2022, the Company received 2.6 million common shares of STEP Energy Services 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, 2023, the fair value of the short-term investment was estimated at $ 7.7 million. The fluctuation in stock price resulted in an unrealized loss of $ 2.5 million and $ 1.6 million for 2023 and 2022 , respectively. Included in the unrealized loss was a gain of $ 0.1 million and a loss of $ 0.3 million resulting from non-cash foreign currency translation for the years ended December 31, 2023 and 2022, respectively . The unrealized losses resulting from stock price fluctuation and non-cash foreign currency translation are included in other income (expense) in our consolidated statements of operations. The Company is restricted from selling, transferring or assigning more than 0.9 million shares in any one calendar month . 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 Par Five Acquisition, which are required to be measured at fair value on the acquisition date according to ASC Topic 805, Business Combinations (see Note 4. Business Acquisitions). Whenever events or circumstances indicate that the carrying value of long-lived assets may not be recoverable, the Company reviews the carrying values of long‑lived assets, such as property and equipment and other assets to determine if they are recoverable. If any long‑lived assets are determined to be unrecoverable, an impairment expense is recorded in the period. No impairment of property and equipment was recorded during the year ended December 31, 2023. We recorded impairment expense of approximately $ 57.5 million during the year ended December 31, 2022, in connection with our DuraStim® electric-powered 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. 67 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. FAIR VALUE MEASUREMENTS (Continued) We generally apply fair value techniques to our reporting units on a nonrecurring basis associated with valuing potential impairment loss related to goodwill, if any. Our estimate of the reporting unit fair value is based on a combination of income and market approaches, Level 1 and 3, respectively, in the fair value hierarchy. The income approach involves the use of a discounted cash flow method, with the cash flow projections discounted at an appropriate discount rate. The market approach involves the use of comparable public companies’ market multiples in estimating the fair value. Significant assumptions include projected revenue growth, capital expenditures, utilization, gross margins, discount rates, terminal growth rates, and weight allocation between income and market approaches. 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 goodwill during the year ended December 31, 2023. We added $ 23.6 million of goodwill during the year ended December 31, 2022 (see Note 4. Business Acquisitions). There were no additions to goodwill during the year ended December 31, 2021. We conducted our annual impairment test of goodwill as of December 31, 2023 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, 2023, 2022 and 2021 . The wireline operating segment is the only segment which has goodwill at December 31, 2023 and 2022. The table below sets forth the changes in the carrying amount of goodwill. (in thousands) Goodwill as of January 1, 2022 — net $ — Goodwill addition during the year 23,624 Less impairment losses — Goodwill as of December 31, 2022 — net 23,624 Goodwill addition during the year — Less impairment losses — Goodwill as of December 31, 2023 — net $ 23,624 6. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: (in thousands) December 31, 2023 2022 Land $ 14,076 $ 11,793 Buildings 37,888 34,298 Equipment and vehicles 1,551,261 1,397,727 Leasehold improvements 8,011 8,573 Subtotal 1,611,236 1,452,391 Less accumulated depreciation ( 644,120 ) ( 529,656 ) Property and equipment — net $ 967,116 $ 922,735 Depreciation consisted of the following: (in thousands) Year Ended December 31, 2023 2022 2021 Depreciation related to cost of services $ 169,771 $ 126,746 $ 133,075 Depreciation related to general and administrative expenses 222 407 302 Total depreciation $ 169,993 $ 127,153 $ 133,377 68 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company incurred amortization expense of $ 5.2 million on its finance lease right-of-use asset, which is related to cost of services for the year ended December 31, 2023 . There was no amortization expense related to finance leases for the years ended December 31, 2022 and 2021. The Company also incurred amortization expense on its intangible assets (see Note 7. Intangible Assets). In December 2021, the Company disposed of two turbine generators, which were included in o ur Hydraulic Fracturing 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. 7. 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, all of which was related to general and administrative expenses, was $ 5.7 million, $ 1.0 million and $ 0 for the years ended December 31, 2023, 2022 and 2021, respectively. The Company’s intangible assets subject to amortization consisted of the following: (in thousands) December 31, 2023 2022 Intangible assets acquired: Trademark/trade name $ 10,800 $ 10,800 Customer relationships 46,500 46,500 Total intangible assets acquired 57,300 57,300 Accumulated amortization: Trademark/trade name ( 1,260 ) ( 180 ) Customer relationships ( 5,425 ) ( 775 ) Total accumulated amortization ( 6,685 ) ( 955 ) Intangible assets — net $ 50,615 $ 56,345 Estimated remaining amortization expense subsequent fiscal years is expected to be as follows: (in thousands) Year Estimated future amortization expense 2024 $ 5,730 2025 5,730 2026 5,730 2027 5,730 2028 and beyond 27,695 Total $ 50,615 The average amortization period remaining is approximately 8.8 years. 8. LONG‑TERM DEBT Asset-Based Loan Credit Facility Our revolving credit facility, as amended and restated in April 2022, prior to giving effect to the amendment to the revolving credit facility in June 2023, had a total borrowing capacity of $ 150 million. The revolving credit facility had 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 revolving credit facility, included a springing fixed charge coverage ratio to apply when 69 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS excess availability was less than the greater of (i) 10 % of the lesser of the facility size or the borrowing base or (ii) $ 10.0 million. Under the revolving credit facility, we were required to comply, subject to certain exceptions and materiality qualifiers, with certain customary affirmative and negative covenants, including, but not limited to, covenants pertaining to our ability to incur liens, indebtedness, changes in the nature of our business, mergers and other fundamental changes, disposal of assets, investments and restricted payments, amendments to our organizational documents or accounting policies, prepayments of certain debt, dividends, transactions with affiliates, and certain other activities. Effective June 2, 2023, the Company entered into an amendment to its amended and restated revolving credit facility the revolving credit facility (as amended and restated in April 2022, as amended in June 2023 and as may be amended further, "ABL Credit Facility"). The amendment increased the borrowing capacity under the ABL Credit Facility to $ 225.0 million (subject to the Borrowing Base (as defined below) limit), and extended the maturity date to June 2, 2028. The ABL Credit Facility has a borrowing base of the sum of 85 % to 90 % of monthly eligible accounts receivable and 80 % of eligible unbilled accounts (up to a maximum of 25 % of the borrowing base), in each case, depending on the credit ratings of our accounts receivable counterparties, less customary reserves (the "Borrowing Base"), in each case, depending on the credit ratings of our accounts receivable counterparties, as redetermined monthly. The Borrowing Base as of December 31, 2023, was approximately $ 152.0 million. The ABL Credit Facility includes a springing fixed charge coverage ratio to apply when excess availability is less than the greater of (i) 10 % of the lesser of the facility size or the Borrowing Base or (ii) $ 15.0 million. Under the ABL Credit Facility we are required to comply, subject to certain exceptions and materiality qualifiers, with certain customary affirmative and negative covenants, including, but not limited to, covenants pertaining to our ability to incur liens or indebtedness, changes in the nature of our business, mergers and other fundamental changes, disposal of assets, investments and restricted payments, amendments to our organizational documents or accounting policies, prepayments of certain debt, dividends, transactions with affiliates, and certain other activities. Borrowings under the ABL Credit Facility are secured by a first priority lien and security interest in substantially all assets of the Company. Borrowings under the ABL Credit Facility accrue interest based on a three-tier pricing grid tied to availability, and we may elect for loans to be based on either the Secured Overnight Financing Rate ("SOFR") or the base rate, plus the applicable margin, which ranges from 1.75 % to 2.25 % for SOFR loans and 0.75 % to 1.25 % for base rate loans. The weighted average interest rate for our ABL Credit Facility for the year ended December 31, 2023, was 6.69 % . The loan origination costs relating to the ABL Credit Facility are classified as an asset in our balance sheet. As of December 31, 2023 and 2022 , we had outstanding borrowings under our ABL Credit Facility of $ 45.0 million and $ 30.0 million, respectively. 9. ACCRUED AND OTHER CURRENT LIABILITIES Accrued and other current liabilities consisted of the following: (in thousands) December 31, 2023 2022 Accrued insurance $ 1,222 $ 517 Accrued payroll and related expenses 14,284 14,137 Deferred revenue (advance from customer) 19,190 10,000 Capital expenditure, taxes and others accruals 40,920 24,373 Total $ 75,616 $ 49,027 10. EMPLOYEE BENEFIT PLAN The Company has a 401(k) plan, modified effective January 1, 2019 and further modified effective April 1, 2022. The Company matches 100 % of the employee contributions up to 6 % of gross salary, up to the annual limit. The employees are fully vested in their contributions when made. Prior to the April 1, 2022 modification, the employees vested in the Company’s contributions to the 401(k) plan 25 % per year, beginning in the employee’s first year of service, with full vesting occurring after four years of service. Effective April 1, 2022, the Company allows for immediate vesting of the Company’s contributions. During the years ended December 31, 2023, 2022 and 2021, the recorded expense under the plan was $ 5.9 million, $ 4.6 million and $ 2.8 million, respectively. 70 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. REPORTABLE SEGMENT INFORMATION The Company currently has three operating segments for which discrete financial information is readily available: hydraulic fracturing (inclusive of acidizing), wireline and cementing. T hese operating segments represent how the CODM evaluates performance and allocates resources. 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 coiled tubing assets did not qualify for presentation and disclosure as a discontinued operation, and accordingly, we have recorded the resulting loss from the disposal as part of our loss on disposal of assets in our consolidated statement of operations. We have historically conducted our business through four operating segments: hydraulic fracturing, wireline, cementing and coiled tubing. Prior to the fourth quarter of fiscal year 2023, our operating segments met the aggregation criteria and were aggregated into the “Completion Services” reportable segment and our coiled tubing operations (which were divested in September 2022) were shown in the “All Other” category. Effective as of the fourth quarter of fiscal year 2023, we revised our segment reporting as we determined that our three operating segments no longer met the criteria to be aggregated. Our Hydraulic Fracturing and Wireline operating segments meet the criteria of a reportable segment. Our cementing and our divested coiled tubing segments do not meet the reportable segment criteria and are included within the “All Other” category. Additionally, our corporate administrative activities do not involve business activities from which it may earn revenues and its results are not regularly reviewed by the Company’s CODM when making key operating and resource decisions. As a result, corporate administrative expenses have been included under “Reconciling Items.” Prior period segment information has been revised to conform to our current presentation. Our hydraulic fracturing operating segment revenue approximated 78.5 %, 89.3 % and 91.6 % of our revenue for the years ended December 31, 2023, 2022 and 2021, respectively. Revenue from our wireline operating segment (resulting from the acquisition of Silvertip in 2022) approximated 14.1 % and 2.4 % of our revenue for the years ended December 31, 2023 and 2022, respectively. Our cementing operating segment revenue approximated 7.4 %, 7.2 % and 6.5 % of our revenue for the years ended December 31, 2023, 2022 and 2021, respectively. Our coiled tubing revenue approximated 1.1 % and 1.9 % of our revenue for the years ended December 31, 2022 and 2021, respectively. Our operating segments are subject to inherent uncertainties which may influence our prospective activities. Inter-segment revenues are not material and are not shown separately in the tables below. The Company manages and assesses the performance of the reportable segment by its adjusted EBITDA (earnings before interest expense, income taxes, depreciation and amortization, stock-based compensation expense, other income or expense, gain or loss on disposal of assets and other unusual or nonrecurring expenses or income such as impairment charges, retention bonuses, severance, costs related to asset acquisitions, insurance recoveries, one-time professional fees and legal settlements). 71 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. REPORTABLE SEGMENT INFORMATION (Continued) The following tables set forth certain financial information with respect to the Company’s reportable segments (in thousands): Hydraulic Fracturing Wireline All Other Reconciling Items Total Year ended and as of December 31, 2023 Service revenue $ 1,280,523 $ 229,599 $ 120,277 $ — $ 1,630,399 Adjusted EBITDA $ 366,809 $ 61,930 $ 24,665 $ — $ 453,404 Capital expenditures $ 294,377 $ 12,203 $ 3,440 $ — $ 310,020 Goodwill $ — $ 23,624 $ — $ — $ 23,624 Total assets $ 1,189,526 $ 198,957 $ 78,475 $ 13,354 $ 1,480,312 Hydraulic Fracturing Wireline All Other Reconciling Items Total Year ended and as of December 31, 2022 Service revenue $ 1,143,216 $ 31,188 $ 105,297 $ — $ 1,279,701 Adjusted EBITDA $ 339,186 $ 7,926 $ 13,434 $ — $ 360,546 Capital expenditures $ 347,757 $ 2,265 $ 9,645 $ 5,649 $ 365,316 Goodwill $ — $ 23,624 $ — $ — $ 23,624 Total assets $ 1,092,658 $ 173,489 $ 46,944 $ 22,695 $ 1,335,786 Hydraulic Fracturing Wireline All Other Reconciling Items Total Year ended and as of December 31, 2021 Service revenue $ 800,581 $ — $ 73,933 $ — $ 874,514 Adjusted EBITDA $ 174,693 $ — $ 7,693 $ — $ 182,386 Capital expenditures $ 161,537 $ — $ 3,569 $ 52 $ 165,158 Total assets $ 982,702 $ — $ 71,579 $ 6,955 $ 1,061,236 72 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. REPORTABLE SEGMENT INFORMATION (Continued) A reconciliation from reportable segment level financial information to the consolidated statement of operations is provided in the table below (in thousands): Year Ended December 31, 2023 2022 2021 Service Revenue Hydraulic Fracturing $ 1,280,523 $ 1,143,216 $ 800,581 Wireline 229,599 31,188 — All Other 120,277 105,297 73,933 Total service revenue for reportable segments 1,630,399 1,279,701 874,514 Elimination of intersegment service revenue — — — Total consolidated service revenue $ 1,630,399 $ 1,279,701 $ 874,514 Adjusted EBITDA Hydraulic Fracturing $ 366,809 $ 339,186 $ 174,693 Wireline 61,930 7,926 — All Other 24,665 13,434 7,693 Total Adjusted EBITDA for reportable segments 453,404 360,546 182,386 Unallocated corporate administrative expenses ( 49,444 ) ( 43,956 ) ( 47,379 ) Depreciation and amortization ( 180,886 ) ( 128,108 ) ( 133,377 ) Impairment expense (1) — ( 57,454 ) — Interest expense ( 5,308 ) ( 1,605 ) ( 614 ) Income tax (expense) benefit ( 29,868 ) ( 5,356 ) 14,252 Loss on disposal of assets ( 73,015 ) ( 102,150 ) ( 64,646 ) Stock-based compensation ( 14,450 ) ( 21,881 ) ( 11,519 ) Other (expense) income (2) ( 9,533 ) 11,582 873 Other general and administrative expense (3) ( 2,969 ) ( 8,460 ) 6,471 Retention bonus and severance expense ( 2,297 ) ( 1,128 ) ( 632 ) Net income (loss) $ 85,634 $ 2,030 $ ( 54,185 ) Assets Hydraulic Fracturing $ 1,189,526 $ 1,092,658 $ 982,702 Wireline 198,957 173,489 — All Other 78,475 46,944 71,579 Total assets for reportable segments 1,466,958 1,313,091 1,054,281 Unallocated corporate assets 13,354 22,695 6,955 Total assets $ 1,480,312 $ 1,335,786 $ 1,061,236 (1) Represents expense in connection with the impairment of our DuraStim® electric-powered hydraulic fracturing equipment. (2) Other expense for the year ended December 31, 2023 includes settlement expenses resulting from routine audits and one-time health insurance costs totaling approximately $ 7.4 million, and a $ 2.5 million unrealized loss on short-term investment. Other income for the year ended December 31, 2022 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, a $ 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. 73 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. REPORTABLE SEGMENT INFORMATION (Continued) (3) Other general and administrative expense for the year ended December 31, 2023 primarily relates to nonrecurring professional fees paid to external consultants in connection with our business acquisitions and legal settlements, net of reimbursement from insurance carriers. Other general and administrative expense for the years ended December 31, 2022 and 2021 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 reimbursement from insurance carriers. During the years ended December 31, 2023, 2022 and 2021, we received reimbursement of approxim ately $ 0.4 million, $ 10.4 million and $ 9.8 million, respectively, from our insurance carriers in connection with the SEC investigation and shareholder litigation. Major Customers The Company had revenue from the following significant customers that accounted for the following percentages of the Company’s total revenue: Year Ended December 31, 2023 2022 2021 Customer A 19.7 % 28.3 % 14.6 % Customer B 18.2 % 15.0 % 8.8 % Customer C 9.6 % 2.9 % 0.1 % Customer D 8.0 % — % — % Customer E 7.7 % 33.1 % 54.2 % Customer F 2.3 % 4.7 % — % Customer G 0.5 % 1.4 % 4.4 % Customer H — % — % 3.8 % 12. NET INCOME (LOSS) PER SHARE Basic net income (loss) per common share is computed by dividing the net income (loss) relevant to the common stockholders by the weighted-average number of shares outstanding during the year. Diluted net income (loss) per common share uses the same net income (loss) divided by the sum of the weighted-average number of shares of common stock outstanding during the period, plus dilutive effects of options, performance stock units (“PSUs”) and restricted stock units (“RSUs”) outstanding during the period calculated using the treasury method and the potential dilutive effects of preferred stocks (if any) calculated using the if-converted method. (In thousands, except for per share data) Year Ended December 31, 2023 2022 2021 Numerator (both basic and diluted) Net income (loss) relevant to common stockholders $ 85,634 $ 2,030 $ ( 54,185 ) Denominator Denominator for basic net income (loss) per share 113,004 105,868 102,655 Dilutive effect of stock options — 80 — Dilutive effect of performance stock units 42 506 — Dilutive effect of restricted stock units 370 485 — Denominator for diluted net income (loss) per share 113,416 106,939 102,655 Basic net income (loss) per common share $ 0.76 $ 0.02 $ ( 0.53 ) Diluted net income (loss) per common share $ 0.76 $ 0.02 $ ( 0.53 ) 74 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. NET INCOME (LOSS) PER SHARE (Continued) As shown in the table below, the following stock options, RSUs and PSUs outstanding as of December 31, 2023, 2022 and 2021 have not been included in the calculation of diluted income (loss) per common share for the years ended December 31, 2023, 2022 and 2021 because they would be anti-dilutive to the calculation of diluted net income (loss) per common share: (In thousands) 2023 2022 2021 Stock options 286 491 798 Restricted stock units 82 12 1,413 Performance stock units 411 — 1,586 Total 779 503 3,797 13. SHARE REPURCHASE PROGRAM On May 17, 2023, the Company's board of directors (the "Board") authorized and the Company announced a share repurchase program that allows the Company to repurchase up to $ 100 million of the Company's common stock beginning immediately and continuing through and including May 31, 2024. The shares may be repurchased from time to time in open market transactions, block trades, accelerated share repurchases, privately negotiated transactions, derivative transactions or otherwise, certain of which may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act, in compliance with applicable state and federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including management's assessment of the intrinsic value of the Company's common stock, the market price of the Company's common stock, general market and economic conditions, available liquidity, compliance with the Company's debt and other agreements, applicable legal requirements, and other considerations. The Company is not obligated to purchase any shares under the repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company expects to fund the repurchases using cash on hand and expected free cash flow to be generated through May 2024. The Inflation Reduction Act of 2022 ("IRA 2022") provides for, among other things, the imposition of a new 1% U.S. federal excise tax on certain repurchases of stock by publicly traded U.S. corporations such as us after December 31, 2022. Accordingly, the excise tax will apply to our share repurchase program in 2023 and in subsequent taxable years. The current government has proposed increasing the amount of the excise tax from 1% to 4%; however, it is unclear whether such a change in the amount of the excise tax will be enacted and, if enacted, how soon any such change could take effect. All shares of common stock repurchased under the share repurchase program are canceled and retired upon repurchase. The Company accounts for the purchase price of repurchased shares of common stock in excess of par value ($ 0.001 per share of common stock) as a reduction of additional-paid-in capital, and will continue to do so until additional paid-in-capital is reduced to zero. Thereafter, any excess purchase price will be recorded as a reduction of retained earnings. During the year ended December 31, 2023, the Company paid an aggregate of $ 51.7 million , an average price per share of $ 8.93 including commissions, for share repurchases under the share repurchase program, thereby retiring 5.8 million shares. The Company has accrued $ 0.4 million in respect of the IRA 2022 repurchase excise tax as of December 31, 2023. As of December 31, 2023, $ 48.3 million remained authorized for future repurchases of common stock under the repurchase program. 14. STOCK‑BASED COMPENSATION Stock Option Plan In March 2013, we approved the Stock Option Plan of ProPetro Holding Corp. (the "Stock Option Plan") pursuant to which our Board may grant stock options to our consultants, directors, executives and employees. No awards have been granted under the Stock Option Plan following our Initial Public Offering ("IPO"), and no further awards will be granted under the Stock Option Plan. 2017 Incentive Award Plan In March 2017, our shareholders approved the ProPetro Holding Corp. 2017 Incentive Award Plan (the "2017 Incentive Plan") pursuant to which our Board was authorized to grant stock options, RSUs, PSUs, or other stock-based and cash awards to consultants, directors, executives and employees. The 2017 Incentive Plan originally authorized up to 5,800,000 shares of common stock to be issued with respect to awards granted pursuant to the plan. No awards have been granted under the 2017 75 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. STOCK‑BASED COMPENSATION (Continued) Incentive Plan following approval of the 2020 Incentive Plan (as defined below), and no further awards will be granted under the 2017 Incentive Plan. 2020 Long Term Incentive Plan In October 2020, our shareholders approved the ProPetro Holding Corp. 2020 Long Term Incentive Plan (the "2020 Incentive Plan") pursuant to which our Board may grant stock options, RSUs, PSUs, or other stock-based and cash awards to consultants, directors, executives and employees. The 2020 Incentive Plan authorized up to 4,650,000 shares of common stock to be issued under awards granted pursuant to the plan. The 2020 Incentive Plan became effective on October 22, 2020, and as of such date no further awards will be granted under the 2017 Incentive Plan. In May 2023, our stockholders approved the Amended and Restated ProPetro Holding Corp. 2020 Long Term Incentive Plan (the "A&R 2020 Incentive Plan"), which had been previously approved by the Board. The A&R 2020 Incentive Plan became effective on May 11, 2023 and replaced the 2020 Incentive Plan. The A&R 2020 Incentive Plan authorizes up to 8,050,000 shares of common stock to be issued under awards granted pursuant to the plan in lieu of the 4,650,000 shares of common stock available for issuance under the 2020 Incentive Plan. The 2017 Incentive Plan and the A&R 2020 Incentive Plan are herein collectively referred to as the "Incentive Plans." Stock Options 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. The contractual term for the options awarded is 10 years. The fair value of each stock option award granted was estimated on the date of grant using the Black-Scholes option-pricing model. There were no new stock option grants during the years ended December 31, 2023, 2022 and 2021. As of December 31, 2023, there was no aggregate intrinsic value for our outstanding or exercisable stock options because the closing stock price as of December 31, 2023, was below the cost to exercise the options. No stock options were exercised during the year ended December 31, 2023. The weighted average remaining contractual term for the outstanding and exercisable stock options as of December 31, 2023, w as 3.2 years and 3.2 years, respec tively. A summary of the stock option activity during the year ended December 31, 2023, is presented below (in thousands, except for exercise price): Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2023 488 $ 14.00 Granted — $ — Exercised — $ — Forfeited — $ — Expired ( 308 ) $ 14.00 Outstanding at December 31, 2023 180 $ 14.00 Exercisable at December 31, 2023 180 $ 14.00 Restricted Stock Units In 2023, we granted 1,704,189 RSUs to employees, officers and directors pursuant to the 2020 Incentive Plan, which generally vest ratably over a three-year vesting period, in the case of awards to employees and officers, and generally vest in full after one year , in the case of awards to directors. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award. Each RSU represents the right to receive one share of common stock. The grant date fair value of the RSUs is based on the closing share price of our common stock on the date of grant. For the years ended December 31, 2023, 2022 and 2021, the Company recognized stock compensation expense for RSUs of approximately $ 7.8 million, $ 11.1 million and $ 6.2 million, respectively. 76 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. 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 during the year ended December 31, 2022. As of December 31, 2023, the total unrecognized compensation expense for all RSUs was approxima tely $ 15.4 million, and is expected to be recognized over a weighted-average period of approximately 1.8 years. The following table summarizes the RSUs activity during the year December 31, 2023 (in thousands, except for fair value): Number of Shares Weighted Average Grant Date Fair Value ("FV") Outstanding at January 1, 2023 1,268 $ 10.91 Granted 1,704 $ 9.30 Vested ( 558 ) $ 10.59 Forfeited ( 150 ) $ 10.40 Canceled — $ — Outstanding at December 31, 2023 2,264 $ 9.81 Performance Stock Units In 2023, we granted 454,788 P SUs to certain key employees and officers as new awards under the 2020 Incentive Plan. Each PSU earned represents the right to receive either one share of common stock or, as determined by the administrator in its sole discretion, a cash amount equal to the fair market value of one share of common stock or amount of cash on the day immediately preceding the settlement date. The actual number of shares of common stock that may be issued under the PSUs ranges from 0 % up to a maximum of 200 % of the target number of PSUs granted to the participant, based on our total shareholder return ("TSR") relative to a designated peer group of comparable companies (“Peer Group”), generally at the end of a three-year period. In addition to the TSR conditions, vesting of the PSUs is generally subject to the recipient’s continued employment through the end of the applicable performance period. Compensation expense is recorded ratably over the corresponding requisite service period. The grant date fair value of PSUs is determined using a Monte Carlo probability model. Grant recipients do not have any shareholder rights until performance relative to the Peer Group has been determined following the completion of the performance period and shares have been issued. In connection with a former officer’s separation agreement, on 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 the P eer 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 rem ain outstanding and eligible to vest based on our TSR relative to the 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, 2023, 2022 and 2021 the Company recognized stock compensation expense for the PSUs of approximatel y $ 6.6 million, $ 10.8 million and $ 5.5 million, respectively. 77 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. STOCK‑BASED COMPENSATION (Continued) The following table summarizes information about PSUs activity during the year ended December 31, 2023 (in thousands, except for fair value): Period Granted Target Shares Outstanding at January 1, 2023 Target Shares Granted Target Shares Vested Target Shares Forfeited Target Shares Outstanding at December 31, 2023 2020 809 — ( 493 ) ( 316 ) — 2021 632 — — ( 12 ) 620 2022 316 — — ( 10 ) 306 2023 — 455 — ( 17 ) 438 Total 1,757 455 ( 493 ) ( 355 ) 1,364 Weighted Average Fair Value Per Share $ 12.72 $ 14.40 $ 8.30 $ 9.17 $ 15.80 The total stock compensation expense for the years ended December 31, 2023, 2022 and 2021 for all stock awards was approximately $ 14.5 million , $ 21.9 million and $ 11.5 million, respectively, and the associated tax benefit related thereto was $ 3.0 million, $ 4.6 million and $ 2.4 million, respectively. The total unrecognized stock-based compensation expense as of December 31, 2023 was approximately $ 21.6 million, and is expected to be recognized over a weighted-average period of approximately 1.5 years. 15. INCOME TAXES The components of the provision for income taxes are as follows: (in thousands) Year Ended December 31, 2023 2022 2021 Federal: Current $ — $ — $ ( 52 ) Deferred 28,109 4,157 ( 15,143 ) 28,109 4,157 ( 15,195 ) State: Current 2,028 1,143 88 Deferred ( 269 ) 56 855 1,759 1,199 943 Total income tax expense (benefit) $ 29,868 $ 5,356 $ ( 14,252 ) Reconciliation between the amounts determined by applying the federal statutory rate of 21% for years ended December 31, 2023, 2022 and 2021 to income tax (benefit) expense is as follows: 78 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. INCOME TAXES (Continued) (in thousands) Year Ended December 31, 2023 2022 2021 Taxes at federal statutory rate $ 24,256 $ 1,551 $ ( 14,372 ) State taxes, net of federal benefit 2,092 709 61 Section 162(m) limitation 2,089 3,423 616 Stock-based compensation 1,718 ( 767 ) ( 2,549 ) Valuation allowance ( 780 ) ( 336 ) 825 Other 493 776 1,167 Total income tax expense (benefit) $ 29,868 $ 5,356 $ ( 14,252 ) Deferred tax assets and liabilities are recognized for estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. The significant items giving rise to deferred tax assets (liabilities) are as follows: (in thousands) December 31, 2023 2022 Deferred Income Tax Assets Accrued liabilities $ 1,410 $ 1,280 Allowance for credit losses 50 88 Goodwill and other intangible assets 1,900 2,451 Stock‑based compensation 1,979 3,658 Net operating losses 63,983 90,397 Lease liabilities 11,736 — Other 895 490 Total deferred tax assets 81,953 98,364 Valuation allowance ( 577 ) ( 1,357 ) Total deferred tax assets — net $ 81,376 $ 97,007 Deferred Income Tax Liabilities Property and equipment $ ( 156,393 ) $ ( 161,195 ) Prepaid expenses ( 1,509 ) ( 1,077 ) Right-of-use assets ( 16,579 ) — Total deferred tax liabilities $ ( 174,481 ) $ ( 162,272 ) Net deferred tax liabilities $ ( 93,105 ) $ ( 65,265 ) The Tax Cuts and Jobs Act included a reduction to the maxi mum deduction allo wed for net o perating losses generated in tax years after December 31, 2017, and the elimination of carrybacks of net operating losses. As of December 31, 2023, the Company had approximately $ 296.6 million of U.S. federal NOLs, some of which will begin to expire in 2035. Approximately $ 87.7 million of the Company’s U.S. federal NOLs relate to pre-2018 periods. As of December 31, 2023, the Company’s state NOLs were approximately $ 48.1 million and will begin to expire in 2030. Utilization of NOLs carryforwards may be limited due to past or future ownership changes. As of December 31, 2023, we determined that $ 0.6 million valuation allowance was necessary against our state deferred tax assets. The Company’s U.S. federal income tax returns for the y ear ended December 31, 2020, and through the most recent filing remain open to examination by the Internal Revenue Service under the applicable U.S. federal statute of limitations provisions. The various states in which the Company is subject to income tax are generally open to examination for the tax years ended December 31, 2019, and through the most recent filing. The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical 79 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. INCOME TAXES (Continued) merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. As of December 31, 2023, 2022 and 2021, no uncertain tax positions were recorded. The Company will continue to evaluate its tax positions in accordance with ASC 740 and will recognize any future effect as either a benefit or charge to income in the applicable period. Income tax penalties and interest assessments recognized under ASC 740 are accrued as a tax expense in the period that the Company’s taxes are in an uncertain tax position. 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. 16. RELATED-PARTY TRANSACTIONS Operations and Maintenance Yards The Company rents three 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 three yards was approximately $ 0.03 million, $ 0.1 million and $ 0.1 million, respectively. The Company previously rented two additional yards from this entity and incurred rent expense of $ 0.02 million and $ 0.1 million, respectively during the year ended December 31, 2023. Pioneer 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. In October 2023, Pioneer entered into a merger agreement with Exxon Mobil Corporation. On March 31, 2022, we entered into 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 expired at the conclusion of its term and was replaced by the Fleet One Agreement and Fleet Two Agreement described below. On October 31, 2022, we entered into two pressure pumping services agreements (the "Fleet One Agreement" and "Fleet Two Agreement") with Pioneer, pursuant to which we provided 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 was terminated on August 31, 2023. The Fleet Two Agreement was effective as of January 1, 2023 and was terminated on May 12, 2023. In October 2023, Pioneer entered into a merger agreement with Exxon Mobil Corporation. Revenue from services provided to Pioneer (including reservation fees) accounted for approximately $ 125.1 million, $ 423.7 million and $ 473.8 million of our total revenue during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, the total accounts receivable due from Pioneer, including estimated unbilled receivable for services we provided, amounted to $ 2.4 million a nd the amount due to Pioneer was $ 0 . As of December 31, 2022, the balance due from Pioneer for services (including reservation fees) we provided amo unted to approximately $ 46.2 million and the amount due to Pioneer was $ 0 . 17. LEASES On January 1, 2019, we implemented ASC 842, using the modified retrospective transition method and elected not to restate prior years. Accordingly, the effects of adopting ASC 842 were adjusted in the beginning of 2019 while prior periods are accounted for under the legacy GAAP, ASC 840. There was no cumulative effect adjustment on beginning retained earnings. We also elected other practical expedients provided by the new lease standard, the short-term lease recognition practical expedient in which leases with a term of twelve months or less will not be recognized on the balance sheet, and the practical expedient to not separate lease and non-lease components for real estate class of assets. Our discount rate was based on our estimated incremental borrowing rate on a collateralized basis with similar terms and economic considerations as our lease payments at the lease commencement. Below is a description of our operating and finance leases. 80 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. LEASES (Continued) Operating Leases Description of Lease 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, 2023, 2022 and 2021, the Company made lease payments of approximately $ 0.1 million , $ 0.4 million and $ 0.4 million, respectively. The assets and liabilities under this contract are included in our Hydraulic Fracturing reportable segment. In addition to the contractual lease period, the contract includes an optional renewal of up to ten years . However, the Company terminated the Real Estate One Lease at the end of the term, March 1, 2023. 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 One Lease because we concluded that the accounting effect was insignificant. 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, 2023 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, however, the Company plans to terminate the Maintenance Facility Lease at the end of the term, February 29, 2024. 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, 2023, the weighted average discount rate and remaining lease term was approximately 3.4 % and 0.2 years, respectively. In August 2022 and December 2022, we entered into equipment lease contracts (the "Electric Fleet Leases") for a duration of approximately three years each for a total of four FORCE SM electric-powered hydraulic fracturing fleets with 60,000 HHP per fleet. The Electric Fleet Leases contain options to either extend each lease for up to three additional periods of one year each or purchase the equipment at the end of their initial term of approximately 3.0 years or at the end of each subsequent renewal period. The first of the Electric Fleet Leases (the "Electric Fleet One Lease") commenced on August 23, 2023 when we received some of the equipment associated with the first FORCE SM electric-powered hydraulic fracturing fleet. During the year ended December 31, 2023, the Company made lease payments of approximately $ 2.2 million, including variable lease payments of approximately $ 0.1 million. During the year ended December 31, 2023, the Company incurred initial direct costs of approximately $ 14.3 million to place the leased equipment into its intended use, which are included in the right-of-use asset cost related to the Electric Fleet One Lease. The assets and liabilities under this contract are included in our Hydraulic Fracturing reportable segment. In management's judgment the exercise of neither the renewal option nor the purchase option is reasonably assured. In addition to fixed rent payments, the Electric Fleet One Lease contains variable payments based on equipment usage. The Electric Fleet One Lease does not include a residual value guarantee, covenants or financial restrictions. We accounted for the Electric Fleet One Lease as an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. As of December 31, 2023, the weighted average discount rate and remaining lease term was appro ximately 7.3 % and 3.0 years , respectively. The second of the Electric Fleet Leases (the "Electric Fleet Two Lease") commenced on November 1, 2023 when we received some of the equipment associated with the second FORCE SM electric-powered hydraulic fracturing fleet. During the year ended December 31, 2023, the Company made lease payments of approxi mately $ 1.0 million, including variable lease payments of approximately $ 0.03 million. During the year ended December 31, 2023, the Company incurred initial direct costs of approximately $ 9.4 million to place the leased equipment into its intended use, which are included in the right-of-use asset cost related to the Electric Fleet Two Lease . The assets and liabilities under this contract are included in our Hydraulic Fracturing reportable segment. In management's judgment the exercise of neither the renewal option nor the purchase option is reasonably assured. In addition to fixed rent payments, the Electric Fleet Two Lease contains variable payments based on equipment usage. The Electric Fleet Two Lease does not include a residual value guarantee, covenants or financial restrictions. 81 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. LEASES (Continued) We accounted for the Electric Fleet Two Lease as an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. As of December 31, 2023, the weighted average discount rate and remaining lease term was appro ximately 7.3 % and three years , respectively. As of December 31, 2023, we have not received some of the equipment contracted under the Electric Fleet Two Lease. Since we have not taken possession of these assets and do not control them, we have not accounted for the associated right-of-use asset and lease obligation on our balance sheet as of December 31, 2023. The third of the Electric Fleet Leases (the "Electric Fleet Three Lease", and collectively with the Electric Fleet One Lease and the Electric Fleet Two Lease, the “Electric Fleet Leases”) commenced on December 19, 2023, when we received some of the equipment associated with the third FORCE SM electric-powered hydraulic fracturing fleet. During the year ended December 31, 2023, the Company made lease payments of approximately $ 0.1 million and no variable lease payments. During the year ended December 31, 2023, the Company incurred initial direct costs of approximately $ 1.4 million to place the leased equipment into its intended use, which are included in the right-of-use asset cost related to the Electric Fleet Three Lease . The assets and liabilities under this contract are included in our Hydraulic Fracturing reportable segment. In management's judgment the exercise of neither the renewal option nor the purchase option is reasonably assured. In addition to fixed rent payments, the Electric Fleet Three Lease contains variable payments based on equipment usage. The Electric Fleet Three Lease does not include a residual value guarantee, covenants or financial restrictions. We accounted for the Electric Fleet Three Lease as an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. As of December 31, 2023, the weighted average discount rate and remaining lease term was appro ximately 7.3 % and 3.0 years , respectively. As of December 31, 2023, we have not received some of the equipment contracted under the Electric Fleet Three Lease. Since we have not taken possession of these assets and do not control them, we have not accounted for the associated right-of-use asset and lease obligation on our balance sheet as of December 31, 2023. The Electric Fleet Lease on the fourth FORCE SM electric-powered hydraulic fracturing fleet has not yet commenced. We currently do not control the assets under this lease because they are currently being manufactured by the vendor and we have not taken possession of the assets. The delivery of the FORCE SM electric-powered hydraulic fracturing fleets is as each fleet is manufactured . We currently expect to receive the remaining equipment associated with the second and third fleets and all equipment associated with the fourth fleet in the first half of 2024. Giv en that the Company has not yet taken possession of the assets under these leases, the Company has not accounted for the associated right-of-use asset and lease obligation on its balance sheet as of December 31, 2023. In October 2022, we entered into a real estate lease contract for 5.3 years (the "Real Estate Two Lease") with a commencement date of March 1, 2023. During the year ended December 31, 2023 , the Company made lease payments of approxim ately $ 0.3 million. The assets and liabilities under this contract are included in our Hydraulic Fracturing reportable segment. In addition to the contractual lease period, the contract includ es two optional renewals 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 Real Estate Two Lease does not contain variability in payments resulting from either an index change or rate change. We accounted for our Real Estate Two Lease as 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 Two Lease because we concluded that the accounting effect was insignificant. As of December 31, 2023, the weighted average discount rate and remaining lease term was approximately 6.3 % and 4.3 years, respectively. As part of the Silvertip Acquisition, we assumed two real estate lease contracts (the "Silvertip One Lease" and "Silvertip Two Lease," and collectively the "Silvertip Leases") with remaining terms of 4.8 years and 6.1 years, respectively, from the Silvertip Acquisition Date. During the year ended December 31, 2023, we extended the Silvertip One Lease for an additional 1.3 years. During the year ended December 31, 2023, the Company made lease payments of approximately $ 0.2 million and $ 0.3 million on the Silvertip One Lease and the Silvertip Two Lease, respectively. The assets and liabilities under these contracts are recorded in our wireline operating segment within our Wireline reportable segment. Th e 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 the Silvertip One Lease and the Silvertip Two Lease 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, 82 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. LEASES (Continued) 2023, the weighted average discount rate and remaining lease term on the Silvertip One Lease was approximately 6.3 % and 4.9 years, respectively. As of December 31, 2023, the weighted average discount rate and remaining lease term for the Silvertip Two Lease was approximately 2.1 % and 4.9 years, re spectively. In March 2023, we entered into a real estate lease contract for 5.7 years (the "Silvertip Three Lease"), with a commencement date of April 1, 20 23. During the year ended December 31, 2023, the Company made lease payments of approxim ately $ 0.1 million on the Silvertip Three Lease. The assets and liabilities under this contract are recorded in our wireline operating segment within our Wireline reportable segment. The cont ract does not include a residual value guarantee, covenants or financial restrictions. Further, the Silvertip Three Lease does not contain variability in payments resulting from either an index change or rate change. We accounted for the Silvertip Three 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 Silvertip Three Lease because we concluded that the accounting effect wa s insignificant. As of December 31, 2023, the weighted average discount rate and remaining lease term on the Silvertip Three Lease was approximately 6.3 % and 4.9 years, respectively. On June 1, 2023, we commenced an office space lease contract for 5.0 years (the "Silvertip Office Lease"). During the year ended December 31, 2023, the Company made lease payments of approximately $ 0.1 million on the Silvertip Office Lease. The assets and liabilities under this contract are recorded in our wireline operating segment within our Wireline reportable segment. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Silv ertip Office Lease does not contain variability in payments resulting from either an index change or rate change. We accounted for the Silvertip Office 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. As of December 31, 2023, the weighted average discount rate and remaining lease term was approximately 6.5 % and 4.4 years, respectively. In August 2023, in connection with the relocation of our corporate office, we entered into an office space lease contract for 2.1 years (the "Corporate Office Lease"), with a commencement date of September 8, 2023. During the year ended December 31, 2023, the Company made lease payments of approximately $ 0.02 million on the Corporate Office Lease. The assets and liabilities under this contract are recorded in our corporate administrative function. I n addition to the contractual lease period, the contract includes an optional renewal for 0.8 years, and in management's judgment the exercise of the renewal option is not reasonably assured. The cont ract does not include a residual value guarantee, covenants or financial restrictions. Further, the Corporate Office Lease does not contain variability in payments resulting from either an index change or rate change. We accounted for the Corporate Office 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. As of December 31, 2023, the weighted average discount rate and remaining lease term was approximately 7.1 % and 1.8 years, respectively. As of December 31, 2023, our total operating lease right-of-use asset cost wa s $ 85.8 million, and accumulated amortization was $ 7.2 million. As of December 31, 2022, our total operating lease right-of-use ass et cost was $ 4.6 million, and accumulated amortization was $ 1.5 million. Finance Leases Description of Lease In January 2023, we entered into a three-year equipment lease contract (the "Power Equipment Lease") for certain power generation equipmen t with a commencement date of August 23, 2023. During the year ended December 31, 2023, the Company made lease payments of approximately $ 5.7 million o n the Power Equipment Lease. The assets and liabilities under this contract are included in our Hydraulic Fracturing reportable segment. In addition t o the contractual lease period, the contract includes an optional renewal for one year , 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 Power Equipment Lease does not contain variability in payments resulting from either an index change or rate change. We accounted for the Power Equipment Lease as a finance lease. This conclusion resulted from the existence of the right to control the use of the assets throughout the lease term, the present value of lease payments being equal to or in excess of substantially all of the fair value of the underlying assets and the lease term being the major part of the remaining economic life 83 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. LEASES (Continued) of the underlying assets. As of December 31, 2023 , the weighted average discount rate and remaining lease term was approximately 7.3 % and 2.6 years , respectively. As of December 31, 2023, the total finance lease right-of-use asset cost was approximat ely $ 52.6 million , and accumulated amortization was approximately $ 5.2 million . As of December 31, 2022, we had no finance lease right-of-use assets . Maturity Analysis of Lease Liabilities The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for operating leases as of December 31, 2023 are as follows: (in thousands) Operating Leases Finance Leases 2024 $ 20,399 $ 19,872 2025 20,322 19,872 2026 19,194 12,790 2027 1,225 — 2028 821 — Total undiscounted future lease payments 61,961 52,534 Amount representing interest ( 6,332 ) ( 4,585 ) Present value of future lease payments (lease obligation) $ 55,629 $ 47,949 The total cash paid for amounts included in the measurement of our operating lease liability during the year ended December 31, 2023, was approximately $ 4.6 million. The total cash paid for amounts included in the measurement of our finance lease liabilities during the year ended December 31, 2023, was approximate ly $ 4.7 million. During the year ended December 31, 2023 , we recorded non-cash operating lease obligations totaling approximately $ 56.1 million arising from obtaining right-of-use assets related to our execution of the Real Estate Two Lease, the Silvertip Three Lease, the Silvertip Office Lease, the Electric Fleet One Lease, the Electric Fleet Two Lease, the Electric Fleet Three Lease and the Corporate Office Lease, and our extension of the Silvertip One Lease. During the year ended December 31, 2023 , we recorded non-cash finance lease obligations totaling approximately $ 52.6 million arising from obtaining right-of-use assets related to the commencement of the Power Equipment Lease. During the year ended December 31, 2022, total cash paid for amounts included in the measurement of our operating lease liabilities was approximately $ 0.7 million . During the year ended December 31, 2022, we recorded a non-cash operating lease obligation of approximately $ 0.6 million as a result of our execution of the Maintenance Facility Lease . Short-Term Leases We elected the practical expedient option, consistent with ASC 842, to exclude leases with a term of twelve months or less ("short-term lease") from our balance sheet and continue to record short-term leases as a period expense. Initial Direct Costs We elected to analogize to the measurement guidance of ASC 360 to capitalize costs incurred to place a leased asset into its intended use and to present such capitalized costs as part of the related lease right-of-use asset cost as initial direct costs. Lease Costs For the years ended December 31, 2023, 2022 and 2021 , we recorded operating lease cost of approximatel y $ 6.6 million, $ 0.7 million and $ 0.3 million, respectively, in our consolidated statements of operations. For the year ended December 31, 2023, we recorded finance lease cost of approximately $ 6.2 million in our consolidated statements of operations comprising of amortization of finance right-of-use asset of approximately $ 5.2 million and interest on finance lease liabilities of approximately $ 1.0 million. For the years ended December 31, 2022 and 2021 , we had no finance lease costs. For the years ended December 31, 2023, 2022 and 2021 , we recorded variable lease cost of approximatel y $ 0.1 million , $ 0 and $ 0 , respectively, in our consolidated statements of operations. For the years ended December 31, 2023, 2022 and 2021 , we recorded short-term lease cost of approximatel y $ 0.8 million , $ 0.8 million and $ 0.6 million, respectively, in our consolidated statements of operations. 84 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. COMMITMENTS AND CONTINGENCIES Commitments We entered into certain commitments for fixed assets, consumables and services incidental to the ordinary conduct of our business, generally for quantities required for our operations and at competitive market prices. These commitments are designed to assure sources of supply and are not expected to be in excess of normal requirements. We entered into the Electric Fleet Leases, which contain options to extend the leases or purchase the equipment at the end of each lease or at the end of each subsequent renewal period. As of December 31, 2023, three of the Electric Fleet Leases commenced when the Company took possession of all equipment associated with the first FORCE SM electric-powered hydraulic fracturing fleet and some of the equipment associated with the second and third fleets. Lease payments pertaining to the remaining equipment under the second, third and fourth Electric Fleet Leases are expected to commence when the Company takes possession of the associated equipment . We currently expect to receive the remaining equipment associated with the second and third fleets and all equipment associated with the fourth fleet in the first half of 2024. The total estimated contractual commitment in connection with the Electric Fleet Leases excluding the cost associated with the option to purchase the equipment at the end of each lease is approximately $ 103.7 million . We also entered into the Power Equipment Lease. The total estimated contractual commitment in connection with the Power Equipment Lease is approximately $ 52.5 million . The Company enters into purchase agreements with its sand suppliers (the " Sand Suppliers " ) to secure supply of sand as part of its normal course of business. The agreements with the Sand Suppliers require that the Company purchase a minimum volume of sand, based primarily on a certain percentage of our sand requirements from our customers or in certain situations based on predetermined fixed minimum volumes, otherwise certain penalties (shortfall fees) may be charged. The shortfall fee represents liquidated damages and is either a fixed percentage of the purchase price for the mi nimum volumes or a fixed price per ton of unpurchased volumes. Our agreements with the Sand Suppliers expire at different times prior to December 31, 2025. Our sand agreement with one of our Sand Suppliers that will expire on December 31, 2024, has a take-or-pay commitment o f $ 17.7 million . During the years ended December 31, 2023, 2022 and 2021, no shortfall fee was recorded. As of December 31, 2023 and 2022, the Company had issued le tters of credit of $ 6.0 million and $ 6.0 million, respectively, under the ABL Credit Facility in connection with the Company's casualty insurance policy. Contingent Liabilities Legal Matters In September 2019, a complaint, captioned Richard Logan, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. ProPetro Holding Corp., et al., (the "Logan Lawsuit"), was filed against the Company and certain of its then current and former officers and directors in the U.S. District Court for the Western District of Texas. As amended by later complaints, the Logan Lawsuit asserted claims 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 IPO in March 2017. Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and Sections 11 and 15 of the Securities Act 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 August 11, 2022, the Company entered into a settlement of the Logan Lawsuit, pursuant to which the Company's insurers have paid a cash sum into a settlement fund to be distributed to members of the putative class. On May 11, 2023, the settlement was granted final court approval. Environmental and Equipment Insurance The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Company continues to monitor the status of these laws and regulations. Currently, the Company has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of the Company's business, material costs could be incurred in the near term to maintain compliance. 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. 85 PROPETRO HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. COMMITMENTS AND CONTINGENCIES (Continued) The Company is self-insured up to $ 10 million per occurrence for certain losses arising from or attributable to fire and/or explosion at the wellsites that do not have qualified fire suppression measures. 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 In 2020, the Texas Comptroller of Public Accounts (the “Comptroller”) commenced a routine audit of the Company's motor vehicle and other related fuel taxes for the periods of July 2015 through December 2020. As of December 31, 2023, the audit was substantially compete and the Company accrued for an estimated settlement expense of $ 6.0 million . 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 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 ended 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, 2023, the audit is still ongoing and the final outcome cannot be reasonably estimated. In June 2023, the Company received confirmation from the Comptroller that it will commence a routine audit of the Company's direct payment sales tax in August 2023 for the period February 1, 2020 to December 31, 2022. As of December 31, 2023, the audit is still ongoing and the final outcome cannot be reasonably estimated. 19. SUBSEQUENT EVENTS Subsequent to year-end, we received some of the remaining equipment associated with our second, third and fourth FORCE SM electric-powered hydraulic fracturing fleets under the Electric Fleet Leases, resulting in the addition of non-cash operating lease obligations totaling approximately $ 16.3 million arising from obtaining right-of-use assets related to this equipment. Subsequent to year-end, we repurchased an additional 2.6 million shares under our share repurchase program amounting to $ 19.5 million, bringing the total repurchases since the inception of the program to 8.4 million shares. 86 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.