What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-23 compared with 2020-07-28 · 181 added, 194 removed, 308 unchanged (55% of the section changed)

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Please read Cautionary Note Regarding Forward-Looking Statements.

Also, please read the risk factors and other cautionary statements described under Part II, Item 1A.-“Risk Factors” included elsewhere in this Quarterly Report and in our Annual Report filed on Form 10-K for the year ended December 31, 2019.

We assume no obligation to update any of these forward-looking statements.

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• High Specification Rigs .

Provider of high-spec well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well.

Provides high-specification (“high-spec”) well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well.

• Completion and Other Services .

Provider of wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with our high-spec rig services to enhance the production of a well.

Provides wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with our high-spec rig services to enhance the production of a well.

• Processing Solutions .

Provider of proprietary, modular equipment for the processing of natural gas.

Provides proprietary, modular equipment for the processing of natural gas.

For additional financial information about our segments, please see “Item 1.

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Recent Events and Outlook

The outbreak of the novel coronavirus (“COVID-19”) has spread across the globe and has been declared a public health emergency by the World Health Organization (“WHO”) and a National Emergency by the President of the United States.

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has, and will likely continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas.

The outbreak of the novel coronavirus (“COVID-19”) in the first quarter of 2020 and its continued spread across the globe in the second and third quarters of 2020 has resulted, and is likely to continue to result, in significant economic disruption and has, and will likely continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas.

Federal, state and local governments mobilized to implement containment mechanisms and minimize impacts to their populations and economies.

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The extent of the COVID-19 outbreak on the Company’s operational and financial performance will significantly depend on certain developments, including the duration and spread of the outbreak and its continued impact on customer activity and third-party providers.

The direct impact to the Company’s operations began to take affect at the close of the first quarter ended March 31, 2020 and continued through the close of the second quarter ended June 30, 2020;

The direct impact to the Company’s operations began to take affect at the close of the first quarter ended March 31, 2020 and continued through the close of the third quarter ended September 30, 2020;

however the full extent to which the COVID-19 outbreak may affect the Company’s financial conditions, results of operations or liquidity subsequent to the issuance of these financial statements is uncertain.

At the time of this filing, cases of COVID-19 in the U.S.

were increasing rapidly, particularly in Texas, where we conduct significant operations.

were remain high, including in Texas, where we conduct significant operations.

COVID-19 and numerous public and political responses thereto have contributed to equity market volatility and potentially the risk of a global recession.

We expect this global equity market volatility experienced in the first and second quarters of 2020 to continue at least until the outbreak of COVID-19 stabilizes, if not longer.

We expect this global equity market volatility experienced during 2020 to continue at least until the outbreak of COVID-19 stabilizes, if not longer.

The response to the COVID-19 outbreak (such as stay-at-home orders, closures of restaurants and banning of group gatherings) and slowing of the global economy has contributed to increased unemployment rates.

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Subsequently, Saudi Arabia announced plans to increase production to record levels and reduce the prices at which they sell oil and, in turn, Russia responded with threats to also increase production.

Collectively, these events created

an unprecedented global oil and natural gas supply and demand imbalance, reduced global oil and natural gas storage capacity, caused oil and natural gas prices to decline significantly and resulted in continued volatility in oil, natural gas and NGLs prices into the second quarter of 2020.

Collectively, these events created an unprecedented global oil and natural gas supply and demand imbalance, reduced global oil and natural gas storage capacity,

caused oil and natural gas prices to decline significantly and resulted in continued volatility in oil, natural gas and NGLs prices into the third quarter of 2020.

On April 12, 2020, OPEC Plus agreed to cut oil production by 9.7 million barrels per day in May and June 2020;

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With the combined effects of the increased production levels earlier in 2020, the recent increase in production and the reduction in demand caused by COVID-19, the global oil and natural gas supply and demand imbalance persists and continues to have a significant adverse effect on the oil and gas industry.

OPEC Plus is scheduled to meet again in the fourth quarter of 2020 and it is possible OPEC Plus may decide to further production increases.

Due to the significantly reduced demand for oil and natural gas as a result of the COVID-19 pandemic and the current oversupply of oil and natural gas in the market, available storage and capacity for our customers’ production may be limited or completely unavailable in the future, which may further negatively impact the price of oil.

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In the absence of additional reductions to global production, oil, natural gas and NGLs prices could remain at current levels, or decline further, for an extended period of time.

Factors deriving from the COVID-19 response, as well as the oil oversupply, that have or may negatively impact sales, liquidity and gross margins in the future include, but are not limited to:

Factors deriving from the COVID-19 response, as well as the oil oversupply, that have and may continue to negatively impact sales, liquidity and gross margins in the future include, but are not limited to:

limitations on the ability of our suppliers to provide materials or equipment, limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home;

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If prolonged, such factors may also negatively affect the carrying values of our property and equipment and intangible assets.

As of the date of this report, the Company has initiated cost reductions throughout the organization, including a reduction in workforce of approximately 60% and salary reductions across the Company’s organizational structure, which has reduced payroll expense by greater than 70% since the beginning of 2020.

As of the date of this report, the Company successfully implemented cost reductions throughout the organization, including a reduction in workforce of approximately 50% and salary reductions across the Company’s organizational structure, which has reduced payroll expense by more than 60% since the beginning of 2020.

Additionally, we have made various other operational, travel and organizational expense reductions and will continue to manage costs to preserve liquidity through this downturn.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers and stakeholders.

Currently, we expect to have sufficient liquidity to operate our business and remain in compliance with the financial covenants under our Credit Facility agreement.

Currently, we expect to have sufficient liquidity to operate our business and remain in compliance with the financial covenants under our Credit Facility agreement for at least the next 12 months from the date of issuance of these financial statements.

government has implemented a number of programs in the wake of the impacts of COVID-19, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the largest relief package in U.S.

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Although we qualified for limited aid under the CARES Act related to the deferment of certain employer taxes, the Company is currently evaluating whether it can meet the conditions of and benefit from the Main Street Lending Program.

On March 12, 2020, the Company received a non-binding offer from CSL Capital Management, L.P.

and Bayou Holdings, proposing to acquire all of the outstanding shares of common stock of the Company not owned by CSL, Bayou Holdings and T.

Rowe Price Associates, Inc.

in a cash merger transaction for $6.00 per share (the “Take Private Proposal”).

On May 11, 2020, CSL announced their decision to not pursue the possible acquisition of shares outstanding of Ranger at this time and abandon the Take Private Proposal.

How We Evaluate Our Operations

Management uses a variety of metrics to analyze our operating results and profitability, which include operating revenues, cost of conducting our operations, operating income (loss) and adjusted EBITDA, among others.

Within our High Specification Rig segment, management uses additional metrics to analyze our activity levels and profitability, including, rig hours and rig utilization.

How We Generate Revenues

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The majority of our services are priced based on prevailing market conditions and changing input costs at the time the services are provided, giving consideration to the specific requirements of the customer.

We analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance.

We believe that revenues are a meaningful indicator of the demand and pricing for our services.

Within our High Specification Rig segment, we analyze rig hours as an important indicator of our activity levels and profitability.

Rig hours represent the aggregate number of hours that our well service rigs actively worked during the periods presented.

We typically bill customers for our well services on an hourly basis during the period that a well service rig is actively working, making rig hours a useful metric for evaluating our profitability.

Rig Utilization

Within our High Specification Rig segment, we analyze rig utilization as a further important indicator of our activity levels and profitability.

We measure rig utilization by reference to average monthly hours per rig, which is calculated by dividing (a) the approximate, aggregate operating well service rig hours for the periods presented by (b) the aggregate number of high-spec rigs in our fleet during such period, as aggregated on a monthly basis utilizing a mid-month convention whereby a high-spec rig added to our fleet during a month, meaning that we have taken delivery of such high-spec rig and it is ready for service, assumed to be in our fleet for one half of such month.

We believe that rig utilization as measured by average monthly hours per high-spec rig is a meaningful indicator of the operational efficiency of our core revenue-producing assets, market demand for our well services and our ability to profitably capitalize on such demand.

Our evaluation of our rig utilization as measured by average monthly hours per rig may not be comparable to that of our competitors.

The primary factors that have historically impacted, and will likely continue to impact, our actual aggregate well service rig hours for any specified period are:

(i) customer demand, which is influenced by factors such as commodity prices, the complexity of well completion operations and technological advances in our industry, and (ii) our ability to meet such demand, which is influenced by changes in our fleet size and resulting rig availability, as well as weather, employee availability and related factors.

The primary factors that have historically impacted, and will likely continue to impact, the aggregate number of high-spec rigs in our fleet during any specified period are the extent and timing of changes in the size of our well service rig fleet to meet short-term and expected long-term demand, and our ability to successfully maintain a fleet capable of ensuring sufficient, but not excessive, rig availability to meet such demand.

Costs of Conducting Our Business

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Costs for these employees are not directly tied to our level of business activity.

During the six months ended June 30, 2020, the Company significantly reduced the workforce due to the impacts of the COVID-19 and geopolitical events that have recently taken place.

During the nine months ended September 30, 2020, the Company significantly reduced the workforce due to the impacts of the COVID-19 and geopolitical events that have recently taken place.

Additionally, we implemented salary reductions across our organizational structure.

The combined impact of the workforce reduction and salary reductions has resulted in payroll expense decreasing by greater than 70% since the beginning of 2020.

The combined impact of the workforce reduction and salary reductions has resulted in payroll expense decreasing by more than 60% since the beginning of 2020.

We will continue to actively manage costs and take further actions as necessary.

See “—Recent Events and Outlook” above.

How We Evaluate Our Operations

Management uses a variety of metrics to analyze our operating results and profitability, which include operating revenues, operating income (loss) and adjusted EBITDA, among others.

Within our High Specification Rig segment, management uses additional metrics to analyze our activity levels and profitability, including, rig hours and rig utilization.

We analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance.

We believe that revenues are a meaningful indicator of the demand and pricing for our services.

Operating Income (Loss)

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Adjusted EBITDA

We view Adjusted EBITDA, which is a non-GAAP financial measure, as an important indicator of performance.

We view Adjusted EBITDA, which is a financial measure not determined in accordance with generally accepted accounting principles in the United States (“U.S.

GAAP”), as an important indicator of performance.

We define Adjusted EBITDA as net income (loss) before net interest expense, income tax provision or benefit, depreciation and amortization, equity-based compensation, acquisition-related and severance costs, gain or loss on disposal of assets and other non-cash and certain items that we do not view as indicative of our ongoing performance.

See “Results of Operations—Note Regarding Non-GAAP Financial Measure” for more information and reconciliations of net income (loss) to Adjusted EBITDA, the most directly comparable financial measure calculated and presented in accordance with GAAP.

Within our High Specification Rig segment, we analyze rig hours as an important indicator of our activity levels and profitability.

Rig hours represent the aggregate number of hours that our well service rigs actively worked during the periods presented.

We typically bill customers for our well services on an hourly basis during the period that a well service rig is actively working, making rig hours a useful metric for evaluating our profitability.

Rig Utilization

Within our High Specification Rig segment, we analyze rig utilization as a further important indicator of our activity levels and profitability.

Our evaluation of our rig utilization as measured by average monthly hours per rig may not be comparable to that of our competitors.

The primary factors that have historically impacted, and will likely continue to impact, our actual aggregate well service rig hours for any specified period are:

fleet to meet short-term and expected long-term demand, and our ability to successfully maintain a fleet capable of ensuring sufficient, but not excessive, rig availability to meet such demand.

Results of Operations

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

The following table presents the operating results for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.

Three Months Ended June 30, Change

Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

The following is an analysis of our operating results.

See “—How We Evaluate Our Operations” for definitions of rig hours, rig utilization and other analogous information.

Three Months Ended September 30, Change

2020 2019 $ %

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Income (loss) before income tax expense (5.8) 0.2 (6.0) (3000) %

Tax expense — 0.3 (0.3) (100) %

Tax expense (benefit) (0.1) 1.1 (1.2) (109) %

Net income (loss) $ (5.7) $ (0.9) $ (4.8) 533 %

Revenues for the three months ended June 30, 2020 decreased $53.6 million, or 64%, to $30.7 million from $84.3 million for the three months ended June 30, 2019.

The decrease in revenues, across all reporting segments, is due to the deterioration of crude oil pricing and significantly reduced demand for our services during the three months ended June 30, 2020, as described in “—Recent Events and Outlook” above.

Revenues for the three months ended September 30, 2020 decreased $49.5 million, or 59%, to $34.6 million from $84.1 million for the three months ended September 30, 2019.

The decrease in revenues, across all reporting segments, is due to the deterioration of crude oil pricing and significantly reduced demand for our services during the three months ended September 30, 2020, as described in “—Recent Events and Outlook” above.

The change in revenues by segment was as follows:

High Specification Rigs.

High Specification Rig revenues for the three months ended June 30, 2020 decreased $21.7 million, or 66%, to $11.4 million from $33.1 million for the three months ended June 30, 2019.

The decrease in rig services revenue included a 60% decrease in total rig hours to 24,600 for the three months ended June 30, 2020 from 62,200 for the three months ended June 30, 2019.

The decreased rig hours attributed to a 60% decrease in rig utilization.

The average revenue per rig hour decreased 13% to $463 from $530 for the three months ended June 30, 2019.

High Specification Rig revenues for the three months ended September 30, 2020 decreased $18.0 million, or 55%, to $14.5 million from $32.5 million for the three months ended September 30, 2019.

The decrease in rig services revenue included a 52% decrease in total rig hours to 30,200 for the three months ended September 30, 2020 from 62,400 for the three months ended September 30, 2019.

The decreased rig hours attributed to a 51% reduction in rig utilization.

The average revenue per rig hour decreased seven percent to $480 from $519 for the three months ended September 30, 2019.

Completion and Other Services.

Completion and Other Services revenues for the three months ended June 30, 2020 decreased $28.6 million, or 62%, to $17.7 million from $46.3 million for the three months ended June 30, 2019.

Completion and Other Services revenues for the three months ended September 30, 2020 decreased $26.4 million, or 58%, to $18.9 million from $45.3 million for the three months ended September 30, 2019.

The decrease was primarily attributable to our wireline business, which accounted for approximately $16.7 million, or 63%, of the segment revenue decrease.

The decrease in wireline services revenue included a 50% decrease in active wireline units to five units as of June 30, 2020 from ten units as of June 30, 2019.

The decrease in wireline services revenue included a 40% decrease in active wireline units to six units as of September 30, 2020 from ten units as of September 30, 2019.

All other service lines also had comparable revenue reductions.

Processing Solutions.

Processing Solutions revenues for the three months ended June 30, 2020 decreased $3.3 million, or 67%, to $1.6 million from $4.9 million for the three months ended June 30, 2019.

The decrease was primarily attributable to a decrease in Mechanical Refrigeration Unit (“MRU”) utilization to 12% as of June 30, 2020, from 78% as of June 30, 2019, which accounted for approximately $1.4 million, or 88%, of the revenue decline.

The MRU utilization decrease was due to

certain of our customer contracts that terminated, as scheduled, without renewal.

The revenue decrease within the segment is also due to a decline in mobilization and maintenance revenue related to our MRUs.

Processing Solutions revenues for the three months ended September 30, 2020 decreased $5.1 million, or 81%, to $1.2 million from $6.3 million for the three months ended September 30, 2019.

The decrease was primarily attributable to a decline in mobilization and maintenance revenue related to our Mechanical Refrigeration Units (“MRU”), which was attributable to a decline in MRU utilization.

Our MRU utilization decreased to nine percent as of September 30, 2020, from 52% as of September 30, 2019, which accounted for approximately $1.5 million, or 33%, of the revenue decline.

The MRU utilization decrease was due to certain of our customer contracts that terminated during 2020, as scheduled, without renewal.

Cost of services (excluding depreciation and amortization shown separately).

Cost of services for the three months ended June 30, 2020 decreased $41.8 million, or 64%, to $23.8 million from $65.6 million for the three months ended June 30, 2019.

As a percentage of revenue, cost of services was 78% for both the three months ended June 30, 2020 and 2019.

The decline in cost of services, across all segments, corresponds with the decreased demand for our services, as described above.

The declines are primarily attributable to a reduction in employee cost related to our reduction in workforce.

Cost of services for the three months ended September 30, 2020 decreased $40.1 million, or 60%, to $26.6 million from $66.7 million for the three months ended September 30, 2019.

As a percentage of revenue, cost of services was 77% and 79% for the three months ended September 30, 2020 and 2019, respectively.

The decline in cost of services, across all segments, corresponds with the decreased demand for our services, as described in “—Recent Events and Outlook,” above and is primarily attributable to a reduction in variable employee costs related to the reduction in our workforce.

The change in cost of services by segment was as follows:

High Specification Rigs.

High Specification Rig cost of services for the three months ended June 30, 2020 decreased $18.6 million, or 65% to $10.1 million from $28.7 million for the three months ended June 30, 2019.

The decrease was primarily attributable to a decrease in variable expenses, notably employee costs and repair and maintenance costs.

High Specification Rig cost of services for the three months ended September 30, 2020 decreased $17.0 million, or 58% to $12.3 million from $29.3 million for the three months ended September 30, 2019.

The decrease was primarily attributable to a reduction in variable expenses, notably employee costs and repair and maintenance costs.

Completion and Other Services.

Completion and Other Services cost of services for the three months ended June 30, 2020 decreased $21.7 million, or 62%, to $13.3 million from $35.0 million for the three months ended June 30, 2019.

The decrease was primarily attributable to the decrease in wireline business, which accounted for approximately $13.5 million, or 62%, of the segment cost of sales decrease.

The decrease was primarily attributable to a decrease in variable expenses related to employee costs and direct material costs across all service lines.

Completion and Other Services cost of services for the three months ended September 30, 2020 decreased $20.6 million, or 60%, to $14.0 million from $34.6 million for the three months ended September 30, 2019.

The decrease was primarily attributable to a reduction in the wireline business, which accounted for approximately $13.9 million, or 64%, of the segment cost of sales decrease.

The decrease was primarily attributable to a reduction in variable expenses related to employee costs and direct material costs across all service lines.

Processing Solutions.

Processing Solutions cost of services for the three months ended June 30, 2020 decreased $1.5 million, or 79%, to $0.4 million from $1.9 million for the three months ended June 30, 2019.

The decrease was primarily attributable to a decrease in employee costs and costs associated with ancillary equipment rentals, corresponding with a decrease in revenue.

Processing Solutions cost of services for the three months ended September 30, 2020 decreased $2.5 million, or 89%, to $0.3 million from $2.8 million for the three months ended September 30, 2019.

The decrease was primarily attributable to a reduction in employee costs and costs associated with ancillary equipment rentals, corresponding with a decrease in revenue.

General & Administrative.

General and administrative expenses decreased $0.8 million, or 13%, to $5.5 million for the three months ended June 30, 2020 compared to $6.3 million for the three months ended June 30, 2019.

The decrease is attributable to lower employee costs, which is related to our reduction in workforce, and lower professional fees during the three months ended June 30, 2020.

General and administrative expenses decreased $2.1 million, or 31%, to $4.6 million for the three months ended September 30, 2020 compared to $6.7 million for the three months ended September 30, 2019.

The decrease is attributable to lower employee costs, which is related to our reduction in workforce, and lower professional fees during the three months ended September 30, 2020.

Depreciation and Amortization.

Depreciation and amortization for the three months ended June 30, 2020 increased $1.1 million, or 13%, to $9.5 million from $8.4 million for the three months ended June 30, 2019.

The increase is attributable to depreciation expense for fixed assets placed into service during the trailing 12 months, partially offset by asset retirements.

Depreciation and amortization for the three months ended September 30, 2020 decreased $0.7 million, or 8%, to $8.4 million from $9.1 million for the three months ended September 30, 2019.

The decrease is attributable to depreciation expense for fixed assets placed into service during the trailing 12 months, partially offset by asset retirements.

Interest Expense, net.

Interest expense, net for the three months ended June 30, 2020 decreased $1.1 million, or 58%, to $0.8 million from $1.9 million for the three months ended June 30, 2019.

The decrease to net interest expense was attributable to the reduction of the principal balance on our Encina Master Financing Agreement and Credit Facility, coupled with a decrease in London Interbank Offering Rate (“LIBOR”).

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Six Months Ended June 30, Change

Interest expense, net for the three months ended September 30, 2020 decreased $0.6 million, or 43%, to $0.8 million from $1.4 million for the three months ended September 30, 2019.

The decrease to net interest expense was attributable to the reduction of the principal balances on our Encina Master Financing Agreement and Credit Facility, coupled with a decrease in London Interbank Offering Rate (“LIBOR”).

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

The following is an analysis of our operating results.

See “—How We Evaluate Our Operations” for definitions of rig hours, rig utilization and other analogous information.

Nine Months Ended September 30, Change

2020 2019 $ %

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Income (loss) before income tax expense (11.8) 6.2 (18.0) (290) %

Tax expense 0.1 0.6 (0.5) (83) %

Tax expense (benefit) — 1.7 (1.7) (100) %

Net income (loss) $ (11.8) $ 4.5 $ (16.3) (362) %

Revenues for the six months ended June 30, 2020 decreased $60.9 million, or 35%, to $111.7 million from $172.6 million for the six months ended June 30, 2019.

The decrease in revenues, across all reporting segments, is due to the deterioration of crude oil pricing and significantly reduced demand for our services during the six months ended June 30, 2020, as described in “—Recent Events and Outlook” above.

Revenues for the nine months ended September 30, 2020 decreased $110.4 million, or 43%, to $146.3 million from $256.7 million for the nine months ended September 30, 2019.

The decrease in revenues, across all reporting segments, is due to the deterioration of crude oil pricing and significantly reduced demand for our services during the nine months ended September 30, 2020, as described in “—Recent Events and Outlook” above.

The change in revenues by segment was as follows:

High Specification Rigs.

High Specification Rig revenues for the six months ended June 30, 2020 decreased $18.5 million, or 29%, to $46.3 million from $64.8 million for the six months ended June 30, 2019.

The decrease in rig services revenue included a 29% decrease in total rig hours to 87,000 for the six months ended June 30, 2020 from 122,300 for the six months ended June 30, 2019.

High Specification Rig revenues for the nine months ended September 30, 2020 decreased $36.5 million, or 38%, to $60.8 million from $97.3 million for the nine months ended September 30, 2019.

The decrease in rig services revenue included a 36% decrease in total rig hours to 117,200 for the nine months ended September 30, 2020 from 184,700 for the nine months ended September 30, 2019.

The decreased rig hours drove a 36% decrease in rig utilization.

Our average revenue per rig hour increased 1% to $531 from $526 for the six months ended June 30, 2019.

Our average revenue per rig hour decreased one percent to $518 from $524 for the nine months ended September 30, 2019.

Completion and Other Services.

Completion and Other Services revenues for the six months ended June 30, 2020 decreased $36.9 million, or 38%, to $61.0 million from $97.9 million for the six months ended June 30, 2019.

The decrease is primarily attributable to our wireline business, which accounted for approximately $23.3 million, or 63%, of the revenue decrease.

The decrease in wireline revenue included a 50% decrease in active wireline units to five units as of June 30, 2020 from ten units as of June 30, 2019.

Completion and Other Services revenues for the nine months ended September 30, 2020 decreased $63.3 million, or 44%, to $79.9 million from $143.2 million for the nine months ended September 30, 2019.

The decrease is primarily attributable to our wireline business, which accounted for $40.0 million, or 63%, of the revenue decrease.

The decrease in wireline revenue included a 40% reduction in active wireline units to six units as of September 30, 2020 from ten units as of September 30, 2019.

All other service lines also had revenue reductions.

Processing Solutions.

Processing Solutions revenues for the six months ended June 30, 2020 decreased $5.5 million, or 56%, to $4.4 million from $9.9 million for the six months ended June 30, 2019.

The decrease was primarily attributable to a decrease in MRU utilization to 12% as of June 30, 2020, from 78% as of June 30, 2019, which accounted for approximately$2.7 million, or 61%, of the revenue decline.

The MRU utilization decrease was due to certain of our customer contracts that terminated, as scheduled, without renewal.

Processing Solutions revenues for the nine months ended September 30, 2020 decreased $10.6 million, or 65%, to $5.6 million from $16.2 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a reduction in MRU utilization to nine percent as of September 30, 2020, from 52% as of September 30, 2019, which accounted for approximately $4.3 million, or 77%, of the revenue decline.

The MRU utilization decrease was due to certain of our customer contracts that terminated during 2020, as scheduled, without renewal.

Cost of services (excluding depreciation and amortization shown separately).

Cost of services for the six months ended June 30, 2020 decreased $46.2 million, or 35%, to $86.9 million from $133.1 million for the six months ended June 30, 2019.

As a percentage of revenue, cost of services was approximately 78% for both the six months ended June 30, 2020 and 2019.

The decline in cost of services, across all segments, corresponds with the decreased demand for our services, as described

The declines are primarily attributable to a reduction in employee cost.

Cost of services for the nine months ended September 30, 2020 decreased $86.3 million, or 43%, to $113.5 million from $199.8 million for the nine months ended September 30, 2019.

As a percentage of revenue, cost of services was approximately 78% for both the nine months ended September 30, 2020 and 2019.

The decline in cost of services, across all segments, corresponds with the decreased demand for our services, as described “—Recent Events and Outlook,” above and is primarily attributable to a reduction in employee costs, as a result of a significant reduction in work force.

The change in cost of services by segment was as follows:

High Specification Rigs.

High Specification Rig cost of services for the six months ended June 30, 2020 decreased $16.1 million, or 29%, to $40.0 million from $56.1 million for the six months ended June 30, 2019.

The decrease was primarily attributable to a decrease in variable expenses, notably employee costs and repair and maintenance costs, corresponding with a decrease in total rig hours.

High Specification Rig cost of services for the nine months ended September 30, 2020 decreased $33.1 million, or 39%, to $52.3 million from $85.4 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a reduction in variable expenses, notably employee costs and repair and maintenance costs, corresponding with a decrease in total rig hours and utilization rates.

Completion and Other Services.

Completion and Other Services cost of services for the six months ended June 30, 2020 decreased $27.9 million, or 38%, to $45.0 million from $72.9 million for the six months ended June 30, 2019.

The decrease was primarily attributable to the decrease in wireline business, which accounted for $16.1 million, or 58%, of the segment cost of services decrease.

The decrease was primarily attributable to a decrease in variable expenses related to employee costs and direct material costs across all service lines.

Completion and Other Services cost of services for the nine months ended September 30, 2020 decreased $48.5 million, or 45%, to $59.0 million from $107.5 million for the nine months ended September 30, 2019.

The segment decrease was primarily attributable to a reduction in our wireline business, which accounted for $30.0 million, or 61% of the segment decrease.

The decrease was primarily attributable to a reduction in variable expenses related to employee costs and direct material costs across all service lines.

Processing Solutions.

Processing Solutions cost of services for the six months ended June 30, 2020 decreased $2.2 million, or 54%, to $1.9 million from $4.1 million for the six months ended June 30, 2019.

The decrease was primarily attributable to a decrease in labor costs and costs associated with ancillary equipment rentals, corresponding with a decrease in revenue.

Processing Solutions cost of services for the nine months ended September 30, 2020 decreased $4.7 million, or 68%, to $2.2 million from $6.9 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a reduction in labor costs and costs associated with ancillary equipment rentals, corresponding with a decrease in revenue.

General & Administrative.

General and administrative expenses for the six months ended June 30, 2020 decreased $3.0 million, or 22%, to $10.5 million from $13.5 million for the six months ended June 30, 2019.

The decrease is attributable to the gain on debt retirement of $2.1 million related to the settlement of the ESCO Seller’s Notes during the six months ended June 30, 2020, as well as lower employee costs, which is related to our reduction in workforce, and lower professional fees.

General and administrative expenses for the nine months ended September 30, 2020 decreased $5.1 million, or 25%, to $15.1 million from $20.2 million for the nine months ended September 30, 2019.

The decrease is attributable to the gain on debt retirement of $2.1 million related to the settlement of the ESCO Seller’s Notes during the nine months ended September 30, 2020, as well as lower employee costs and lower professional fees.

Depreciation and Amortization.

Depreciation and amortization for the six months ended June 30, 2020 increased $1.6 million, or 10%, to $18.4 million from $16.8 million for the six months ended June 30, 2019.

The increase is attributable to depreciation expense for fixed assets placed into service during the trailing 12 months, partially offset by asset retirements.

Depreciation and amortization for the nine months ended September 30, 2020 decreased $0.9 million, or 3%, to $26.8 million from $25.9 million for the nine months ended September 30, 2019.

The decrease is attributable to depreciation expense for fixed assets placed into service during the trailing 12 months, partially offset by asset retirements.

Interest Expense, net.

Interest expense, net for the six months ended June 30, 2020 decreased $1.3 million, or 41%, to $1.9 million from $3.2 million for the six months ended June 30, 2019.

The decrease to net interest expense was attributable to the reduction of the principal balance on our Encina Master Financing Agreement and Credit Facility, coupled with a decrease in LIBOR.

Interest expense, net for the nine months ended September 30, 2020 decreased $1.9 million, or 41%, to $2.7 million from $4.6 million for the nine months ended September 30, 2019.

The decrease to net interest expense was attributable to the reduction of the principal balances on our Encina Master Financing Agreement and Credit Facility, coupled with a decrease in LIBOR.

Note Regarding Non-GAAP Financial Measure

Adjusted EBITDA is not a financial measure determined in accordance with GAAP.

Adjusted EBITDA is not a financial measure determined in accordance with U.S.

We define Adjusted EBITDA as net income (loss) before interest expense, net, income tax provision (benefit), depreciation and amortization, equity-based compensation, acquisition-related, severance and reorganization costs, impairment of goodwill, gain or loss on disposal of assets and certain other items that we do not view as indicative of our ongoing performance.

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We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired.

Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net loss determined in accordance with GAAP.

Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net loss determined in accordance with U.S.

Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA.

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Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies.

The following table presents reconciliations of net income (loss) to Adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with GAAP.

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

Three Months Ended June 30, 2020

The following table presents reconciliations of net income (loss) to Adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S.

Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

The following is an analysis of our Adjusted EBITDA.

Financial Information—Note 13—Segment Reporting” and “—Results of Operations” for further details.

Three Months Ended September 30, 2020

High Specification Rigs Completion and Other Services Processing Solutions Other Total

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Net income (loss) $ (2.4) $ 2.2 $ 0.2 $ (5.7) $ (5.7)

Interest expense — — — 0.8 0.8

Tax expense — — — — —

Interest expense, net — — — 0.8 0.8

Tax expense (benefit) — — — (0.1) (0.1)

Depreciation and amortization 4.6 2.7 0.7 0.4 8.4

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Severance and reorganization costs — — — (0.4) (0.4)

(Gain) loss on disposal of property and equipment — — — (0.1) (0.1)

Loss on disposal of property and equipment 0.2 0.1 — — 0.3

Adjusted EBITDA $ 2.4 $ 5.0 $ 0.9 $ (3.9) $ 4.4

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

High Specification Rigs Completion and Other Services Processing Solutions Other Total

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Net income (loss) $ (2.1) $ 7.8 $ 2.9 $ (9.5) $ (0.9)

Interest expense — — — 1.7 1.7

Tax expense — — — 0.3 0.3

Interest expense, net — — — 1.4 1.4

Tax expense (benefit) — — — 1.1 1.1

Depreciation and amortization 5.3 2.9 0.6 0.3 9.1

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Severance and reorganization costs 0.1 — — — 0.1

(Gain) loss on disposal of property and equipment — — — (0.1) (0.1)

Loss on disposal of property and equipment — — — 0.5 0.5

Adjusted EBITDA $ 3.3 $ 10.7 $ 3.5 $ (5.3) $ 12.2

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Net income (loss) $ (0.3) $ (5.6) $ (2.7) $ 3.8 $ (4.8)

Interest expense — — — (0.9) (0.9)

Tax expense — — — (0.3) (0.3)

Interest expense, net — — — (0.6) (0.6)

Tax expense (benefit) — — — (1.2) (1.2)

Depreciation and amortization (0.7) (0.2) 0.1 0.1 (0.7)

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Severance and reorganization costs (0.1) — — (0.4) (0.5)

(Gain) loss on disposal of property and equipment — — — — —

Loss on disposal of property and equipment 0.2 0.1 — (0.5) (0.2)

Adjusted EBITDA $ (0.9) $ (5.7) $ (2.6) $ 1.4 $ (7.8)

Adjusted EBITDA for the three months ended June 30, 2020 decreased $9.8 million to $3.2 million from $13.0 million for the three months ended June 30, 2019.

Adjusted EBITDA for the three months ended September 30, 2020 decreased $7.8 million to $4.4 million from $12.2 million for the three months ended September 30, 2019.

The change by segment was as follows:

High Specification Rigs .

High Specification Rigs Adjusted EBITDA for the three months ended June 30, 2020 decreased $2.7 million to $1.7 million from $4.4 million for the three months ended June 30, 2019, due to decreased revenues of $21.7 million, partially offset by a corresponding decrease in cost of services of $18.6 million.

High Specification Rigs Adjusted EBITDA for the three months ended September 30, 2020 decreased $0.9 million to $2.4 million from $3.3 million for the three months ended September 30, 2019, due to decreased revenues of $18.0 million, partially offset by a corresponding decrease in cost of services of $17.0 million.

Completion and Other Services.

Completion and Other Services Adjusted EBITDA decreased $6.7 million to $4.6 million from $11.3 million for the three months ended June 30, 2019, due to a decrease in revenues of $28.6 million, partially offset by a corresponding decrease in cost of services of $21.7 million.

Completion and Other Services Adjusted EBITDA for the three months ended September 30, 2020 decreased $5.7 million to $5.0 million from $10.7 million for the three months ended September 30, 2019, due to a decrease in revenues of $26.4 million, partially offset by a corresponding decrease in cost of services of $20.6 million.

Processing Solutions .

Processing Solutions Adjusted EBITDA for the three months ended June 30, 2020 decreased $1.8 million to $1.2 million from $3.0 million for the three months ended June 30, 2019, due to a decrease in revenue of $3.3 million, partially offset by a corresponding decrease in cost of services of $1.5 million.

Other Adjusted EBITDA for the three months ended June 30, 2020 increased $1.4 million to a loss of $4.3 million from a loss of $5.7 million for the three months ended June 30, 2019.

The balances included in Other reflect other general and administrative costs not directly attributable to High Specification Rigs, Completion and Other Services or Processing Solutions.

The decrease is due to a reduction in the Company’s general and administrative costs.

For further information regarding the results of operations for each segment, please see “Item 1.

Financial Information —Note 13 — Segment Reporting.”

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Six Months Ended June 30, 2020

Processing Solutions Adjusted EBITDA for the three months ended September 30, 2020 decreased $2.6 million to $0.9 million from $3.5 million for the three months ended September 30, 2019, due to a decrease in revenue of $5.1 million, partially offset by a corresponding decrease in cost of services of $2.5 million.

Other Adjusted EBITDA for the three months ended September 30, 2020 increased $1.4 million to a loss of $3.9 million from a loss of $5.3 million for the three months ended September 30, 2019.

The balances included in Other reflect other general and administrative costs, which are not directly attributable to High Specification Rigs, Completion and Other Services or Processing Solutions.

The increase was primarily due to a reduction in the Company’s general and administrative costs.

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

The following is an analysis of our Adjusted EBITDA.

Financial Information—Note 13—Segment Reporting” and “—Results of Operations” for further details.

Nine Months Ended September 30, 2020

High Specification Rigs Completion and Other Services Processing Solutions Other Total

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Net income (loss) $ (6.6) $ 12.9 $ 0.8 $ (18.9) $ (11.8)

Interest expense — — — 1.9 1.9

Tax expense — — — 0.1 0.1

Interest expense, net — — — 2.7 2.7

Tax expense (benefit) — — — — —

Depreciation and amortization 15.1 8.0 2.6 1.1 26.8

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Gain on retirement of debt — — — (2.1) (2.1)

(Gain) loss on disposal of property and equipment — — — (0.3) (0.3)

Loss on disposal of property and equipment 0.2 0.1 — (0.3) —

Adjusted EBITDA $ 9.1 $ 21.2 $ 3.4 $ (14.7) $ 19.0

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

High Specification Rigs Completion and Other Services Processing Solutions Other Total

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Net income (loss) $ (3.0) $ 27.1 $ 7.7 $ (27.3) $ 4.5

Interest expense — — — 3.2 3.2

Tax expense — — — 0.6 0.6

Interest expense, net — — — 4.6 4.6

Tax expense (benefit) — — — 1.7 1.7

Depreciation and amortization 14.9 8.6 1.6 0.8 25.9

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Gain on retirement of debt — — — — —

(Gain) loss on disposal of property and equipment — — — (0.3) (0.3)

Loss on disposal of property and equipment — — — 0.2 0.2

Adjusted EBITDA $ 12.0 $ 35.7 $ 9.3 $ (17.6) $ 39.4

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Gain on retirement of debt — — — (2.1) (2.1)

(Gain) loss on disposal of property and equipment — — — — —

Loss on disposal of property and equipment 0.2 0.1 — (0.5) (0.2)

Adjusted EBITDA $ (2.9) $ (14.5) $ (5.9) $ 2.9 $ (20.4)

Adjusted EBITDA for the six months ended June 30, 2020 decreased $12.6 million to $14.6 million from $27.2 million for the six months ended June 30, 2019.

Adjusted EBITDA for the nine months ended September 30, 2020 decreased $20.4 million to $19.0 million from $39.4 million for the nine months ended September 30, 2019.

The change by segment was as follows:

High Specification Rigs .

High Specification Rigs Adjusted EBITDA for the six months ended June 30, 2020 decreased $2.0 million to $6.7 million from $8.7 million for the six months ended June 30, 2019, due to decreased revenues of $18.5 million, partially offset by a corresponding decrease in cost of services of $16.1 million.

High Specification Rigs Adjusted EBITDA for the nine months ended September 30, 2020 decreased $2.9 million to $9.1 million from $12.0 million for the nine months ended September 30, 2019, due to decreased revenues of $36.5 million, partially offset by a corresponding decrease in cost of services of $33.1 million.

Completion and Other Services.

Completion and Other Services Adjusted EBITDA for the six months ended June 30, 2020 decreased $8.8 million to $16.2 million from $25.0 million for the six months ended June 30, 2019, due to decreased revenues of $36.9 million, partially offset by a corresponding decrease in cost of services of $27.9 million.

Completion and Other Services Adjusted EBITDA for the nine months ended September 30, 2020 decreased $14.5 million to $21.2 million from $35.7 million for the nine months ended September 30, 2019, due to decreased revenues of $63.3 million, partially offset by a corresponding decrease in cost of services of $48.5 million.

Processing Solutions .

Processing Solutions Adjusted EBITDA for the six months ended June 30, 2020 decreased $3.3 million to $2.5 million from $5.8 million for the six months ended June 30, 2019, due to decreased revenues of $5.5 million, partially offset by a corresponding decrease in cost of services of $2.2 million.

Other Adjusted EBITDA for the six months ended June 30, 2020 increased $1.5 million to a loss of $10.8 million from a loss of $12.3 million for the six months ended June 30, 2019.

The balances included in Other reflect other general and administrative costs not directly attributable to High Specification Rigs, Completion and Other Services or Processing Solutions.

The decrease is due to a reduction in the Company’s general and administrative costs.

For further information regarding the results of operations for each segment, please see “Item 1.

Financial Information —Note 13 — Segment Reporting.”

Processing Solutions Adjusted EBITDA for the nine months ended September 30, 2020 decreased $5.9 million to $3.4 million from $9.3 million for the nine months ended September 30, 2019, due to decreased revenues of $10.6 million, partially offset by a corresponding decrease in cost of services of $4.7 million.

Other Adjusted EBITDA for the nine months ended September 30, 2020 increased $2.9 million to a loss of $14.7 million from a loss of $17.6 million for the nine months ended September 30, 2019.

The balances included in Other reflect other general and administrative costs, which are not directly attributable to High Specification Rigs, Completion and Other Services or Processing Solutions.

The decrease was primarily due to a reduction in the Company’s general and administrative costs.

Liquidity and Capital Resources

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The borrowing base under our Credit Facility is calculated monthly on a percentage of our eligible accounts receivable less certain reserves.

During the three months ended June 30, 2020, our borrowing base was reduced from $31.5 million to $15.8 million as a result of decreased accounts receivable during the period.

As of September 30, 2020, our borrowing base was reduced to $13.4 million compared to $30.5 million as of December 31, 2019, as a result of decreased accounts receivable during the period.

We strive to maintain financial flexibility and proactively monitor potential capital sources to meet our investment and target liquidity requirements and to permit us to manage the cyclicality associated with our business.

As of June 30, 2020, we had cash on hand of $6.0 million, operating cash flows of $24.2 million and availability under our Credit Facility of $10.8 million.

As of July 22, 2020, our cash on hand and available borrowings under our Credit Facility approximated $11.1 million.

We expect to have sufficient funds to meet the Company’s liquidity requirements and to stay within our covenants of our debt agreements for at least the next 12 months.

As of September 30, 2020, we had cash on hand of $3.4 million, operating cash flows of $27.3 million and availability under our Credit Facility of $10.4 million.

As of October 21, 2020, our cash on hand and available borrowings under our Credit Facility approximated $14.0 million.

We currently expect to have sufficient funds to meet the Company’s liquidity requirements and to stay within our covenants of our debt agreements for at least the next 12 months from the date of issuance of these financial statements.

See additional information under “— Our Debt Obligations.”

The following table presents our cash flows for the periods indicated:

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2020 2019 $ %

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Net cash used in investing activities (5.6) (19.0) 13.4 71 %

Net cash (used in) provided by financing activities (19.6) 0.4 (20.0) (5,000) %

Net cash used in financing activities (25.2) (11.9) (13.3) 112 %

Net change in cash $ (3.5) $ 5.4 $ (8.9) (165) %

Operating Activities

Net cash provided by operating activities increased $10.0 million to cash provided of $24.2 million for the six months ended June 30, 2020 compared to cash provided of $14.2 million for the six months ended June 30, 2019.

Net cash provided by operating activities decreased $9.0 million to cash provided of $27.3 million for the nine months ended September 30, 2020 compared to cash provided of $36.3 million for the nine months ended September 30, 2019.

The change in cash flows provided by operating activities is primarily attributable to cash collections related to accounts receivable, partially offset by cash payments related to our accounts payable and accrued expenses.

The Company increased cash from working capital by $20.5 million, or 178%, to cash generated from working capital of $9.0 million during the six months ended June 30, 2020, compared to the use of working capital cash of $11.5 million during the six months ended June 30, 2019.

This increase was partially offset by a decline in the operating margin during the six months ended June 30, 2019.

The Company increased cash generated from working capital for the nine months ended September 30, 2020 by $8.4 million, or 100%, to cash generated from working capital of $8.4 million compared to the nine months ended September 30, 2019.

Investing Activities

Net cash used in investing activities decreased $10.0 million to a use of cash of $5.5 million for the six months ended June 30, 2020 compared to a use of cash of $15.5 million for the six months ended June 30, 2019.

The change in cash flows used in investing activities is attributable to a significant reduction in capital expenditures during the current year, in response to

the economic events that have taken place in the industry, coupled with an increased level of fixed assets acquired during the six months ended June 30, 2019, relative to the corresponding period of the current year.

Net cash used in investing activities decreased $13.4 million to a use of cash of $5.6 million for the nine months ended September 30, 2020 compared to a use of cash of $19.0 million for the nine months ended September 30, 2019.

The change in

cash flows used in investing activities is attributable to a significant reduction in capital expenditures during the current year in response to the economic events that have taken place in the industry, coupled with an increased level of fixed assets acquired during the nine months ended September 30, 2019, relative to the corresponding period of the current year.

Financing Activities

Net cash flows used in financing activities increased $20.0 million to a use of cash of $19.6 million for the six months ended June 30, 2020 compared to cash provided of $0.4 million for the six months ended June 30, 2019.

The change in cash flows from financing activities is primarily attributable to repayments on the principal balance of our Credit Facility and Encina Master Financing Agreement, settlement of the ESCO Note Payable and repurchases of our Class A Common Stock during the six months ended June 30, 2020.

Net cash flows used in financing activities increased $13.3 million to a use of cash of $25.2 million for the nine months ended September 30, 2020 compared to a use of cash of $11.9 million for the nine months ended September 30, 2019.

Supplemental Disclosures

We added fixed assets of $0.1 million that were non-cash additions and added $1.0 million of fixed assets through financing leases during the six months ended June 30, 2020.

We added fixed assets of $0.1 million that were non-cash additions and added $1.0 million of fixed assets through financing leases during the nine months ended September 30, 2020.

In addition, we early terminated certain of our vehicle financing leases, thereby reducing our current and long-term obligations by $1.3 million.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, was a deficit of $1.4 million as of June 30, 2020 compared to a surplus of $3.6 million as of December 31, 2019.

The reduction in the Company’s profitability, due to the current macroeconomic environment, is the primary reason for this decrease in working capital.

Our working capital, which we define as total current assets less total current liabilities, was a deficit of $1.8 million as of September 30, 2020 compared to a surplus of $3.6 million as of December 31, 2019.

The reduction in the Company’s operational activity, due to the current macroeconomic environment, is the primary reason for this decrease in working capital.

In April 2020, we eliminated all planned growth capital expenditures for the remainder of 2020.

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In August 2017, we issued $7.0 million of Seller’s Notes as partial consideration for the acquisition of ESCO Leasing, LLC (“ESCO”).

These notes included a note for $1.2 million, which was paid in August 2018 and a note for $5.8 million, which was settled during the six months ended June 30, 2020.

These notes included a note for $1.2 million, which was paid in August 2018 and a note for $5.8 million, which was settled during the nine months ended September 30, 2020.

Both notes bore interest at 5.0% payable quarterly until their respective maturity dates.

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Interest on the outstanding principal balance was accrued through the maturity date of the Note Payable.

During the six months ended June 30, 2020, the Company paid $3.8 million to settle the note and any unpaid interest, and recognized a gain on the retirement of the note of $2.1 million.

During the nine months ended September 30, 2020, the Company paid $3.8 million to settle the note and any unpaid interest, and recognized a gain on the retirement of the note of $2.1 million.

Credit Facility

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The applicable margin for the LIBOR loans ranges from 1.5% to 2.0% and the applicable margin for Base Rate loans ranges from 0.5% to 1.0%, in each case, depending on our average excess availability under the Credit Facility.

The applicable margin for the LIBOR loan was 1.75% and the applicable margin for Base Rate loans were 0.75% as of June 30, 2020.

The weighted average interest rate for the borrowings under the Credit Facility was 3.1% during the six months ended June 30, 2020.

Under the Credit Facility, the total loan capacity was $15.8 million, which was based on a borrowing base certificate in effect as of June 30, 2020.

The Company had outstanding borrowings of $5.0 million under the Credit Facility, leaving a residual $10.8 million available for borrowings as of June 30, 2020.

The Company paid the $5.0 million debt balance in July 2020.

As of July 22, 2020, the Company did not have any borrowings under the Credit Facility and had available borrowings of $10.1 million.

We were in compliance with the Credit Facility covenants as of June 30, 2020.

We capitalized fees of $0.7 million associated with the Credit Facility, which will be amortized through maturity.

Unamortized debt issuance costs as of June 30, 2020 was $0.4 million.

The applicable margin for the LIBOR loan was 1.75% and the applicable margin for Base Rate loans were 0.75% as of September 30, 2020.

The weighted average interest rate for the borrowings under the Credit Facility was 3.2% during the nine months ended September 30, 2020.

Effective October 1, 2020, the applicable margins for the LIBOR loans and Base Rate loans increased to 2.0% and 1.0%, respectively, which increases are due to the reduction of our average excess availability.

The applicable margins for each of the loans are re-determined as of the first day of each calendar quarter.

Under the Credit Facility, the total loan capacity was $13.4 million, which was based on a borrowing base certificate in effect as of September 30, 2020.

The Company had outstanding borrowings of $3.0 million under the Credit Facility, leaving a residual $10.4 million available for borrowings as of September 30, 2020.

As of October 21, 2020, the Company had borrowings of $3.0 million under the Credit Facility and had available borrowings of $12.1 million.

We were in compliance with the Credit Facility covenants as of September 30, 2020.

The Credit Facility is subject to a borrowing base that is calculated based upon a percentage of the value of the Company’s eligible accounts receivable less certain reserves.

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When the Company is subject to dominion, for 30 consecutive days it is required to either (a) maintain excess availability in excess of the greater of $6.25 million and 12.5% of the lesser of (x) the maximum revolver amount and (y) the borrowing base as of such date of determination and no event of default has occurred and is continuing or (b) have no revolver drawings and available cash of at least $20.0 million for dominion to revert back to the Company.

The Credit Facility is scheduled to mature on August 16, 2022.During the three months ended March 31, 2020, the Company borrowed against the Credit Facility causing dominion to revert to the Administrative Agent, however after the 30 consecutive day period, as defined above, dominion reverted back to the Company in April 2020.

The borrowings under the Credit Facility, and related issuance costs, were included in long-term debt, net in the Condensed Consolidated Balance Sheets as of June 30, 2020, as the Company was not subject to dominion.

The Credit Facility is scheduled to mature on August 16, 2022.

During the three months ended March 31, 2020, the Company borrowed against the Credit Facility causing dominion to revert to the Administrative Agent, however after the 30 consecutive day period, as defined above, dominion reverted back to the Company in April 2020.

The borrowings under the Credit Facility, and related issuance costs, were included in long-term debt, net in the Condensed Consolidated Balance Sheets as of September 30, 2020, as the Company was not subject to dominion.

In addition, the Credit Facility restricts our ability to make distributions on, or redeem or repurchase, our equity interests, except for certain distributions, including distributions of cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under the Credit Facility and either (a) excess availability at all times during the preceding 90 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 22.5% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $10.0 million or (b) if our fixed charge coverage ratio is at least 1.0x on a pro forma basis, excess availability at all times during the preceding 90 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 17.5% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $7.0 million.

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Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of the Credit Facility, the lenders are able to declare any outstanding principal of our Credit Facility debt, together with accrued and unpaid interest, to be immediately due and payable and exercise other remedies.

Encina Master Financing and Security Agreement (“Financing Agreement”)

In June 2018, we entered into a Master Financing and Security Agreement with Encina Equipment Finance SPV, LLC (the “Lender”).

Encina Master Financing and Security Agreement

In June 2018, we entered into a Master Financing and Security Agreement (“Financing Agreement”) with Encina Equipment Finance SPV, LLC (the “Lender”).

The amount available to be provided by the Lender to us under the Financing Agreement was contemplated to be not less than $35.0 million, and not to exceed $40.0 million.

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Subsequent to the first financing, we borrowed an additional $17.8 million, net of expenses and in two tranches, under the Financing Agreement.

As of June 30, 2020, the aggregate principal balance outstanding was $22.7 million under the Financing Agreement.

As of September 30, 2020, the aggregate principal balance outstanding was $20.2 million under the Financing Agreement.

The total borrowings under the Financing Agreement were borrowed in three tranches, where the amounts outstanding are payable ratably over 48 months from the time of each borrowing.

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The Financing Agreement is secured by a lien on certain of our high specification rig assets.

Borrowings under the Financing Agreement bear interest at a rate per annum equal to the sum of 8.0% plus LIBOR, which was 1.5%, as of June 30, 2020.

Borrowings under the Financing Agreement bear interest at a rate per annum equal to the sum of 8.0% plus LIBOR, which was 1.5% as of September 30, 2020.

In no event will LIBOR fall below 1.5%.

The Financing Agreement requires that the Company maintain leverage ratios of 2.5 to 1.0.

The Company was in compliance with the covenants under the Financing Agreement as of June 30, 2020.

The Company capitalized fees of $0.9 million associated with the Financing Agreement and will be amortized through maturity.

Unamortized debt issuance costs as of June 30, 2020 approximated $0.5 million.

The Company was in compliance with the covenants under the Financing Agreement as of September 30, 2020.

With respect to obligations we expect to incur under our TRA (except in cases where we elect to terminate the TRA early, the TRA is terminated early due to certain mergers, asset sales, other forms of business combination or other changes of control or we have available cash but fail to make payments when due), generally we may elect to defer payments due under the TRA if we do not have available cash to satisfy our payment obligations under the TRA or if our contractual obligations limit our ability to make these payments.

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Our significant accounting policies are discussed in our Annual Report and have not materially changed since December 31, 2019.

During the three and six months ended June 30, 2020, the Company noted a decline in stock price due to the reduced demand and oversupply of oil and natural gas, which was an indication that the fair value of our long-lived assets could have fallen below their carrying values.

As a result, the Company performed an impairment analysis and determined there was no impairment.

Please see “—Recent Events and Outlook” for additional information regarding reduced demand and oversupply of oil and “Part I, Item 8.

Financial Statements and Supplementary Data — Note 2 — Summary of Significant Accounting Policies — Significant Accounting Policies — Long-Lived Asset Impairment” of the Annual Report for our policy of testing our long-lived assets for impairment.

Off-Balance Sheet Arrangements

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Emerging Growth Company Status and Smaller Reporting Company Status

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.

We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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We have irrevocably opted out of the extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act.

The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchnage Act”).

Smaller reporting company means an issuer that is not an investment company, an asset-back issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that has (i) market value of common stock held by non-affiliates of less than $250 million;

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Exchange Act of 1934 (the “Exchange Act”), as amended.

The information in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Exchange Act.

All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements.

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• our future revenue, income and operating performance;

• the continuation of a sharp decline in global crude oil demand and crude oil prices for an uncertain period of time that may lead to a significant reduction of domestic crude oil and natural gas production;

• the volatility in global crude oil demand and crude oil prices for an uncertain period of time that may lead to a significant reduction of domestic crude oil and natural gas production;

• global or national health concerns, including pandemics such as the outbreak of COVID-19;

• uncertainty regarding future actions of foreign oil producers such as Saudi Arabia and Russia and the risk that they take actions that will prolong or exacerbate the current over-supply of crude oil;

• uncertainty regarding future actions of foreign oil producers, such as Saudi Arabia and Russia, and the risk that they take actions that will cause an over-supply of crude oil;

• our ability to sustain and improve our utilization, revenues and margins;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis