What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-05-06 · 207 added, 86 removed, 275 unchanged (52% of the section changed)

20 unchanged sentences

Recent Events and Outlook

Patriot Well Solutions (“Patriot”) Acquisition

During the three and six months ended June 30, 2021, the Company and certain of its subsidiaries completed the acquisition of Patriot (the “Patriot Acquisition”), a provider of wireline evaluation and intervention services that operate in the Permian, Denver-Julesburg and Powder River Basins and Bakken Shale.

The results of operations for the acquisition are included in the accompanying condensed consolidated statements of operations from the date of acquisition.

PerfX Wireline Services, LLC (“PerfX”) Acquisition

On July 8, 2021, the Company and certain of its subsidiaries executed an Asset Purchase Agreement with PerfX Wireline Services, LLC to acquire certain assets (the “PerfX Acquisition”).

As consideration for the assets acquired pursuant to the Asset Purchase Agreement, the Company issued 1,000,000 shares of Class A Common Stock, in addition to a Secured Promissory Note of $11.4 million (the “Secured Promissory Note”), which bears an interest rate of 8.5% per annum.

The Secured Promissory Note holds certain assets as collateral through the scheduled maturity date of January 31, 2024.

Coronavirus (“COVID-19”)

The outbreak of the novel coronavirus (“COVID-19”) in the first quarter of 2020 and its continued spread across the globe 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.

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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 has continued through the first quarter ended March 31, 2021;

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.

The direct impact to the Company’s operations began to take affect at the close of the first quarter ended March 31, 2020 and has continued through the second quarter ended June 30, 2021;

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 date hereof.

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

While commodity prices, as well as our stock price, have improved with the rollout of COVID-19 vaccines, we expect this global equity market volatility to continue at least until the outbreak of COVID-19 stabilizes, if not longer.

Additionally, increased activity during 2021 can be attributed to stay-at-home orders and other restrictions being lifted in certain geographical areas, however any future containment measures could curtail such growth.

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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 through the year ended December 31, 2020.

On April 12, 2020, OPEC Plus agreed to cut oil production by 9.7 million barrels per day (“MBbls/d”) in May and June 2020;

however, on July 15, 2020 OPEC Plus agreed to increase production by 1.6 MBbls/d starting in August 2020.

On December 3, 2020, OPEC Plus agreed to further increase production by an additional 1.0 MBbls/d in January 2021, resulting in total production cuts of 7.1 MBbls/d by the end of February 2021.

Currently, OPEC Plus estimates that global oil demand will increase by 5.6 MBbls/d.

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.

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.

We cannot predict whether or when the global supply and demand imbalance will be resolved or whether or when oil and natural gas production and economic activities will return to normalized levels.

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.

Since then, OPEC Plus has agreed to varying production levels in attempts to align production levels with demand as economies begin to reopen around the world, most recently agreeing to increase production by 400,000 barrels a day beginning in August 2021.

There can be no assurance that the future actions, or inaction, of OPEC Plus or other major oil producers will not have material effects on commodity prices.

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:

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and limitations on the ability of our customers to pay us on a timely basis.

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

If prolonged, whether as a result of new strains or variants of COVID-19 or otherwise, such factors may also negatively affect the carrying values of our property and equipment and intangible assets.

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.

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history, and the Main Street Lending Program established by the Federal Reserve.

We qualified for limited aid under the CARES Act and have deferred payroll tax payments of $1.9 million as of March 31, 2021 under the CARES Act.

We qualified for limited aid under the CARES Act and have deferred payroll tax payments of $1.9 million as of June 30, 2021 under the CARES Act.

How We Evaluate Our Operations

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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.

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.

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Results of Operations

Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

The following is an analysis of our operating results.

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The significant declines in operational activity, across all segments, as well as corporate-related expenses are related to the deterioration of crude oil pricing and significantly reduced demand for our services since March 2020, primarily due to the effects of COVID-19, as described in “—Recent Events and Outlook.”

Three Months Ended March 31, Change

Three Months Ended

June 30, Variance

2021 2020 $ %

12 unchanged sentences

Total operating expenses 58.5 38.8 19.7 51 %

Operating income (loss) (7.3) 4.0 (11.3) (283) %

Operating loss (8.5) (8.1) (0.4) 5 %

Other expenses

1 unchanged sentence

Total other expenses 0.7 0.8 (0.1) (13) %

Income (loss) before income tax expense (7.9) 2.9 (10.8) (372) %

Tax expense 0.4 0.1 0.3 300 %

Net income (loss) $ (8.3) $ 2.8 $ (11.1) (396) %

Revenues for the three months ended March 31, 2021 decreased $42.7 million, or 53%, to $38.3 million from $81.0 million for the three months ended March 31, 2020.

Loss before income tax expense (9.2) (8.9) (0.3) 3 %

Tax (benefit) expense (0.1) — (0.1) (100) %

Net loss $ (9.1) $ (8.9) $ (0.2) 2 %

Revenues for the three months ended June 30, 2021 increased $19.3 million, or 63%, to $50.0 million from $30.7 million for the three months ended June 30, 2020.

The change in revenues by segment was as follows:

High Specification Rigs.

High Specification Rig revenues for the three months ended March 31, 2021 decreased $13.2 million, or 38%, to $21.7 million from $34.9 million for the three months ended March 31, 2020.

The decrease in rig services revenue included a 31% decrease in total rig hours to 43,200 for the three months ended March 31, 2021 from 62,400 for the three months ended March 31, 2020.

The decreased rig hours attributed to a 29% reduction in rig utilization.

The average revenue per rig hour decreased 12% to $493 from $558 for the three months ended March 31, 2020.

High Specification Rig revenues for the three months ended June 30, 2021 increased $17.6 million, or 154%, to $29.0 million from $11.4 million for the three months ended June 30, 2020.

The increase in rig services revenue included a 104% increase in total rig hours to 50,100 for the three months ended June 30, 2021 from 24,600 for the three months ended June 30, 2020.

The increased rig hours attributed to a 109% increase in rig utilization.

The average revenue per rig hour increased 27% to $587 from $463 for the three months ended June 30, 2020.

Completion and Other Services.

Completion and Other Services revenues for the three months ended March 31, 2021 decreased $27.8 million, or 64%, to $15.5 million from $43.3 million for the three months ended March 31, 2020.

The decrease was primarily attributable to our wireline business, which accounted for approximately $23.2 million, or 84%, of the segment revenue decrease.

The decrease in wireline services revenue included a 45% decrease in average active wireline units to six units for the three months ended March 31, 2021 from eleven units for the three months ended March 31, 2020.

Completion and Other Services revenues for the three months ended June 30, 2021 increased $2.1 million, or 12%, to $19.8 million from $17.7 million for the three months ended June 30, 2020.

The increase was attributable to our wireline business, which includes activity from the acquisition of Patriot during the three months ended June 30, 2021.

The consolidated wireline activity accounted for approximately $0.3 million of the segment revenue increase, which includes $2.3 million of revenue from Patriot.

The increase in wireline services revenue included a 24% increase in average active wireline units to six units for the three months ended June 30, 2021 from five units for the three months ended June 30, 2020.

All other service lines also had comparable revenue increases.

Processing Solutions.

Processing Solutions revenues for the three months ended June 30, 2021 decreased $0.4 million, or 25%, to $1.2 million from $1.6 million for the three months ended June 30, 2020.

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

Our average MRU utilization for the three months ended June 30, 2021 and 2020, was 9% and 12%, respectively.

Cost of services (excluding depreciation and amortization).

Cost of services for the three months ended June 30, 2021 increased $20.3 million, or 85%, to $44.1 million from $23.8 million for the three months ended June 30, 2020.

As a percentage of revenue, cost of services was 88% and 78% for the three months ended June 30, 2021 and 2020, respectively.

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, 2021 increased $13.9 million, or 138% to $24.0 million from $10.1 million for the three months ended June 30, 2020.

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

Additionally, the increase corresponds with the increase in rig hours and revenues.

Completion and Other Services.

Completion and Other Services cost of services for the three months ended June 30, 2021 increased $5.9 million, or 44%, to $19.2 million from $13.3 million for the three months ended June 30, 2020.

The increase was primarily attributable to an increase in the wireline business, which includes activity from the acquisition of Patriot during the three months ended June 30, 2021.

The consolidated wireline activity accounted for approximately $3.4 million of the segment cost of sales increase, which includes $2.8 million of costs related to Patriot.

The increase was primarily attributable to an increase 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, 2021 increased $0.5 million, or 125%, to $0.9 million from $0.4 million for the three months ended June 30, 2020.

The increase was primarily attributable to increased employee costs and costs associated with ancillary equipment.

General & Administrative.

General and administrative expenses for the three months ended June 30, 2021 increased $0.7 million, or 13%, to $6.2 million from $5.5 million.

The increase during the three months ended June 30, 2021 is attributable to increased professional fees related to the acquisition of Patriot.

Depreciation and Amortization.

Depreciation and amortization for the three months ended June 30, 2021 decreased $1.3 million, or 14%, to $8.2 million from $9.5 million for the three months ended June 30, 2020.

The decrease is attributable to depreciation expense for fixed assets that were retired and disposed of during the trailing 12 months.

Interest Expense, net.

Interest expense, net for the three months ended June 30, 2021 decreased $0.1 million, or 13%, to $0.7 million from $0.8 million for the three months ended June 30, 2020.

The slight decrease to net interest expense was attributable to the reduction of the principal balance on our Encina Master Financing Agreement.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

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.

Six Months Ended

June 30, Variance

2021 2020 $ %

High specification rigs $ 50.7 $ 46.3 $ 4.4 10 %

Completion and other services 35.3 61.0 (25.7) (42) %

Processing solutions 2.3 4.4 (2.1) (48) %

Total revenues 88.3 111.7 (23.4) (21) %

Operating expenses

Cost of services (exclusive of depreciation and amortization):

High specification rigs 43.0 40.0 3.0 8 %

Completion and other services 33.8 45.0 (11.2) (25) %

Processing solutions 1.4 1.9 (0.5) (26) %

Total cost of services 78.2 86.9 (8.7) (10) %

General and administrative 9.7 10.5 (0.8) (8) %

Depreciation and amortization 16.2 18.4 (2.2) (12) %

Total operating expenses 104.1 115.8 (11.7) (10) %

Operating loss (15.8) (4.1) (11.7) 285 %

Other expenses

Interest expense, net 1.3 1.9 (0.6) (32) %

Total other expenses 1.3 1.9 (0.6) (32) %

Loss before income tax expense (17.1) (6.0) (11.1) 185 %

Tax (benefit) expense 0.3 0.1 0.2 200 %

Net loss $ (17.4) $ (6.1) $ (11.3) 185 %

Revenues for the six months ended June 30, 2021 decreased $23.4 million, or 21%, to $88.3 million from $111.7 million for the six months ended June 30, 2020.

The change in revenues by segment was as follows:

High Specification Rigs.

High Specification Rig revenues for the six months ended June 30, 2021 increased $4.4 million, or 10%, to $50.7 million from $46.3 million for the six months ended June 30, 2020.

The increase in rig services revenue included a 7% increase in total rig hours to 93,300 for the six months ended June 30, 2021 from 87,000 for the six months ended June 30, 2020.

The increased rig hours attributed to a 10% increase in rig utilization.

The average revenue per rig hour increased 2% to $543 from $531 for the six months ended June 30, 2020.

Completion and Other Services.

Completion and Other Services revenues for the six months ended June 30, 2021 decreased $25.7 million, or 42%, to $35.3 million from $61.0 million for the six months ended June 30, 2020.

The decrease was primarily attributable to our wireline business, which includes activity from the acquisition of Patriot during the three months ended June 30, 2021.

The wireline activity accounted for approximately $22.9 million of the segment revenue decrease, however includes $2.3 million of revenue from Patriot.

The decrease in wireline services revenue included a 24% decrease in average active wireline units to six units for the six months ended June 30, 2021 from eight units for the six months ended June 30, 2020.

All other service lines also had comparable revenue reductions.

Processing Solutions.

Processing Solutions revenues for the three months ended March 31, 2021 decreased $1.7 million, or 61%, to $1.1 million from $2.8 million for the three months ended March 31, 2020.

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 average MRU utilization for the three months ended March 31, 2021 and 2020, was nine percent and 17%, respectively.

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

Processing Solutions revenues for the six months ended June 30, 2021 decreased $2.1 million, or 48%, to $2.3 million from $4.4 million for the six months ended June 30, 2020.

The decrease was primarily attributable to a decline in rental revenue related to our MRUs, which was attributable to a decline in MRU utilization.

Our average MRU utilization for the six months ended June 30, 2021 and 2020, was 9% and 15%, respectively.

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).

Cost of services for the three months ended March 31, 2021 decreased $29.0 million, or 46%, to $34.1 million from $63.1 million for the three months ended March 31, 2020.

As a percentage of revenue, cost of services was 89% and 78% for the three months ended March 31, 2021 and 2020, respectively.

Cost of services for the six months ended June 30, 2021 decreased $8.7 million, or 10%, to $78.2 million from $86.9 million for the six months ended June 30, 2020.

As a percentage of revenue, cost of services was 89% and 78% for the six months ended June 30, 2021 and 2020, respectively.

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 March 31, 2021 decreased $10.9 million, or 36% to $19.0 million from $29.9 million for the three months ended March 31, 2020.

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

Additionally, the reduction corresponds with the decrease in rig hours and revenues.

High Specification Rig cost of services for the six months ended June 30, 2021 increased $3.0 million, or 8% to $43.0 million from $40.0 million for the six months ended June 30, 2020.

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

Additionally, the increase corresponds with the increase in rig hours and revenues.

Completion and Other Services.

Completion and Other Services cost of services for the three months ended March 31, 2021 decreased $17.1 million, or 54%, to $14.6 million from $31.7 million for the three months ended March 31, 2020.

The decrease was primarily attributable to a reduction in the wireline business, which accounted for approximately $14.2 million, or 83%, of the segment cost of sales decrease.

Completion and Other Services cost of services for the six months ended June 30, 2021 decreased $11.2 million, or 25%, to $33.8 million from $45.0 million for the six months ended June 30, 2020.

The decrease was primarily attributable to a reduction in the wireline business, which includes activity from the acquisition of Patriot during the six months ended June 30, 2021.

The consolidated wireline activity accounted for approximately $10.8 million of the segment cost of sales decrease, which includes $2.8 million of costs related to Patriot.

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 March 31, 2021 decreased $1.0 million, or 67%, to $0.5 million from $1.5 million for the three months ended March 31, 2020.

Processing Solutions cost of services for the six months ended June 30, 2021 decreased $0.5 million, or 26%, to $1.4 million from $1.9 million for the six months ended June 30, 2020.

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 for the three months ended March 31, 2021 decreased $1.5 million, or 30%, to $3.5 million from $5.0 million.

During the three months ended March 31, 2020, general and administrative expenses included a gain on debt retirement of $2.1 million related to the settlement of the ESCO Seller’s Notes.

The decrease during the three months ended March 31, 2021 is attributable to lower employee costs, which is related to our reduction in workforce in 2020, and lower professional fees.

General and administrative expenses for the six months ended June 30, 2021 decreased $0.8 million, or 8%, to $9.7 million from $10.5 million.

During the six months ended June 30, 2020, general and administrative expenses included a gain on debt retirement of $2.1 million related to the settlement of the ESCO Seller’s Notes.

Depreciation and Amortization.

Depreciation and amortization for the three months ended March 31, 2021 decreased $0.9 million, or 10%, to $8.0 million from $8.9 million for the three months ended March 31, 2020.

Depreciation and amortization for the six months ended June 30, 2021 decreased $2.2 million, or 12%, to $16.2 million from $18.4 million for the six months ended June 30, 2020.

The decrease is attributable to depreciation expense for fixed assets that were retired and disposed of during the trailing 12 months.

Interest Expense, net.

Interest expense, net for the three months ended March 31, 2021 decreased $0.5 million, or 45%, to $0.6 million from $1.1 million for the three months ended March 31, 2020.

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”).

Interest expense, net for the six months ended June 30, 2021 decreased $0.6 million, or 32%, to $1.3 million from $1.9 million for the six months ended June 30, 2020.

The decrease to net interest expense was attributable to the reduction of the principal balance on our Encina Master Financing Agreement.

Note Regarding Non-GAAP Financial Measure

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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 March 31, 2021 compared to Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 compared to Three Months Ended June 30, 2020

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 March 31, 2021

Three Months Ended June 30, 2021

High Specification Rigs Completion and Other Services Processing Solutions Other Total

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Equity based compensation — — — 0.9 0.9

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

Severance and reorganization costs — — — 0.3 0.3

Acquisition related costs — — — 0.6 0.6

Adjusted EBITDA $ 5.0 $ 0.6 $ 0.3 $ (3.9) $ 2.0

Three Months Ended June 30, 2020

High Specification Rigs Completion and Other Services Processing Solutions Other Total

(in millions)

Net income (loss) $ (3.9) $ 1.8 $ (0.1) $ (6.7) $ (8.9)

Interest expense, net — — — 0.8 0.8

Income Tax expense — — — — —

Depreciation and amortization 5.2 2.6 1.3 0.4 9.5

Equity based compensation — — — 0.9 0.9

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

Severance and reorganization costs 0.4 0.2 — 0.4 1.0

Acquisition related costs — — — — —

Adjusted EBITDA $ 1.7 $ 4.6 $ 1.2 $ (4.3) $ 3.2

High Specification Rigs Completion and Other Services Processing Solutions Other Total

(in millions)

Net income (loss) $ 4.2 $ (3.7) $ (0.3) $ (0.4) $ (0.2)

Interest expense, net — — — (0.1) (0.1)

Income Tax expense — — — (0.1) (0.1)

Depreciation and amortization (0.5) (0.1) (0.6) (0.1) (1.3)

Equity based compensation — — — — —

Gain on disposal of property and equipment — — — 0.6 0.6

Severance and reorganization costs (0.4) (0.2) — (0.1) (0.7)

Acquisition related costs — — — 0.6 0.6

Adjusted EBITDA $ 3.3 $ (4.0) $ (0.9) $ 0.4 $ (1.2)

Adjusted EBITDA for the three months ended June 30, 2021 decreased $1.2 million to $2.0 million from $3.2 million for the three months ended June 30, 2020.

The change by segment was as follows:

High Specification Rigs .

High Specification Rigs Adjusted EBITDA for the three months ended June 30, 2021 increased $3.3 million to $5.0 million from $1.7 million for the three months ended June 30, 2020, primarily due to increased revenues of $17.6 million, partially offset by a corresponding increase in cost of services of $13.9 million.

Completion and Other Services.

Completion and Other Services Adjusted EBITDA for the three months ended June 30, 2021 decreased $4.0 million to $0.6 million from $4.6 million for the three months ended June 30, 2020, primarily due to increased revenues of $2.1 million, offset by an increase in cost of services of $5.9 million.

Processing Solutions .

Processing Solutions Adjusted EBITDA for the three months ended June 30, 2021 decreased $0.9 million to $0.3 million from $1.2 million for the three months ended June 30, 2020, due to decreased revenues of $0.4 million, and increased cost of services of $0.5 million.

Other Adjusted EBITDA for the three months ended June 30, 2021 decreased $0.4 million to a loss of $3.9 million from a loss of $4.3 million for the three months ended June 30, 2020.

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.

Six Months Ended June 30, 2021 compared to Six Months Ended June 30, 2020

Six Months Ended June 30, 2021

High Specification Rigs Completion and Other Services Processing Solutions Other Total

(in millions)

Net income (loss) $ (1.8) $ (3.2) $ (0.4) $ (12.0) $ (17.4)

Interest expense, net — — — 1.3 1.3

Income Tax expense — — — 0.3 0.3

Depreciation and amortization 9.5 4.7 1.3 0.7 16.2

Equity based compensation — — — 1.8 1.8

Gain on retirement of debt — — — — —

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Severance and reorganization costs $ — $ — $ — $ (1.1) $ (1.1)

Acquisition related costs — — — 0.6 0.6

Adjusted EBITDA $ 7.7 $ 1.5 $ 0.9 $ (8.3) $ 1.8

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

High Specification Rigs Completion and Other Services Processing Solutions Other Total

8 unchanged sentences

Severance and reorganization costs 0.4 0.2 — 0.4 1.0

Acquisition related costs — — — — —

Adjusted EBITDA $ 6.7 $ 16.2 $ 2.5 $ (10.8) $ 14.6

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Severance and reorganization costs (0.4) (0.2) — (1.5) (2.1)

Acquisition related costs — — — 0.6 0.6

Adjusted EBITDA $ 1.0 $ (14.7) $ (1.6) $ 2.5 $ (12.8)

Adjusted EBITDA for the three months ended March 31, 2021 decreased $11.6 million to a loss of $0.2 million from $11.4 million for the three months ended March 31, 2020.

Adjusted EBITDA for the six months ended June 30, 2021 decreased $12.8 million to $1.8 million from $14.6 million for the six months ended June 30, 2020.

The change by segment was as follows:

High Specification Rigs .

High Specification Rigs Adjusted EBITDA for the three months ended March 31, 2021 decreased $2.3 million to $2.7 million from $5.0 million for the three months ended March 31, 2020, due to decreased revenues of $13.2 million, partially offset by a corresponding decrease in cost of services of $10.9 million.

High Specification Rigs Adjusted EBITDA for the six months ended June 30, 2021 increased $1.0 million to $7.7 million from $6.7 million for the six months ended June 30, 2020, primarily due to increased revenues of $4.4 million, partially offset by a corresponding increase in cost of services of $3.0 million.

Completion and Other Services.

Completion and Other Services Adjusted EBITDA for the three months ended March 31, 2021 decreased $10.7 million to $0.9 million from $11.6 million for the three months ended March 31, 2020, due to decreased revenues of $27.8 million, partially offset by a corresponding decrease in cost of services of $17.1 million.

Completion and Other Services Adjusted EBITDA for the six months ended June 30, 2021 decreased $14.7 million to $1.5 million from $16.2 million for the six months ended June 30, 2020, primarily due to decreased revenues of $25.7 million, partially offset by a decrease in cost of services of $11.2 million.

Processing Solutions .

Processing Solutions Adjusted EBITDA for the three months ended March 31, 2021 decreased $0.7 million to $0.6 million from $1.3 million for the three months ended March 31, 2020, due to decreased revenues of $1.7 million, partially offset by a corresponding decrease in cost of services of $1.0 million.

Other Adjusted EBITDA for the three months ended March 31, 2021 decreased $2.1 million to a loss of $4.4 million from a loss of $6.5 million for the three months ended March 31, 2020.

Processing Solutions Adjusted EBITDA for the six months ended June 30, 2021 decreased $1.6 million to $0.9 million from $2.5 million for the six months ended June 30, 2020, primarily due to decreased revenues of $2.1 million, partially offset by a decrease in cost of services of $0.5 million.

Other Adjusted EBITDA for the six months ended June 30, 2021 decreased $2.5 million to a loss of $8.3 million from a loss of $10.8 million for the six months ended June 30, 2020.

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.

Liquidity and Capital Resources

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Our primary sources of liquidity are cash generated from operations and borrowings under our Credit Facility.

As of March 31, 2021, we had total liquidity of $12.7 million, consisting of $1.5 million of cash on hand and availability under our Revolving Credit Facility of $11.2 million.

As of March 31, 2021, our borrowing base under the Credit Facility was reduced to $19.8 million compared to $31.5 million and $20.7 million as of March 31, 2020 and December 31, 2020, respectively, as a result of decreased operational activity and accounts receivable.

As of June 30, 2021, we had total liquidity of $16.2 million, consisting of $3.4 million of cash on hand and availability under our Revolving Credit Facility of $12.8 million.

As of June 30, 2021, our borrowing base under the Credit Facility was $22.5 million compared to $10.8 million and $20.7 million as of June 30, 2020 and December 31, 2020, respectively, as a result of slightly increased operational activity and accounts receivable balances.

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.

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

Three Months Ended March 31, Change

Six Months Ended June 30, Change

2021 2020 $ %

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Net cash used in investing activities (4.9) (5.5) 0.6 11 %

Net cash provided by financing activities 0.6 0.6 — — %

Net cash provided by (used in) financing activities 9.6 (19.6) 29.2 (149) %

Net change in cash $ 0.6 $ (0.9) $ 1.5 (167) %

Operating Activities

Net cash used in operating activities increased $10.4 million to cash used of $1.9 million for three months ended March 31, 2021 compared to cash provided of $8.5 million for the three months ended March 31, 2020.

The change in cash flows from operating activities is primarily attributable to a decrease in gross margins and operating income for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The use of working capital cash increased $0.3 million, or 15%, to a use of $2.3 million for the three months ended March 31, 2021, compared to a use of $2.0 million for the three months ended March 31, 2020.

Net cash used in operating activities increased $28.3 million to cash used of $4.1 million for six months ended June 30, 2021 compared to cash provided of $24.2 million for the six months ended June 30, 2020.

The change in cash flows from operating activities is primarily attributable to a decrease in gross margins and operating income for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The use of working capital cash decreased $15.6 million to a use of $6.3 million for the six months ended June 30, 2021, compared to cash generated of $9.0 million for the six months ended June 30, 2020.

Investing Activities

Net cash used in investing activities decreased $4.6 million from a use of cash of $4.6 million for the three months ended March 31, 2020.

The change in cash flows from investing activities is attributable to a significant reduction in capital expenditures during the trailing twelve months due to the economic events that have taken place in the industry.

Net cash used in investing activities decreased $0.6 million from a use of cash of $5.5 million for the six months ended June 30, 2020.

Financing Activities

Net cash provided by financing activities remained flat at $0.6 million for both the three months ended March 31, 2021 and 2020.

During the three months ended March 31, 2020, we had increased borrowings under the Credit Facility that were partially offset by the settlement of the ESCO Seller’s Notes and repurchases of Class A Common Stock.

During the three months ended March 31, 2021, we entered into a sale-leaseback transaction with certain of our fixed assets, coupled with net borrowings under the Credit Facility.

Net cash provided by financing activities increased $29.2 million from a use of cash of $19.6 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, we entered into sale-leaseback transactions related to certain of our fixed assets, coupled with additional net borrowings under the Credit Facility.

Supplemental Disclosures

We added fixed assets of $0.2 million that were non-cash additions.

Additionally, we entered into installment agreements, thereby increasing our current and long-term obligations by $0.6 million that were also non-cash additions.

During the six months ended June 30, 2021, the Company acquired Patriot by issuing $7.7 million of Class A Common Stock.

Additionally, we entered into installment agreements, thereby increasing our current and long-term obligations by $1.1 million and added fixed assets of $0.7 million, all of which were non-cash additions

Working Capital

Our working capital, which we define as total current assets less total current liabilities, was $2.1 million as of March 31, 2021 compared to $2.7 million as of December 31, 2020.

The reduction in the Company’s operational activity, 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 $10.4 million as of June 30, 2021 compared to $2.7 million as of December 31, 2020.

The working capital has increased due to increased activity, as well as the working capital attributable to Patriot.

Our Debt Agreements

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

The applicable margins for the LIBOR and Base Rate loans were 2.1% and 4.3%, respectively, as of March 31, 2021.

The weighted average interest rate for the borrowings under the Credit Facility was 2.5% during the three months ended March 31, 2021.

Under the Credit Facility, the total loan capacity is $19.8 million, which was based on a borrowing base certificate in effect as of March 31, 2021.

The Company had outstanding borrowings of $8.6 million under the Credit Facility, leaving a residual $11.2 million available for borrowings as of March 31, 2021.

The Company was in compliance with the Credit Facility covenants as of March 31, 2021.

As of May 5, 2021, the Company did not have any borrowings under the Credit Facility and had a borrowing base of $20.4 million.

The applicable margins for the LIBOR and Base Rate loans were 2.1% and 4.3%, respectively, as of June 30, 2021.

The weighted average interest rate for the borrowings under the Credit Facility was 2.6% during the six months ended June 30, 2021.

The applicable margin for the LIBOR and Base Rate loans will decrease to 1.75% and 0.75% effective July 1, 2021 due to an increase in the average availability.

Under the Credit Facility, the total loan capacity is $22.5 million, which was based on a borrowing base certificate in effect as of June 30, 2021.

The Company had outstanding borrowings of $9.7 million under the Credit Facility, leaving a residual $12.8 million available for borrowings as of June 30, 2021.

The Company was in compliance with the Credit Facility covenants as of June 30, 2021.

Covenants and Other Restrictions

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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 March 31, 2021, the aggregate principal balance outstanding under the Financing Agreement was $15.2 million.

As of June 30, 2021, the aggregate principal balance outstanding under the Financing Agreement was $12.7 million.

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 March 31, 2021.

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, 2021.

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 March 31, 2021.

The Company was in compliance with the covenants under the Financing Agreement as of June 30, 2021.

Other Installment Purchases

During the three months ended March 31, 2021, the Company entered into various Installment and Security Agreements (collectively, the “Installment Agreements”) in connection with the purchase of certain ancillary equipment, where such assets are being held as collateral.

As of March 31, 2021, the aggregate principal balance outstanding under the Installment Agreements was $0.8 million and each balance is payable ratably over 36 months from the time of each purchase.

During the six months ended June 30, 2021, the Company entered into various Installment and Security Agreements (collectively, the “Installment Agreements”) in connection with the purchase of certain ancillary equipment, where such assets are being held as collateral.

As of June 30, 2021, the aggregate principal balance outstanding under the Installment Agreements was $1.0 million and is payable ratably over 36 months from the time of each purchase.

The monthly installment payments contain an imputed interest rate that are consistent with the Company’s incremental borrowing rate and is not significant to the Company.

Sale-Leaseback Transaction

In April 2021, the Company entered into a sale-leaseback agreement for operational facilities in Colorado.

The sales price of the facility was $13.0 million and the cash proceeds from the transaction have provided the Company with additional liquidity.

The lease has a 15 year term with a two percent annual escalation in rental payments.

Sale-Leaseback Transactions

During the three and six months ended June 30, 2021, the Company entered into an agreement to sell a parcel of land and a building attached thereto, and subsequently leased back the property.

The Company received cash of $12.1 million from the sale and the lease has a 15 year term with an annual rent escalation of 2% per annum.

During the six months ended June 30, 2021, the Company entered into an agreement to sell certain of other fixed assets and subsequently leased back such assets and received cash of $3.5 million to be paid over 18 to 60 months.

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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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