MAMMOTH ENERGY SERVICES, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in Item 1A. “Risk Factors” and the section entitled “Forward-Looking Statements” appearing elsewhere in this annual report. Overview We are an integrated, growth-oriented company serving both the electric utility and oil and gas industries in North America. Our primary business objective is to grow our operations and create value for stockholders through organic growth opportunities and accretive acquisitions. Our suite of services includes infrastructure services, well completion services, natural sand proppant services, drilling services and other services, which includes aviation, equipment rental, crude oil hauling, remote accommodations, equipment manufacturing and infrastructure engineering and design services. Our infrastructure services division provides construction, upgrade, maintenance and repair services to the electrical infrastructure industry. Our well compeltion services division provides hydraulic fracturing, sand hauling and water transfer services. Our natural sand proppant services division mines, processes and sells natural sand proppant used for hydraulic fracturing. Our drilling services division currently provides rental equipment, such as mud motors and operational tools, for both vertical and horizontal drilling. In addition to these service divisions, we also provide aviation services, equipment rentals, crude oil hauling services, remote accommodations, equipment manufacturing and infrastructure engineering and design services. We believe that the services we offer play a critical role in maintaining and improving electrical infrastructure as well as in increasing the ultimate recovery and present value of production streams from unconventional resources. Our complementary suite of services provides us with the opportunity to cross-sell our services and expand our customer base and geographic positioning. Our transformation towards an industrial based company is ongoing. During the fourth quarter of 2019, we began infrastructure engineering operations focused on the transmission and distribution industry and also commenced equipment manufacturing operations. Our equipment manufacturing operations provide us with the ability to repair much of our existing equipment in-house, as well as the option to manufacture certain new equipment we may need in the future. The equipment manufacturing operations have initially served the internal needs for our water transfer, equipment rental and infrastructure businesses, but we expect to expand into third party sales in the future. We are continuing to explore other opportunities to expand our business lines as we shift to a broader industrial focus. Our revenues, operating (loss) income and identifiable assets are primarily attributable to four reportable segments: infrastructure services; well completion services; natural sand proppant services; and drilling services. In 2019, we included Barracuda Logistics LLC, or Barracuda, in our pressure pumping segment, Cobra Aviation Services LLC, or Cobra Aviation, Air Rescue Systems Corporation, or ARS, and Leopard Aviation LLC, or Leopard, in our infrastructure segment and Mako Acquisitions LLC, or Mako, in our drilling segment. Based on our assessment of FASB ASC 280, Segment Reporting , guidance at December 31, 2020, we changed our presentation in 2020 to move Barracuda to the sand segment and Cobra Aviation, ARS, Leopard and Mako to the reconciling column titled “All Other”. Additionally, we changed the name of our pressure pumping segment to the well completion segment in 2020. The results for the years ended December 31, 2019 and 2018 have been retroactively adjusted to reflect these changes. Since the dates presented below, we have conducted our operations through the following entities: Infrastructure Services Segment • Cobra Acquisitions LLC, or Cobra—January 2017 • Lion Power Services LLC, formerly Cobra Energy LLC—January 2017 • Higher Power Electrical LLC—April 2017 • 5 Star Electric LLC—July 2017 • Cobra Logistics LLC—February 2018 • Cobra Caribbean LLC—October 2018 • Python Equipment LLC—December 2018 Well Completion Services Segment • Stingray Pressure Pumping LLC—March 2012 • Silverback Energy LLC—November 2012 • Redback Pump Down Services LLC—January 2015 53 • Mr. Inspections LLC—January 2015 • Mammoth Equipment Leasing LLC—November 2016 • Bison Sand Logistics LLC—January 2018 • Aquahawk Energy LLC—June 2018 Natural Sand Proppant Services Segment • Muskie Proppant LLC—September 2011 • Barracuda—October 2014 • Piranha Proppant LLC—May 2017 • Sturgeon Acquisitions LLC—June 2017 • Taylor Frac, LLC—June 2017 • Taylor Real Estate Investments, LLC—June 2017 • South River Road, LLC—June 2017 Drilling Services Segment • Bison Drilling and Field Services, LLC—November 2010 • Panther Drilling Systems LLC—December 2012 • Bison Trucking LLC—August 2013 • White Wing Tubular Services LLC—September 2014 Other • Great White Sand Tiger Lodging Ltd.—October 2007 • Redback Energy Services, LLC—October 2011 • Redback Coil Tubing, LLC—May 2012 • WTL Oil LLC, or WTL, formerly Silverback—June 2016 • Mammoth Energy Partners, LLC—June 2016 • Mako —March 2017 • Stingray Energy Services LLC, or Stingray Energy Services—June 2017 • Stingray Cementing LLC—June 2017 • Tiger Shark Logistics LLC—October 2017 • Dire Wolf Energy Services LLC—January 2018 • Cobra Aviation—January 2018 • Black Mamba Energy LLC—March 2018 • Stingray Cementing and Acidizing, formerly RTS Energy Services LLC—June 2018 • Ivory Freight Solutions LLC—July 2018 • IFX Transport LLC—December 2018 • ARS—December 2018 • Predator Aviation LLC—April 2019 • Leopard—April 2019 • Anaconda Manufacturing LLC—September 2019 • Aquawolf LLC—September 2019 Impact of the Ongoing COVID-19 Pandemic and Volatility in Commodity Prices On March 11, 2020, the World Health Organization characterized the global spread of the novel strain of coronavirus, COVID-19, as a “pandemic.” To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and a reduction in demand for many products from direct or ultimate customers. While many of the stay-at-home orders have expired, the COVID-19 pandemic has resulted in a widespread health crisis and a swift and unprecedented reduction in international and U.S. economic activity which, in turn, has adversely affected, and continues to adversely affect, the demand for oil and natural gas and caused significant volatility and disruption of the capital and financial markets. In March and April 2020, concurrent with the spread of COVID-19 and quarantine orders in the U.S. and worldwide, oil prices dropped sharply to below zero for the first time in history due to factors including significantly reduced demand and a shortage of storage facilities. While OPEC members and certain other nations agreed in April 2020 to cut production and subsequently extended such production cuts through December 2020, which helped to reduce a portion of the excess supply in the market and improve crude oil prices, they agreed to increase production by 500,000 barrels per day beginning in January 2021. As a result, downward pressure on commodity prices could continue for the foreseeable future. We cannot predict if, or when, commodity prices will stabilize and at what price points and when global inventories will return to normalized levels. 54 Beginning in early March 2020, in response to the ongoing COVID-19 pandemic and the depressed commodity prices, many exploration and production companies, including our customers, immediately began to substantially reduce their capital expenditure budgets. As a result, demand for our oilfield services, which was already under considerable pressure from reductions in our customers' capital expenditure budgets in 2019, declined further at the end of the first quarter of 2020 and continued to decline further throughout the remainder of 2020. Demand for both gasoline and oil rebounded to some extent toward the end of the second quarter of 2020 and stabilized to some degree throughout the second half of 2020, but remains below historical levels. As a result, depressed levels of oilfield service activity are expected to continue for the foreseeable future. The ongoing COVID-19 pandemic, the broad reduction in economic activity, the current conditions in the energy industry and the adverse macroeconomic conditions have also had, and are likely to continue to have, an adverse effect on both pricing and utilization for our oilfield services. We have taken, and continue to take, responsible steps to protect the health and safety of our employees during the COVID-19 pandemic. We are also actively monitoring the impact of the COVID-19 pandemic and the adverse industry and market conditions and have taken mitigating steps to preserve liquidity, reduce costs and lower capital expenditures. These actions have included reducing headcount, adjusting pay and limiting spending. We will continue to take further actions that we deem to be in the best interest of the Company and our stockholders if the current conditions continue, do not improve or worsen. Given the dynamic nature of these events, we are unable to predict the ultimate impact of the COVID-19 pandemic, the depressed commodity markets, the reduced demand for oil and oilfield services and adverse macroeconomic conditions on our business, financial condition, results of operations, cash flows and stock price or the pace or extent of any subsequent recovery. 2020 Highlights • Net loss of $108 million, or $2.36 per diluted share, and adjusted net loss of $40 million, or $0.88 per diluted share, for the year ended December 31, 2020. See “Non-GAAP Financial Measures” below for a reconciliation of net loss to adjusted net loss. • Adjusted EBITDA of $50 million for the year ended December 31, 2020. See “Non-GAAP Financial Measures” below for a reconciliation of net loss to Adjusted EBITDA. • In the fourth quarter of 2020, approximately 66% of our revenue was derived from the industrial sector. Given the expected demand in the industrial sector, we believe that we are well positioned to grow our industrial business rapidly over the coming years. Overview of Our Industries Energy Infrastructure Industry Our infrastructure services business provides construction, upgrade, maintenance and repair services to the electrical infrastructure industry. We offer a broad range of services on electric transmission and distribution, or T&D, networks and substation facilities, which include construction, upgrade, maintenance and repair of high voltage transmission lines, substations and lower voltage overhead and underground distribution systems. Our commercial services include the installation, maintenance and repair of commercial wiring. We also provide storm repair and restoration services in response to storms and other disasters. We provide infrastructure services primarily in the northeast, southwest and midwest portions of the United States. We currently have agreements in place with private utilities, public IOUs and Co-Ops. Since we commenced operations in this line of business, a substanital portion of our infrastructure revenue has been generated from storm restoration work, primarily from PREPA, due to damage caused by Hurricane Maria. On October 19, 2017, Cobra and PREPA entered into an emergency master services agreement for repairs to PREPA’s electrical grid. The one-year contract, as amended, provided for payments of up to $945 million. On May 26, 2018, Cobra and PREPA entered into a second one-year, $900 million master services agreement to provide additional repair services and begin the initial phase of reconstruction of the electrical power system in Puerto Rico. Our work under each of the contracts with PREPA ended on March 31, 2019. As of December 31, 2020, PREPA owed us approximately $227 million for services we performed, excluding $74 million of interest charged on these delinquent balances as of December 31, 2020. See Note 2. Summary of Significant Accounting Policies-Accounts Receivable to our consolidated financial statements included elsewhere in this annual report. PREPA is currently subject to bankruptcy proceedings, which were filed in July 2017 and are currently pending in the U.S. District Court for the District of Puerto Rico. As a result, PREPA's ability to meet its payment obligations under the contracts is 55 largely dependent upon funding from the FEMA or other sources. On September 30, 2019, we filed a motion with the U.S. District Court for the District of Puerto Rico seeking recovery of the amounts owed to us by PREPA, which motion was stayed by the court. On March 25, 2020, we filed an urgent motion to modify the stay order and allow our recovery of approximately $62 million in claims related to a tax gross-up provision contained in the emergency master service agreement, as amended, that was entered into with PREPA on October 19, 2017. This emergency motion was denied on June 3, 2020 and the court extended the stay of our motion. On December 9, 2020, the Court again extended the stay of our motion and directed PREPA to file a status motion by June 7, 2021.In the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the amounts owed to us or (iii) otherwise does not pay amounts owed to us for services performed, the receivable may not be collected and our financial condition, results of operations and cash flows would be materially and adversely affected. In addition, government contracts are subject to various uncertainties, restrictions and regulations, including oversight audits and compliance reviews by government agencies and representatives. In this regard, on September 10, 2019, the U.S. District Court for the District of Puerto Rico unsealed an indictment that charged the former president of Cobra with conspiracy, wire fraud, false statements and disaster fraud. Two other individuals were also charged in the indictment. The indictment is focused on the interactions between a former FEMA official and the former President of Cobra. Neither we nor any of our subsidiaries were charged in the indictment. We are continuing to cooperate with the related investigation. We are also subject to investigations and legal proceedings related to our contracts with PREPA. Given the uncertainty inherent in the criminal litigation, investigations and legal proceedings, it is not possible at this time to determine the potential outcome or other potential impacts that they could have on us. See Note 20. Commitments and Contingencies to our consolidated financial statements included elsewhere in this annual report for additional information regarding these investigations and proceedings. Further, as noted above, our contracts with PREPA have concluded and we have not obtained, and there can be no assurance that we will be able to obtain, one or more contracts with PREPA or other customers to replace the level of services that we provided to PREPA under our previous contracts. Demand for our infrastructure services in the continental United States remains steady, and our crew count remained stable at approximately 115 crews throughout 2020. The COVID-19 pandemic and resulting economic conditions have not had a material impact on demand or pricing for our infrastructure services. Transmission crew size varies based upon the scope of the project and factors such as voltage, structure type, number of conductors and type of foundation. Each distribution crew generally consists of five employees. These transmission and distribution crews work for multiple utilities primarily across the northeastern, midwestern and southwestern portions of the United States. During the fourth quarter of 2019, we hired a new president for our infrastructure division and have added experienced industry personnel to key management positions. Our infrastructure management team also has experience with both solar and wind projects and we believe that this experience, combined with our vertically integrated service offering, positions us well to compete and win renewable projects. With this team in place, we believe we will be able to grow our customer base and increase our revenues in the continental United States over the coming years. We also believe that the skill sets and experience of our crews will afford us enhanced bidding opportunities in both the U.S. and overseas. Oil and Natural Gas Industry The oil and natural gas industry has traditionally been volatile and is influenced by a combination of long-term, short-term and cyclical trends, including the domestic and international supply and demand for oil and natural gas, current and expected future prices for oil and natural gas and the perceived stability and sustainability of those prices, production depletion rates and the resultant levels of cash flows generated and allocated by exploration and production companies to their drilling, completion and related services and products budget. The oil and natural gas industry is also impacted by general domestic and international economic conditions, political instability in oil producing countries, government regulations (both in the United States and elsewhere), levels of customer demand, the availability of pipeline capacity, storage capacity and other conditions and factors that are beyond our control. See “Recent Developments—Impact of the Ongoing COVID-19 Pandemic and Volatility in Commodity Prices” above. Demand for most of our oil and natural gas products and services depends substantially on the level of expenditures by companies in the oil and natural gas industry. The levels of capital expenditures of our customers are predominantly driven by the prices of oil and natural gas. As discussed above, oil prices dropped sharply throughout March and April of 2020 and have continued to experience significant volatility. Oil and natural gas prices are expected to continue to be volatile and we cannot predict if, or when, commodity prices will improve and stabilize. We experienced a weakening in demand for our oilfield services during 2019 as a result of reductions in our customers' capital expenditure budgets. The sharp decline in oil prices beginning in March 2020 further reduced the utilization and pricing of our oilfield services. In response to market conditions, we temporarily shut down our cementing and acidizing operations and flowback operations beginning in July 2019, our contract drilling operations beginning in December 2019, our rig hauling operations 56 beginning in April 2020 and our coil tubing and full service transportation operations beginning in July 2020. We continue to monitor the market to determine if and when we can recommence these services. Further, we are currently only operating one of our six pressure pumping fleets. Based on current feedback from our exploration and production customers, they are taking a cautious approach to activity levels for 2021 given the recent volatility in oil prices and investor sentiment calling for activities to remain within or below cash flows. Market fundamentals are challenging for our oilfield businesses and we expect this trend to continue for at least the first half of 2021. Although we believe the reported retirement of equipment across the industry may, at some point, help the market, pricing and utilization for our oilfield services are expected to remain depressed for the foreseeable future. While the oilfield portion of our service offerings continue to experience significant challenges, we expect to be ready to ramp up our oilfield service offerings when oilfield demand, pricing and margins strengthen. We intend to closely monitor our cost structure in response to market conditions and pursue cost savings where possible. Further, a significant portion of our revenue from our pressure pumping business is derived from Gulfport pursuant to a contract that expires in December 2021. On December 28, 2019, Gulfport filed a lawsuit alleging our breach of this contract and seeking to terminate the contract and recover damages for alleged overpayments, audit costs and legal fees. Gulfport has not made the payments owed to us under this contract for any periods subsequent to its alleged December 28, 2019 termination date. We believe Gulfport's actions are without merit and are vigorously defending the lawsuit. Further, on November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. Gulfport may take action in its chapter 11 proceeding to terminate its agreement with us and/or seek to reduce our claims for services and damages to which we may be entitled. We cannot assure you of the outcome of our claims in Gulfport’s chapter 11 proceeding, what our recovery on those claims might be or whether we will be able to preserve, extend or renew our contract with Gulfport on favorable terms and conditions or at all. Likewise, we cannot assure you whether we would be able to obtain replacement long-term contracts with other customers sufficient to continue providing the level of services that we currently provide to Gulfport. The termination of our relationship or nonrenewal of our contract with Gulfport, or one or more of our other significant customers, would have a material adverse effect on our business, financial condition, results of operations and cash flows. Natural Sand Proppant Industry In the natural sand proppant industry, demand growth for frac sand and other proppants is primarily driven by advancements in oil and natural gas drilling and well completion technology and techniques, such as horizontal drilling and hydraulic fracturing, as well as overall industry activity growth. In 2018 and 2019, several new and existing suppliers completed planned capacity additions of frac sand supply, particularly in the Permian Basin. The industry expansion, coupled with increased capital discipline, budget exhaustion and the impact on oil demand from the COVID-19 pandemic, caused the frac sand market to become oversupplied, particularly in finer grades. With the frac sand market oversupplied, pricing for all grades has fallen significantly from the peaks experienced throughout 2018 and during the first half of 2019. This oversupply resulted in several industry participants idling and closing high cost mines in an attempt to restore the supply and demand balance and reduce the number of industry participants. Nevertheless, demand for our sand declined significantly in the second half of 2019 and throughout 2020 as a result of completion activity falling due to lower oil demand and pricing as discussed above, increased capital discipline by our customers and budget exhaustion, among other factors. We cannot predict if and when demand and pricing will recover sufficiently to return our natural sand proppant services segment to profitability. Further, as a result of adverse market conditions, production at our Muskie sand facility in Pierce County, Wisconsin has been temporarily idled since September 2018. Our Taylor sand facility in Taylor, Wisconsin and Piranha sand facility in New Auburn, Wisconsin are currently running at approximately 12% capacity. Our contracted capacity has provided a strong baseline of business, which has kept our Taylor and Piranha plants operating and our costs low. A portion of our revenue from our natural sand proppant business is derived from Gulfport pursuant to a contract that expires in December 2021. Gulfport has not made the payments owed to us under this contract for any periods subsequent to May 2020. In September 2020, we filed a lawsuit seeking to recover delinquent payments owed to us under this contract. Further, on November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. Gulfport may take action in its chapter 11 proceeding to terminate its agreement with us and/or seek to reduce our claims for services and damages to which we may be entitled. We cannot assure you of the outcome of our claims in Gulfport’s chapter 11 proceeding, what our recovery on those claims might be or whether we will be able to preserve, extend or renew our contract with Gulfport on favorable terms and conditions or at all. The termination of our relationship or nonrenewal of our contract with Gulfport, or one or more of our other customers, could have a material adverse effect on our business, financial condition, results of operations and cash flows. 57 Results of Operations Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 Years Ended December 31, 2020 December 31, 2019 Revenue: (in thousands) Infrastructure services $ 155,241 $ 213,264 Well completion services 88,325 243,802 Natural sand proppant services 34,360 97,063 Drilling services 7,785 31,964 Other services 31,339 88,607 Eliminations (3,974) (49,688) Total revenue 313,076 625,012 Cost of revenue: Infrastructure services (exclusive of depreciation and amortization of $29,337 and $30,323, respectively, for 2020 and 2019) 122,369 173,269 Well completion services (exclusive of depreciation and amortization of $30,395 and $40,117, respectively, for 2020 and 2019) 47,483 206,543 Natural sand proppant services (exclusive of depreciation, depletion and accretion of $9,758 and $14,039, respectively, for 2020 and 2019) 25,955 87,652 Drilling services (exclusive of depreciation and amortization of $10,036 and $13,138, respectively, for 2020 and 2019) 10,909 36,953 Other services (exclusive of depreciation and amortization of $15,713 and $19,323, respectively, for 2020 and 2019) 29,279 89,119 Eliminations (3,974) (49,748) Total cost of revenue 232,021 543,788 Selling, general and administrative expenses 67,185 51,552 Depreciation, depletion, amortization and accretion 95,317 117,033 Impairment of goodwill 54,973 33,664 Impairment of other long-lived assets 12,897 7,358 Operating loss (149,317) (128,383) Interest expense, net (5,397) (4,958) Other income, net 34,938 42,216 Loss before income taxes (119,776) (91,125) Benefit for income taxes (12,169) (12,081) Net loss $ (107,607) $ (79,044) Revenue . Revenue for 2020 decreased $312 million, or 50%, to $313 million from $625 million for 2019. The decrease in total revenue is attributable to declines in revenue across all business lines. Revenue derived from related parties was $51 million, or 16% of our total revenue, for 2020 and $130 million, or 21% of our total revenue, for 2019. Substantially all of our related party revenue is derived from Gulfport under pressure pumping and sand contracts. For additional information regarding the status of these contracts, see “Industry Overview – Oil and Natural Gas Industry,” “Industry Overview – Natural Sand Proppant Industry” and Note 20. Commitments and Contingencies to our consolidated financial statements included elsewhere in this report. Revenue by division was as follows: Infrastructure Services. Infrastructure services division revenue decreased $58 million, or 27%, to $155 million for 2020 from $213 million for 2019 primarily due to the conclusion on March 31, 2019 of the work we performed under our contracts with PREPA for repairs to Puerto Rico's electrical grid as a result of Hurricane Maria. For additional information regarding our contracts with PREPA and our infrastructure services, see “Overview of Our Industries - Electrical Infrastructure Industry” above. Revenue from our operations in the continental United States increased $37 million, or 31%, to $155 million for 2020 from $118 million for 2019. 58 Well Completion Services . Well completion services division revenue decreased $156 million, or 64%, to $88 million for 2020 from $244 million for 2019. Revenue derived from related parties was $42 million, or 48% of total well completion revenue, for 2020 and $91 million, or 37% of total well completion revenue, for 2019. Substantially all of our related party revenue is derived from Gulfport under a pressure pumping contract. On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. In 2020, we recognized pre-petition revenue totaling $39 million and post-petition revenue totaling $4 million in accordance with the terms of this contract. For additional information regarding the status of this contract, see “Industry Overview – Oil and Natural Gas Industry” above. Intersegment revenue, consisting primarily of revenue derived from our other services and sand segment, totaled $1 million and $2 million, respectively, for 2020 and 2019. The decrease in our well completion services revenue was primarily driven by a decline in pricing as well as a decline in utilization. The number of stages completed decreased 46% to 2,880 for 2020 from 5,378 for 2019. An average of 1.5 of our fleets were active throughout 2020 compared to 2.4 fleets for 2019. Natural Sand Proppant Services. Natural sand proppant services division revenue decreased $63 million, or 65%, to $34 million for 2020, from $97 million for 2019. Revenue derived from related parties was $8 million, or 24% of total sand revenue, for 2020 and $28 million, or 29% of total sand revenue, for 2019. All of our related party revenue is derived from Gulfport under a sand supply contract. On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. In 2020, we recognized pre-petition revenue totaling $7 million and post-petition revenue totaling $1 million in accordance with the terms of this contract. For additional information regarding the status of this contract, see “Industry Overview – Natural Sand Proppant Industry” above. Intersegment revenue, consisting primarily of revenue derived from our well completion segment, was nominal for 2020 and $30 million, or 31% of total sand revenue, for 2019. The decrease in our natural sand proppant services revenue was primarily attributable to a 75% decline in tons of sand sold from approximately 2.0 million tons in 2019 to 0.5 million tons in 2020 coupled with a 51% decline in average price per ton of sand sold from $29.70 in 2019 to $14.58 in 2020. Included in natural sand proppant services revenue is shortfall revenue of $25 million and $3 million, respectively, for the 2020 and 2019. Drilling Services . Drilling services division revenue decreased $24 million, or 75%, to $8 million for 2020, from $32 million for 2019. Revenue derived from related parties, consisting primarily of directional drilling revenue from El Toro Resources LLC, was nominal for 2020 and $1 million for 2019. The decline in our drilling services revenue was primarily attributable to declines in contract land drilling, rig hauling and directional drilling revenue of $9 million, $9 million and $6 million, respectively. In response to market conditions, we temporarily shut down our contract land drilling operations beginning in December 2019 and our rig hauling operations beginning in April 2020. Other Services. Revenue from other services, consisting of revenue derived from our aviation, coil tubing, pressure control, flowback, cementing, acidizing, equipment rental, crude oil hauling, full service transportation, remote accommodation, equipment manufacturing and infrastructure engineering and design businesses, decreased $58 million, or 65%, to $31 million for 2020 from $89 million for 2019. Revenue derived from related parties, consisting primarily of equipment rental revenue from Gulfport and aviation revenue from Brim Equipment Leasing, Inc., or Brim, was $1 million, or 3% of total other services revenue, for 2020 and $11 million, or 12% of total other services revenue, for 2019. Intersegment revenue, consisting primarily of revenue derived from our infrastructure and well completion segments, totaled $3 million and $15 million, respectively, for 2020 and 2019. The decrease in our other services revenue was primarily due to a decline in utilization for our equipment rental business. We rented an average of 204 pieces of equipment to customers during 2020, a decrease of 63% from an average of 557 pieces of equipment rented to customers during 2019. Additionally, utilization for our crude oil hauling and aviation businesses declined. Due to market conditions, we temporarily shut down our cementing and acidizing operations as well as our flowback operations in July 2019 and our coil tubing and full service transportation operations beginning in July 2020. These decreases were partially offset by increases in revenue for our remote accommodations and infrastructure engineering businesses. Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion expense) . Cost of revenue, exclusive of depreciation, depletion, amortization and accretion expense, decreased $312 million from $544 million, or 87% of 59 total revenue, for 2019 to $232 million, or 74% of total revenue, for 2020. The decrease was primarily due to a decline in activity across all of our business lines. Cost of revenue by operating division was as follows: Infrastructure Services. Infrastructure services division cost of revenue, exclusive of depreciation and amortization expense, decreased $51 million from $173 million for 2019 to $122 million for 2020. The decline is due to the conclusion on March 31, 2019 of the work we performed under our contracts with PREPA for repairs to Puerto Rico's electrical grid as a result of Hurricane Maria. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $29 million in 2020 and $30 million in 2019, was 79% and 81%, respectively, for 2020 and 2019. Well Completion Services . Well completion services division cost of revenue, exclusive of depreciation and amortization expense, decreased $160 million, or 77%, from $207 million for 2019 to $47 million for 2020 primarily due to a decline in activity. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of $30 million in 2020 and $40 million in 2019, was 54% and 85%, respectively, for 2020 and 2019. The decrease was primarily due to the recognition of standby revenue during 2020, of which there was a lower percentage of costs recognized compared to 2019. Additionally, during 2019 we provided sand and chemicals with our service package to customers, resulting in higher cost of goods sold as a percentage of revenue for this period in comparison to 2020. Natural Sand Proppant Services. Natural sand proppant services division cost of revenue, exclusive of depreciation, depletion and accretion expense, decreased $62 million, or 70%, from $88 million for 2019 to $26 million for 2020 primarily due to a decrease in cost of goods sold as a result of a decrease in tons of sand sold. As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of $10 million in 2020 and $14 million in 2019, was 76% and 90%, respectively, for 2020 and 2019. The decrease in cost as a percentage of revenue is primarily due to an increase in shortfall revenue, partially offset by a 51% decline in average price per ton of sand sold. Drilling Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, decreased $26 million, or 70%, from $37 million for 2019 to $11 million for 2020, as a result of reduced activity. In response to market conditions, we temporarily shut down our contract land drilling operations beginning in December 2019 and our rig hauling operations beginning in April 2020. As a percentage of revenue, our drilling services division cost of revenue, exclusive of depreciation and amortization expense of $10 million in 2020 and $13 million in 2019, was 140% and 116%, respectively, for 2020 and 2019. The increase was primarily due to a decline in utilization. Other Services . Other services cost of revenue, exclusive of depreciation and amortization expense, decreased $60 million, or 67%, from $89 million for 2019 to $29 million for 2020, primarily due to declines in costs for our equipment rental and crude oil hauling businesses as a result of reduced activity. Additionally, due to market conditions, we temporarily shut down our cementing and acidizing operations as well as our flowback operations beginning in July 2019 and our coil tubing and full service transportation operations beginning in July 2020. We continue to monitor market conditions to evaluate if and when we can recommence providing these services. These declines were partially offset by an increase in costs for our equipment manufacturing and infrastructure engineering and design businesses. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $16 million in 2020 and $19 million in 2019, was 93% and 101%, respectively, for 2020 and 2019. Selling, General and Administrative Expenses . Selling, general and administrative expenses, or SG&A, represent the costs associated with managing and supporting our operations. Following is a breakout of SG&A expenses for the periods indicated (in thousands): 60 Years Ended December 31, 2020 December 31, 2019 Cash expenses: Compensation and benefits $ 14,876 $ 19,364 Professional services 19,905 17,128 Other (a) 8,828 10,300 Total cash SG&A expense 43,609 46,792 Non-cash expenses: Bad debt provision 21,958 1,434 Stock based compensation 1,618 3,326 Total non-cash SG&A expense 23,576 4,760 Total SG&A expense $ 67,185 $ 51,552 a. Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs. Depreciation, Depletion, Amortization and Accretion . Depreciation, depletion, amortization and accretion decreased $22 million, or 19%, to $95 million for 2020 from $117 million in 2019. The decrease is primarily due to a decline in property and equipment depreciation expense as well as a decline in depletion expense. Impairment of Goodwill . We recorded impairment of goodwill of $55 million and $34 million, respectively, in 2020 and 2019. As a result of market conditions, we performed an impairment assessment of our goodwill as of March 31, 2020. We determined that the carrying value of goodwill for certain of our entities exceeded their fair values, resulting in impairment expense of $55 million. As a result of our annual assessment of goodwill, we determined that the carrying value of goodwill for certain of our entities exceeded their fair values at December 31, 2019, resulting in impairment expense of $30 million. During 2019, we temporarily shut down our cementing and acidizing operations, resulting in impairment of goodwill totaling $3 million. Impairment of Other Long-lived Assets . We recorded impairments of other long-lived assets of $13 million and $7 million, respectively, in 2020 and 2019. During 2020, we recorded impairment of property and equipment, including water transfer, crude oil hauling, coil tubing and equipment rental assets, totaling $13 million. During 2019, we temporarily shut down our flowback operations, resulting in fixed asset impairments of $4 million during 2019. Additionally, we recorded impairment expense $3 million related to specified drilling rigs and $1 million related to WTL's customer relationship intangible asset during 2019. Operating Loss. We reported an operating loss of $149 million for 2020 compared to an operating loss $128 million for 2019. The increased operating loss was primarily due to increases in impairment expense of $27 million and SG&A expense of $15 million, partially offset by a 15% decline in cost of revenue as a percentage of revenue. Interest Expense, net . Interest expense, net remained relatively flat at $5 million for each of 2020 and 2019. Other Income (Expense), net. Other income, net decreased $7 million during 2020 compared to 2019 primarily due to a decline in the recognition of interest on trade accounts receivable pursuant to the terms of our contracts with PREPA. Income Taxes . During 2020, we recorded an income tax benefit of $12 million on pre-tax loss of $120 million compared to an income tax benefit of $12 million on pre-tax loss of $91 million for 2019. Our effective tax rate was 10.2% for 2020 compared to 13.3% for 2019. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as discrete items, such as return to provision adjustments, goodwill impairment and changes in the valuation allowance that may not be consistent from year to year. See Note 14 to our consolidated financial statements for additional detail regarding our change in tax expense. 61 Year Ended December 31, 2019 Compared to Year Ended December 31, 2018 Years Ended December 31, 2019 December 31, 2018 Revenue: (in thousands) Infrastructure services $ 213,264 $ 1,085,977 Well completion services 243,802 357,252 Natural sand proppant services 97,063 175,922 Drilling services 31,964 66,332 Other services 88,607 122,278 Eliminations (49,688) (117,677) Total revenue 625,012 1,690,084 Cost of Revenue: Infrastructure services (exclusive of depreciation and amortization of $30,323 and $20,175, respectively, for 2019 and 2018) 173,269 622,293 Well completion services (exclusive of depreciation and amortization of $40,117 and $51,295, respectively, for 2019 and 2018) 206,543 277,693 Natural sand proppant services (exclusive of depreciation, depletion and accretion of $14,039 and $13,668, respectively, for 2019 and 2018) 87,652 144,192 Drilling services (exclusive of depreciation and amortization of $13,138 and $18,140, respectively, for 2019 and 2018) 36,953 60,873 Other services (exclusive of depreciation and amortization of $19,323 and $16,516, respectively, for 2019 and 2018) 89,119 106,403 Eliminations (49,748) (117,650) Total cost of revenue 543,788 1,093,804 Selling, general and administrative expenses 51,552 73,097 Depreciation, depletion, amortization and accretion 117,033 119,877 Impairment of goodwill 33,664 3,203 Impairment of other long-lived assets 7,358 5,652 Operating income (128,383) 394,451 Interest expense, net (4,958) (3,187) Other expense, net 42,216 (2,036) Income before income taxes (91,125) 389,228 Provision for income taxes (12,081) 153,263 Net income $ (79,044) $ 235,965 Revenue . Revenue for 2019 decreased $1.1 billion, or 63%, to $625 million from $1.7 billion for 2018. The decrease in total revenue is primarily attributable to a $873 million decrease in infrastructure services revenue, representing 82% of the overall decrease. Additionally, well completion services and natural sand proppant services revenue decreased $113 million and $79 million, respectively, representing 11% and 7% of the overall decrease. Revenue derived from related parties was $130 million, or 21% of our total revenues, for 2019 and $143 million, or 8% of our total revenues, for 2018. Substantially all of our related party revenue is derived from Gulfport under pressure pumping and sand contracts. For additional information regarding the status of these contracts, see “Industry Overview – Oil and Natural Gas Industry,” “Industry Overview – Natural Sand Proppant Industry” and Note 20. Commitments and Contingencies to our consolidated financial statements included elsewhere in this report. Revenue by division was as follows: Infrastructure Services . Infrastructure services division revenue decreased $873 million, or 80%, to $213 million for 2019 from $1.1 billion for 2018 primarily due to the conclusion on March 31, 2019 of the work we performed under our contracts with PREPA for repairs to Puerto Rico's electrical grid as a result of Hurricane Maria. For additional information regarding our contracts with PREPA and our infrastructure services, see “Overview of Our 62 Industries - Electrical Infrastructure Industry” above. Revenue from our operations in the continental United States increased $58 million, or 96%, to $118 million for 2019 from $60 million for 2018. Well Completion Services . Well completion services division revenue decreased $113 million, or 32%, to $244 million for 2019 from $357 million for 2018. Revenue derived from related parties was $91 million, or 37% of total well completion revenue, for 2019 and $96 million, or 27% of total well completion revenue, for 2018. Substantially all of our related party revenue was derived from Gulfport under a well completion contract. For additional information regarding the status of this contract, see “Industry Overview – Oil and Natural Gas Industry” above. Intersegment revenue, consisting primarily of revenue derived from our sand segment, was $2 million and $1 million, respectively, for 2019 and 2018. The decrease in our well completion services revenue was primarily driven by a decline in pricing as well as a decline in utilization. The number of stages completed decreased 14% to 5,378 for 2019 from 6,245 for 2018. An average of 2.4 of our fleets were active throughout 2019 compared to 3.6 fleets for 2018. Natural Sand Proppant Services. Natural sand proppant services division revenue decreased $79 million, or 45%, to $97 million for 2019, from $176 million for 2018. Revenue derived from related parties was $28 million, or 29% of total sand revenues, for 2019 and $25 million, or 14% of total sand revenues, for 2018. All of our related party revenue is derived from Gulfport under a sand supply contract. For additional information regarding the status of this contract, see “Industry Overview – Natural Sand Proppant Industry” above. Intersegment revenue, consisting primarily of revenue derived from our well completion segment, was $30 million, or 31% of total sand revenue, for 2019 and $69 million, or 39% of total sand revenue, for 2018. The decrease in our natural sand proppant services revenue was primarily attributable to a 25% decline in tons of sand sold from approximately 2.7 million tons in 2018 to 2.0 million tons in 2019 coupled with a 24% decline in average price per ton of sand sold from $39.16 in 2018 to $29.70 in 2019. Drilling Services. Drilling services division revenue decreased $34 million, or 52%, to $32 million for 2019, from $66 million for 2018. Revenue derived from related parties, consisting primarily of directional drilling revenue from El Toro Resources LLC, was $1 million for each of 2019 and 2018. The decline in our drilling services revenue was primarily attributable to decreases in revenue for our contract land drilling and directional drilling businesses of $19 million and $11 million, respectively, due to declines in utilization. Our average active rigs decreased from 4.3 in 2018 to 1.4 in 2019. Directional drilling utilization declined from 49% in 2018 to 30% in 2019. Other Services . Revenue from other services, consisting of revenue derived from our aviation, coil tubing, pressure control, flowback, cementing, equipment rental and remote accommodation businesses, decreased $33 million, or 27%, to $89 million for 2019 from $122 million for 2018. Revenue derived from related parties, consisting primarily of equipment rental and cementing revenue from Gulfport and aviation revenue from Brim, was $11 million, or 12% of total other services revenue, for 2019 and $21 million, or 17% of total other services revenue, for 2018. Intersegment revenue, consisting primarily of revenue derived from our infrastructure and well completion segments, was $15 million and $44 million, respectively for 2019 and 2018. The decrease in other services revenue was primarily due to a decline in intersegment aviation revenue with our infrastructure segment. We provided aviation services to our transmission and distribution business in Puerto Rico under their contracts with PREPA for repairs to Puerto Rico's electrical grid as a result of Hurricane Maria. Work under these contracts concluded on March 31, 2019. Additionally, other services revenue decreased due to a decline in utilization from 39% in 2018 to 17% in 2019 for our coil tubing business. Due to market conditions, we temporarily shut down our cementing and acidizing operations as well as our flowback operations during the third quarter of 2019 resulting in a decline in revenue. We continue to monitor market conditions to evaluate if and when we can recommence providing these services. These decreases were partially offset by an increase in activity for our equipment rental business. An average of 557 pieces of equipment were rented during 2019, an increase of 41% from 395 pieces of equipment rented during 2018. Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion) . Cost of revenue, exclusive of depreciation, depletion, amortization and accretion expense, decreased $550 million from $1.1 billion, or 65% of total revenue, for 2018 to $544 million, or 87% of total revenue, for 2019. The decrease was primarily due to a decline in activity across all business lines. Cost of revenue by operating division was as follows: 63 Infrastructure Services . Infrastructure services division cost of revenue, exclusive of depreciation and amortization expense, decreased $449 million from $622 million for 2018 to $173 million for 2019. The decline is due to the conclusion on March 31, 2019 of the work we performed under our contracts with PREPA for repairs to Puerto Rico's electrical grid as a result of Hurricane Maria. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $30 million in 2019 and $20 million in 2018, was 81% and 57%, respectively, for 2019 and 2018. Well Completion Services . Well completion services division cost of revenue, exclusive of depreciation and amortization expense, decreased $71 million, or 26%, from $278 million for 2018 to $207 million for 2019 primarily due to a decline in activity. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of $40 million in 2019 and $51 million in 2018, was 85% and 78%, respectively, for 2019 and 2018. The increase in costs as a percentage of revenue was primarily due to a decline in utilization. Natural Sand Proppant Services. Natural sand proppant services division cost of revenue, exclusive of depreciation, depletion and accretion expense, decreased $56 million, or 39%, from $144 million for 2018 to $88 million for 2019 primarily due to a decrease in cost of goods sold as well as a 24% decline in production costs per ton of sand. As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of $14 million in both 2019 and 2018, was 90% and 82%, respectively, for 2019 and 2018. The increase in cost as a percentage of revenue is primarily due to a 24% decline in average price per ton of sand sold. Drilling Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, decreased $24 million, or 39%, from $61 million for 2018 to $37 million for 2019 primarily due a decline in activity for our contract land drilling and directional drilling businesses. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $13 million in 2019 and $18 million in 2018, was 116% and 92%, respectively, for 2019 and 2018. The increase is primarily due to an increase in labor-related costs as a percentage of revenue. Other Services . Other services cost of revenue, exclusive of depreciation and amortization expense, decreased $17 million, or 16%, from $106 million for 2018 to $89 million for 2019, primarily due to a decline in costs for our coil tubing business as a result of reduced activity. Additionally, due to market conditions, we temporarily shut down our cementing and acidizing operations as well as our flowback operations during the third quarter of 2019 resulting in a decline in cost of revenue. We continue to monitor market conditions to evaluate if and when we can recommence providing these services. These declines were partially offset by an increase in costs for our equipment rental and crude oil hauling businesses. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $19 million and $17 million in 2019 and 2018, was 101% and 87%, respectively, for 2019 and 2018. Selling, General and Administrative Expenses . Selling, general and administrative expenses represent the costs associated with managing and supporting our operations. Following is a breakout of SG&A expenses for the periods indicated (in thousands): Years Ended December 31, 2019 December 31, 2018 Cash expenses: Compensation and benefits $ 19,364 $ 42,950 Professional services 17,128 11,854 Other (a) 10,300 10,718 Total cash SG&A expense 46,792 65,522 Non-cash expenses: Bad debt provision (b) 1,434 (14,578) Equity based compensation (c) — 17,487 Stock based compensation 3,326 4,666 Total non-cash SG&A expense 4,760 7,575 Total SG&A expense $ 51,552 $ 73,097 64 a. Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs. b. During the year ended December 31, 2018, we received payment for amounts reserved in 2017. As a result, during the year ended December 31, 2018, we reversed bad debt expense of $16 million recognized in 2017. c. Represents compensation expense for non-employee awards, which were issued and are payable by certain affiliates of Wexford (the sponsor level). Depreciation, Depletion, Amortization and Accretion . Depreciation, depletion, accretion and amortization decreased $3 million, or 2%, to $117 million for 2019 from $120 million in 2018. The decrease is primarily due to a decline in intangible asset amortization expense partially offset by an increase in property and equipment depreciation expense. Impairment of Goodwill . We recorded impairment of goodwill of $34 million and $3 million, respectively, in 2019 and 2018. As a result of our annual assessment of goodwill, we determined that the carrying value of goodwill for certain of our entities exceeded their fair values at December 31, 2019, resulting in impairment expense of $30 million. During 2019, we temporarily shut down our cementing and acidizing operations, resulting in impairment of goodwill totaling $3 million. We recorded expense of $3 million in 2018 related to impairment of goodwill as a result of the movement of certain cementing equipment from the Utica Shale to the Permian Basin. Impairment of Other Long-lived Assets . We recorded impairments of other long-lived assets of $7 million and $6 million, respectively, in 2019 and 2018. During 2019, we temporarily shut down our flowback operations, resulting in fixed asset impairments of $4 million during 2019. Additionally, we recorded impairment expense $3 million related to specified drilling rigs and $1 million related to WTL's customer relationship intangible asset during 2019. We recorded impairment expense of $4 million related to specified drilling rigs in 2018 and $1 million related to impairment of intangible assets as a result of the movement of certain cementing equipment from the Utica shale to the Permian basin. Operating (Loss) Income. Operating income decreased $522 million to an operating loss of $128 million for 2019 compared to operating income of $394 million for 2018. The decrease is primarily due to a $432 million decline in operating income for our infrastructure services division due to a decline in activity. Interest Expense, net . Interest expense, net increased $2 million to $5 million during 2019 compared to $3 million during 2018 primarily due to an increase in average borrowings outstanding under our revolving credit facility. Other Income (Expense), net. Other income, net increased $44 million during 2019 compared to 2018 primarily due to the recognition of interest on trade accounts receivable totaling $42 million pursuant to the terms of our contracts with PREPA. Income Taxes . During 2019, we recorded an income tax benefit of $12 million on pre-tax loss of $91 million compared to income tax expense of $153 million on pre-tax income of $389 million for 2018. Our effective tax rate was 13.3% for 2019 compared to 39.4% for 2018. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as discrete items, such as return to provision adjustments, goodwill impairment and equity based compensation that may not be consistent from year to year. See Note 14 to our consolidated financial statements for additional detail regarding our change in tax expense. 65 Non-GAAP Financial Measures Adjusted EBITDA Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as net (loss) income before depreciation, depletion, amortization and accretion, impairment of goodwill, impairment of other long-lived assets, inventory obsolescence charges, acquisition related costs, public offering costs, equity based compensation, stock based compensation, interest expense, net, other (income) expense, net (which is comprised of the (gain) or loss on disposal of long-lived assets and interest on trade accounts receivable) and (benefit) provision for income taxes, further adjusted to add back interest on trade accounts receivable. We exclude the items listed above from net (loss) income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industries 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) income or cash flows from operating activities as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. 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 components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We believe that Adjusted EBITDA is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet debt service requirements. The following tables also provide a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income or (loss) for each of our operating segments for the specified periods (in thousands). Consolidated Years Ended December 31, Reconciliation of Adjusted EBITDA to net (loss) income: 2020 2019 2018 Net (loss) income $ (107,607) $ (79,044) $ 235,965 Depreciation, depletion, amortization and accretion 95,317 117,033 119,877 Impairment of goodwill 54,973 33,664 3,203 Impairment of other long-lived assets 12,897 7,358 5,652 Inventory obsolescence charges — 1,349 — Acquisition related costs — 45 191 Public offering costs — — 982 Equity based compensation — — 17,487 Stock based compensation 1,952 4,177 5,425 Interest expense, net 5,397 4,958 3,187 Other (income) expense, net (34,938) (42,216) 2,036 (Benefit) provision for income taxes (12,169) (12,081) 153,263 Interest on trade accounts receivable 34,130 42,040 — Adjusted EBITDA $ 49,952 $ 77,283 $ 547,268 66 Infrastructure Services Years Ended December 31, Reconciliation of Adjusted EBITDA to net (loss) income: 2020 2019 2018 Net (loss) income $ (30) $ 18,778 $ 316,185 Depreciation, depletion, amortization and accretion 29,373 30,349 20,206 Impairment of other long-lived assets — — 308 Acquisition related costs — 12 (4) Public offering costs — — 461 Stock based compensation 580 822 2,048 Interest expense 2,775 1,674 421 Other (income) expense, net (32,437) (41,949) 555 Provision for income taxes 7,133 7,908 100,774 Interest on trade accounts receivable 32,214 42,040 — Adjusted EBITDA $ 39,608 $ 59,634 $ 440,954 Well Completion Services Years Ended December 31, Reconciliation of Adjusted EBITDA to net loss: 2020 2019 2018 Net loss $ (69,073) $ (39,020) $ (2,587) Depreciation, depletion, amortization and accretion 30,411 40,159 51,332 Impairment of goodwill 53,406 23,423 — Impairment of other long-lived assets 4,203 — 143 Acquisition related costs — 18 39 Public offering costs — — 264 Equity based compensation — — 17,487 Stock based compensation 527 1,693 1,607 Interest expense 1,130 1,228 1,114 Other (income) expense, net (2,274) 580 100 Interest on trade accounts receivable 1,888 — — Adjusted EBITDA $ 20,218 $ 28,081 $ 69,499 Natural Sand Proppant Services Years Ended December 31, Reconciliation of Adjusted EBITDA to net (loss) income: 2020 2019 2018 Net (loss) income $ (11,324) $ (12,589) $ 10,383 Depreciation, depletion, amortization and accretion 9,771 14,050 13,675 Impairment of goodwill — 2,684 — Acquisition related costs — 8 (38) Public offering costs — — 145 Stock based compensation 425 812 788 Interest expense 312 193 291 Other expense, net 1,839 67 859 Interest on trade accounts receivable 3 — — Adjusted EBITDA $ 1,026 $ 5,225 $ 26,103 67 Drilling Services Years Ended December 31, Reconciliation of Adjusted EBITDA to net loss: 2020 2019 2018 Net loss $ (16,865) $ (26,117) $ (23,202) Depreciation, depletion, amortization and accretion 10,039 13,143 18,144 Impairment of other long-lived assets 326 2,955 3,966 Acquisition related costs — 2 — Public offering costs — — 45 Stock based compensation 203 361 576 Interest expense 454 862 823 Other (income) expense, net (227) (9) 461 Adjusted EBITDA $ (6,070) $ (8,803) $ 813 Other Services (a) Years Ended December 31, Reconciliation of Adjusted EBITDA to net loss: 2020 2019 2018 Net loss $ (10,315) $ (20,156) $ (64,787) Depreciation, depletion, amortization and accretion 15,723 19,332 16,520 Impairment of goodwill 1,567 7,557 3,203 Impairment of other long-lived assets 8,368 4,403 1,235 Inventory obsolescence charges — 1,349 — Acquisition related costs — 5 194 Public offering costs — — 68 Stock based compensation 217 489 406 Interest expense, net 726 1,001 538 Other (income) expense, net (1,839) (905) 61 (Benefit) provision for income taxes (19,302) (19,989) 52,489 Interest on trade accounts receivable 25 — — Adjusted EBITDA $ (4,830) $ (6,914) $ 9,927 a. Includes results for our aviation, coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, crude oil hauling, full service transportation, remote accommodations, equipment manufacturing and infrastructure engineering and design services and corporate related activities. Our corporate related activities do not generate revenue. Adjusted Net (Loss) Income and Adjusted (Loss) Earnings per Share Adjusted net (loss) income and adjusted basic and diluted (loss) earnings per share are supplemental non-GAAP financial measures that are used by management to evaluate our operating and financial performance. Management believes these measures provide meaningful information about the Company's performance by excluding certain non-cash charges, such as impairment expense and equity based compensation, that may not be indicative of the Company's ongoing operating results. Adjusted net (loss) income and adjusted (loss) earnings per share should not be considered in isolation or as a substitute for net (loss) income and (loss) earnings per share prepared in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. The following tables provide a reconciliation of adjusted net (loss) income and adjusted (loss) earnings per share to the GAAP financial measures of net (loss) income and (loss) earnings per share for the periods specified. 68 Years Ended December 31, 2020 2019 2018 (in thousands, except per share amounts) Net (loss) income, as reported $ (107,607) $ (79,044) $ 235,965 Impairment of goodwill 54,973 33,664 3,203 Impairment of other long-lived assets 12,897 7,358 5,652 Equity based compensation — — 17,487 Adjusted net (loss) income $ (39,737) $ (38,022) $ 262,307 Basic (loss) earnings per share, as reported $ (2.36) $ (1.76) $ 5.27 Impairment of goodwill 1.20 0.75 0.07 Impairment of other long-lived assets 0.28 0.16 0.13 Equity based compensation — — 0.39 Adjusted basic (loss) earnings per share $ (0.88) $ (0.85) $ 5.86 Diluted (loss) earnings per share, as reported $ (2.36) $ (1.76) $ 5.24 Impairment of goodwill 1.20 0.75 0.07 Impairment of other long-lived assets 0.28 0.16 0.13 Equity based compensation — — 0.39 Adjusted diluted (loss) earnings per share $ (0.88) $ (0.85) $ 5.83 Liquidity and Capital Resources We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet of equipment, organic growth initiatives, investments and acquisitions. Our primary sources of liquidity have been cash flows from operations and borrowings under our revolving credit facility. Our primary uses of capital have been for investing in property and equipment used to provide our services and acquire complementary businesses. In July 2019, as a result of oilfield market conditions as well as other factors, which include collections from PREPA, our board of directors suspended our quarterly cash dividend. Future declaration of cash dividends are subject to approval by our board of directors and may be adjusted at its discretion based on market conditions and capital availability. As of December 31, 2020, we had outstanding borrowing under our revolving credit facility of $78 million. The following table summarizes our liquidity as of the dates indicated (in thousands): December 31, 2020 2019 Cash and cash equivalents $ 14,822 $ 5,872 Revolving credit facility availability 129,787 184,809 Less borrowings (78,000) (80,000) Less letter of credit facilities (bonding program) (5,000) — Less letter of credit facilities (insurance programs) (3,890) (4,105) Less letter of credit facilities (environmental remediation) (3,694) (3,877) Less letter of credit facilities (rail car commitments) (455) (455) Net working capital (less cash) (a) 321,328 270,711 Total $ 374,897 $ 372,955 69 a. Net working capital (less cash) is a non-GAAP measure and, as of December 31, 2020, is calculated by subtracting total current liabilities of $129 million and cash and cash equivalents of $15 million from total current assets of $465 million. As of December 31, 2019, net working capital (less cash) is calculated by subtracting total current liabilities of $130 million and cash and cash equivalents of $6 million from total current assets of $407 million. Amounts include receivables due from PREPA and Gulfport of $301 million and $28 million, respectively, at December 31, 2020, and $269 million and $7 million, respectively, at December 31, 2019. As of February 24, 2021, we had $75 million in borrowings outstanding under our revolving credit facility, leaving an aggregate of $42 million of available borrowing capacity under this facility, after giving effect to $13 million of outstanding letters of credit. Liquidity and Cash Flows The following table sets forth our cash flows for the years indicated (in thousands): Years Ended December 31, 2020 2019 2018 Net cash provided by (used in) operating activities $ 6,967 $ (95,318) $ 386,668 Net cash used in investing activities (2,295) (33,224) (211,955) Net cash provided by (used in) financing activities 4,266 66,702 (112,592) Effect of foreign exchange rate on cash 12 87 (133) Net change in cash $ 8,950 $ (61,753) $ 61,988 Operating Activities Net cash provided by (used in) operating activities was $7 million, ($95) million and $387 million, respectively, for the years ended December 31, 2020, 2019 and 2018. The increase in operating cash flows was primarily attributable to the timing of cash inflows for accounts receivable and cash outflows for income tax payments during 2019. Investing Activities Net cash used in investing activities was $2 million, $33 million and $212 million, respectively, for the years ended December 31, 2020, 2019 and 2018. Net cash used for acquisitions totaled $21 million for 2018. We did not make any acquisitions during 2020 or 2019. Substantially all remaining cash used in investing activities was used to purchase property and equipment that is utilized to provide our services, which was partially offset by proceeds from the disposal of property and equipment. The following table summarizes our capital expenditures by operating division for the periods indicated (in thousands): Years Ended December 31, 2020 2019 2018 Infrastructure services (a) $ 258 $ 3,456 $ 99,006 Well completion services (b) 4,358 14,703 33,774 Natural sand proppant services (c) 1,073 2,877 17,935 Drilling services (d) 432 3,156 8,698 Other (e) 716 11,569 32,530 Total capital expenditures $ 6,837 $ 35,761 $ 191,943 a. Capital expenditures primarily for truck, tooling and equipment purchases for new infrastructure crews for the years ended December 31, 2020, 2019 and 2018. b. Capital expenditures primarily for various pressure pumping and water transfer equipment for the years ended December 31, 2020, 2019 and 2018. c. Capital expenditures primarily for the upgrade and expansion of our plants for the year ended December 31, 2018 and maintenance for the years ended December 31, 2020 and 2019. 70 d. Capital expenditures primarily for directional drilling equipment for the year ended December 31, 2020 and upgrades to our rig fleet for the years ended December 31, 2019 and 2018. e. Capital expenditures primarily for equipment for our equipment rental and crude hauling businesses for the years ended December 31, 2019 and 2018 and various equipment for the year ended December 31, 2020. Financing Activities Net cash provided by (used in) financing activities was $4 million, $67 million and ($113) million, respectively, for the years ended December 31, 2020, 2019 and 2018. Net cash provided by financing activities for the year ended December 31, 2020 was primarily attributable to proceeds of $5 million received from a sale leaseback transaction and proceeds of $5 million received from a note payable, partially offset by net payments under our revolving credit facility of $2 million, principal payment on financing leases and equipment notes of $2 million and payment of debt issuance costs of $1 million. Net cash provided by financing activities for the year ended December 31, 2019 was primarily attributable to net borrowings under our revolving credit facility of $80 million, partially offset by dividends paid of $11 million. Net cash used in financing activities for the year ended December 31, 2018 was primarily attributable to net repayments under our revolving credit facility of $100 million and cash dividends paid totaling $11 million. Effect of Foreign Exchange Rate on Cash The effect of foreign exchange rate on cash was a nominal amount, $0.1 million and ($0.1) million, respectively, for the years ended December 31, 2020, 2019 and 2018. The year-over-year effect was driven primarily by a favorable (unfavorable) shift in the weakness (strength) of the Canadian dollar relative to the U.S. dollar for the cash held in Canadian accounts. Working Capital Our working capital totaled $336 million and $277 million, respectively, at December 31, 2020 and 2019. Our cash balances totaled $15 million and $6 million, respectively, at December 31, 2020 and 2019. Our Revolving Credit Facility On October 19, 2018, we and certain of our direct and indirect subsidiaries, as borrowers, entered into an amended and restated revolving credit facility, as subsequently amended, with the lenders party thereto and PNC Bank, National Association, as a lender and as administrative agent for the lenders. At December 31, 2020, we had outstanding borrowings under our revolving credit facility of $78 million and $39 million of available borrowing capacity, after giving effect to $13 million of outstanding letters of credit. As of December 31, 2020, we were in compliance with the covenants under our revolving credit facility. For additional information regarding our revolving credit facility, see Note 11. Debt to our consolidated financial statements included elsewhere in this report. Sale Leaseback Transaction On December 30, 2020, we entered into an agreement with First National Capital, LLC, or FNC, whereby we agreed to sell certain assets from our infrastructure segment to FNC for aggregate proceeds of $5.0 million. Concurrent with the sale of assets, we entered into a 36 month lease agreement whereby we will lease back the assets at a monthly rental rate of $0.1 million. Under the agreement, we have the option to purchase the assets at the end of the lease term. We recorded a liability for the proceeds received and will continue to depreciate the assets. We imputed an interest rate so that the carrying amount of the financial liability will be the expected repurchase price at the end of the initial lease term. Aviation Note On November 6, 2020, Leopard and Cobra Aviation entered into a 39 month promissory note agreement with Bank7, or the Aviation Note, in an aggregate principal amount of $4.6 million and received net proceeds of $4.5 million. The Aviation Note bears interest at a rate based on the Wall Street Journal Prime Rate plus a margin of 1%. Principal and interest payments of $0.1 million are due monthly beginning on March 1, 2021, with a final payment of $0.2 million due on February 1, 2024. The Aviation Note is collateralized by Leopard and Cobra Aviation's assets, including a $1.8 million certificate of deposit. The Aviation Note contains various customary affirmative and restrictive covenants. 71 Capital Requirements and Sources of Liquidity During 2020, our capital expenditures totaled $7 million and included $0.3 million in our infrastructure segment primarily related to truck, tooling and equipment purchases for new crews, $4 million in our well completion segment primarily related to various pressure pumping and water transfer equipment, $1 million in our natural sand proppant services segment for various maintenance equipment, $0.4 million in our drilling services segment primarily for upgrades to our rig fleet and $1 million for our other businesses primarily related to equipment additions for our equipment rental business. During 2021, we currently estimate that our aggregate capital expenditures will be $9 million, depending upon industry conditions and our financial results. These capital expenditures include $6 million in our infrastructure segment for assets for additional crews, $2.5 million in our well completion segment for conversion of a portion of our fleet to include DGB capabilities and maintenance to our existing pressure pumping fleet and $0.5 million for our other divisions, primarily for additional equipment for our rental business. We believe that our cash on hand, operating cash flow and available borrowings under our credit facility will be sufficient to fund our operations for at least the next twelve months. However, future cash flows are subject to a number of variables (including receipt of payments from our customers, including PREPA and Gulfport). Further, significant additional capital expenditures could be required to conduct our operations. Accordingly, there can be no assurance that operations and other capital resources, including potential sales of assets or businesses, will provide cash in sufficient amounts to meet our operating needs and/or maintain planned or future levels of capital expenditures. In addition, while we regularly evaluate acquisition opportunities, we do not have a specific acquisition budget for 2021 since the timing and size of acquisitions cannot be accurately forecasted. We continue to evaluate acquisition opportunities, including those in the renewable energy sector as well as transactions involving entities controlled by Wexford. Our acquisitions may be undertaken with cash, our common stock or a combination of cash, common stock and/or other consideration. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital. If we seek additional capital for that or other reasons, we may do so through borrowings under our revolving credit facility, joint venture partnerships, sale-leaseback transactions, asset sales, offerings of debt or equity securities or other means. We cannot assure you that this additional capital will be available on acceptable terms or at all. If we are unable to obtain funds we need, our ability to conduct operations, make capital expenditures and/or complete acquisitions that may be favorable to us will be impaired. Contractual and Commercial Commitments The following table summarizes our contractual obligations and commercial commitments as of December 31, 2020 (in thousands): Total Less than 1 year 1-3 Years 3-5 Years More than 5 Years Contractual obligations: Revolving credit facility (a) $ 78,000 $ — $ 78,000 $ — $ — Interest and commitment fees on revolving credit facility (b) 8,666 3,098 5,568 — — Aviation note (c) 4,958 1,389 3,240 329 — Sale leaseback arrangement (d) 4,563 1,619 2,944 — — Operating lease obligations (e) 21,210 9,150 9,537 2,104 419 Financing lease obligations (f) 6,551 1,682 3,094 1,107 668 Equipment financing obligations (g) 1,221 731 490 — — Purchase commitments (h) 800 698 102 — — Capital purchase commitments (i) 1,275 1,275 — — — $ 127,244 $ 19,642 $ 102,975 $ 3,540 $ 1,087 a. Excludes interest payments. b. Assumption of revolving credit facility balance outstanding as of December 31, 2020 of $78 million using the weighted average interest rate as of December 31, 2020 of 3.72% c. Assumption of an interest rate of 5%. d. Obligations under a sale leaseback arrangement for a portion of our infrastructure segment assets. e. Operating lease obligations primarily relate to rail cars, real estate and other equipment. 72 f. Financing lease obligations primarily relate to equipment for our infrastructure segment. g. Equipment financing obligations primarily relate to vehicles and other equipment for our well completion segment. h. Purchase commitments are comprised primarily of software subscriptions. i. Obligations arising from capital improvements and equipment purchases Off-Balance Sheet Arrangements Minimum Purchase Commitments We have entered into agreements with suppliers that contain minimum purchase obligations. Our failure to purchase the minimum amounts specified may require us to pay shortfall fees. However, the minimum quantities set forth in the agreements are not in excess of our current expected future requirements. Capital Spend Commitments We have entered into agreements with suppliers to acquire capital equipment. These commitments are included in our 2020 capital budget discussed under the heading “Capital Requirements and Sources of Liquidity.” Aggregate future minimum payments under these agreements in effect at December 31, 2020 are as follows (in thousands): Year ended December 31: Capital Spend Commitments Minimum Purchase Commitments (a) 2020 $ 1,275 $ 698 2021 — 93 2022 — 9 2023 — — 2024 — — Thereafter — — $ 1,275 $ 800 73 Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Below, we have provided expanded discussion of our more significant accounting policies, estimates and judgments. We believe these accounting policies reflect our more significant estimates and assumptions used in preparation of our financial statements. See Note 2 of our consolidated financial statements included elsewhere in this annual report for a discussion of additional accounting policies and estimates made by management. Use of Estimates . In preparing the financial statements, our management makes informed judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include but are not limited to our sand reserves and their impact on calculating depletion expense, allowance for doubtful accounts, asset retirement obligations, reserves for self-insurance, depreciation and amortization of property and equipment, business combination valuations, amortization of intangible assets, and future cash flows and fair values used to assess recoverability and impairment of long-lived assets, including goodwill, estimates of income taxes and the estimated effects of litigation and other contingencies. Revenue Recognition . On January 1, 2018, we adopted the new revenue guidance under ASC 606, Revenue from Contracts with Customers , using the modified retrospective method applied to contracts which were not completed as of January 1, 2018. The adoption of ASC 606 did not have a material impact on our consolidated financial statements. Our primary revenue streams include infrastructure services, well completion services, natural sand proppant services, drilling services and other services, which includes aviation, coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, crude oil hauling, full service transportation, remote accommodations, equipment manufacturing and infrastructure engineering and design services. Infrastructure Services. Infrastructure services are typically provided pursuant to master service agreements, repair and maintenance contracts or fixed price and non-fixed price installation contracts. Pricing under these contracts may be unit priced, cost-plus/hourly (or time and materials basis) or fixed price (or lump sum basis). Generally, we account for infrastructure services as a single performance obligation satisfied over time. In certain circumstances, we supply materials that are utilized during the jobs as part of the agreement with the customer. We account for these infrastructure agreements as multiple performance obligations satisfied over time. Revenue is recognized over time as work progresses based on the days completed or as the contract is completed. Under certain customer contracts in our infrastructure services segment, we warrant equipment and labor performed for a specified period following substantial completion of the work. Well Completion Services. Well completion services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Generally, we account for well completion services as a single performance obligation satisfied over time. In certain circumstances, we supply proppant that is utilized for pressure pumping as part of the agreement with the customer. These pressure pumping agreements are accounted for as multiple performance obligations satisfied over time. Jobs for well completion services are typically short-term in nature and range from a few hours to multiple days. Generally, revenue is recognized over time upon the completion of each segment of work based upon a completed field ticket, which includes the charges for the services performed, mobilization of the equipment to the location and personnel. Pursuant to a contract with Gulfport, we have agreed to provide that customer with use of up to two pressure pumping fleets for the period covered by the contract. Under this agreement, performance obligations are satisfied as services are rendered based on the passage of time rather than the completion of each segment of work. We have the right to receive consideration from this customer even if circumstances prevent us from performing work. All consideration owed to us for services performed during the contractual period is fixed and the right to receive it is unconditional. Gulfport has filed a legal action in Delaware state court seeking the termination of this contract and monetary damages. Further, On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. For additional information regarding the status of this contract, see “Industry Overview – Oil and Natural Gas Industry” above. Additional revenue is generated through labor charges and the sale of consumable supplies that are incidental to the service being performed. Such amounts are recognized ratably over the period during which the corresponding goods and services are consumed. 74 Natural Sand Proppant Services. We sell natural sand proppant through sand supply agreements with our customers. Under these agreements, sand is typically sold at a flat rate per ton or a flat rate per ton with an index-based adjustment. We recognize revenue at the point in time when the customer obtains legal title to the product, which may occur at the production facility, rail origin or at the destination terminal. Certain of our sand supply agreements contain a minimum volume commitment related to sand purchases whereby we charge a shortfall payment if the customer fails to meet the required minimum volume commitment. These agreements may also contain make-up provisions whereby shortfall payments can be applied in future periods against purchased volumes exceeding the minimum volume commitment. If a make-up right exists, we have future performance obligations to deliver excess volumes of product in subsequent periods. In accordance with ASC 606, if the customer fails to meet the minimum volume commitment, we assess whether we expect the customer to fulfill its unmet commitment during the contractually specified make-up period based on discussions with the customer and management's knowledge of the business. If we expect the customer will make-up deficient volumes in future periods, revenue related to shortfall payments is deferred and recognized on the earlier of the date on which the customer utilizes make-up volumes or the likelihood that the customer will exercise its right to make-up deficient volumes becomes remote. If we do not expect the customer will make-up deficient volumes in future periods, we apply the breakage model and revenue related to shortfall payments is recognized when the model indicates the customer's inability to take delivery of excess volumes. In certain of our sand supply agreements, the customer obtains control of the product when it is loaded into rail cars and the customer reimburses us for all freight charges incurred. We have elected to account for shipping and handling as activities to fulfill the promise to transfer the sand. If revenue is recognized for the related product before the shipping and handling activities occur, we accrue the related costs of those shipping and handling activities. Drilling Services. Contract drilling services were provided under daywork contracts. Directional drilling services, including motor rentals, are provided on a day rate or hourly basis, and revenue is recognized as work progresses. Performance obligations are satisfied over time as the work progresses based on the measure of output. Mobilization revenue and costs were recognized over the days of actual drilling. As a result of market conditions, we temporarily shutdown our contract land drilling operations beginning in December 2019 and our rig moving operations beginning in April 2020. Other Services. During the periods presented in this report, we also provided aviation, coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, crude oil hauling, full service transportation, remote accommodations, equipment manufacturing and infrastructure engineering and design services, which are reported under other services. As a result of market conditions, we have temporarily shut down our cementing and acidizing operations as well as our flowback operations beginning in July 2019 and our coil tubing and full service transportation operations beginning in July 2020. Other services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Performance obligations for these services are satisfied over time and revenue is recognized as the work progresses based on the measure of output. Jobs for these services are typically short-term in nature and range from a few hours to multiple days. Allowance for Doubtful Accounts . We regularly review receivables and provide for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, we make judgments regarding our customers’ ability to make required payments, economic events and other factors. As the financial condition of customers changes, circumstances develop, or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. In the event we expect that a customer may not be able to make required payments, we would increase the allowance through a charge to income in the period in which that determination is made. If it is determined that previously reserved amounts are collectible, we would decrease the allowance through a credit to income in the period in which that determination is made. Uncollectible accounts receivable are periodically charged against the allowance for doubtful accounts once a final determination is made regarding their uncollectability. Depreciation, Depletion, Amortization and Accretion . In order to depreciate and amortize our property and equipment, we estimate useful lives, attrition factors and salvage values of these items. Our estimates may be affected by such factors as changing market conditions, technological advances in the industries in which we operate or changes in regulations governing such industries. Depletion of our mining property and development costs is calculated using the units-of-production method on estimated measured tons of in-place reserves. 75 Impairment of Long-Lived Assets . Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of such assets is evaluated by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with the assets. If such evaluations indicate that the future undiscounted cash flow from the assets is not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values. Goodwill . Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. If it is determined that an impairment exists, an impairment charge is recognized for the excess of carrying value over implied fair value. The fair value is determined using a combination of the income and market approaches. Asset Retirement Obligations. Mine reclamation costs, future remediation costs for inactive mines or other contractual site remediation costs are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing care, maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised. Equity-based Compensation. We measure equity-based payments at fair value on the date of grant and expense the value of these equity-based payments in compensation expense over the applicable vesting periods. Share-based Compensation. The share-based compensation program consists of restricted stock units granted to employees and restricted stock units granted to non-employee directors under the Mammoth Energy Services, Inc. 2016 Incentive Plan (the “2016 Plan”). We recognize in our financial statements the cost of employee services received in exchange for restricted stock based on the fair value of the equity instruments as of the grant date. In general, this value is amortized over the vesting period; for grants with a non-substantive service condition, this value is recognized immediately. Amounts are recognized in cost of revenues and selling, general, and administrative expenses. Income Taxes . Our operations are included in a consolidated federal income tax return and other state returns. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities as a result of a change in tax rate is recognized in the period that includes the statutory enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely than not that the benefit of deferred tax assets will not be realized. Litigation and Contingencies . Accruals for litigation and contingencies are based on our assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable. Accruals are based on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, we reassess potential liabilities related to pending claims and litigation and may revise previous estimates, which could materially affect our results of operations in a given period. 76 New Accounting Pronouncements Accounting Pronouncements Recently Adopted In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 “Leases (Topic 842)” amending the current accounting for leases. Under the new provisions, all lessees will report a right of use asset and lease liability on the balance sheet for all leases with a term longer than one year, while maintaining substantially similar classifications for financing and operating leases. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. We adopted this ASU effective January 1, 2019 utilizing the transition method permitted by ASU No. 2018-11 “Leases (Topic 842): Targeted Improvements”, issued in August 2018, which permits an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment made to the comparative periods presented in the consolidated financial statements. See Note 15. Leases to our consolidated financial statements included elsewhere in this annual report for the impact the adoption of this standard had on our financial statements. In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Accounting,” which simplifies the accounting for share-based payments granted to non-employees by aligning the accounting with requirements for employee share-based compensation. Upon transition, this ASU requires non-employee awards to be measured at fair value as of the adoption date. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. We adopted this ASU effective January 1, 2019 and estimated the fair value of our non-employee awards was approximately $18.9 million as of this date. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which amends current guidance on reporting credit losses on financial instruments. This ASU requires entities to reflect its current estimate of all expected credit losses. The guidance affects most financial assets, including trade accounts receivable. This ASU is effective for fiscal years beginning after December 31, 2019, with early adoption permitted. We adopted this standard effective January 1, 2020. It did not have a material impact on the our consolidated financial statements. 77