ProPetro Holding Corp 10-Q for FY2019 Q3

ProPetro Holding Corp. (PUMP)

10-Q 2020-06-22 For: 2019-09-30

Added on April 07, 2026

About this 10-Q

ProPetro Holding Corp filed this 10-Q on June 22, 2020, covering the quarter ended September 30, 2019 (FY2019 Q3).

Headline figures

Quarter ended September 30, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $541.85M; up 24.8% from $434.04M a year earlier
Net income: $34.4M; down 25.7% from net income of $46.29M a year earlier
Diluted EPS: $0.33; down 37.7% from $0.53 a year earlier

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Delaware		26-3685382
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	PUMP	New York Stock Exchange
Preferred Stock Purchase Rights	N/A	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



		Page
	Explanatory Note	ii
	Cautionary Note Regarding Forward-Looking Statements	iv

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	2
	Condensed Consolidated Statement of Shareholders' Equity for the three and nine months ended September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
	Signatures	58



	September 30, 2019		December 31, 2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	109,191	$	132,700
Accounts receivable - net of allowance for doubtful accounts of $575 and $100, respectively	275,749		202,956
Inventories	1,850		6,353
Prepaid expenses	4,417		6,610
Other current assets	1,521		638
Total current assets	392,728		349,257
PROPERTY AND EQUIPMENT - net of accumulated depreciation	1,050,039		912,846
OPERATING LEASE RIGHT-OF-USE ASSETS	1,055		—
OTHER NONCURRENT ASSETS:
Goodwill	9,425		9,425
Intangible assets - net of amortization	—		13
Other noncurrent assets	2,796		2,981
Total other noncurrent assets	12,221		12,419
TOTAL ASSETS	$	1,456,043	$	1,274,522
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	249,087	$	214,460
Operating lease liabilities	294		—
Finance lease liabilities	2,917		—
Accrued and other current liabilities	31,293		138,089
Accrued interest payable	569		211
Total current liabilities	284,160		352,760
DEFERRED INCOME TAXES	96,906		54,283
LONG-TERM DEBT	130,000		70,000
NONCURRENT OPERATING LEASE LIABILITIES	877		—
OTHER LONG-TERM LIABILITIES	—		124
Total liabilities	511,943		477,167
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.001 par value, 30,000,000 shares authorized, none issued, respectively	—		—
Common stock, $0.001 par value, 200,000,000 shares authorized,100,617,240 and 100,190,126 shares issued, respectively	101		100
Additional paid-in capital	824,099		817,690
Retained earnings (accumulated deficit)	119,900		(20,435		)
Total shareholders’ equity	944,100		797,355
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,456,043	$	1,274,522



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


•	the Company’s former chief accounting officer entered into a related party transaction that was not properly disclosed in the Company’s filings with the Securities and Exchange Commission (the “SEC”);


•	a number of internal and disclosure control deficiencies and material weaknesses were identified, as described in more detail in Part I - Item 4. “Controls and Procedures,” including, but not limited to, the following:


◦	the Company’s former executive management team did not establish and promote a control environment with an appropriate tone of compliance and control consciousness throughout the entire Company;


◦	the Company did not appropriately identify and monitor conflicts of interest;


◦	certain whistleblower allegations were not properly investigated and elevated to the Committee;


◦	instances were identified of non-compliance with the Company’s internal policies, including its Insider Trading Compliance Policy and Code of Conduct and Ethics; and


◦	management did not appropriately communicate information internally and externally, including communication between management and the Board.


•	the severity and duration of world health events, including the recent outbreak of the novel coronavirus (“COVID-19”) pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which is negatively impacting our business;


•	uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for our services;


•	the level of production and resulting market prices for crude oil, natural gas and other hydrocarbons;


•	changes in general economic and geopolitical conditions;


•	competitive conditions in our industry;


•	operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;


•	our ability to successfully implement technological developments and enhancements, including the new DuraStim® fleets and associated power solutions;


•	the effects of current and future litigation, including the Logan Lawsuit, the Boca Raton Lawsuit and the Chang Lawsuit (each defined herein);


•	the timing and outcome of, including potential expense associated with, the SEC pending investigation;


•	the potential impact on our business and stock price of any announcements regarding the SEC's pending investigation, the Logan Lawsuit, the Boca Raton Lawsuit or the Chang Lawsuit;


•	the material weaknesses in our internal controls over financial reporting and disclosure controls and procedures described under Part I, Item 4, “Controls and Procedure” in this Form 10-Q;


•	matters related to the Expanded Audit Committee Review and related findings, as well as the implementation and effectiveness of the Company's remediation plan; and



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
REVENUE - Service revenue	$	541,847		$	434,041		$	1,617,521		$	1,279,148
COSTS AND EXPENSES
Cost of services (exclusive of depreciation and amortization)	396,922			320,146			1,164,663			970,156
General and administrative (inclusive of stock-based compensation)	27,558			12,821			73,972			38,943
Depreciation and amortization	37,653			23,217			106,252			63,428
Loss on disposal of assets	31,153			16,407			81,578			43,061
Total costs and expenses	493,286			372,591			1,426,465			1,115,588
OPERATING INCOME	48,561			61,450			191,056			163,560
OTHER EXPENSE:
Interest expense	(1,749		)	(1,480		)	(5,678		)	(4,973		)
Other expense	(75		)	(93		)	(539		)	(505		)
Total other expense	(1,824		)	(1,573		)	(6,217		)	(5,478		)
INCOME BEFORE INCOME TAXES	46,737			59,877			184,839			158,082
INCOME TAX EXPENSE	(12,340		)	(13,592		)	(44,504		)	(35,998		)
NET INCOME	$	34,397		$	46,285		$	140,335		$	122,084

NET INCOME PER COMMON SHARE:
Basic	$	0.34		$	0.55		$	1.40		$	1.46
Diluted	$	0.33		$	0.53		$	1.35		$	1.40

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	100,606			83,544			100,423			83,359
Diluted	103,652			86,878			103,988			87,153



	Nine Months Ended September 30, 2019
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Total
BALANCE - January 1, 2019	100,190	$	100	$	817,690	$	(20,435	)	$	797,355
Stock-based compensation cost	—	—		1,829		—			1,829
Issuance of equity awards, net	104	—		552		—			552
Net income	—	—		—		69,805			69,805
BALANCE - March 31, 2019	100,294	$	100	$	820,071	$	49,370		$	869,541
Stock-based compensation cost	—	—		2,840		—			2,840
Issuance of equity awards, net	257	1		522		—			523
Net income	—	—		—		36,133			36,133
BALANCE - June 30, 2019	100,551	$	101	$	823,433	$	85,503		$	909,037
Stock-based compensation cost	—	—		577		—			577
Issuance of equity awards, net	66	—		89		—			89
Net income	—	—		—		34,397			34,397
BALANCE - September 30, 2019	100,617	$	101	$	824,099	$	119,900		$	944,100



	Nine Months Ended September 30, 2018
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Total
BALANCE - January 1, 2018	83,040	$	83	$	607,466	$	(194,297	)	$	413,252
Stock-based compensation cost	—	—		758		—			758
Issuance of equity awards, net	372	—		—		—			—
Net income	—	—		—		36,708			36,708
BALANCE - March 31, 2018	83,412	$	83	$	608,224	$	(157,589	)	$	450,718
Stock-based compensation cost	—	—		1,443		—			1,443
Issuance of equity awards, net	132	1		50		—			51
Net income	—	—		—		39,091			39,091
BALANCE - June 30, 2018	83,544	$	84	$	609,717	$	(118,498	)	$	491,303
Stock-based compensation cost	—	$	—	$	1,631	$	—		1,631
Issuance of equity awards, net	—	—		—		—			—
Net income	—	—		—		46,285			46,285
BALANCE - September 30, 2018	83,544	$	84	$	611,348	$	(72,213	)	$	539,219



($ in thousands)	2019		2018
ABL Credit Facility	$	130,000	$	70,000
Total debt	130,000		70,000
Less current portion of long-term debt	—		—
Total long-term debt	$	130,000	$	70,000



($ in thousands)
2019	$	—
2020	—
2021	—
2022	—
2023 and thereafter	130,000
Total	$	130,000



	Three Months Ended September 30, 2019
	Pressure Pumping		All Other			Total
Service revenue	$	528,851	$	12,996		$	541,847
Adjusted EBITDA	$	134,789	$	(2,894	)	$	131,895
Depreciation and amortization	$	36,110	$	1,543		$	37,653
Goodwill at September 30, 2019	$	9,425	$	—		$	9,425
Capital expenditures	$	83,770	$	3,189		$	86,959
Total assets at September 30, 2019	$	1,399,865	$	56,178		$	1,456,043

	Three Months Ended September 30, 2018
	Pressure Pumping		All Other			Total
Service revenue	$	421,436	$	12,605		$	434,041
Adjusted EBITDA	$	105,069	$	(1,701	)	$	103,368
Depreciation and amortization	$	22,026	$	1,191		$	23,217
Goodwill at December 31, 2018	$	9,425	$	—		$	9,425
Capital expenditures	$	73,143	$	1,060		$	74,203
Total assets at December 31, 2018	$	1,230,830	$	43,692		$	1,274,522


(1)	Other general and administrative expense primarily relates to professional fees paid to external consultants in connection with the Company's expanded audit committee review and advisory services in 2019, and legal settlement in 2018.



	Number of Shares		Weighted Average Exercise Price
Outstanding at January 1, 2019	4,557,186		$	5.14
Granted	—		$	—
Exercised	(212,242	)	$	5.49
Forfeited	(20,011	)	$	14.00
Expired	—		$	—
Outstanding at September 30, 2019	4,324,933		$	5.08
Exercisable at September 30, 2019	3,967,091		$	4.28



	Number of Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2019	473,505		$	16.52
Granted	385,661		$	20.95
Vested	(214,872	)	$	15.89
Forfeited	(58,619	)	$	18.72
Canceled	—		$	—
Outstanding at September 30, 2019	585,675		$	19.45



Period Granted	Target Shares Outstanding at January 1, 2019	Target Shares Granted	Target Shares Vested	Target Shares Forfeited		Target Shares Outstanding at September 30, 2019	Weighted Average Grant Date Fair Value per Share
2017	169,635	—	—	(18,143	)	151,492	$	10.73
2018	178,975	—	—	(17,341	)	161,634	$	27.51
2019	—	199,413	—	(18,676	)	180,737	$	34.82
Total	348,610	199,413	—	(54,160	)	493,863	$	25.04



	Leases
($ in thousands)	Operating			Finance
2019	$	90		$	2,927
2020	366			—
2021	377			—
2022	389			—
2023	97			—
Total undiscounted future lease payments	1,319			2,927
Less: amount representing interest	(148		)	(10		)
Present value of future lease payments (lease obligation)	$	1,171		$	2,917


•	drilling asset group impairment of approximately $1.1 million as a result of our recoverability tests; and


•	write-off of $6.1 million of deposits related to options to purchase additional DuraStim® equipment for which options expire at various times through the end of April 2021 as it is not probable we would exercise our options due to the events describe above.