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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 001-37988
NexTier Oilfield Solutions Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 38-4016639
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
3990 Rogerdale Rd. Houston Texas 77042
(Address of Principal Executive Offices) (Zip Code)
(713) 325-6000
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange On Which Registered
Common Stock, $0.01, par value NEX New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No    
As of August 3, 2020, the registrant had 214,329,421 shares of common stock outstanding.



TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
3
Item 1.
4
5
6
7
8
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




REFERENCES WITHIN THIS QUARTERLY REPORT
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to (i) the terms “Company,” “NexTier,” “we,” “us” and “our” refer to NexTier Oilfield Solutions Inc. and its consolidated subsidiaries; (ii) the term “Keane Group” refers to Keane Group Holdings, LLC and its consolidated subsidiaries; (iii) the term “Keane Investor” refers to Keane Investor Holdings LLC; (iv) the term “Cerberus” refers to Cerberus Capital Management, L.P. and its controlled affiliates and investment funds; (v) the term “C&J” refers to C&J Energy Services, Inc.; (vi) the term “C&J Merger” refers to the consummation of the transactions described in that certain Agreement and Plan of Merger, dated as of June 16, 2019 (the “Merger Agreement”), by and among the C&J, us and King Merger Sub Corp., one of our wholly owned subsidiaries. As used in this Quarterly Report on Form 10-Q, capacity in the hydraulic fracturing business refers to the total number of hydraulic horsepower, regardless of whether such hydraulic horsepower is active and deployed, active and not deployed or inactive. While the equipment and amount of hydraulic horsepower required for a customer project varies, we calculate our total number of fleets, as used in this Quarterly Report on Form 10-Q, by dividing our total hydraulic horsepower by approximately 45,000 hydraulic horsepower.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future operating results and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. Our forward-looking statements are generally accompanied by words such as "may," "should," "expect," "believe," "plan," "anticipate," "could," "intend," "target," "goal," "project," "contemplate," "believe," "estimate," "predict," "potential," "continue," or "COVID-19 Impacts" or the negative of these terms or other similar expressions. Any forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date on which we make them and are based upon our historical performance and on current plans, estimates and expectations. Except as required by law, we have no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the impact of the current COVID-19 pandemic and the evolving response thereto, including the impact of social distancing, shelter-in-place, shutdowns of non-essential businesses and similar measures imposed or undertaken by governments, private businesses or others;
changing global economic conditions, including oil and gas supply and demand;
our business strategy;
our plans, objectives, expectations and intentions;
the impact of the consummation of the merger with C&J Energy Services, Inc. ("C&J") on relationships, including with employees, suppliers, customers, competitors, lenders and credit rating agencies;
our future operating results;
the competitive nature of the industry in which we conduct our business, including pricing pressures;
crude oil and natural gas commodity prices;
demand for services in our industry;
the impact of pipeline and storage capacity constraints;
the impact of adverse weather conditions;
the effects of government regulation;
legal proceedings, liability claims and effect of external investigations;
the effect of a loss of, or the financial distress of, one or more customers;
our ability to obtain or renew customer contracts;
the effect of a loss of, or interruption in operations of, one or more key suppliers;
our ability to maintain the right level of commitments under our supply agreements;
the market price and availability of materials or equipment;
the impact of new technology;
our ability to employ a sufficient number of skilled and qualified workers;
our ability to obtain permits, approvals and authorizations from governmental and third parties;
3


planned acquisitions, divestitures, and future capital expenditures;
our ability to maintain effective information technology systems;
our ability to maintain an effective system of internal controls over financial reporting;
our ability to service our debt obligations;
financial strategy, liquidity or capital required for our ongoing operations and acquisitions, and our ability to raise additional capital;
the market volatility of our stock;
our ability or intention to pay dividends or to effectuate repurchases of our common stock;
the impact of ownership by Keane Investor and  Cerberus; and
the impact of our corporate governance structure.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section entitled Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019, in subsequently filed Form 10-Qs and in the section entitled Part II, "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, circumstances, plans, intentions or expectations reflected in any forward-looking statements will be achieved or occur. Actual results, events or circumstances could differ materially from those described in such forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make, except as specifically set forth herein.
This Quarterly Report on Form 10-Q includes market and industry data and certain other statistical information based on third-party sources including independent industry publications, government publications and other published independent sources. Although we believe these third-party sources are reliable as of their respective dates, we have not independently verified the accuracy or completeness of this information. Some data is also based on our own good faith estimates, which are supported by our management's knowledge of and experience in the markets and businesses in which we operate.
While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed above and in Part II, "Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q.
PART I
Item 1. Condensed Consolidated Financial Statements (Unaudited)
4


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in thousands)
June 30,
2020
December 31,
2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$ 337,147    $ 255,015   
Trade and other accounts receivable, net
86,570    350,765   
Inventories, net
43,153    61,641   
Assets held for sale
—    141   
Prepaid and other current assets
51,342    20,492   
Total current assets
518,212    688,054   
Operating lease right-of-use assets
47,098    54,503   
Finance lease right-of-use assets
2,743    9,511   
Property and equipment (net of accumulated depreciation of $851,015 and $723,060)
575,094    709,404   
Goodwill
104,198    137,458   
Intangible assets (net of accumulated amortization of $40,737 and $35,333)
54,881    55,021   
Other noncurrent assets
7,360    10,956   
Total assets
$ 1,309,586    $ 1,664,907   
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 37,765    $ 115,251   
Accrued expenses
144,747    234,895   
Customer contract liabilities
—    60   
Current maturities of long-term operating lease liabilities
19,673    23,473   
Current maturities of long-term finance lease liabilities
1,363    4,594   
Current maturities of long-term debt
2,303    2,311   
Other current liabilities
2,816    5,610   
Total current liabilities
208,667    386,194   
Long-term operating lease liabilities, less current maturities
32,986    35,123   
Long-term finance lease liabilities, less current maturities
1,479    4,844   
Long-term debt, net of unamortized deferred financing costs and unamortized debt discount, less current maturities
334,375    335,312   
Other noncurrent liabilities
20,490    16,662   
Total noncurrent liabilities
389,330    391,941   
Total liabilities
597,997    778,135   
Stockholders' equity
Common stock, par value $0.01 per share (authorized 500,000 shares, issued and outstanding 214,093 and 212,410 shares, respectively)
2,141    2,124   
Paid-in capital in excess of par value
981,204    966,762   
Retained deficit
(259,102)   (73,333)  
Accumulated other comprehensive loss
(12,654)   (8,781)  
Total stockholders' equity
711,589    886,772   
Total liabilities and stockholders' equity
$ 1,309,586    $ 1,664,907   
See accompanying notes to unaudited condensed consolidated financial statements.
5


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Amounts in thousands, except for per share amounts)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Revenue $ 196,227    $ 427,733    $ 823,852    $ 849,387   
Operating costs and expenses:
Cost of services(1)
178,771    324,503    690,997    662,149   
Depreciation and amortization 75,260    69,886    161,081    141,362   
Selling, general and administrative expenses 38,024    26,463    94,908    54,399   
Merger and integration 14,028    6,108    26,210    6,108   
(Gain) loss on disposal of assets (953)   (330)   (8,915)   151   
Impairment expense —    —    34,327    —   
Total operating costs and expenses
305,130    426,630    998,608    864,169   
Operating loss
(108,903)   1,103    (174,756)   (14,782)  
Other income (expense):
Other income, net 2,259    (43)   2,675    405   
Interest expense, net (5,353)   (5,477)   (11,419)   (10,872)  
Total other income (expense)
(3,094)   (5,520)   (8,744)   (10,467)  
Loss before income taxes
(111,997)   (4,417)   (183,500)   (25,249)  
Income tax expense (491)   (564)   (744)   (1,538)  
Net loss (112,488)   (4,981)   (184,244)   (26,787)  
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (354)   —    753    (29)  
Hedging activities (2,654)   (3,682)   (5,615)   (6,544)  
Total comprehensive loss $ (115,496)   $ (8,663)   $ (189,106)   $ (33,360)  
Net loss per share:
Basic net loss per share $ (0.53)   $ (0.05)   $ (0.86)   $ (0.26)  
Diluted net loss per share (0.53)   (0.05)   (0.86)   (0.26)  
Weighted-average shares outstanding: basic 213,760    104,837    213,301    104,631   
Weighted-average shares outstanding: diluted 213,760    104,837    213,301    104,631   
(1) Cost of services during the three and six months ended June 30, 2020 exclude depreciation of $70.7 million and $152.0 million, respectively. Cost of services during the three and six months ended June 30, 2019 exclude depreciation of $66.3 million and $133.9 million, respectively.
See accompanying notes to unaudited condensed consolidated financial statements.
6


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Amounts in thousands)
(Unaudited)
Common stock Paid-in capital in excess of par value Retained deficit Accumulated other comprehensive loss Total
Balance as of December 31, 2019 $ 2,124    $ 966,762    $ (73,333)   $ (8,781)   $ 886,772   
Stock-based compensation 11    6,869    —    —    6,880   
Shares repurchased and retired related to stock-based compensation (2)   (1,149)   —    —    (1,151)  
Other comprehensive loss —    —    —    (1,513)   (1,513)  
Credit losses standard implementation —    —    (1,525)   —    (1,525)  
Net loss —    —    (71,756)   —    (71,756)  
Balance as of March 31, 2020 $ 2,133    $ 972,482    $ (146,614)   $ (10,294)   $ 817,707   
Stock-based compensation 12    9,511    —    —    9,523   
Shares repurchased and retired related to stock-based compensation (4)   (789)   —    —    (793)  
Other comprehensive loss —    —    —    (2,360)   (2,360)  
Net loss —    —    (112,488)   —    (112,488)  
Balance as of June 30, 2020 $ 2,141    $ 981,204    $ (259,102)   $ (12,654)   $ 711,589   
Common stock Paid-in capital in excess of par value Retained earnings Accumulated other comprehensive loss Total
Balance as of December 31, 2018 $ 1,038    $ 455,447    $ 31,494    $ (798)   $ 487,181   
Stock-based compensation(1)
  8,277    —    —    8,279   
Shares repurchased and retired related to stock-based compensation —    (2,861)   —    —    (2,861)  
Other comprehensive loss —    —    —    (3,139)   (3,139)  
New lease standard implementation —    —    1,330    —    1,330   
Net loss —    —    (21,806)   —    (21,806)  
Balance as of March 31, 2019 $ 1,040    $ 460,863    $ 11,018    $ (3,937)   $ 468,984   
Stock-based compensation(1)
—    5,637    —    —    5,637   
Shares repurchased and retired related to stock-based compensation (1)   (505)   —    —    (506)  
Other comprehensive loss —    —    —    (3,878)   (3,878)  
Net loss —    —    (4,981)   —    (4,981)  
Balance as of June 30, 2019 $ 1,039    $ 465,995    $ 6,037    $ (7,815)   $ 465,256   

(1)  Stock-based compensation during the six months ended June 30, 2019 includes stock-based compensation expense recognized during the period of $9.6 million and the vested deferred stock awards of $4.3 million.
See accompanying notes to unaudited condensed consolidated financial statements.


7


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

Six Months Ended
June 30,
2020 2019
Cash flows from operating activities:
Net loss $ (184,244)   $ (26,787)  
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization
161,081    141,362   
Amortization of deferred financing fees
1,207    500   
(Gain) loss on disposal of assets
(8,915)   151   
Loss on impairment of assets
34,327    —   
Unrealized loss on derivative recognized in other comprehensive loss
(5,615)   (6,544)  
Gain on financial instrument and derivatives, net
(1,390)   (444)  
Stock-based compensation
16,403    9,637   
Other non-cash expense, net
—     
Changes in operating assets and liabilities:
Decrease in trade and other accounts receivable, net
224,349    11,600   
Decrease in inventories
12,804    9,048   
Decrease (increase) in prepaid and other current assets
3,508    (257)  
Decrease (increase) in other assets
14,393    (46,950)  
Increase (decrease) in accounts payable
(77,685)   23,511   
Decrease in accrued expenses
(73,555)   (27,141)  
Increase (decrease) in customer contract liabilities
(60)   411   
Increase (decrease) in other liabilities
(6,194)   53,820   
Net cash provided by operating activities
110,414    141,925   
Cash flows from investing activities:
Proceeds from sale of business
53,259    —   
Purchase of property and equipment
(83,719)   (111,694)  
Advances of deposit on equipment
(1,118)   (2,319)  
Implementation of software
(5,689)   (1,783)  
Proceeds from disposal of assets
14,890    18,348   
Proceeds from insurance recoveries
58    106   
Net cash used in investing activities
(22,319)   (97,342)  
Cash flows from financing activities:
Proceeds from asset-based revolver
175,000    —   
Payments on the term loan facility and asset-based revolver
(176,750)   (1,750)  
Payments on finance leases
(3,022)   (2,553)  
Shares repurchased and retired related to stock-based compensation
(1,944)   (3,365)  
Net cash used financing activities
(6,716)   (7,668)  
Non-cash effect of foreign translation adjustments 753    (29)  
Net increase in cash, cash equivalents 82,132    36,886   
Cash and cash equivalents, beginning 255,015    80,206   
Cash and cash equivalents, ending $ 337,147    $ 117,092   
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest expense, net $ 12,347    $ 10,847   
8


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

Income taxes   1,500   
Non-cash investing and financing activities:
Change in accrued capital expenditures
$ 6,350    $ (10,299)  
Non-cash additions to finance right-of-use assets —    5,084   
Non-cash additions to finance lease liabilities, including current maturities —    5,087   
Non-cash additions to operating right-of-use assets 8,200    61,670   
Non-cash additions to operating lease liabilities, including current maturities 8,161    61,454   
See accompanying notes to unaudited condensed consolidated financial statements.

9


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements

(1) Basis of Presentation and Nature of Operations
On October 13, 2016, NexTier Oilfield Solutions Inc. (the “Company” or “NexTier”) was formed as Keane Group, Inc. ("Keane"), a Delaware corporation to be a holding corporation for Keane Group Holdings, LLC and its subsidiaries (collectively referred to as “Keane Group”), for the purpose of facilitating the initial public offering (the “IPO”) of shares of common stock of the Company.
On October 31, 2019, the Company completed its merger (the “C&J Merger”) with C&J Energy Services, Inc. (“C&J”) and changed its name to "NexTier Oilfield Solutions Inc." For more details regarding the C&J Merger, refer to Note (3) C&J Merger. In addition, on March 9, 2020, the Company completed the divestiture of its Well Support Services Segment ("WSS Sale"). For more details regarding the WSS Sale, refer to Note (15) Business Segments. The condensed consolidated financial statements for the period from January 1, 2019 to June 30, 2019 reflect only the historical results of the Company prior to the completion of the C&J Merger.
        The accompanying unaudited condensed consolidated financial statements were prepared using United States Generally Accepted Accounting Principles ("GAAP") and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the "SEC") on March 12, 2020.
The Company’s accounting policies are in accordance with GAAP. The preparation of financial statements in conformity with these accounting principles requires the Company to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and (2) the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from the Company’s estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment and intangible assets; allowances for doubtful accounts; inventory reserves; acquisition accounting; contingent liabilities; and the valuation of property and equipment, intangible assets, equity issued as consideration in an acquisition, income taxes, stock-based incentive plan awards and derivatives.
Management believes the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company's financial position as of June 30, 2020 and the results of its operations and cash flows for the three and six months ended June 30, 2020 and 2019. Such adjustments are of a normal recurring nature. All intercompany transactions and balances have been eliminated.
(2) Summary of Significant Accounting Policies
(a) Business Combinations
Business combinations are accounted for using the acquisition method of accounting in accordance with the Accounting Standards Codification (“ASC”) 805, “Business Combinations”, as amended by Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business.” The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 820, using discounted cash flows and other applicable valuation techniques. Any acquisition related costs incurred by the Company are expensed as incurred. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill if the definition of a business is met. Operating results of an acquired business are included in the Company’s results of operations from the date of acquisition.
On October 31, 2019, the Company completed its acquisition of C&J Energy Services, Inc., for further discussion related to the merger, see Note (3) C&J Merger.
(b) Revenue Recognition
The Company adopted ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, effective January 1, 2018, using the modified retrospective method. Changes were made to the relevant business processes and the related control activities, including information systems, in order to monitor and maintain appropriate controls over financial reporting. There were no significant changes to the Company’s internal control over financial reporting due to the Company’s adoption of ASU 2014-09.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. To achieve this core principle, ASC 606 requires the Company to apply the following five steps: (1) identify the
10


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation. The five-step model requires management to exercise judgment when evaluating contracts and recognizing revenue.
Identify the Contract and Determine Transaction Price
The Company typically provides its services (i) under term pricing agreements; (ii) under contracts that include dedicated fleet or unit arrangements; (iii) on a spot market basis; and (iv) under term contracts that include “take-or-pay” provisions.
Under term pricing agreements, the Company and customer agree to set pricing for a specified period of time. The agreed-upon pricing is subject to periodic review, as specifically defined in the agreement, and may be adjusted upon the agreement of both parties. These agreements typically do not feature provisions obligating either party to commit to a certain utilization level. Additionally, these agreements typically allow either party to terminate the agreement for its convenience without incurring a termination penalty.
Under dedicated unit arrangements, customers typically commit to targeted utilization levels based on a specified number of fracturing stages per calendar month or fulfilling the customer's requirements, in either instance at agreed-upon pricing. These agreements typically do not feature obligations to pay for services not used by the customer. In addition, the agreed-upon pricing is typically subject to periodic review, as specifically defined in the agreement, and may be adjusted upon the agreement of both parties. These contracts also typically allow for termination for either party's convenience with a brief notice period and may feature a termination penalty in the event the customer terminates the contract for its convenience.
Rates for services performed on a spot market basis are based on an agreed-upon spot market rate unique to each service line.
Under term contracts with “take-or-pay” provisions, the Company’s customers are typically obligated to pay on a monthly basis for a specified quantity of services, whether or not those services are actually utilized. To the extent customers use more than the specified contracted minimums, the Company will charge a pre-agreed amount for the provision of such additional services, which amounts are typically subject to periodic review. In addition, these contracts typically feature a termination penalty in the event the customer terminates the contract for its convenience.
"Take-or-pay" provisions are considered stand ready performance obligations. The Company recognizes "take-or-pay" revenues using a time-based measure of progress, as the Company cannot reasonably estimate if and when the customer will require the Company to provide the services; likewise, the customer benefits as the Company is standing by to provide such services.
Identify and Satisfy the Performance Obligations
The majority of the Company’s performance obligations are satisfied over time. The Company has determined this best represents the transfer of value from its services to the customer as performance by the Company helps to enhance a customer controlled asset (e.g., unplugging a well, enabling a well to produce oil or natural gas). Measurement of the satisfaction of the performance obligation is measured using the output method, which is typically evidenced by a field ticket. A field ticket includes items such as services performed, consumables used, and man hours incurred to complete the job for the customer. Each field ticket is used to invoice customers. Payment terms for invoices issued are in accordance with a master services agreement with each customer, which typically require payment within 30 days of the invoice issuance.
A portion of the Company’s contracts contain variable consideration; however, this variable consideration is typically unknown at the time of contract inception, and is not known until the job is complete, at which time the variability is resolved. Examples of variable consideration include the number of hours that will be incurred and the amount of consumables (such as chemicals and proppants) that will be used to complete a job.
In the course of providing services to its customers, the Company may use consumables; for example, in the Company’s fracturing business, chemicals and proppants are used in the fracturing service for the customer. ASC 606 requires that goods or services promised to a customer be identified separately when they are distinct within the contract. However, the consumables are used to complete the service for the customer and are not beneficial to the customer on their own. As such, the consumables are not a separate performance obligation, but instead are combined with the other services within the context of the contract and accounted for as a single performance obligation.
Remaining Performance Obligations
11


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
The Company invoices its customers for the services provided at contractual rates multiplied by the applicable unit of measurement, including volume of consumables used and hours incurred. In accordance with ASC 606, the Company has elected the “Right to Invoice” practical expedient for all contracts, which allows the Company to invoice its customers in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. With this election, the Company is not required to disclose information about the variable consideration related to its remaining performance obligations. The Company has also elected the practical expedient to expense immediately mobilization costs, as the amortization period would always be less than one year. As a result of electing these practical expedients, there was no material impact on the Company’s current revenue recognition processes and no retrospective adjustments were necessary. For those contracts with a term of more than one year, the Company had approximately $49.0 million of unsatisfied performance obligations as of June 30, 2020, which will be recognized as services are performed over the remaining contractual terms.
The Company’s obligations for refunds as well as the warranties and related obligations stated in its contracts with its customers are standard to the industry and are related to the correction of any defectiveness in the execution of its performance obligations.
Contract Balances
In line with industry practice, the Company bills its customers for its services in arrears, typically when the stage or well is completed or at month-end. The majority of the Company’s jobs are completed in less than 30 days. Furthermore, it is currently not standard practice for the Company to execute contracts with prepayment features. As such, the Company’s contract liabilities are immaterial to its consolidated balance sheets. Payment terms after invoicing are typically 30 days or less.
The Company does not have any significant contract costs to obtain or fulfill contracts with customers; as such, no amounts are recognized on the consolidated balance sheet. Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the condensed consolidated statements of operations and comprehensive income (loss) and net cash provided by operating activities in the condensed consolidated statements of cash flows.
The following is a description of the Company’s core service lines separated by reportable segments from which the Company generates its revenue. For additional detailed information regarding reportable segments, see Note (15) Business Segments.
Revenue from the Company’s Completion Services, Well Construction and Intervention (“WC&I”), and Well Support Services segments are recognized as follows:
Completion Services
The Company provides hydraulic fracturing, wireline and pumpdown services pursuant to contractual arrangements, such as term contracts and pricing agreements. Revenue from these services are earned as services are rendered, which is generally on a per stage or fixed monthly rate. All revenue is recognized when a contract with a customer exists, the performance obligations under the contract have been satisfied over time, the amount to which the Company has the right to invoice has been determined and collectability of amounts subject to invoice is probable. Contract fulfillment costs, such as mobilization costs and shipping and handling costs, are expensed as incurred and are recorded in cost of services in the condensed consolidated statements of operations and comprehensive income (loss). To the extent fulfillment costs are considered separate performance obligations that are billable to the customer, the amounts billed are recorded as revenue in the condensed consolidated statements of operations and comprehensive income (loss).
Once a stage has been completed, a field ticket is created that includes charges for the service performed and the chemicals and proppant consumed during the course of the service. The field ticket may also include charges for the mobilization of the equipment to the location, any additional equipment used on the job and other miscellaneous items. The field ticket represents the amounts to which the Company has the right to invoice and to recognize as revenue.
Well Construction and Intervention
The Company provides cementing services pursuant to contractual arrangements, such as term contracts, or on a spot market basis. Revenue is recognized upon the completion of each performance obligation, which for cementing services, represents the portion of the well cemented: surface casing, intermediate casing or production liner. The performance obligations are satisfied over time. Jobs for these services are typically short term in nature, with most jobs completed in a day. Once the well has been cemented, a field ticket is created that includes charges for the services performed and the consumables used during the course of service. The field ticket represents the amounts to which the Company has the right to invoice and to recognize as revenue.
12


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
The Company provides a range of coiled tubing services primarily used for fracturing plug drill-out during completion operations and for well workover and maintenance, primarily on a spot market basis. Jobs for these services are typically short-term in nature, lasting anywhere from a few hours to multiple days. Revenue is recognized upon completion of each day’s work based upon a completed field ticket. The field ticket includes charges for the services performed and the consumables used during the course of service. The field ticket may also include charges for the mobilization and set-up of equipment, the personnel on the job, any additional equipment used on the job, and other miscellaneous consumables. The Company typically charges the customer for the services performed and resources provided on an hourly basis at agreed-upon spot market rates, at times, or pursuant to pricing agreements.
Disaggregation of Revenue
Revenue activities during the three and six months ended June 30, 2020 and 2019 were as follows:
Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
(Thousands of Dollars) (Thousands of Dollars)
Completion Services WC&I Well Support Services Total Completion Services WC&I Well Support Services Total
Geography
Northeast $ 82,228    $ 5,394    $ —    $ 87,622    $ 159,653    $ 13,024    $ —    $ 172,677   
Central 3,684    578    —    4,262    80,515    7,478    —    87,993   
West Texas 68,498    10,104    —    78,602    332,997    43,736    8,373    385,106   
West 15,039    1,174    —    16,213    98,726    9,837    49,556    158,119   
International 9,528    —    —    9,528    19,957    —    —    19,957   
$ 178,977    $ 17,250    $ —    $ 196,227    $ 691,848    $ 74,075    $ 57,929    $ 823,852   

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
(Thousands of Dollars) (Thousands of Dollars)
Completion Services WC&I Well Support Services Total Completion Services WC&I Well Support Services Total
Geography
Northeast $ 130,063    $ —    $ —    $ 130,063    $ 284,929    $ —    $ —    $ 284,929   
Central 24,876    —    —    24,876    35,991    —    —    35,991   
West Texas 189,887    102    —    189,989    380,439    3,943    —    384,382   
West 75,537    7,268    —    82,805    130,979    13,106    —    144,085   
International —    —    —    —    —    —    —    —   
$ 420,363    $ 7,370    $ —    $ 427,733    $ 832,338    $ 17,049    $ —    $ 849,387   

Contract Balances
In line with industry practice, the Company bills its customers for its services in arrears, typically when the stage or well is completed or at month-end. The majority of the Company's jobs are completed in less than 30 days. Furthermore, it is currently not standard practice for the Company to execute contracts with prepayment features. As such, the Company's contract liabilities are immaterial to its unaudited condensed consolidated balance sheets. Payment terms after invoicing are typically 30 days or less.
(c) Property and Equipment
Property and equipment, inclusive of equipment under capital lease, are generally stated at cost.
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 13 months to 40 years. Property and equipment with an estimated useful life less than 13 months are expensed as incurred and are immaterial to the unaudited condensed consolidated financial statements. Management bases the estimate of the useful lives and salvage values of property and equipment on expected utilization, technological change and effectiveness of maintenance programs. When components of an item of property and equipment have different useful lives, they are accounted for separately as major components of property and equipment. Equipment held under finance leases are generally amortized on a straight-line basis over the shorter of the estimated useful life of the underlying asset and the term of the lease.
Long-lived assets are evaluated on a quarterly basis to identify events or changes in circumstances (“triggering events”) that indicate the carrying value of certain property and equipment may not be recoverable. Property and equipment are reviewed for impairment upon the occurrence of a triggering event. An impairment loss is recorded in the period in which it is determined that the carrying amount of property and equipment is not recoverable. The determination of recoverability is made based upon the estimated undiscounted future net cash flows of assets grouped at the lowest level for which there are identifiable cash flows independent of the cash flows of other groups of assets with such cash flows to be realized over the estimated remaining useful life of the primary asset within the asset group. The Company determined the lowest level of identifiable cash flows that are independent of other asset groups to be primarily at the service line level. The Company's asset groups consist of fracturing services, wireline, cementing and coiled tubing. If the estimated undiscounted future net cash flows for a given asset group is less than the carrying amount of the related assets, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related assets. The impairment loss is then allocated across the asset group's major classifications.
During the first quarter of 2020, management determined the reductions in commodity prices driven by the potential impact of the novel COVID-19 virus and global supply and demand dynamics coupled with the sustained decrease in the Company’s share price were deemed triggering events. As a result of the triggering event, recoverability testing was performed and it was determined that the estimated undiscounted net cash flow for all asset groups was greater than the carrying amount of their related assets and no impairment loss was recorded. During the second quarter of 2020, the Company determined there were no events that would indicate the carrying amount of its indefinite-lived assets and long-lived assets may not be recoverable, and as such, no impairment charge was recognized.
Major classifications of property and equipment and their respective useful lives are as follows:
Land
Indefinite life
Building and leasehold improvements
13 months – 40 years
Machinery and equipment
13 months – 10 years
Office furniture, fixtures and equipment
3 years – 5 years
Leasehold improvements are assigned a useful life equal to the term of the related lease. Depreciation methods, useful lives and residual values are reviewed annually.
(d) Leases
Effective January 1, 2019, the Company adopted ASU 2016-02, "Leases (Topic 842)," and subsequently-issued related ASUs, which set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors, using the modified retrospective method. In connection with the adoption of these standards, the Company implemented internal controls to ensure that the Company's contracts are properly evaluated to determine applicability under ASU 2016-02 and that the Company properly applies ASU 2016-02 in accounting for and reporting on all its qualifying leases.
In accordance with ASC 842, the Company has made the following elections for its lease accounting:
all short-term leases with term lengths of 12 months or less will not be capitalized; the underlying class of assets to which the Company has applied this expedient is primarily its apartment leases;
for non-revenue contracts containing both lease and non-lease components, both components will be combined and accounted for as one lease component and accounted for under ASC 842; and
for revenue contracts containing both lease and non-lease components, both components will be combined and accounted for as one component and accounted for under ASC 606.
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
As part of the Company's adoption of ASU 2016-02, the Company elected to adopt the standard using the modified retrospective transition method and elected the practical expedient transition method package whereby the Company did not:
reassess whether any expired or existing contracts contained leases;
reassess the lease classification for any expired or existing leases; and
reassess initial direct costs for any existing leases.
For additional information, see Note (12) Leases.
(e) Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. The Company utilizes interest rate derivatives to manage interest rate risk associated with its floating-rate borrowings. The Company recognizes all derivative instruments as either assets or liabilities on the consolidated balance sheets at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive income (loss) until the hedged item affects earnings.

The Company only enters into derivative contracts that it intends to designate as hedges for the variability of cash flows to be received or paid related to a recognized asset or liability (i.e. cash flow hedge). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

In addition, we evaluate the terms of our operating agreements and other contracts, if any, to determine whether they contain embedded components that are required to be bifurcated and accounted for separately as derivative financial instruments.
(f) Stock-based compensation
The Company recognizes compensation expense for restricted stock awards, restricted stock units to be settled in common stock (“RSUs”), performance based RSU award (“PSUs”), and non-qualified stock options (“stock options”) based on the fair value of the awards at the date of grant. The fair value of restricted stock awards and RSUs is determined based on the number of shares or RSUs granted and the closing price of the Company’s common stock on the date of grant. The fair value of stock options is determined by applying the Black-Scholes model to the grant-date market value of the underlying common shares of the Company. The fair value of PSUs with market conditions is determined using a Monte Carlo simulation method. The Company has elected to recognize forfeiture credits for these awards as they are incurred, as this method best reflects actual stock-based compensation expense.
Compensation expense from time-based restricted stock awards, RSUs, PSUs, and stock options is amortized on a straight-line basis over the requisite service period, which is generally the vesting period.
Deferred compensation expense associated with liability-based awards, such as deferred stock awards that are expected to settle with the issuance of a variable number of shares based on a fixed monetary amount at inception, is recognized at the fixed monetary amount at inception and is amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Upon settlement, the holders receive an amount of common stock equal to the fixed monetary amount at inception, based on the closing price of the Company’s stock on the date of settlement.
Tax deductions on the stock-based compensation awards are not realized until the awards are vested or exercised. The Company recognizes deferred tax assets for stock-based compensation awards that will result in future deductions on its income tax returns, based on the amount of tax deduction for stock-based compensation recognized at the statutory tax rate in the jurisdiction in which the Company will receive a tax deduction. If the tax deduction for a stock-based award is greater than the cumulative GAAP compensation expense for that award upon realization of a tax deduction, an excess tax benefit will be recognized and recorded as a
15


NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
favorable impact on the effective tax rate. If the tax deduction for an award is less than the cumulative GAAP compensation expense for that award upon realization of the tax deduction, a tax shortfall will be recognized and recorded as an unfavorable impact on the effective tax rate. Any excess tax benefits or shortfalls will be recorded as discrete, adjustments in the period in which they occur. The cash flows resulting from any excess tax benefit will be classified as financing cash flows in the condensed consolidated statements of cash flows.
The Company provides its employees with the option to settle income tax obligations arising from the vesting of their restricted or deferred stock-based compensation awards by withholding shares equal to such income tax obligations. Shares acquired from employees in connection with the settlement of the employees’ income tax obligations are accounted for as treasury shares that are subsequently retired. Restricted stock awards, RSUs, and PSUs are not considered issued and outstanding for purposes of earnings per share calculations until vested.
For additional information, see Note (10) Stock-Based Compensation.
(3) C&J Merger
        On October 31, 2019 (the “C&J Acquisition Date”), the Company completed the C&J Merger in accordance with the terms of the Agreement and Plan of Merger, dated as of June 16, 2019 (the "Merger Agreement"), by and among NexTier, C&J and King Merger Sub Corp., a wholly owned subsidiary of NexTier ("Merger Sub"), pursuant to which Merger Sub merged with and into C&J, with C&J surviving the merger as a wholly owned subsidiary of NexTier, and immediately following the C&J Merger, C&J was merged with and into King Merger Sub II LLC ("LLC Sub"), with LLC Sub continuing as the surviving entity as a wholly-owned subsidiary of NexTier and the successor in interest to C&J.
The C&J Merger was completed for total consideration of approximately $485.1 million, consisting of (i) equity consideration in the form of 105.9 million shares of Keane common stock issued to C&J stockholders with a value of $481.9 million and (ii) replacement share based compensation awards attributable to pre-merger services with a value of $3.2 million.
The Company accounted for the C&J Merger using the acquisition method of accounting. The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair values at the date of the acquisition. The majority of the measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs. The fair value of acquired inventory and property and equipment is based on both available market data and a cost approach. The fair value of the financial assets acquired includes trade receivables with a fair value of $312.6 million. The gross amount due under the contracts is $322.8 million, of which $10.2 million is expected to be uncollectible. A liability of $40.2 million has been recognized for legal reserves and sales and use tax assessments. As of June 30, 2020, there has been no change in the amount recognized for the liability or any change in the range of outcomes or assumptions used to develop the estimates on October 31, 2019.
The preliminary purchase price has been allocated to the net assets acquired and liabilities assumed based upon their estimated fair values. The estimated fair values of certain assets and liabilities, including accounts receivable, taxes (including uncertain tax positions), and contingencies require significant judgments and estimates. C&J is subject to the legal and regulatory requirements, including but not limited to those related to environmental matters and taxation. The Company has conducted a preliminary assessment of liabilities arising from these matters and has recognized provisional amounts in its initial accounting for the C&J Merger for all identified liabilities in accordance with the requirements of ASC Topic 805. Certain data necessary to complete the purchase price allocation is not yet available, including, but not limited to, valuation of pre-acquisition contingencies and final tax returns that provide underlying tax basis of assets acquired and liabilities assumed. However, the Company is continuing its review of these matters during the measurement period, and if new information obtained about facts and circumstances that existed at the acquisition date identifies adjustments to the liabilities initially recognized, as well as any additional liabilities that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts initially recognized. As a result, the provisional measurements below are preliminary and subject to change during the measurement period and such changes could be material. The Company will finalize the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities may be revised as appropriate. The Company continues to assess the fair values of the assets acquired and liabilities assumed.
The following table summarizes the fair value of the consideration transferred in the C&J Merger and the preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the C&J Merger Date:
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Total Purchase Consideration:
Purchase Price Allocation as of June 30, 2020
(Thousands of Dollars)
Equity consideration $ 481,912   
Replacement awards attributable to pre-combination services 3,212   
Less: Cash acquired (68,807)  
Total purchase consideration 416,317   
Trade and accounts receivable
312,620   
Inventories
43,142   
Prepaid and other current assets
18,512   
Property and equipment
311,886   
Intangible assets
17,590   
Right of use assets
24,318   
Other noncurrent assets
4,409   
Total identifiable assets acquired
732,477   
Accounts payable
43,620   
Accrued expenses
236,959   
Short term lease liability
7,842   
Long term lease liability
15,517   
Non-current liabilities
17,156   
Total liabilities assumed
321,094   
Goodwill
4,934   
Total purchase consideration $ 416,317   
(4) Goodwill
Goodwill may be allocated across two reporting units: Completion Services and Well Construction and Intervention Services. At the reporting unit level, the Company tests goodwill for impairment on an annual basis as of October 31 of each year, or when events or changes in circumstances, referred to as triggering events, indicate the carrying value of goodwill may not be recoverable and that a potential impairment exists.
Judgment is used in assessing whether goodwill should be tested for impairment more frequently than annually. Factors such as unexpected adverse economic conditions, competition, market changes and other external events may require more frequent assessments. During the first quarter of 2020, a significant decline in the Company's share price, which resulted in the Company's market capitalization dropping below the book value of equity, as well as reductions in commodity prices driven by the potential impact of the COVID-19 pandemic and global supply and demand dynamics were deemed triggering events that led to a test for goodwill impairment. The Step 1 impairment testing methodologies are discussed below. During the second quarter of 2020, the Company determined there were no events that would indicate the carrying value of goodwill may not be recoverable or that a potential impairment exists.
Income approach
The income approach impairment testing methodology is based on a discounted cash flow model, which utilizes present values of cash flows to estimate fair value. For the Completions and Well Construction and Intervention reporting units, the future cash flows were projected based on estimates of projected revenue growth, unit count, utilization, pricing, gross profit rates, SG&A rates, working capital fluctuations and capital expenditures. Forecasted cash flows took into account known market conditions as of March 31, 2020, and management’s anticipated business outlook. A terminal period was used to reflect an estimate of stable, perpetual growth. The terminal period reflects a terminal growth rate of 2.5%. The future cash flows were discounted using a market-participant
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
risk-adjusted weighted average cost of capital (“WACC”) of 19.9% for the Completions reporting unit and 22.4% for the Well Construction and Intervention reporting unit. These assumptions were derived from both observable and unobservable inputs and combined reflect management’s judgments and assumptions.
Market approach
        The market approach impairment testing methodology is based upon the guideline public company method and the guideline transaction method. The application of the guideline public company method was based upon selected public companies operating within the same industry as the Company. Based on this set of comparable competitor data, operational multiples were derived for the reporting units weighted based on management’s assessment of reliability. The selected market multiples for the guideline public company method were forward-looking enterprise value to revenue and enterprise value to EBITDA multiples, with multiples ranging from 0.5x to 0.6x for revenues and from 3.3x to 6.2x for EBITDA. The application of the guideline transaction method was based upon valuation multiples derived from actual control transactions for comparable companies. Based on this, valuation multiples are derived from historical data of selected transactions, then evaluated and adjusted, if necessary, based on the strengths and weaknesses of the subject reporting unit relative to each acquired guideline company. The selected market multiples for the guideline transaction method were enterprise value to revenue and enterprise value to book value of invested capital, with multiples ranging from 0.7x to 2.1x for revenues and from 0.6x to 1.3x for book value of invested capital.
        The fair value determined under the market approach is sensitive to these market multiples, and a decline in any of the multiples could reduce the estimated fair value of the reporting unit below its carrying value. Earnings estimates were derived from unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.
Reconciliation of value and goodwill impairment conclusion
        The estimated fair value determined under the income approach was consistent with the estimated fair value determined under the market approach. The concluded fair value for both reporting units consisted of a weighted average, with a 40.0% weighted under the income approach and 60.0% weight under the market approach. Market data in support of the implied control premium were used in this reconciliation to corroborate the estimated reporting unit fair values with the Company's overall market-indicated value. The results of the Step 1 impairment testing for goodwill resulted in the Company recognizing an impairment expense of $32.6 million during the first quarter of 2020, consisting of $32.2 million related to the Completions Services reporting unit and $0.4 million representing the entire balance of goodwill for the Well Construction and Intervention reporting unit.
The changes in the carrying amount of goodwill from December 31, 2019 to June 30, 2020 were as follows:  
(Thousands of Dollars)
Goodwill as of December 31, 2019
137,458   
Disposition of Well Support Services reporting unit
(660)  
Impairment expense
(32,600)  
Goodwill as of June 30, 2020
$ 104,198   
(5) Inventories, net
Inventories, net, consisted of the following as of June 30, 2020 and December 31, 2019:
(Thousands of Dollars)
June 30,
2020
December 31,
2019
Sand, including freight $ 5,643    $ 4,405   
Chemicals and consumables 2,662    11,408   
Materials and supplies 34,848    45,828   
Total inventory, net $ 43,153    $ 61,641   
Inventories are reported net of obsolescence reserves of $5.5 million and $1.8 million as of June 30, 2020 and December 31, 2019, respectively. The Company recognized $2.4 million and $0.1 million of obsolescence expense during the three months ended June 30, 2020 and 2019, respectively. The Company recognized $3.7 million and $0.4 million of obsolescence expense during the six months ended June 30, 2020 and 2019, respectively.
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
(6) Long-Term Debt
Long-term debt at June 30, 2020 and December 31, 2019 consisted of the following:
(Thousands of Dollars)
June 30,
2020
December 31,
2019
2018 Term Loan Facility
$ 343,000    $ 344,750   
Less: Unamortized debt discount and debt issuance costs
(6,322)   (7,127)  
Total debt, net of unamortized debt discount and debt issuance costs
336,678    337,623   
Less: Current portion
(2,303)   (2,311)  
Long-term debt, net of unamortized debt discount and debt issuance costs
$ 334,375    $ 335,312   
Below is a summary of the Company’s credit facilities outstanding as of June 30, 2020:
(Thousands of Dollars)
2019 ABL Facility 2018 Term Loan Facility
Original facility size
$ 450,000    $ 350,000   
Outstanding balance
$ —    $ 343,000   
Letters of credit issued
$ 28,874    $ —   
Available borrowing base commitment
$ 93,409   
n/a
Interest Rate(1)
LIBOR or base rate plus applicable margin
LIBOR or base rate plus applicable margin
Maturity Date
October 31, 2024
May 25, 2025
(1) London Interbank Offer Rate (“LIBOR”) is subject to a 1.00% floor
        Maturities of the 2018 Term Loan Facility for the next five years are presented below:
(Thousands of Dollars)
Year-end December 31,
2020 $ 1,750   
2021 3,500   
2022 3,500   
2023 3,500   
2024 3,500   
$ 15,750   
On October 31, 2019, the Company entered into the Second Amended and Restated Asset-Based Revolving Credit Agreement (“2019 ABL Facility”), modifying the Company’s pre-existing asset-based revolving credit facility (“2017 ABL Facility”).  During the first quarter of 2020, the Company provided notice to the lenders to borrow a total of $175 million under the 2019 ABL Facility. The interest rates for the $150.0 million LIBOR borrowing and $25.0 million Base Rate borrowing were 2.125% and 3.75%, respectively. During the second quarter of 2020, the Company repaid the $150.0 million LIBOR borrowing and the $25.0 million Base Rate borrowing and did not incur any penalties.
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
(7) Significant Risks and Uncertainties
Subsequent to the sale of the Well Support Services segment, the Company operates in two reportable segments: Completion Services and Well Construction and Intervention with significant concentration in the Completion Services segment. During the three months ended June 30, 2020 and 2019, sales to Completion Services customers represented 91% and 98% of the Company's consolidated revenue, respectively. During the six months ended June 30, 2020 and 2019, sales to Completion Services customers represented 84% and 98% of the Company's consolidated revenue, respectively.
        The Company depends on its customers' willingness to make operating and capital expenditures to explore for, develop and produce oil and natural gas onshore in the U.S. This activity is driven by many factors, including current and expected crude oil and natural gas prices. The U.S. energy industry experienced a significant downturn in the second half of 2014 through early 2016, driven primarily by global oversupply and a decline in commodity prices. From early 2016 through late 2018, the U.S. generally experienced some recovery in commodity prices and drilling and completion activity. Over this time frame, the U.S. active rig count increased from a trough of 404 rigs in May 2016 to a peak of 1,083 rigs in December 2018, driving significant demand for the Company's completion services. From December 28, 2018 through December 31, 2019, U.S. active rig count decreased by approximately 26% to 805 rigs, as market conditions tightened and competition within the completions industry increased.
In late 2019 and early 2020, and in response to the oversupply of hydraulic fracturing equipment, an increasing number of horsepower retirements were announced, removing a significant base of equipment from the market. Despite some these announcements, the oversupply of hydraulic fracturing equipment persisted, resulting in a continuation of highly competitive market conditions into 2020. 
In late first quarter of 2020, the industry faced sudden and unprecedented circumstances, including major shocks to both supply and demand. COVID-19 has resulted in significant demand destruction for oil products, driven by a significant slowdown in economic activity throughout the U.S. and abroad.
This resulted in a rapid and significant decline in crude oil prices and an increasingly utilized storage network, limiting distribution outlets and optionality for production and further exacerbating price declines.
               U.S. exploration and production companies responded with drastic reductions in budgets and outright completion stoppages. From the end of the fourth quarter of 2019 to the end of the second quarter of 2020, U.S. active rig count decreased by 67%, from 805 to 265 rigs. This backdrop has drastically impacted the demand for U.S. completions services and resulted in increased uncertainty for the remainder of 2020. While activity has modestly improved relative to the trough in activity experienced in late May / early June 2020, the market remains highly competitive with continued uncertainty, particularly for the fourth quarter of 2020.
        For the three months ended June 30, 2020 the Company's had two customers that individually accounted for 10% of more of the Company's consolidated revenue and collectively represented 49%. For the three months ended June 30, 2019, the Company' had four individual customers that accounted for 10% or more of the Company's consolidated revenue and collectively represented 67%. For the six months ended June 30, 2020 the Company's had one customer that individually accounted for 13% of the Company's consolidated revenue. For the six months ended June 30, 2019, the Company' had four individual customers that accounted for 10% or more of the Company's consolidated revenue and collectively represented 60%.
For the three months ended June 30, 2020, purchases from the Company's top three suppliers represented approximately 5% to 10% of the Company's overall purchases. For the six months ended June 30, 2020, purchases from the Company's top supplier represented approximately 6% of the Company's overall purchases. For the three and six months ended June 30, 2019, the Company's top two suppliers represented approximately 5% to 10% of the Company's overall purchases.
(8) Derivatives
        The Company uses interest-rate-related derivative instruments to manage its variability of cash flows associated with changes in interest rates on its variable-rate debt.
        On March 9, 2020, the Company sold its Well Support Services segment to Basic Energy Services, Inc. (“Basic”) for $93.7 million of total proceeds, including $59.4 million in cash, before transaction costs, escrowed amounts, and subject to customary working capital adjustments, for a net of $53.3 million received at close, and $34.4 million of par value Senior Secured Notes, with 10.75% coupon rate, (“WSS Notes”) previously issued by Basic. On July 29, 2020, the Company agreed to use the escrowed amount in the final settlement of the working capital reconciliation. Under the terms of the agreement, the WSS Notes are accompanied by a make-whole guarantee at par value, which guarantees the payment of $34.4 million to NexTier after the WSS Notes are held to the
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
one-year anniversary of March 9, 2021. The cash equivalent make-whole is issued under a fund guarantee by Ascribe III Investments LLC, a private equity investment firm with approximately $1.0 billion in assets under management. In the event of a Basic restructuring or a credit rating downgrade in conjunction with a change in control prior to the one-year anniversary, the make-whole guarantee accelerates the WSS Notes to par value of $34.4 million. NexTier is entitled to semi-annual interest payments on the WSS Notes based on the 10.75% annual coupon throughout the holding period. The Company identified the make-whole guarantee as an embedded derivative and bifurcated the valuation of the WSS Note and the make-whole guarantee. The Company elected the fair value option for the WSS Notes at the inception of the transaction. The fair value on the date of the transaction for the make-whole derivative and WSS Notes was $12.2 million and $22.2 million, respectively, and resulted in a gain on divestiture of $8.7 million. The fair value of the WSS Notes and the make-whole guarantee are measured at the end of each reporting period. Gains and losses recognized in relation to these instruments will be recognized in net income. The fair value of the WSS Notes and make-whole guarantee are recorded in Other Current Assets. See Note (15) Business Segments for further discussion.
        On May 25, 2018, the Company, and certain subsidiaries of the Company as guarantors, entered into a term loan facility (the "2018 Term Loan Facility") with each lender from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent. The 2018 Term Loan Facility has an initial aggregate principal amount of $350.0 million and proceeds were used to repay the Company's pre-existing 2017 term loan facility. The 2018 Term Loan Facility has a variable interest rate based on the London Interbank Offer Rate ("LIBOR"), subject to a 1.0% floor. As a result of this transaction, the Company desired to hedge additional notional amounts to continue to hedge approximately 50% of its expected LIBOR exposure and to extend the terms of its swaps to align with the 2018 Term Loan Facility.
        On June 22, 2018, the Company unwound its existing interest rate swaps and received $3.2 million in proceeds. The Company used the $3.2 million of proceeds to execute a new off-market interest rate swap. Under the terms of the new interest rate swap, the Company receives 1-month LIBOR, subject to a 1% floor, and makes payments based on a fixed rate of 2.625%. The new interest rate swap is effective through March 31, 2025 and has a notional amount of $175 million. The new interest rate swap was designated in a new cash flow hedge relationship.
        The Company discontinued hedge accounting on the pre-existing interest rate swaps upon termination. At
the time hedge accounting was discontinued, the exiting interest rate swaps had $3.5 million of deferred gains in accumulated other comprehensive loss. This amount was not reclassified from accumulated other comprehensive loss into earnings, as it remained probable that the originally forecasted transaction will occur. This amount will be recognized into earnings through August 18, 2022, the termination date of the pre-existing interest rate swap.
        The following tables present the fair value of the Company's derivative instruments on a gross and net basis as of the periods shown below:
(Thousands of Dollars)
Derivatives
designated as
hedging
instruments
Derivatives
not
designated as
hedging
instruments
Gross Amounts
of Recognized
Assets and
Liabilities
Gross 
Amounts 
Offset in the 
Balance
Sheet(1)
Net Amounts 
Presented in 
the Balance 
Sheet(2)
As of June 30, 2020:
Other current asset
$ —    $ 27,948    $ 27,948    $ —    $ 27,948   
Other current liability
(2,841)   —    (2,841)   —    (2,841)  
Other noncurrent liability
(8,928)   —    (8,928)   —    (8,928)  
As of December 31, 2019:
Other current liability
$ (1,729)   $ —    $ (1,729)   $ —    $ (1,729)  
Other noncurrent liability
(5,559)   —    (5,559)   —    (5,559)  
(1) Agreements are in place that allow for the financial right of offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements.
(2) There are no amounts subject to an enforceable master netting arrangement that are not netted in these amounts. There are no amounts of related financial collateral received or pledged.
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Notes to the Unaudited Condensed Consolidated Financial Statements
The following table presents gains and losses for the Company's interest rate derivatives designated as cash flow hedges (in thousands of dollars):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019 Location
Amount of loss recognized in total other comprehensive loss on derivative $ (2,654)   $ (3,682)   $ (5,615)   $ (6,544)   OCI
Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings (648)   196    (989)   444    Interest Expense

The gain (loss) recognized in other comprehensive loss for the derivative instrument is presented within hedging activities in the unaudited condensed consolidated statements of operations and comprehensive loss.
There were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness. Based on recorded values as of June 30, 2020, $2.7 million of net losses will be reclassified from accumulated other comprehensive loss into earnings within the next 12 months.
The Company recognized a gain on the change in fair market value of the WSS Notes and make-whole derivative of $2.3 million and $2.4 million for the three and six months ended June 30, 2020, respectively, which is recorded within other income (expense) on the Consolidated Statements of Operations and Comprehensive Loss.
See Note (9) Fair Value Measurements and Financial Information for discussion on fair value measurements related to the Company's derivative instruments.
(9) Fair Value Measurements and Financial Information
The Company discloses the required fair values of financial instruments in its assets and liabilities under the hierarchy guidelines, in accordance with GAAP. As of June 30, 2020, the Company's financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, derivative instruments, long-term debt and lease obligations. As of June 30, 2020 and December 31, 2019, the carrying values of the Company's financial instruments, included in its condensed consolidated balance sheets, approximated or equaled their fair values.
Recurring Fair Value Measurement
As of June 30, 2020 the Company has three financial instruments measured at fair value on a recurring basis which are its interest rate derivative, make-whole derivative and WSS Notes, see Note (8) Derivatives above. The make-whole derivative and the WSS Notes are presented within other current assets in the condensed consolidated balance sheets. As of December 31, 2019, the Company had one financial instrument measured on a recurring basis which was its interest rate derivative.
The fair market value of the financial instruments reflected on the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019 were determined using industry-standard models that consider various assumptions, including current market and contractual rates for the underlying instrument, time value, implied volatilities, nonperformance risk as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data.
The following tables present the placement in the fair value hierarchy of assets and liabilities that were measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 (in thousands of dollars):
Fair value measurements at reporting date using
June 30, 2020 Level 1 Level 2 Level 3
Assets:
Make-whole derivative
$ 27,948    $ —    $ 27,948    $ —   
WSS Note
8,847    —    8,847    —   
Liabilities:
Interest rate derivative
$ (11,769)   $ —    $ (11,769)   $ —   
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Fair value measurements at reporting date using
December 31, 2019 Level 1 Level 2 Level 3
Liabilities:
Interest rate derivative
$ (7,288)   $ —    $ (7,288)   $ —   
Non-Recurring Fair Value Measurement
The fair values of indefinite-lived assets and long-lived assets are determined with internal cash flow models based on significant unobservable inputs. The Company measures the fair value of its property, plant and equipment using the discounted cash flow method, the fair value of its customer contracts using the multi-period excess earning method and income based "with and without" method, the fair value of its trade names and acquired technology using the "income-based relief-from-royalty" method and the fair value of its non-compete agreement using the "lost income" approach.
Given the unobservable nature of the inputs used in the Company's internal cash flow models, the cash flows models are deemed to use Level 3 inputs.
In the first quarter of 2020, the reductions in commodity prices driven by the potential impact of the novel COVID-19 virus and global supply and demand dynamics represented triggering events that may indicate that the carrying value of the Company's indefinite-lived assets and long-lived assets may not be recoverable as of March 31, 2020. See Note (4) Goodwill. During the three months ended June 30, 2020, the Company determined there were no events that would indicate the carrying amount of its indefinite-lived assets and long-lived assets may not be recoverable, and as such, no impairment charge was recognized.
Credit Risk
The Company's financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents, derivative contracts and trade receivables.
The Company's cash balances on deposit with financial institutions totaled $337.1 million and $255.0 million as of June 30, 2020 and December 31, 2019, respectively, which exceeded Federal Deposit Insurance Corporation insured limits. The Company regularly monitors these institutions' financial condition.
The credit risk from the derivative contract derives from the potential failure of the counterparty to perform under the terms of the derivative contracts. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties, whose Standard & Poor's credit rating is higher than BBB. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.
The majority of the Company's trade receivables have payment terms of 30 days or less. Significant customers are those that individually account for 10% or more of the Company's consolidated revenue or total accounts receivable. As of June 30, 2020, trade receivables from two customers individually represented 10% or more and collectively represented 35% of the Company's total accounts receivable. As of December 31, 2019, trade receivables from the Company's top customer individually represented 10% of the Company's total accounts receivable. The Company mitigates the associated credit risk by performing credit evaluations and monitoring the payment patterns of its customers. The Company has a process in place to collect all receivables within 30 to 60 days of aging. As of June 30, 2020 and December 31, 2019, the Company had $9.1 million, including the increase resulting from the adoption of ASU 2016-13, and $0.7 million in allowance for credit losses. The Company wrote-off $3.3 million and $4.9 million of bad debts during the three and six months ended June 30, 2020, respectively. The Company wrote-off $0.3 million and $0.5 million of bad debts during the three and six months ended June 30, 2019, respectively
(10) Stock-Based Compensation
Effective as of October 31, 2019, the Company (i) amended and restated the Keane Group, Inc. Equity and Incentive Award Plan under the name NexTier Oilfield Solutions Inc. Equity and Incentive Award Plan (“Equity and Incentive Award Plan”), and (ii) assumed and amended and restated the C&J Energy Services, Inc. 2017 Management Incentive Plan under the name NexTier Oilfield Solutions Inc. (Former C&J Energy) Management Incentive Plan ( “Management Incentive Plan”, and collectively with the Equity and Incentive Award Plan, the “Equity Award Plans”). As part of the C&J Merger, the Company assumed the award agreements outstanding under the Management Incentive Plan on the terms set forth in the Merger agreement.
As of June 30, 2020, the Company has four types of stock-based compensation under its Equity Award Plans: (i) deferred stock awards for three executive officers, (ii) restricted stock awards issued to independent directors and certain executives and
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
employees, (iii) restricted stock units issued to executive officers and key management employees and (iv) non-qualified stock options issued to executive officers.
The following table summarizes stock-based compensation costs for the three and six months ended June 30, 2020 and 2019 (in thousands of dollars):
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Restricted stock awards
$ 361    $ 381    $ 786    $ 621   
Restricted stock time-based unit awards
7,554    4,171    12,714    7,224   
Non-qualified stock options
468    675    704    1,355   
Restricted stock performance-based unit awards
1,140    410    2,199    437   
Equity-based compensation cost
9,523    5,637    16,403    9,637   
Tax Benefit
(2,287)   (1,360)   (3,938)   (2,341)  
Equity-based compensation cost, net of tax
$ 7,236    $ 4,277    $ 12,465    $ 7,296   
Performance-based RSU awards
During the first quarter of 2020, the Company issued 1,033,936 of performance-based RSUs to executive officers under its Equity Award Plans, which were fair valued at $8.5 million using a Monte Carlo simulation method. 50% of the performance-based RSUs vest after two years (the "two-year performance-based RSUs"), while the remaining 50% vest after three years (the "three-year performance-based RSUs"). Each vesting is subject to a payout percentage based on the Company's annualized total stockholder return ranking relative to its total stockholder return peer group achieved during the performance period. The number of shares that may be earned at the end of the vesting period ranges from 50% to 200% of the target award amount, if the threshold performance criteria is met. These performance-based RSUs will be settled in the Company's common stock and are classified as equity awards. The compensation expense associated with these performance-based RSUs will be amortized into earnings on a straight-line basis. As of June 30, 2020, total unamortized compensation cost related to unvested performance-based RSUs was $5.9 million, which the Company expects to recognize over the weighted-average period of 2.51 years.
During the three months ended June 30, 2020, the Company issued 405,541 of performance-based RSUs to executive officers under its Equity Award Plans, with an estimated value of $1.2 million, based on a 100% target value. The performance RSUs issued by the Company have service and performance conditions. The number of shares that may be earned at the end of the vesting period ranges from 0% to 150% of the target award amount, if the performance criteria is met. These performance-based RSUs will be settled in the Company's common stock and are classified as equity awards. The compensation expense associated with these performance-based RSUs will be amortized into earnings on a straight-line basis. As of June 30, 2020, total unamortized compensation cost related to unvested performance-based RSUs was $1.1 million, which the Company expects to recognize over the weighted-average period of 1.50 years.
(11) Earnings per Share
Basic income or (loss) per share is based on the weighted average number of common shares outstanding during the period. Diluted income or (loss) per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect, such as stock awards from the Equity Awards Plans, had been issued. Anti-dilutive securities represent potentially dilutive securities which are excluded from the computation of diluted income or (loss) per share as their impact would be anti-dilutive.
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NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
A reconciliation of the numerators and denominators used for the basic and diluted net loss per share computations is as follows:
         
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Numerator:
Net loss $ (112,488)   $ (4,981)   $ (184,244)   $ (26,787)