NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(86,283)
|
|
|
$
|
(184,244)
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by operating activities
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
86,539
|
|
|
161,081
|
|
|
|
|
Amortization of deferred financing fees
|
|
1,015
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of assets
|
|
(6,609)
|
|
|
(8,915)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of assets
|
|
—
|
|
|
34,327
|
|
|
|
|
Unrealized (gain) loss on derivative recognized in other comprehensive loss
|
|
831
|
|
|
(5,615)
|
|
|
|
|
(Gain) loss on financial instrument and derivatives, net
|
|
2,927
|
|
|
(1,390)
|
|
|
|
|
Stock-based compensation
|
|
10,092
|
|
|
16,403
|
|
|
|
|
Gain on insurance proceeds recognized in other income
|
|
(9,686)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Decrease (increase) in trade and other accounts receivable, net
|
|
(35,155)
|
|
|
224,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in inventories
|
|
(3,114)
|
|
|
12,804
|
|
|
|
|
Decrease (increase) in prepaid and other current assets
|
|
(6,593)
|
|
|
3,508
|
|
|
|
|
Decrease in other assets
|
|
11,419
|
|
|
14,393
|
|
|
|
|
Increase (decrease) in accounts payable
|
|
32,494
|
|
|
(77,685)
|
|
|
|
|
Increase (decrease) in accrued expenses
|
|
4,834
|
|
|
(73,555)
|
|
|
|
|
Increase (decrease) in customer contract liabilities
|
|
2,280
|
|
|
(60)
|
|
|
|
|
Decrease in other liabilities
|
|
(13,590)
|
|
|
(6,194)
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
(8,599)
|
|
|
110,414
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of business
|
|
—
|
|
|
53,259
|
|
|
|
|
Purchase of property and equipment
|
|
(57,540)
|
|
|
(83,719)
|
|
|
|
|
Advances of deposit on equipment
|
|
(4,232)
|
|
|
(1,118)
|
|
|
|
|
Implementation of software
|
|
(1,814)
|
|
|
(5,689)
|
|
|
|
|
Proceeds from disposal of assets
|
|
18,376
|
|
|
14,890
|
|
|
|
|
Acquisition of business
|
|
(2,501)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from settlement of WSS Notes and make-whole derivative
|
|
34,350
|
|
|
—
|
|
|
|
|
Proceeds from insurance recoveries
|
|
—
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(13,361)
|
|
|
(22,319)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from asset-based revolver
|
|
—
|
|
|
175,000
|
|
|
|
|
Payments on the term loan facility and asset-based revolver
|
|
(1,750)
|
|
|
(176,750)
|
|
|
|
|
Payments on finance leases
|
|
(300)
|
|
|
(3,022)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased and retired related to stock-based compensation
|
|
(1,446)
|
|
|
(1,944)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
(3,496)
|
|
|
(6,716)
|
|
|
|
|
Non-cash effect of foreign translation adjustments
|
|
(98)
|
|
|
753
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents
|
|
(25,554)
|
|
|
82,132
|
|
|
|
|
Cash and cash equivalents, beginning
|
|
275,990
|
|
|
255,015
|
|
|
|
|
Cash and cash equivalents, ending
|
|
$
|
250,436
|
|
|
$
|
337,147
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
10,502
|
|
|
$
|
12,347
|
|
|
|
|
Income taxes
|
|
—
|
|
|
6
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
Change in accrued capital expenditures
|
|
$
|
(29,133)
|
|
|
$
|
6,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash additions to operating right-of-use assets
|
|
3,352
|
|
|
8,200
|
|
|
|
|
Non-cash additions to operating lease liabilities, including current maturities
|
|
(512)
|
|
|
(8,161)
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
(1) Basis of Presentation and Nature of Operations
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, 2020, filed with the Securities and Exchange Commission (the "SEC") on February 24, 2021.
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, 2021 and the results of its operations and cash flows for the three and six months ended June 30, 2021 and 2020. Such adjustments are of a normal recurring nature. All intercompany transactions and balances have been eliminated.
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." Merger and integration related costs were recognized separately from the acquisition of assets and assumptions of liabilities in the C&J Merger. Merger costs consist of legal and professional fees and pre-merger notification fees. Integration costs consist of expenses incurred to integrate C&J’s operations, aligning accounting processes and procedures, and integrating its enterprise resource planning system with those of the Company. All of these costs are recorded within merger and integration costs on the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss. See Note (3) Mergers and Acquisitions in Part I, "Item 8. Financial Statements and Supplementary" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for further information.
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 (13) Business Segments.
(2) Summary of Significant Accounting Policies
(a) Business Combinations and Asset Acquisitions
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.
Asset acquisitions are measured based on their cost to the Company, including transaction costs. Asset acquisition costs, or the consideration transferred by the Company, are assumed to be equal to the fair value of the net assets acquired. If the consideration transferred is cash, measurement is based on the amount of cash the Company paid to the seller, as well as transaction costs incurred. Consideration given in the form of non-monetary assets, liabilities incurred or equity interests issued is measured based on either the cost to the Company or the fair value of the assets or net assets acquired, whichever is more clearly evident. The cost of an asset acquisition is allocated to the assets acquired based on their estimated relative fair values. Goodwill is not recognized in an asset acquisition.
(b) Revenue Recognition
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
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
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 to 60 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.
Remaining Performance Obligations
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. For those contracts with a term of more than one year, the Company had approximately $10.5 million of unsatisfied performance obligations as of June 30, 2021, 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. Payment terms after invoicing are typically 30 to 60 days.
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 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 (13) 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 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 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
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
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.
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.
Historical Segment: Well Support Services Segment
On March 9, 2020, the Company completed the divestiture of its Well Support Services Segment. For additional information, see Note (13) Business Segments. Through its rig services line, the Company had provided workover and well servicing rigs that were primarily used for routine repair and maintenance of oil and gas wells, re-drilling operations and plug and abandonment operations. These services were provided on an hourly basis at prices that approximate spot market rates. A field ticket was generated and revenue is recognized upon the earliest of the completion of a job or at the end of each day. A rig services job can last anywhere from a few hours to multiple days depending on the type of work being performed. The field ticket includes the base hourly rate charge and, if applicable, charges for additional personnel or equipment not contemplated in the base hourly rate. The field ticket may also include charges for the mobilization and set-up of equipment.
Through its fluids management service line, the Company used to provide storage, transportation and disposal services for fluids used in the drilling, completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour, or per load basis, or on the basis of quantities sold or disposed. Revenue is recognized upon the completion of each job or load, or delivered product, based on a completed field ticket.
Through its other special well site service line, the Company used to provide fishing, contract labor and tool rental services for completion and workover of oil and gas wells. Rates for these services vary and can be on a per job, per hour or on the basis of rental days per month. Revenue is recognized based on a field ticket issued upon the completion of each job or on a monthly billing for rental services provided.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Disaggregation of Revenue
Revenue activities during the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
|
|
(Thousands of Dollars)
|
|
(Thousands of Dollars)
|
|
|
|
Completion Services
|
|
WC&I
|
|
|
|
Well Support Services
|
|
Total
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeast
|
|
$
|
63,200
|
|
|
$
|
6,313
|
|
|
|
|
$
|
—
|
|
|
$
|
69,513
|
|
|
$
|
113,308
|
|
|
$
|
12,119
|
|
|
$
|
—
|
|
|
$
|
125,427
|
|
|
Central
|
|
54,649
|
|
|
—
|
|
|
|
|
—
|
|
|
54,649
|
|
|
89,549
|
|
|
—
|
|
|
—
|
|
|
89,549
|
|
|
West Texas
|
|
132,801
|
|
|
16,131
|
|
|
|
|
—
|
|
|
148,932
|
|
|
239,467
|
|
|
28,609
|
|
|
—
|
|
|
268,076
|
|
|
West
|
|
5,395
|
|
|
862
|
|
|
|
|
—
|
|
|
6,257
|
|
|
10,283
|
|
|
1,999
|
|
|
—
|
|
|
12,282
|
|
|
International
|
|
12,794
|
|
|
—
|
|
|
|
|
—
|
|
|
12,794
|
|
|
25,213
|
|
|
—
|
|
|
—
|
|
|
25,213
|
|
|
|
|
$
|
268,839
|
|
|
$
|
23,306
|
|
|
|
|
$
|
—
|
|
|
$
|
292,145
|
|
|
$
|
477,820
|
|
|
$
|
42,727
|
|
|
$
|
—
|
|
|
$
|
520,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(c) Long-Lived Assets with Definite Lives
Property and equipment, inclusive of equipment under finance lease, are generally stated at cost.
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. Management determines the estimate of the useful lives and salvage values of property and equipment on expected utilization, technological change and effectiveness of its maintenance programs. Depreciation methods, useful lives and residual values are reviewed annually or as needed based on activities related to specific assets. When components of an item of property and equipment are identifiable and have different useful lives, they are accounted for separately as major components of property and equipment.
Gains and losses on disposal of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized net within operating costs and expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
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.
Leasehold improvements are assigned a useful life equal to the term of the related lease, or its expected period of use.
In the first quarter of 2021, the Company reassessed the estimated useful lives of select machinery and equipment, concluding that due to a decrease in service intensity for select machinery and equipment driven by operational parameters required to maximize natural gas substitution and longer major component lives attributable to equipment health monitoring and predictive maintenance from our proprietary digital NexHub platform and data science efforts, the useful lives of select machinery and equipment should be increased by 1-2 years depending on the specific asset class. In accordance with ASC 250, “Accounting Changes and Error Corrections,” the change in the estimated useful lives of the Company’s property and equipment was accounted for as a change in accounting estimate, on a prospective basis, effective January 1, 2021. This change resulted in a decrease in depreciation expense and decrease in net loss during the three and six months ended June 30, 2021 of $9.5 million and 21.6 million, respectively, in the Consolidated Statement of Operations and Comprehensive Loss.
On May 9, 2021, one of the Company’s hydraulic frac fleets operating in the Permian Basin was involved in an accidental fire, which resulted in a complete loss of the equipment; no parties were injured as a result of this incident. As of June 30, 2021, the Company recognized a $21.7 million receivable related to insurance proceeds in other current assets for replacement costs of the damaged equipment, which offsets the $12.0 million loss recognized on the damaged equipment and costs to remove the equipment. The resulting gain of $9.7 million was recognized in other income (expense), net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Amortization on definite-lived intangible assets is calculated on the straight-line method over the estimated useful lives of the assets, which range from 2 to 15 years. The majority of the Company's definite lived intangible assets include customer contracts and technology.
Property and equipment and definite-lived intangible assets (“Long-lived Assets”) are evaluated on a quarterly basis to identify events or changes in circumstances, referred to as triggering events that indicate the carrying value of certain property and equipment may not be recoverable or 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 Long-lived Asset 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, except for an entity level asset group for Long-lived Assets that do not have identifiable independent cash flows. Estimates of undiscounted future net cash flows of assets groups are 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 take into account known market conditions as of the assessment date, and management’s anticipated business outlook. A terminal period is used to reflect an estimate of stable, perpetual growth. If the estimated undiscounted future net cash flows for a given asset group is less than the carrying amount of the asset groups, an impairment loss is determined by comparing the estimated fair value with the carrying value of the related asset groups. 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 pandemic 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 future net cash flow for all asset groups was greater than the carrying amount of their related assets and no impairment loss was recorded.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
The Company did not recognize any impairment charges related to the Company’s long-lived assets for the three and six months ended June 30, 2021 or 2020.
(d) Leases
In accordance with ASU 2016-02, the Company considers any contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration to be a lease. The Company determines whether the contract into which it has entered is a lease at the lease commencement date. Rental arrangements with term lengths of one month or less are expensed as incurred, but not recognized as qualifying leases.
For lessees, leases can be classified as finance leases or operating leases, while for lessors, leases can be classified as sales-type leases, direct financing leases or operating leases. As lessee, all leases, with the exception of short-term leases, are capitalized on the balance sheet by recording a lease liability, which represents the Company's obligation to make lease payments arising from the lease and a right-of-use asset, which represents the Company's right to use the underlying asset being leased.
For leases in which the Company is the lessee, the Company uses a collateralized incremental borrowing rate to calculate the lease liability, as for most leases, the implicit rate in the lease is unknown. The collateralized incremental borrowing rate is based on a yield curve over various term lengths that approximates the borrowing rate the Company would receive if it collateralized its lease arrangements with all of its assets. For leases in which the Company is the lessor, the Company uses the rate implicit in the lease.
For finance leases, the Company amortizes the right-of-use asset on a straight-line basis over the earlier of the useful life of the right-of-use asset or the end of the lease term and records this amortization in rent expense on the Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company adjusts the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the Condensed Consolidated Statements of Operations and Comprehensive Loss. For operating leases, the Company recognizes one single lease cost, comprised of the lease payments and amortization of any associated initial direct costs, within rent expense on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Variable lease costs not included in the determination of the lease liability at the commencement of a lease are recognized in the period when the specified target that triggers the variable lease payments becomes probable.
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.
(e) Derivative Instruments and Hedging Activities
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 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 loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
The Company discontinues hedge accounting prospectively, when it determines that the derivative is no longer highly effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the originally forecasted transaction is no longer probable of occurring or if management decides to remove the designation of the cash flow hedge. The net derivative instrument gain or loss related to a discontinued cash flow hedge shall continue to be reported in accumulated other comprehensive loss and reclassified into earnings in the same period or periods during which the originally hedged transaction affects earnings, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period. When it is probable that the originally forecasted transaction will not occur by the end of the originally specified time period, the Company recognizes immediately, in earnings, any gains and losses related to the hedging relationship that were recognized in accumulated other comprehensive loss. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the consolidated balance sheets and recognizes any subsequent changes in the derivative’s fair value in 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. For additional detailed information regarding derivatives, see Note (7) Derivatives.
(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.
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 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 (9) Stock-Based Compensation.
(3) Goodwill
Goodwill is allocated across three reporting units: Completion Services, Well Construction and Intervention Services and Well Support Services reporting units. 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.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
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 impairment testing methodologies for the first quarter 2020 are discussed below.
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 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.
During the first and second quarters of 2021, the Company assessed and determined there were no triggering events.
During the second quarter of 2021, the Company completed an acquisition for total cash consideration of $2.5 million. The transaction resulted in additional goodwill of $0.7 million recorded under the Completion Services reporting unit.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
(4) Inventories, net
Inventories, net, consisted of the following as of June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
Sand, including freight
|
|
$
|
6,358
|
|
|
$
|
5,096
|
|
|
Chemicals and consumables
|
|
3,771
|
|
|
2,993
|
|
|
Materials and supplies
|
|
20,845
|
|
|
21,979
|
|
|
|
|
|
|
|
|
Total inventory, net
|
|
$
|
30,974
|
|
|
$
|
30,068
|
|
Inventories are reported net of obsolescence reserves of $4.8 million and $4.4 million as of June 30, 2021 and December 31, 2020, respectively. The Company recognized $0.3 million and $2.4 million of obsolescence expense during the three months ended June 30, 2021 and 2020, respectively. The Company recognized $0.4 million and $3.7 million of obsolescence expense during the six months ended June 30, 2021 and 2020.
(5) Long-Term Debt
Long-term debt at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
2018 Term Loan Facility
|
|
$
|
339,500
|
|
|
$
|
341,250
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discount and debt issuance costs
|
|
(5,094)
|
|
|
(5,710)
|
|
|
Total debt, net of unamortized debt discount and debt issuance costs
|
|
334,406
|
|
|
335,540
|
|
|
Less: Current portion
|
|
(2,282)
|
|
|
(2,252)
|
|
|
Long-term debt, net of unamortized debt discount and debt issuance costs
|
|
$
|
332,124
|
|
|
$
|
333,288
|
|
Below is a summary of the Company’s credit facilities outstanding as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
2019 ABL Facility
|
|
2018 Term Loan Facility
|
|
Original facility size
|
|
$
|
450,000
|
|
|
$
|
350,000
|
|
|
Outstanding balance
|
|
$
|
—
|
|
|
$
|
339,500
|
|
|
Letters of credit issued
|
|
$
|
23,450
|
|
|
$
|
—
|
|
|
Available borrowing base commitment
|
|
$
|
121,634
|
|
|
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:
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
Year-end December 31,
|
|
|
|
2021
|
|
$
|
1,750
|
|
|
2022
|
|
3,500
|
|
|
2023
|
|
3,500
|
|
|
2024
|
|
3,500
|
|
|
2025
|
|
327,250
|
|
|
|
|
$
|
339,500
|
|
ABL Revolving Credit Facility
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”). Deferred charges associated with the 2019 ABL Facility were capitalized and totaled $1.2 million. In connection with the modification of the 2017 ABL Facility, the Company wrote off $0.5 million of deferred financing costs. The remaining deferred financing costs related to the 2017 ABL Facility will be amortized over the life of the 2019 ABL Facility. Unamortized deferred charges associated with the 2019 and 2017 ABL Facilities were $2.7 million and $3.1 million as of June 30, 2021 and December 31, 2020, respectively, and are recorded in other noncurrent assets on the consolidated balance sheets. 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.
(6) 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, 2021 and 2020, sales to Completion Services customers represented 92% and 91% of the Company's consolidated revenue, respectively. During the six months ended June 30, 2021 and 2020, sales to Completion Services customers represented 92% and 84% of the Company's consolidated revenue.
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.
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 of 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. As a result, from the first quarter of 2020 to the first quarter of 2021, the average U.S. active rig count decreased by approximately 50% to 393 rigs.
U.S. rig count activity in the second quarter of 2021 increased approximately 15% versus the average U.S. rig count in the first quarter of 2021, while the U.S. rig count at the end of the second quarter of 2021 was approximately 93% higher than the low recorded in August 2020. Completions activity has improved significantly relative to the trough in activity realized in 2020, and supply and demand dynamics are improving. However, the market remains highly competitive and structural startup inefficiencies
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
resulted from the level of concentrated growth experienced during the second quarter of 2021. We expect further improvement in frac schedules with more dedicated work as customers return to their typical cadence of completions against the backdrop of considerably improved commodity prices.
Significant customers are those that individually account for 10% or more of the Company's consolidated revenue or total accounts receivable. The Company had one significant customer during the three months ended June 30, 2021 and two significant customers during the three months ended June 30, 2020. For the three months ended June 30, 2021 and 2020, revenue from the Company's significant customers accounted for 11% and 49% of the Company's consolidated revenue, respectively. For the six months ended June 30, 2021 and 2020 the Company had one customer that accounted for 10% and 13% of the Company's consolidated revenue, respectively.
For the three months ended June 30, 2021, purchases from the Company's top two suppliers combined represented approximately 13% of the Company's overall purchases, while for the six months ended June 30, 2021, the Company's top supplier represented approximately 7% of the Company's overall purchases. For the three months ended June 30, 2020, purchases from each of the Company's top three suppliers represented approximately 5% to 10% of the Company's overall purchases, while for the six months ended June 30, 2020 the Company's top supplier represented approximately 6% of the Company's overall purchases.
(7) 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 were accompanied by a make-whole guarantee at par value, which guaranteed the payment of $34.4 million to NexTier after the WSS Notes were held to the one-year anniversary of March 9, 2021. The cash equivalent make-whole was 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 was 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 are recognized in net income. The fair value of the WSS Notes and make-whole guarantee were recorded in Other Current Assets. See Note (13) Business Segments for further discussion.
On March 31, 2021, the Company received a $34.4 million cash payment from Ascribe in full settlement of the WSS Notes and the make-whole guarantee. At the time of the cash payment, the WSS Notes and make-whole guarantee had a fair value of $33.6 million, resulting in a realized gain on settlement of $0.8 million. This gain is recorded within other income (expense) on the Consolidated Statements of Operations and Comprehensive Loss.
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. In June 2018, the Company executed a new off-market interest rate swap effective through March 31, 2025 to hedge 50% of its expected LIBOR exposure matching the swap to the 1-month LIBOR, 1% floor, of the 2018 Term Loan Facility, and terminated the pre-existing interest rate swaps. After completing all appropriate accounting treatment, including the $3.5 million of deferred gains in accumulated other comprehensive loss for the pre-existing interest rate, the new interest rate swap was designated in a new cash flow hedge relationship.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
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, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liability
|
$
|
(2,862)
|
|
$
|
—
|
|
$
|
(2,862)
|
|
$
|
—
|
|
$
|
(2,862)
|
|
Other noncurrent liability
|
(5,999)
|
|
—
|
|
(5,999)
|
|
—
|
|
(5,999)
|
|
As of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current asset
|
$
|
—
|
|
$
|
27,243
|
|
$
|
27,243
|
|
$
|
—
|
|
$
|
27,243
|
|
Other current liability
|
(2,861)
|
|
—
|
|
(2,861)
|
|
—
|
|
(2,861)
|
|
Other noncurrent liability
|
(8,260)
|
|
—
|
|
(8,260)
|
|
—
|
|
(8,260)
|
|
|
|
|
|
|
|
|
|
|
|
(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.
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,
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Location
|
|
Amount of gain (loss) recognized in total other comprehensive loss on derivative
|
|
$
|
(515)
|
|
|
$
|
(2,654)
|
|
|
$
|
831
|
|
|
$
|
(5,615)
|
|
|
OCI
|
|
Amount of loss reclassified from accumulated other comprehensive loss into earnings
|
|
(683)
|
|
|
(648)
|
|
|
(1,349)
|
|
|
(989)
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
The gain (loss) recognized in other comprehensive loss for the derivative instrument is presented within hedging activities in the 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, 2021, $2.8 million of net losses will be reclassified from accumulated other comprehensive loss into earnings within the next 12 months.
See Note (8) Fair Value Measurements and Financial Information for discussion on fair value measurements related to the Company's derivative instruments.
(8) 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, 2021, the Company's financial instruments consisted of cash and cash equivalents, accounts receivable, equity security investments, accounts payable, accrued expenses, derivative instruments, long-term debt and lease obligations. As of June 30, 2021 and December 31, 2020, the carrying values of the Company's financial instruments, included in its condensed consolidated balance sheets, approximated or equaled their fair values.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Recurring Fair Value Measurement
As of June 30, 2021 the Company has two financial instruments measured at fair value on a recurring basis which are its interest rate derivative, see Note (7) Derivatives above, and its equity security investment. The equity security investment is composed primarily of common equity shares in a publicly traded company, acquired at a fair value of $5.3 million. During the three and six months ended June 30, 2021, the Company recognized an unrealized gain of $1.3 million and an unrealized loss of $2.7 million, respectively, on its equity security investment, which is recorded within other income (expense) on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
As of December 31, 2020, the Company had four financial instrument measured on a recurring basis which was its interest rate derivative, make-whole derivative, WSS Notes, see Note (7) Derivatives above, and equity security investment. The interest rate derivative, make-whole derivative, WSS Notes, and the equity security investment are presented within other current assets in the condensed consolidated balance sheets.
The fair market value of the financial instruments reflected on the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 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, 2021 and December 31, 2020 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
|
June 30, 2021
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Equity security investment
|
|
$
|
5,223
|
|
$
|
5,223
|
|
$
|
—
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative
|
|
$
|
(8,861)
|
|
$
|
—
|
|
$
|
(8,861)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Make-whole derivative
|
|
$
|
27,243
|
|
$
|
—
|
|
$
|
27,243
|
|
$
|
—
|
|
WSS Note
|
|
6,322
|
|
—
|
|
6,322
|
|
—
|
|
Equity security investment
|
|
11,263
|
|
11,263
|
|
—
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Interest rate derivative
|
|
$
|
(11,121)
|
|
$
|
—
|
|
$
|
(11,121)
|
|
$
|
—
|
Non-Recurring Fair Value Measurement
At March 31, 2020 and September 30, 2020, the Company determined the reductions in commodity prices driven by the 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. After further evaluation, the Company recognized impairment expense of $32.6 million and no impairment expense in the first and third quarter of 2020, respectively. See Note (3) Goodwill. The Company assessed and determined there were no triggering events during the other two quarters in 2020.
During the first and second quarter of 2021, the Company assessed and determined there were no triggering events.
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.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
The Company's cash balances on deposit with financial institutions totaled $250.4 million and $276.0 million as of June 30, 2021 and December 31, 2020, respectively, which exceeded Federal Deposit Insurance Corporation insured limits. The Company regularly monitors these institutions' financial condition.
The credit risk from the derivative contracts 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 to 60 days. 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, 2021, trade receivables from two customers individually represented 10% or more and collectively represented 25% of the Company's total trade receivables. As of December 31, 2020, trade receivables from the Company's top customer individually represented 17% of the Company's total trade receivables. 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, 2021, the Company had $1.7 million in allowance for credit losses. As of December 31, 2020, the Company had $2.7 million in allowance for credit losses, including the increase of $1.5 million from the adoption of ASU 2016-13. The Company recognized $2.4 million and $1.2 million of bad debts, net of recoveries during the three and six months ended June 30, 2021, respectively. 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.
(9) 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, 2021, the Company has four types of stock-based compensation outstanding under its Equity Award Plans: (i) restricted stock awards issued to independent directors and certain executives and employees, (ii) restricted stock units issued to executive officers and key management employees, (iii) non-qualified stock options issued to executive officers and (iv) performance-based stock units issued to executive officers and key management employees.
The following table summarizes stock-based compensation costs for the three and six months ended June 30, 2021 and 2020 (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Restricted stock awards
|
|
|
|
|
|
$
|
430
|
|
|
$
|
361
|
|
|
$
|
765
|
|
|
$
|
786
|
|
|
Restricted stock time-based unit awards
|
|
|
|
|
|
2,953
|
|
|
7,554
|
|
|
6,218
|
|
|
12,714
|
|
|
Non-qualified stock options
|
|
|
|
|
|
2
|
|
|
468
|
|
|
76
|
|
|
704
|
|
|
Restricted stock performance-based unit awards
|
|
|
|
|
|
1,504
|
|
|
1,140
|
|
|
3,033
|
|
|
2,199
|
|
|
Equity-based compensation cost
|
|
|
|
|
|
4,889
|
|
|
9,523
|
|
|
10,092
|
|
|
16,403
|
|
|
Tax Benefit
|
|
|
|
|
|
(1,173)
|
|
|
(2,287)
|
|
|
(2,422)
|
|
|
(3,938)
|
|
|
Equity-based compensation cost, net of tax
|
|
|
|
|
|
$
|
3,716
|
|
|
$
|
7,236
|
|
|
$
|
7,670
|
|
|
$
|
12,465
|
|
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Performance-based RSU awards
During the first and second quarter of 2021, the Company issued 550,899 and 1,473,736 of performance based RSUs to executive officers under its Equity Award Plans, which were fair valued at $3.2 million and $13.7 million using a Monte Carlo simulation method. 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 0% to 200% 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, 2021, total unamortized compensation cost related to unvested performance-based RSUs was $16.2 million, which the Company expects to recognize over the weighted-average period of 2.5 years.
(10) 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.
A reconciliation of the numerators and denominators used for the basic and diluted net income (loss) per share computations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,781)
|
|
|
$
|
(112,488)
|
|
|
$
|
(86,283)
|
|
|
$
|
(184,244)
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding(1)
|
|
215,443
|
|
|
213,760
|
|
|
215,278
|
|
|
213,301
|
|
|
Dilutive effect of restricted stock awards granted to Board of Directors
|
|
13
|
|
|
147
|
|
|
6
|
|
|
134
|
|
|
Dilutive effect of time-based restricted stock awards granted under the Equity Plan
|
|
1,163
|
|
|
—
|
|
|
1,321
|
|
|
727
|
|
|
Dilutive effect of performance-based restricted stock awards granted under the Equity Plan
|
|
1,480
|
|
|
936
|
|
|
1,351
|
|
|
859
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding(1)
|
|
$
|
218,099
|
|
|
$
|
214,843
|
|
|
217,956
|
|
|
215,021
|
|
(1) As a result of the net loss incurred by the Company for the three and six months ended June 30, 2021 and 2020, the calculation of diluted net loss per share gives no consideration to the potentially anti-dilutive securities shown in the above reconciliation, and as such is the same as basic net loss per share.
(11) Commitments and Contingencies
As of June 30, 2021 and December 31, 2020, the Company had $4.4 million and $4.9 million of deposits on equipment, including deposits acquired through the C&J Merger, respectively. Outstanding purchase commitments on equipment were $57.2 million and $23.4 million, as of June 30, 2021 and December 31, 2020, respectively.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
Aggregate minimum commitments under long-term raw material supply contracts for the next five years as of June 30, 2021 are listed below:
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
2021
|
$
|
15,654
|
|
|
2022
|
17,718
|
|
|
2023
|
5,700
|
|
|
2024
|
1,190
|
|
|
2025
|
—
|
|
|
|
$
|
40,262
|
|
Litigation
From time to time, the Company is subject to legal and administrative proceedings, settlements, investigations, claims and actions, as is typical of the industry. These claims include, but are not limited to, contract claims, environmental claims, employment related claims, claims alleging injury or claims related to operational issues. The Company's assessment of the likely outcome of litigation matters is based on its judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to the matter. In accordance with GAAP, the Company accrues for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on the Company's best estimate of the expected liability. The Company may increase or decrease its legal accruals in the future, on a matter-by-matter basis, to account for developments in such matters. Notwithstanding the uncertainty as to the final outcome and based upon the information currently available to it, the Company does not currently believe these matters in aggregate will have a material adverse effect on its financial position or results of operations.
Environmental
The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Company continues to monitor the status of these laws and regulations. Currently, the Company has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of the Company's business, material costs could be incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of the Company's liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or through indemnification.
Regulatory Audits
Prior to the consummation of the C&J Merger, the Company and C&J had been notified by certain state taxing authorities that these taxing authorities would be conducting routine sales and use tax audits of certain wholly owned operating subsidiaries of the Company for tax periods ranging from January 2011 through December 2019. As of December 31, 2020, the Company had recorded estimates of potential assessments for each audit totaling in the aggregate approximately $33.0 million. For one audit, in particular, the Company disagreed with many aspects of the state’s assessment and began to contest the state’s position through administrative procedures. During the first quarter of 2021, the Company obtained additional information that resulted in a reduction of the Company's accrual related to this tax audit by $13.3 million. During the second quarter of 2021, the Company further reduced the accrual related to this tax audit by $8.8 million, after taking into account additional information obtained, including refund claims relating to such periods. These reductions were recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
(12) Related Party Transactions
Cerberus Operations and Advisory Company, Cerberus Capital Management, L.P., and Cerberus Technology Solutions LLC, affiliates of the Company's principal equity holder, provide certain consulting services to the Company. The Company paid $0.1 million and $1.2 million during the three months ended June 30, 2021 and 2020, respectively, for these services. The Company paid $0.2 million and $1.8 million during the six months ended June 30, 2021 and 2020, respectively.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
(13) Business Segments
In accordance with Accounting Standard Codification (“ASC”) No. 280, Segment Reporting (“ASC 280”), the Company routinely evaluates whether its separate segments have changed. This determination is made based on the following factors: (1) the Company’s chief operating decision maker (“CODM”) is currently managing each operating segment as a separate business and evaluating the performance of each segment and making resource allocation decisions distinctly and expects to do so for the foreseeable future, and (2) discrete financial information for each operating segment is available.
In 2019, due to the transformative nature of the C&J Merger, the CODM changed the way in which the Company is managed, including the level at which to make performance evaluation and resource allocation decisions. Discrete financial information was created to provide the segment information necessary for the CODM to manage the Company under the revised operating segment structure. On March 9, 2020, the Company announced it had completed the divestiture of its Well Support Services segment. As a result of the changes to operating segments, the Company revised its reportable segments subsequent to the completion of the C&J Merger and Well Support Services segment divestiture. For the period from after the C&J merger and prior to the WSS divestiture, the Company’s revised reportable segments were: (i) Completion Services, (ii) Well Construction and Intervention (“WC&I”) and (iii) Well Support Services. Subsequent to the WSS divestiture, the Company's reportable segments were (i) Completion Services, and (ii) Well Construction and Intervention (“WC&I”) Services. This segment structure reflects the financial information and reports used by the Company’s management, specifically including its CODM, to make decisions regarding the Company’s business, including performance evaluation and resource allocation decisions. As a result of the revised reportable segment structure subsequent to the C&J merger, the Company has restated the corresponding items of segment information for all periods presented.
The following is a description of each reportable segment:
Completion Services
The Company’s Completion Services segment consists of the following businesses and service lines: (1) fracturing services; (2) wireline and pumpdown services; and (3) completion support services, which includes the Company's research and technology department.
Well Construction and Intervention Services
The Company’s WC&I Services segment consists of the following businesses and service lines: (1) cementing services and (2) coiled tubing services.
Historical Segment: Well Support Services
The Company’s Well Support Services segment consisted of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3) other specialty well site services. On March 9, 2020, the Company completed the divestiture of its Well Support Services segment 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. This resulted in a gain on divestiture of $8.7 million. The gain is recorded within (Gain) Loss on Disposal of Assets on the Condensed Consolidated Statements of Operations and Comprehensive Loss. Income per share for the three months ended March 31, 2020 attributable to the divested Well Support Services segment was less than $0.01. On July 29, 2020, the Company received the escrowed cash amount in final settlement for working capital reconciliation.
On March 31, 2021 the Company received a $34.4 million cash payment from Ascribe in full settlement of the WSS Notes and the make-whole guarantee. At the time of the cash payment, the WSS Notes and make-whole guarantee had a fair value of $33.6 million, resulting in a realized gain on settlement of $0.8 million recorded in other income (expense) on the Consolidated Statements of Operations and Comprehensive Loss.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
The following tables present financial information with respect to the Company’s segments. Corporate and Other represents costs not directly associated with a segment, such as interest expense, income taxes and corporate overhead. Corporate assets include cash, deferred financing costs, derivatives and entity-level machinery equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operations by business segment
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Completion Services
|
|
$
|
268,839
|
|
|
$
|
178,977
|
|
|
$
|
477,820
|
|
|
$
|
691,848
|
|
|
WC&I
|
|
23,306
|
|
|
17,250
|
|
|
42,727
|
|
|
74,075
|
|
|
Well Support Services
|
|
—
|
|
|
—
|
|
|
—
|
|
|
57,929
|
|
|
Total revenue
|
|
$
|
292,145
|
|
|
$
|
196,227
|
|
|
$
|
520,547
|
|
|
$
|
823,852
|
|
|
Adjusted gross profit:
|
|
|
|
|
|
|
|
|
|
Completion Services(1)
|
|
$
|
20,361
|
|
|
$
|
31,655
|
|
|
$
|
35,775
|
|
|
$
|
129,531
|
|
|
WC&I(1)
|
|
2,756
|
|
|
812
|
|
|
4,432
|
|
|
9,596
|
|
|
Well Support Services(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,338
|
|
|
Total adjusted gross profit
|
|
$
|
23,117
|
|
|
$
|
32,467
|
|
|
$
|
40,207
|
|
|
$
|
151,465
|
|
|
Operating loss:
|
|
|
|
|
|
|
|
|
|
Completion Services
|
|
$
|
(14,298)
|
|
|
$
|
(46,918)
|
|
|
$
|
(39,405)
|
|
|
$
|
(60,020)
|
|
|
WC&I
|
|
1,551
|
|
|
(6,230)
|
|
|
672
|
|
|
(3,219)
|
|
|
Well Support Services
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,940
|
|
|
Corporate and Other
|
|
(23,934)
|
|
|
(55,755)
|
|
|
(44,668)
|
|
|
(122,457)
|
|
|
Total operating loss
|
|
$
|
(36,681)
|
|
|
$
|
(108,903)
|
|
|
$
|
(83,401)
|
|
|
$
|
(174,756)
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
Completion Services
|
|
$
|
33,193
|
|
|
$
|
65,888
|
|
|
$
|
70,772
|
|
|
$
|
141,428
|
|
|
WC&I
|
|
3,143
|
|
|
4,818
|
|
|
6,815
|
|
|
9,091
|
|
|
Well Support Services
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,527
|
|
|
Corporate and Other
|
|
4,335
|
|
|
4,554
|
|
|
8,952
|
|
|
9,035
|
|
|
Total depreciation and amortization
|
|
$
|
40,671
|
|
|
$
|
75,260
|
|
|
$
|
86,539
|
|
|
$
|
161,081
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
|
Completion Services
|
|
$
|
(14,298)
|
|
|
$
|
(46,918)
|
|
|
$
|
(39,405)
|
|
|
$
|
(60,020)
|
|
|
WC&I
|
|
1,551
|
|
|
(6,230)
|
|
|
672
|
|
|
(3,219)
|
|
|
Well Support Services
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,940
|
|
|
Corporate and Other
|
|
(19,034)
|
|
|
(59,340)
|
|
|
(47,550)
|
|
|
(131,945)
|
|
|
Total net loss
|
|
$
|
(31,781)
|
|
|
$
|
(112,488)
|
|
|
$
|
(86,283)
|
|
|
$
|
(184,244)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjusted gross profit (loss) at the segment level is not considered to be a non-GAAP financial measure as it is the Company's segment measure of profitability and is required to be disclosed under GAAP pursuant to ASC 280. Adjusted gross profit (loss) is defined as revenue less cost of services, further adjusted to eliminate items in cost of services that management does not consider in assessing ongoing performance.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
Revenue
|
|
$
|
268,839
|
|
|
$
|
23,306
|
|
|
$
|
—
|
|
|
$
|
292,145
|
|
|
$
|
477,820
|
|
|
$
|
42,727
|
|
|
$
|
—
|
|
|
$
|
520,547
|
|
|
Cost of Services
|
|
248,585
|
|
|
20,675
|
|
|
—
|
|
|
269,260
|
|
|
448,265
|
|
|
38,772
|
|
|
—
|
|
|
487,037
|
|
|
Gross profit excluding depreciation and amortization
|
|
20,254
|
|
|
2,631
|
|
|
—
|
|
|
22,885
|
|
|
29,555
|
|
|
3,955
|
|
|
—
|
|
|
33,510
|
|
|
Management adjustments associated with cost of services(1)
|
|
107
|
|
|
125
|
|
|
—
|
|
|
232
|
|
|
6,220
|
|
|
477
|
|
|
—
|
|
|
6,697
|
|
|
Adjusted gross profit
|
|
$
|
20,361
|
|
|
$
|
2,756
|
|
|
$
|
—
|
|
|
$
|
23,117
|
|
|
$
|
35,775
|
|
|
$
|
4,432
|
|
|
$
|
—
|
|
|
$
|
40,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjustments relate to market-driven severance, leased facility closures, and restructuring costs incurred as a result of significant declines in crude oil prices resulting from demand destruction from the COVID-19 pandemic and global oversupply.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
Completion Services
|
|
WC&I
|
|
Well Support Services
|
|
Total
|
|
Revenue
|
|
$
|
178,977
|
|
|
$
|
17,250
|
|
|
$
|
—
|
|
|
$
|
196,227
|
|
|
$
|
691,848
|
|
|
$
|
74,075
|
|
|
$
|
57,929
|
|
|
$
|
823,852
|
|
|
Cost of Services
|
|
159,149
|
|
|
19,622
|
|
|
—
|
|
|
178,771
|
|
|
576,531
|
|
|
68,875
|
|
|
45,591
|
|
|
690,997
|
|
|
Gross profit excluding depreciation and amortization
|
|
19,828
|
|
|
(2,372)
|
|
|
—
|
|
|
17,456
|
|
|
115,317
|
|
|
5,200
|
|
|
12,338
|
|
|
132,855
|
|
|
Management adjustments associated with cost of services(2)
|
|
11,827
|
|
|
3,184
|
|
|
—
|
|
|
15,011
|
|
|
14,214
|
|
|
4,396
|
|
|
—
|
|
|
18,610
|
|
|
Adjusted gross profit
|
|
$
|
31,655
|
|
|
$
|
812
|
|
|
$
|
—
|
|
|
$
|
32,467
|
|
|
$
|
129,531
|
|
|
$
|
9,596
|
|
|
$
|
12,338
|
|
|
$
|
151,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) Adjustments relate to market-driven severance and restructuring costs incurred as a result of significant declines in crude oil prices resulting from demand destruction from the COVID-19 pandemic and global oversupply.
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Total assets by segment:
|
|
|
|
|
|
Completion Services
|
|
$
|
713,344
|
|
|
$
|
689,814
|
|
|
WC&I
|
|
62,503
|
|
|
62,959
|
|
|
Well Support Services
|
|
—
|
|
|
—
|
|
|
Corporate and Other
|
|
361,695
|
|
|
405,115
|
|
|
Total assets
|
|
$
|
1,137,542
|
|
|
$
|
1,157,888
|
|
|
Goodwill by segment:
|
|
|
|
|
|
Completion Services
|
|
$
|
104,931
|
|
|
$
|
104,198
|
|
|
WC&I
|
|
—
|
|
|
—
|
|
|
Well Support Services
|
|
—
|
|
|
—
|
|
|
Corporate and Other
|
|
—
|
|
|
—
|
|
|
Total goodwill
|
|
$
|
104,931
|
|
|
$
|
104,198
|
|
(14) New Accounting Pronouncements
(a) Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board issued ASU No 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard on January 1, 2021, and there was no impact on the financial statements.
(b) Recently Issued Accounting Standards
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848)”. ASU 2021-10 expands on the US GAAP guidance on contract modifications and hedge accounting related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This standard is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In October 2020, the FASB issued ASU 2020-10 ‘Codification Improvements”. ASU 2020-10 improves the clarity and consistency of various provisions in the Codification. The Company does not expect ASU 2020-10 to have any impact on the its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06 "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06"). ASU 2020-06 simplifies the guidance on the issuer's accounting for convertible debt instruments and convertible preferred stock. The Company does not expect ASU 2020-06 to have any impact on the Company's consolidated financial statements.
In June 2020, the FASB issued ASU 2020-05, "Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities," which provides a limited deferral of the effective dates of "Revenue from Contracts with Customers (ASC 606)" and "Leases (ASC 842)" to provide immediate, near-term relief for certain entities for whom these updates are either currently effective or imminently effective. The Company does not expect ASU 2020-05 to have any impact on the Company's consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This standard is effective beginning on March 12, 2020, and the Company may
NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES
Notes to the Unaudited Condensed Consolidated Financial Statements
elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.
In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)," which clarifies the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. This standard is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. This standard is effective for fiscal years beginning after December 15, 2021 and the adoption is not expected to have any impact on the Company's consolidated financial statements.
(15) Subsequent Events
On August 4, 2021, the Company and one of its wholly owned subsidiaries executed a purchase agreement with Alamo Frac Holdings, LLC to acquire 100% of the issued and outstanding equity interest of Alamo Pressure Pumping, LLC. The Company expects the transaction to close by the end of August 2021. Alamo Pressure Pumping, LLC and its wholly owned subsidiaries are engaged in the business of providing hydraulic fracturing and pump down services with a focus on next-gen equipment. The acquisition aligns with the Company’s low-cost, low carbon strategy, further establishes the Company as an early-adopter and leader in next-gen, and creates a leading Permian completions company.
Total purchase price for the acquisition includes approximately $100 million in cash before transaction costs, escrowed amounts, and subject to customary working capital adjustments, 26 million of the Company’s newly-issued common shares, $30 million in a post-closing service agreement, in addition to potential earn-out payments.
The foregoing description of the purchase price does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, which was filed in the Company's Current Report on Form 8-K filed on August 4, 2021.