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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38035
______________________________
ProPetro Holding Corp.
(Exact name of registrant as specified in its charter)
______________________________
Delaware
 
26-3685382
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1706 South Midkiff,
Midland, Texas 79701
(Address of principal executive offices)
(432) 688-0012
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
PUMP
New York Stock Exchange
Preferred Stock Purchase Rights
N/A
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
The number of the registrant’s common shares, par value $0.001 per share, outstanding at July 31, 2020, was 100,898,445.



PROPETRO HOLDING CORP.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

-i-


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
          This Quarterly Report on Form 10-Q (this "Form 10-Q") contains forward-looking statements that are intended to be covered by the safe harbor provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of Section 21E of the Exchange Act. Forward-looking statements are all statements other than statements of historical facts, and give our expectations or forecasts of future events as of the effective date of this Form 10-Q. Words such as "may," "could," "plan," "project," "budget," "predict," "pursue," "target," "seek," "objective," "believe," "expect," "anticipate," "intend," "estimate," "will," "should" and similar expressions are generally to identify forward-looking statements. These statements include, but are not limited to statements about our business strategy, industry, future profitability and future capital expenditures. Such statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those implied or projected by the forward-looking statements. Factors that could cause our actual results to differ materially from those contemplated by such forward-looking statements include:
the severity and duration of world health events, including the recent outbreak of the novel coronavirus (“COVID-19”) pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which is negatively impacting our business;
the current significant surplus in the supply of oil and actions by the members of the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia (together with OPEC and other allied producing countries, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels, including the ability of the OPEC+ countries to agree on and comply with supply limitations;
uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for our services;
the level of production and resulting market prices for crude oil, natural gas and other hydrocarbons;
changes in general economic and geopolitical conditions;
competitive conditions in our industry;
changes in the long-term supply of, and demand for, oil and natural gas;
actions taken by our customers, suppliers, competitors and third-party operators;
changes in the availability and cost of capital;
our ability to successfully implement our business plan;
large or multiple customer defaults, including defaults resulting from actual or potential insolvencies;
the price and availability of debt and equity financing (including changes in interest rates);
our ability to complete growth projects on time and on budget;
operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, protecting the health and well-being of our employees, remote work arrangements, performance of contracts and supply chain disruptions;
changes in our tax status;
technological changes;
our ability to successfully implement technological developments and enhancements, including the new DuraStim® hydraulic fracturing equipment and associated power solutions;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
acts of terrorism, war or political or civil unrest in the United States or elsewhere;
the effects of existing and future laws and governmental regulations (or the interpretation thereof);
the effects of current and future litigation, including the Logan Lawsuit, the Shareholder Derivative Lawsuit (each defined herein);
the timing and outcome of, including potential expense associated with, the U.S. Securities and Exchange Commission ("SEC") pending investigation;

-ii-


the potential impact on our business and stock price of any announcements regarding the SEC's pending investigation, the Logan Lawsuit or the Shareholder Derivative Lawsuit;
the material weaknesses in our internal controls over financial reporting and disclosure controls and procedures, as well as the implementation and effectiveness of the Company's remediation plan described under Part I, Item 4, “Controls and Procedure” in this Form 10-Q; and
our ability to successfully execute on our plans and objectives.
          Whether actual results and developments will conform with our expectations and predictions contained in forward-looking statements is subject to a number of risks and uncertainties which could cause actual results to differ materially from such expectations and predictions, including, without limitation, in addition to those specified in the text surrounding such statements, the risks described under Part II, Item 1A, "Risk Factors" in this Form 10-Q and elsewhere throughout this report, the risks described under Part I, Item 1A, "Risk Factors" in our Form 10-K for the year ended December 31, 2019, filed with the SEC (the "Form 10-K") and elsewhere throughout that report, and other risks, many of which are beyond our control.
          Readers are cautioned not to place undue reliance on our forward-looking statements, which are made as of the effective date of this Form 10-Q. We do not undertake, and expressly disclaim, any duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws. Investors are also advised to carefully review and consider the various risks and other disclosures discussed in our SEC reports, including the risk factors described in the Form 10-K.

-iii-


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
 
June 30, 2020
 
December 31, 2019
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
37,306

 
$
149,036

Accounts receivable - net of allowance for credit losses of $1,497 and $1,049, respectively
 
65,554

 
212,183

Inventories
 
2,805

 
2,436

Prepaid expenses
 
5,061

 
10,815

Other current assets
 
1,103

 
1,121

Total current assets
 
111,829

 
375,591

PROPERTY AND EQUIPMENT - net of accumulated depreciation
 
978,749

 
1,047,535

OPERATING LEASE RIGHT-OF-USE ASSETS
 
851

 
989

OTHER NONCURRENT ASSETS:
 
 
 
 
Goodwill
 

 
9,425

Other noncurrent assets
 
2,173

 
2,571

Total other noncurrent assets
 
2,173

 
11,996

TOTAL ASSETS
 
$
1,093,602

 
$
1,436,111

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
31,233

 
$
193,096

Operating lease liabilities
 
317

 
302

Finance lease liabilities
 

 
2,831

Accrued and other current liabilities
 
27,719

 
36,343

Accrued interest payable
 

 
394

Total current liabilities
 
59,269

 
232,966

DEFERRED INCOME TAXES
 
95,268

 
103,041

LONG-TERM DEBT
 

 
130,000

NONCURRENT OPERATING LEASE LIABILITIES
 
636

 
799

Total liabilities
 
155,173

 
466,806

COMMITMENTS AND CONTINGENCIES (Note 10)
 


 


SHAREHOLDERS’ EQUITY:
 
 
 
 
Preferred stock, $0.001 par value, 30,000,000 shares authorized, none issued, respectively
 

 

Common stock, $0.001 par value, 200,000,000 shares authorized,100,889,230 and 100,624,099 shares issued, respectively
 
101

 
101

Additional paid-in capital
 
829,477

 
826,629

Retained earnings
 
108,851

 
142,575

Total shareholders’ equity
 
938,429

 
969,305

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
1,093,602

 
$
1,436,111


See notes to condensed consolidated financial statements.
1

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
REVENUE - Service revenue
 
$
106,109

 
$
529,494

 
$
501,178

 
$
1,075,673

COSTS AND EXPENSES
 
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
 
68,193

 
386,218

 
369,041

 
767,741

General and administrative (inclusive of stock-based compensation)
 
20,331

 
27,889

 
45,269

 
46,414

Depreciation and amortization
 
40,173

 
35,482

 
80,377

 
68,599

Impairment expense
 

 

 
16,654

 

Loss on disposal of assets
 
8,734

 
31,198

 
28,588

 
50,425

Total costs and expenses
 
137,431

 
480,787

 
539,929

 
933,179

OPERATING INCOME (LOSS)
 
(31,322
)
 
48,707

 
(38,751
)
 
142,494

OTHER EXPENSE:
 
 
 
 
 
 
 
 
Interest expense
 
(791
)
 
(2,026
)
 
(2,072
)
 
(3,928
)
Other expense
 
(267
)
 
(276
)
 
(271
)
 
(464
)
Total other expense
 
(1,058
)
 
(2,302
)
 
(2,343
)
 
(4,392
)
INCOME (LOSS) BEFORE INCOME TAXES
 
(32,380
)
 
46,405

 
(41,094
)
 
138,102

INCOME TAX (EXPENSE) BENEFIT
 
6,460

 
(10,272
)
 
7,370

 
(32,164
)
NET INCOME (LOSS)
 
$
(25,920
)
 
$
36,133

 
$
(33,724
)
 
$
105,938

 
 
 
 
 
 
 
 
 
NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
 
 
Basic
 
$
(0.26
)
 
$
0.36

 
$
(0.33
)
 
$
1.06

Diluted
 
$
(0.26
)
 
$
0.35

 
$
(0.33
)
 
$
1.02

 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
100,821

 
100,425

 
100,754

 
100,329

Diluted
 
100,821

 
104,379

 
100,754

 
104,181



See notes to condensed consolidated financial statements.
2

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)



 
 
Six Months Ended June 30, 2020
 
 
Common Stock
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Retained Earnings
 
Total
BALANCE - January 1, 2020
 
100,624

 
$
101

 
$
826,629

 
$
142,575

 
$
969,305

Stock-based compensation cost
 

 

 
471

 

 
471

Issuance of equity awards, net
 
154

 

 

 

 

Tax withholdings paid for net settlement of equity awards
 

 

 
(456
)
 

 
(456
)
Net loss
 

 

 

 
(7,804
)
 
(7,804
)
BALANCE - March 31, 2020
 
100,778

 
$
101

 
$
826,644

 
$
134,771

 
$
961,516

Stock-based compensation cost
 

 
$

 
$
2,962

 
$

 
$
2,962

Issuance of equity awards, net
 
111

 
$

 
$

 
$

 
$

Tax withholdings paid for net settlement of equity awards
 

 

 
(129
)
 

 
(129
)
Net loss
 

 
$

 
$

 
$
(25,920
)
 
$
(25,920
)
BALANCE - June 30, 2020
 
100,889

 
$
101

 
$
829,477

 
$
108,851

 
$
938,429


 
 
Six Months Ended June 30, 2019
 
 
Common Stock
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Retained Earnings (Accumulated Deficit)
 
Total
BALANCE - January 1, 2019
 
100,190

 
$
100

 
$
817,690

 
$
(20,435
)
 
797,355

Stock-based compensation cost
 

 

 
1,829

 

 
1,829

Issuance of equity awards, net
 
104

 

 
552

 

 
552

Net income
 

 

 

 
$
69,805

 
69,805

BALANCE - March 31, 2019
 
100,294

 
$
100

 
$
820,071

 
$
49,370

 
$
869,541

Stock-based compensation cost
 

 

 
2,840

 

 
2,840

Issuance of equity awards, net
 
257

 
1

 
522

 

 
523

Net income
 

 

 

 
36,133

 
36,133

BALANCE - June 30, 2019
 
100,551

 
101

 
823,433

 
85,503

 
909,037



See notes to condensed consolidated financial statements.
3

PROPETRO HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


 
 
Six Months Ended June 30,
 
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
(33,724
)
 
$
105,938

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
80,377

 
68,599

Impairment expense
 
16,654

 

Deferred income tax expense (benefit)
 
(7,773
)
 
30,937

Amortization of deferred debt issuance costs
 
270

 
269

Stock-based compensation
 
3,433

 
4,669

Provision for credit losses
 
448

 
475

Loss on disposal of assets
 
28,588

 
50,425

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
146,181

 
(168,999
)
Other current assets
 
1,613

 
596

Inventories
 
(369
)
 
1,274

Prepaid expenses
 
5,833

 
1,417

Accounts payable
 
(135,592
)
 
42,533

Accrued and other current liabilities
 
(8,635
)
 
12,299

Accrued interest
 
(394
)
 
419

Net cash provided by operating activities
 
96,910

 
150,851

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures
 
(80,702
)
 
(325,881
)
Proceeds from sale of assets
 
2,677

 
1,547

Net cash used in investing activities
 
(78,025
)
 
(324,334
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from borrowings
 

 
90,000

Repayments of borrowings
 
(130,000
)
 
(10,000
)
Payment of finance lease obligation
 
(30
)
 
(123
)
Repayments of insurance financing
 

 
(3,890
)
Proceeds from exercise of equity awards
 

 
1,075

Tax withholdings paid for net settlement of equity awards
 
(585
)
 

Net cash provided by (used in) financing activities
 
(130,615
)
 
77,062

NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(111,730
)
 
(96,421
)
CASH AND CASH EQUIVALENTS - Beginning of period
 
149,036

 
132,700

CASH AND CASH EQUIVALENTS - End of period
 
$
37,306

 
$
36,279



See notes to condensed consolidated financial statements.
4

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Basis of Presentation
          The accompanying condensed consolidated financial statements of ProPetro Holding Corp. and its subsidiary (the "Company," "we," "us" or "our") have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission ("SEC") for interim financial information and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements. Those adjustments (which consisted of normal recurring accruals) that are, in the opinion of management, necessary for a fair presentation of the results of the interim periods have been made. Results of operations for such interim periods are not necessarily indicative of the results of operations for a full year due to changes in market conditions and other factors. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Form 10-K filed with the SEC (our "Form 10-K").
Risks and Uncertainties
          As an oilfield services company, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the novel coronavirus (“COVID-19”) pandemic has, and is anticipated to continue to have, an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to the COVID-19 pandemic has resulted in a dramatic decline in the demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a collapse starting in early March 2020 as a direct result of failed negotiations between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia. In response to the global economic slowdown, OPEC had recommended a decrease in production levels in order to accommodate reduced demand. Russia rejected the recommendation of OPEC as a concession to U.S. producers. After the failure to reach an agreement, Saudi Arabia, a dominant member of OPEC, and other Persian Gulf OPEC members announced intentions to increase production and offer price discounts to buyers in certain geographic regions.
          As the breadth of the COVID-19 health crisis expanded throughout the month of March 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately. The associated impact on the energy industry has been adverse and continued to be exacerbated by the unresolved conflict regarding production. In the second week of April 2020, OPEC, Russia and certain other petroleum producing nations (“OPEC+”), reconvened to discuss the matter of production cuts in light of unprecedented disruption and supply and demand imbalances that expanded since the failed negotiations in early March 2020. Tentative agreements were reached to cut production by up to 10 million barrels of oil per day with allocations to be made among the OPEC+ participants. Some of these production cuts went into effect in the first half of May 2020, however, commodity prices remain depressed as a result of an increasingly utilized global storage network and near-term demand loss attributable to the COVID-19 health crisis and related economic slowdown.
         The combined effect of COVID-19 and the energy industry disruptions led to a decline in WTI crude oil prices of approximately 67 percent from the beginning of January 2020, when prices were approximately $62 per barrel, through the end of March 2020, when they were just above $20 per barrel. Overall crude oil price volatility has continued despite apparent agreement among OPEC+ regarding production cuts and as of July 31, 2020, the WTI price for a barrel of crude oil was approximately $41.
          Despite a significant decline in drilling and completion activities by U.S. producers starting in mid-March 2020, domestic supply is exceeding demand, which has led to significant operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the Gulf Coast region. The combined effect of the aforementioned factors is anticipated to have an adverse impact on the industry in general and our operations specifically.
          Since March 2020, we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity. The more significant actions that we have taken included: (i) canceling substantially all of our growth capital projects, (ii) significantly reducing our maintenance expenditures and field level consumable costs, (iii) reducing our workforce to follow our activity levels, (iv) efforts to manage our compensation costs, such as compensation reductions and short-term management of work schedules to minimize overtime costs and (v) negotiating more favorable payment terms with certain of our larger vendors and proactively managing our portfolio of accounts receivable.

-5-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)


Revenue Recognition
          The Company’s services are sold based upon contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following is a description of the principal activities, separated into our one reportable segment and "all other" category, from which the Company generates its revenue.
          Pressure Pumping — Pressure pumping consists of downhole pumping services, which includes hydraulic fracturing (inclusive of acidizing services) and cementing.
Hydraulic fracturing is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of shale wellbores. The process involves the injection of water, sand and chemicals under high pressure into shale formations. Our hydraulic fracturing contracts have one performance obligation, contracted total stages, satisfied over time. We recognize revenue over time using a progress output method, unit-of-work performed method, which is based on the agreed fixed transaction price and actual stages completed. We believe that recognizing revenue based on actual stages completed faithfully depicts how our hydraulic fracturing services are transferred to our customers over time. In addition, certain of our hydraulic fracturing equipment is entitled to daily idle fee charges if a customer were to idle committed hydraulic fracturing equipment. The Company recognizes revenue related to idle fee charges on a daily basis as the performance obligations are met.
Acidizing, which is part of our hydraulic fracturing operating segment, involves a well-stimulation technique where acid is injected under pressure into formations to form or expand fissures. Our acidizing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize acidizing revenue at a point-in-time, upon completion of the performance obligation.
Our cementing services use pressure pumping equipment to deliver a slurry of liquid cement that is pumped down a well between the casing and the borehole. Our cementing contracts have one performance obligation, satisfied at a point-in-time, upon completion of the contracted service when control is transferred to the customer. Jobs for these services are typically short term in nature, with most jobs completed in less than a day. We recognize cementing revenue at a point-in-time, upon completion of the performance obligation.
The transaction price for each performance obligation for all our pressure pumping services is fixed per our contracts with our customers.
           All Other— All other consists of our coiled tubing and drilling, which are all downhole well stimulation and completion/remedial services. The performance obligation for each of the services has a fixed transaction price which is satisfied at a point-in-time upon completion of the service when control is transferred to the customer. Accordingly, we recognize revenue at a point-in-time, upon completion of the service and transfer of control to the customer.
Accounts Receivable
          Accounts receivables are stated at the amount billed and billable to customers. At June 30, 2020 and December 31, 2019, accrued revenue (unbilled receivable) included as part of our accounts receivable was $6.5 million and $37.0 million, respectively. At June 30, 2020, the transaction price allocated to the remaining performance obligation for our partially completed hydraulic fracturing operations was $4.3 million, which is expected to be completed and recognized in one month following the current period balance sheet date, in our pressure pumping reportable segment.
Allowance for Credit Losses
          As of June 30, 2020, the Company had $1.5 million allowance for credit losses. Our allowance for credit losses is based on the evaluation of both our historic collection experience and the expected impact of currently deteriorating economic conditions for the oil and gas industry. We evaluated the historic loss experience on our accounts receivable and also considered separately customers with receivable balances that may be further impacted by current economic developments and market conditions. While the Company has not experienced significant credit losses in the past and has not yet seen material changes to the payment patterns of its customers, the Company cannot predict with any certainty the degree to which the impacts of the COVID-19 pandemic, including the potential impact of periodically adjusted borrowing base limits, level of hedged production,

-6-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation (Continued)


or unforeseen well shut-downs may affect the ability of its customers to timely pay receivables when due. Accordingly, in future periods, the Company may revise its estimates of expected credit losses.
          The table below shows a summary of allowance for credit losses during for the six months ended June 30, 2020.
($ in thousands)
 
 
 
Balance - January 1, 2020
$
1,049

Provision for credit losses during the period
4,291

Provision for credit losses no longer required
(3,843
)
Balance - June 30, 2020
$
1,497


Note 2 - Recently Issued Accounting Standards
Recently Issued Accounting Standards Adopted in 2020
             In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable and lease receivables. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarified that receivables arising from operating leases are not within the scope of ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842. ASU 2016-13 and ASU 2018-19 are effective for annual periods beginning after December 15, 2019. Effective January 1, 2020, the Company adopted ASU 2016-13 using the modified-retrospective approach, which allows for a cumulative-effect adjustment to the consolidated condensed balance sheet as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. The Company continuously evaluates customers based on risk characteristics, such as historical losses and current economic conditions. Due to the cyclical nature of the oil and gas industry, the Company often evaluates its customers’ estimated losses on a combination of historical losses and on case-by-case basis. There was no material impact to our condensed consolidated financial statements as a result of adoption of ASU 2016-13.
             In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020 and determined the adoption of this standard did not impact the Company’s condensed consolidated financial statements.
            In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test. As a result, under this ASU, an entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, although the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for impairment tests in fiscal years beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Effective January 1, 2020, we adopted this guidance and the adoption did not materially affect the Company's condensed consolidated financial statements. See Note 3 for additional disclosures relating to our goodwill impairment.
Recently Issued Accounting Standards Not Yet Adopted in 2020
          In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. 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 does not expect ASU 2019-12 to have a material effect on the Company’s condensed consolidated financial statements.

-7-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Recently Issued Accounting Standards (Continued)


            In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This guidance is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company’s condensed consolidated financial statements.
Note 3 - Fair Value Measurement
           Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.
          In determining fair value, the Company uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used, when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions other market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:
          Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these instruments does not entail a significant degree of judgment.
          Level 2 — Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
          Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
          A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
          Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued and other current liabilities, and long-term debt. The estimated fair value of our financial instruments at June 30, 2020 and December 31, 2019 approximated or equaled their carrying values as reflected in our condensed consolidated balance sheets.
Assets Measured at Fair Value on a Nonrecurring Basis
          Assets measured at fair value on a nonrecurring basis at June 30, 2020 and December 31, 2019, respectively, are set forth below:
($ in thousands)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated fair value measurements
 
 
 
 
Balance
 
Quoted prices in active market
(Level 1)
 
Significant other observable inputs (Level 2)
 
Significant other unobservable inputs (Level 3)
 
Total gains
(losses)
June 30, 2020:
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
$

 
$

 
$

 
$

 
$

Goodwill
 
$

 
$

 
$

 
$

 
$

December 31, 2019:
 
 
 
 
 
 
 
 
 
 
Property and equipment, net
 
$
2,000

 
$

 
$
2,000

 
$

 
$
(3,405
)
Goodwill
 
$

 
$

 
$

 
$

 
$



-8-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3 - Fair Value Measurement (Continued)

          In the first quarter of 2020, the negative future near-term outlook resulting from the continued idling of our Permian drilling assets and current market prices were indicative of potential impairment, resulting in the Company comparing the carrying value of the Permian drilling assets with its estimated fair value. We determined that the carrying value of the Permian drilling assets was greater than its estimated fair value, accordingly impairment expense of $1.1 million was recorded for our Permian drilling assets during the six months ended June 30, 2020.
          In 2019, the Company entered an agreement with its equipment manufacturer granting the Company the option to purchase additional 108,000 hydraulic horsepower (“HHP”) of DuraStim® equipment, with the purchase option expiring at different times through April 30, 2021. The option fee of $6.1 million, classified as a deposit for property and equipment as part of our pressure pumping reportable segment has been fully impaired and written off in the first quarter of 2020 because it is not probable that the Company will exercise the option to purchase the equipment given the current depressed crude oil prices and other market conditions that have resulted in a decline in the demand for our hydraulic fracturing services.
          The total non-cash property and equipment impairment charges recorded during the six months ended June 30, 2020 and 2019 in our hydraulic fracturing and drilling segments was $7.2 million and $0, respectively.
          We generally apply fair value techniques to our reporting units on a nonrecurring basis associated with valuing potential impairment loss related to goodwill. Our estimate of the reporting unit fair value is based on a combination of income and market approaches, Level 1 and 3, respectively, in the fair value hierarchy. The income approach involves the use of a discounted cash flow method, with the cash flow projections discounted at an appropriate discount rate. The market approach involves the use of comparable public companies' market multiples in estimating the fair value. Significant assumptions include projected revenue growth, capital expenditures, utilization, gross margins, discount rates, terminal growth rates, and weight allocation between income and market approaches. If the reporting unit's carrying amount exceeds its fair value, we consider goodwill impaired, and the impairment loss is calculated and recorded in the period. There were no additions to, or disposal of, goodwill during the six months ended June 30, 2020 and 2019. In the first quarter of 2020, the depressed crude oil prices and crude oil storage challenges faced in the U.S. oil and gas industry triggered the Company to perform an interim goodwill impairment test, and as a result, we compared the carrying value of the goodwill in our hydraulic fracturing reporting unit with the estimated fair value. Our impairment test also considered other relevant factors, including market capitalization and market participants' view of the oil and gas industry in reaching our conclusion that that carrying value of our goodwill in our pressure pumping reportable segment of $9.4 million is fully impaired. Accordingly, we recorded a goodwill impairment expense of $9.4 million during the six months ended June 30, 2020. There was no goodwill impairment expense during the three and six months ended June 30, 2019.
Note 4 - Long-Term Debt
ABL Credit Facility
          Our revolving credit facility (“ABL Credit Facility”), as amended, has a total borrowing capacity of $300 million (subject to the Borrowing Base limit), with a maturity date of December 19, 2023. The ABL Credit Facility has a borrowing base of 85% of monthly eligible accounts receivable less customary reserves (the "Borrowing Base"), as redetermined monthly. The Borrowing Base as of June 30, 2020 was approximately $16.8 million. The ABL Credit Facility includes a Springing Fixed Charge Coverage Ratio to apply when excess availability is less than the greater of (i) 10% of the lesser of the facility size or the Borrowing Base or (ii) $22.5 million. Under this facility we are required to comply, subject to certain exceptions and materiality qualifiers, with certain customary affirmative and negative covenants, including, but not limited to, covenants pertaining to our ability to incur liens, indebtedness, changes in the nature of our business, mergers and other fundamental changes, disposal of assets, investments and restricted payments, amendments to our organizational documents or accounting policies, prepayments of certain debt, dividends, transactions with affiliates, and certain other activities. Borrowings under the ABL Credit Facility are secured by a first priority lien and security interest in substantially all assets of the Company.
          Borrowings under the ABL Credit Facility accrue interest based on a three-tier pricing grid tied to availability, and we may elect for loans to be based on either LIBOR or base rate, plus the applicable margin, which ranges from 1.75% to 2.25% for LIBOR loans and 0.75% to 1.25% for base rate loans, with a LIBOR floor of zero.
          The loan origination costs relating to the ABL Credit Facility are classified as an asset in our balance sheet. The weighted average interest rate for our ABL Credit Facility for the six months ended June 30, 2020 was 3.2%.
          Total debt consisted of the following at June 30, 2020 and December 31, 2019, respectively:

-9-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 4 - Long-Term Debt (Continued)


($ in thousands)
 
 
 
 
 
 
2020
 
2019
ABL Credit Facility
 
$

 
$
130,000

Total debt
 

 
130,000

Less current portion of long-term debt
 

 

Total long-term debt
 
$

 
$
130,000



Note 5 - Reportable Segment Information
          The Company has four operating segments for which discrete financial information is readily available: hydraulic fracturing (inclusive of acidizing), cementing, coiled tubing and drilling. In March 2020, the Company shut down its flowback operating segment and subsequently disposed of the assets for approximately $1.6 million. These operating segments represent how the Chief Operating Decision Maker evaluates performance and allocates resources.
          In accordance with Accounting Standards Codification ("ASC") 280—Segment Reporting, the Company has one reportable segment (pressure pumping) comprised of the hydraulic fracturing and cementing operating segments. All other operating segments and corporate administrative expense (inclusive of our total income tax expense and interest expense) are included in the ‘‘all other’’ category in the table below. Total corporate administrative expense for the three and six months ended June 30, 2020 was $10.6 million and $20.9 million, respectively. The corporate administrative expense for the three and six months ended June 30, 2019 was $27.5 million and $57.2 million, respectively.
          Our hydraulic fracturing operating segment revenue approximated 89.7% and 93.7% of our pressure pumping revenue during the three and six months ended June 30, 2020, respectively. During the three and six months ended June 30, 2019, our hydraulic fracturing operating segment revenue approximated 95.6% and 95.8% of our pressure pumping revenue, respectively.
          Inter-segment revenues are not material and are not shown separately in the table below.
          The Company manages and assesses the performance of the reportable segment by its adjusted EBITDA (earnings before other income (expense), interest, taxes, depreciation and amortization, stock-based compensation expense, severance, impairment expense, (gain)/loss on disposal of assets and other unusual or nonrecurring expenses or (income)). A reconciliation from segment level financial information to the consolidated statement of operations is provided in the table below ($ in thousands):

-10-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5- Reportable Segment Information (Continued)


 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2020
 
 
Pressure Pumping
 
All Other
 
Total
Service revenue
 
$
103,815

 
$
2,294

 
$
106,109

Adjusted EBITDA
 
$
34,030

 
$
(8,620
)
 
$
25,410

Depreciation and amortization
 
$
38,910

 
$
1,263

 
$
40,173

Capital expenditures
 
$
10,034

 
$
1,846

 
$
11,880

Total assets at June 30, 2020
 
$
1,052,915

 
$
40,687

 
$
1,093,602

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
 
Pressure Pumping
 
All Other
 
Total
Service revenue
 
$
515,867

 
$
13,627

 
$
529,494

Adjusted EBITDA
 
$
131,187

 
$
(4,625
)
 
$
126,562

Depreciation and amortization
 
$
34,023

 
$
1,459

 
$
35,482

Goodwill at December 31, 2019
 
$
9,425

 
$

 
$
9,425

Capital expenditures
 
$
156,542

 
$
4,677

 
$
161,219

Total assets at December 31, 2019
 
$
1,381,811

 
$
54,300

 
$
1,436,111


 
 
Six Months Ended June 30, 2020
 
 
Pressure Pumping
 
All Other
 
Total
Service revenue
 
$
490,735

 
$
10,443

 
$
501,178

Adjusted EBITDA
 
$
112,696

 
$
(12,362
)
 
$
100,334

Depreciation and amortization
 
$
77,879

 
$
2,498

 
$
80,377

Capital expenditures
 
$
49,301

 
$
2,674

 
$
51,975

Total assets at June 30, 2020
 
$
1,052,915

 
$
40,687

 
$
1,093,602

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
 
Pressure Pumping
 
All Other
 
Total
Service revenue
 
$
1,047,931

 
$
27,742

 
$
1,075,673

Adjusted EBITDA
 
$
282,228

 
$
(5,391
)
 
$
276,837

Depreciation and amortization
 
$
65,806

 
$
2,793

 
$
68,599

Goodwill at December 31, 2019
 
$
9,425

 
$

 
$
9,425

Capital expenditures
 
$
238,577

 
$
8,789

 
$
247,366

Total assets at December 31, 2019
 
$
1,381,811

 
$
54,300

 
$
1,436,111


-11-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5- Reportable Segment Information (Continued)


Reconciliation of net income (loss) to adjusted EBITDA ($ in thousands):
 
 
Three Months Ended June 30, 2020
 
 
Pressure Pumping
 
All Other
 
Total
Net loss
 
$
(13,528
)
 
$
(12,392
)
 
$
(25,920
)
Depreciation and amortization
 
38,910

 
1,263

 
40,173

Interest expense
 

 
791

 
791

Income tax benefit
 

 
(6,460
)
 
(6,460
)
Loss on disposal of assets
 
8,587

 
147

 
8,734

Stock-based compensation
 

 
2,962

 
2,962

Other expense
 

 
267

 
267

Other general and administrative expense(1)
 

 
4,802

 
4,802

Retention bonus and severance expense
 
61

 

 
61

Adjusted EBITDA
 
$
34,030

 
$
(8,620
)
 
$
25,410

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
 
Pressure Pumping
 
All Other
 
Total
Net income (loss)
 
$
64,230

 
$
(28,097
)
 
$
36,133

Depreciation and amortization
 
34,023

 
1,459

 
35,482

Interest expense
 
22

 
2,004

 
2,026

Income tax expense
 

 
10,272

 
10,272

Loss on disposal of assets
 
31,117

 
81

 
31,198

Stock-based compensation
 

 
2,840

 
2,840

Other expense
 

 
276

 
276

Other general and administrative expense(1)
 

 
6,540

 
6,540

Retention bonus expense
 
1,795

 

 
1,795

Adjusted EBITDA
 
$
131,187

 
$
(4,625
)
 
$
126,562



-12-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5- Reportable Segment Information (Continued)


 
 
Six Months Ended June 30, 2020
 
 
Pressure Pumping
 
All Other
 
Total
Net loss
 
$
(9,220
)
 
$
(24,504
)
 
$
(33,724
)
Depreciation and amortization
 
77,879

 
2,498

 
80,377

Impairment expense
 
15,559

 
1,095

 
16,654

Interest expense
 
1

 
2,071

 
2,072

Income tax benefit
 

 
(7,370
)
 
(7,370
)
Loss on disposal of assets
 
28,402

 
186

 
28,588

Stock-based compensation
 

 
3,433

 
3,433

Other expense
 

 
271

 
271

Other general and administrative expense (1)
 

 
9,937

 
9,937

Retention bonus and severance expense
 
75

 
21

 
96

Adjusted EBITDA
 
$
112,696

 
$
(12,362
)
 
$
100,334

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
 
Pressure Pumping
 
All Other
 
Total
Net income (loss)
 
$
162,324

 
$
(56,386
)
 
$
105,938

Depreciation and amortization
 
65,806

 
2,793

 
68,599

Interest expense
 
22

 
3,906

 
3,928

Income tax expense
 

 
32,164

 
32,164

Loss on disposal of assets
 
50,123

 
302

 
50,425

Stock-based compensation
 

 
4,669

 
4,669

Other expense
 

 
464

 
464

Other general and administrative expense (1)
 

 
6,540

 
6,540

Deferred IPO and retention bonus expense
 
$
3,953

 
$
157

 
$
4,110

Adjusted EBITDA
 
$
282,228

 
$
(5,391
)
 
$
276,837

 
(1)
Other general and administrative expense relates to nonrecurring professional fees paid to external consultants in connection with the Company's expanded audit committee review, SEC investigation and shareholders' litigation.

-13-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 6 - Net Income (Loss) Per Share
          Basic net income (loss) per common share is computed by dividing the net income (loss) relevant to the common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share uses the same net income (loss) divided by the sum of the weighted average number of shares of common stock outstanding during the period, plus dilutive effects of options, performance and restricted stock units outstanding during the period calculated using the treasury method and the potential dilutive effects of preferred stocks (if any) calculated using the if-converted method.
          The table below shows the calculations for the three and six months ended June 30, 2020 and 2019, (in thousands, except for per share data).
 
 
 
 
 
 
 
Three Months Ended June 30,
 
 
2020
 
2019
Numerator (both basic and diluted)
 
 
 
 
Net income (loss) relevant to common stockholders
 
$
(25,920
)
 
$
36,133

 
 
 
 
 
Denominator
 
 
 
 
Denominator for basic income (loss) per share
 
100,821

 
100,425

Dilutive effect of stock options
 

 
3,294

Dilutive effect of performance share units
 

 
449

Dilutive effect of restricted stock units
 

 
211

Denominator for diluted income (loss) per share
 
100,821

 
104,379

 
 
 
 
 
Basic income (loss) per share
 
$
(0.26
)
 
$
0.36

Diluted income (loss) per share
 
$
(0.26
)
 
$
0.35


 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2020
 
2019
Numerator (both basic and diluted)
 
 
 
 
Net income (loss) relevant to common stockholders
 
$
(33,724
)
 
$
105,938

 
 
 
 
 
Denominator
 
 
 
 
Denominator for basic income (loss) per share
 
100,754

 
100,329

Dilutive effect of stock options
 

 
3,252

Dilutive effect of performance share units
 

 
418

Dilutive effect of restricted stock units
 

 
182

Denominator for diluted income (loss) per share
 
100,754

 
104,181

 
 
 
 
 
Basic income (loss) per share
 
$
(0.33
)
 
$
1.06

Diluted income (loss) per share
 
$
(0.33
)
 
$
1.02



-14-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

             As shown in the table below, the following stock options, restricted stock units and performance stock units outstanding as of June 30, 2020 and 2019, respectively, have not been included in the calculation of diluted income (loss) per common share for the three and six months ended June 30, 2020 and 2019 because they will be anti-dilutive to the calculation of diluted net income (loss) per common share.
(In thousands)
 
 
 
 
 
 
2020
 
2019
 
 
 
 
 
Stock options
 
4,224

 

Restricted stock units
 
1,269

 

Performance stock units
 
1,051

 

Total
 
6,544

 



Note 7 - Stock-Based Compensation
Stock Options
          There were no new stock option grants during the six months ended June 30, 2020. As of June 30, 2020, the aggregate intrinsic value for our outstanding stock options was $6.5 million, and the aggregate intrinsic value for our exercisable stock options was $6.5 million. The remaining exercise period for the outstanding and exercisable stock options as of June 30, 2020, was 3.3 years and 3.2 years, respectively.
          A summary of the stock option activity for the six months ended June 30, 2020 is presented below.
 
 
Number of Shares
 
Weighted
Average
Exercise
Price
Outstanding at January 1, 2020
 
4,300,088

 
$
5.03

Granted
 

 
$

Exercised
 

 
$

Forfeited
 
(70,960
)
 
$
14.00

Expired
 
(5,619
)
 
$
14.00

Outstanding at June 30, 2020
 
4,223,509

 
$
4.87

Exercisable at June 30, 2020
 
4,086,657

 
$
4.57


Restricted Stock Units
         During the six months ended June 30, 2020, we granted a total of 1,143,230 restricted stock units ("RSUs") to employees, officers and directors pursuant to the ProPetro Holding Corp. 2017 Incentive Award Plan (the "Incentive Plan"), which generally vest ratably over a three-year vesting period, in the case of awards to employees and officers, and generally vest in full after one year, in the case of awards to directors. RSUs are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases to be an employee or director of the Company prior to vesting of the award. Each RSU represents the right to receive one share of common stock. The grant date fair value of the RSUs is based on the closing share price of our common stock on the date of grant. As of June 30, 2020, the total unrecognized compensation expense for all RSUs was approximately $9.3 million, and is expected to be recognized over a weighted average period of approximately 2.2 years.

-15-

PROPETRO HOLDING CORP.
NOTES TO CONDENSED C