ProPetro Holding Corp.: Form 10-Q for the period ended Mar 31, 2024

The financial information, discussion and analysis that follow should be read in conjunction with our consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 ("Form 10-K") as well as the financial and other information included therein.

Unless otherwise indicated, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" to the "Company," "we," "our," "us" or like terms refer to ProPetro Holding Corp. and its subsidiaries.

Overview

We are a leading integrated oilfield service company, located in Midland, Texas, focused on providing innovative hydraulic fracturing, wireline and other complementary oilfield completion services to leading upstream oil and gas companies engaged in the exploration and production ("E&P") of North American oil and natural gas resources. Our operations are primarily focused in the Permian Basin, where we have cultivated longstanding customer relationships with some of the region's most active and well-capitalized E&P companies. The Permian Basin is widely regarded as one of the most prolific oil-producing areas in the United States, and we believe we are one of the leading providers of completion services in the region.

Our completion services include our operating segments comprised of hydraulic fracturing, wireline and cementing operations. Our hydraulic fracturing operations account for approximately 76.2% of our total revenues and operations. Our total available hydraulic horsepower ("HHP") as of March 31, 2024, was 1,539,500 HHP, which was comprised of 452,500 HHP of our Tier IV Dynamic Gas Blending ("DGB") dual-fuel equipment, 222,000 HHP of FORCESM electric-powered equipment and 865,000 HHP of conventional Tier II equipment. Our hydraulic fracturing fleets range from approximately 50,000 to 80,000 HHP depending on the job design and customer demand at the wellsite. Our equipment has been designed to handle the operating conditions commonly encountered in the Permian Basin and the region’s increasingly high-intensity well completions (including simultaneous hydraulic fracturing ("Simul-Frac"), which involves fracturing multiple wellbores at the same time), which are characterized by longer horizontal wellbores, more stages per lateral and increasing amounts of proppant per well. With the industry transition to lower emissions equipment and Simul-Frac, in addition to several other changes to our customers' job designs, we believe that our available fleet capacity could decline if we decide to reconfigure our fleets to increase active HHP and backup HHP at wellsites. In addition, in 2021 and 2022, we committed to additional conversions of our Tier II equipment to Tier IV DGB, and to purchase new Tier IV DGB dual-fuel equipment. As such, we entered into conversion and purchase agreements with our equipment manufacturers for a total of 452,500 HHP of Tier IV DGB dual-fuel equipment and we have received all of the converted and new Tier IV DGB dual-fuel equipment by the end of 2023. In 2022, we entered into three-year electric fleet leases for a total of four FORCESM electric-powered hydraulic fracturing fleets with 60,000 HHP per fleet (the "Electric Fleet Leases"). As of March 31, 2024, we have received 222,000 HHP of FORCESM electric-powered equipment. We currently expect to receive the remaining equipment associated with the third and fourth fleets in the first half of 2024. We currently have 24 wireline units and 37 cement units.

On November 1, 2022, we consummated the acquisition of all of the outstanding limited liability company interests of Silvertip Completion Services Operating, LLC (the "Silvertip Acquisition"), which provides wireline perforation and ancillary services solely in the Permian Basin in exchange for 10.1 million shares of our common stock valued at $106.7 million, $30.0 million of cash, the payoff of $7.2 million of assumed debt, and the payment of certain other closing and transaction costs. The Silvertip Acquisition positions the Company as a more resilient and diversified completions-focused oilfield service provider headquartered in the Permian Basin.

On December 1, 2023, we consummated the purchase of the assets and operations of Par Five Energy Services LLC (“Par Five”), which provides cementing services in the Delaware Basin, in exchange for $25.4 million of cash, including deferred cash consideration of $3.2 million which is payable to Par Five or its beneficiary on June 1, 2025 with interest at 4.0% per annum. Par Five’s business complements our existing cementing business and enables us to serve both the Midland and Delaware Basins of the Permian Basin.

Our competitors include many large and small oilfield service companies, including Halliburton Company, Liberty Energy Inc., Patterson-UTI Energy Inc., ProFrac Holding Corp., RPC, Inc., and a number of private and locally-oriented businesses. The markets in which we operate are highly competitive. To be successful, an oilfield services company must provide services that meet the specific needs of oil and natural gas E&P companies at competitive prices. Competitive factors impacting sales of our services are price, reputation, technical expertise, emissions profile, service and equipment design and quality, and health and safety standards. Although we believe our customers consider all of these factors, we believe price is a key factor in an E&P company's criteria in choosing a service provider. However, we have recently observed the energy industry and our customers shift to lower emissions equipment, which we believe will be an increasingly important factor in an E&P company's selection of a service provider. The transition to lower emissions equipment has been challenging for companies in the oilfield service industry because of the capital requirements, lack of large scale deployment of certain new technology such as electric-powered equipment, pricing for services and expected return on invested capital. While we seek to price our services competitively, we believe many of our customers elect to work with us based on our operational efficiencies, productivity, equipment portfolio and quality, reliability, ability to manage multifaceted logistics challenges, commitment to safety and the ability of our people to handle the most complex Permian Basin well completions.

Our substantial market presence in the Permian Basin positions us well to capitalize on drilling and completion activity in the region. Primarily, our operational focus has been in the Permian Basin's Midland sub-basin, where our customers have operated. However, we have increased our operations in the Delaware sub-basin and are well-positioned to support further increases to our activity in this area in response to demand from our customers. Over time, we expect the Permian Basin's Midland and Delaware sub-basins to continue to command a disproportionate share of future North American E&P spending.

We have historically conducted our business through four operating segments: hydraulic fracturing, wireline, cementing and coiled tubing. Prior to the fourth quarter of fiscal year 2023, our operating segments met the aggregation criteria and were aggregated into the “Completion Services” reportable segment. Effective as of the fourth quarter of fiscal year 2023, we revised our segment reporting as we determined that our three operating segments no longer met the criteria to be aggregated. Our Hydraulic Fracturing and Wireline operating segments meet the criteria of a reportable segment. Our cementing segment is not material, is not separately reportable, and is included within the “All Other” category. Prior period segment information has been revised to conform to our current presentation. For additional financial information on our reportable segments presentation, please see "Note 7 - Reportable Segment Information."

Pioneer Pressure Pumping Acquisition

On December 31, 2018, we consummated the purchase of certain pressure pumping assets and real property from Pioneer Natural Resources USA, Inc. ("Pioneer") and Pioneer Pumping Services (the "Pioneer Pressure Pumping Acquisition") in exchange for 16.6 million shares of our common stock and $110.0 million in cash, and concurrently entered into a pressure pumping services agreement (the "Pioneer Services Agreement") with Pioneer.

On March 31, 2022, we entered into an amended and restated pressure pumping services agreement (the "A&R Pressure Pumping Services Agreement") to replace the Pioneer Services Agreement that was entered into in connection with the Pioneer Pressure Pumping Acquisition. This agreement expired at the conclusion of its term and was replaced by the Fleet One Agreement and Fleet Two Agreement described below.

On October 31, 2022, we entered into two pressure pumping services agreements (the "Fleet One Agreement" and the "Fleet Two Agreement") with Pioneer, pursuant to which we provided hydraulic fracturing services with two committed fleets, subject to certain termination and release rights. The Fleet One Agreement was effective as of January 1, 2023 and was terminated on August 31, 2023. The Fleet Two Agreement was effective as of January 1, 2023 and was terminated on May 12, 2023. In October 2023, Pioneer entered into a merger agreement with Exxon Mobil Corporation.

Commodity Price and Other Economic Conditions

The oil and gas industry has traditionally been volatile and is characterized by a combination of long-term, short-term and cyclical trends, including domestic and international supply and demand for oil and gas, current and expected future prices for oil and gas and the perceived stability and sustainability of those prices, and capital investments of E&P companies toward their development and production of oil and gas reserves. The oil and gas industry is also impacted by general domestic and international economic conditions such as supply chain disruptions and inflation, war and political instability in oil producing countries, government regulations (both in the United States and internationally), levels of consumer demand, adverse weather conditions, and other factors that are beyond our control.

Since October 2023, an ongoing conflict between Israel and Palestinian militants in the Israel-Gaza region has led to significant armed hostilities, including elsewhere in the Middle East. On April 13, 2024, Iran launched an attack on several targets in Israel, and in response the U.S. and a number of its allies have stated an intent to impose additional sanctions on Iran. The geopolitical and macroeconomic consequences of this conflict remain uncertain, and such events, or any further hostilities in the Israel-Gaza region, with Iran or elsewhere, could severely impact the world economy, the demand for and price of crude oil and the oil and gas industry generally and may adversely affect our financial condition.

Similarly, the geopolitical and macroeconomic consequences of the Russian invasion of Ukraine, including the associated sanctions, and the adverse impacts of the COVID-19 pandemic in recent years have resulted in volatility in supply and demand dynamics for crude oil and associated volatility in crude oil pricing. As the global response to the COVID-19 pandemic began to wane, the demand and prices for crude oil increased from the lows experienced in 2020, with the West Texas Intermediate ("WTI") average crude oil price reaching approximately $94 per barrel in 2022, the highest average price in the prior nine years. The WTI average crude oil price declined to approximately $78 per barrel in 2023 before slightly increasing to approximately $81 per barrel in March 2024. We believe that the volatility of crude oil prices in recent years has been partly driven by declines in crude oil supplies, concerns over sanctions resulting from Russia's invasion of Ukraine, concerns over a potential disruption of Middle Eastern oil supplies resulting from the ongoing conflict between Israel and Palestinian militants in the Israel-Gaza region, slower crude oil production growth due to the lack of reinvestment in the oil and gas industry in the last two years, recent OPEC+ production cuts of approximately 2.2 million barrels per day and concerns of a potential global recession resulting from high inflation and interest rates.

With the significant increase in global crude oil prices from 2021, including the WTI crude oil price, there has been an increase in the Permian Basin rig count from approximately 179 at the beginning of 2021 to approximately 353 at the end of 2022, according to the Baker Hughes Company. Following the increase in rig count and the WTI crude oil price, the oilfield service industry has experienced increased demand for its completion services, and improved pricing. However, we have recently experienced a 13% decrease in the rig count in 2023 to 309 at the end of 2023 which resulted in a reduction in the demand for completion services and pressure on pricing of our services. The Permian Basin rig count has subsequently increased to 316 at the end of March 2024.

Sustained levels of high inflation have likewise caused the U.S. Federal Reserve and other central banks to increase interest rates, and to the extent elevated inflation remains, we may experience further cost increases for our operations, including interest rates, labor costs and equipment. We cannot predict any future trends in the rate of inflation and crude oil prices. A significant increase in or continued high levels of inflation, to the extent we are unable to timely pass-through the cost increases to our customers, or further declines in crude oil prices would negatively impact our business, financial condition and results of operations.

Government regulations and investors are demanding the oil and gas industry transition to a lower emissions operating environment, including upstream and oilfield service companies. As a result, we are working with our customers and equipment manufacturers to transition our equipment to a lower emissions profile. Currently, a number of lower emission solutions for pumping equipment, including Tier IV DGB dual-fuel, FORCESM electric, direct drive gas turbine and other technologies have been developed, and we expect additional lower emission solutions will be developed in the future. We are continually evaluating these technologies and other investment and acquisition opportunities that would support our existing and new customer relationships. The transition to lower emissions equipment is quickly evolving and will be capital intensive. Over time, we may be required to convert substantially all of our conventional Tier II equipment to lower emissions equipment. We have transitioned our hydraulic fracturing equipment portfolio from approximately 10% lower emissions equipment in 2021 to approximately 35% in 2022 and approximately 60% in 2023, and expect to increase to approximately 65% by the end of the first half of 2024. To the extent any of our customers have certain expectations or requirements with respect to emissions reductions from their contractors, if we are unable to continue quickly transitioning to lower emissions equipment, the demand for our services could be adversely impacted.

If the Permian Basin rig count and market conditions improve, including improved pricing for our services and labor availability, and we are able to meet our customers' lower emissions equipment demands, we believe our operational and financial results will also improve. If the rig count or market conditions do not improve or decline in the future, and we are unable to increase our pricing or pass-through future cost increases to our customers, there could be a material adverse impact on our business, results of operations and cash flows.

Our results of operations have historically reflected seasonal tendencies, typically in the fourth quarter, relating to the holiday season, inclement winter weather and exhaustion of our customers' annual budgets. As a result, we typically experience declines in our operating and financial results in November and December, even in a stable commodity price and operations environment.

How We Evaluate Our Operations

Our management uses Adjusted EBITDA or Adjusted EBITDA margin to evaluate and analyze the performance of our various operating segments.

Adjusted EBITDA and Adjusted EBITDA Margin

We view Adjusted EBITDA and Adjusted EBITDA margin as important indicators of performance. We define EBITDA as our earnings, before (i) interest expense, (ii) income taxes and (iii) depreciation and amortization. We define Adjusted EBITDA as EBITDA, plus (i) loss/(gain) on disposal of assets, (ii) stock-based compensation, (iii) other expense/(income), (iv) other unusual or nonrecurring (income)/expenses such as costs related to asset acquisitions, insurance recoveries, one-time professional fees and legal settlements and (v) retention bonuses and severance. Adjusted EBITDA margin reflects our Adjusted EBITDA as a percentage of our revenues.

Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures utilized by our management and other users of our financial statements such as investors, commercial banks, and research analysts, to assess our financial performance because it allows us and other users to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization), nonrecurring (income)/expenses and items outside the control of our management team (such as income taxes). Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools and should not be considered as an alternative to net income/(loss), operating income/(loss), cash flow from operating activities or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Note Regarding Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA margin are not financial measures presented in accordance with GAAP ("non-GAAP"), except when specifically required to be disclosed by GAAP in the financial statements. We believe that the presentation of Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors in assessing our financial condition and results of operations because it allows them to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure, asset base, nonrecurring expenses (income) and items outside the control of the Company. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. Adjusted EBITDA and Adjusted EBITDA margin should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider Adjusted EBITDA or Adjusted EBITDA margin in isolation or as a substitute for an analysis of our results as reported under GAAP. Because Adjusted EBITDA and Adjusted EBITDA margin may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The following tables set forth certain financial information with respect to the Company’s reportable segments; inter-segment revenues are not material and not shown separately (in thousands):

(1) Represents lease cost related to operating leases on our FORCESM electric-powered hydraulic fracturing fleets. This cost is recorded within cost of services in our condensed consolidated statements of operations. We did not have these leases in the three months ended March 31, 2023.

(2) The write-offs of remaining book value of prematurely failed power ends are recorded as loss on disposal of assets in 2024. In order to conform to current period presentation, we have reclassified the corresponding amount of $12.5 million from depreciation to loss on disposal of assets for the three months ended March 31, 2023.

A reconciliation of net income to Adjusted EBITDA is provided in the table below (in thousands):

(1) The write-offs of remaining book value of prematurely failed power ends are recorded as loss on disposal of assets for the three months ended March 31, 2024. In order to conform to current period presentation, we have reclassified the corresponding amount of $12.5 million from depreciation to loss on disposal of assets for the three months ended March 31, 2023.

(2) Other income for the three months ended March 31, 2024 is primarily comprised of insurance reimbursements of $2.0 million, partially offset by a $0.6 million unrealized loss on short-term investment. Other expense for the three months ended March 31, 2023 is primarily comprised of a $3.8 million unrealized loss on short-term investment.

Results of Operations

As of March 31, 2024, we conducted our business through three operating segments: hydraulic fracturing, wireline and cementing. Our cementing operating segment is shown in the "All Other" category for segment reporting purposes.

On December 1, 2023, we consummated the purchase of the assets and operations of Par Five, which provides cementing services in the Delaware Basin in exchange for cash consideration of $25.4 million. Par Five’s business complements our existing cementing business and enables us to serve both the Midland and Delaware Basins of the Permian Basin. The Company's 2024 results include the impact of Par Five's operations for the entire period which was not included in our 2023 results herein because we acquired Par Five in December 2023. Accordingly, the full impact of the results of Par Five may affect the comparability of our 2024 results when compared to prior period. Par Five's operations resulted in $9.6 million in revenue and $8.6 million in cost of services which are included in the All Other category for the three months ended March 31, 2024.

The following table sets forth the results of operations for the periods presented:

(in thousands, except for percentages)

(1) Includes our cementing operations.

(2) Exclusive of depreciation and amortization.

(3) Inclusive of stock-based compensation.

(4) For definitions of the non-GAAP financial measures of Adjusted EBITDA and Adjusted EBITDA margin and reconciliation of Adjusted EBITDA to our most directly comparable financial measures calculated in accordance with GAAP, please read "How We Evaluate Our Operations".

(5) The non-GAAP financial measure of Adjusted EBITDA margin for the Hydraulic Fracturing segment is calculated by taking Adjusted EBITDA for the Hydraulic Fracturing segment as a percentage of our revenue for the Hydraulic Fracturing segment.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Revenues. Revenues decreased 4.2%, or $17.7 million, to $405.8 million during the three months ended March 31, 2024, as compared to $423.6 million during the three months ended March 31, 2023. Revenue by reportable segment was as follows:

Hydraulic Fracturing. Our hydraulic fracturing segment revenues decreased 7.5%, or $25.1 million, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The decrease was primarily attributable to a decrease in our customers' activity levels as a result of a decrease in drilling activity, and decreased customer pricing. Our effectively utilized hydraulic fracturing fleet count declined to approximately 15 active fleets during the three months ended March 31, 2024, from approximately 16 active fleets for the three months ended March 31, 2023. The effective utilized fleet count is determined by dividing the total number of days our fleets were actively working at wellsites during the month by 25 days (predetermined number of expected active work days in the month).

Wireline. Our wireline segment revenues decreased 2.8% or $1.8 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The decrease was primarily attributable to a decrease in our customers' activity levels as a result of a decrease in drilling activity.

All Other. Revenues from the All Other category comprising of our cementing operations increased 34.5% or $9.2 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily attributable to the addition of Par Five's operations in December 2023, which contributed to $9.6 million of the increase in revenues.

Cost of Services. Cost of services increased 2.9%, or $8.2 million, to $288.6 million for the three months ended March 31, 2024, as compared to $280.5 million during the three months ended March 31, 2023. Cost of services by reportable segment was as follows:

Hydraulic Fracturing. Cost of services in our hydraulic fracturing segment decreased $0.5 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. As a percentage of hydraulic fracturing segment revenues (including reservation fees), hydraulic fracturing cost of services was 70.5% for the three months ended March 31, 2024, as compared to 65.4% for the three months ended March 31, 2023 driven by the decreased activity levels, customer price decreases and the impact of general cost inflation.

Wireline. Our wireline segment cost of services increased $0.2 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

All Other. Cost of service for the All Other category increased $8.5 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was primarily attributable to the addition of Par Five's operations in December 2023, which resulted in $8.6 million of the increase in cost of services.

General and Administrative Expenses. General and administrative expenses decreased 1.8%, or $0.5 million, to $28.2 million for the three months ended March 31, 2024, as compared to $28.7 million for the three months ended March 31, 2023. The net decrease was primarily attributable to a $2.5 million decrease in insurance expense resulting from lower allocation to general and administrative expenses, partially offset by (i) a $1.6 million increase in consulting fees and (ii) a $0.4 million increase in other general and administrative expenses.

Excluding nonrecurring and non-cash items (i.e. stock-based compensation of $3.7 million, retention bonuses and severance expenses of $0.6 million and nonrecurring transaction expenses of $0.1 million), general and administrative expenses were $23.8 million during the three months ended March 31, 2024, as compared to $23.9 million during the three months ended March 31, 2023.

Depreciation and Amortization. Depreciation and amortization increased 36.4%, or $13.9 million, to $52.2 million for the three months ended March 31, 2024, as compared to $38.3 million for the three months ended March 31, 2023. The increase was primarily attributable to (i) assets placed into service since March 31, 2023, (ii) the addition of a finance lease for certain power generation equipment in August 2023 which resulted in $4.5 million of amortization and (iii) the addition of Par Five's operations in December 2023 which included $0.9 million of depreciation.

Loss on Disposal of Assets. Loss on disposal of assets decreased 81.3%, or $28.1 million, to $6.5 million for the three months ended March 31, 2024, as compared to $34.6 million for the three months ended March 31, 2023. The decrease was primarily attributable to losses incurred during the three months ended March 31, 2023 from the decommissioning of certain hydraulic fracturing equipment, replacement of certain major components in connection with our conversion of certain Tier II hydraulic fracturing equipment to Tier IV DGB and the write-off of certain hydraulic fracturing equipment as a result of an accidental fire at a wellsite in March 2023.

Interest Expense. Interest expense increased to $2.0 million for the three months ended March 31, 2024, as compared to $0.7 million for the three months ended March 31, 2023. The increase was primarily attributable to higher average outstanding borrowings under our amended and restated revolving credit facility (the revolving credit facility, as amended and restated in April 2022, as amended in June 2023 and as may be amended further, "ABL Credit Facility") during the three months ended March 31, 2024 and the addition of a finance lease for certain power generation equipment in August 2023.

Other (Income) Expense. Other income was approximately $1.4 million for the three months ended March 31, 2024, compared to other expense of $3.7 million for the three months ended March 31, 2023. Other income for the three months ended March 31, 2024 is primarily comprised of insurance reimbursements of $2.0 million, partially offset by a $0.6 million unrealized loss on short-term investment. Other expense for the three months ended March 31, 2023 is primarily comprised of a $3.8 million unrealized loss on short-term investment.

Income Taxes. Total income tax expense was $9.8 million resulting in an effective tax rate of 32.9% for the three months ended March 31, 2024, as compared to income tax expense of $8.4 million or an effective tax rate of 22.5% for the three months ended March 31, 2023. The change in income tax expense recorded during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, is primarily attributable to the difference in the impact of nondeductible expenses on the estimated pre-tax income for 2024, as compared to 2023.

Liquidity and Capital Resources

Our liquidity is currently provided by (i) existing cash balances, (ii) operating cash flows and (iii) borrowings under our ABL Credit Facility. Our cash is primarily used to fund our operations, support growth opportunities, fund share repurchases under our share repurchase program and satisfy future debt payments. Our borrowing base, as redetermined monthly, is tied to the sum of 85% to 90% of monthly eligible accounts receivable and 80% of eligible unbilled accounts (up to a maximum of 25% of the borrowing base), in each case, depending on the credit ratings of our accounts receivable counterparties, less customary reserves (the "Borrowing Base"). Changes to our operational activity levels and our customers' credit ratings have an impact on our total eligible accounts receivable, which could result in significant changes to our Borrowing Base and therefore, our availability under our ABL Credit Facility.

We received advance payments from a customer for our services, and the amount outstanding in connection with the advance payments as of March 31, 2024 was $15.9 million, which does not include any restricted cash.

As of March 31, 2024, our borrowings under our ABL Credit Facility were $45.0 million and our total liquidity was approximately $202.0 million, consisting of cash and cash equivalents of $46.5 million and $155.5 million of availability under our ABL Credit Facility.

On April 24, 2024, the Company's board of directors (the "Board") approved an increase and extension to the share repurchase program previously authorized on May 17, 2023. The program permits the repurchase of up to an additional $100 million of the Company's common stock for a total of $200 million and extends the expiration date by one year to May 31, 2025. The shares may be repurchased from time to time in open market transactions, block trades, accelerated share repurchases, privately negotiated transactions, derivative transactions or otherwise, certain of which may be made pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act, as amended, in compliance with applicable state and federal securities laws. The timing, as well as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including management's assessment of the intrinsic value of the Company's common stock, the market price of the Company's common stock, general market and economic conditions, available liquidity, compliance with the Company's debt and other agreements, applicable legal requirements, and other considerations. The Company is not obligated to purchase any shares under the repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. The Company expects to fund the repurchases using cash on hand and expected free cash flow to be generated through May 2025. During the three months ended March 31, 2024, the Company repurchased and retired 3.0 million shares of common stock for an aggregate of $22.5 million, an average price per share of $7.58 including commissions, under the repurchase program. As of April 24, 2024, $125.8 million remained authorized for future repurchases of common stock under the repurchase program.

There can be no assurance that our operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures and to continue with our share repurchases under our share repurchase program or fund future business acquisitions. Future cash flows are subject to a number of variables, and are highly dependent on the drilling, completion, and production activity by our customers, which in turn is highly dependent on oil and natural gas prices. Depending upon market conditions and other factors, we may issue equity and debt securities or take other actions necessary to fund our business, strategy or meet our future long-term liquidity requirements.

Capital Requirements, Future Sources and Use of Cash and Contractual Obligations

Capital expenditures incurred were $39.8 million during the three months ended March 31, 2024, as compared to $97.2 million during the three months ended March 31, 2023 for our reportable segments. The significant portion of our total capital expenditures incurred during the three months ended March 31, 2024 were maintenance capital expenditures.

Our future material use of cash will be to fund our capital expenditures. We may also use material amounts of cash to repurchase shares under our share repurchase program. Capital expenditures for 2024 are projected to be primarily related to capital expenditures to extend the useful life of our existing completion services assets, costs to convert some existing equipment to lower emissions equipment, strategic purchases and other ancillary equipment purchases, subject to market conditions and customer demand and potential strategic acquisitions. Our future capital expenditures depend on our projected operational activity, emission requirements and planned conversions to lower emissions equipment, among other factors, which could vary significantly throughout the year. Based on our current plan and projected activity levels for 2024, we expect our capital expenditures to range between $200 million and $250 million. We could incur significant additional capital expenditures if our projected activity levels increase during the course of the year, inflation and supply chain tightness continue to adversely impact our operations or we invest in new or different lower emissions equipment. The Company will continue to evaluate the emissions profile of its equipment over the coming years and may, depending on market conditions, convert or retire additional conventional Tier II equipment in favor of lower emissions equipment. The Company’s decisions regarding the retirement or conversion of equipment or the addition of lower emissions equipment will be subject to a number of factors, including (among other factors) the availability of equipment, including parts and major components, supply chain disruptions, prevailing and expected commodity prices, customer demand and requirements and the Company’s evaluation of projected returns on conversion or other capital expenditures. Depending on the impacts of these factors, the Company may decide to retain conventional equipment for a longer period of time or accelerate the retirement, replacement or conversion of that equipment.

We anticipate our capital expenditures will be funded by existing cash, cash flows from operations, and if needed, borrowings under our ABL Credit Facility. Our cash flows from operations will be generated from services we provide to our customers.

We entered into a sand purchase agreement with a supplier that will expire on December 31, 2024 with a remaining take-or-pay commitment of approximately $13.1 million. We also entered into the Electric Fleet Leases, which contain options to extend the leases or purchase the equipment at the end of each lease or at the end of each subsequent renewal period. As of March 31, 2024, all four of the Electric Fleet Leases commenced when the Company took possession of all equipment associated with the first and second FORCESM electric-powered hydraulic fracturing fleets and some of the equipment associated with the third and fourth fleets. Lease payments pertaining to the remaining equipment associated with the third and fourth Electric Fleet Leases are expected to commence when the Company takes possession of the remaining associated equipment. We currently expect to receive the remaining equipment associated with the third and fourth fleets in the first half of 2024. The total estimated contractual commitment in connection with the Electric Fleet Leases excluding the cost associated with the option to purchase the equipment at the end of each lease is approximately $100.7 million. We also entered into a three year lease (the "Power Equipment Lease") for certain power generation equipment. The total estimated contractual commitment in connection with the Power Equipment Lease is approximately $47.6 million.

In the normal course of business, we enter into various contractual obligations and incur expenses in connection with routine growth, conversion and maintenance capital expenditures that impact our future liquidity. There were no other known future material contractual obligations as of March 31, 2024.

Cash, Restricted Cash and Cash Flows

The following table sets forth the historical cash flows for the three months ended March 31, 2024, and 2023:

(in thousands)

Cash Flows From Operating Activities

Net cash provided by operating activities was $74.8 million for the three months ended March 31, 2024, compared to $73.1 million for the three months ended March 31, 2023. The net increase of approximately $1.7 million was primarily due to the timing of our receivable collections from our customers and payments to our vendors and a smaller increase in inventories, partially offset by lower net income adjusted for noncash expenses and a decrease in other current liabilities.

Cash Flows From Investing Activities

Net cash used in investing activities decreased to $33.8 million for the three months ended March 31, 2024, from $113.7 million for the three months ended March 31, 2023. The decrease was primarily attributable to our capital light strategy and the completion of our planned investments in Tier IV DGB equipment.

Cash Flows From Financing Activities

Net cash used in financing activities was $27.9 million for the three months ended March 31, 2024, compared to $3.4 million for the three months ended March 31, 2023. The net increase was primarily driven by share repurchases of $22.5 million and payments of finance lease obligation of $4.2 million, partially offset by a decrease in tax withholdings paid for net settlement of equity awards.

Credit Facility and Other Financing Arrangements

Our revolving credit facility, as amended and restated in April 2022, prior to giving effect to the amendment to the revolving credit facility in June 2023, had a total borrowing capacity of $150.0 million. The revolving credit facility had a borrowing base of 85% to 90%, depending on the credit ratings of our accounts receivable counterparties, of monthly eligible accounts receivable less customary reserves. The revolving credit facility included a springing fixed charge coverage ratio to apply when excess availability was less than the greater of (i) 10% of the lesser of the facility size or the borrowing base or (ii) $10.0 million. Under the revolving credit facility we were 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.

Effective June 2, 2023, the Company entered into an amendment to the ABL Credit Facility. The amendment increased the borrowing capacity under the ABL Credit Facility to $225.0 million (subject to the Borrowing Base limit), and extended the maturity date to June 2, 2028. The Borrowing Base as of March 31, 2024, was approximately $192.1 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) $15.0 million. Under the ABL Credit 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 the Secured Overnight Financing Rate ("SOFR") or the base rate, plus the applicable margin, which ranges from 1.75% to 2.25% for SOFR loans and 0.75% to 1.25% for base rate loans.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2024.

Critical Accounting Policies and Estimates

There have been no material changes during the three months ended March 31, 2024 to the methodology applied by our management for critical accounting policies previously disclosed in our Form 10-K. Please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates" in our Form 10-K for a discussion of our critical accounting policies and estimates.

Recently Issued Accounting Standards

Disclosure concerning recently issued accounting standards is incorporated by reference to Note 2 of our Condensed Consolidated Financial Statements (Unaudited) contained in this Form 10-Q.

As of March 31, 2024, there have been no material changes in market risk from the information provided in "Management’s Discussion and Analysis of Financial Condition and Results of Operations" or "Quantitative and Qualitative Disclosures of Market Risk" in our Form 10-K.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2024, due to the material weakness in internal control over financial reporting described below.

Previously Reported Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. As disclosed in Part II Item 9A. “Controls and Procedures” in our annual report on Form 10-K for the year ended December 31, 2023, during fiscal year 2023 we identified a material weakness in our internal control over financial reporting. The material weakness is related to our information technology environment whereby we did not maintain adequate segregation of duties or sufficient compensating management review controls to effectively mitigate an inadequate system access control configuration in our accounting system in which manual journal entry approvers could modify the entries before posting. This deficiency was solely related to manual journal entries and had no impact on system-generated journal entries flowing through our accounting system and other feeder systems. Due to this control deficiency, other manual-dependent controls were deemed ineffective. Subsequent to the identification of this material weakness, we conducted additional procedures and determined that there was no material misstatement in our consolidated financial statements for the year ended December 31, 2023.

Remediation of Previously Reported Material Weakness

During the three months ended March 31, 2024, we took the following measures as part of our previously disclosed remediation plan:

• Implemented a segregation of duties conflict process by limiting the access of certain employees of the Company who are owners of management review controls.
• Implemented a technical solution in our accounting system to ensure that manual journal entry approvers are no longer able to modify the entries before posting and strengthened our monitoring and review controls over journal entry processing.
• Evaluated the potential impact of the identified material weakness and accordingly, performed additional testing of certain transactions and journal entries in 2024 during the period prior to our implementation of the technical solution in our accounting system to ensure completeness and accuracy of our financial statements, and no material exception was identified.
• Tested whether this access resulted in any inappropriate journal entries being recorded or revised and concluded that no such instances occurred.
• Implemented control activities related to an additional independent review of manual entries posted in the accounting system and an independent review of changes to manual entries between origination and posting.

We are committed to ensuring that our internal control over financial reporting is designed and operating effectively. We have completed the testing of the design of the new and enhanced controls related to the previously reported material weakness over manual journal entry processing. We believe that these new and enhanced controls have been fully implemented and are operating as designed. However, the material weakness will not be considered remediated until the new and enhanced controls have been operating effectively for a sufficient period of time.

Changes in Internal Control over Financial Reporting

Other than as discussed above, there were no changes in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.