Company Quick10K Filing
Quick10K
Pioneer Energy Services
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.35 78 $106
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-10-29 Quarter: 2015-10-29
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-02 Officers, Amend Bylaw, Exhibits
8-K 2019-06-11 Regulation FD, Exhibits
8-K 2019-05-16 Officers, Shareholder Vote, Exhibits
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-01-09 Regulation FD, Exhibits
8-K 2018-12-21 Officers
8-K 2018-12-05 Officers, Exhibits
8-K 2018-11-27 Regulation FD, Exhibits
8-K 2018-11-19 Officers, Regulation FD
8-K 2018-09-26 Regulation FD, Exhibits
8-K 2018-08-28 Regulation FD, Exhibits
8-K 2018-06-12 Regulation FD, Exhibits
8-K 2018-05-22 Regulation FD, Exhibits
8-K 2018-05-15 Other Events
8-K 2018-03-27 Regulation FD, Exhibits
8-K 2018-03-01 Regulation FD, Exhibits
8-K 2018-01-17 Regulation FD, Exhibits
TSS Total System Services 17,720
NDAQ Nasdaq 15,110
Y Alleghany 9,800
EVR Evercore 3,710
CPK Chesapeake Utilities 1,510
PRAA PRA Group 1,290
UCTT Ultra Clean Holdings 534
STRO Sutro Biopharma 246
GV Goldfield 65
CETX Cemtrex 4
PES 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 exhibit101-2019timexbasedp.htm
EX-31.1 exhibit311q12019.htm
EX-31.2 exhibit312q12019.htm
EX-32.1 exhibit321q12019.htm
EX-32.2 exhibit322q12019.htm

Pioneer Energy Services Earnings 2019-03-31

PES 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q-q12019.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________________________________________ 
FORM 10-Q
______________________________________________ 
(Mark one)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-8182
PIONEER ENERGY SERVICES CORP.
(Exact name of registrant as specified in its charter)
____________________________________________ 
TEXAS
 
74-2088619
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas
 
78209
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (855) 884-0575

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
PES
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  x    No  o
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  x  No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o
Smaller reporting company
o
 
 
 
Emerging Growth Company
o
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 x
As of April 15, 2019, there were 78,466,260 shares of common stock, par value $0.10 per share, of the registrant outstanding.
 



PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
(audited)
 
(in thousands, except share data)
ASSETS
 
Current assets:
 
 
 
Cash and cash equivalents
$
26,855

 
$
53,566

Restricted cash
998

 
998

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts
90,816

 
76,924

Unbilled receivables
27,535

 
24,822

Insurance recoveries
23,427

 
23,656

Other receivables
6,307

 
5,479

Inventory
20,229

 
18,898

Assets held for sale
4,794

 
3,582

Prepaid expenses and other current assets
7,307

 
7,109

Total current assets
208,268

 
215,034

Property and equipment, at cost
1,125,170

 
1,118,215

Less accumulated depreciation
607,403

 
593,357

Net property and equipment
517,767

 
524,858

Operating lease assets
9,423

 

Other noncurrent assets
1,633

 
1,658

Total assets
$
737,091

 
$
741,550

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
38,163

 
$
34,134

Deferred revenues
1,659

 
1,722

Accrued expenses:
 
 
 
Payroll and related employee costs
24,699

 
24,598

Insurance claims and settlements
22,819

 
23,593

Insurance premiums and deductibles
5,543

 
5,482

Interest
1,460

 
6,148

Other
10,233

 
9,091

Total current liabilities
104,576

 
104,768

Long-term debt, less unamortized discount and debt issuance costs
465,315

 
464,552

Noncurrent operating lease liabilities
6,929

 

Deferred income taxes
4,844

 
3,688

Other noncurrent liabilities
4,460

 
3,484

Total liabilities
586,124

 
576,492

Commitments and contingencies (Note 11)

 

Shareholders’ equity:
 
 
 
Preferred stock, 10,000,000 shares authorized; none issued and outstanding

 

Common stock $.10 par value; 200,000,000 shares authorized; 78,456,260 and 78,214,550 shares outstanding at March 31, 2019 and December 31, 2018, respectively
7,933

 
7,900

Additional paid-in capital
551,382

 
550,548

Treasury stock, at cost; 874,391 and 789,532 shares at March 31, 2019 and December 31, 2018, respectively
(5,085
)
 
(4,965
)
Accumulated deficit
(403,263
)
 
(388,425
)
Total shareholders’ equity
150,967

 
165,058

Total liabilities and shareholders’ equity
$
737,091

 
$
741,550

See accompanying notes to condensed consolidated financial statements.

2




PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Three months ended March 31,
 
2019
 
2018
 
(in thousands, except per share data)
 
 
 
 
Revenues
$
146,568

 
$
144,478

 
 
 
 
Costs and expenses:
 
 
 
Operating costs
108,585

 
102,766

Depreciation
22,653

 
23,747

General and administrative
19,758

 
19,194

Bad debt expense (recovery), net
62

 
(52
)
Impairment
1,046

 

Gain on dispositions of property and equipment, net
(1,075
)
 
(335
)
Total costs and expenses
151,029

 
145,320

Loss from operations
(4,461
)
 
(842
)
 
 
 
 
Other income (expense):
 
 
 
Interest expense, net of interest capitalized
(9,885
)
 
(9,513
)
Other income, net
684

 
504

Total other expense, net
(9,201
)
 
(9,009
)
 
 
 
 
Loss before income taxes
(13,662
)
 
(9,851
)
Income tax expense
(1,453
)
 
(1,288
)
Net loss
$
(15,115
)
 
$
(11,139
)
 
 
 
 
Loss per common share - Basic
$
(0.19
)
 
$
(0.14
)
 
 
 
 
Loss per common share - Diluted
$
(0.19
)
 
$
(0.14
)
 
 
 
 
Weighted average number of shares outstanding—Basic
78,311

 
77,606

 
 
 
 
Weighted average number of shares outstanding—Diluted
78,311

 
77,606
















See accompanying notes to condensed consolidated financial statements.



3



PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)

 
As of and for the three months ended March 31, 2019
 
Shares
 
Amount
 
Additional Paid In Capital
 
Accumulated
Deficit
 
Total Shareholders’ Equity
Common
 
Treasury
Common
 
Treasury
 
(in thousands)
Balance as of December 31, 2018
79,005

 
(790
)
 
$
7,900

 
$
(4,965
)
 
$
550,548

 
$
(388,425
)
 
$
165,058

Net loss

 

 

 

 

 
(15,115
)
 
(15,115
)
Purchase of treasury stock

 
(84
)
 

 
(120
)
 

 

 
(120
)
Cumulative-effect adjustment due to adoption of ASC Topic 842

 

 

 

 

 
277

 
277

Issuance of restricted stock
326

 

 
33

 

 
(33
)
 

 

Stock-based compensation expense

 

 

 

 
867

 

 
867

Balance as of March 31, 2019
79,331

 
(874
)
 
$
7,933

 
$
(5,085
)
 
$
551,382

 
$
(403,263
)
 
$
150,967



 
As of and for the three months ended March 31, 2018
 
Shares
 
Amount
 
Additional Paid In Capital
 
Accumulated
Deficit
 
Total Shareholders’ Equity
Common
 
Treasury
Common
 
Treasury
 
(in thousands)
Balance as of December 31, 2017
78,350

 
(631
)
 
$
7,835

 
$
(4,416
)
 
$
546,158

 
$
(339,481
)
 
$
210,096

Net loss

 

 

 

 

 
(11,139
)
 
(11,139
)
Purchase of treasury stock

 
(28
)
 

 
(96
)
 

 

 
(96
)
Cumulative-effect adjustment due to adoption of ASC Topic 606

 

 

 

 

 
67

 
67

Issuance of restricted stock
105

 

 
10

 

 
(10
)
 

 

Stock-based compensation expense

 

 

 

 
1,259

 

 
1,259

Balance as of March 31, 2018
78,455

 
(659
)
 
$
7,845

 
$
(4,512
)
 
$
547,407

 
$
(350,553
)
 
$
200,187















See accompanying notes to consolidated financial statements.



4



PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
Three months ended March 31,
 
2019
 
2018
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net loss
$
(15,115
)
 
$
(11,139
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation
22,653

 
23,747

Allowance for doubtful accounts, net of recoveries
62

 
(52
)
Gain on dispositions of property and equipment, net
(1,075
)
 
(335
)
Stock-based compensation expense
867

 
1,259

Phantom stock compensation expense
848

 
430

Amortization of debt issuance costs and discount
763

 
707

Impairment
1,046

 

Deferred income taxes
1,156

 
911

Change in other noncurrent assets
699

 
(463
)
Change in other noncurrent liabilities
(20
)
 
1,414

Changes in current assets and liabilities:
 
 
 
Receivables
(17,488
)
 
(3,296
)
Inventory
(1,293
)
 
(2,042
)
Prepaid expenses and other current assets
(178
)
 
882

Accounts payable
2,339

 
51

Deferred revenues
(64
)
 
(108
)
Accrued expenses
(5,990
)
 
(6,908
)
Net cash provided by (used in) operating activities
(10,790
)
 
5,058

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(16,844
)
 
(11,657
)
Proceeds from sale of property and equipment
1,043

 
1,283

Proceeds from insurance recoveries

 
523

Net cash used in investing activities
(15,801
)
 
(9,851
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Debt issuance costs

 
(33
)
Purchase of treasury stock
(120
)
 
(96
)
Net cash used in financing activities
(120
)
 
(129
)
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(26,711
)
 
(4,922
)
Beginning cash, cash equivalents and restricted cash
54,564

 
75,648

Ending cash, cash equivalents and restricted cash
$
27,853

 
$
70,726

 
 
 
 
Supplementary disclosure:
 
 
 
Interest paid
$
13,887

 
$
13,515

Income tax paid
$
1,013

 
$
658

Noncash investing and financing activity:
 
 
 
Change in capital expenditure accruals
$
1,531

 
$
2,931

 








See accompanying notes to condensed consolidated financial statements.



5



PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Business
Pioneer Energy Services Corp. provides land-based drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia.
Our drilling services business segments provide contract land drilling services through three domestic divisions which are located in the Marcellus/Utica, Permian Basin and Eagle Ford, and Bakken regions, and internationally in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies and most of the ancillary equipment needed to operate our drilling rigs. Our drilling rigs are equipped with 1,500 horsepower or greater drawworks, are 100% pad-capable and offer the latest advancements in pad drilling. The following table summarizes our current rig fleet count and composition for each drilling services business segment:
 
Multi-well, Pad-capable
 
AC rigs
 
SCR rigs
 
Total
Domestic drilling
17

 

 
17
International drilling

 
8

 
8
 
 
 
 
 
25
Our production services business segments provide a range of well, wireline and coiled tubing services to a diverse group of exploration and production companies, with our operations concentrated in the major domestic onshore oil and gas producing regions in the Gulf Coast, Mid-Continent and Rocky Mountain states. As of March 31, 2019, the fleet count for each of our production services business segments are as follows:
 
550 HP
 
600 HP
 
Total
Well servicing rigs, by horsepower (HP) rating
113
 
12
 
125

 
 
 
 
 
 
 
 
 
 
 
Total
Wireline services units
 
93

Coiled tubing services units
 
9

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer Energy Services Corp. and our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. We suggest that you read these unaudited condensed consolidated financial statements together with the consolidated financial statements and the related notes included in our annual report on Form 10-K for the year ended December 31, 2018.
Use of Estimates In preparing the accompanying unaudited condensed consolidated financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities we report as of the dates of the balance sheets and income and expenses we report for the periods shown in the income statements and statements of cash flows. Our actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to our estimates of certain variable revenues and amortization periods of certain deferred revenues and costs associated with drilling daywork contacts, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance and our estimate of compensation related accruals.



6



Subsequent Events In preparing the accompanying unaudited condensed consolidated financial statements, we have reviewed events that have occurred after March 31, 2019, through the filing of this Form 10-Q, for inclusion as necessary.
Reclassifications Certain amounts in the unaudited condensed consolidated financial statements for the prior year periods have been reclassified to conform to the current year’s presentation.
Change in Accounting Principle and Recently Issued Accounting Standards
Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASUs) to the FASB Accounting Standards Codification (ASC). We consider the applicability and impact of all ASUs. Any ASUs not listed below were assessed and determined to be either not applicable or are expected to have an immaterial impact on our consolidated financial position and results of operations.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases, which among other things, requires lessees to recognize substantially all leases on the balance sheet, with expense recognition that is similar to the former lease standard, and aligns the principles of lessor accounting with the principles of the FASB’s new revenue guidance in ASC Topic 606. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which provides an option to apply the guidance prospectively, and provides a practical expedient allowing lessors to combine the lease and non-lease components of revenues where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component.
As a lessor, we elected to apply the practical expedient which allows us to continue to recognize our revenues (both lease and service components) under ASC Topic 606, and continue to present them as one revenue stream in our unaudited condensed consolidated statements of operations. As a lessee, this standard primarily impacts our accounting for long-term real estate and office equipment leases, for which we recognized an operating lease asset and a corresponding operating lease liability on our unaudited condensed consolidated balance sheet of $9.8 million at the adoption date of January 1, 2019. For leases that commenced prior to adoption of ASC Topic 842, we elected to apply the package of practical expedients which allows us to carry forward the historical lease classification. The adoption of ASC Topic 842 also resulted in a cumulative effect adjustment of $0.3 million after applicable income taxes, related to the write off of previously unamortized deferred lease liabilities at the date of adoption. For more information about the accounting under ASC Topic 842, and disclosures under the new standard, see Note 3, Leases.
Additional Detail of Account Balances
Cash Equivalents and Restricted Cash — Cash equivalents at March 31, 2019 and December 31, 2018 were $17.7 million and $40.6 million, respectively, consisting of investments in highly-liquid money-market mutual funds. Our restricted cash balance reflects the portion of net proceeds from the issuance of our senior secured term loan which are currently held in a restricted account until the completion of certain administrative tasks related to providing access rights to certain of our real property.
Other Receivables Our other receivables primarily consist of recoverable taxes related to our international operations, as well as net income tax receivables.
Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets include items such as insurance, rent deposits, software subscriptions and other fees. We routinely expense these items in the normal course of business over the periods that we benefit from these expenses. Prepaid expenses and other current assets also include deferred mobilization costs for short-term drilling contracts.
Other Noncurrent Assets Other noncurrent assets consist of deferred mobilization costs on long-term drilling contracts, cash deposits related to the deductibles on our workers’ compensation insurance policies, and deferred compensation plan investments.



7



Other Accrued Expenses Our other accrued expenses include accruals for items such as sales taxes, property taxes, withholding tax liability related to our international operations, and professional and other fees. We routinely expense these items in the normal course of business over the periods these expenses benefit. Our other accrued expenses also includes the current portion of the lease liability associated with our long-term operating leases.
Other Noncurrent Liabilities Our other noncurrent liabilities consist of the noncurrent portion of deferred mobilization revenues and liabilities associated with our long-term compensation plans.
2.    Revenue from Contracts with Customers
Our production services business segments earn revenues for well servicing, wireline services and coiled tubing services pursuant to master services agreements based on purchase orders or other contractual arrangements with the client. Production services jobs are generally short-term (ranging in duration from several hours to less than 30 days) and are charged at current market rates for the labor, equipment and materials necessary to complete the job. Production services jobs are varied in nature, but typically represent a single performance obligation, either for a particular job, a series of distinct jobs, or a period of time during which we stand ready to provide services as our client needs them. Revenue is recognized for these services over time, as the services are performed.
Our drilling services business segments earn revenues by drilling oil and gas wells for our clients under daywork contracts. Daywork contracts are comprehensive agreements under which we provide a comprehensive service offering, including the drilling rig, crew, supplies and most of the ancillary equipment necessary to operate the rig. Contract modifications that extend the term of a dayrate contract are generally accounted for prospectively as a separate dayrate contract. We account for our services provided under daywork contracts as a single performance obligation comprised of a series of distinct time increments which are satisfied over time. Accordingly, dayrate revenues are recognized in the period during which the services are performed.
With most drilling contracts, we also receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site. Revenues associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service and are recognized ratably over the related contract term.
The amount of demobilization revenue that we ultimately collect is dependent upon the specific contractual terms, most of which include provisions for reduced (or no) payment for demobilization when, among other things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client prior to the termination of the current contract. Since revenues associated with demobilization activity are typically variable, at each period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable. Any change in the expected amount of demobilization revenue is accounted for with the net cumulative impact of the change in estimate recognized in the period during which the revenue estimate is revised.
The upfront costs that we incur to mobilize the drilling rig to our client’s initial drilling site are capitalized and recognized ratably over the term of the related contract, including any contracted renewal or extension periods, which is our estimate of the period during which we expect to benefit from the cost of mobilizing the rig. Costs associated with the final demobilization at the end of the contract term are expensed when incurred, when the demobilization activity is performed.
We also act as a principal for certain reimbursable services and auxiliary equipment provided by us to our clients, for which we incur costs and earn revenues, many of which are variable, or dependent upon the activity that is actually performed each day under the related contract. Accordingly, reimbursements that we receive for out-of-pocket expenses are recorded as revenues and the out-of-pocket expenses for which they relate are recorded as operating costs during the period to which they relate within the series of distinct time increments.
All of our revenues are recognized net of sales taxes, when applicable.
Contract Asset and Liability Balances and Contract Cost Assets
Contract asset and contract liability balances relate to demobilization and mobilization revenues, respectively. Demobilization revenue that we expect to receive is recognized ratably over the related contract term, but invoiced upon completion of the demobilization activity. Mobilization revenue, which is typically collected upon the completion of the initial mobilization activity, is deferred and recognized ratably over the related contract term. Contract asset and liability



8



balances are netted at the contract level, with the net current and noncurrent portions separately classified in our condensed consolidated balance sheets, and referred to herein as “deferred revenues.”
Contract cost assets represent the costs associated with the initial mobilization required in order to fulfill the contract, which are deferred and recognized ratably over the period during which we expect to benefit from the mobilization, or the period during which we expect to satisfy the performance obligations of the related contract. Contract cost assets are presented as either current or noncurrent, according to the duration of the original contract to which it relates, and referred to herein as “deferred costs.”
Our current and noncurrent deferred revenues and costs as of March 31, 2019 and December 31, 2018 were as follows (amounts in thousands):
 
March 31, 2019
 
December 31, 2018
Current deferred revenues
$
1,659

 
$
1,722

Current deferred costs
1,621

 
1,543

 
 
 
 
Noncurrent deferred revenues
$
428

 
$
437

Noncurrent deferred costs
676

 
679

The changes in deferred revenue and cost balances during the three months March 31, 2019 are primarily related to increased deferred mobilization revenue and cost balances for the deployment of one international rig and two domestic rigs under new term contracts in 2019, mostly offset by the amortization of deferred revenues and costs during the period. Amortization of deferred revenues and costs during the three months ended March 31, 2019 and 2018 were as follows (amounts in thousands):
 
Three months ended March 31,
 
2019
 
2018
Amortization of deferred revenues
$
954

 
$
499

Amortization of deferred costs
986

 
463

In February 2019, one of our domestic clients elected to early terminate their contract with us and make an upfront early termination payment based on a per day rate for the remaining term of the contract, resulting in $0.4 million of revenues associated with the 34 days that were remaining under the contract term. We subsequently placed this rig with another client. As of March 31, 2019, all but one of our 25 rigs are earning under daywork contracts, 14 of which are domestic term contracts. Our international drilling contracts are cancelable by our clients without penalty, although the contracts require 15 to 30 days notice and payment for demobilization services. The spot contracts for our domestic drilling rigs are also terminable by our client with 30 days notice, but typically do not include a required payment for demobilization services.
3.     Leases
As a drilling and production services provider, we provide the drilling rigs and production services equipment which are necessary to fulfill our performance obligations and which are considered leases under ASU No. 2016-02, Leases, (together with its amendments, herein referred to as “ASC Topic 842”). However, ASU No. 2018-11, Leases: Targeted Improvements, allows lessors to (i) combine the lease and non-lease components of revenues when the revenue recognition pattern is the same and when the lease component, when accounted for separately, would be considered an operating lease, and (ii) account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component. We elected to apply this expedient and therefore continue to recognize our revenues (both lease and service components) under ASC Topic 606, and continue to present them as one revenue stream in our unaudited condensed consolidated statements of operations.
As a lessee, we lease our corporate office headquarters in San Antonio, Texas, and we conduct our business operations through 28 other regional offices located throughout the United States and internationally in Colombia. These operating locations typically include regional offices, storage and maintenance yards and employee housing sufficient to support our operations in the area. We lease most of these properties under non-cancelable term and month-to-month operating leases, many of which contain renewal options that can extend the lease term from one to five years and some of which contain escalation clauses. We also lease supplemental equipment, typically under cancelable short-term and very short term (less than 30 days) leases. Due to the nature of our business, any option to renew these short-term leases, and the options to extend certain of our long-term real estate leases, are generally not considered reasonably certain to be exercised. Therefore,



9



the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.
In accordance with ASC Topic 842, we recognize an operating lease asset and a corresponding operating lease liability for all our long-term leases, which include real estate and office equipment leases, for which we elected to combine, or not separate, the lease and non-lease components, and therefore, all fixed charges associated with non-lease components are included in the lease payments and the calculation of the operating lease asset and associated lease liability. The operating lease asset and operating lease liability are discounted at the rate which represents our secured incremental borrowing rate, as most of our leases do not provide an implicit rate, and which we estimate based on the rate in effect under our asset-based lending facility.
We recognize rent expense on a straight-line basis, except for certain variable expenses which are recognized when the variability is resolved, typically during the period in which they are paid. Variable lease payments typically include charges for property taxes and insurance, and some leases contain variable payments related to non-lease components, including common area maintenance and usage of office equipment (for example, copiers), which totaled approximately $0.3 million during the three months ended March 31, 2019. The following table summarizes our lease expense recognized for the three months ending March 31, 2019, excluding variable lease costs (amounts in thousands):
Long-term operating lease expense
$
842

Short-term operating lease expense
$
3,403

The following table summarizes the amount and timing of our obligations associated with our long-term operating leases (amounts in thousands):
 
March 31, 2019
 
December 31, 2018
Within 1 year
$
2,878

 
$
3,318

In the second year
2,045

 
2,032

In the third year
1,761

 
1,721

In the fourth year
1,355

 
1,407

In the fifth year
1,007

 
1,110

Thereafter
1,496

 
1,738

Total undiscounted lease obligations
$
10,542

 
$
11,326

Impact of discounting
(1,098
)
 
 
Discounted value of operating lease obligations
$
9,444

 
 
 
 
 
 
Current operating lease liabilities
$
2,515

 
 
Noncurrent operating lease liabilities
6,929

 
 
 
$
9,444

 
 
The following table summarizes the weighted-average remaining lease term and discount rate associated with our long-term operating leases:
 
March 31, 2019
Weighted-average remaining lease term (in years)
4.9

Weighted-average discount rate
4.5
%
4.    Property and Equipment
Capital Expenditures — Our capital expenditures were $18.4 million and $14.6 million during the three months ended March 31, 2019 and 2018, respectively. Capital expenditures during the three months ended March 31, 2019 primarily related to various upgrades and refurbishments of our drilling and production services fleets, the completion of construction on our 17th AC drilling rig which we deployed in March, and various vehicle and ancillary equipment purchases. Capital expenditures during the three months ended March 31, 2018 primarily related to the expansion of our wireline and coiled tubing fleets, upgrades and refurbishments to our international drilling rigs, and routine equipment and fleet maintenance.
At March 31, 2019, capital expenditures incurred for property and equipment not yet placed in service was $9.2 million, primarily related to capital projects to upgrade and refurbish certain components of our drilling rig fleet, support equipment for our coiled tubing unit fleet, and installments on two new wireline units on order at March 31, 2019, both of which were

10




received and placed in service in April. At December 31, 2018, property and equipment not yet placed in service was $19.6 million, primarily related to approximately $8.0 million of costs for the construction of a new-build drilling rig, various refurbishments and upgrades of drilling and production services equipment, and the purchase of other new ancillary equipment.
Gain/Loss on Disposition of Property — During the three months ended March 31, 2019, we recognized a net gain of $1.1 million on the disposition of various property and equipment. During the three months ended March 31, 2018, we recognized a net gain of $0.3 million on the disposition of various property and equipment, including the sale of six wireline units and one drilling rig, which was previously held for sale.
Assets Held for Sale — As of March 31, 2019 and December 31, 2018, our condensed consolidated balance sheet reflects assets held for sale of $4.8 million and $3.6 million, respectively, which includes the fair value of one domestic SCR drilling rig and related spare equipment and three coiled tubing units. Additionally, our March 31, 2019 assets held for sale also include the fair value of a building for one closed wireline location, 12 wireline units and spare coiled tubing equipment which were designated as held for sale in the first quarter of 2019.
During the three months ended March 31, 2019, we recognized impairment charges of $1.0 million to reduce the carrying values of assets which were classified as held for sale, to their estimated fair values, based on expected sales prices which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures.
Impairments In accordance with ASC Topic 360, Property, Plant and Equipment, we monitor all indicators of potential impairments, and concluded there are no triggers present that require impairment testing as of March 31, 2019, other than the placement of certain assets as held for sale.
We evaluate for potential impairment of long-lived assets when indicators of impairment are present, which may include, among other things, significant adverse changes in industry trends (including revenue rates, utilization rates, oil and natural gas market prices, and industry rig counts). In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of the assets grouped at the lowest level that independent cash flows can be identified. We perform an impairment evaluation and estimate future undiscounted cash flows for each of our reporting units separately, which are our domestic drilling services, international drilling services, well servicing, wireline services and coiled tubing services segments. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we determine the fair value of the asset group, and the amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of the assets.
The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. The assumptions we use in the evaluation for impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions.
5.
Valuation Allowances on Deferred Tax Assets
As of March 31, 2019, we had $98.1 million and $9.3 million of deferred tax assets related to domestic and foreign net operating losses, respectively, that are available to reduce future taxable income. Our domestic net operating losses will begin to expire in 2030, while losses generated after 2017 are carried forward indefinitely but are limited in usage to 80% of taxable income. The majority of our foreign net operating losses are carried forward indefinitely, but losses generated after 2016 are carried forward for 12 years and will begin to expire in 2029.
We provide a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. As result, as of March 31, 2019, we had a valuation allowance of $66.4 million that offset a portion of our domestic and foreign net deferred tax assets.
Since 2017, market conditions and operating results for our Colombian operations have improved, and if they continue to improve, then we may determine that there is sufficient evidence that future taxable income will be generated to utilize our foreign net operating losses which would result in the reversal of the valuation allowance relating to our foreign deferred tax assets.

11




6.     Debt
Our debt consists of the following (amounts in thousands):
 
March 31, 2019
 
December 31, 2018
Senior secured term loan
$
175,000

 
$
175,000

Senior notes
300,000

 
300,000

 
475,000

 
475,000

Less unamortized discount (based on imputed interest rate of 10.46%)
(2,475
)
 
(2,668
)
Less unamortized debt issuance costs
(7,210
)
 
(7,780
)
 
$
465,315

 
$
464,552

Senior Secured Term Loan
Our senior secured term loan (the “Term Loan”) entered into on November 8, 2017 provided for one drawing in the amount of $175 million, net of a 2% original issue discount. Proceeds from the issuance of the Term Loan were used to repay the entire outstanding balance under our previous credit facility, plus fees and accrued and unpaid interest, as well as the fees and expenses associated with entering into the Term Loan and ABL Facility, which is further described below. The remainder of the proceeds are available to be used for other general corporate purposes.
The Term Loan is not subject to amortization payments of principal. Interest on the principal amount accrues at the LIBOR rate or the base rate as defined in the agreement, at our option, plus an applicable margin of 7.75% and 6.75%, respectively. The Term Loan is set to mature on November 8, 2022, or earlier, subject to certain circumstances as described in the agreement, and including an earlier maturity date if the outstanding balance of the Senior Notes exceeds $15.0 million on December 14, 2021, at which time the Term Loan would then mature. However, the Term Loan may be prepaid, at our option, at any time, in whole or in part, subject to a minimum of $5 million, and subject to a declining call premium as defined in the agreement.
The Term Loan contains a financial covenant requiring the ratio of (i) the net orderly liquidation value of our fixed assets (based on appraisals obtained as required by our lenders), on a consolidated basis, in which the lenders under the Term Loan maintain a first priority security interest, plus proceeds of asset dispositions not required to be used to effect a prepayment of the Term Loan to (ii) the outstanding principal amount of the Term Loan, to be at least equal to 1.50 to 1.00 as of any June 30 or December 31 of any calendar year through maturity.
The Term Loan contains customary mandatory prepayments from the proceeds of certain transactions including certain asset dispositions and debt issuances, and has additional customary restrictions that, among other things, and subject to certain exceptions, limit our ability to:
incur additional debt;
incur or permit liens on assets;
make investments and acquisitions;
consolidate or merge with another company;
engage in asset sales; and
pay dividends or make distributions.
In addition, the Term Loan contains customary events of default, upon the occurrence and during the continuation of any of which the applicable margin would increase by 2% per year, including without limitation:
payment defaults;
covenant defaults;
material breaches of representations or warranties;
event of default under, or acceleration of, other material indebtedness;
bankruptcy or insolvency;
material judgments against us;
failure of any security document supporting the Term Loan; and
change of control.



12



Our obligations under the Term Loan are guaranteed by our wholly-owned domestic subsidiaries, and are secured by substantially all of our domestic assets, in each case, subject to certain exceptions and permitted liens.
Asset-based Lending Facility
In addition to entering into the Term Loan, on November 8, 2017, we also entered into a senior secured revolving asset-based credit facility (the “ABL Facility”) providing for borrowings in the aggregate principal amount of up to $75 million, subject to a borrowing base and including a $30 million sub-limit for letters of credit. The ABL Facility bears interest, at our option, at the LIBOR rate or the base rate as defined in the ABL Facility, plus an applicable margin ranging from 1.75% to 3.25%, based on average availability on the ABL Facility. The ABL Facility requires a commitment fee due monthly based on the average monthly unused amount of the commitments of the lenders, a fronting fee due for each letter of credit issued, and a monthly letter of credit fee due based on the average undrawn amount of letters of credit outstanding during such period. The ABL Facility is generally set to mature 90 days prior to the maturity of the Term Loan, subject to certain circumstances, including the future repayment, extinguishment or refinancing of our Term Loan and/or Senior Notes prior to their respective maturity dates. Availability under the ABL Facility is determined by reference to a borrowing base as defined in the agreement, generally comprised of a percentage of our accounts receivable and inventory.
We have not drawn upon the ABL Facility to date. As of March 31, 2019, we had $9.7 million in committed letters of credit, which, after borrowing base limitations, resulted in borrowing availability of $58.7 million. Borrowings available under the ABL Facility are available for general corporate purposes, and there are no limitations on our ability to access the borrowing capacity provided there is no default and compliance with the covenants under the ABL Facility is maintained. Additionally, if our availability under the ABL Facility is less than 15% of the maximum amount (or $11.25 million), we are required to maintain a minimum fixed charge coverage ratio, as defined in the ABL Facility, of at least 1.00 to 1.00, measured on a trailing 12 month basis.
The ABL Facility also contains customary restrictive covenants which, subject to certain exceptions, limit, among other things, our ability to:
declare dividends and make other distributions;
issue or sell certain equity interests;
optionally prepay, redeem or repurchase certain of our subordinated indebtedness;
make loans or investments (including acquisitions);
incur additional indebtedness or modify the terms of permitted indebtedness;
grant liens;
change our business or the business of our subsidiaries;
merge, consolidate, reorganize, recapitalize, or reclassify our equity interests;
sell our assets, and
enter into certain types of transactions with affiliates.
Our obligations under the ABL Facility are guaranteed by us and our domestic subsidiaries, subject to certain exceptions, and are secured by (i) a first-priority perfected security interest in all inventory and cash, and (ii) a second-priority perfected security in substantially all of our tangible and intangible assets, in each case, subject to certain exceptions and permitted liens.
Senior Notes
In 2014, we issued $300 million of unregistered senior notes at face value, with a coupon interest rate of 6.125% that are due in 2022 (the “Senior Notes”). The Senior Notes will mature on March 15, 2022 with interest due semi-annually in arrears on March 15 and September 15 of each year. We have the option to redeem the Senior Notes, in whole or in part, in each case at the redemption price specified in the Indenture dated March 18, 2014 (the “Indenture”) plus any accrued and unpaid interest and any additional interest (as defined in the Indenture) thereon to the date of redemption.
In accordance with a registration rights agreement with the holders of our Senior Notes, we filed an exchange offer registration statement on Form S-4 with the Securities and Exchange Commission that became effective on October 2, 2014. The exchange offer registration statement enabled the holders of our Senior Notes to exchange their senior notes for publicly registered notes with substantially identical terms. References to the “Senior Notes” herein include the senior notes issued in the exchange offer.



13



If we experience a change of control (as defined in the Indenture), we will be required to make an offer to each holder of the Senior Notes to repurchase all or any part of the Senior Notes at a purchase price equal to 101% of the principal amount of each Senior Note, plus accrued and unpaid interest, if any, to the date of repurchase. If we engage in certain asset sales, within 365 days of such sale we will be required to use the net cash proceeds from such sale, to the extent we do not reinvest those proceeds in our business, to make an offer to repurchase the Senior Notes at a price equal to 100% of the principal amount of each Senior Note, plus accrued and unpaid interest to the repurchase date.
The Indenture, among other things, limits us and certain of our subsidiaries, subject to certain exceptions, in our ability to:
pay dividends on stock, repurchase stock, redeem subordinated indebtedness or make other restricted payments and investments;
incur, assume or guarantee additional indebtedness or issue preferred or disqualified stock;
create liens on our or their assets;
enter into sale and leaseback transactions;
sell or transfer assets;
borrow, pay dividends, or transfer other assets from certain of our subsidiaries;
consolidate with or merge with or into, or sell all or substantially all of our properties to any other person;
enter into transactions with affiliates; and
enter into new lines of business.
The Senior Notes are not subject to any sinking fund requirements. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing domestic subsidiaries and by certain of our future domestic subsidiaries. (See Note 12, Guarantor/Non-Guarantor Condensed Consolidated Financial Statements.)
Debt Issuance Costs and Original Issue Discount
Costs incurred in connection with the issuance of our Senior Notes were capitalized and are being amortized using the effective interest method over the term of the Senior Notes which mature in March 2022. The original issue discount and costs incurred in connection with the issuance of the Term Loan were capitalized and are being amortized using the effective interest method over the expected term of the agreement. Costs incurred in connection with the ABL Facility were capitalized and are being amortized using the straight-line method over the expected term of the agreement.
7.
Fair Value of Financial Instruments
The FASB’s Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, defines fair value and provides a hierarchal framework associated with the level of subjectivity used in measuring assets and liabilities at fair value. Our financial instruments consist primarily of cash and cash equivalents, trade and other receivables, trade payables, phantom stock unit awards and long-term debt.
The carrying value of cash and cash equivalents, trade and other receivables, and trade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments. At March 31, 2019 and December 31, 2018, the aggregate estimated fair value of our phantom stock unit awards was $10.3 million and $5.1 million, respectively, for which the vested portion recognized as a liability in our condensed consolidated balance sheets was $4.5 million and $3.6 million, respectively. The phantom stock unit awards, and the measurement of fair value for these awards, are described in more detail in Note 9, Stock-Based Compensation Plans.
The fair value of our Senior Notes is estimated based on recent observable market prices for our debt instruments, which are defined by ASC Topic 820 as Level 2 inputs. The fair value of our Term Loan is based on estimated market pricing for our debt instrument, which is defined by ASC Topic 820 as using Level 3 inputs which are unobservable and therefore more likely to be affected by changes in assumptions. The following table presents supplemental fair value information and carrying value for our debt, net of discount and debt issuance costs (amounts in thousands):
 
 
 
March 31, 2019
 
December 31, 2018
 
Hierarchy Level
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Senior notes
2
 
$
297,198

 
$
187,500

 
$
296,988

 
$
186,750

Senior secured term loan
3
 
168,117

 
$
175,875

 
167,564

 
175,875

 
 
 
$
465,315

 
$
363,375

 
$
464,552

 
$
362,625




14



8.
Earnings (Loss) Per Common Share
The following table presents a reconciliation of the numerators and denominators of the basic earnings per share and diluted earnings per share computations (amounts in thousands, except per share data):
 
Three months ended March 31,
 
2019
 
2018
Numerator (both basic and diluted):
 
 
 
Net loss
$
(15,115
)
 
$
(11,139
)
Denominator:
 
 
 
Weighted-average shares (denominator for basic earnings (loss) per share)
78,311

 
77,606

Dilutive effect of outstanding stock options, restricted stock and restricted stock unit awards

 

Denominator for diluted earnings (loss) per share
78,311

 
77,606

Loss per common share - Basic
$
(0.19
)
 
$
(0.14
)
Loss per common share - Diluted
$
(0.19
)
 
$
(0.14
)
Potentially dilutive securities excluded as anti-dilutive
4,189

 
5,621

9.
Stock-Based Compensation Plans
We grant stock option and restricted stock awards with vesting based on time of service conditions. We grant restricted stock unit awards with vesting based on time of service conditions, and in certain cases, subject to performance and market conditions. We grant phantom stock unit awards with vesting based on time of service, performance and market conditions, which are classified as liability awards under ASC Topic 718, Compensation—Stock Compensation since we expect to settle the awards in cash when they become vested.
We recognize compensation cost for our stock-based compensation awards based on the fair value estimated in accordance with ASC Topic 718, Compensation—Stock Compensation, and we recognize forfeitures when they occur. For our awards with graded vesting, we recognize compensation expense on a straight-line basis over the service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. The following table summarizes the stock-based compensation expense recognized, by award type, and the compensation expense recognized for phantom stock unit awards during the three months ended March 31, 2019 and 2018 (amounts in thousands):
 
Three months ended March 31,
 
2019
 
2018
Stock option awards
$
51

 
$
142

Restricted stock awards
114

 
113

Restricted stock unit awards
702

 
1,004

 
$
867

 
$
1,259

Phantom stock unit awards
$
848

 
$
430

Stock Option Awards
We grant stock option awards which generally become exercisable over a three-year period and expire ten years after the date of grant. Our stock-based compensation plans require that all stock option awards have an exercise price that is not less than the fair market value of our common stock on the date of grant. We issue shares of our common stock when vested stock option awards are exercised. We estimate the fair value of each option grant on the date of grant using a Black-Scholes option pricing model. We did not grant any stock option awards during the three months ended March 31, 2019 or 2018.

15




Restricted Stock and Restricted Stock Unit Awards
We grant restricted stock awards that vest over a one-year period with a fair value based on the closing price of our common stock on the date of the grant. When restricted stock awards are granted, or when restricted stock unit awards are converted to restricted stock, shares of our common stock are considered issued, but subject to certain restrictions.
We grant restricted stock unit awards with vesting based on time of service conditions only (“time-based RSUs”), and we grant restricted stock unit awards with vesting based on time of service, which are also subject to performance and market conditions (“performance-based RSUs”). Shares of our common stock are issued to recipients of restricted stock units only when they have satisfied the applicable vesting conditions.
There were no restricted stock or performance-based restricted stock unit awards granted during the three months ended March 31, 2019 or 2018. The following table summarizes the number and weighted-average grant-date fair value of the restricted stock unit awards granted during the three months ended March 31, 2019 and 2018:
 
Three months ended March 31,
 
2019
 
2018
Time-based RSUs granted
870,648

 
788,377

Weighted-average grant-date fair value (per unit)
$
1.38

 
$
3.85

Our time-based RSUs generally vest over a three-year period, with fair values based on the closing price of our common stock on the date of grant. Our performance-based RSUs cliff vest at 39 months from the date of grant and are granted at a target number of issuable shares, for which the final number of shares of common stock is adjusted based on our actual achievement levels that are measured against predetermined performance conditions. The number of shares of common stock awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the performance period, generally three years. As of March 31, 2019, we estimate that the achievement level for our outstanding performance-based RSUs granted in 2017 will be approximately 100% of the predetermined performance conditions.
Phantom Stock Unit Awards
We grant phantom stock unit awards with vesting based on time of service, performance and market conditions. Time-based phantom stock unit awards, which were granted in 2019, vest annually in thirds over a three-year vesting period. Performance-based phantom stock unit awards, which were granted in 2016, 2018 and 2019, cliff-vest after 39 months from the date of grant, with vesting based on time of service, performance and market conditions. The number of performance-based units ultimately awarded will be based upon the Company’s achievement in certain performance conditions, as compared to a predefined peer group, over the respective three-year performance periods. Each unit awarded will entitle the employee to a cash payment equal to the stock price of our common stock on the date of vesting, subject to an applicable maximum payout feature that is based on a multiple of the grant date stock price.
The fair value of time-based phantom stock unit awards is measured using a Black-Scholes pricing model and the fair value of performance-based phantom stock unit awards is measured using a Monte Carlo simulation model, with inputs that are defined as Level 3 inputs under ASC Topic 820, Fair Value Measurements and Disclosures.
The following table summarizes the number, weighted-average grant-date fair value, and applicable maximum cash value of the phantom stock unit awards granted during the three months ended March 31, 2019 and 2018:
 
Three months ended March 31,
 
2019
 
2018
Performance-based:
 
 
 
Phantom stock unit awards granted
2,467,776

 
1,188,216

Weighted-average grant-date fair value (per unit)
$
1.10

 
$
3.06

Maximum cash value per unit (three times the grant date stock price)
$
4.62

 
$
9.66

Time-based:
 
 
 
Phantom stock unit awards granted
810,648

 

Weighted-average grant-date fair value (per unit)
$
1.17

 
$

Maximum cash value per unit (three times the grant date stock price)
$
4.62

 
$


16




These awards are classified as liability awards under ASC Topic 718, Compensation—Stock Compensation, because we expect to settle the awards in cash when they vest, and are remeasured at fair value at the end of each reporting period until they vest. The change in fair value is recognized as a current period compensation expense in our condensed consolidated statements of operations. Therefore, changes in the inputs used to measure fair value can result in volatility in our compensation expense. This volatility increases as the phantom stock awards approach the vesting date. We estimate that a hypothetical increase of $1 in the market price of our common stock, which was $1.77 as of March 31, 2019, if all other inputs were unchanged, would result in an increase in cumulative compensation expense of $0.6 million, which represents the hypothetical increase in fair value of the liability for the 2018 and 2019 phantom stock unit awards. The maximum payout feature of these awards would limit this volatility if the stock price exceeds the maximum payout threshold. As of March 31, 2019, we estimate the weighted-average achievement level for our outstanding phantom stock unit awards granted in 2018 and 2019 to be 100%.
In April 2019, we determined that 175% of the target number of phantom stock unit awards granted during 2016 were earned based on the Company’s achievement of the performance measures, as compared to the predefined peer group, which resulted in an aggregate cash payment of $3.5 million to settle these awards.
10.
Segment Information
We have five operating segments, comprised of two drilling services business segments (domestic and international drilling) and three production services business segments (well servicing, wireline services and coiled tubing services), which reflects the basis used by management in making decisions regarding our business for resource allocation and performance assessment, as required by ASC Topic 280, Segment Reporting.
Our domestic and international drilling services segments provide contract land drilling services to a diverse group of exploration and production companies through our three drilling divisions in the US and internationally in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies and most of the ancillary equipment needed to operate our drilling rigs.
Our well servicing, wireline services and coiled tubing services segments provide a range of production services to a diverse group of exploration and production companies, with our operations concentrated in the major domestic onshore oil and gas producing regions in the Gulf Coast, Mid-Continent and Rocky Mountain states.

17




The following tables set forth certain financial information for each of our segments and corporate (amounts in thousands):
 
As of and for the three months ended March 31,
 
2019
 
2018
Revenues:
 
 
 
Domestic drilling
$
38,009

 
$
35,926

International drilling
21,643

 
17,611

Drilling services
59,652

 
53,537

Well servicing
26,254

 
21,114

Wireline services
45,874

 
56,601

Coiled tubing services
14,788

 
13,226

Production services
86,916

 
90,941

Consolidated revenues
$
146,568

 
$
144,478

 
 
 
 
Operating costs:
 
 
 
Domestic drilling
$
22,469

 
$
20,898

International drilling
16,485

 
12,961

Drilling services
38,954

 
33,859

Well servicing
18,896

 
15,570

Wireline services
39,347

 
42,486

Coiled tubing services
11,388

 
10,851

Production services
69,631

 
68,907

Consolidated operating costs
$
108,585

 
$
102,766

 
 
 
 
Gross margin:
 
 
 
Domestic drilling
$
15,540

 
$
15,028

International drilling
5,158

 
4,650

Drilling services
20,698

 
19,678

Well servicing
7,358

 
5,544

Wireline services
6,527

 
14,115

Coiled tubing services
3,400

 
2,375

Production services
17,285

 
22,034

Consolidated gross margin
$
37,983

 
$
41,712

 
 
 
 
Identifiable Assets:
 
 
 
Domestic drilling (1)
$
377,239

 
$
380,382

International drilling (1) (2)
44,565

 
39,305

Drilling services
421,804

 
419,687

Well servicing
121,861

 
124,162

Wireline services
96,297

 
96,686

Coiled tubing services
40,810

 
30,824

Production services
258,968

 
251,672

Corporate
56,319

 
86,341

Consolidated identifiable assets
$
737,091

 
$
757,700

 
 
 
 
Depreciation:
 
 
 
Domestic drilling
$
10,545

 
$
10,449

International drilling
1,343

 
1,447

Drilling services
11,888

 
11,896

Well servicing
4,882

 
4,920

Wireline services
4,075

 
4,608

Coiled tubing services
1,528

 
2,032

Production services
10,485

 
11,560

Corporate
280

 
291

Consolidated depreciation
$
22,653

 
$
23,747




18



 
As of and for the three months ended March 31,
 
2019
 
2018
Capital Expenditures:
 
 
 
Domestic drilling
$
8,242

 
$
2,758

International drilling
1,758

 
2,700

Drilling services
10,000

 
5,458

Well servicing
3,895

 
2,049

Wireline services
2,835

 
3,673

Coiled tubing services
1,524

 
3,164

Production services
8,254

 
8,886

Corporate
121

 
244

Consolidated capital expenditures
$
18,375

 
$
14,588

(1)
Identifiable assets for our drilling segments include the impact of a $42.5 million and $31.5 million intercompany balance, as of March 31, 2019 and 2018 respectively, between our domestic drilling segment (intercompany receivable) and our international drilling segment (intercompany payable).
(2)
Identifiable assets for our international drilling segment include five drilling rigs that are owned by our Colombia subsidiary and three drilling rigs that are owned by one of our domestic subsidiaries and leased to our Colombia subsidiary.
The following table reconciles the consolidated gross margin of our segments reported above to loss from operations as reported on the condensed consolidated statements of operations (amounts in thousands):
 
Three months ended March 31,
 
2019
 
2018
Consolidated gross margin
$
37,983

 
$
41,712

Depreciation
(22,653
)
 
(23,747
)
General and administrative
(19,758
)
 
(19,194
)
Bad debt expense (recovery), net
(62
)
 
52

Impairment
(1,046
)
 

Gain on dispositions of property and equipment, net
1,075

 
335

Loss from operations
$
(4,461
)
 
$
(842
)
11.
Commitments and Contingencies
In connection with our operations in Colombia, our foreign subsidiaries routinely obtain bonds for bidding on drilling contracts, performing under drilling contracts, and remitting customs and importation duties. We have guaranteed payments of $63.0 million relating to our performance under these bonds as of March 31, 2019. Based on historical experience and information currently available, we believe the likelihood of demand for payment under these bonds and guarantees is remote.
We are currently undergoing sales and use tax audits for multi-year periods. As of March 31, 2019 and December 31, 2018, our accrued liability was $1.8 million and $1.7 million, respectively, based on our estimate of the sales and use tax obligations that are expected to result from these audits. Due to the inherent uncertainty of the audit process, we believe that it is reasonably possible that we may incur additional tax assessments with respect to one or more of the audits in excess of the amount accrued. We believe that such an outcome would not have a material adverse effect on our results of operations or financial position. Because certain of these audits are in a preliminary stage, an estimate of the possible loss or range of loss from an adverse result in all or substantially all of these cases cannot reasonably be made.
Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment-related disputes. Legal costs relating to these matters are expensed as incurred. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flow from operations.



19



12.
Guarantor/Non-Guarantor Condensed Consolidating Financial Statements
Our Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all existing 100% owned domestic subsidiaries, except for Pioneer Services Holdings, LLC. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Notes. The non-guarantor subsidiaries do not have any payment obligations under the Senior Notes, the guarantees or the Indenture.
In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary will pay the holders of its debt and other liabilities, including its trade creditors, before it will be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the Indenture will not guarantee the Senior Notes. As of March 31, 2019, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.
As a result of the guarantee arrangements, we are presenting the following condensed consolidating balance sheets, statements of operations and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.



20



CONDENSED CONSOLIDATING BALANCE SHEETS
(unaudited, in thousands)
 
March 31, 2019
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
24,400

 
$

 
$
2,455

 
$

 
$
26,855

Restricted cash
998

 

 

 

 
998

Receivables, net of allowance
380

 
108,312

 
39,959

 
(566
)
 
148,085

Intercompany receivable (payable)
(27,942
)
 
70,231

 
(42,289
)
 

 

Inventory

 
10,606

 
9,623

 

 
20,229

Assets held for sale

 
4,794

 

 

 
4,794

Prepaid expenses and other current assets
1,524

 
4,218

 
1,565

 

 
7,307

Total current assets
(640
)
 
198,161

 
11,313

 
(566
)
 
208,268

Net property and equipment
1,863

 
487,415

 
28,489

 

 
517,767

Investment in subsidiaries
584,449

 
27,789

 

 
(612,238
)
 

Deferred income taxes
42,659

 

 

 
(42,659
)
 

Operating lease assets
3,470

 
5,273

 
680

 

 
9,423

Other noncurrent assets
622

 
523

 
488

 

 
1,633

Total assets
$
632,423

 
$
719,161

 
$
40,970

 
$
(655,463
)
 
$
737,091

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,089

 
$
31,188

 
$
5,886

 
$

 
$
38,163

Deferred revenues

 
443

 
1,216

 

 
1,659

Accrued expenses
9,678

 
50,451

 
5,191

 
(566
)
 
64,754

Total current liabilities
10,767

 
82,082

 
12,293

 
(566
)
 
104,576

Long-term debt, less unamortized discount and debt issuance costs
465,315

 

 

 

 
465,315

Noncurrent operating lease liabilities
3,076

 
3,322

 
531

 

 
6,929

Deferred income taxes

 
47,503

 

 
(42,659
)
 
4,844

Other noncurrent liabilities
2,298

 
1,805

 
357

 

 
4,460

Total liabilities
481,456

 
134,712

 
13,181

 
(43,225
)
 
586,124

Total shareholders’ equity
150,967

 
584,449

 
27,789

 
(612,238
)
 
150,967

Total liabilities and shareholders’ equity
$
632,423

 
$
719,161

 
$
40,970

 
$
(655,463
)
 
$
737,091

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
50,350

 
$

 
$
3,216

 
$

 
$
53,566

Restricted cash
998

 

 

 

 
998

Receivables, net of allowance
436

 
95,030

 
35,219

 
196

 
130,881

Intercompany receivable (payable)
(27,245
)
 
67,098

 
(39,853
)
 

 

Inventory

 
9,945

 
8,953

 

 
18,898

Assets held for sale

 
3,582

 

 

 
3,582

Prepaid expenses and other current assets
1,743

 
3,197

 
2,169

 

 
7,109

Total current assets
26,282

 
178,852

 
9,704

 
196

 
215,034

Net property and equipment
2,022

 
494,376

 
28,460

 

 
524,858

Investment in subsidiaries
574,695

 
25,370

 

 
(600,065
)
 

Deferred income taxes
42,585

 

 

 
(42,585
)
 

Other noncurrent assets
596

 
511

 
551

 

 
1,658

Total assets
$
646,180

 
$
699,109

 
$
38,715

 
$
(642,454
)
 
$
741,550

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
1,093

 
$
26,795

 
$
6,246

 
$

 
$
34,134

Deferred revenues

 
95

 
1,627

 

 
1,722

Accrued expenses
14,020

 
49,640

 
5,056

 
196

 
68,912

Total current liabilities
15,113

 
76,530

 
12,929

 
196

 
104,768

Long-term debt, less unamortized discount and debt issuance costs
464,552

 

 

 

 
464,552

Deferred income taxes

 
46,273

 

 
(42,585
)
 
3,688

Other noncurrent liabilities
1,457

 
1,611

 
416

 

 
3,484

Total liabilities
481,122

 
124,414

 
13,345

 
(42,389
)
 
576,492

Total shareholders’ equity
165,058

 
574,695

 
25,370

 
(600,065
)
 
165,058

Total liabilities and shareholders’ equity
$
646,180

 
$
699,109

 
$
38,715

 
$
(642,454
)
 
$
741,550




21



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(unaudited, in thousands)

 
Three months ended March 31, 2019
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
124,925

 
$
21,643

 
$

 
$
146,568

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
92,102

 
16,483

 

 
108,585

Depreciation
280

 
21,030

 
1,343

 

 
22,653

General and administrative
7,996

 
11,446

 
451

 
(135
)
 
19,758

Bad debt expense (recovery), net

 
62

 

 

 
62

Gain on dispositions of property and equipment, net

 
(984
)
 
(91
)
 

 
(1,075
)
Impairment

 
1,046

 

 

 
1,046

Intercompany leasing

 
(1,215
)
 
1,215

 

 

Total costs and expenses
8,276

 
123,487

 
19,401

 
(135
)
 
151,029

Income (loss) from operations
(8,276
)
 
1,438

 
2,242

 
135

 
(4,461
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
2,768

 
2,464

 

 
(5,232
)
 

Interest expense, net of interest capitalized
(9,874
)
 
(14
)
 
3

 

 
(9,885
)
Other
206

 
266

 
347

 
(135
)
 
684

Total other income (expense)
(6,900
)
 
2,716

 
350

 
(5,367
)
 
(9,201
)
Income (loss) before income taxes
(15,176
)
 
4,154

 
2,592

 
(5,232
)
 
(13,662
)
Income tax (expense) benefit 1
61

 
(1,386
)
 
(128
)
 

 
(1,453
)
Net income (loss)
$
(15,115
)
 
$
2,768

 
$
2,464

 
$
(5,232
)
 
$
(15,115
)
 
 
 
Three months ended March 31, 2018
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenues
$

 
$
126,867

 
$
17,611

 
$

 
$
144,478

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating costs

 
89,809

 
12,957

 

 
102,766

Depreciation
291

 
22,009

 
1,447

 

 
23,747

General and administrative
6,238

 
12,539

 
522

 
(105
)
 
19,194

Bad debt expense (recovery), net

 
(52
)
 

 

 
(52
)
Gain on dispositions of property and equipment, net

 
(321
)
 
(14
)
 

 
(335
)
Intercompany leasing

 
(1,215
)
 
1,215

 

 

Total costs and expenses
6,529

 
122,769

 
16,127

 
(105
)
 
145,320

Income (loss) from operations
(6,529
)
 
4,098

 
1,484

 
105

 
(842
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Equity in earnings of subsidiaries
4,549

 
1,653

 

 
(6,202
)
 

Interest expense, net of interest capitalized
(9,516
)
 

 
3

 

 
(9,513
)
Other
2

 
219

 
388

 
(105
)
 
504

Total other income (expense)
(4,965
)
 
1,872

 
391

 
(6,307
)
 
(9,009
)
Income (loss) before income taxes
(11,494
)
 
5,970

 
1,875

 
(6,202
)
 
(9,851
)
Income tax (expense) benefit 1
355

 
(1,421
)
 
(222
)
 

 
(1,288
)
Net income (loss)
$
(11,139
)
 
$
4,549

 
$
1,653

 
$
(6,202
)
 
$
(11,139
)
 
 
 
 
 
 
 
 
 
 
1  The income tax (expense) benefit reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries.





22




CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Three months ended March 31, 2019
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows from operating activities
$
(18,807
)
 
$
7,603

 
$
414

 
$

 
$
(10,790
)