Quarterly Report (10-q)

Date : 08/02/2018 @ 8:49PM
Source : Edgar (US Regulatory)
Stock : Basic Energy Services, Inc. (BAS)
Quote : 4.71  0.0 (0.00%) @ 2:28PM

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________________________________________________________________________________________ 
Form 10-Q
______________________________________________________________________________________________________________________________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended   June 30, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to             
Commission File Number 001-32693
______________________________________________________________________________________________________________________________________________  
Basic Energy Services, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________________________________________________________________________ 

Delaware 54-2091194
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
801 Cherry Street, Suite 2100
Fort Worth, Texas
76102
(Address of principal executive offices) (Zip code)

(817) 334-4100
(Registrant’s telephone number, including area code)
______________________________________________________________________________________________________________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒   No  ☐ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  

Large accelerated filer Accelerated filer
Non-accelerated filer ☐  (Do not check if a smaller reporting company) Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒ 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  ☒    No   ☐ 
There were 26,470,750 shares of the registrant’s common stock outstanding as of August 2, 2018.  
1

BASIC ENERGY SERVICES, INC.
Index to Form 10-Q 
 


2

CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things, the risk factors discussed in this quarterly report and in our most recent Annual Report on Form 10-K and other factors, most of which are beyond our control.
The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect,” “indicate” and similar expressions are intended to identify forward-looking statements. All statements other than statements of current or historical fact contained in this quarterly report are forward-looking statements. Although we believe that the forward-looking statements contained in this quarterly report are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
Important factors that may affect our expectations, estimates or projections include:
• a decline in, or substantial volatility of, oil or natural gas prices, and any related changes in expenditures by our customers;
• the effects of future acquisitions on our business;
• changes in customer requirements in markets or industries we serve;
• the ability to operate our business following emergence from bankruptcy;
• availability and cost of equipment;
• competition within our industry;
• general economic and market conditions;
• our access to current or future financing arrangements;
• operational hazards inherent in the oil and gas industry;
• our ability to replace or add workers at economic rates; and
• environmental and other governmental regulations.
Our forward-looking statements speak only as of the date of this quarterly report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements contained herein. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This quarterly report includes market share data, industry data and forecasts that we obtained from internal company surveys (including estimates based on our knowledge and experience in the industry in which we operate), market research, consultant surveys, publicly available information, industry publications and surveys. These sources include Baker Hughes Incorporated, the Association of Energy Service Companies, and the Energy Information Administration of the U.S. Department of Energy. Industry surveys and publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe such information is accurate and reliable, we have not independently verified any of the data from third-party sources cited or used for our management’s industry estimates, nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our position relative to our competitors or as to market share refer to the most recent available data.


3

PART I — FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
Basic Energy Services, Inc.
Consolidated Balance Sheets 
(in thousands, except share data)
June 30, 2018 December 31, 2017
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 30,683  $ 38,520 
Restricted cash 47,125  47,703 
Trade accounts receivable, net of allowance of $1,519 and $1,523, respectively 163,248  148,444 
Accounts receivable - related parties 23  22 
Income tax receivable 1,587  1,878 
Inventories 38,657  36,403 
Prepaid expenses 17,552  22,353 
Other current assets 4,223  4,292 
Total current assets 303,098  299,615 
Property and equipment, net 480,552  502,579 
Deferred debt costs, net of amortization 2,511  2,497 
Intangible assets, net of amortization 3,102  3,221 
Other assets 12,971  12,568 
Total assets $ 802,234  $ 820,480 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 90,268  $ 80,518 
Accrued expenses 60,042  51,973 
Current portion of long-term debt, net of discounts of $990 and $1,657, respectively 48,882  55,997 
Other current liabilities 4,168  2,469 
Total current liabilities 203,360  190,957 
Long-term debt, net of discounts and deferred financing costs of $8,143 and $10,244, respectively 279,032  259,242 
Deferred tax liabilities —  78 
Other long-term liabilities 36,691  31,550 
Stockholders' equity:
Preferred stock; $0.01 par value; 5,000,000 shares authorized; none designated or issued at March 31, 2018 and December 31, 2017 —  — 
Common stock; $0.01 par value; 80,000,000 shares authorized; 26,644,130 shares issued and 26,470,750 shares outstanding at June 30, 2018; 26,371,572 shares issued and 26,219,129 shares outstanding at December 31, 2017 266  264 
Additional paid-in capital 453,907  439,517 
Accumulated deficit (167,259) (96,674)
Treasury stock, at cost, 173,380 and 152,443 shares at June 30, 2018 and December 31, 2017, respectively (3,763) (4,454)
Total stockholders' equity 283,151  338,653 
Total liabilities and stockholders' equity $ 802,234  $ 820,480 

See accompanying notes to   unaudited   consolidated financial statements.
4

Basic Energy Services, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Revenues:
Completion and remedial services $ 126,948  $ 107,385  $ 244,545  $ 187,817 
Well servicing 64,405  53,054  121,942  101,672 
Water logistics

59,679  50,740  116,188  100,946 
Contract drilling 2,337  2,117  5,359  4,880 
Total revenues 253,369  213,296  488,034  395,315 
Expenses:
Completion and remedial services 100,528  81,199  190,187  148,451 
Well servicing 49,680  41,796  97,871  82,712 
Water logistics

44,008  41,580  84,931  83,118 
Contract drilling 1,743  1,863  4,286  4,271 
General and administrative, including stock-based compensation of $9,626 and $6,275 in the three months ended June 30, 2018 and 2017 and $16,424 and $10,723 for the six months ended June 30, 2018 and 2017, respectively 51,460  36,037  92,468  70,241 
Depreciation and amortization 31,161  25,956  61,396  51,369 
(Gain) loss on disposal of assets 1,921  (223) 3,700  (690)
Total expenses 280,501  228,208  534,839  439,472 
Operating loss (27,132) (14,912) (46,805) (44,157)
Other income (expense):
Interest expense (12,806) (9,179) (24,089) (18,289)
Interest income 60  87  18 
Other income 102  144  441  235 
Loss before income taxes (39,776) (23,941) (70,366) (62,193)
Income tax benefit (expense) (278) —  (219) (374)
Net loss $ (40,054) $ (23,941) $ (70,585) $ (62,567)
Loss per share of common stock:
Basic $ (1.51) $ (0.92) $ (2.67) $ (2.41)
Diluted $ (1.51) $ (0.92) $ (2.67) $ (2.41)


See accompanying notes to   unaudited   consolidated financial statements.

5

Basic Energy Services, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)

Additional Total
Common Stock Paid-In Treasury Accumulated Stockholders'
Shares Amount Capital Stock Deficit Equity
Balance - December 31, 2017 26,371,572  $ 264  $ 439,517  $ (4,454) $ (96,674) $ 338,653 
Issuance of stock 272,558  —  —  — 
Amortization of share-based compensation —  —  16,424  —  —  16,424 
Treasury stock, net —  —  (2,034) 691  —  (1,343)
Net loss —  —  —  —  $ (70,585) (70,585)
Balance - June 30, 2018 26,644,130  $ 266  $ 453,907  $ (3,763) $ (167,259) $ 283,151 


See accompanying notes to   unaudited   consolidated financial statements.

6

Basic Energy Services, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

Six Months Ended June 30,
2018 2017
Cash flows from operating activities:
Net loss $ (70,585) $ (62,567)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 61,396  51,369 
Accretion on asset retirement obligation 83  79 
Change in allowance for doubtful accounts (4) 1,751 
Amortization of deferred financing costs 372  19 
Amortization of debt discounts 2,742  3,862 
Non-cash compensation 16,424  10,723 
(Gain) loss on disposal of assets 3,700  (690)
Deferred income taxes (78) 389 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (14,801) (43,562)
Inventories (2,254) (989)
Income tax receivable 292 
Prepaid expenses and other current assets 6,458  (5,958)
Other assets (403) (524)
Accounts payable 6,808  26,841 
Other liabilities 6,905  (265)
Accrued expenses 8,069  6,128 
Net cash provided by (used in) operating activities 25,124  (13,393)
Cash flows from investing activities:
Purchase of property and equipment (31,697) (33,745)
Proceeds from sale of assets 999  4,976 
Net cash used in investing activities (30,698) (28,769)
Cash flows from financing activities:
Payments of debt (27,140) (22,266)
Proceeds from debt 26,000  — 
Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock

(1,341) (38)
Deferred loan costs and other financing activities (360) (162)
Net cash used in financing activities
(2,841) (22,466)
Net decrease in cash, cash equivalents and restricted cash (8,415) (64,628)
Cash, cash equivalents and restricted cash - beginning of period 86,223  101,304 
Cash, cash equivalents and restricted cash - end of period $ 77,808  $ 36,676 

See accompanying notes to   unaudited   consolidated financial statements.
7

BASIC ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
June 30, 2018 (unaudited) 
1. Basis of Presentation and Nature of Operations
Basis of Presentation
The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc. and subsidiaries (“Basic” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q in accordance with GAAP and financial statement requirements promulgated by the U.S. Securities and Exchange Commission (“SEC”). The notes to the consolidated financial statements (unaudited) should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation have been made in the accompanying unaudited financial statements.
Liquidity and Capital Resources
As of June 30, 2018, our primary capital resources were cash flows from operations, utilization of capital leases and borrowings under our accounts receivable securitization facility (the “New ABL Facility”) which had aggregate commitments of $150.0 million as of June 30, 2018. As of June 30, 2018, we had $90.0 million in borrowings under the New ABL Facility compared to $64.0 million at December 31, 2017. At June 30, 2018, we had unrestricted cash and cash equivalents of  $30.7 million compared to $38.5 million as of December 31, 2017. An additional amount of  $47.1 million of our cash is classified as restricted cash. Including the availability of $14.7 million under the New ABL Facility, we currently have $45.4 million in total liquidity. For further discussion see Note 5, "Long-Term Debt and Interest Expense".
Nature of Operations  
Basic provides a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, water logistics, well servicing and contract drilling. These services are primarily provided using Basic’s fleet of equipment. Basic’s operations are concentrated in the major United States onshore oil and gas producing regions in Texas, New Mexico, Oklahoma, North Dakota, Wyoming, Arkansas, Kansas, Louisiana, California, the Rocky Mountains and Appalachia.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of our wholly owned subsidiaries and our variable interest entity for which we hold a majority voting interest. All intercompany transactions and balances have been eliminated.

Estimates, Risks and Uncertainties
Preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, and expenses. Critical accounting estimates are those in which significant judgment is used, and the impact of any changes in estimates would have a significant effect on our consolidated financial statements. Actual results and outcomes may vary from management's estimates and assumptions. Areas where critical accounting estimates are made by management include litigation and self-insured risk reserves.

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2. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited statements of cash flows (in thousands):

June 30,
2018 2017
Cash and cash equivalents $ 30,683  $ 34,244 
Restricted cash 47,125  2,432 
Total cash, cash equivalents and restricted cash $ 77,808  $ 36,676 

The Company’s restricted cash includes cash balances which are legally or contractually restricted to use. The Company’s restricted cash is included in current assets as of June 30, 2018 and 2017, respectively, and includes primarily cash used to collateralize insurance reserves.
3. Property and Equipment
Property and equipment consisted of the following (in thousands):

June 30, 2018 December 31, 2017
Land $ 21,297  $ 21,217 
Buildings and improvements 40,377  40,043 
Well service units and equipment 121,452  113,657 
Frac equipment/test tanks 120,639  111,172 
Pumping equipment 99,358  96,844 
Water logistics equipment 80,490  79,711 
Disposal facilities 54,936  51,363 
Rental equipment 57,654  53,926 
Light vehicles 23,972  19,869 
Contract drilling equipment 11,424  10,967 
Other 4,121  4,092 
Construction equipment 2,438  2,338 
Brine and fresh water stations 2,688  2,704 
Software 831  817 
641,677  608,720 
Less accumulated depreciation and amortization 161,125  106,141 
Property and equipment, net $ 480,552  $ 502,579 
  

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Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next five years. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consists of the following (in thousands):
June 30, 2018 December 31, 2017
Pumping equipment $ 56,425  $ 56,225 
Water logistics equipment 42,083  40,097 
Light vehicles 16,283  12,160 
Contract drilling equipment 818  783 
Well service units and equipment 98  262 
Construction equipment 378  378 
Rental equipment
572  — 
116,657  109,905 
Less accumulated amortization 31,058  18,445 
Property and equipment under capital lease, net $ 85,599  $ 91,460 


 Amortization of assets held under capital leases is included in depreciation and amortization expense in the consolidated statements of operations. Amortization amounts consisted of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Lease amortization expense $ 7,240  $ 3,890  $ 14,360  $ 7,590 

4. Intangible Assets

Basic had trade names of $3.4 million as of June 30, 2018 and December 31, 2017. Trade names have a 15-year life and are tested for impairment when triggering events are identified.

Basic’s intangible assets were as follows (in thousands):

June 30, 2018 December 31, 2017
Trade names $ 3,410  $ 3,410 
Other intangible assets 48  48 
$ 3,458  $ 3,458 
Less accumulated amortization 356  237 
Intangible assets subject to amortization, net $ 3,102  $ 3,221 

 
Amortization expense of intangible assets for the three months ended June 30, 2018 and 2017 was as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Intangible amortization expense $ 60  $ 60  $ 118  $ 119 



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5. Long-Term Debt and Interest Expense
Long-term debt consisted of the following (in thousands): 

June 30, 2018 December 31, 2017
Credit facilities:
Term Loan $ 161,700  $ 162,525 
New ABL Facility 90,000  64,000 
Capital leases and other notes 85,347  100,615 
Unamortized discounts, premiums, and deferred financing costs
(9,133) (11,901)
Total principal amount of debt instruments, net 327,914  315,239 
Less current portion 48,882  55,997 
Long-term debt $ 279,032  $ 259,242 


Debt Discounts
The following discounts on debt represent the unamortized discount to fair value of our Amended and Restated Term Loan Credit Agreement (the "Term Loan Agreement") and the short-term and long-term portions of the fair value discount of capital leases (in thousands):

June 30, 2018 December 31, 2017
Unamortized discount on Term Loan $ 8,003  $ 9,187 
Unamortized discount on Capital Leases - short-term 990  1,657 
Unamortized discount on Capital Leases - long-term —  891 
Unamortized deferred financing costs
140  166 
$ 9,133  $ 11,901 


On April 11, 2018, the Company entered into Amendment No. 2 (“Amendment No. 2”) to the New ABL Facility. Among other things, Amendment No. 2 (i) increased the aggregate commitments under the Credit Agreement from $120 million to $150 million and (ii) added Morgan Stanley Senior Funding, Inc. as a lender and amended the commitment schedule to the Credit Agreement to reflect the same.
As of June 30, 2018, Basic had $44.0 million of letters of credit outstanding secured by restricted cash borrowed under the New ABL Facility. Basic had borrowings under the New ABL Facility of $90 million as of June 30, 2018, giving Basic $14.7 million of available borrowing capacity under the New ABL Facility.

Basic’s interest expense for the three and six months ended June 30, 2018 and 2017, consisted of the following (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Cash payments for interest $ 7,564  $ 8,040  $ 16,142  $ 9,308 
Commitment and other fees paid 994  170  1,803  187 
Amortization of debt issuance costs and discounts 1,463  2,321  3,114  3,881 
Change in accrued interest 2,769  (1,364) 2,990  4,878 
Other 16  12  40  35 
$ 12,806  $ 9,179  $ 24,089  $ 18,289 

 


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6. Fair Value Measurements
The following is a summary of the carrying amounts, net of discounts, and estimated fair values of our financial instruments as of June 30, 2018 and December 31, 2017:

Fair Value June 30, 2018 December 31, 2017
Hierarchy Level Carrying Amount Fair Value Carrying Amount Fair Value
(In thousands)
Term Loan 3 $ 153,697  $ 159,969  $ 153,338  $ 162,052 

 
The fair value of the Term Loan Agreement is based upon our discounted cash flows model using a third-party discount rate. The carrying amount of our New ABL Facility approximates fair value due to its variable-rate characteristics.
The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts receivable-related parties, capital leases, accounts payable and accrued expenses approximate fair value due to the short maturities of these instruments.

7. Commitments and Contingencies
Environmental
Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations. Management believes that the likelihood of any of these items resulting in a material adverse impact to Basic’s financial position, liquidity, capital resources or future results of operations is remote.
Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to bring Basic into total compliance with the laws and regulations. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.
Litigation
From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.
Sales and Use Tax Audit
In 2014, Basic was notified by the Texas State Comptroller’s office that a sales and use tax audit for the period from 2010 through 2013 would be conducted. A preliminary report has been issued in the second quarter of 2018 for this audit, and Basic will appeal the preliminary report through the redetermination process. Based on our analysis, the potential liability associated with this audit ranges from $6.0 million to $24.0 million. An accrual for the estimated liability of $6.0 million has been recorded in Basic’s financial statements as general and administrative expense and the related interest associated with the taxes of $1.5 million is included in interest expense. This range could potentially change in future periods as the appeals and redetermination process progresses.
Self-Insured Risk Accruals
Basic is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers’ compensation, general liability claims, automobile liability and medical coverage of $5.0 million, $1.0 million, $1.0 million, and $425,000, respectively. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions based upon third-party data and claims history.
At June 30, 2018 and December 31, 2017, self-insured risk accruals totaled approximately $30.4 million, net of $865,000 receivable for medical and dental coverage, and $30.3 million, net of $971,000 receivable for medical and dental coverage, respectively. 
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8. Stockholders’ Equity
Common Stock
In February 2018, Basic granted certain members of management 203,625 performance-based restricted stock units and 203,625 restricted stock units, which each vest over a three -year period.

Treasury Stock
Basic has acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of certain restricted stock units and awards. Basic acquired a total of 77,431 shares of common stock through net share settlements during the first six months of 2018 and issued 56,494 shares from treasury stock for accelerated vestings and stock grants in the first six months of 2018. Basic acquired 1,032 shares of common stock through net share settlements during the first six months of 2017. 
9. Incentive Plan
The following table reflects compensation activity related to the management incentive plan for the three and six-month periods ended June 30, 2018 (dollar amounts in thousands):

Compensation expense for three months ended June 30, 2018 Compensation expense for six months ended June 30, 2018 Unrecognized compensation expense Weighted average remaining life Fair value of share based awards vested
Restricted stock awards and restricted stock units $ 8,025  $ 13,757  $ 23,448  1.7 $ 4,882 
Stock options $ 1,601  $ 2,667  $ 5,203  8.6 $ — 

Stock Option Awards

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Stock options granted under the Company's management incentive plan expire ten years from the date they are granted, and vest over a three -year service period.
The following table reflects changes during the six-month period and a summary of stock options outstanding at June 30, 2018:

Weighted
Average
Weighted Remaining Aggregate
Number of Average Contractual Intrinsic
Options Exercise Term Value
Granted Price (Years) (000's)
Non-statutory stock options:
Outstanding, beginning of period 654,016  $ 39.23 
Options granted —  — 
Options forfeited (17,266) 39.23 
Options exercised —  — 
Outstanding, end of period 636,750  $ 39.23  8.6 $ — 
Exercisable, end of period 222,354  $ 39.23  8.6 $ — 
Vested or expected to vest, end of period 414,396  $ 39.23  8.6 $ — 

 
There were no stock options exercised during the six months ended June 30, 2018 and 2017.
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Restricted Stock Unit Awards
 A summary of the status of Basic’s non-vested restricted stock units at June 30, 2018 and changes during the six months ended June 30, 2018 are presented in the following table:

Weighted Average
Number of Grant Date Fair
Non-vested Units Shares Value Per Share
Non-vested at beginning of period 1,097,010  $ 36.35 
Granted during period 455,650  16.01 
Vested during period (284,904) 36.21 
Forfeited during period (54,134) 28.21 
Non-vested at end of period 1,213,622  $ 29.11 

 
Restricted Stock Awards
On May 21, 2018, Basic’s Board of Directors, the "Board", approved grants of restricted stock awards to non-employee members of the Board. The number of restricted shares granted was 48,400. These grants are subject to vesting over a period of ten months and are subject to accelerated vesting under certain circumstances.

Phantom   Stock Awards
On February 8, 2018, the Compensation Committee of the Board approved grants of phantom restricted stock awards to certain key employees. Phantom shares are recorded as a liability at their current market value and are included in other current liabilities. The number of phantom shares issued on February 8, 2018 was 82,170. These grants remain subject to vesting annually in one-third increments over a three -year period, with the first portion vesting on March 15, 2019, and are subject to accelerated vesting in certain circumstances.
10. Related Party Transactions
Basic had receivables from employees of approximately $23,000 and $22,000 as of June 30, 2018 and December 31, 2017, respectively.
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11.   Revenues
Our revenues are generated by services, which are consumed as provided by our customers on their sites. As a decentralized organization, contracts for our services are negotiated on a regional level and are on a per job basis, with jobs being completed in a short period of time, usually one day or up to a week. Revenue is recognized as performance obligations have been completed on a daily basis either as Accounts Receivable or Work-in-Process ("WIP"), when all of the proper approvals are obtained.
A small percentage of our jobs may require performance obligations which extend over a longer period of time and are not invoiced until all performances obligations in the contract are complete, such as, drilling or plugging a well, fishing services, and pad site preparation jobs. Because these jobs are performed on the customer's job site, and we are contractually entitled to bill for our services performed to date, revenues for these service lines are recognized on a daily basis as services are performed and recorded as Contract Assets rather than a WIP or Accounts Receivable. Contract Assets are typically invoiced within 30 to 60 days of recognizing revenue.
As of June 30, 2018, accounts receivable related to products and services were $163.2 million. At June 30, 2018 and December 31, 2017, the Company had $1.8 million and $2.4 million of contract assets, respectively, and had no contract liabilities or deferred contract costs recorded on the consolidated balance sheet.
Basic does not have any long-term service contracts; nor do we have revenue expected to be recognized in any future year related to remaining performance obligations or contracts with variable consideration related to undelivered performance obligations.
The following table sets forth certain financial information with respect to Basic’s disaggregation of revenues by geographic location and type (in thousands):

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Reportable Segments
Completion & Remedial Services Well Servicing Water Logistics Contract Drilling Total
Three Months Ended June 30, 2018
Primary Geographical Markets
Permian Basin $ 43,323  $ 30,364  $ 32,066  $ 2,466  $ 108,219 
Texas Gulf Coast 236  7,338  8,614  —  16,188 
ArkLaTex & Mid-Continent 56,144  12,731  11,616  —  80,491 
Rocky Mountain 27,198  6,911  8,833  —  42,942 
Eastern USA 1,267  2,286  —  —  3,553 
West Coast —  7,730  —  —  7,730 
Corporate (Intercompany) (1,220) (2,955) (1,450) (129) (5,754)
Total $ 126,948  $ 64,405  $ 59,679  $ 2,337  $ 253,369 
Major Products/service lines
Pumping Equipment $ 86,495  $ —  $ —  $ —  $ 86,495 
Well Servicing —  54,132  —  —  54,132 
Transport/Vacuum —  —  36,798  —  36,798 
Coiled Tubing 15,179  —  —  —  15,179 
RAFT 21,860  —  —  —  21,860 
Plugging —  6,521  —  —  6,521 
Production and Disposal Facilities —  —  6,044  —  6,044 
Hot Oiler —  —  5,003  —  5,003 
Other 3,414  3,752  11,834  2,337  21,337 
Total $ 126,948  $ 64,405  $ 59,679  $ 2,337  $ 253,369 
Timing of revenue recognition
Products and services transferred over time 126,948  64,405  59,679  2,337  253,369 
Total $ 126,948  $ 64,405  $ 59,679  $ 2,337  $ 253,369 
Six Months Ended June 30, 2018
Primary Geographical Markets
Permian Basin $ 81,489  $ 57,377  $ 62,654  $ 5,622  $ 207,142 
Texas Gulf Coast 1,045  14,653  17,488  —  33,186 
ArkLaTex & Mid-Continent 105,444  23,950  22,322  —  151,716 
Rocky Mountain 56,987  13,135  16,609  —  86,731 
Eastern USA 2,957  4,471  —  —  7,428 
West Coast —  14,179  —  —  14,179 
Corporate (Intercompany) (3,377) (5,823) (2,885) (263) (12,348)
Total $ 244,545  $ 121,942  $ 116,188  $ 5,359  $ 488,034 
Major Products/service lines
Pumping Equipment $ 159,305  $ —  $ —  $ —  $ 159,305 
Well Servicing —  102,668  —  —  102,668 
Transport/Vacuum —  —  72,043  —  72,043 
Coiled Tubing 35,159  —  —  —  35,159 
RAFT 42,642  —  —  —  42,642 
Plugging —  12,534  —  —  12,534 
Production and Disposal Facilities —  —  11,695  —  11,695 
Hot Oiler —  —  10,388  —  10,388 
Other 7,439  6,740  22,062  5,359  41,600 
Total $ 244,545  $ 121,942  $ 116,188  $ 5,359  $ 488,034 
Timing of revenue recognition
Products and services transferred over time 244,545  121,942  116,188  5,359  488,034 
Total $ 244,545  $ 121,942  $ 116,188  $ 5,359  $ 488,034 
 

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12. Earnings Per Share
The following table sets forth the computation of unaudited basic and diluted loss per share (in thousands, except share data): 

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
(Unaudited)
(Unaudited)
Numerator (both basic and diluted):
Net loss $ (40,054) $ (23,941) $ (70,585) $ (62,567)
Denominator:
Denominator for basic loss per share 26,444,145  26,011,369  26,390,393  26,005,409 
Basic loss per common share: $ (1.51) $ (0.92) $ (2.67) $ (2.41)
Diluted loss per common share: $ (1.51) $ (0.92) $ (2.67) $ (2.41)

 
Stock options and warrants of 2,703,326  were excluded from the computation of diluted loss per share for the three and six months ended June 30, 2018 because the effect would have been anti-dilutive. Unvested restricted shares of 21,807 and 12,722 were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2018, because the effect would have been anti-dilutive. Unvested stock options and warrants of 1,346,095 and 1,362,232 were excluded from the computation of diluted loss per share for the three and six months ended June 30, 2017, because the effect would have been anti-dilutive. 

17

13. Business Segment Information
The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands): 

Completion
and Remedial
Well
Water Contract Corporate
Services
Servicing
Logistics Drilling and Other Total
Three Months Ended June 30, 2018 (Unaudited)
Operating revenues $ 126,948  $ 64,405  $ 59,679  $ 2,337  $ —  $ 253,369 
Direct operating costs (100,528) (49,680) (44,008) (1,743) —  (195,959)
Segment profits $ 26,420  $ 14,725  $ 15,671  $ 594  $ —  $ 57,410 
Depreciation and amortization $ 14,815  $ 5,890  $ 8,038  $ 363  $ 2,055  $ 31,161 
Capital expenditures (excluding acquisitions) $ 9,820  $ 5,601  $ 8,589  $ 103  $ 322  $ 24,435 
Three Months Ended June 30, 2017 (Unaudited)
Operating revenues $ 107,385  $ 53,054  $ 50,740  $ 2,117  $ —  $ 213,296 
Direct operating costs (81,199) (41,796) (41,580) (1,863) —  (166,438)
Segment profits $ 26,186  $ 11,258  $ 9,160  $ 254  $ —  $ 46,858 
Depreciation and amortization $ 12,412  $ 4,636  $ 6,637  $ 501  $ 1,770  $ 25,956 
Capital expenditures (excluding acquisitions) $ 25,849  $ 5,116  $ 8,916  $ (36) $ 1,004  $ 40,849 
Six Months Ended June 30, 2018 (Unaudited)
Operating revenues $ 244,545  $ 121,942  $ 116,188  $ 5,359  $ —  $ 488,034 
Direct operating costs (190,187) (97,871) (84,931) (4,286) —  (377,275)
Segment profits $ 54,358  $ 24,071  $ 31,257  $ 1,073  $ —  $ 110,759 
Depreciation and amortization $ 29,075  $ 11,663  $ 15,764  $ 783  $ 4,111  $ 61,396 
Capital expenditures (excluding acquisitions) $ 21,337  $ 12,307  $ 10,778  $ 510  $ 754  $ 45,686 
Identifiable assets $ 250,249  $ 111,043  $ 120,814  $ 5,899  $ 314,229  $ 802,234 
Six Months Ended June 30, 2017 (Unaudited)
Operating revenues $ 187,817  $ 101,672  $ 100,946  $ 4,880  $ —  $ 395,315 
Direct operating costs (148,451) (82,712) (83,118) (4,271) —  (318,552)
Segment profits $ 39,366  $ 18,960  $ 17,828  $ 609  $ —  $ 76,763 
Depreciation and amortization $ 24,563  $ 9,176  $ 13,136  $ 991  $ 3,503  $ 51,369 
Capital expenditures (excluding acquisitions) $ 58,058  $ 13,493  $ 16,337  $ 17  $ 1,247  $ 89,152 
Identifiable assets $ 268,381  $ 109,817  $ 133,557  $ 10,025  $ 264,586  $ 786,366 

 
The following table reconciles the segment profits reported above to the operating loss as reported in the consolidated statements of operations (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Segment profits $ 57,410  $ 46,858  $ 110,759  $ 76,763 
General and administrative expenses (51,460) (36,037) (92,468) (70,241)
Depreciation and amortization (31,161) (25,956) (61,396) (51,369)
Gain (loss) on disposal of assets (1,921) 223  (3,700) 690 
Operating loss $ (27,132) $ (14,912) $ (46,805) $ (44,157)

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14. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following periods (in thousands):

Six Months Ended June 30,
2018 2017
Capital leases and notes issued for equipment $ 11,047  $ 49,214 
Asset retirement obligation additions (retirements) (148) — 
Change in accrued property and equipment 2,942  6,193 

 
Basic paid no income taxes during the six months ended June 30, 2018 and 2017. Basic paid interest of approximately $16.1 million and $9.3 million during the six months ended June 30, 2018 and 2017, respectively. 
15.   Recent Accounting Pronouncements
ASU 2014-09 - “ Revenue from Contracts with Customers (Topic 606)" represents a comprehensive revenue recognition standard to supersede existing revenue recognition guidance and align GAAP more closely with International Financial Reporting Standards (IFRS).
The core principle of the new guidance is that a company should recognize revenue to match the delivery of goods or services to customers to the consideration the company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of revenue and cash flows arising from contracts with customers.
The standard allows for two transition methods: (a) a full retrospective adoption in which the standard is applied to all of the periods presented subject to certain practical expedients, or (b) a modified retrospective adoption in which the standard is applied only to the most current period presented in the financial statements, and which includes additional disclosures regarding the change in accounting principle in the current period. We have adopted the standard effective January 1, 2018 using the modified retrospective method. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the six months ended June 30, 2018. The Company has included the disclosures required by ASU 2014-09 above.
     In February 2016, the FASB issued ASU 2016-02 - “ Leases (Topic 842). ” The purpose of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This update is effective for Basic in annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Basic expects to recognize additional right-of-use assets and liabilities related to operating leases with terms longer than one year. At June 30, 2018, Basic had operating leases with terms longer than one year of $12.4 million.

In November 2016 the FASB issued ASU 2016-18- "Statement of Cash Flows (Topic 230): Restricted Cash," which clarifies the treatment of cash inflows into and cash payments from restricted cash. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of this ASU should be applied using a retrospective transition method and are effective for reporting periods beginning after December 15, 2017. Basic began presenting cash flows under this standard as of March 31, 2018 and retrospectively for all periods presented. See Note 2, "Cash, Cash Equivalents and Restricted Cash" for disclosures.


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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  
Management’s Overview 
We provide a wide range of well site services to oil and natural gas drilling and producing companies, including completion and remedial services, well servicing, water logistics and contract drilling.
Our total hydraulic horsepower (“hhp”) decreased to 516,000 at the end of the second quarter of 2018 compared to 518,000 for the second quarter of 2017. Weighted average horsepower increased to 518,000 for the second quarter of 2018 from 488,000 in the second quarter of 2017. Our weighted average number of water logistics trucks decreased to 903 in the second quarter of 2018 from 943 in the second quarter of 2017. Our weighted average number of well servicing rigs decreased to 310 during the second quarter of 2018 compared to 421 in the second quarter of 2017.
Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):

Six Months Ended June 30,
2018 2017
Revenues:
Completion and remedial services $ 244.5  50  % $ 187.8  48  %
Well Servicing 121.9  25  % 101.7  26  %
Water Logistics 116.2  24  % 100.9  26  %
Contract drilling 5.4  % 4.9  %
Total revenues $ 488.0  100  % $ 395.3  100  %


 During the fourth quarter of 2015, oil prices declined to levels below $50 per barrel (WTI Cushing) and dropped to levels below $30 in early 2016 before rebounding in late 2016.  During 2017 and 2018, oil prices continued to gradually improve with pricing in the low-$70 range by the end of the second quarter of 2018. As a result of the overall increase in pricing, our customers’ activity levels and utilization of our equipment have gradually improved.  General improvement in customer confidence has caused the North American onshore drilling rig count to slowly rise, resulting in a sustained increase in completion-related activity during the first half of 2018. Additionally, production related activities, such as well servicing and water logistics, have seen increases in utilization as customers have enhanced their maintenance and workover budgets in 2018.
As a result of gradual improvements in oil pricing and high concentration of equipment and activity, utilization and pricing for our services have remained competitive in our oil-based operating areas. Natural gas prices have been depressed for a prolonged period and utilization and pricing for our services in our natural gas-based operating areas have remained challenged.
We believe that the most important performance measures for our business segments are as follows:
• Completion and Remedial Services  — segment profits as a percent of revenues;
• Well Servicing  — rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues; 
• Water Logistics — trucking hours, revenue per truck, segment profits per truck and segment profits as a percent of revenues; and
• Contract Drilling — rig operating days, revenue per drilling day, profits per drilling day and segment profits as a percent of revenues.
Segment profits are computed as segment operating revenues less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. For a detailed analysis of these indicators for the Company, see “Segment Overview” below.
Selected Acquisitions   and Divestitures
During the year ended December 31, 2017 and through the first six months of 2018, we did not enter into or complete any business acquisitions or divestitures.

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Segment Overview
Completion and Remedial Services
During the first six months of 2018, our completion and remedial services segment represented approximately 50% of our revenues. Revenues from our completion and remedial services segment are generally derived from a variety of services designed to complete and stimulate new oil and natural gas production or place cement slurry within the wellbores. Our completion and remedial services segment includes pumping services, rental and fishing tool operations, coiled tubing services, nitrogen services, snubbing and other services.  
Our pumping services provide both large and mid-sized fracturing services in selected markets, including vertical and horizontal wellbores. Cementing and acidizing services also are included in our pumping services operations. Our total hydraulic horsepower capacity for our pumping operations was 516,000 at June 30, 2018 and 518,000 at June 30, 2017, respectively. Weighted average horsepower increased to 518,000 for the second quarter of 2018 from 488,000 in the second quarter of 2017.
In this segment, we derive our revenues on a project-by-project basis in a competitive bidding process. Our bids are based on the amount and type of equipment and personnel required, with the materials consumed billed separately. Upon decisions by Saudi Arabia and OPEC to limit production, oil prices and activity increased gradually in the fourth quarter of 2016, and continued to increase gradually throughout 2017. During the first six months of 2018, we had an increase in pricing competition along with a marginal increase in utilization.
The following is an analysis of our completion and remedial services segment for each of the quarters in 2017, the full year ended December 31, 2017 and quarters ended March 31 and June 30, 2018 (dollars in thousands):

Total FRAC Segment
HHP HHP Revenues Profits %
2017:
First Quarter 443,320  356,900  $ 80,431  16  %
Second Quarter 518,365  381,850  $ 107,386  24  %
Third Quarter 522,565  413,300  $ 123,650  32  %
Fourth Quarter 522,565  413,300  $ 121,983  30  %
Full Year 522,565  413,300  $ 433,450  27  %
2018:
First Quarter 522,565  413,300  $ 117,597  24  %
Second Quarter 516,465  407,800  $ 126,948  21  %

The increase in completion and remedial services revenue to $126.9 million in the second quarter of 2018 from $117.6 million in the first quarter of 2018 resulted primarily from weather impact in the first quarter and pricing improvements in our coiled tubing and fracing operations. Segment profits as a percentage of revenue decreased to 21% in the second quarter of 2018 from 24% in first quarter of 2018 due to lower revenues in our coiled tubing service line and increased sand and freight costs in our pressure pumping operations.  
Well Servicing
During the first six months of 2018, our well servicing segment represented 25% of our revenues. Revenue in our well servicing segment is derived from completion, production maintenance, workover, manufacturing, and plugging and abandonment services. We provide maintenance-related services as part of the normal, periodic upkeep of producing oil and natural gas wells.
Maintenance-related services represent a relatively consistent component of our business. Workover and completion services generate more revenue per hour than maintenance work due to the use of auxiliary equipment, but demand for workover and completion services fluctuates more with the overall activity level in the industry. We also have a rig manufacturing and servicing facility that builds new workover rigs, performs large-scale refurbishments of used workover rigs and provides maintenance services on previously manufactured rigs.
We charge our well servicing rig customers for services on an hourly basis at rates that are determined by the type of service and equipment required, market conditions in the region in which the rig operates, the ancillary equipment provided on
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the rig and the necessary personnel. Depending on the type of job, we may also charge by the project or by the day. We measure the activity levels of our well servicing rigs on a weekly basis by calculating a rig utilization rate based on a 55-hour work week per rig. Our weighted average number of rigs marketed decreased from 421 in 2017 to 310 at June 30, 2018. We classified 111 rigs from our current fleet as "cold-stacked", reducing our total active rig fleet to 310 rigs, and removed these rigs from the active rig count. These cold-stacked rigs will ultimately be retired and disposed of in an orderly fashion.
The following is an analysis of our well servicing operations for each of the quarters in 2017, the full year ended December 31, 2017 and quarters ended March 31 and June 30, 2018 (dollars in thousands):  

Weighted
Average Rig Revenue
Number Utilization Per Rig Profits Per
of Rigs Rig hours Rate Hour Rig hour Profits %
2017:
First Quarter 421  157,600  52  % $ 307  $ 49  16  %
Second Quarter 421  162,300  54  % $ 321  $ 69  21  %
Third Quarter 421  165,200  55  % $ 329  $ 69  21  %
Fourth Quarter 421  159,500  53  % $ 339  $ 63  19  %
Full Year 421  644,600  54  % $ 324  $ 63  19  %
2018: