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BASIC ENERGY SERVICES, INC. - Quarter Report: 2018 March (Form 10-Q)

Table of Contents

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 March 31, 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 26,422,302 shares of the registrant’s common stock outstanding as of May 4, 2018.  

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BASIC ENERGY SERVICES, INC.
Index to Form 10-Q 
 
Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017
Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (Unaudited) 
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2018 (Unaudited) 
Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited) 

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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;
•
competition within our industry;
•
general economic and market conditions;
•
our access to current or future financing arrangements;
•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. 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.



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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

Basic Energy Services, Inc.
Consolidated Balance Sheets 
(in thousands, except share data)
 
 
March 31,
2018
 
December 31,
2017
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
33,831

 
$
38,520

Restricted cash
 
47,727

 
47,703

Trade accounts receivable, net of allowance of $1,364 and $1,523, respectively
 
156,218

 
148,444

Accounts receivable - related parties
 
25

 
22

Income tax receivable
 
1,861

 
1,878

Inventories
 
37,215

 
36,403

Prepaid expenses
 
20,560

 
22,353

Other current assets
 
4,844

 
4,292

Total current assets
 
302,281

 
299,615

Property and equipment, net
 
491,266

 
502,579

Deferred debt costs, net of amortization
 
2,333

 
2,497

Intangible assets, net of amortization
 
3,161

 
3,221

Other assets
 
12,524

 
12,568

Total assets
 
$
811,565

 
$
820,480

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
77,049

 
$
80,518

Accrued expenses
 
61,188

 
51,973

  Current portion of long-term debt, net of discounts of $1,652 and $1,657, respectively
 
54,731

 
55,997

Other current liabilities
 
1,459

 
2,469

Total current liabilities
 
194,427

 
190,957

Long-term debt, net of discounts and deferred debt costs of $8,763 and $10,244, respectively
 
272,658

 
259,242

Deferred tax liabilities
 
—

 
78

Other long-term liabilities
 
30,902

 
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; 26,644,082 shares issued and 26,422,302 shares outstanding at March 31, 2018; 26,371,572 shares issued and 26,219,129 shares outstanding at December 31, 2017
 
266

 
264

Additional paid-in capital
 
446,022

 
439,517

Accumulated deficit
 
(127,205
)
 
(96,674
)
Treasury stock, at cost, 221,780 and 152,443 shares at March 31, 2018 and December 31, 2017, respectively
 
(5,505
)
 
(4,454
)
Total stockholders' equity
 
313,578

 
338,653

Total liabilities and stockholders' equity
 
$
811,565

 
$
820,480

See accompanying notes to unaudited consolidated financial statements.

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Basic Energy Services, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
 
2018
 
 
2017
Revenues:
 
 
 
 
 
Completion and remedial services
 
$
117,597

 
 
$
80,431

Well servicing
 
57,537

 
 
48,619

Water logistics

 
56,509

 
 
50,206

Contract drilling
 
3,022

 
 
2,763

Total revenues
 
234,665

 
 
182,019

Expenses:
 
 

 
 
 

Completion and remedial services
 
89,659

 
 
67,252

Well servicing
 
48,191

 
 
40,916

Water logistics

 
40,923

 
 
41,538

Contract drilling
 
2,543

 
 
2,408

General and administrative, including stock-based compensation of $6,798 and $4,448 in the three months ended March 31, 2018 and 2017, respectively
 
40,978

 
 
34,205

Depreciation and amortization
 
30,235

 
 
25,413

(Gain) loss on disposal of assets
 
1,779

 
 
(467
)
Total expenses
 
254,308

 
 
211,265

Operating loss
 
(19,643
)
 
 
(29,246
)
Other income (expense):
 
 

 
 
 

Interest expense
 
(11,283
)
 
 
(9,109
)
Interest income
 
27

 
 
12

Other income
 
309

 
 
92

Loss before income taxes
 
(30,590
)
 
 
(38,251
)
Income tax benefit (expense)
 
59

 
 
(375
)
Net loss
 
$
(30,531
)
 
 
$
(38,626
)
Loss per share of common stock:
 
 
 
 
 
Basic
 
$
(1.16
)
 
 
$
(1.49
)
Diluted
 
$
(1.16
)
 
 
$
(1.49
)

See accompanying notes to unaudited consolidated financial statements.


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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
 
272,510

 
2

 
(2
)
 
—

 
—

 
—

Amortization of share-based compensation
 
—

 
—

 
6,798

 
—

 
—

 
6,798

Treasury stock, net
 
—

 
—

 
(291
)
 
(1,051
)
 
—

 
(1,342
)
Net loss
 
—

 
—

 
—

 
—

 
$
(30,531
)
 
(30,531
)
Balance - March 31, 2018 (unaudited)
 
26,644,082

 
$
266

 
$
446,022

 
$
(5,505
)
 
$
(127,205
)
 
$
313,578


See accompanying notes to unaudited consolidated financial statements.


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Basic Energy Services, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
 
2017
Cash flows from operating activities:
 
 
 
 
 
Net loss
 
(30,531
)
 
 
$
(38,626
)
Adjustments to reconcile net loss to net cash
 
 
 
 
 
provided by (used in) operating activities:
 
 
 
 
 
Depreciation and amortization
 
30,235

 
 
25,413

Accretion on asset retirement obligation
 
41

 
 
39

Change in allowance for doubtful accounts
 
(159
)
 
 
1,775

Amortization of deferred financing costs
 
176

 
 
7

Amortization of debt discounts
 
1,474

 
 
1,553

Non-cash compensation
 
6,798

 
 
4,448

(Gain) loss on disposal of assets
 
1,779

 
 
(467
)
Deferred income taxes
 
(78
)
 
 
389

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
 
Accounts receivable
 
(7,618
)
 
 
(22,672
)
Inventories
 
(812
)
 
 
(930
)
Income tax receivable
 
19

 
 
3

Prepaid expenses and other current assets
 
1,593

 
 
(5,028
)
Other assets
 
44

 
 
(223
)
Accounts payable
 
(5,987
)
 
 
17,723

Other liabilities
 
(1,641
)
 
 
(924
)
Accrued expenses
 
9,215

 
 
4,611

Net cash provided by (used in) operating activities
 
4,548

 
 
(12,909
)
Cash flows from investing activities:
 
 
 
 
 
Purchase of property and equipment
 
(15,412
)
 
 
(25,930
)
Proceeds from sale of assets 
 
198

 
 
1,145

Net cash used in investing activities
 
(15,214
)
 
 
(24,785
)
Cash flows from financing activities:
 
 
 
 
 
Payments of debt
 
(13,657
)
 
 
(10,338
)
Proceeds from debt
 
21,000

 
 
—

Shares added to treasury stock as a result of net share settlements due to vesting of restricted stock

 
(1,342
)
 
 
(39
)
Deferred loan costs and other financing activities
 
—

 
 
(162
)
Net cash provided by (used in) financing activities
 
6,001

 
 
(10,539
)
Net decrease in cash, cash equivalents and restricted cash
 
(4,665
)
 
 
(48,233
)
Cash, cash equivalents and restricted cash - beginning of period
 
86,223

 
 
101,304

Cash, cash equivalents and restricted cash - end of period
 
$
81,558

 
 
$
53,071

See accompanying notes to unaudited consolidated financial statements.

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BASIC ENERGY SERVICES, INC.
Notes to Consolidated Financial Statements
March 31, 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 March 31, 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 $120.0 million as of March 31, 2018 but was amended on April 11, 2018 to increase aggregate commitments to $150.0 million. As of March 31, 2018, we had $85.0 million in borrowings under the New ABL Facility. At March 31, 2018, we had unrestricted cash and cash equivalents of $33.8 million compared to $38.5 million as of December 31, 2017. An additional amount of $47.7 million of our cash is classified as restricted cash. Including the availability under the New ABL Facility, we currently have $34.3 million in total liquidity. For a detailed 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 Basic 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.

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):

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Table of Contents

 
March 31,
 
2018
 
2017
Cash and cash equivalents
$
33,831

 
$
50,640

Restricted cash
47,727

 
2,431

    Total cash, cash equivalents and restricted cash
$
81,558

 
$
53,071

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 March 31, 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):
 
 
March 31, 2018
 
December 31, 2017
Land
 
$
21,226

 
$
21,217

Buildings and improvements
 
40,111

 
40,043

Well service units and equipment
 
117,876

 
113,657

Frac equipment/test tanks
 
116,797

 
111,172

Pumping equipment
 
119,318

 
116,127

Water logistics equipment
 
79,520

 
79,711

Disposal facilities
 
51,979

 
51,363

Rental equipment
 
35,179

 
34,643

Light vehicles
 
21,504

 
19,869

Contract drilling equipment
 
11,367

 
10,967

Software
 
833

 
817

Other
 
4,123

 
4,092

Construction equipment
 
2,374

 
2,338

Brine and fresh water stations
 
2,681

 
2,704

 
 
624,888

 
608,720

Less accumulated depreciation and amortization
 
133,622

 
106,141

Property and equipment, net
 
$
491,266

 
$
502,579

     

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):
 
 
March 31, 2018
 
December 31, 2017
Pumping equipment
 
$
56,578

 
$
56,225

Water logistics equipment
 
39,189

 
40,097

Light vehicles
 
13,895

 
12,160

Contract drilling equipment
 
783

 
783

Well service units and equipment
 
141

 
262

Construction equipment
 
378

 
378

 
 
110,964

 
109,905

Less accumulated amortization
 
24,793

 
18,445

Property and equipment under capital lease, net
 
$
86,171

 
$
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):

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Three Months Ended March 31,
 
 
2018
 
 
2017
Lease amortization expense
 
$
7,100

 
 
$
3,700

4. Intangible Assets
    
Basic had trade names of $3.4 million as of each of March 31, 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):
 
 
March 31, 2018
 
December 31, 2017
Trade names
 
$
3,410

 
$
3,410

Other intangible assets
 
48

 
48

 
 
$
3,458

 
$
3,458

Less accumulated amortization
 
297

 
237

Intangible assets subject to amortization, net
 
$
3,161

 
$
3,221

 
Amortization expense of intangible assets for the three months ended March 31, 2018 and 2017 was as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
 
2017
Intangible amortization expense
 
$
60.0

 
 
$
59.0

    
5. Long-Term Debt and Interest Expense
Long-term debt consisted of the following (in thousands): 
 
 
March 31, 2018
 
December 31, 2017
Credit facilities:
 
 
 
 
Term Loan
 
$
162,113

 
$
162,525

New ABL Facility
 
85,000

 
64,000

Capital leases and other notes
 
90,691

 
100,615

Unamortized discounts, premiums, and deferred debt costs
 
(10,415
)
 
(11,901
)
     Total principal amount of debt instruments, net
 
327,389

 
315,239

Less current portion
 
54,731

 
55,997

     Long-term debt
 
$
272,658

 
$
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):
 
 
March 31, 2018
 
December 31, 2017
Unamortized discount on Term Loan
 
$
8,609

 
$
9,187

Unamortized discount on Capital Leases - short-term
 
1,652

 
1,657

Unamortized discount on Capital Leases - long-term
 
—

 
891

Unamortized deferred debt costs
 
154

 
166

 
 
$
10,415

 
$
11,901



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On September 29, 2017, Basic terminated its $75 million credit facility and entered into the New ABL Facility pursuant to (i) a Receivables Transfer Agreement (the “Transfer Agreement”) entered into by and among Basic Energy Services, L.P. (“BES LP”), as the initial originator and Basic Energy Receivables, LLC (the “SPE”), as the transferee and (ii) the Credit and Security Agreement with UBS AG, Stamford Branch, as administrative agent and collateral agent (as amended, the “Credit Agreement”).
Under the Transfer Agreement, BES LP will sell or contribute, on an ongoing basis, its accounts receivable and related security and interests in the proceeds thereof (the “Transferred Receivables”) to the SPE. The SPE will finance a portion of its purchase of the accounts receivable through borrowings, on a revolving basis, of up to $100 million (with the ability to request an increase in the size of the New ABL Facility by $50 million) under the Credit Agreement, and such borrowings will be secured by the accounts receivable. The SPE will finance its purchase of the remaining portion of the accounts receivable by issuing subordinated promissory notes to BES LP and/or by contributing the remaining portion of the accounts receivables in exchange for equity in the SPE in the amount of the purchase price of the receivable not paid in cash. BES LP will be responsible for the servicing, administration and collection of the accounts receivable, with all collections going into lockbox accounts. The Company has provided a customary guaranty of performance to the administrative agent with respect to certain obligations of BES LP and any successor servicer under the New ABL Facility. In connection with entering into the New ABL Facility, on September 29, 2017, the Company amended the Term Loan Agreement to permit, among other things, (i) the acquisition of the Transferred Receivables by the SPE pursuant to the Transfer Agreement, free and clear of the liens under the Term Loan Agreement and (ii) the transactions contemplated under each of the Transfer Agreement and Credit Agreement. The Company consolidates the foregoing entities, and all intercompany activity is eliminated upon consolidation.
On October 27, 2017, the Company entered into Amendment No. 1 ("Amendment No. 1") to the New ABL Facility. Among other things, Amendment No. 1 (i) increased the aggregate commitments under the Credit Agreement from $100 million to $120 million, (ii) appointed CIT Bank, N.A. to serve as syndication agent and (iii) added new lenders and amended the commitment schedule to the Credit Agreement.
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 March 31, 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 $85.0 million as of March 31, 2018, giving Basic $0.5 million of available borrowing capacity under the New ABL Facility.

Basic’s interest expense consisted of the following (in thousands):
 
 
Three Months Ended March 31,
 
 
2018
 
 
2017
Cash payments for interest
 
$
8,578

 
 
$
1,268

Commitment and other fees paid
 
809

 
 
17

Amortization of debt issuance costs and discounts
 
1,651

 
 
1,560

Change in accrued interest
 
221

 
 
6,242

Other
 
24

 
 
22

 
 
$
11,283

 
 
$
9,109

 
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 March 31, 2018 and December 31, 2017:
 
Fair Value
 
March 31, 2018
 
December 31, 2017
 
 Hierarchy Level
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
 
 
 
(In thousands)
Term Loan
3
 
$
153,504

 
$
161,583

 
$
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.

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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.
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 March 31, 2018 and December 31, 2017, self-insured risk accruals totaled approximately $30.4 million, net of $898,000 receivable for medical and dental coverage, and $30.3 million, net of $971,000 receivable for medical and dental coverage, respectively. 
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 three months of 2018 and issued 8,094 shares from treasury stock for accelerated vestings and stock grants in the first three months of 2018. Basic acquired 1,032 shares of common stock through net share settlements during the first three months of 2017.


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9. Incentive Plan
The following table reflects compensation activity related to the management incentive plan for the three-month period ending March 31, 2018 (dollar amounts in thousands):
 
 
Compensation expense for three months ended March 31, 2018
Compensation expense for three months ended March 31, 2017
Unrecognized compensation expense
Weighted average remaining life
Fair value of share based awards vested
 
 
 
 
 
 
Restricted stock awards and restricted stock units
 
$
5,732

$
3,616

$
32,223

2.0
$
4,882

Stock options
 
$
1,066

$
832

$
7,125

8.8
$
—


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 three-month period and a summary of stock options outstanding at March 31, 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
 
—

 
—

 
 
 
 
Options exercised
 
—

 
—

 
 
 
 
Outstanding, end of period
 
654,016

 
$
39.23

 
8.8
 
$
—

Exercisable, end of period
 
222,354

 
$
39.23

 
8.8
 
$
—

Vested or expected to vest, end of period
 
431,662

 
$
39.23

 
8.8
 
$
—

 
There were no stock options exercised during the three months ended March 31, 2018 and 2017.
Restricted Stock Unit Awards
 A summary of the status of Basic’s non-vested restricted stock units at March 31, 2018 and changes during the three months ended March 31, 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
 
407,250

 
16.02

Vested during period
 
(284,904
)
 
36.21

Forfeited during period
 
—

 
—

Non-vested at end of period
 
1,219,356

 
$
29.59

 

Phantom Stock Awards
On February 8, 2018, the Compensation Committee 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.

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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 $25,000 and $22,000 as of March 31, 2018 and December 31, 2017, respectively.



14
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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 March 31, 2018, accounts receivable related to products and services were $156.2 million. At March 31, 2018 and December 31, 2017, the Company had $2.8 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):

Reportable Segments
 
Completion & Remedial Services
Well Servicing
Water Logistics
Contract Drilling
Total
Three Months Ended March 31, 2018
 
 
 
 
 
Primary Geographical Markets
 
 
 
 
 
Permian Basin
$
38,166

$
27,013

$
30,588

$
3,156

$
98,923

Texas Gulf Coast
809

7,315

8,874

—

16,998

ArkLaTex & Mid-Continent
49,300

11,219

10,706

—

71,225

Rocky Mountain
29,789

6,224

7,776

—

43,789

Eastern USA
1,690

2,185

—

—

3,875

West Coast
—

6,449

—

—

6,449

Corporate (Intercompany)
(2,157
)
(2,868
)
(1,435
)
(134
)
(6,594
)
Total
$
117,597

$
57,537

$
56,509

$
3,022

$
234,665

 
 
 
 
 
 
Major Products/service lines
 
 
 
 
 
Pumping Equipment
$
72,810

$
—

$
—

$
—

$
72,810

Well Servicing
—

48,536

—

—

48,536

Transport/Vacuum
—

—

35,245

—

35,245

Coiled Tubing
19,980

—

—

—

19,980

RAFT
20,782

—

—

—

20,782

Plugging
—

6,013

—

—

6,013

Production and Disposal Facilities
—

—

5,651

—

5,651

Hot Oiler
—

—

5,385

—

5,385

Other
4,025

2,988

10,228

3,022

20,263

Total
$
117,597

$
57,537

$
56,509

$
3,022

$
234,665

 
 
 
 
 
 
Timing of revenue recognition
 
 
 
 
 
Products and services transferred over time
117,597

57,537

56,509

3,022

234,665

Total
$
117,597

$
57,537

$
56,509

$
3,022

$
234,665




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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 March 31,
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
(Unaudited)
 
 
 
 
 
 
Numerator (both basic and diluted):
 
 

 
 
 
Net loss
 
$
(30,531
)
 
 
$
(38,626
)
Denominator:
 
 
 
 
 
  Denominator for basic loss per share
 
26,336,044

 
 
25,999,383

Basic loss per common share:
 
$
(1.16
)
 
 
$
(1.49
)
Diluted loss per common share:
 
$
(1.16
)
 
 
$
(1.49
)
 
Stock options and warrants of 2,720,640 were excluded from the computation of diluted loss per share for the three months ended March 31, 2018 because the effect would have been anti-dilutive. Unvested restricted shares of 3,536 were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2018, because the effect would have been anti-dilutive. Unvested stock options and warrants of 1,335,532 were excluded from the computation of diluted loss per share for the three months ended March 31, 2017, as the effect would have been anti-dilutive. 

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 March 30, 2018 (Unaudited)
 
 
 
 
 
 
Operating revenues
$
117,597

57,537

56,509

3,022

—

$
234,665

Direct operating costs
(89,659
)
(48,191
)
(40,923
)
(2,543
)
—

(181,316
)
Segment profits
$
27,938

9,346

15,586

479

—

$
53,349

Depreciation and amortization
$
14,260

5,772

7,726

420

2,057

$
30,235

Capital expenditures (excluding acquisitions)
$
11,517

6,705

2,189

407

433

$
21,251

Identifiable assets
$
255,067

110,413

123,599

6,676

315,810

$
811,565

Three Months Ended March 30, 2017 (Unaudited)
 
 
 
 
 
 
Operating revenues
$
80,431

48,619

50,206

2,763

—

$
182,019

Direct operating costs
(67,252
)
(40,916
)
(41,538
)
(2,408
)
—

(152,114
)
Segment profits
$
13,179

7,703

8,668

355

—

$
29,905

Depreciation and amortization
$
11,766

4,596

6,527

626

1,898

$
25,413

Capital expenditures (excluding acquisitions)
$
32,209

8,378

7,421

53

243

$
48,304

Identifiable assets
$
256,278

108,013

131,698

12,560

260,728

$
769,277

 

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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 March 31,
 
 
2018
 
 
2017
Segment profits
 
$
53,349

 
 
$
29,905

General and administrative expenses
 
(40,978
)
 
 
(34,205
)
Depreciation and amortization
 
(30,235
)
 
 
(25,413
)
Gain (loss) on disposal of assets
 
(1,779
)
 
 
467

Operating loss
 
$
(19,643
)
 
 
$
(29,246
)

14. Supplemental Schedule of Cash Flow Information
The following table reflects non-cash financing and investing activity during the following periods:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
 
 
(In thousands)
Capital leases and notes issued for equipment
 
$
3,321

 
$
22,374

Asset retirement obligation additions (retirements)
 
(58
)
 
—

Change in accrued property and equipment
 
2,518

 
—

 
Basic paid no income taxes during the three months ended March 31, 2018 and 2017. Basic paid interest of approximately $8.6 million and $1.3 million during the three months ended March 31, 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 three months ended March 31, 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 March 31, 2018, Basic had operating leases with terms longer than one year of $11.3 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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Table of Contents


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”) increased to 523,000 at the end of the first quarter of 2018 compared to 444,000 for the first quarter of 2017. Weighted average horsepower increased to 523,000 for the first quarter of 2018 from 444,000 in the first quarter of 2017. Our weighted average number of water logistics trucks increased to 960 in the first quarter of 2018 from 935 in the first quarter of 2017. Our weighted average number of well servicing rigs decreased to 310 during the first quarter of 2018 compared to 421 in the first 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):
 
 
Three Months Ended March 31, 2018
 
 
2018
 
 
2017
Revenues:
 
 
 
 
 
 
 
 
 
Completion and remedial services
 
$
117.6

 
50
%
 
 
$
80.4

 
44
%
Well servicing
 
$
57.6

 
25
%
 
 
$
48.6

 
27
%
Water logistics

 
$
56.5

 
24
%
 
 
$
50.2

 
27
%
Contract drilling
 
$
3.0

 
1
%
 
 
$
2.8

 
2
%
Total revenues
 
$
234.7

 
100
%
 
 
$
182.0

 
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-$60 range by the end of the first 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 three months 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 three months of 2018, we did not enter into or complete any business acquisitions or divestitures.


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Table of Contents

Segment Overview
Completion and Remedial Services
During the first three 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 523,000 at March 31, 2018 and 444,000 at March 31, 2017, respectively. Weighted average horsepower increased to 523,000 for the first quarter of 2018 from 444,000 in the first 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. During the extended period of decreased spending by oil and gas companies in 2015 and 2016, we discounted our rates to remain competitive, which caused lower segment profits. 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 three 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 quarter ended March 31, 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

 
23
%
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
%
The decrease in completion and remedial services revenue to $117.6 million in the first quarter of 2018 from $122.0 million in the fourth quarter of 2017 resulted primarily from weather impact and competitive pressures in our coil tubing and fracing operations. Segment profits as a percentage of revenue decreased to 24% in the first quarter of 2018 from 30% in fourth quarter of 2017 due to decremental margins on a lower revenue base. 
Well Servicing
During the first three months of 2018, our well servicing segment represented 25% of our revenues. Revenue in our well servicing segment is derived from maintenance, workover, completion, 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 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 March 31, 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.
.

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Table of Contents

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 quarter ended March 31, 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:
 
 
 
 

 
 
 
 
 
 
 
 
First Quarter
 
310

 
168,500

 
76
%
 
$
338

 
$
55

 
16
%
 
Rig utilization was 76% in the first quarter of 2018, up from 53% in the fourth quarter of 2017.  The higher utilization rate in the first quarter of 2018 resulted from a decrease in our marketed rig count as well as an increase in well servicing hours caused by increases in customer demand and activity in selected basins offset by significant weather impact in the first two months of the quarter. Our segment profit percentage decreased to 16% for the first quarter of 2018 compared to 19% in the fourth quarter of 2017, on consistent levels of utilization and more competitive pricing.
Water Logistics 

During the first three months of 2018, our water logistics segment represented approximately 24% of our revenues. Revenues in our water logistics segment are earned from the sale, transportation, treatment, recycling, storage, and disposal of fluids used in the drilling, production and maintenance of oil and natural gas wells. Revenues also include well site construction and maintenance services. The water logistics segment has a base level of business consisting of transporting and disposing of salt water produced as a by-product of the production of oil and natural gas. Water is transported through several different methods such as trucking or via pipeline. Pipelining of water represented approximately 19% of total water disposed in the quarter ended March 31, 2018. These services are necessary for our customers and usually have a stable demand, but produce lower relative segment profits than other parts of our water logistics segment. Water logistics for completion and workover projects require fresh or brine water for making drilling mud, circulating fluids or frac fluids used during a job, and all of these fluids require storage tanks and hauling and disposal. Because we can provide a full complement of fluid sales, trucking, storage and disposal required on most drilling and workover projects, the add-on services associated with drilling and workover activity generally enable us to generate higher segment profits. The higher segment profits for these add-on services are due to the relatively small incremental labor costs associated with providing these services in addition to our base water logistics segment. Revenues from our water treatment and recycling services include the treatment, recycling and disposal of wastewater, including frac water and flowback, to reuse this water in the completion and production processes. Revenues from our well site construction services are derived primarily from preparing and maintaining well locations, access roads to well locations, and installing small diameter gathering lines and pipelines, constructing foundations to support drilling rigs and providing maintenance services for oil and natural gas facilities. We price water logistics by the job, by the hour, or by the quantities sold, disposed of or hauled.


20
Table of Contents

  The following is an analysis of our water logistics operations for each of the quarters in 2017, the full year ended December 31, 2017 and quarter ended March 31, 2018 (dollars in thousands): 
 
 
Weighted
 
 
 
 
 
 
 
Segment
 
 
 
 
Average
 
 
 
 
 
Revenue
 
Profits Per
 
 
 
 
Number of
 
 
 
Pipeline
 
Per Water
 
Water
 
 
 
 
Water Logistics
 
Trucking
 
Volumes
 
Logistics
 
Logistics
 
Segment
 
 
Trucks
 
Hours
 
(in bbls)
 
Truck
 
Truck
 
Profits %
2017:
 
 
 
 
 
 
 
 
 
 
 
 
First Quarter
 
935

 
484,300

 
1,609,000

 
$
54

 
$
9

 
17
%
Second Quarter
 
943

 
473,500

 
1,191,000

 
$
54

 
$
10

 
18
%
Third Quarter
 
947

 
483,300

 
1,560,000

 
$
55

 
$
12

 
21
%
Fourth Quarter
 
967

 
492,800

 
1,921,000

 
$
57

 
$
12

 
20
%
Full Year
 
948

 
1,933,900

 
6,281,000

 
$
220

 
$
42

 
19
%
2018:
 
 
 
 
 
 
 
 

 
 

 
 
First Quarter
 
960

 
479,600

 
1,551,000

 
$
59

 
$
16

 
28
%
 
Revenue per water logistics truck increased to $59,000 in the first quarter of 2018 compared to $57,000 in fourth quarter of 2017 on consistent levels of trucking utilization and construction services revenues. Segment profit percentage increased to 28% in the first quarter of 2018 from 20% in the fourth quarter of 2017 primarily due to the incremental effect of higher revenues and rate increases.
Contract Drilling
During the first three months of 2018, our contract drilling segment represented approximately 1% of our revenues. Revenues from our contract drilling segment are derived primarily from the drilling of new wells.
Within this segment, we charge our drilling rig customers a “daywork” daily rate, or “footage” at an established rate per number of feet drilled. We measure the activity level of our drilling rigs on a weekly basis by calculating a rig utilization rate based on a seven-day work week per rig. Our contract drilling rig fleet had a weighted average of 11 rigs during the first quarter of 2018.  
The following is an analysis of our contract drilling segment for each of the quarters in 2017, the full year ended December 31, 2017 and quarter ended March 31, 2018 (dollars in thousands):  
 
 
 
Weighted
 
 
 
 
 
 
 
 
 
 
Average
 
Rig
 
 
 
 
 
 
 
 
Number of
 
Operating
 
Revenue Per
 
Profits Per
 
Segment
 
 
Rigs
 
Days
 
Drilling Day
 
Drilling Day
 
Profits %
2017:
 
 
 
 
 
 
 
 
 
 
First Quarter
 
12

 
135

 
$
20.5

 
$
2.6

 
12
%
Second Quarter
 
11

 
91

 
$
23.3

 
$
2.8

 
12
%
Third Quarter
 
11

 
92

 
$
31.0

 
$
3.3

 
11
%
Fourth Quarter
 
11

 
139

 
$
23.5

 
$
2.5

 
11
%
Full Year
 
11

 
457

 
$
24.1

 
$
2.8

 
11
%
2018:
 
 
 
 
 
 
 
 
 
 
First Quarter
 
11

 
175

 
$
17.3

 
$
2.7

 
16
%
 Revenue per drilling day decreased to $17,300 in the first quarter of 2018 compared to $23,500 in the fourth quarter of 2017. The decrease in revenue per drilling day in the first quarter of 2018 was due to a decrease in rig trucking revenues. Segment profit percentage increased to 16% in the first quarter of 2018 compared to segment profit of 11% in the fourth quarter of 2017.
Operating Cost Overview
Our operating costs are comprised primarily of labor, including workers’ compensation and health insurance, repair and maintenance, fuel and insurance. The majority of our employees are paid on an hourly basis. We also incur costs to employ personnel to sell and supervise our services and perform maintenance on our fleet. These costs, however, are not directly tied to

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our level of business activity. Repair and maintenance is performed by our crews, company maintenance personnel and outside service providers. Compensation for our administrative personnel in local operating yards and in our corporate office is accounted for as general and administrative expenses. Insurance is generally a fixed cost regardless of utilization and relates to the number of rigs, trucks and other equipment in our fleet, employee payroll and safety record.
Critical Accounting Policies and Estimates
Our unaudited consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of our significant accounting policies is included in Note 3. Summary of Significant Accounting Policies of the Financial Statements and Supplementary Data in our most recent Annual Report on Form 10-K.
Results of Operations
The following is a comparison of our results of operations for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. For additional segment-related information and trends, please read “Segment Overview” above.
Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017
Revenues. Revenues increased by 29% to $234.7 million during the first quarter of 2018 from $182.0 million during the same period in 2017. This increase was primarily due to increased demand for our services by our customers, particularly completion and remedial services, compared to the same period in 2017, when our customers were working with reduced capital budgets. After a prolonged period of lower oil prices, our customers have gradually increased their capital and operating spending levels.
Completion and remedial services revenues increased by 46% to $117.6 million during the first quarter of 2018 compared to $80.4 million in the same period in 2017. The increase in revenue between these periods was primarily due to improved demand for completion related activities and slightly improved pricing for our services, particularly in our pumping services and coil tubing lines of business. Total hydraulic horsepower increased to 523,000 at March 31, 2018 from 444,000 at March 31, 2017 primarily due to the acquisition of 74,000 HHP and two newbuild coiled tubing units which came online during the third quarter of 2017. Weighted average horsepower increased to 523,000 for the first quarter of 2018 from 444,000 in the first quarter of 2017.
Well servicing revenues increased by 18% to $57.5 million during the first quarter of 2018 compared to $48.6 million during the same period in 2017. The increase was driven by an increase in utilization of our equipment, primarily due to increases in customer demand. Our weighted average number of well servicing rigs decreased to 310 during the first quarter of 2018 compared to 421 in the first quarter of 2017.  Utilization increased to 76% in the first quarter of 2018, compared to 52% in the comparable quarter of 2017 due to decreased rig count and higher rig hours. Revenue per rig hour in the first quarter of 2018 was $338, increasing from $307 in the comparable quarter of 2017 due to rate increases to customers.
Water logistics revenues increased by 13% to $56.5 million during the first quarter of 2018 compared to $50.2 million in the same period in 2017. Our revenue per water logistics truck increased 9% to 59,000 in the first quarter of 2018 compared to 54,000 in the same period in 2017 mainly due to increases in trucking activity and pricing. Our weighted average number of water logistics trucks increased to 960 during the first quarter of 2018 compared to 935 in the same period in 2017.  
Contract drilling revenues increased by 9% to $3.0 million during the first quarter of 2018 compared to $2.8 million in the same period in 2017. The number of rig operating days increased by 26% to 175 in the first quarter of 2018 compared to 135 in the same period in 2017. The increase in revenue was due to an increase in drilling activity in the Permian Basin.  
Direct Operating Expenses. Direct operating expenses, which primarily consist of labor, including workers’ compensation and health insurance, repair and maintenance, fuel and insurance, increased to $181.3 million during the first quarter of 2018 from $152.1 million in the same period in 2017, primarily due to increases in activity and corresponding increases in employee headcount and wages to adapt to current activity levels.  
Direct operating expenses for the completion and remedial services segment increased by 33% to $89.7 million during the first quarter of 2018 compared to $67.3 million for the same period in 2017 due primarily to increased activity levels overall, especially in our pumping and coil tubing services. Segment profits increased to 24% of revenues during the first quarter of 2018 compared to 16% for the same period in 2017, due to the improved utilization of equipment, price increases and incremental margins from a higher revenue base.  
Direct operating expenses for the well servicing segment increased by 18% to $48.2 million during the first quarter of 2018 compared to $40.9 million for the same period in 2017. The increase in direct operating expenses corresponds to increased

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workover and plugging activity levels. Segment profits remained constant at 16% of revenues during the first quarter of 2018 and 2017.
Direct operating expenses for the water logistics segment decreased by 1% to $40.9 million during the first quarter of 2018 compared to $41.5 million for the same period in 2017. Segment profits were 28% of revenues during the first quarter of 2018 compared to 17% for the same period in 2017, due to lower expenses and incremental margins from a higher revenue base.
Direct operating expenses for the contract drilling segment increased 6% to $2.5 million during the first quarter of 2018 compared to $2.4 million for the same period in 2017, due to increased wages. Segment profits increased to 16% of revenues during the first quarter of 2018 from a segment profit of 12% during the first quarter of 2017 due to an increase in pricing.
General and Administrative Expenses. General and administrative expenses increased by 20% to $41.0 million during the first quarter of 2018 from $34.2 million for the same period in 2017. The increase was partially due to stock-based compensation expense, which was $6.8 million and $4.4 million during the first quarters of 2018 and 2017, respectively. In addition, costs related to a contemplated bond offering resulted in $1.8 million of legal and professional fees expense in the first quarter of 2018 and additional expense related to annual executive bonuses approved by the Compensation Committee in the first quarter of 2018 was $1.7 million.
Depreciation and Amortization Expenses. Depreciation and amortization expenses were $30.2 million during the first quarter of 2018 compared to $25.4 million for the same period in 2017.  
Interest Expense. Interest expense increased to $11.3 million during the first quarter of 2018 compared to $9.1 million during the first quarter of 2017. Interest expense increases were related to our New ABL Facility which was entered into in 2017 and additional capital leases.
Income Tax Benefit. There was an income tax benefit of $0.1 million during the first quarter of 2018 compared to an income tax expense of $0.4 million for the same period in 2017. Excluding the impact of the valuation allowance, our effective tax rate during the first quarter of 2018 and 2017 was approximately 17.15% and 36.7%, respectively. 
Liquidity and Capital Resources
As of March 31, 2018, our primary capital resources were net cash provided by operations, utilization of capital leases and borrowings under our $120.0 million accounts receivable securitization facility (the “New ABL Facility”). As of March 31, 2018, we had unrestricted cash and cash equivalents of $33.8 million compared to $38.5 million as of December 31, 2017. An additional amount of $47.7 million is classified as restricted cash to collateralize insurance reserves. Including availability under our New ABL Facility, we had total liquidity of $34.3 million as of March 31, 2018. 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, (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 March 31, 2018, Basic was in compliance with all debt covenants, as waived. In the first quarter, Basic negotiated a waiver with our Term Loan lenders to increase our maximum capital expenditures to $35 million for the quarter.
We have utilized, and expect to utilize in the future, bank and capital lease financing and sales of equity to obtain capital resources. When appropriate, we will consider public or private debt and equity offerings and non-recourse transactions to meet our liquidity needs.

Net Cash Provided by Operating Activities
Cash provided by operating activities was $4.5 million for the three months ended March 31, 2018, an increase compared to cash used in operating activities of $12.9 million during the same period in 2017.  Operating cash flow provided in the first three months of 2018 improved compared to cash used in the same period in 2017 due to stronger operating results and working capital levels.
Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things, our ability to maintain adequate cash on hand and generate cash flow from operations. Maintaining adequate liquidity depends upon industry conditions and financial, competitive, and other factors beyond our control. In the event that cash on hand and cash flow from operations is not sufficient to meet our liquidity needs, we may have limited access to additional financing.
 

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Capital Expenditures
Cash capital expenditures during the first three months of 2018 were $15.4 million with an additional $2.5 million of accrued capital expenditures compared to $25.9 million in the same period of 2017. We added $3.3 million of leased assets through our capital lease program and other financing arrangements during the first three months of 2018 compared to $22.4 million of leased asset additions in the same period in 2017.  
We currently have planned capital expenditures for the full year of 2018 of under $80.0 million, including capital leases of $40.0 million. We do not budget acquisitions in the normal course of business, and we regularly engage in discussions related to potential acquisitions related to the oilfield services industry.
Capital Resources and Financing
Our current primary capital resources are cash flow from our operations, our New ABL Facility, the ability to enter into capital leases, and a cash balance of $33.8 million at March 31, 2018. We had $85.0 million of borrowings under the New ABL Facility as of March 31, 2018, of which $47.7 million of cash is held in restricted cash as collateral for letters of credit, giving us approximately $0.5 million of available borrowing capacity subject to covenant constraints under our New ABL Facility. In 2018, we financed activities in excess of cash flow from operations primarily through the use of cash, capital leases and other financing arrangements. Our Amended and Restated Term Loan Agreement (the "Term Loan Agreement") had $162.1 million aggregate outstanding principal amount of loans as of March 31, 2018 and no additional borrowing capacity.
Contractual Obligations
We have significant contractual obligations in the future that will require capital resources. Our primary contractual obligations are (1) our capital leases, (2) our operating leases, (3) our asset retirement obligations and (4) our other long-term liabilities. The following table outlines our contractual obligations as of March 31, 2018 (in thousands):
 
 
Obligations Due in
 
 
 
 
Periods Ended March 31,
 
 
Contractual Obligations
 
Total
 
2018
 
2019 to 2020
 
2021 to 2022
 
Thereafter
Term Loan Agreement
 
$
162,113

 
$
1,238

 
$
3,300

 
$
157,575

 
$
—

New ABL Facility
 
$
85,000

 
—

 
—

 
85,000

 
—

Capital leases and other financing arrangements
 
$
90,691

 
43,487

 
40,200

 
6,934

 
70

Operating leases
 
$
16,057

 
3,757

 
7,412

 
4,752

 
136

Asset retirement obligation
 
$
2,489

 
719

 
652

 
224

 
894

Total
 
$
356,350

 
$
49,201

 
$
51,564

 
$
254,485

 
$
1,100

Interest on long-term debt relates to our future contractual interest obligations under the Term Loan Agreement, the New ABL Facility and our capital leases. Our capital leases relate primarily to light-duty and heavy-duty vehicles and trailers. Our operating leases relate primarily to real estate. Our asset retirement obligation relates to disposal wells.
Our ability to access additional sources of financing will be dependent on our operating cash flows and demand for our services, which could be negatively impacted due to the extreme volatility of commodity prices.
Other Matters
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Net Operating Losses
As of March 31, 2018, Basic had approximately $702.8 million of net operating loss carryforwards ("NOL"), for federal income tax purposes, which begin to expire in 2031 and $257.2 million of NOLs for state income tax purposes which begin to expire in 2018. Net operating losses generated after 2017 are carried forward indefinitely and are limited to 80% of taxable income. Net operating losses generated prior to 2018 continue to be carried forward for 20 years and have no 80% limitation on utilization.

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Basic provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. As of March 31, 2018, a valuation allowance of $151.6 million was recorded against the Company's net deferred tax assets for all jurisdictions that are not expected to be realized.
Recent Accounting Pronouncements
The Company's consideration of recent accounting pronouncements is included in Note 15. Recent Accounting Pronouncements to the consolidated financial statements included in this quarterly report.
Impact of Inflation on Operations
Management is of the opinion that inflation has not had a significant impact on our business.
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2018, we had no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2017.  
ITEM 4.  CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and effective to ensure that information required to be disclosed in such reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM  1. LEGAL PROCEEDINGS
From time to time, we are a party to litigation or other legal proceedings that we consider to be a part of the ordinary course of business. We are not currently involved in any legal proceedings that we consider probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on our financial condition, results of operations or liquidity.
ITEM 1A.  RISK FACTORS

For information regarding risks that may affect our business, see the risk factors included in our most recent Annual Report on Form 10-K under the heading “Risk Factors.”


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ITEM 6. EXHIBITS
 
Exhibit
 
 
No.
 
Description
 
 
 
2.1*
 
2.2*
 
3.1*
 
3.2*
 
10.1*
 

 
 
 
31.1#
 
31.2#
 
32.1##
 
32.2##
 
101.CAL#
 
XBRL Calculation Linkbase Document
101.DEF#
 
XBRL Definition Linkbase Document
101.INS#
 
XBRL Instance Document
101.LAB#
 
XBRL Labels Linkbase Document
101.PRE#
 
XBRL Presentation Linkbase Document
101.SCH#
 
XBRL Schema Document
 
*Incorporated by reference
#Filed with this report
##Furnished with this report



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
BASIC ENERGY SERVICES, INC.
 
 
By:
/s/ T.M. "Roe" Patterson
Name:
T. M. “Roe” Patterson
Title:
President, Chief Executive Officer and
 
Director (Principal Executive Officer)
 
 
By:
/s/ Alan Krenek
Name:
Alan Krenek
Title:
Senior Vice President, Chief Financial Officer, Treasurer
 
and Secretary (Principal Financial Officer and
 
Principal Accounting Officer)
 
Date: May 7, 2018 

27