Basis of Presentation

The accompanying condensed consolidated financial statements of Nuverra Environmental Solutions, Inc. and its subsidiaries (collectively, “Nuverra,” the “Company,” “we,” “us,” or “our”) are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Our condensed consolidated balance sheet as of December 31, 2019, included herein, has been derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (or “GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In our opinion, the condensed consolidated financial statements include the normal, recurring adjustments necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 10, 2020 (the “2019 Annual Report on Form 10-K”).

All dollar and share amounts in the footnote tabular presentations are in thousands, except per share amounts and unless otherwise noted.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates.

There have been no other material changes or developments in our significant accounting policies or evaluation of accounting estimates and underlying assumptions or methodologies from those disclosed in our 2019 Annual Report on Form 10-K.

Restricted Cash

Upon emergence from chapter 11 on August 7, 2017 (the “Effective Date”), we entered into a new $45.0 million First Lien Credit Agreement (the “First Lien Credit Agreement”) by and among the lenders party thereto (the “First Lien Credit Agreement Lenders”), ACF FinCo I, LP, as administrative agent (the “Credit Agreement Agent”), and the Company. Pursuant to the First Lien Credit Agreement, the First Lien Credit Agreement Lenders agreed to extend to the Company a $30.0 million senior secured revolving credit facility (the “Revolving Facility”) and a $15.0 million senior secured term loan facility (the “First Lien Term Loan”). As our collections on our accounts receivable serve as collateral on the Revolving Facility, all amounts collected are initially recorded to “Restricted cash” on the condensed consolidated balance sheet as these funds are not available for operations until our First Lien Credit Agreement Lenders release the funds to us approximately one day later. We had a restricted cash balance of $0.9 million as of December 31, 2019.

As of June 30, 2020, no borrowings were outstanding under the Revolving Facility. Additionally, on July 13, 2020, the Company entered into an amendment of its First Lien Credit Agreement, which includes among other terms and conditions, a prohibition on drawing on the Revolving Facility until the fixed charge coverage ratio (“FCCR”) is above the established ratio at 1.00 to 1.00. As such, beginning June 30, 2020, the Company will no longer record amounts to restricted cash until such time the Company meets the established FCCR and is able to draw on the Revolving Facility. See Note 18 for further discussion of the amendment.

Fair Value Measurements

Fair value represents an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


•	Level 1 — Observable inputs such as quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;


•	Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and


•	Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Liquidity and Going Concern

The Company continues to incur operating losses, and we anticipate losses to continue into the near future. Additionally, due to the COVID-19 outbreak, there has been a significant decline in oil and natural gas demand, which has negatively impacted our customers’ demand for our services, resulting in uncertainty surrounding the potential impact on our cash flows, results of operations and financial condition. We expect crude oil prices to remain low for the foreseeable future, so we anticipate our customers’ crude or natural gas liquids drilling and completion activity to continue to operate at lower levels. Due to the uncertainty of future oil and natural gas prices and the continued effects of the COVID-19 outbreak, there is substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued.

In order to mitigate these conditions, the Company has undertaken various initiatives in the first half of 2020 that management believes will positively impact our operations, including personnel and salary reductions, other changes to our operating structure to achieve additional cost reductions, and the sale of certain assets. In addition, on July 13, 2020, the Company entered into amendments of its First Lien Credit Agreement and Second Lien Term Loan Credit Agreement, dated August 7, 2017, by and among the lenders party thereto, Wilmington as administrative agent, and the Company (the “Second Lien Term Loan Credit Agreement”), which extended the maturity dates of its First Lien Term Loan and Revolving Facility from February 7, 2021 to May 15, 2022, and extended the maturity date of its Second Lien Term Loan Credit Agreement from October 7, 2021 to November 15, 2022. We believe that as a result of the cost reduction initiatives undertaken in the first half of 2020 and the extension of the maturity dates of our credit agreements, our cash flow from operations, together with cash on hand and other available liquidity, will provide sufficient liquidity to fund operations for at least the next twelve months.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.