10-K 1 a201810-kxdoc.htm 10-K Document



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-K
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 001-37988
 
Keane Group, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
38-4016639
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
1800 Post Oak Boulevard, Suite 450, Houston, TX
77056
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (713) 960-0381
2121 Sage Road, Suite 370, Houston, TX, 77056
(Former address of principal executive office)
 
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class
Name of Each Exchange On Which Registered
Common Stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None
_______________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
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  x     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
x
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  
Smaller reporting company
¨
 
 
 
 
Emerging Growth Company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x  
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant, computed by reference to the price at which the common stock was last sold on June 30, 2018, was approximately $716.4 million.
As of February 25, 2019, the registrant had 104,405,121 shares of common stock outstanding.
 






TABLE OF CONTENTS
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
 
 
 
 
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.










CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our future operating results and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. Our forward-looking statements are generally accompanied by words such as “may,” “should,” “expect,” “believe,” “plan,” “anticipate,” “could,” “intend,” “target,” “goal,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Any forward-looking statements contained in this Annual Report on Form 10-K speak only as of the date on which we make them and are based upon our historical performance and on current plans, estimates and expectations. Except as required by law, we have no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about:
•    our business strategy;
•    our plans, objectives, expectations and intentions;
•    our future operating results;
•    the competitive nature of the industry in which we conduct our business, including pricing pressures;
•    crude oil and natural gas commodity prices;
•    demand for services in our industry;
•    the impact of pipeline capacity constraints;
•    the impact of adverse weather conditions;
•    the effects of government regulation;
•    legal proceedings, liability claims and effect of external investigations;
•    the effect of a loss of, or the financial distress of, one or more key customers;
•    our ability to obtain or renew customer contracts;
•    the effect of a loss of, or interruption in operations of, one or more key suppliers;
•    our ability to maintain the right level of commitments under our supply agreements;
•    the market price and availability of materials or equipment;
•    the impact of new technology;
•    our ability to employ a sufficient number of skilled and qualified workers;
•    our ability to obtain permits, approvals and authorizations from governmental and third parties;
•    planned acquisitions and future capital expenditures;
•    our ability to maintain effective information technology systems;
•    our ability to maintain an effective system of internal controls over financial reporting;
•    our ability to service our debt obligations;
•    financial strategy, liquidity or capital required for our ongoing operations and acquisitions, and our ability to raise additional capital;

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•    the market volatility of our stock;
•    our ability or intention to pay dividends or to effectuate repurchases of our common stock;
•    the impact of Keane Investor and our Sponsor; and
•    the impact of our corporate governance structure.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section entitled Part I, “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events, circumstances, plans, intentions or expectations reflected in any forward-looking statements will be achieved or occur. Actual results, events or circumstances could differ materially from those described in such forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
This Annual Report on Form 10-K includes market and industry data and certain other statistical information based on third-party sources including independent industry publications, government publications and other published independent sources. Although we believe these third-party sources are reliable as of their respective dates, we have not independently verified the accuracy or completeness of this information. Some data is also based on our own good faith estimates, which are supported by our management’s knowledge of and experience in the markets and businesses in which we operate.
While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed above and in Part 1, “Item 1A. Risk Factors” in this Annual Report on Form 10-K.
This Annual Report on Form 10-K includes references to utilization of hydraulic fracturing assets. Utilization for our own fleets, as used in this Annual Report on Form 10-K, is defined as the ratio of the average number of deployed fleets to the number of total fleets for a given time period. For the purposes of this Annual Report on Form 10-K, we define active fleets as fleets available for deployment; we consider one of our fleets deployed if the fleet has been put in service at least one day during the period for which we calculate utilization; and we define fully-utilized fleets per month as fleets that were deployed and working with our customers for a significant portion of a given month. As a result, as additional fleets are incrementally deployed, our utilization rate increases.
We define industry utilization as the ratio of the total industry demand of hydraulic horsepower to the total available capacity of hydraulic horsepower, in each case as reported by an independent industry source. Our method for calculating the utilization rate for our own fleets or the industry may differ from the method used by other companies or industry sources which could, for example, be based off a ratio of the total number of days a fleet is put in service to the total number of days in the relevant period.
As used in this Annual Report on Form 10-K, capacity in the hydraulic fracturing business refers to the total number of hydraulic horsepower, regardless of whether such hydraulic horsepower is active and deployed, active and not deployed or inactive. While the equipment and amount of hydraulic horsepower required for a customer project varies, we calculate our total number of fleets, as used in this Annual Report on Form 10-K, by dividing our total hydraulic horsepower by approximately 45,000 hydraulic horsepower.
We believe that our measures of utilization, based on the number of deployed fleets, provide an accurate representation of existing, available capacity for additional revenue generating activity.
As used in this Annual Report on Form 10-K, references to cannibalization of parked equipment refer to the removal of parts and components (such as the engine or transmission of a fracturing pump) from an idle hydraulic fracturing fleet in order to service an active hydraulic fracturing fleet.

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BASIS OF PRESENTATION IN THIS ANNUAL REPORT ON FORM 10-K
On January 25, 2017, we consummated an initial public offering (“IPO”). Our business prior to the IPO was conducted through Keane Group Holdings, LLC and its consolidated subsidiaries (“Keane Group”). To effectuate the IPO, we completed a series of transactions that resulted in a reorganization of our business, resulting in Keane Group, Inc. as a holding company with no material assets other than its ownership of Keane Group. For further details, see Note (1) Basis of Presentation and Nature of Operations of Part II, “Item 8. Financial Statements and Supplemental Data.”
Unless otherwise indicated, or the context otherwise requires, for periods prior to the completion of the IPO, (i) the historical financial data in this Annual Report on Form 10-K and (ii) the operating and other non-financial data disclosed in Part II, “Item 6. Selected Financial Data” and Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflect the consolidated business and operations of Keane Group. Financial results for 2016 are the financial results of Keane Group, Inc. and Keane Group Holdings, LLC, the Company’s predecessor for accounting purposes, as there was no activity under Keane Group, Inc. in 2016.



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PART I
References Within This Annual Report
As used in Part I of this Annual Report on Form 10-K, unless the context otherwise requires, references to (i) the terms “Company,” “Keane,” “we,” “us” and “our” refer to Keane Group Holdings, LLC and its consolidated subsidiaries for periods prior to our IPO, and, for periods as of and following the IPO, Keane Group, Inc. and its consolidated subsidiaries; (ii) the term “Keane Group” refers to Keane Group Holdings, LLC and its consolidated subsidiaries; (iii) the term “Trican Parent” refers to Trican Well Service Ltd. and, where appropriate, its subsidiaries; (iv) the term “Trican U.S.” refers to Trican Well Service L.P.; (v) the term “Trican” refers to Trican Parent and Trican U.S., collectively; (vi) the term “RockPile” refers to RockPile Energy Services, LLC and its consolidated subsidiaries; (vii) the term “RSI” refers to Refinery Specialties, Incorporated; (viii) the term “Keane Investor” refers to Keane Investor Holdings LLC and (ix) the term “Sponsor” or “Cerberus” refers to Cerberus Capital Management, L.P. and its controlled affiliates and investment funds.
Item 1. Business
General description of the business
Founded in 1973, Keane Group, Inc. is one of the largest pure-play providers of integrated well completion services in the U.S., with a focus on complex, technically demanding completion solutions. We provide our services in conjunction with onshore well development, in addition to stimulation operations on existing wells, to exploration and production (“E&P”) customers with some of the highest quality and safety standards in the industry. Through organic growth and five opportunistic acquisitions between 2013 and 2018, we operate in the most active unconventional oil and natural gas basins in the U.S., including the Permian Basin, the Marcellus Shale/Utica Shale, the Eagle Ford Formation and the Bakken Formation, with approximately 1.4 million hydraulic horsepower spread across 29 hydraulic fracturing fleets, 34 wireline trucks, 24 cementing pumps and other ancillary assets. We distinguish ourselves through three key principles: (i) our partnerships with high-quality customers, (ii) our intense focus on safety and efficiency and (iii) a track record of creating value for all stakeholders.
In April 2013, we acquired the wireline technologies division of Calmena Energy Services, which provided us with a platform to commence wireline operations in the U.S. In December 2013, we acquired the assets of Ultra Tech Frac Services to establish a presence in the Permian Basin. In March 2016, we acquired the majority of the U.S. assets and assumed certain liabilities of Trican U.S. (the “Acquired Trican Operations”), resulting in the expansion of our hydraulic fracturing operations to include approximately 950,000 hydraulic horsepower, increased scale in key operating basins, an expansion in our customer base and significant cost reduction opportunities. The Trican transaction also enhanced our access to proprietary technology and engineering capabilities that have improved our ability to provide engineering solutions. In July 2017, we acquired RockPile, resulting in an increase in our pumping capacity by more than 25% and an expansion of our presence in the Permian Basin and Bakken Formation. We also acquired a high-quality customer base, expanded our service offerings and capabilities within our Other Services segment and integrated certain members of RockPile’s high caliber management team. In 2018, we acquired approximately 90,000 hydraulic horsepower from RSI. Additionally, in 2018, we completed the purchase of approximately 150,000 newbuild hydraulic horsepower, representing three additional hydraulic fracturing fleets.
In December 2018, we completed the wind-down of Keane Completions CN Corp, which was formed when we acquired the wireline technologies division of Calmena Energy Services.
We are organized into two reportable segments, consisting of Completion Services, including our hydraulic fracturing and wireline divisions and ancillary services; and Other Services, including our cementing division and ancillary services.

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Completion Services segment
Our completion services are designed in partnership with our customers to enhance both initial production rates and estimated ultimate recovery from new and existing wells.
Hydraulic Fracturing.    Hydraulic fracturing services are performed to enhance production of oil and natural gas from formations with low permeability and restricted flow of hydrocarbons. The process of hydraulic fracturing involves pumping a highly viscous, pressurized fracturing fluid, typically a mixture of water, chemicals and proppant, into a well casing or tubing in order to fracture underground mineral formations. These fractures release trapped hydrocarbon particles and free a channel for the oil or natural gas to flow freely to the wellbore for collection. Fracturing fluid mixtures include proppant that becomes lodged in the cracks created by the hydraulic fracturing process, “propping” them open to facilitate the flow of hydrocarbons upward through the well.
Wireline Technologies.    Our wireline services involve the use of a single truck equipped with a spool of wireline that is unwound and lowered into oil and natural gas wells to convey specialized tools or equipment for well completion, well intervention, pipe recovery and reservoir evaluation purposes. We typically provide our wireline services in conjunction with our hydraulic fracturing services in “plug-and-perf” well completions to maximize efficiency for our customers. “Plug-and-perf” is a multi-stage well completion technique for cased-hole wells that consists of pumping a plug and perforating guns to a specified depth. Once the plug is set, the zone is perforated and the tools are removed from the well, a ball is pumped down to isolate the zones below the plug and the hydraulic fracturing treatment is applied.
Other Services segment
Cementing.    Our cementing services incorporate custom engineered mixing and blending equipment to ensure precision and accuracy in providing annulus isolation and hydraulic seal, while protecting fresh water zones of our customers’ zone of interest. Our cement division has the expertise to cement shallow to complex high temperature, high pressure wells. We also offer engineering software and technical guidance for remedial cementing applications and acidizing to optimize the performance of our customers’ wells.
Ancillary services in the Other Services segment include our idled drilling services.
Business strategy
Our principal business objective is helping our customers maximize production, while delivering safe, high quality and efficient services. We believe that by successfully deploying this strategy, we can deliver industry leading returns and increase shareholder value. We maintain a strict focus on health, safety and environmental stewardship and cost-effective customer-centric solutions. We expect to achieve this objective through:
developing and expanding our relationships with existing and new customers;
continuing our industry leading safety performance and focus on the environment;
investing further in driving efficiencies, including our robust maintenance program;
maintaining a conservative balance sheet to preserve operational and strategic flexibility; and
continuing to evaluate potential consolidation opportunities that strengthen our capabilities, increase our scale and create shareholder value.
For further discussion on the business strategies we plan to continue executing in 2019, see Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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Customers
Our customers primarily include major integrated and large independent oil and natural gas E&P companies. For the year ended December 31, 2018, we had three customers who individually represented more than 10% of our consolidated revenue. These three customers collectively represented 39% of our consolidated revenue and 45% of our total accounts receivable for the fiscal year ended December 31, 2018. For the year ended December 31, 2017, no customer individually represented more than 10% of our consolidated revenue. For the year ended December 31, 2016, we had three customers who individually represented more than 10% of our consolidated revenue. These three customers collectively represented 48% of our consolidated revenue and 42% of our total accounts receivable for the fiscal year ended December 31, 2016.
Competition
The markets in which we operate are highly competitive. We provide services in various geographic regions across the U.S., and the competitive landscape varies in each. Our major competitors for hydraulic fracturing services, which make up the majority of our revenues, include C&J Energy Services, Inc., FTS International, Inc., Halliburton Company, Liberty Oilfield Services Inc., Patterson-UTI Energy, Inc., ProPetro Services, Inc., RPC, Inc., Schlumberger Limited, Superior Energy Services, Inc. and U.S. Well Services. We also compete regionally with a significant number of smaller service providers.
We believe the principal competitive factors in the markets we serve are our multi-basin service capability and close proximity to our customers, technical expertise, equipment reliability, work force competency, efficiency, safety record, reputation, experience and prices. Additionally, projects are often awarded on a bid basis, which tends to create a highly competitive environment. While we seek to be competitive in our pricing, we believe many of our customers elect to work with us based on our customer-tailored partnership approach, our safety record, the performance and competency of our crews and the quality of our equipment and our services. We seek to differentiate ourselves from our competitors by delivering the highest-quality services and equipment possible, coupled with superior execution and operating efficiency in a safe working environment.
Raw materials
We purchase a wide variety of raw materials, parts and components that are manufactured and supplied for our operations. We are not dependent on any single source of supply for those parts, supplies or materials. To date, we have generally been able to obtain the equipment, parts and supplies necessary to support our operations on a timely basis. While we believe we will be able to make satisfactory alternative arrangements in the event of any interruption in the supply of these materials and/or products by one of our suppliers, this may not always be the case. In addition, certain materials for which we do not currently have long-term supply agreements could experience shortages and significant price increases in the future.
Intellectual property
We own a number of patents and have pending certain patent applications covering various products and services. We are also licensed to utilize technology covered by patents owned by others. Furthermore, we believe the information regarding our customer and supplier relationships are valuable proprietary assets, and we have pending applications and registered trademarks for various names under which our entities conduct business or provide products or services. We do not own or license any patents, trademarks or other intellectual property that we believe to be material to the success of our business.

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Seasonality
Our results of operations have historically reflected seasonal tendencies, generally in the first and fourth quarters, related to the conclusion and restart of our customers’ annual capital expenditure budgets, the holidays and inclement winter weather, during which we may experience declines in our operating results. Our operations in North Dakota and Pennsylvania are particularly affected by seasonality due to inclement winter weather.
Employees
As of December 31, 2018, we had 2,833 employees, of which, approximately 79% were compensated on an hourly basis. Our employees are not covered by collective bargaining agreements, nor are they members of labor unions. While we consider our relationship with our employees to be satisfactory, disputes may arise over certain classifications of employees that are customary in the oilfield services industry. We are not aware of any other potentially adverse matters involving our employment practices on a company-wide level.
Environmental regulation
Our operations are subject to stringent federal, state and local laws, rules and regulations relating to the oil and natural gas industry, including the discharge of materials into the environment or otherwise relating to health and safety or the protection of the environment. Numerous governmental agencies, such as the Environmental Protection Agency (the “EPA”), issue regulations to implement and enforce these laws, which often require costly compliance measures. Failure to comply with these laws and regulations may result in the assessment of substantial administrative, civil and criminal penalties, expenditures associated with exposure to hazardous materials, remediation of contamination, property damage and personal injuries, imposition of bond requirements, as well as the issuance of injunctions limiting or prohibiting our activities. In addition, some laws and regulations relating to protection of the environment may, in certain circumstances, impose strict liability for environmental contamination, rendering a person liable for environmental damages and clean-up costs without regard to negligence or fault on the part of that person. Strict adherence with these regulatory requirements increases our cost of doing business and consequently affects our profitability. However, environmental laws and regulations have been subject to frequent changes over the years, and the imposition of more stringent requirements, including those that result in any limitation, suspension or moratorium on the services we provide, whether or not short-term in nature, by federal, state, regional or local governmental authority, could have a material adverse effect on our business, financial condition and results of operations.
The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or the “Superfund law”), and comparable state laws impose liability on certain classes of persons that are considered to be responsible for the release of hazardous or other state-regulated substances into the environment. These persons include the current owner or operator of the site and the owner or operator of the site at the time of the release and the parties that disposed or arranged for the disposal or treatment of hazardous or other state-regulated substances that have been released at the site. Under CERCLA, these persons may be subject to strict liability, joint and several liability, or both, for the costs of investigating and cleaning up hazardous substances that have been released into the environment, damages to natural resources and health studies without regard to fault. In addition, companies that incur a CERCLA liability frequently confront claims by neighboring landowners and other third parties for personal injury and property damage allegedly caused by the release of hazardous or other regulated substances or pollutants into the environment.
The federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, (“RCRA”) and analogous state law generally excludes oil and gas exploration and production wastes (e.g., drilling fluids, produced waters) from regulation as hazardous wastes. However, these wastes remain subject to potential regulation as solid wastes under RCRA and as hazardous waste under other state and local laws. Moreover, wastes from some of our operations (such as, but not limited to, our chemical development, blending and distribution operations, as well as some maintenance and manufacturing operations) are or may be regulated under RCRA and analogous state law under certain circumstances. Further, any exemption or regulation under RCRA does not alter treatment of the substance under CERCLA.

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From time to time, releases of materials or wastes have occurred at locations we own or at which we have operations. These properties and the materials or wastes released thereon may be subject to CERCLA, RCRA, the federal Clean Water Act, the Safe Drinking Water Act (the “SDWA”) and analogous state laws. Under these laws or other laws and regulations, we have been and may be required to remove or remediate these materials or wastes and make expenditures associated with personal injury or property damage. At this time, with respect to any properties where materials or wastes may have been released, it is not possible to estimate the potential costs that may arise from unknown, latent liability risks.
There has been increasing public controversy regarding hydraulic fracturing with regard to the use of fracturing fluids, impacts on drinking water supplies, use of water and the potential for impacts to surface water, groundwater and the general environment. Companion bills entitled the Fracturing Responsibility and Awareness Chemicals Act (“FRAC Act”) were reintroduced in the House of Representatives in May 2013 and in the United States Senate in June 2013. If the FRAC Act and other similar legislation pass, the legislation could significantly alter regulatory oversight of hydraulic fracturing. Currently, unless the fracturing fluid used in the hydraulic fracturing process contains diesel fuel, hydraulic fracturing operations are exempt from permitting under the Underground Injection Control (“UIC”) program in the SDWA. The FRAC Act would remove this exemption and subject hydraulic fracturing operations to permitting requirements under the UIC program. The FRAC Act and other similar bills propose to also require persons conducting hydraulic fracturing to disclose the chemical constituents of their fracturing fluids to a regulatory agency, although they would not require the disclosure of the proprietary formulas except in cases of emergency. Currently, several states already require public disclosure of non-proprietary chemicals on FracFocus.org and other equivalent Internet sites. Disclosure of our proprietary chemical formulas to third parties or to the public, even if inadvertent, could diminish the value of those formulas and could result in competitive harm to our business. At this time, it is not clear what action, if any, the United States Congress will take on the FRAC Act or other related federal and state bills, or the ultimate impact of any such legislation.
If the FRAC Act or similar legislation becomes law, or the Department of the Interior or another federal agency asserts jurisdiction over certain aspects of hydraulic fracturing operations, additional regulatory requirements could be established at the federal level that could lead to operational delays or increased operating costs, making it more difficult to perform hydraulic fracturing and increasing the costs of compliance and doing business for us and our customers. States in which we operate have considered and may again consider legislation that could impose additional regulations and/or restrictions on hydraulic fracturing operations. At this time, it is not possible to estimate the potential impact on our business of these state actions or the enactment of additional federal or state legislation or regulations affecting hydraulic fracturing.
In addition, at the direction of Congress, the EPA undertook a study of the potential impacts of hydraulic fracturing on drinking water and groundwater and issued its report in December 2016. The EPA report states that there is scientific evidence that hydraulic fracturing activities can impact drinking resources under some circumstances and identifies certain conditions in which the EPA believes the impact of such activities on drinking water and groundwater can be more frequent or severe. The EPA study could spur further initiatives to regulate hydraulic fracturing under the SDWA or otherwise. Similarly, other federal and state studies, such as those currently being conducted by, for example, the Secretary of Energy’s Advisory Board and the New York Department of Environmental Conservation, may recommend additional requirements or restrictions on hydraulic fracturing operations.
The federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and the imposition of other requirements. In addition, the EPA has developed and continues to develop stringent regulations governing emissions of toxic air pollutants from specified sources. We are or may be required to obtain federal and state permits in connection with certain operations of our manufacturing and maintenance facilities. These permits impose certain conditions and restrictions on our operations, some of which require significant expenditures for filtering or other emissions control devices at each of our manufacturing and maintenance facilities. Changes in these requirements, or in the permits we operate under, could increase our costs or limit certain activities. Additionally, the EPA’s Transition Program for Equipment Manufacturers regulations apply to certain off-road diesel engines used by us to power equipment in the field. Under these regulations, we are

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subject to certain requirements with respect to retrofitting or retiring certain engines, and we are limited in the number of new non-compliant off-road diesel engines we can purchase. Engines that are compliant with the current emissions standards can be costlier and can be subject to limited availability. It is possible that these regulations could limit our ability to acquire a sufficient number of diesel engines to expand our fleet and/or upgrade our existing equipment by replacing older engines as they are taken out of service.
Exploration and production activities on federal lands may be subject to the National Environmental Policy Act (“NEPA”). NEPA requires federal agencies, including the Department of Interior, to evaluate major agency actions that have the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an environmental assessment of the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed environmental impact statement that may be made available for public review and comment. All of our activities and our customers’ current E&P activities, as well as proposed exploration and development plans, on federal lands require governmental permits that are subject to the requirements of NEPA. This process has the potential to delay the development of oil and natural gas projects.
Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands and natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act, the Clean Water Act and CERCLA. Government entities or private parties may act to prevent oil and gas exploration activities or seek damages where harm to species, habitat or natural resources may result from the filling of jurisdictional streams or wetlands or the construction or release of oil, wastes, hazardous substances or other regulated materials. At this time, it is not possible to estimate the potential impact on our business of these speculative federal, state or private actions or the enactment of additional federal or state legislation or regulations with respect to these matters.
The EPA has proposed and finalized a number of rules requiring various industry sectors to track and report, and, in some cases, control greenhouse gas emissions. The EPA’s Mandatory Reporting of Greenhouse Gases Rule was published in October 2009. This rule requires large sources and suppliers in the U.S. to track and report greenhouse gas emissions. In June 2010, the EPA’s Greenhouse Gas Tailoring Rule became effective. For this rule to apply initially, the source must already be subject to the Clean Air Act Prevention of Significant Deterioration program or Title V permit program; we are not currently subject to either Clean Air Act program. On November 8, 2010, the EPA finalized a rule that sets forth reporting requirements for the petroleum and natural gas industry. Among other things, this final rule requires persons that hold state permits for onshore oil and gas exploration and production and that emit 25,000 metric tons or more of carbon dioxide equivalent per year to annually report carbon dioxide, methane and nitrous oxide combustion emissions from (i) stationary and portable equipment and (ii) flaring. Under the final rule, our customers may be required to include calculated emissions from our hydraulic fracturing equipment located on their well sites in their emission inventory.
The trajectory of future greenhouse regulations remains unsettled. In March 2014, the White House announced its intention to consider further regulation of methane emissions from the oil and gas sector. It is unclear whether Congress will take further action on greenhouse gases, for example, to further regulate greenhouse gas emissions or alternatively to statutorily limit the EPA’s authority over greenhouse gases. Even without federal legislation or regulation of greenhouse gas emissions, states may pursue the issue either directly or indirectly. Restrictions on emissions of methane or carbon dioxide that may be imposed in various states could adversely affect the oil and natural gas industry and, therefore, could reduce the demand for our products and services.
Climate change regulation may also impact our business positively by increasing demand for natural gas for use in producing electricity and as a transportation fuel. Currently, our operations are not materially adversely impacted by existing state and local climate change initiatives. At this time, we cannot accurately estimate how potential future laws or regulations addressing greenhouse gas emissions would impact our business.
We seek to minimize the possibility of a pollution event through equipment and job design, as well as through training employees. We also maintain a pollution risk management program in the event a pollution event occurs. This program includes an internal emergency response plan that provides specific procedures for our employees to follow in the event of a chemical release or spill. In addition, we have contracted with several third-

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party emergency responders in our various operating areas that are available on a 24-hour basis to handle the remediation and clean-up of any chemical release or spill. We carry insurance designed to respond to fortuitous environmental pollution events. This insurance portfolio has been structured in an effort to address pollution incidents that result in bodily injury or property damage and any ensuing clean up required at our owned facilities, as a result of the mobilization and utilization of our fleets, as well as any environmental claims resulting from our operations.
We also seek to manage environmental liability risks through provisions in our contracts with our customers that generally allocate risks relating to surface activities associated with the fracturing process, other than water disposal, to us and risks relating to “down-hole” liabilities to our customers. Our customers are responsible for the disposal of the fracturing fluid that flows back out of the well as waste water, for which they use a controlled flow-back process. We are not involved in that process or the disposal of the fluid. Our contracts generally require our customers to indemnify us against pollution and environmental damages originating below the surface of the ground or arising out of water disposal, or otherwise caused by the customer, other contractors or other third parties. In turn, we generally indemnify our customers for pollution and environmental damages originating at or above the surface caused solely by us. We seek to maintain consistent risk-allocation and indemnification provisions in our customer agreements to the extent possible. Some of our contracts, however, contain less explicit indemnification provisions, which typically provide that each party will indemnify the other against liabilities to third parties resulting from the indemnifying party’s actions, except to the extent such liability results from the indemnified party’s gross negligence, willful misconduct or intentional act.
Safety and health regulation
Safety is our highest priority, and we believe we are among the safest service providers in the industry. For example, we achieved a total recordable incident rate of 0.37 in 2018, which is substantially less than the industry average of 1.54 from 2013 to 2017. We believe total recordable incident rate is a reliable measure of safety performance.
We are subject to the requirements of the federal Occupational Safety and Health Act, which is administered and enforced by the Occupational Safety and Health Administration, commonly referred to as OSHA, and comparable state laws that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and the public. We believe that our operations are in substantial compliance with the OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to regulated substances. OSHA continues to evaluate worker safety and to propose new regulations, such as but not limited to, the new rule regarding respirable silica sand.
Although it is not possible to estimate the financial and compliance impact of proposed rules, the imposition of more stringent requirements could have a material adverse effect on our business, financial condition and results of operations.
Insurance
Our operations are subject to hazards inherent in the oil and natural gas industry, including accidents, blowouts, explosions, craterings, fires, oil spills and hazardous materials spills. These conditions can cause personal injury or loss of life, damage to or destruction of property, equipment, the environment and wildlife, and interruption or suspension of operations, among other adverse effects. In addition, claims for loss of oil and natural gas production and damage to formations can occur in the well services industry. If a serious accident were to occur at a location where our equipment and services are being used, it could result in our being named as a defendant to a lawsuit asserting significant claims.

Despite our efforts to maintain high safety standards, we from time to time have suffered accidents in the past, and we anticipate that we could experience accidents in the future. In addition to the property and personal

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losses from these accidents, the frequency and severity of these incidents affect our operating costs and insurability, as well as our relationships with customers, employees and regulatory agencies. Any significant increase in the frequency or severity of these incidents, or the general level of compensation awards, could adversely affect the cost of, or our ability to obtain, workers’ compensation and other forms of insurance, and could have other adverse effects on our financial condition and results of operations.

We carry a variety of insurance coverages for our operations, and we are partially self-insured for certain claims, in amounts that we believe to be customary and reasonable. However, our insurance may not be sufficient to cover any particular loss or may not cover all losses. Historically, insurance rates have been subject to various market fluctuations that may result in less coverage, increased premium costs, or higher deductibles or self-insured retentions.
Availability of filings
Our Annual reports on Form 10-K, Quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are made available free of charge on our internet web site at www.keanegrp.com, as soon as reasonably practicable after we have electronically filed the material with, or furnished it to, the Securities and Exchange Commission (the “SEC”). The SEC maintains an internet site that contains our reports, proxy and information statements and our other SEC filings. The address of that web site is https://www.sec.gov/.
We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website at https://investors.keanegrp.com/. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases and blogs as part of our investor relations website. We have used, and intend to continue to use, our investor relations website as means of disclosing material information and for complying with our disclosure obligations under Regulation Fair Disclosure. Further corporate governance information, including our certificate of incorporation, bylaws, governance guidelines, board committee charters and code of business conduct and ethics, is also available on our investor relations website under the heading “Corporate Governance.” The contents of our websites are not intended to be incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

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Item 1A. Risk Factors
RISK FACTORS
Described below are certain risks that we believe apply to our business and the industry in which we operate. You should carefully consider each of the following risk factors in conjunction with other information provided in this Annual Report on Form 10-K and in our other public disclosures. The risks described below highlight potential events, trends or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity or access to sources of financing, and consequently, the market value of our common stock. These risks could cause our future results to differ materially from historical results and from guidance we may provide regarding our expectations of future financial performance. The risks described below are those that we have identified as material and is not an exhaustive list of all the risks we face. There may be others that we have not identified, or that we have deemed to be immaterial. All forward-looking statements made by us or on our behalf are qualified by the risks described below.
Risks Related to Our Industry
Our business is cyclical and depends on spending and well completions by the onshore oil and natural gas industry in the U.S., and the level of such activity is volatile. Our business has been, and may continue to be, adversely affected by industry conditions that are beyond our control.
Our business is cyclical, and we depend on the willingness of our customers to make expenditures to explore for, develop and produce oil and natural gas from onshore unconventional resources in the U.S. The willingness of our customers to undertake these activities depends largely upon prevailing industry conditions that are influenced by numerous factors over which we have no control, including:
prices and expectations about future prices for oil and natural gas;
domestic and foreign supply of, and demand for, oil and natural gas and related products;
the level of global and domestic oil and natural gas inventories;
the supply of and demand for hydraulic fracturing and other oilfield services and equipment in the U.S.;
the cost of exploring for, developing, producing and delivering oil and natural gas;
available pipeline, storage and other transportation capacity;
lead times associated with acquiring equipment and products and availability of qualified personnel;
the discovery rates of new oil and natural gas reserves;
federal, state and local regulation of hydraulic fracturing and other oilfield service activities, as well as exploration and production activities, including public pressure on governmental bodies and regulatory agencies to regulate our industry;
the availability of water resources, suitable proppant and chemicals in sufficient quantities for use in hydraulic fracturing fluids;
geopolitical developments and political instability in oil and natural gas producing countries;
actions of the Organization of the Petroleum Exporting Countries (“OPEC”), its members and other state-controlled oil companies relating to oil price and production controls;

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advances in exploration, development and production technologies or in technologies affecting energy consumption;
the price and availability of alternative fuels and energy sources;
disruptions due to natural disasters, unexpected weather conditions and similar factors;
merger and divestiture activity amongst oil and natural gas producers;
uncertainty in capital and commodities markets and the ability of oil and natural gas producers to raise equity capital and debt financing; and
U.S. federal, state and local and non-U.S. governmental regulations and taxes.
The volatility of the oil and natural gas industry and the resulting impact on exploration and production activity could adversely impact the level of drilling and completion activity by some of our customers. This volatility may result in a decline in the demand for our services or adversely affect the price of our services. In addition, material declines in oil and natural gas prices, or drilling or completion activity in the U.S. oil and natural gas shale regions, could have a material adverse effect on our business, financial condition, prospects, results of operations and cash flows. Furthermore, a decrease in the development of oil and natural gas reserves in the U.S. may also have an adverse impact on our business, even in an environment of strong oil and natural gas prices.
A decline in or substantial volatility of crude oil and natural gas commodity prices could adversely affect the demand for our services.
The demand for our services is substantially influenced by current and anticipated crude oil and natural gas commodity prices, the related level of drilling and completion activity and general production spending in the areas in which we have operations. Volatility or weakness in crude oil and natural gas commodity prices (or the perception that crude oil and natural gas commodity prices will decrease) affects the operational and capital spending patterns of our customers, and the products and services we provide are, to a substantial extent, deferrable in the event oil and natural gas companies reduce capital expenditures. As a result, we may experience lower utilization of, and may be forced to lower our prices or rates charged for, our equipment and services.
Historical prices for crude oil and natural gas have been extremely volatile and are expected to experience continued volatility. For example, since 1999, oil prices have ranged from as low as approximately $10 per barrel to over $100 per barrel, reaching a high of $107.95 per barrel in June of 2014. From late 2014 to the second half of 2016, oil and natural gas prices and, therefore, the level of exploration, development and production activity, experienced a sustained decline from the highs in the latter half of 2014, as a result of an increasing global supply of oil and a decision by OPEC to sustain its production levels in spite of the decline in oil prices and slowing economic growth in the Eurozone and China. Although oil and natural gas prices experienced modest recovery since the first quarter of 2016, with oil reaching a high of $76.40 per barrel on October 3, 2018 before declining by approximately 42% over the course of almost three months to a low of $44.48 per barrel in late December 2018. During the first quarter of 2016, natural gas prices were as low as $1.49 per million British thermal units (“MMbtu”) and, despite volatility, reached a high of $4.70 per MMbtu on November 21, 2018, before declining to $3.25 per MMbtu on December 28, 2018. Continued price volatility for oil and natural gas is expected during 2019.
E&P companies have historically moved to reduce costs in connection with significant declines in the price of oil, both by decreasing drilling and completion activity and by demanding price concessions from their service providers, including providers of hydraulic fracturing and well completions services. In turn, service providers, including hydraulic fracturing and well completions service providers, may be forced to lower their operating costs and capital expenditures, while continuing to operate their businesses in an extremely competitive environment. Prolonged periods of decreased oil prices or price instability in the oil and natural gas industry will adversely affect the demand for our products and services and our financial condition, prospects and results of operations. For more information, see Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Business Outlook.”

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Additionally, the commercial development of economically viable alternative energy sources (such as wind, solar, geothermal, tidal, fuel cells and biofuels) and fuel conservation measures could reduce demand for our services and create downward pressure on the revenue we are able to derive from such services, as they are dependent on oil and natural gas commodity prices.
Pipeline capacity constraints in the Permian Basin may temporarily disrupt our operations during the near term.
One of our most important geographic markets is the Permian Basin. Recently, the oil and gas industry was concerned that the region’s capacity to transport oil to market, primarily to regional refineries, was not sufficient to support the growing production of the region. Additional pipeline capacity under construction in the region is not anticipated to be completed until the third quarter of 2019. If pipeline capacity remains or becomes more constrained in the Permian Basin, our activity in the region may decline, which could have a material adverse effect on our business, results of operations, prospects and financial condition.
Adverse weather conditions could impact demand for our services or materially impact our costs.
Our business could be materially adversely affected by adverse weather conditions. For example, unusually warm winters could adversely affect the demand for our services by decreasing the demand for natural gas. In addition, unusually cold winters and other weather conditions could adversely affect our ability to perform our services due to delays in the delivery of products that we need to provide our services. For example, weather-induced rail congestion, combined with flooding impacts at suppliers’ mines, has contributed previously to a reduction in the availability of sand used in our operations. Our operations in arid regions can also be affected by droughts and limited access to water used in our hydraulic fracturing operations. Adverse weather can also directly impede our own operations. Repercussions of adverse weather conditions may include:
curtailment of services;
weather-related damage to facilities and equipment, resulting in delays in operations;
inability to deliver equipment, personnel and products to job sites in accordance with contract schedules; and
loss of productivity.
Our operations are subject to hazards inherent in the energy services industry.
Risks inherent to our industry can cause personal injury, loss of life, suspension of or impact upon operations, damage to geological formations, damage to facilities, business interruption and damage to, or destruction of, property, equipment and the environment. Such risks may include, but are not limited to:
equipment defects;
vehicle accidents;
explosions and uncontrollable flows of gas or well fluids;
unusual or unexpected geological formations or pressures and industrial accidents;
blowouts;
cratering;
loss of well control;
collapse of the borehole; and
damaged or lost drilling and well completions equipment.

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Catastrophic or significantly adverse events can occur at well sites where we conduct our operations, including blow outs resulting in explosions, fires, personal injuries, property damage, pollution and regulatory responsibility. In response, we typically require indemnities, releases and limitations on liability in our contracts with our customers, together with liability insurance coverage, to protect us from potential liability related to such occurrences. However, it is possible that customers or insurers could seek to avoid or be financially unable to meet their obligations, or a court may decline to enforce such provisions. Damages that are not indemnified or released could greatly exceed available insurance coverage and could have a material adverse effect on our business, financial condition, prospects and results of operations.
Catastrophic or significantly adverse events can also occur at our facilities and during transport of our equipment, commodities and personnel to well sites. In response, we also typically require indemnities, releases and limitations on liability in our contracts with our suppliers and service providers, together with liability insurance coverage, to protect us from potential liability related to such occurrences.
In addition, our hydraulic fracturing and well completion services could become a source of spills or releases of fluids, including chemicals used during hydraulic fracturing activities, at the site where such services are performed, or could result in the discharge of such fluids into underground formations that were not targeted for fracturing or well completion activities, such as potable aquifers. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, loss of oil and natural gas production, pollution and other environmental damages and could result in a variety of claims, losses and remedial obligations that could have an adverse effect on our business and results of operations. The existence, frequency and severity of such incidents could affect operating costs, insurability and relationships with customers, employees and regulators. In particular, our customers may elect not to purchase our services if they view our safety record as unacceptable, which could cause us to lose customers and substantial revenue. Any litigation or claims, even if fully indemnified or insured, could negatively affect our reputation with our customers and the public and make it more difficult for us to compete effectively or obtain adequate insurance in the future.
Competition and excess equipment within the oilfield services industry may adversely affect our ability to market our services.
The oilfield services industry is highly competitive and at times, available pressure pumping and well completions equipment exceed the demand for such equipment. A low commodity price environment can result in substantially more pressure pumping and well completion equipment being available than are needed to meet demand. In addition, in recent years, there has been a substantial increase in the construction of new pressure pumping equipment. Low commodity prices and the construction of new equipment can result in excess capacity and substantial competition for a diminishing amount of pressure pumping demand. Even in an environment of high oil and natural gas prices and increased drilling completions activity, reactivation and improvement of existing pressure pumping equipment and operations and the construction of new pressure pumping equipment can lead to an excess supply of equipment.
The oilfield services industry is highly fragmented and includes several large companies that compete in many of the markets we serve, as well as numerous small companies that compete with us on a local basis. Our larger competitors’ greater resources could allow them to better withstand industry downturns and to compete more effectively on the basis of technology, geographic scope, retained skilled personnel and economies of scale. We believe the principal competitive factors in the market areas we serve are multi-basin service capability, proximity to customers, technical expertise, equipment capacity, work force competency, efficiency, safety records, reputation, experience and price. Our operations may be adversely affected if our current competitors or new market entrants introduce new products, technology or services with better features, performance, prices or other characteristics than our products and services or expand in service areas where we operate.
Competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our results of operations, financial condition and prospects. We periodically seek to increase prices on our services to offset rising costs and to generate higher returns for our stockholders. Because we operate in a very competitive industry, however, we are not always successful in

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raising or maintaining our existing prices. With the active rig count below the peak seen in 2014 and pressure pumping equipment still idle, there is considerable pricing pressure on pressure pumping services. Even if we are able to increase our prices, we may not be able to do so at a rate that is sufficient to offset rising costs without adversely affecting our activity levels. The inability to maintain our pricing and to increase our pricing as costs increase could have a material adverse effect on our business, financial condition, cash flows and results of operations. In addition, we may be unable to replace dedicated contracts that were terminated early, extend expiring contracts or obtain new contracts in the spot market, and the rates and other material terms under any new or extended contracts may be on substantially less favorable rates and terms.
Accordingly, high competition and excess equipment can cause oil and natural gas service contractors to have difficulty maintaining pricing, utilization and profit margins and, at times, result in operating losses. We cannot predict the future level of competition or excess equipment in the oil and natural gas service businesses or the level of demand for our pressure pumping and well completion services.  
Competition among oilfield service and equipment providers is affected by each provider’s reputation for safety and quality.
Our activities are subject to a wide range of national, state and local occupational health and safety laws and regulations. In addition, customers maintain their own compliance and reporting requirements. Failure to comply with these health and safety laws and regulations, or failure to comply with our customers’ compliance or reporting requirements, could tarnish our reputation for safety and quality and have a material adverse effect on our competitive position.
Oilfield anti-indemnity provisions enacted by many states may restrict or prohibit a party’s indemnification of us.
We typically enter into agreements with our customers governing the provision of our services, which usually include certain indemnification provisions for losses resulting from operations. Such agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its own negligence. Furthermore, certain states, including Louisiana, New Mexico, Texas and Wyoming, have enacted statutes generally referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield services agreements. Such oilfield anti-indemnity acts may restrict or void a party’s indemnification of us, which could have a material adverse effect on our business, financial condition, prospects and results of operations.
We are subject to federal, state and local laws and regulations regarding issues of health, safety and protection of the environment. Under these laws and regulations, we may become liable for penalties, damages or costs of remediation or other corrective measures. Any changes in laws or government regulations could increase our costs of doing business.
Our operations are subject to stringent federal, state, local and tribal laws and regulations relating to, among other things, protection of natural resources, clean air and drinking water, wetlands, endangered species, greenhouse gasses, nonattainment areas, the environment, health and safety, chemical use and storage, waste management, waste disposal and transportation of waste and other hazardous and nonhazardous materials. Our operations involve risks of environmental liability, including leakage from an operator’s casing during our operations or accidental spills onto or into surface or subsurface soils, surface water or groundwater. Some environmental laws and regulations may impose strict liability, joint and several liability or both. In some situations, we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, third parties without regard to whether we caused or contributed to the conditions. Additionally, environmental concerns, including clean air, drinking water contamination and seismic activity, have prompted investigations that could lead to the enactment of regulations, limitations, restrictions or moratoria that could potentially have a material adverse impact on our business. Actions arising under these laws and regulations could result in the shutdown of our operations, fines and penalties (administrative, civil or criminal), revocations of permits to conduct business, expenditures for remediation or other corrective measures and/or claims for liability for property damage, exposure

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to hazardous materials, exposure to hazardous waste, nuisance or personal injuries. Sanctions for noncompliance with applicable environmental laws and regulations may also include the assessment of administrative, civil or criminal penalties, revocation of permits and temporary or permanent cessation of operations in a particular location and issuance of corrective action orders. Such claims or sanctions and related costs could cause us to incur substantial costs or losses and could have a material adverse effect on our business, financial condition, prospects and results of operations. Additionally, an increase in regulatory requirements, limitations, restrictions or moratoria on oil and natural gas exploration and completion activities at a federal, state or local level could significantly delay or interrupt our operations, limit the amount of work we can perform, increase our costs of compliance, or increase the cost of our services; thereby possibly having a material adverse impact on our financial condition.
If we do not perform in accordance with government, industry, customer or our own health, safety and environmental standards, we could lose business from our customers, many of whom have an increased focus on environmental and safety issues.
We are subject to the EPA, U.S. Department of Transportation, U.S. Nuclear Regulation Commission, OSHA and state regulatory agencies that regulate operations to prevent air, soil and water pollution.
The EPA regulates air emissions from all engines, including off-road diesel engines that are used by us to power equipment in the field. Under these U.S. emission control regulations, we could be limited in the number of certain off-road diesel engines we can purchase. Further, the emission control and fuel quality regulations could result in increased costs.
Laws and regulations protecting the environment generally have become more stringent over time, and we expect them to continue to do so. This could lead to material increases in our costs, and liability exposure, for future environmental compliance and remediation.
Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing could prohibit, restrict or limit hydraulic fracturing operations, could increase our operating costs or could result in the disclosure of proprietary information resulting in competitive harm.
During recent sessions of the U.S. Congress, several pieces of legislation were introduced in the U.S. Senate and House of Representatives for the purpose of amending environmental laws such as the Clean Air Act, the SDWA and the Toxic Substance Control Act with respect to activities associated with extraction and energy production industries, especially the oil and gas industry. Furthermore, various items of legislation and rulemaking have been proposed that would regulate or prevent federal regulation of hydraulic fracturing on federally owned land. Proposed rulemaking from the EPA and OSHA could increase our regulatory requirements, which could increase our costs of compliance or increase the costs of our services, thereby possibly having a material adverse impact on our business and results of operations.
If the EPA or another federal or state-level agency asserts jurisdiction over certain aspects of hydraulic fracturing operations, an additional level of regulation established at the federal or state level could lead to operational delays and increase our costs. In December 2016, the EPA issued a study of the potential impacts of hydraulic fracturing on drinking water and groundwater. The EPA report states that there is scientific evidence that hydraulic fracturing activities can impact drinking resources under some circumstances, and identifies certain conditions in which the EPA believes the impact of such activities on drinking water and groundwater can be more frequent or severe. The EPA study could spur further initiatives to regulate hydraulic fracturing under the SDWA or otherwise. Many regulatory and legislative bodies routinely evaluate the adequacy and effectiveness of laws and regulations affecting the oil and gas industry. As a result, state legislatures, state regulatory agencies and local municipalities may consider legislation, regulations or ordinances, respectively, that could affect all aspects of the oil and natural gas industry and occasionally take action to restrict or further regulate hydraulic fracturing operations. At this time, it is not possible to estimate the potential impact on our business of these state and municipal actions or the enactment of additional federal or state legislation or regulations affecting hydraulic fracturing. Compliance, stricter regulations or the consequences of any failure to comply by us could have a material adverse effect on our business, financial condition, prospects and results of operations.

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Many states in which we operate require the disclosure of some or all of the chemicals used in our hydraulic fracturing operations. Certain aspects of one or more of these chemicals may be considered proprietary by us or our chemical suppliers. Disclosure of our proprietary chemical information to third parties or to the public, even if inadvertent, could diminish the value of our trade secrets or those of our chemical suppliers and could result in competitive harm to us, which could have an adverse impact on our business, financial condition, prospects and results of operations.
We are also aware that some states, counties and municipalities have enacted or are considering moratoria on hydraulic fracturing. For example, New York and Vermont, states in which we have no operations, have banned or are in the process of banning the use of high-volume hydraulic fracturing. Alternatively, some municipalities are or have considered zoning and other ordinances, the conditions of which could impose a de facto ban on drilling and/or hydraulic fracturing operations. Further, some states, counties and municipalities are closely examining water use issues, such as permit and disposal options for processed water, which could have a material adverse impact on our financial condition, prospects and results of operations, if such additional permitting requirements are imposed upon our industry. Additionally, our business could be affected by a moratorium or increased regulation of companies in our supply chain, such as sand mining by our proppant suppliers, which could limit our access to supplies and increase the costs of our raw materials. At this time, it is not possible to estimate how these various restrictions could affect our ongoing operations. For more information, see “Item 1. Business—Environmental regulation.”
Existing or future laws and regulations related to greenhouse gases and climate change could have a negative impact on our business and may result in additional compliance obligations with respect to the release, capture and use of carbon dioxide that could have a material adverse effect on our business, results of operations, prospects and financial condition.
Changes in environmental requirements related to greenhouse gases and climate change may negatively impact demand for our services. For example, oil and natural gas exploration and production may decline as a result of environmental requirements, including land use policies responsive to environmental concerns. Federal, state and local agencies have been evaluating climate-related legislation and other regulatory initiatives that would restrict emissions of greenhouse gases in areas in which we conduct business. Because our business depends on the level of activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse gases and climate change, including incentives to conserve energy or use alternative energy sources, could have a negative impact on our business if such laws or regulations reduce demand for oil and natural gas. Likewise, such restrictions may result in additional compliance obligations with respect to the release, capture, sequestration and use of carbon dioxide that could have a material adverse effect on our business, results of operations, prospects and financial condition.
Changes in transportation regulations may increase our costs and negatively impact our results of operations.
We are subject to various transportation regulations, including as a motor carrier by the U.S. Department of Transportation and by various federal, state and tribal agencies, whose regulations include certain permit requirements of highway and safety authorities. These regulatory authorities exercise broad powers over our trucking operations, generally governing such matters as the authorization to engage in motor carrier operations, safety, equipment testing, driver requirements and specifications and insurance requirements. The trucking industry is subject to possible regulatory and legislative changes that may impact our operations, such as changes in fuel emissions limits, hours of service regulations that govern the amount of time a driver may drive or work in any specific period and limits on vehicle weight and size. As the federal government continues to develop and propose regulations relating to fuel quality, engine efficiency and greenhouse gas emissions, we may experience an increase in costs related to truck purchases and maintenance, impairment of equipment productivity, a decrease in the residual value of vehicles, unpredictable fluctuations in fuel prices and an increase in operating expenses. Increased truck traffic may contribute to deteriorating road conditions in some areas where our operations are performed. Our operations, including routing and weight restrictions, could be affected by road construction, road repairs, detours and state and local regulations and ordinances restricting access to certain roads. Proposals to increase federal, state or local taxes, including taxes on motor fuels, are also made from time to time, and any such increase would increase

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our operating costs. Also, state and local regulation of permitted routes and times on specific roadways could adversely affect our operations. We cannot predict whether, or in what form, any legislative or regulatory changes or municipal ordinances applicable to our logistics operations will be enacted and to what extent any such legislation or regulations could increase our costs or otherwise adversely affect our business or operations.
Risks Related to Our Business
We may be subject to claims for personal injury and property damage, which could materially adversely affect our financial condition, prospects and results of operations.
Our services are subject to inherent risks that can cause personal injury or loss of life, damage to or destruction of property, equipment or the environment or the suspension of our operations. Our operations are subject to, and exposed to, employee/employer liabilities and risks such as wrongful termination, discrimination, labor organizing, retaliation claims and general human resource related matters. Litigation arising from operations where our facilities are located, or our services are provided, may cause us to be named as a defendant in lawsuits asserting potentially large claims including claims for exemplary damages. We maintain what we believe is customary and reasonable insurance to protect our business against these potential losses, but such insurance may not be adequate to cover our liabilities, and we are not fully insured against all risks. Further, our insurance has deductibles or self-insured retentions and contains certain coverage exclusions. The current trend in the insurance industry is towards larger deductibles and self-insured retentions. In addition, insurance may not be available in the future at rates that we consider reasonable and commercially justifiable, compelling us to have larger deductibles or self-insured retentions to effectively manage expenses. As a result, we could become subject to material uninsured liabilities or situations where we have high deductibles or self-insured retentions that expose us to liabilities that could have a material adverse effect on our business, financial condition, prospects or results of operations.
Litigation and other proceedings could have a negative impact on our business.
The nature of our business makes us susceptible to legal proceedings and governmental audits and investigations from time to time. In addition, during periods of depressed market conditions, we may be subject to an increased risk of our customers, vendors, current and former employees and others initiating legal proceedings against us that could have a material adverse effect on our business, financial condition and results of operations. Similarly, any legal proceedings or claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and make it more difficult for us to compete effectively or obtain adequate insurance in the future. See Note (18) Commitments and Contingencies of Part II, “Item 8. Financial Statements and Supplementary Data” for further discussion of our legal and environmental contingencies for the years ended December 31, 2018, 2017 and 2016.
Our assets require significant amounts of capital for maintenance, upgrades and refurbishment and may require significant capital expenditures for new equipment.
Our hydraulic fracturing fleets and other completion service-related equipment require significant capital investment in maintenance, upgrades and refurbishment to maintain their competitiveness. Our fleets and other equipment typically do not generate revenue while they are undergoing maintenance, refurbishment or upgrades. Any maintenance, upgrade or refurbishment project for our assets could increase our indebtedness or reduce cash available for other opportunities. Furthermore, such projects may require proportionally greater capital investments as a percentage of total asset value, which may make such projects difficult to finance on acceptable terms. To the extent we are unable to fund such projects, we may have less equipment available for service, or our equipment may not be attractive to potential or current customers. Additionally, increased demand, competition or advances in technology within our industry may require us to update or replace existing fleets or build or acquire new fleets. For example, in 2018, we purchased approximately 150,000 newbuild hydraulic horsepower, representing three additional hydraulic fracturing fleets, for approximately $129.4 million. Such demands on our capital or reductions in demand for our hydraulic fracturing fleets and other completion service-related equipment and the increase in cost to maintain labor necessary for such maintenance and improvement, in each case, could have a material adverse effect on our business, liquidity position, financial condition, prospects and results of operations.

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The loss of one or more significant customers could adversely affect our financial condition, prospects and results of operations.
Our customers are engaged in the oil and natural gas E&P business in the U.S. Historically, we have been dependent upon a few customers for a significant portion of our revenues. For the year ended December 31, 2018, we had three customers who individually represented more than 10% of our consolidated revenue. These three customers collectively represented 39% of our consolidated revenue and 45% of our total accounts receivable for the fiscal year ended December 31, 2018. For the year ended December 31, 2017, no customer individually represented more than 10% of our consolidated revenue. For the year ended December 31, 2016, we had three customers who individually represented more than 10% of our consolidated revenue. These three customers collectively represented 48% of our consolidated revenue and 42% of our total accounts receivable.
Our business, financial condition, prospects and results of operations could be materially adversely affected, if one or more of our significant customers ceases to engage us for our services on favorable terms or at all, or fails to pay or delays in paying us significant amounts of our outstanding receivables. Our contracts with our customers are typically annual to multi-year contracts.
Additionally, the E&P industry is characterized by frequent consolidation activity. Changes in ownership of our customers may result in the loss of, or reduction in, business from those customers, which could materially and adversely affect our business, financial condition, prospects or results of operations.
We are exposed to the credit risk of our customers, and any material nonpayment or nonperformance by our customers could adversely affect our financial results.
We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers, many of whose operations are concentrated solely in the domestic E&P industry which, as described above, is subject to volatility and, therefore, credit risk. Our credit procedures and policies may not be adequate to fully reduce customer credit risk. If we are unable to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration in their creditworthiness, any resulting increase in nonpayment or nonperformance by them and our inability to re-market or otherwise use our equipment could have a material adverse effect on our business, financial condition, prospects and results of operations.
Our commitments under supply agreements could exceed our requirements, and our reliance on suppliers exposes us to risks including price, timing of delivery and quality of products and services upon which our business relies.
We have purchase commitments with certain vendors to supply a majority of the proppant used in our operations. Some of these agreements are take-or-pay agreements with minimum purchase obligations. If demand for our hydraulic fracturing services decreases from current levels, demand for the raw materials and products we supply as part of these services will also decrease. If demand decreases enough, we could have contractual minimum commitments that exceed the required amount of goods we need to supply to our customers. In this instance, we could be required to purchase goods that we do not have a present need for, pay for goods that we do not take delivery of or pay prices in excess of market prices at the time of purchase. Additionally, our reliance on outside suppliers for some of the key materials and equipment we use in providing our services involves risks, including limited control over the price, timely delivery availability and quality of such materials or equipment. In addition to continued growth and demand for sand, some transitory factors that also can potentially affect timely delivery and availability of sand include inclement weather, flooding impacts, rail-related output constraints and delays on opening new mine sources.

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Unexpected and immediate changes in the availability and pricing of raw materials, or the loss of or interruption in operations of one or more of our suppliers, could have a material adverse effect on our results of operations, prospects and financial condition.
Raw materials essential to our business are normally readily available. However, high levels of demand for raw materials, such as gels, guar, proppant and hydrochloric acid, have triggered constraints in the supply chain of those raw materials and could dramatically increase the prices of such raw materials. For example, during 2012, companies in our industry experienced a shortage of guar, which is a key ingredient in fracturing fluids. This shortage resulted in an unexpected and immediate increase in the price of guar. During 2008, our industry faced sporadic proppant shortages requiring work stoppages, which adversely impacted the operating results of several competitors. An increase in the cost of proppant as a result of increased demand or a decrease in the number of proppant providers could increase our cost of an essential raw material in hydraulic stimulation and have a material adverse effect on our business, operations, prospects and financial condition. We may not be able to mitigate any future shortages of raw materials.
New technology may cause us to become less competitive.
The oilfield services industry is subject to the introduction of new drilling and completion techniques and services using new technologies, some of which may be subject to patent or other intellectual property protections. Although we believe our equipment and processes currently give us a competitive advantage, as competitors and others use or develop new or comparable technologies in the future, we may lose market share or be placed at a competitive disadvantage. In addition, technological changes, process improvements and other factors that increase operational efficiencies could continue to result in oil and natural gas wells being completed more quickly, which could reduce the number of revenue earning days. Furthermore, we may face competitive pressure to develop, implement or acquire certain new technologies at a substantial cost. Some of our competitors have greater financial, technical and personnel resources that may allow them to enjoy technological advantages and develop and implement new products on a timely basis or at an acceptable cost. We cannot be certain that we will be able to develop and implement new technologies or products on a timely basis or at an acceptable cost. Limits on our ability to develop, acquire, effectively use and implement new and emerging technologies may have a material adverse effect on our business, financial condition, prospects or results of operations.
We may be unable to employ a sufficient number of key employees, technical personnel and other skilled or qualified workers.
The delivery of our services and products requires personnel with specialized skills and experience who can perform physically demanding work. As a result of the volatility in the energy service industry and the demanding nature of the work, workers may choose to pursue employment with our competitors or in fields that offer a less demanding work environment. Furthermore, we require full compliance with the Immigration Reform and Control Act of 1986 and other laws concerning immigration and the hiring of legally documented workers. We recognize that foreign nationals may be a valuable source of talent, but that not all foreign nationals are authorized to work for U.S. companies immediately, without first obtaining a required work authorization from the U.S. Department of Homeland Security or similar government agency. Our ability to be productive and profitable will depend upon our ability to employ and retain skilled workers. In addition, our ability to adjust our operations according to geographic demand for our services depends in part on our ability to relocate or increase the size of our skilled labor force. The demand for skilled workers in our areas of operations can be high, the supply may be limited, and we may be unable to relocate our employees from areas of lower utilization to areas of higher demand. A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. Furthermore, a significant decrease in the wages paid by us or our competitors as a result of reduced industry demand could result in a reduction of the available skilled labor force, and there is no assurance that the availability of skilled labor will improve following a subsequent increase in demand for our services or an increase in wage rates. If any of these events were to occur, our capacity and profitability could be diminished and our growth potential could be impaired.

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We depend heavily on the efforts of executive officers, managers and other key employees to manage our operations. The unexpected loss or unavailability of key members of management or technical personnel may have a material adverse effect on our business, financial condition, prospects or results of operations.
Delays in obtaining, or inability to obtain or renew, permits or authorizations by our customers for their operations or by us for our operations could impair our business.
In most states, our customers are required to obtain permits or authorizations from one or more governmental agencies or other third parties to perform drilling and completion activities, including hydraulic fracturing. Such permits or approvals are typically required by state agencies, but can also be required by federal and local governmental agencies or other third parties. The requirements for such permits or authorizations vary depending on the location where such drilling and completion activities will be conducted. As with most permitting and authorization processes, there is a degree of uncertainty as to whether a permit will be granted, the time it will take for a permit or approval to be issued and the conditions which may be imposed in connection with the granting of the permit. In some jurisdictions, such as within the jurisdiction of the Delaware River Basin Commission, certain regulatory authorities have delayed or suspended the issuance of permits or authorizations, while the potential environmental impacts associated with issuing such permits can be studied and appropriate mitigation measures evaluated. New York and Vermont, states in which we have no operations, have prohibited hydraulic fracturing statewide. In Texas, rural water districts have begun to impose restrictions on water use and may require permits for water used in drilling and completion activities. Permitting, authorization or renewal delays, the inability to obtain new permits or the revocation of current permits could cause a loss of revenue and potentially have a materially adverse effect on our business, financial condition, prospects or results of operations.
We are also required to obtain federal, state, local and/or third-party permits and authorizations in some jurisdictions in connection with our wireline services. These permits, when required, impose certain conditions on our operations. Any changes in these requirements could have a material adverse effect on our business, financial condition, prospects and results of operations.
We may not be successful in identifying and making acquisitions.
Part of our strategy to expand our geographic scope and customer relationships, increase our access to technology and to grow our business is dependent on our ability to make acquisitions that result in accretive revenues and earnings. We may be unable to make accretive acquisitions or realize expected benefits of any acquisitions for any of the following reasons:
failure to identify attractive targets;
incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets;
failure to obtain financing on acceptable terms or at all;
restrictions in our debt agreements;
failure to successfully integrate the operations or management of any acquired operations or assets;
failure to retain or attract key employees; and
diversion of management’s attention from existing operations or other priorities.
Our acquisition strategy requires that we successfully integrate acquired companies into our business practices, as well as our procurement, management and enterprise-wide information technology systems. We may not be successful in implementing our business practices at acquired companies, and our acquisitions could face difficulty in transitioning from their previous information technology systems to our own. Furthermore, unexpected costs and challenges may arise whenever businesses with different operations or management are combined. Any

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such difficulties, or increased costs associated with such integration, could affect our business, financial performance and operations.
If we are unable to identify, complete and integrate acquisitions, it could have a material adverse effect on our growth strategy, business, financial condition, prospects and results of operations.
Integrating acquisitions may be time-consuming and create costs that could reduce our net income and cash flows.
Part of our strategy includes pursuing acquisitions that we believe will be accretive to our business. If we consummate an acquisition, the process of integrating the acquired business may be complex and time consuming, may be disruptive to the business and may cause an interruption of, or a distraction of management’s attention from, the business as a result of a number of obstacles, including, but not limited to:
a failure of our due diligence process to identify significant risks or issues;
the loss of customers of the acquired company or our company;
negative impact on the brands or banners of the acquired company or our company;
a failure to maintain or improve the quality of our customer service;
difficulties assimilating the operations and personnel of the acquired company;
our inability to retain key personnel of the acquired company;
the incurrence of unexpected expenses and working capital requirements;
our inability to achieve the financial and strategic goals, including synergies, for the combined businesses;
difficulty in maintaining internal controls, procedures and policies;
mistaken assumptions about the overall costs of equity or debt; and
unforeseen difficulties operating in new product areas or new geographic areas.
Any of the foregoing obstacles, or a combination of them, could decrease gross profit margins or increase selling, general and administrative expenses in absolute terms and/or as a percentage of net sales, which could in turn negatively impact our net income and cash flows.
We may not be able to consummate acquisitions in the future on terms acceptable to us, or at all. In addition, future acquisitions are accompanied by the risk that the obligations and liabilities of an acquired company may not be adequately reflected in the historical financial statements of that company and the risk that those historical financial statements may be based on assumptions which are incorrect or inconsistent with our assumptions or approach to accounting policies. Any of these material obligations, liabilities or incorrect or inconsistent assumptions could adversely impact our results of operations, prospects and financial condition.

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A failure of our information technology systems, including the implementation of our new enterprise resource planning system, could have a material adverse effect on our business, financial condition, results of operations and cash flows and could adversely affect the effectiveness of our internal control over financial reporting.
We rely on sophisticated information technology systems and infrastructure to support our business. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, usage errors by employees, computer viruses, cyber-attacks or other security breaches or similar events. A failure or prolonged interruption in our information technology systems, or difficulties encountered in upgrading our systems or implementing new systems that compromises our ability to meet our customers’ needs or impairs our ability to record, process and report accurate information, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are in the process of implementing an enterprise resource planning (“ERP”) system that will assist with the collection, storage, management and interpretation of data from our business activities to support future growth and to integrate significant processes. Our ERP system is critical to our ability to accurately maintain books and records, record transactions, provide important information to our management and prepare our consolidated financial statements. ERP system implementations are complex and time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes to business processes and internal control over financial reporting. The implementation of the ERP system may prove to be more difficult, costly, or time consuming than expected, and there can be no assurance that this system will continue to be beneficial to the extent anticipated. Any disruptions, delays or deficiencies in the design and implementation of our new ERP system, particularly ones that impact our financial reporting and accounting systems or our ability to provide services, send invoices, track payments or fulfill contractual obligations, could adversely affect our business, financial condition, results of operations and cash flows. Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be impacted, which could cause us to fail to meet our reporting obligations.
We are subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss.
The oil and natural gas industry has become increasingly dependent on digital technologies to conduct certain processing activities. For example, we depend on digital technologies to perform many of our services and processes and to record operational and financial data. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Our technologies, systems and networks, as well as those of our customers, suppliers and other business partners, may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary information, personal information and other data, or other disruption of our business operations. In addition, certain cyber incidents, such as unauthorized surveillance, may remain undetected for an extended period of time. Our systems and insurance coverage for protecting against cyber security risks, including cyberattacks, may not be sufficient and may not protect against or cover all of the losses we may experience as a result of the realization of such risks. As cyber incidents continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and remediate the effects of cyber incidents.
If we fail to maintain an effective system of internal controls as required by Section 404 of the Sarbanes-Oxley Act of 2002, we may not be able to report our financial results accurately or prevent fraud, which could adversely affect our business and result in material misstatements in our financial statements.
Effective internal controls are necessary for us to provide timely and reliable financial reports, prevent fraud and to operate successfully as a publicly traded company. Our efforts to maintain our internal controls may not be successful, and we may be unable to maintain effective controls over our financial processes and reporting in the future or to comply with our obligations under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). For example, Section 404 requires us, among other things, to annually review and report on, and our independent

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registered public accounting firm to attest to, the effectiveness of our internal controls over financial reporting. This assessment includes disclosure of any deficiencies or material weaknesses identified by our management in our internal control over financial reporting. Any failure to develop, implement or maintain effective internal controls or to improve our internal controls could harm our operating results, prevent us from identifying future deficiencies and material weaknesses or cause us to fail to meet our reporting obligations. Given the difficulties inherent in the design and operation of internal controls over financial reporting, we can provide no assurance as to our, or our independent registered public accounting firm’s conclusions, about the effectiveness of our internal controls, and we may incur significant costs in our efforts to comply with Section 404. Ineffective internal controls could result in material misstatements in our financial statements and subject us to increased regulatory scrutiny and a loss of confidence in our reported financial information, which could have an adverse effect on our business.
Risks Related to Owning Our Indebtedness
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.
We have a significant amount of indebtedness. As of December 31, 2018, we had $340.7 million of debt outstanding, net of discounts and deferred financing costs (not including capital lease obligations). After giving effect to our borrowing base, we had approximately $184.0 million of availability under our 2017 ABL Facility (as defined herein).
Our substantial indebtedness could have important consequences to you. For example, it could:
adversely affect the market price of our common stock;
increase our vulnerability to interest rate increases and general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes, including acquisitions;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limit our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service requirements and other general corporate requirements; and
place us at a competitive disadvantage compared to our competitors that have less debt.
In addition, we cannot assure you that we will be able to refinance any of our debt, or that we will be able to refinance our debt on commercially reasonable terms. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as:
sales of assets;
sales of equity; or
negotiations with our lenders to restructure the applicable debt.
Our debt instruments may restrict, or market or business conditions may limit, our ability to use some of our options.

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Despite our significant indebtedness levels, we may still be able to incur additional debt, which could further exacerbate the risks associated with our substantial leverage.
We and our subsidiaries may be able to incur additional indebtedness in the future. The terms of the credit agreements that govern the 2017 ABL Facility and the 2018 Term Loan Facility (as defined herein and, together with the 2017 ABL Facility, the “Senior Secured Debt Facilities”) permit us to incur additional indebtedness, subject to certain limitations. If new indebtedness is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face would intensify. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Principal Debt Agreements” for further details.
The agreements governing our indebtedness contain operating covenants and restrictions that limit our operations and could lead to adverse consequences if we fail to comply with them.
The agreements governing our indebtedness contain certain operating covenants and other restrictions relating to, among other things, limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, dividends and other restricted payments, repurchase of shares of capital stock and options to purchase shares of capital stock and certain transactions with affiliates. In addition, our Senior Secured Debt Facilities include certain financial covenants.
The restrictions in the agreements governing our indebtedness may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility.
Failure to comply with these financial and operating covenants could result from, among other things, changes in our results of operations, the incurrence of additional indebtedness, declines in the pricing of our services and products, difficulties in implementing cost reduction initiatives, difficulties in implementing our overall business strategy or changes in general economic conditions, which may be beyond our control. The breach of any of these covenants or restrictions could result in a default under the agreements that govern these facilities that would permit the lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay such amounts, lenders having secured obligations could proceed against the collateral securing these obligations. The collateral includes the capital stock of our domestic subsidiaries and substantially all of our and our subsidiaries’ other tangible and intangible assets, subject in each case to certain exceptions. This could have serious consequences on our financial condition and results of operations and could cause us to become bankrupt or otherwise insolvent. In addition, these covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our business and stockholders.
See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Principal Debt Agreements” for further details.
Substantially all of our debt is variable rate and increases in interest rates could negatively affect our financing costs and our ability to access capital.
We have exposure to future interest rates based on the variable rate debt under the Senior Secured Debt Facilities, and to the extent we raise additional debt in the capital markets to meet maturing debt obligations, to fund our capital expenditures and working capital needs and to finance future acquisitions. Daily working capital requirements are typically financed with operational cash flow and through borrowings under our 2017 ABL Facility, if needed. The interest rate on these borrowing arrangements is generally determined from the inter-bank offering rate at the borrowing date plus a pre-set margin. Although we employ risk management techniques to hedge against interest rate volatility, significant and sustained increases in market interest rates could materially increase our financing costs and negatively impact our reported results.

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Risks Related to Owning Our Common Stock
The price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public offering price.
The market price for our common stock is volatile. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including
the failure of securities analysts to cover, or continue to cover, our common stock or changes in financial estimates by analysts;
changes in, or investors’ perception of, the hydraulic fracturing industry;
the activities of competitors;
future issuances and sales of our common stock, including in connection with acquisitions;
our quarterly or annual earnings or those of other companies in our industry;
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
regulatory or legal developments in the U.S.;
litigation involving us, our industry, or both; and
general economic conditions.
In addition, the stock market often experiences extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of a particular company. These broad market fluctuations and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
If a substantial number of shares becomes available for sale and are sold in a short period of time, the market price of our common stock could decline and our stockholders may be diluted.
As of February 25, 2019, 104,405,121 shares of common stock were outstanding, of which 51,668,175 shares were held by Keane Investor. If Keane Investor sells substantial amounts of our common stock in the public market, the market price of our common stock could decrease. The perception in the public market that Keane Investor might sell shares of common stock could also create a perceived overhang and depress our market price.
Because we do not currently pay dividends, our stockholders may not receive any return on investment, unless they sell their common stock for a price greater than that which they paid for it.
We do not currently pay dividends, and our stockholders will not be guaranteed, or have contractual or other rights, to receive dividends. Our board of directors may, in its discretion, modify or repeal our dividend policy. The declaration and payment of dividends depends on various factors, including: our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.
In addition, we are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon cash dividends and distributions and other transfers from our subsidiaries to make dividend payments. Our subsidiaries’ ability to pay dividends is restricted by agreements governing their debt instruments and may be restricted by agreements governing any of our subsidiaries’ future indebtedness. Furthermore, our subsidiaries are permitted under the terms of their debt agreements to incur additional indebtedness that may severely restrict or prohibit the payment of dividends. See Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources.”

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Under the Delaware General Corporation Law (the “DGCL”), our board of directors may not authorize payment of a dividend unless it is either paid out of our surplus, as calculated in accordance with the DGCL, or if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term stockholder value. Share repurchases could also increase the volatility of the price of our common stock and could diminish our cash reserves.
We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term stockholder value. Share repurchases could also increase the volatility of the price of our common stock and could diminish our cash reserves. In February 2018, our board of directors approved a share repurchase program, authorizing us to repurchase up to $100 million of common stock. The share purchase program has been periodically reset and is currently set to expire in December 2019. The share repurchase program currently has the capacity to spend up to an additional $100.0 million on share repurchases. Since the inception of our share repurchase program through December 31, 2018, we have repurchased 8.1 million shares at an aggregate cost of approximately $105.0 million.
Although our board of directors has approved a share repurchase program, the share repurchase program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. The timing and amount of repurchases, if any, will depend upon several factors, including market and business conditions, the trading price of our common stock and the nature of other investment opportunities. The repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock pursuant to our share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that any share repurchases will enhance stockholder value, because the market price of our common stock may decline below levels at which we repurchased shares of stock. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.
Our stockholders may be diluted by the future issuance of additional common stock in connection with our equity incentive plans, acquisitions or otherwise.
We have 395,594,879 shares of common stock authorized but unissued under our certificate of incorporation. We will be authorized to issue these shares of common stock and options, rights, warrants and appreciation rights relating to common stock for consideration and on terms and conditions established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We have reserved 7,734,601 shares of our common stock for awards that may be issued under our Equity and Incentive Award Plan. Any common stock that we issue, including under our Equity and Incentive Award Plan or other equity incentive plans that we may adopt in the future, may result in additional dilution to our stockholders.
In the future, we may also issue our securities, including shares of our common stock, in connection with investments or acquisitions. We regularly evaluate potential acquisition opportunities, including ones that would be significant to us, and at any one time we may be participating in processes regarding several potential acquisition opportunities, including ones that would be significant to us. We cannot predict the timing of any contemplated transactions, and none are currently probable. The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding shares of common stock. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to our stockholders.

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Keane Investor and Cerberus own a significant amount of our common stock and continue to have significant influence over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
Keane Investor currently controls approximately 49.5% of our common stock. Even though Keane Investor no longer controls a majority of our common stock, Keane Investor continues to have significant influence over us, including the election of our directors, determination of our corporate and management policies and determination of the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. Four of our 12 directors are employees of, appointees of, or advisors to, members of Cerberus. With Keane Investor’s common stock ownership falling below 50.0% as of December 6, 2018, we ceased being a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) rules and are subject to further independence requirements by the NYSE. We currently anticipate that the Compensation Committee and Nominating and Corporate Governance Committee of our board of directors will be comprised of a majority of independent directors by of March 6, 2019, and will be entirely independent by December 6, 2019. Furthermore, we anticipate that our board of directors will be comprised of a majority of independent directors by December 6, 2019 in compliance with NYSE requirements. The interests of Cerberus may not coincide with the interests of other holders of our common stock. For example, the concentration of ownership held by Cerberus could delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination that may otherwise be favorable for us. Additionally, Cerberus is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Cerberus may also pursue, for its own members’ accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as Cerberus continues to directly or indirectly own a significant amount of our equity, Cerberus will continue to be able to substantially influence or effectively control our ability to enter into corporate transactions.
Although we are no longer a “controlled company” within the meaning of the New York Stock Exchange rules, we continue to qualify for, and intend to rely on, certain transition-based exemptions from such corporate governance requirements, and as a result you will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Keane Investor no longer controls a majority of our outstanding common stock. As a result, we ceased being a “controlled company” within the meaning of the NYSE rules. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:
•    the requirement that a majority of the board of directors consist of independent directors;
the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
We currently utilize some of these exemptions. As a result, we do not have a majority of independent directors nor do our nominating and corporate governance and compensation committees consist entirely of independent directors. The NYSE rules provide for phase-in periods for these requirements. As a result, our nominating and corporate governance and compensation committees will not be required to be composed of a majority of independent directors until March 6, 2019, and we will not be required to be fully compliant with all of the requirements until December 6, 2019. Accordingly, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements. In addition, we may not be able to attract and retain the number of independent directors needed to comply with NYSE rules during the transition period.

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Provisions in our charter documents, certain agreements governing our indebtedness, our Stockholders’ Agreement (as defined herein) and Delaware law could make acquiring us more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.
Provisions in our certificate of incorporation, our bylaws and our Stockholders’ Agreement, may discourage, delay or prevent a merger, acquisition or other change in control that some stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares of our common stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, possibly depressing the market price of our common stock.
In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace members of our management team. Examples of such provisions are as follows:
the authorized number of our directors may be increased or decreased only by the affirmative vote of two-thirds of the then-outstanding shares of our common stock or by resolution of our board of directors;
our stockholders may only amend our bylaws with the approval of at least two-thirds of all of the outstanding shares of our capital stock entitled to vote;
the manner in which stockholders can remove directors from the board will be limited;
stockholder actions must be effected at a duly called stockholder meeting and actions by our stockholders by written consent are prohibited;
from and after such date that Keane Investor and its respective Affiliates (as defined in Rule 12b-2 of the Exchange Act, or any person who is an express assignee or designee of Keane Investor’s respective rights under our certificate of incorporation (and such assignee’s or designee’s Affiliates)) (of these entities, the entity that is the beneficial owner of the largest number of shares is referred to as the “Designated Controlling Stockholder”) ceases to own, in the aggregate, at least 35% of the then-outstanding shares of our common stock (the “35% Trigger Date”), advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors will be established;
•    who may call stockholder meetings is limited;
requirements on any stockholder (or group of stockholders acting in concert), other than, prior to the 35% Trigger Date, the Designated Controlling Stockholder, who seeks to transact business at a meeting or nominate directors for election to submit a list of derivative interests in any of our Company’s securities, including any short interests and synthetic equity interests held by such proposing stockholder;
requirements on any stockholder (or group of stockholders acting in concert) who seeks to nominate directors for election to submit a list of “related party transactions” with the proposed nominee(s) (as if such nominating person were a registrant pursuant to Item 404 of Regulation S-K, and the proposed nominee was an executive officer or director of the “registrant”); and
our board of directors is authorized to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors.
Our certificate of incorporation authorizes our board of directors to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined by our board of directors at the time of issuance or fixed by resolution without further action by the stockholders. These terms may include voting rights, preferences as to dividends and liquidation, conversion rights, redemption rights

30



and sinking fund provisions. The issuance of preferred stock could diminish the rights of holders of our common stock, and therefore, could reduce the value of our common stock. In addition, specific rights granted to holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could delay, discourage, prevent or make it more difficult or costly to acquire or effect a change in control, thereby preserving the current stockholders’ control.
In addition, under the agreements governing the Senior Secured Debt Facilities, a change in control may lead the lenders and/or holders to exercise remedies such as acceleration of the obligations thereunder, termination of their commitments to fund additional advances and collection against the collateral securing such obligations.
In connection with the IPO, Keane entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”) with Keane Investor. Our Stockholders’ Agreement provides that, except as otherwise required by applicable law, from the date on which (a) Keane is no longer a controlled company under the applicable rules of the NYSE but prior to the 35% Trigger Date, Keane Investor has the right to designate a number of individuals who satisfy the director requirements equal to one director fewer than 50% of our board of directors at any time and shall cause its directors appointed to our board of directors to vote in favor of maintaining an 11-person board of directors unless the management board of Keane Investor otherwise agrees by the affirmative vote of 80% of the management board of Keane Investor; (b) a Holder has beneficial ownership of at least 20% but less than 35% of our outstanding common stock, the Holder will have the right to designate a number of individuals who satisfy the Director Requirements equal to the greater of three or 25% of the size of our board of directors at any time (rounded up to the next whole number); (c) a Holder has beneficial ownership of at least 15% but less than 20% of our outstanding common stock, the Holder will have the right to designate the greater of two or 15% of the size of our board of directors at any time (rounded up to the next whole number); and (d) a Holder has beneficial ownership of at least 10% but less than 15% of our outstanding common stock, it will have the right to designate one individual who satisfies the Director Requirements. The ability of Keane Investor or a Holder to appoint one or more directors could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.
Our certificate of incorporation and bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders; (c) any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; or (d) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds more favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, prospects or results of operations.

31




Item 1B. Unresolved Staff Comments
None.


32




Item 2. Properties
Properties
Our principal properties include our corporate headquarters, district offices, sales offices and our engineering and technology facility, as well as the hydraulic fracturing units and other equipment and vehicles operating out of these facilities. We believe our facilities are in good condition and suitable for our current operations. Below is a table detailing our properties, by purpose, in the United States.
Location
Own/
Lease
Purpose
Service
Active/
Idle
Size (sqft/acres)
 
 
 
 
 
 
Denver, CO
Lease
Executive / Finance
N/A
Active
19,706 sqft
Houston, TX
Lease
Executive / Finance
N/A
Active
43,768 sqft
Houston, TX
Lease
Executive / Finance
N/A
Active
5,588 sqft
The Woodlands, TX
Lease
Engineering & Technology
N/A
Active
23,040 sqft
Canonsburg, PA
Lease
Sales Office
Sales
Active
4,697 sqft
Dickinson, ND
Own
Field Operations
Hydraulic Fracturing
Active
21,772 sqft/34.9 acres
Mansfield, PA
Own
Field Operations
Hydraulic Fracturing, Wireline
Active
30,200 sqft/77.0 acres
Odessa, TX
Own
Field Operations
Hydraulic Fracturing, Wireline, Cementing
Active
97,006 sqft/40.0 acres
Springtown, TX
Own
Field Operations
Hydraulic Fracturing
Active
29,855 sqft/14.7 acres
Dickinson, ND
Lease
Field Operations
Hydraulic Fracturing
Active
33,375 sqft/9.7 acres
Williston, ND
Lease
Field Operations
Wireline, Cementing
Active
43,375 sqft
Williston, ND
Lease
Field Operations
Hydraulic Fracturing
Active
16,825 sqft/5.71 acres
Bellafonte, PA
Lease
Field Operations
Hydraulic Fracturing
Active
12,000 sqft/7.5 acres
Mill Hall, PA
Lease
Field Operations
Hydraulic Fracturing
Active
64,000 sqft/8.2 acres
Mount Pleasant, PA
Lease
Field Operations
Hydraulic Fracturing, Wireline
Active
20,126 sqft/7.5 acres
Pleasanton, TX
Lease
Field Operations
Hydraulic Fracturing, Wireline
Active
10,488 acres
Alexander, ND
Lease
Field Maintenance and Storage Facility
Hydraulic Fracturing
Active
6,500 sqft/16.3 acres
Mount Pleasant, PA
Lease
Field Maintenance and Storage Lot
Hydraulic Fracturing, Wireline
Active
5 acres
Fort Worth, TX
Lease
Warehouse
Hydraulic Fracturing, Wireline, Cementing
Active
78,272 sqft
Shawnee, OK
Own
Abandoned
Hydraulic Fracturing
Idle
39,100 sqft/56.1 acres
Lewis Run, PA
Own
Abandoned
N/A
Idle
2,500 sqft
Oklahoma City, OK
Lease
Abandoned
Sales
Idle
3,366 sqft
Houston, TX
Lease
Abandoned
N/A
Idle
9,998 sqft


33




Item 3. Legal Proceedings
Due to the nature of our business, we are, from time to time and in the ordinary course of business, involved in routine litigation or subject to disputes or claims related to our business activities. It is our management’s opinion that although the amount of liability with respect to certain of the matters described herein cannot be ascertained at this time, any resulting liability will not have a material adverse effect individually or in the aggregate on our financial condition, cash flows or results of operations; however, there can be no assurance as to the ultimate outcome of these matters.
See Note (18) Commitments and Contingencies of Part II, “Item 8. Financial Statements and Supplementary Data” for further discussion of our legal contingencies.

Item 4. Mine Safety Disclosures
Not applicable.

34




PART II
References Within This Annual Report
As used in Part II of this Annual Report on Form 10-K, unless the context otherwise requires, references to (i) the terms “Company,” “Keane,” “we,” “us” and “our” refer to Keane Group Holdings, LLC and its consolidated subsidiaries for periods prior to our initial public offering (“IPO”), and, for periods as of and following the IPO, Keane Group, Inc. and its consolidated subsidiaries; (ii) the term “Keane Group” refers to Keane Group Holdings, LLC and its consolidated subsidiaries; (iii) the term “Trican Parent” refers to Trican Well Service Ltd. and, where appropriate, its subsidiaries; (iv) the term “Trican U.S.” refers to Trican Well Service L.P.; (v) the term “Trican” refers to Trican Parent and Trican U.S., collectively; (vi) the term “RockPile” refers to RockPile Energy Services, LLC and its consolidated subsidiaries; (vii) the term “RSI” refers to Refinery Specialties, Incorporated; (viii) the term “Keane Investor” refers to Keane Investor Holdings LLC and (ix) the term “Sponsor” or “Cerberus” refers to Cerberus Capital Management, L.P. and its controlled affiliates and investment funds.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information
On January 25, 2017, we consummated an initial public offering of our common stock at a price of $19.00 per share. Our common stock is traded on the New York Stock Exchange under the symbol “FRAC.” Prior to that time, there was no public market for our stock.
Comparative Stock Performance Graph
The information contained in this Comparative Stock Performance Graph section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.
The graph below compares the cumulative total shareholder return on our common stock, the cumulative total return on the Standard & Poor’s 500 Stock Index, the Standard & Poor’s MidCap Index, the Oilfield Service Index and a composite average of publicly traded peer companies (C&J Energy Services, Inc., FTS International, Inc., Liberty Oilfield Services Inc., Patterson-UTI Energy, Inc., ProPetro Holding Corp., RPC, Inc., Superior Energy Services, Inc. and Weatherford International plc), since January 1, 2018.

35



The graph assumes $100 was invested on January 1, 2018 in our common stock, the Standard & Poor’s 500 Stock Index, the Standard & Poor’s MidCap Index, the Oilfield Service Index and a composite of publicly traded peer companies. The cumulative total return assumes the reinvestment of all dividends. We elected to include the stock performance of a composite of our publicly traded peers, as we believe it is an appropriate benchmark for our line of business/industry.
a2018comparativestockperform.jpg
Holders
As of February 25, 2019, there were four shareholders of record of our common stock. The number of record holders does not include persons who held shares of our common stock in nominee or “street name” accounts through brokers.
Dividends
We have not paid any cash dividends on our common stock to date. However, we anticipate that our board of directors will consider the payment of dividends in the future based on our levels of profitability and indebtedness. The declaration and payment of any future dividends will be at the sole discretion of our board of directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other considerations that our board of directors deems relevant. Our board of directors may decide, in its discretion, at any time, to modify or repeal the dividend policy or discontinue entirely the payment of dividends.
The ability of our board of directors to declare a dividend is also subject to limits imposed by Delaware corporate law. Under Delaware law, our board of directors and the boards of directors of our corporate subsidiaries incorporated in Delaware may declare dividends only to the extent of our “surplus,” which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
On February 26, 2018, we announced that our board of directors had authorized a stock repurchase program of up to $100 million of our outstanding common stock, with the intent of returning value to our shareholders, as we continue to expect further growth and profitability. The program does not obligate us to

36



purchase any particular number of shares of common stock during any period, and the program may be modified or suspended at any time at our discretion. The duration of the stock buy-back program was 12 months.
On July 26, 2018, we announced that our board of directors authorized a reset of capacity on the existing stock repurchase program back to $100 million.
Effective October 26, 2018, our board of directors authorized a reset of capacity on the existing stock repurchase program back to $100 million. Additionally, the program’s expiration date was extended to September 2019 from a previous expiration of February 2019.
Effective February 25, 2019, our board of directors authorized a reset of capacity on the existing stock repurchase program back to $100 million. Additionally, the program’s expiration date was extended to December 2019 from a previous expiration of September 2019.
Securities Authorized for Issuance Under Equity Compensation Plans
In accordance with the rules of the SEC, the following table sets forth information about our equity compensation plans as of December 31, 2018. As of December 31, 2018, we had in place the Keane Management Holdings LLC Management Incentive Plan, which was approved by the security holders of Keane Management Holdings LLC, and the Equity and Incentive Award Plan, which was approved by the security holders of Keane Group, Inc.

Equity Compensation Plan Information
 
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(#)
 
Weighted-average exercise price of outstanding options, warrants and rights
($)
 
Number of securities remaining available for future issuance under equity compensation plans
(#)
Equity compensation plans approved by security holders(1)
 

 

 
7,734,601

Equity compensation plans not approved by security holders
 

 

 

Total
 

 

 
7,734,601

(1)
In connection with the IPO and the Organizational Transactions, described within Note (1) Basis of Presentation and Nature of Operations of Part II, “Item 8. Financial Statements and Supplemental Data,” the Keane Management Holdings LLC Management Incentive Plan was assigned to and assumed by Keane Investor and no further awards will be granted thereunder.


37



Purchases of Equity Securities
Issuer Purchases of Equity Securities
Settlement Period
 
(a) Total Number of Shares Purchased

 
(b) Average Price Paid per Share

 
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)(2)

 
(d) Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(1)(2)(3)

October 1, 2018 through October 26, 2018
 
1,551,330

 
$
11.70

 
1,551,330

 
$
52,544,047

October 26, 2018 through October 31, 2018
 

 
$

 

 
$
100,000,000

November 1, 2018 through November 30, 2018
 
1,000,000

 
$
11.73

 
1,000,000

 
$
88,270,000

December 1, 2018 through December 31, 2018
 
520,000

 
$
10.66

 

 
$
88,270,000

Total
 
3,071,330

 
$
11.53

 
2,551,330

 
$
88,270,000

 
 
 
 
 
 
 
 
 

(1)
On February 26, 2018, we announced that our board of directors authorized a12-month stock repurchase program of up to $100.0 million of the Company’s outstanding common stock. Effective February 25, 2019, our board of directors authorized a reset of capacity on the existing stock repurchase program back to $100.0 million. Additionally, the program’s expiration date was extended to December 2019 from a previous expiration of September 2019.
(2)
On December 3, 2018, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Morgan Stanley & Co. LLC (the “Underwriter”) and Keane Investor, relating to the underwritten offering of 5,251,249 shares (the “Shares”). All of the Shares were sold by Keane Investor. The Underwriter purchased the Shares from Keane Investor pursuant to the Underwriting Agreement at a price of $10.66 per share. In addition, pursuant to the Underwriting Agreement, we purchased from the Underwriter 520,000 shares of common stock that were sold by Keane Investor to the Underwriter, at a price per share equal to the price paid by the Underwriter to Keane Investor. This repurchase was not made pursuant to our stock repurchase program authorized by our board of directors.
(3)
Commission costs incurred by the Company to repurchase its shares are not included in the calculation of Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs.







38




Item 6. Selected Financial Data
The selected financial data for the periods presented was derived from the audited consolidated and combined financial statements of Keane and should be read in conjunction with Part I, “Item 1A. Risk Factors,” Part II, “Item 7. Management’s Discussion and Analysis of Financial and Results of Operations” and our audited consolidated and combined financial statements included in Part II, “Item 8. Financial Statements and Supplementary Data.”
 
 
Year ended
December 31, 2018
 
Year ended December 31, 2017(1)
 
Year ended December 31, 2016(2)
 
Year ended December 31, 2015
(in thousands of dollars, except per share amounts)
 
 
 
 
 
 
 
 
Statement of Operations Data:
 
 
 
 
 
 
 
 
Revenue
 
$
2,137,006

 
$
1,542,081

 
$
420,570

 
$
366,157

Cost of services(3)
 
1,660,546

 
1,282,561

 
416,342

 
306,596

Depreciation and amortization
 
259,145

 
159,280

 
100,979

 
69,547

Selling, general and administrative expenses
 
114,258

 
93,526

 
53,155

 
26,081

(Gain) loss on disposal of assets
 
5,047

 
(2,555
)
 
(387
)
 
(270
)
Impairment
 

 

 
185

 
3,914

Total operating costs and expenses
 
2,038,996

 
1,532,812

 
570,274

 
405,868

Operating income (loss)
 
98,010

 
9,269

 
(149,704
)
 
(39,711
)
Other income (expense), net
 
(905
)
 
13,963

 
916

 
(1,481
)
Interest expense(4)
 
(33,504
)
 
(59,223
)
 
(38,299
)
 
(23,450
)
Total other expenses
 
(34,409
)
 
(45,260
)
 
(37,383
)
 
(24,931
)
Income (loss) before income taxes
 
63,601

 
(35,991
)
 
(187,087
)
 
(64,642
)
Income tax expense
 
(4,270
)
 
(150
)
 

 

Net income (loss)
 
$
59,331

 
$
(36,141
)
 
$
(187,087
)
 
$
(64,642
)
Per Share Data(5)
 
 
 
 
 
 
 
 
Basic net income (loss) per share
 
$
0.54

 
$
(0.34
)
 
$
(2.14
)
 
$
(0.74
)
Diluted net Income (loss) per share
 
0.54

 
(0.34
)
 
(2.14
)
 
(0.74
)
Weighted average number of shares:
 basic
 
109,335

 
106,321

 
87,313

 
87,313

Weighted average number of shares:
 diluted
 
109,660

 
106,321

 
87,313

 
87,313

Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
Cash flows from operating activities
 
$
350,311

 
$
79,691

 
$
(54,054
)
 
$
37,521

Cash flows from investing activities
 
(297,506
)
 
(250,776
)
 
(227,161
)
 
(26,038
)
Cash flows from financing activities
 
(68,554
)
 
218,122

 
276,633

 
(10,518
)
Other Financial Data:
 
 
 
 
 
 
 
 
Capital expenditures(6)   
 
$
291,543

 
$
189,629

 
$
23,545

 
$
27,246


39



 
 
Year ended
December 31, 2018
 
Year ended December 31, 2017(1)
 
Year ended December 31, 2016(2)
 
Year ended December 31, 2015
Adjusted EBITDA(8)    
 
391,856

 
214,525

 
1,921

 
41,885

Balance Sheet Data (at end of period):
 
 
 
 
 
 
 
 
Total assets
 
$
1,054,579

 
$
1,043,116

 
$
536,940

 
$
324,795

Long-term debt (including current portion) (7) 
 
340,730

 
275,055

 
269,750

 
207,067

Total liabilities
 
567,398

 
530,024

 
374,688

 
244,635

Total stockholders’ equity
 
487,181

 
513,092

 
162,252

 
80,160

 
 
 
 
 
 
 
 
 
(1)
Commencing on July 3, 2017, our consolidated and combined financial statements also include the financial position, results of operations and cash flows of RockPile.
(2)
Commencing on March 16, 2016, our consolidated and combined financial statements also include the financial position, results of operations and cash flows of the Acquired Trican Operations.
(3)
Excludes depreciation and amortization, shown separately.
(4)
Interest expense during the year ended December 31, 2018 includes $7.6 million in write-offs of deferred financing costs, incurred in connection with the early debt extinguishment of our 2017 Term Loan Facility (as defined herein). Interest expense during the year ended December 31, 2017 includes $15.8 million of prepayment penalties and $15.3 million in write-offs of deferred financing costs, incurred in connection with the refinancing of our then existing revolving credit and security agreement (as amended, the “2016 ABL Facility”) and the early debt extinguishment of our the term loan facility provided by that certain credit agreement entered into on March 16, 2016 by KGH Intermediate Holdco I, LLC, Holdco II and Keane Frac, LP (as amended, the “2016 Term Loan Facility”) with certain financial institutions (collectively, the “2016 Term Lenders”) and CLMG Corp., as administrative agent for the 2016 Term Lenders, and Senior Secured Notes (as defined herein).
(5)
The pro forma earnings per unit amounts for 2017, 2016 and 2015 have been computed to give effect to the Organizational Transactions, including the limited liability company agreement of Keane Investor to, among other things, exchange all of our Existing Owners’ membership interests for the newly-created ownership interests. The computations of pro forma earnings per unit do not consider the 15,700,000 shares of common stock newly-issued by the Company to investors in the IPO.
(6)
Capital expenditures do not include, for the year ended December 31, 2018, $35.0 million of capital expenditures related to the asset acquisition from RSI, for the year ended December 31, 2017, $116.6 million of capital expenditures related to the acquisition of RockPile and, for the year ended December 31, 2016, $205.4 million of capital expenditures related to the acquisition of the Acquired Trican Operations.
(7)
Long-term debt includes $7.5 million, $8.2 million and $18.4 million of unamortized debt discount and debt issuance costs for 2018, 2017 and 2016, respectively, and excludes capital lease obligations.
(8)
Adjusted EBITDA and Adjusted Gross Profit are Non-GAAP Measures that provide supplemental information we believe is useful to analysts and investors to evaluate our ongoing results of operations, when considered alongside other generally accepted accounting principles (“GAAP”) measures such as net income, operating income and gross profit. These non-GAAP financial measures exclude the financial impact of items we do not consider in assessing our ongoing operating performance, and thereby facilitate review of our operating performance on a period-to-period basis. Other companies may have different capital structures and comparability to our results of operations may be impacted by the effects of acquisition accounting on its depreciation and amortization. As a result of the effects of these factors and factors specific to other companies, we believe Adjusted EBITDA and Adjusted Gross Profit provide helpful information to analysts and investors to facilitate a comparison of our operating performance to that of other companies.

Adjusted EBITDA is defined as net income (loss) adjusted to eliminate the impact of interest, income taxes, depreciation and amortization, along with certain items management does not consider in assessing ongoing performance. Adjusted Gross Profit is defined as Adjusted EBITDA, further adjusted to eliminate the impact of all activities in the Corporate segment, such as selling, general and administrative expenses, along with cost of services that management does not consider in assessing ongoing performance.    

40



Set forth below is a reconciliation of net loss to Adjusted EBITDA and Adjusted Gross Profit:
 
 
(Thousands of Dollars)

Year Ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
Net income (loss)
 
$
59,331

 
$
(36,141
)
 
$
(187,087
)
 
$
(64,642
)
 
Depreciation and amortization
 
259,145

 
159,280

 
100,979

 
69,547

 
Interest expense, net
 
33,504

 
59,223

 
38,299

 
23,450

 
Income tax (benefit) expense(a)
 
4,270

 
150

 
(114
)
 
793

 
EBITDA
 
$
356,250

 
$
182,512

 
$
(47,923
)
 
$
29,148

 
Acquisition, integration and expansion(b)
 
16,609

 
(4,674
)
 
35,630

 
6,272

 
Offering-related expenses(c)
 
12,969

 
7,069

 
1,672

 

 
Commissioning costs
 

 
12,565

 
9,998

 

 
Impairment of assets(d)
 

 

 
185

 
3,914

 
Non-cash stock compensation(e)
 
17,166

 
10,578

 
1,985

 
312

 
Other(f)
 
(11,138
)
 
6,475

 
374

 
2,239

 
Adjusted EBITDA
 
$
391,856

 
$
214,525

 
$
1,921

 
$
41,885

 
Other income (expense), net
 
905

 
(13,963
)
 
$
(916
)
 
$
1,481

 
(Gain) loss on disposal of assets
 
5,047

 
(2,555
)
 
$
(387
)
 
$
(270
)
 
Selling, general and administrative(a)
 
114,258

 
93,526

 
$
53,269

 
$
26,081

 
Management Adjustments not associated with Cost of Services(g)
 
(35,379
)
 
(16,573
)
 
$
(26,062
)
 
$
(8,263
)
 
Adjusted gross profit
 
$
476,687

 
$
274,960

 
$
27,825

 
$
60,914

 
 
 
 
 
 
 
 
 
 
 
(a)
Income tax (benefit) expense as presented in the consolidated and combined statement of operations does not include the provision for Texas margin tax for 2016.
(b)
Represents professional fees, integration and divestiture costs, contingent value rights liability adjustments, earn-outs, lease-termination costs, severance, start-up and other costs associated with the acquisition of RockPile and the Acquired Trican Operations, the asset acquisition from RSI and organic growth initiatives and wind-down of our Canadian operations. For the year ended December 31, 2018, $0.2 million was recorded in cost of services, $0.4 million was recorded in selling, general and administrative expenses, $2.7 million was recorded in gain on disposal of assets and $13.3 million was recorded in other expense, net. For the year ended December 31, 2017, $1.7 million was recorded in costs of services, $10.7 million was recorded in selling, general and administrative expense, $3.3 million gain was recorded in gain on disposal of assets and $13.8 million of income was recorded in other expense, net. For the year ended December 31, 2016, $13.9 million was recorded in costs of services, $21.4 million was recorded in selling, general and administrative expenses and $0.3 million was recorded in other expense, net. For the year ended December 31, 2015, $1.1 million was recorded in costs of services, $2.9 million was recorded in selling, general and administrative expenses, $0.6 million gain was recorded in gain on disposal of assets and $1.7 million was recorded in other expense, net.
(c)
Represents professional fees and other miscellaneous expenses related to the Organizational Transactions, the Company's initial public offering and the sale of the Company's stock by a selling stockholder in January 2018. For the year ended December 31, 2018, $13.0 million was recorded in selling, general and administrative expenses. For the year ended December 31, 2017, $1.3 million was recorded in cost of services and $5.8 million was recorded in selling, general and administrative expense. For the year ended December 31, 2016, $1.7 million was recorded in selling, general and administrative expenses.
(d)
Represents non-cash impairment charges with respect to our long-lived assets and intangible assets.
(e)
In 2018 and 2017, represents non-cash amortization of equity awards issued under Keane Group, Inc.’s Equity and Incentive Award Plan (the “Plan”). According to the Plan, the Compensation Committee of the Board of Directors can approve awards in the form of restricted stock, restricted stock units and/or other deferred compensation. In 2016, represents adjustments to the non-cash profit interests related to Keane Group Holdings, LLC. In all three years, these costs were recorded in selling, general and administrative expenses.
(f)
Represents gain recognized for insurance proceeds received in connection with a fire that damaged a portion of one hydraulic fracturing fleet on July 1, 2018, contingency accruals related to certain litigation claims, readiness costs associated with our initial internal controls design documentation for Sarbanes-Oxley compliance, using COSO 2013 framework, net gains on disposal of assets, rating agency fees for establishing initial ratings in connection with entering into the 2018 Term Loan Facility (as defined herein) and forfeiture of deposits on

41



hydraulic fracturing equipment purchase orders. For the year ended December 31, 2018, $3.8 million was recorded in selling, general and administrative expenses and $14.9 million was recorded in other expense, net. For the year ended December 31, 2017, $0.7 million was recorded in gain on disposal of assets and $7.2 million was recorded in selling, general and administrative expenses. For the year ended December 31, 2016, $0.4 million was recorded in other expense, net. For the year ended December 31, 2015, $0.2 million was recorded in costs of services and $2.0 million was recorded in other expense, net.
(g)
Excludes management adjustments associated with selling, general and administrative expenses, gain (loss) on disposal of assets within the Corporate segment and other income (expense), net.


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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated and combined financial statements and related notes included within Part II, “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.
On January 25, 2017, we consummated an IPO of 30,774,000 shares of our common stock, of which 15,700,000 shares were offered by us and 15,074,000 shares were offered by the selling stockholder. To effectuate the IPO, we effected a series of transactions that resulted in a reorganization of our business. Specifically, among other transactions, we effected the Organizational Transactions described within Note (1) Basis of Presentation and Nature of Operations of Part II, “Item 8. Financial Statements and Supplemental Data.”
The information in this “Management’s Discussion of Analysis of Financial Condition and Results of Operations” reflects the following: (1) as it pertains to periods prior to the completion of the IPO, the accounts of Keane Group; and (2) as it pertains to the periods subsequent to the completion of the IPO, the accounts of Keane.
This section and other parts of this Annual Report on Form 10-K contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “may,” “can,” “will,” “would,” “could,” “should,” the negatives thereof and other similar expressions. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K, which are incorporated herein by reference. All information presented herein is based on our fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years and the associated quarters, months and periods of those fiscal years. We undertake no obligation to revise or update any forward-looking statements for any reason, except as required by law.
EXECUTIVE OVERVIEW
Organization
We are one of the largest pure-play providers of integrated well completion services in the U.S., with a focus on complex, technically demanding completion solutions. Our primary service offerings include horizontal and vertical fracturing, wireline perforation and logging and engineered solutions. Our total capacity includes approximately 1.4 million hydraulic horsepower. From our 29 currently deployable hydraulic fracturing fleets (“fleets”), 34 wireline trucks, 24 cementing units and other ancillary assets located in the Permian Basin, the Marcellus/Utica Shale, the Eagle Ford Formation, the Bakken Formation and other active oil and gas basins, we pride ourselves on providing industry-leading completion services with a strict focus on health, safety and environmental stewardship and cost-effective customer-centric solutions. We distinguish ourselves through three key principles, which include (i) our partnerships with high-quality customers, (ii) our intense focus on safety and efficiency and (iii) a track record of creating value for all our stakeholders.
We provide our services in conjunction with onshore well development, in addition to stimulation operations on existing wells, to well-capitalized oil and gas exploration and production customers, with some of the highest quality and safety standards in the industry and long-term development programs that enable us to maximize operational efficiencies and the return on our assets. We believe our integrated approach and proven capabilities enable us to deliver cost-effective solutions for increasingly complex and technically demanding well completion

43


requirements, which include longer lateral segments, higher pressure rates and proppant intensity and multiple fracturing stages in challenging high-pressure formations. In addition, our technical team and engineering center, which is located in The Woodlands, Texas, provides us with the ability to supplement our service offerings with engineered solutions specifically tailored to address customers’ completion requirements and unique challenges.
We are organized into two reportable segments, consisting of Completion Services, which includes our hydraulic fracturing, wireline divisions and ancillary services; and Other Services, which exclusively includes our cementing division. We evaluate the performance of these segments based on equipment utilization, revenue, segment gross profit and gross margin. Segment gross profit is a key metric that we use to evaluate segment operating performance and to determine resource allocation between segments. We define segment gross profit as segment revenue less segment direct and indirect cost of services, excluding depreciation and amortization. Additionally, our operations management make rapid and informed decisions, such as price adjustments that offset commodity inflation and align with market rates, decisions to strategically deploy our existing and new fleets and real-time supply chain management decisions, by utilizing top line revenue, together with individual direct and indirect costs on a per stage and per fleet basis.
Asset Acquisition from Refinery Specialties, Incorporated
On July 24, 2018, we executed a purchase agreement with RSI to acquire approximately 90,000 hydraulic horsepower and related support equipment for approximately $35.4 million, inclusive of a $0.8 million deposit reimbursement related to future equipment deliveries. This acquisition was partially funded by the insurance proceeds we received in connection with a fire that resulted in damage to a portion of one of our fleets (for further details see Note (7) Property and Equipment, net of Part II, “Item 8. Financial Statements and Supplementary Data”). We also assumed operating leases for light duty vehicles in connection with the RSI transaction, and RSI entered into a non-compete arrangement in turn with us. In September 2018, we reached an agreement with RSI to refund us $0.8 million of the purchase price due to repair costs required for certain acquired equipment. The resulting purchase price after the refund was $34.6 million, and we incurred $0.4 million of transaction costs related to the acquisition, bringing total cash consideration related to the acquisition to $35.0 million.
Acquisition of RockPile
On July 3, 2017, we acquired 100% of the outstanding equity interests of RockPile, a multi-basin provider of integrated well completion services in the U.S., whose primary service offerings included hydraulic fracturing, wireline perforation and workover rigs. The acquisition of RockPile was completed for cash consideration of $116.6 million, subject to post-closing adjustments, 8,684,210 shares of our common stock and contingent value rights (“CVR”) granted pursuant to the Contingent Value Rights Agreement (“CVR Agreement”), as further described in Note (3) Acquisitions) of Part II, “Item 8. Financial Statements and Supplementary Data.”
Through this acquisition, we expanded our existing presence in the Permian Basin and Bakken Formation by increasing our hydraulic fracturing fleet size by more than 25%, and further strengthened our position as one of the largest pure-play providers of integrated well completion services in the U.S. We acquired 245,000 hydraulic horsepower at newbuild economics, eight wireline trucks, 10 cementing units and 12 workover rigs. We also acquired a high-quality customer base, with minimal overlap to our existing customer base and expanded certain service offerings and capabilities within our Other Services segment.
Subsequent to the acquisition, we sold the twelve acquired workover rigs during the third and fourth quarters of 2017.
In early April 2018, in accordance with the terms and conditions of the CVR Agreement, we calculated and paid the final Aggregate CVR Payment Amount, due to the Holders of the CVRs, of $19.9 million.

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Financial results
Revenue in 2018 totaled $2.1 billion, an increase of 39% compared to revenue in 2017 of $1.5 billion. Our strong revenue growth in 2018 was driven by the following factors, (i) an increase in deployed fleets as a result of a full-year contribution of assets acquired during the acquisition of Rockpile and additional newbuild fleets commissioned throughout 2018, (ii) stronger completions performance on a relative per crew basis in terms of stages completed and hours pumped and (iii) continued execution of our strategy of aligning with our clients under dedicated agreements, with periodic re-openers priced at market rate. We exited 2018 with 29 deployable fleets, which included the three newbuild fleets in 2018 and one fleet acquired through the acquisition of RSI. We exited 2017 with 27 operating fleets, which included six acquired fleets, including one newbuild fleet acquired through the acquisition of RockPile. In 2018, due to market conditions and client budget constraints creating white space on our calendar, we operated an equivalent of 24.5 fleets at 100% utilization, compared to 21.1 fleets at 100% utilization during 2017. The revenue growth drivers for 2018 had a favorable impact on operating margins, which is calculated by dividing operating income (loss) by revenue, but headwinds in input cost inflation persisted, particularly with, trucking, labor and chemicals, partially offset by deflation in sand prices due to surplus of sand supply. Consistent with our efforts to maintain and grow the supply of our key commodities and skilled workforce, as influenced by market demand, we continued to secure key contracts with suppliers, as well as position labor rates to facilitate retaining skilled employees and attracting new talent. We reported operating income of $98.0 million in 2018, as compared to an operating income of $9.3 million in 2017.
We reported net income of $59.3 million, or 0.54 per basic and diluted share, in 2018, compared to net loss of $36.1 million, or $(0.34) per basic and diluted share, in 2017. Excluding the adjustments discussed below, adjusted net income in 2018 and 2017 was $95.0 million and $4.1 million, respectively, or $0.87 and $(0.04) per basic and diluted share, respectively.
Net income in 2018 includes approximately $0.2 million of management adjustments to arrive at Adjusted Gross Profit (as defined herein), which is related to integration costs associated with the asset acquisition from RSI. Net income in 2018 includes a further $35.5 million of management adjustments to arrive at Adjusted EBITDA (as defined herein), driven by $17.2 million of non-cash stock compensation expense, $14.9 million gain from the insurance proceeds received in connection with the July 1, 2018 accidental fire, a $13.2 million adjustment to our CVR liability associated with the acquisition of RockPile, based on the cash settlement in early April 2018, $13.0 million of transaction costs primarily incurred to consummate the secondary stock offering completed in January 2018, $2.8 million of legal contingencies, a $2.7 million markdown to fair value of our idle real estate in Mathis, Texas, upon its sale, $0.9 million in refinancing costs, $0.5 million of integration costs associated with the asset acquisition from RSI and $0.1 million of other financing fees and expenses.
Net income in 2017 includes $11.2 million of management adjustments to arrive at Adjusted Gross Profit, driven by $12.4 million of re-commissioning costs for seven previously idled fleets, $1.7 million of acquisition and integration costs related to the acquisition of RockPile and $1.3 million of bonuses paid out to key operational employees in connection with our IPO, offset by a $4.2 million gain on disposal of assets. Net income in 2017 includes a further $20.8 million of management adjustments to arrive at Adjusted EBITDA, driven primarily by $10.7 million of transaction costs primarily related to the acquisition of RockPile, $10.6 million of non-cash stock compensation expense, a $7.8 million gain on indemnification settlements with Trican, $7.2 million of litigation contingencies, a $5.3 million gain related to the mark-to-market valuation adjustment of our CVR liability associated with the acquisition of RockPile, $3.6 million in bonuses to key personnel in connection with our IPO, $1.2 million of transaction costs related to the secondary offering in January 2018, $1.0 million of organizational restructuring costs, a $0.7 million gain due to the negotiated settlement of assumed liabilities with a certain vendor from a prior acquisition and $0.2 million in commissioning costs.

45


Financial markets, liquidity, and capital resources
On January 25, 2017, we completed the IPO of 30,774,000 shares of our common stock at the public offering price of $19.00 per share, which included 15,700,000 shares offered by us and 15,074,000 shares offered by the selling stockholder, including 4,014,000 shares sold as a result of the underwriters’ exercise of their overallotment option. The IPO proceeds to us, net of underwriters’ fees and capitalized cash payments of $4.8 million for professional services and other direct IPO related activities, was $255.5 million. The net proceeds were used to fully repay KGH Intermediate Holdco II, LLC (“Holdco II”)’s 2016 Term Loan Facility balance of $99.0 million and the associated prepayment premium of $13.8 million, and to repay $50.0 million of its 12% secured notes due 2019 (“Senior Secured Notes”) and the associated prepayment premium of approximately $0.5 million. The remaining proceeds were used for general corporate purposes, including capital expenditures, working capital and potential acquisitions and strategic transactions. Upon completion of the IPO and the reorganization, we had 103,128,019 shares of common stock outstanding.
On February 17, 2017, we also obtained a $150.0 million asset-based revolving credit facility (“2017 ABL Facility”), replacing our pre-existing $100.0 million asset-based revolving credit facility. On December 22, 2017, our 2017 ABL Facility was amended to increase the commitments thereunder by $150.0 million, for total commitments of $300.0 million.
On May 25, 2018, we obtained a $350.0 million term loan facility (the “2018 Term Loan Facility”). The proceeds of the 2018 Term Loan Facility were used to repay Keane Group’s then-existing term loan facility (the “2017 Term Loan Facility”) and to pay related fees and expenses, with the excess proceeds going to fund general corporate purposes. As a result of entering into the 2018 Term Loan Facility, we experienced an average annualized savings of $7.9 million in interest expense in 2018, when compared to the 2017 Term Loan Facility.
At December 31, 2018, we had approximately $80.2 million of cash available. We also had $184.0 million available under our asset-based revolving credit facility as of December 31, 2018, which, with our cash balance, we believe provides us with sufficient liquidity for at least the next 12 months, including for capital expenditures and working capital investments.
We filed a Registration Statement on Form S-1 (File No. 333-222500) that was declared effective on January 17, 2018 by the Securities and Exchange Commission (the “SEC”) for an offering of shares of our common stock on behalf of Keane Investor (the “selling stockholder”). 15,320,015 shares were registered and sold by the selling stockholder (including 1,998,262 shares sold pursuant to the exercise of the underwriters’ over-allotment option) at a price to the public of $18.25 per share. We did not sell any common stock in, and did not receive any of the proceeds from, the secondary offering. Subsequently, we filed a Registration Statement on Form S-3 (File No. 333-222831) that was effective upon its filing. In December 2018, the selling stockholder sold 5,251,249 shares of our common stock at a price to the public of $11.02 per share. In conjunction with this subsequent offering, we repurchased 520,000 shares of our common stock. We did not sell any common stock in, and did not receive any of the proceeds from this secondary offering. As a direct result of this secondary offering, Keane Investor owned approximately 49.6% of our outstanding common stock as of December 31, 2018 and currently owns approximately 49.5% of our common stock.
For additional information on market conditions and our liquidity and capital resources, see “Liquidity and Capital Resources,” and “Business Environment and Results of Operations” herein.
Fiscal 2018 Highlights
Acquisition: executed strategic asset acquisition of approximately 90,000 hydraulic horsepower from RSI at attractive value;
Revenue: increased average annualized Revenue per deployed fleet to $85.5 million in 2018 compared to $72.4 million in 2017;

46


Profitability: increased average annualized Adjusted Gross Profit per fully-utilized fleet to $19.5 million in 2018 compared to $12.9 million in 2017;
Utilization: increased efficiency by maintaining average fleet utilization of 88% and increased wireline bundling to 78%;
Safety: achieved a total recordable incident rate of 0.37, which remains substantially less than the industry average;
Balance sheet: maintained and improved conservative balance sheet, financial flexibility and liquidity;
Liquidity: generated operating cash flow of $350.3 million;
Share repurchases: completed $105 million of stock repurchases, representing 8.1 million shares of our common stock; and
Secondary offerings: completed two secondary offerings on behalf of Keane Investor for approximately 18.6 million shares, which increased public float and reduced Keane Investor’s ownership in the Company to 49.6% as of December 31, 2018 and 49.5% as of February 25, 2019.
Business outlook
In 2017 and through a significant portion of 2018, our industry experienced an increase in the level of drilling activity, driven by growth in E&P capital spending budgets. Commodity prices improved, with crude oil and natural gas prices well above levels prevailing at the beginning of 2017. West Texas Intermediate (“WTI”) crude oil prices averaged $64.94 per barrel in 2018, as compared to $50.88 per barrel in 2017, and Henry Hub Natural Gas prices averaged $3.17 per MMBtu in 2018, as compared to $2.99 per MMBtu in 2017. These dynamics, combined with the completion of previously drilled wells, led to significant growth in the demand for U.S. completion services. At the same time, the availability and supply of completions services was impacted by higher completions intensity, which drove increases in the amount of equipment that must be utilized per fleet and acceleration of maintenance cycles, both of which had a tightening effect on available supply.
In the fourth quarter of 2018, the industry faced growing headwinds, including E&P capital budget exhaustion, early achievement of E&P production targets, price differentials and normal seasonality, resulting in softness in demand for completions services. At the same time, the price of crude oil experienced a significant and rapid decline beginning in November 2018, exacerbating the negative impacts on completions activity. The decline in crude oil prices coincided with E&P budgeting processes, driving many E&P companies to delay budgeting cycles and activity in early 2019. In addition, as we reached the price re-opener periods on a portion of our dedicated agreements, the current imbalance of frac supply resulted in pressure on net price. Most of our customers see value in a long-term partnership with us, and as a result, traded some price concessions by us for extended terms or additional work scope. We currently believe we have strong visibility on utilization for approximately two-thirds of our fleets in 2019, providing a strong baseload upon which to build.
Fiscal 2019 Objectives
In 2019, our principal business objective continues to be growing our business and safely providing best-in-class services in Completion Services and Other Services segments, while delivering shareholder value. We expect to achieve our objective through:
partnering and growing with well-capitalized customers under dedicated agreements who focus their efforts on safety, high-efficiency completions, continuous improvement and innovation;

47


allocating our assets to maximize utilization and returns, including diversification of geographies and commodities;
maximizing profitability of fully-utilized fleets through leading-edge pricing and efficiencies;
investing in technology to further drive efficiencies and differentiation of service offerings;
leveraging our flexible and scalable logistics infrastructure to provide assurance of supply at lowest landed cost;
leveraging our platform to identify, retain and promote talent to sustain growth and support operational and commercial excellence;
pursuing organic expansion opportunities for our cementing assets;
maintaining agreements with our existing strategic suppliers and identify and develop relationships with additional strategic suppliers to ensure continuity of supply and optimize efficiency;
maintaining our conservative and flexible capital position, supporting continued growth and maintenance of active equipment;
exploring potential opportunities for mergers or acquisitions, focused on gaining scale, achieving synergies and delivering shareholder returns; and
returning capital to shareholders in a disciplined fashion.
Our operating performance and business outlook are described in more detail in “Business Environment and Results of Operations” herein.
BUSINESS ENVIRONMENT AND RESULTS OF OPERATIONS
We provide our services in several of the most active basins in the U.S., including the Permian Basin, the Marcellus Shale/Utica Shale, the Eagle Ford Formation and the Bakken Formation. These regions are expected to account for approximately 68% of all new horizontal wells anticipated to be drilled during 2019 through 2021. In addition, the high density of our operations in the basins in which we are most active provides us the opportunity to leverage our fixed costs and to quickly respond with what we believe are highly efficient, integrated solutions that are best suited to address customer requirements.
In particular, we are one of the largest providers of completion services in the Permian Basin and the Marcellus Shale/Utica Shale, the most prolific and cost-competitive oil and natural gas basins in the U.S. According to Spears & Associates, the Permian Basin and the Marcellus Shale/Utica Shale are expected to account for 53% of total active rigs in the U.S. during 2019 through 2021 based on forecasted rig counts. These basins have experienced a recovery in activity since the spring of 2016, with an 229% increase in rig count from their combined May 2016 low of 170 to 560 as of December 31, 2018.
Activity within our business segments is significantly impacted by spending on upstream exploration, development and production programs by our customers. Also impacting our activity is the status of the global economy, which impacts oil and natural gas demand.
Some of the more significant determinants of current and future spending levels of our customers are oil and natural gas prices, global oil supply, the world economy, the availability of credit, government regulation and global stability, which together drive worldwide drilling activity. Our financial performance is significantly affected by rig and well count in North America, as well as oil and natural gas prices, which are summarized in the tables below.

48



The following table shows the average oil and natural gas prices for WTI and Henry Hub natural gas:
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Oil price - WTI(1)
 
$
64.94

 
$
50.88

 
$
43.14

Natural gas price - Henry Hub(2)
 
$
3.17

 
$
2.99

 
$
2.52

(1)  Oil price measured in dollars per barrel
(2)  Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu
 
 
 
 
 
 
 
The historical average U.S. rig counts based on the weekly Baker Hughes Incorporated rig count information were as follows:
 
 
Year Ended December 31,
Product Type
 
2018
 
2017
 
2016
Oil
 
841

 
703

 
408

Natural Gas
 
190

 
172

 
100

Other
 
1

 
1

 
1

Total
 
1,032

 
876

 
509

 
 
 
 
 
 
 
 
 
Year Ended December 31,
Drilling Type
 
2018
 
2017
 
2016
Horizontal
 
900

 
736

 
400

Vertical
 
63

 
70

 
60

Directional
 
69

 
70

 
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Total
 
1,032

 
876

 
509

 
 
 
 
 
 
 
Our customers’ cash flows, in most instances, depend upon the revenue they generate from the sale of oil and natural gas. Lower oil and natural gas prices usually translate into lower exploration and production budgets.
Following a trough in early 2016, oil prices and natural gas prices have recovered to $45.15 and $3.25, respectively, or approximately 72% and 118%, respectively, as of December 31, 2018 from their lows in early 2016 of $26.19 and $1.49, respectively. As of January 2019, the US Energy Information Administration (the “EIA”) projects WTI spot prices to average $53.0 in the first quarter of 2019 before gradually increasing to $57.0 in the fourth quarter of 2019 and Henry Hub natural gas prices to average $2.89 in 2019.
With the rebound in commodity prices from their lows in early 2016, drilling and completion activity continued to increase in 2017 and 2018, with U.S. active rig count in December 2018 more than doubling the trough in the active rig count registered in May 2016. The significant growth in production resulting from increased drilling activity has contributed to increased uncertainty concerning the direction of oil and gas prices over the near and immediate term, and market volatility continues to persist. Despite this market volatility, we continued to experience increased demand for our services during 2018.
The EIA projects that the average WTI spot price will increase through 2020 due to growing demand. As of January 2019, global liquids demand is expected to average 101.5 million barrels per day in 2019. The EIA anticipates continued growth in the long-term U.S. domestic demand for natural gas, supported by various factors, including (i) increased likelihood of favorable regulatory and legislative initiatives, (ii) increased acceptance of natural gas as a clean and abundant domestic fuel source and (iii) the emergence of low-cost natural gas shale

49



developments. As of January 2019, natural gas demand in North America is expected to average 82.65 billion cubic feet per day in 2019.
Our financial performance in 2018 is reflective of the increased demand within the completion services industry and our ability to navigate the anticipated sector-wide challenges in 2019.

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RESULTS OF OPERATIONS IN 2018 COMPARED TO 2017
Year Ended December 31, 2018 Compared with Year Ended December 31, 2017
 
 
Year Ended December 31,
(Thousands of Dollars)
 
 
 
 
 
As a % of Revenue
 
Variance 
Description
 
2018
 
2017
 
2018
 
2017
 
$
 
%
Completion Services
 
$
2,100,956

 
$
1,527,287

 
98
%
 
99
%
 
$
573,669

 
38
%
Other Services
 
36,050

 
14,794

 
2
%
 
1
%
 
21,256

 
144
%
Revenue
 
2,137,006

 
1,542,081

 
100
%
 
100
%
 
594,925

 
39
%
Completion Services
 
1,622,106

 
1,269,263

 
76
%
 
82
%
 
352,843

 
28
%
Other Services
 
38,440

 
13,298

 
2
%
 
1
%
 
25,142

 
189
%
Costs of services (excluding depreciation and amortization, shown separately)
 
1,660,546

 
1,282,561

 
78
%
 
83
%
 
377,985

 
29
%
Completion Services
 
478,850

 
258,024

 
22
%
 
17
%
 
220,826

 
86
%
Other Services
 
(2,390
)
 
1,496

 
0
%
 
0
%
 
(3,886
)
 
(260
%)
Gross profit
 
476,460

 
259,520

 
22
%
 
17
%
 
216,940

 
84
%
Depreciation and amortization
 
259,145

 
159,280

 
12
%
 
10
%
 
99,865

 
63
%
Selling, general and administrative expenses
 
114,258

 
93,526

 
5
%
 
6
%
 
20,732

 
22
%
(Gain) loss on disposal of assets
 
5,047

 
(2,555
)
 
0
%
 
0
%
 
7,602

 
(298
%)
Operating income
 
98,010

 
9,269

 
5
%
 
1
%
 
88,741

 
957
%
Other income (expense), net
 
(905
)
 
13,963

 
0
%
 
1
%
 
(14,868
)
 
(106
%)
Interest expense
 
(33,504
)
 
(59,223
)
 
(2
%)
 
(4
%)
 
25,719

 
(43
%)
Total other expenses
 
(34,409
)
 
(45,260
)
 
(2
%)
 
(3
%)
 
10,851

 
(24
%)
Income tax expense
 
(4,270
)
 
(150
)
 
0
%
 
0
%
 
(4,120
)
 
2,747
%
Net income (loss)
 
$
59,331

 
$
(36,141
)
 
3
%
 
(2
%)
 
$
95,472

 
(264
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue.     Total revenue is comprised of revenue from our Completion Services and Other Services segments. Revenue in 2018 increased by $594.9 million, or 39%, to $2.1 billion from $1.5 billion in 2017. This change in revenue by reportable segment is discussed below.
Completion Services:     Completion Services segment revenue increased by $573.7 million, or 38%, to $2.1 billion in 2018 from $1.5 billion in 2017. This change was primarily attributable to a 17% growth in our average number of fully-utilized fleets, as a result of a full-year contribution of assets acquired during the acquisition of Rockpile and deployment of additional fleets throughout 2018, together with increased stage count and efficiency from both our existing and newly-deployed fleets. These factors drove an increase in annualized revenue per fully-utilized fleet of 18%.
Other Services:     Other Services segment revenue increased by $21.3 million, or 144%, to $36.0 million in 2018 from $14.8 million in 2017. This increase in revenue was primarily attributable to the acquisition of Other Services divisions from RockPile and reactivation of cementing assets that were previously idled. Revenue in 2018 was primarily earned in our cementing division, while revenue in 2017 was earned in our cementing, workover and

51



coiled tubing divisions. We idled our coiled tubing division in December 2016 and divested our coiled tubing assets during the fourth quarter of 2017. We divested our workover assets during the third and fourth quarters of 2017.
Cost of services.     Cost of services in 2018 increased by $378.0 million, or 29%, to $1.7 billion from $1.3 billion in 2017. This change was driven by several factors including (i) higher activity in the Completion Services segment (as discussed above under Revenue), (ii) price inflation in our key input costs, including labor, chemicals, and sand trucking, partially offset by sand deflation, (iii) increased maintenance costs associated with increased service intensity stemming from larger sand volumes and well configurations, such as zipper designs and (iv) an increase in fleets working twenty-four hour operations. In 2018, we had management adjustments of $0.2 million in integration costs related to our asset acquisition from RSI. In 2017, we had management adjustments of $12.4 million in fleet commissioning costs, $1.7 million in acquisition and integration costs associated with the acquisition of RockPile and $1.3 million in bonuses paid out to key operational employees in connection with our IPO. Cost of services as a percentage of total revenue in 2018 was 78%, which represented a decrease of 5% from 83% in 2017. Excluding the above-mentioned management adjustments, total cost of services was $1.7 billion and $1.3 billion in 2018 and 2017, or 78% and 82% of revenue, respectively, a decrease as a percentage of revenue of 4%.
Cost of services, as a percentage of total revenue is presented below:
 
 
Year Ended December 31,
Description
 
2018
 
2017
 
% Change
Segment cost of services as a percentage of segment revenue:
 
 
 
 
 
 
Completion Services
 
77
%
 
83
%
 
(6
)%
Other Services
 
107
%
 
90
%
 
17
 %
Total cost of services as a percentage of total revenue
 
78
%
 
83
%
 
(5
)%
 
 
 
 
 
 
 
The change in cost of services by reportable segment is further discussed below.
Completion Services:     Completion Services segment cost of services increased by $352.8 million, or 28%, to $1.6 billion in 2018 from $1.3 billion in 2017. As a percentage of segment revenue, total cost of services was 77% and 83%, in 2018 and 2017, respectively, a decrease as a percentage of revenue of 6%. This decrease was driven by higher revenue and operational performance on a per fleet basis, partially offset by (i) net price inflation in our key input costs and (ii) increased maintenance costs associated with increased service intensity and higher-pressure jobs. In 2018, we had management adjustments of $0.2 million in integration costs related to our asset acquisition from RSI. In 2017, we had management adjustments of $11.6 million in fleet commissioning costs, $1.7 million in acquisition and integration costs associated with the acquisition of RockPile and $1.3 million in bonuses paid out to key operational employees in connection with our IPO. Excluding the above-mentioned management adjustments, Completion Services segment cost of services was $1.6 billion and $1.3 billion in 2018 and 2017, or 77% and 82% of segment revenue, respectively, a decrease as a percentage of revenue of 5%.
Other Services:     Other Services segment cost of services increased by $25.1 million, or 189%, to $38.4 million in 2018 from $13.3 million in 2017. This change in cost of services was primarily due to a full year of costs incurred to ramp up our cementing division. In 2017, we incurred management adjustments of $0.8 million in commissioning costs related to ramping our idle cementing assets in response to increased customer demand and $0.05 million in acquisition and integration costs associated with the acquisition of RockPile. Excluding the above-mentioned management adjustments, Other Services segment cost of services was $38.4 million and $12.4 million in 2018 and 2017, or 107% and 84% of segment revenue, respectively, an increase as a percentage of revenue of 23%.
Depreciation and amortization.     Depreciation and amortization expense increased by $99.9 million, or 63%, to $259.1 million in 2018 from $159.3 million in 2017. This change was primarily attributable to depreciation of additional equipment purchased in 2018 to maintain existing fleets, the purchase of newbuild equipment, the

52



assets acquired from RSI, a full-year depreciation of assets acquired in the RockPile acquisition and changes in the estimated useful lives of certain assets during the first half of 2018.
Selling, general and administrative expense.     Selling, general and administrative (“SG&A”) expense, which represents costs associated with managing and supporting our operations, increased by $20.7 million, or 22%, to $114.3 million in 2018 from $93.5 million in 2017. This change in SG&A was primarily related to non-cash compensation expense and transactions related to the secondary offering we consummated in January 2018, compared with transaction costs incurred in 2017 associated with the acquisition of RockPile. SG&A as a percentage of total revenue was 5% in 2018 compared with 6% in 2017. Total management adjustments were $34.5 million in 2018, driven by $17.2 million of non-cash stock compensation expense, $13.0 million of transaction costs primarily incurred to consummate the secondary stock offering completed in January 2018, $2.8 million of legal contingencies, $0.9 million in refinancing costs, $0.5 million of integration costs associated with the asset acquisition from RSI and $0.1 million of other financing fees and expenses. Management adjustments in 2017 were $34.5 million, driven by $10.7 million of transaction costs primarily incurred for the acquisition of RockPile, $10.6 million of non-cash compensation expense, $5.8 million of organizational restructuring costs and bonuses to key personnel in connection with our IPO, together with transaction costs related to our secondary offering in 2018, $7.2 million primarily related to litigation contingencies and $0.2 million related to commissioning costs. Excluding these management adjustments, SG&A expense was $79.8 million and $59.0 million in 2018 and 2017, respectively, which represents an increase of 35%.
(Gain) loss on disposal of assets.     Gain on disposal of assets in 2018 decreased by $7.6 million, to a loss of $5.0 million in 2018 from a gain of $2.6 million in 2017. This change was primarily attributable to the sale of our coiled tubing units and ancillary coiled tubing equipment in 2017, together with the loss recognized on the sale of our idle real estate in Mathis, Texas in 2018 and the increase in early disposals of various hydraulic fracturing pump components in 2018.
 Other income (expense), net.     Other income (expense), net, in 2018 decreased by $14.9 million, or 106%, to expense of $0.9 million in 2018 from income of $14.0 million in 2017. In 2018, other income (expense), net was primarily due to a $13.2 million adjustment to our Rockpile CVR liability, $2.7 million loss on foreign currency related to the wind-down of the Canadian entity, offset by a $14.9 million gain on the insurance proceeds received for losses resulting from the July 1, 2018 accidental fire. In 2017, other income (expense), net was primarily due to a $7.8 million of indemnification settlements with Trican, $0.7 million from the negotiated settlement of assumed liabilities with a certain vendor from a prior acquisition and a $5.3 million mark-to-market valuation adjustment of our RockPile CVR liability.
 Interest expense, net.     Interest expense, net of interest income, decreased by $25.7 million, or 43%, to $33.5 million in 2018 from $59.2 million in 2017. This change was primarily attributable to prepayment premiums of $15.8 million and write-offs of deferred financing costs of $15.3 million in 2017, in connection with the refinancing of our asset-based revolving credit facility and debt extinguishment of our 2016 Term Loan Facility and Senior Secured Notes, compared to the $7.6 million write-offs of deferred financing costs in 2018, in connection with the debt extinguishment of our 2017 Term Loan Facility. While we incurred higher interest expense on our debt facilities in 2018 compared to our debt facilities in 2017, primarily due to the higher principal balance under the 2018 Term Loan Facility, this increase was offset by lower amortization expense of our unamortized deferred financing costs.
Effective tax rate.     Upon consummation of the IPO, the Company became a corporation subject to federal income taxes. Our effective tax rate on continuing operations in 2018 was 6.71%, as compared to (0.53)% in 2017. For 2018, the effective rate is primarily made up of state taxes and a tax benefit derived from the current period operating income offset by a valuation allowance. For 2017, the effective rate was primarily made up of a tax benefit derived from the current period operating income offset by a valuation allowance. As a result of market conditions and their corresponding impact on our business outlook, we determined that a valuation allowance was appropriate as it is not more likely than not that we will utilize our net deferred tax assets. The remaining tax impact not offset by a valuation allowance is related to tax amortization on our indefinite-lived intangible assets.

53



Net income.     Net income was $59.3 million in 2018, as compared with net loss of $36.1 million in 2017. The increase from the net loss in 2017 is due to the changes in revenue and expenses discussed above.

54



Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
 
 
Year Ended December 31,
(Thousands of Dollars)
 
 
 
 
 
As a % of Revenue
 
Variance 
Description
 
2017
 
2016
 
2017
 
2016
 
$
 
%
Completion Services
 
$
1,527,287

 
$
410,854

 
99
%
 
98
%
 
$
1,116,433

 
272
%
Other Services
 
14,794

 
9,716

 
1
%
 
2
%
 
5,078

 
52
%
Revenue
 
1,542,081

 
420,570

 
100
%
 
100
%
 
1,121,511

 
267
%
Completion Services
 
1,269,263

 
401,891

 
82
%
 
96
%
 
867,372

 
216
%
Other Services
 
13,298

 
14,451

 
1
%
 
3
%
 
(1,153
)
 
(8
%)
Costs of services (excluding depreciation and amortization, shown separately)
 
1,282,561

 
416,342

 
83
%
 
99
%
 
866,219

 
208
%
Completion Services
 
258,024

 
8,963

 
17
%
 
2
%
 
249,061

 
2,779
%
Other Services
 
1,496

 
(4,735
)
 
0
%
 
(1
%)
 
6,231

 
(132
%)
Gross profit
 
259,520

 
4,228

 
17
%
 
1
%
 
255,292

 
6,038
%
Depreciation and amortization
 
159,280

 
100,979

 
10
%
 
24
%
 
58,301

 
58
%
Selling, general and administrative expenses
 
93,526

 
53,155

 
6
%
 
13
%
 
40,371

 
76
%
Gain on disposal of assets
 
(2,555
)
 
(387
)
 
0
%
 
0
%
 
(2,168
)
 
560
%
Impairment
 

 
185

 
0
%
 
0
%
 
(185
)
 
(100
%)
Operating income (loss)
 
9,269

 
(149,704
)
 
1
%
 
(36
%)
 
158,973

 
(106
%)
Other income, net
 
13,963

 
916

 
1
%
 
0
%
 
13,047

 
1,424
%
Interest expense
 
(59,223
)
 
(38,299
)
 
(4
%)
 
(9
%)
 
(20,924
)
 
55
%
Total other expenses
 
(45,260
)
 
(37,383
)
 
(3
%)
 
(9
%)
 
(7,877
)
 
21
%
Income tax expense
 
(150
)
 

 
0
%
 
0
%
 
(150
)
 
%
Net loss
 
$
(36,141
)
 
$
(187,087
)
 
(2
%)
 
(44
%)
 
$
150,946

 
(81
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue.     Total revenue is comprised of revenue from our Completion Services and Other Services segments. Revenue in 2017 increased by $1.1 billion, or 267%, to 1.5 billion from 420.6 million in 2016. This change in revenue by reportable segment is discussed below.
Completion Services:     Completion Services segment revenue increased by $1.1 billion, or 272%, to $1.5 billion in 2017 from $410.9 million in 2016. This change was primarily attributable to a 105% growth in our average number of deployed fleets, as a result of increased utilization of our combined asset base following our acquisition of RockPile and our acquisition of the majority of the U.S. assets and assumptions of certain liabilities of the Acquired Trican Operations, as well as increased stage count and efficiency from both our existing and newly-deployed recommissioned fleets. In addition, annualized revenue per deployed fleet increased 81%.
Other Services:     Other Services segment revenue increased by $5.1 million, or 52%, to 14.8 million in 2017 from 9.7 million in 2016. This change in revenue was primarily attributable to the acquisition of Other Services divisions from RockPile. Revenue in 2017 was earned in our cementing and workover divisions and revenue in 2016 was earned in our cementing and coiled tubing divisions. We idled our coiled tubing division in December 2016 and divested of our coiled tubing assets during the fourth quarter of 2017. We divested of our workover assets during the third and fourth quarters of 2017.

55



Cost of services.     Cost of services in 2017 increased by $866.2 million, or 208%, to $1.3 billion from $416.3 million in 2016. This change was driven by several factors including (i) higher activity in the Completion Services segment (as discussed above under Revenue), (ii) price inflation in our key input costs, including labor, sand and sand trucking, (iii) increased maintenance costs associated with increased service intensity stemming from larger sand volumes and well configurations, such as zipper designs, (iv) an increase in fleets working twenty-four hour operations and (v) rapid deployment and commissioning of our idle fleets. In 2017, we incurred $12.4 million of fleet commissioning costs, $1.7 million of acquisition and integration costs associated with the acquisition of RockPile and $1.3 million for bonuses paid out to key operational employees in connection with our IPO. In 2016, we had management adjustments of $13.9 million primarily related to acquisition and integration costs associated with the acquisition of the Acquired Trican Operations and $10.0 million primarily related to commissioning of our idle fleets. Cost of services as a percentage of total revenue in 2017 was 83%, which represented a decrease of 16% from 99% in 2016. Excluding the above-mentioned management adjustments, total cost of services was $1.3 billion and $392.4 million in 2017 and 2016 or 82% and 93% of revenue, respectively, a decrease as a percentage of revenue of 11%.
Cost of services, as a percentage of total revenue is presented below:
 
 
Year Ended December 31,
Description
 
2017
 
2016
 
% Change
Segment cost of services as a percentage of segment revenue:
 
 
 
 
 
 
Completion Services
 
83
%
 
98
%
 
(15
)%
Other Services
 
90
%
 
149
%
 
(59
)%
Total cost of services as a percentage of total revenue
 
83
%
 
99
%
 
(16
)%
 
 
 
 
 
 
 
The change in cost of services by reportable segment is further discussed below.
Completion Services:     Completion Services segment cost of services increased by $867.4 million, or 216%, to $1.3 billion in 2017 from $401.9 million in 2016. As a percentage of segment revenue, total cost of services was 83% and 98%, in 2017 and 2016, respectively, a decrease as a percentage of revenue of 15%. This change in cost of services was driven by (i) higher activity (as discussed above under Revenue), (ii) price inflation in our key input costs, including sand and trucking, (iii) increased maintenance costs associated with increased service intensity and higher-pressure jobs and (iv) rapid deployment and commissioning of our idle fleets. In 2017, we incurred $11.6 million of fleet commissioning costs, $1.7 million of acquisition and integration costs associated with the acquisition of RockPile and $1.3 million for bonuses paid out to key operational employees in connection with our IPO. In 2016, we had management adjustments of $13.5 million primarily related to acquisition and integration costs associated with the acquisition of the Acquired Trican Operations and $9.3 million primarily related to commissioning of our idle fleets. Excluding the above-mentioned management adjustments, Completion Services segment cost of services were $1.2 billion and $379.1 million in 2017 and 2016, or 82% and 92% of segment revenue, respectively, a decrease as a percentage of revenue of 10%.

56



Other Services:     Other Services segment cost of services decreased by $1.2 million, or 8%, to $13.3 million in 2017 from $14.5 million in 2016. This change in cost of services was primarily attributable to the idling of our cementing and coiled tubing divisions in April 2016 and December 2016, respectively, partially offset by the acquisition of Other Services divisions from RockPile. In 2017, we incurred management adjustments of $0.8 million of commissioning costs related to ramping our idle cementing assets in response to increased customer demand and $0.05 million of acquisition and integration costs associated with the acquisition of RockPile. In 2016, we incurred management adjustments of $0.7 million in commissioning costs and $0.4 million in acquisition and integration costs associated with the Acquired Trican Operations. Excluding the above-mentioned management adjustments, Other Services segment cost of services was $12.4 million and $13.4 million in 2017 and 2016, or 84% and 138% of segment revenue, respectively, a decrease as a percentage of revenue of 54%.
Depreciation and amortization.     Depreciation and amortization expense increased by $58.3 million, or 58%, to $159.3 million in 2017 from $101.0 million in 2016. This change was primarily attributable to depreciation of additional equipment purchased in 2017 to recondition existing fleets and the acquisition of the RockPile assets.
Selling, general and administrative expense.     Selling, general and administrative (“SG&A”) expense, which represents costs associated with managing and supporting our operations, increased by $40.4 million, or 76%, to $93.5 million in 2017 from $53.2 million in 2016. This change in SG&A was primarily related to non-cash amortization expense of equity awards issued under our Equity and Incentive Award Plan in 2017 and transactions driving overall company growth associated with the acquisition of RockPile. SG&A as a percentage of total revenue was 6% in 2017 compared with 13% in 2016. Total management adjustments were $34.5 million in 2017, driven by $10.7 million of transaction costs primarily incurred for the acquisition of RockPile, $10.6 million of non-cash compensation expense for the restricted stock units and stock options awarded to certain of our employees in connection with our IPO, $5.8 million of organizational restructuring costs and bonuses to key personnel in connection with our IPO, together with transaction costs related to our secondary offering in 2018, $7.2 million primarily related to litigation contingencies and $0.2 million related to commissioning costs. Management adjustments in 2016 were $26.9 million, primarily driven by $23.2 million of transaction costs and lease exit costs related to the integration of the Acquired Trican Operations, $2.0 million in non-cash compensation expense of our unit-based awards and $1.7 million in IPO-readiness costs. Excluding these management adjustments, SG&A expense was $59.0 million and $26.3 million in 2017 and 2016, respectively, which represents an increase of 124%.
Gain on disposal of assets.     Gain on disposal of assets in 2017 increased by $2.2 million, or 560%, to a gain of $2.6 million in 2017 from a gain of $0.4 million in 2016. This change was primarily attributable to the sale of our coiled tubing units and ancillary coiled tubing equipment, our air compressor units and idle property in Woodward, Oklahoma and Searcy, Arkansas.
Other income (expense), net.     Other income (expense), net, in 2017 increased by $13.0 million, or 1,424%, to income of $14.0 million in 2017 from income of $0.9 million in 2016. This change is primarily due to $7.8 million of gain on indemnification settlements with Trican, $0.7 million due to the negotiated settlement of assumed liabilities with a certain vendor from a prior acquisition and a $5.3 million mark-to-market valuation adjustment of our RockPile CVR liability.
 Interest expense, net.     Interest expense, net of interest income, increased by $20.9 million, or 55%, to $59.2 million in 2017 from $38.3 million in 2016. This change was primarily attributable to prepayment premiums of $15.8 million and write-offs of deferred financing costs of $15.3 million, incurred in connection with the refinancing of our asset-based revolving credit facility and debt extinguishment of our 2016 Term Loan Facility and Senior Secured Notes. This increase was offset by lower interest expense under our 2017 Term Loan Facility, which replaced our 2016 Term Loan Facility and Senior Secured Notes that bore higher interest rates.
Effective tax rate. Upon consummation of the IPO, the Company became a corporation subject to federal
income taxes. Our effective tax rate on continuing operations in 2017 was (0.53)%. The effective rate is primarily
made up of a tax benefit derived from the current period operating income offset by a valuation allowance. As a
result of market conditions and their corresponding impact on our business outlook, we determined that a valuation
allowance was appropriate as it is not more likely than not that we will utilize our net deferred tax assets. The

57



remaining tax impact not offset by a valuation allowance is related to tax amortization on our indefinite-lived intangible assets.
Net loss.     Net loss was $36.1 million in 2017, as compared with net loss of $187.1 million in 2016. This decrease in net loss from 2016 is due to the changes in revenue and expenses discussed above.
ENVIRONMENTAL MATTERS
We are subject to numerous environmental, legal and regulatory requirements related to our operations worldwide. For information related to environmental matters, see Note (18) (Commitments and Contingencies) of Part II, “Item 8. Financial Statements and Supplementary Data.”
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents a company’s ability to adjust its future cash flows to meet needs and opportunities, both expected and unexpected.
As of December 31, 2018, we had $80.2 million of cash and $351.2 million of total debt, compared to $96.1 million of cash and $282.9 million of total debt as of December 31, 2017. In 2018, 2017 and 2016, we had capital expenditures of $291.5 million, $189.6 million and $23.5 million, respectively, exclusive of the cash payment attributable to the asset acquisition from RSI on July 24, 2018 of $35.0 million, the acquisition of RockPile on July 3, 2017 of $116.6 million and the acquisition of the Acquired Trican Operations on March 16, 2016 of $203.9 million.
 
 
(Thousands of Dollars)
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Net cash provided by (used) in operating activities
 
$
350,311

 
$
79,691

 
$
(54,054
)
Net cash used in investing activities
 
$
(297,506
)
 
$
(250,776
)
 
$
(227,161
)
Net cash provided by (used in) financing activities
 
$
(68,554
)
 
$
218,122

 
$
276,633

 
 
 
 
 
 
 
Significant sources and uses of cash during the year ended December 31, 2018
Sources of cash:
Operating activities:
Net cash generated by operating activities in 2018 of $350.3 million was primarily driven by higher utilization of our combined asset base and increased gross profit in our Completion Services segment.
Investing activities:
Cash provided by the insurance proceeds received for losses resulting from the July 1, 2018 accidental fire was $18.1 million. For further details see Note (7) Property and Equipment, net of Part II, “Item 8. Financial Statements and Supplementary Data.”
$4.7 million in proceeds from sales of various assets, including our idle field operations facility in Mathis, Texas, within the Corporate segment, and hydraulic tractors and light general-purpose vehicles within the Completion Services segment.
Financing activities:
Cash provided by the 2018 Term Loan Facility, net of debt discount, was $348.2 million.

58


Uses of cash:
Operating activities:
$13.0 million of transaction costs, including underwriting discounts paid by the Company, primarily incurred to consummate the secondary stock offering completed in January 2018.
$7.9 million related to the portion of the cash settlement of our RockPile CVR liability that exceeded its acquisition-date fair value, with the remaining $12.0 million of the cash settlement cost reflected in the use of cash in financing activities as described below.
Investing activities:
Net cash used in investing activities of $297.5 million was primarily associated with our asset acquisition from RSI and our newbuild and maintenance capital spend on active fleets, offset by insurance proceeds and proceeds from various asset sales, as discussed above under “Sources of cash.” This activity primarily related to our Completion Services segment.
Financing activities:
Cash used to repay our debt facilities, including capital leases but excluding interest, was $289.1 million.
Cash used to pay debt issuance costs associated with our debt facilities was $7.3 million.
Shares repurchased and retired related to our stock repurchase program totaled $104.9 million.
Shares repurchased and retired related to payroll tax withholdings on our share-based compensation totaled $3.6 million.
$12.0 million related to the portion of the cash settlement of our RockPile CVR liability that was reflective of its acquisition-date fair value.
Significant sources and uses of cash during the year ended December 31, 2017
Sources of cash:
Operating activities:
Net cash generated by operating activities in 2017 of $79.7 million was primarily driven by higher utilization of our combined asset base and increased gross profit in our Completion Services segment. We also had proceeds of $2.1 million and $4.2 million from the indemnification settlement with Trican and our insurance company related to the acquisition of the Acquired Trican Operations. See Note (18) Commitments and Contingencies of Part II, “Item 8. Financial Statements and Supplementary Data.”
Investing activities:
Total proceeds of $30.6 million from the sale of assets relating to our facilities in Woodward, Oklahoma and Searcy, Arkansas, certain air compressor units, coiled tubing assets and the twelve workover rigs acquired in the acquisition of RockPile. See Note (7) Property and Equipment, net of Part II, “Item 8. Financial Statements and Supplementary Data.”

59


Financing activities:
Cash provided from IPO proceeds, $255.5 million. See Note (1)(a) Initial Public Offering of Part II, “Item 8. Financial Statements and Supplementary Data.”
The 2017 Term Loan Facility, entered into on March 15, 2017, provided for $145.0 million, net of associated origination and other transactions fees. Proceeds received were primarily used to fully repay our Senior Secured Notes. statements.
An incremental term loan facility, entered into on July 3, 2017, provided for $131.1 million, net of associated origination and other transaction fees. Proceeds received were primarily used to fund the acquisition of RockPile.
Uses of cash:
Investing activities:
Cash consideration of $116.6 million associated with the acquisition of RockPile, inclusive of a $7.8 million net working capital settlement.
Cash used for capital expenditures of $164.4 million, associated with maintenance capital spend on active fleets, commissioning costs associated with the deployment of our idle fleets, the newbuild acquired as part of the acquisition of RockPile and deposits on new equipment. This activity primarily related to our Completion Services segment.
Financing activities: Cash used to repay our debt facilities, including capital leases but excluding interest, in 2017 was $310.8 million. We used a portion of our IPO proceeds and the proceeds of the 2017 Term Loan Facility to repay our 2016 Term Loan Facility and Senior Secured Notes.
Significant sources and uses of cash during the year ended December 31, 2016
Sources of cash:
Investing activities: Total net proceeds of $0.7 million primarily related to the sale of assets from our idled drilling division within our Other Services segment.
Financing activities: Net cash provided from a capital contribution from shareholders of $200.0 million and the net proceeds from our 2016 Term Loan Facility of $91.2 million.
Uses of cash:
Operating activities: Net cash used in operating activities of $54.1 million was primarily attributable to competitive pricing pressure as a result of market conditions, combined with the acquisition, integration and commissioning costs of approximately $47.3 million associated with the acquisition of the Acquired Trican Operations.
Investing activities:
Cash consideration of $205.4 million associated with the acquisition of the Acquired Trican Operations.
Cash used for capital expenditures of $23.5 million associated with maintenance capital spend on active fleets, commissioning costs associated with the deployment of our idle fleets.
Financing activities: Cash used to repay and service our debt facilities, including prepayment penalties and capital leases but excluding interest, in 2016 was $8.8 million.

60


Future sources and use of cash
Capital expenditures for 2019 are projected to be primarily related to maintenance capital spend to support our existing active fleets, wireline trucks and cementing units. We anticipate our capital expenditures will be funded by cash flows from operations. We currently estimate that our capital expenditures for 2019 will range between $130.0 million and $150.0 million.
Debt service for the year ended December 31, 2019 is projected to be $30.4 million, of which $5.5 million is related to capital leases. We anticipate our debt service will be funded by cash flows from operations.
On February 26, 2018, we announced that our board of directors authorized a 12-month stock repurchase program of up to $100.0 million of the Company’s outstanding common stock, with the intent of returning value to our shareholders as we continue to expect further growth and profitability. The program does not obligate us to purchase any particular number of shares of common stock during any period, and the program may be modified or suspended at any time at our discretion. Effective October 26, 2018, our board of directors authorized a reset of capacity on the existing stock repurchase program back to $100 million. Additionally, the program’s expiration date was extended to September 2019 from a previous expiration of February 2019. Effective February 25, 2019, our board of directors authorized a reset of capacity on the existing stock repurchase program back to $100 million. Additionally, the program’s expiration date was extended to December 2019 from a previous expiration of September 2019.
Other factors affecting liquidity
Financial position in current market. As of December 31, 2018, we had $80.2 million of cash and a total of $184.0 million available under our revolving credit facility. Furthermore, we have no material adverse change provisions in our bank agreements, and our debt maturities extend over a long period of time. We currently believe that our cash on hand, cash flow generated from operations and availability under our revolving credit facility will provide sufficient liquidity for at least the next 12 months, including for capital expenditures, debt service, working capital investments and stock repurchases.
Guarantee agreements. In the normal course of business, we have agreements with a financial institution under which $2.5 million of letters of credit were outstanding as of December 31, 2018.
Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. The majority of our trade receivables have payment terms of 30 days or less. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations and consolidated financial condition.

61


Contractual Obligations
In the normal course of business, we enter into various contractual obligations that impact or could impact our liquidity. The table below contains our known contractual commitments as of December 31, 2018.
(Thousands of Dollars)

Contractual obligations
 
Total
 
2019
 
2020-2022
 
2023-2025
 
2026+
Long-term debt, including current portion(1)
 
$
348,250

 
$
3,500

 
$
10,500

 
$
334,250