Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	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

NexTier Oilfield Solutions 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.)

3990 Rogerdale Rd.	Houston	Texas	77042
(Address of Principal Executive Offices)			(Zip Code)

(713) 325-6000

(Registrant's Telephone Number, Including Area Code)

Keane Group, Inc.

1800 Post Oak Boulevard, Suite 450

Houston, TX 77056

(Former Name, Former Address, if Changed Since Last Report)



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange On Which Registered
Common Stock, $0.01, par value	NEX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	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 Act). Yes ☐ No ☒

As of November 5, 2019, the registrant had 210,225,787 shares of common stock outstanding.

TABLE OF CONTENTS



PART I.	FINANCIAL INFORMATION	4

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5

	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations and Comprehensive Loss	8
	Condensed Consolidated Statements of Changes in Stockholders' Equity	9
	Condensed Consolidated Statements of Cash Flows	11
	Notes to the Unaudited Condensed Consolidated Financial Statements	13

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	54

PART II.	OTHER INFORMATION	54

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Mine Safety Disclosures	58

Item 5.	Other Information	58

Item 6.	Exhibits	59

	Signatures	61

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:


•	our business strategy;


•	our plans, objectives, expectations and intentions;


•	the impact of the consummation of the merger with C&J Energy Services, Inc. ("C&J") on relationships, including with employees, suppliers, customers, competitors, lenders and credit rating agencies;


•	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;


•	the market volatility of our stock;


•	our ability or intention to pay dividends or to effectuate repurchases of our common stock; 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 Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q 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" of our Annual Report on Form 10-K for the year ended December 31, 2018 and the section entitled Part II, "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q. 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, except as specifically set forth herein.

This Quarterly Report on Form 10-Q 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 II, "Item 1A. Risk Factors" in this Quarterly Report on Form 10-Q.

PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Balance Sheets

(Amounts in thousands)



	September 30, 2019			December 31, 2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	157,025		$	80,206
Trade and other accounts receivable, net	196,222			210,428
Inventories, net	21,585			35,669
Assets held for sale	264			176
Prepaid and other current assets	6,309			5,784
Total current assets	381,405			332,263
Operating lease right-of-use assets	41,429			—
Finance lease right-of-use assets	8,971			—
Property and equipment, net	437,262			531,319
Goodwill	132,524			132,524
Intangible assets	51,080			51,904
Other noncurrent assets	6,156			6,569
Total assets	$	1,058,827		$	1,054,579

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable	$	106,118		$	106,702
Accrued expenses	79,249			101,539
Current maturities of long-term operating lease liabilities	19,378			—
Current maturities of long-term finance lease liabilities	4,175			4,928
Current maturities of long-term debt	2,352			2,776
Customer contract liabilities	471			60
Stock-based compensation	—			4,281
Other current liabilities	1,626			294
Total current liabilities	213,369			220,580
Long-term operating lease liabilities, less current maturities	22,061			—
Long-term finance lease liabilities, less current maturities	5,550			5,581
Long-term debt, net of unamortized deferred financing costs and unamortized debt discount, less current maturities	335,965			337,954
Other noncurrent liabilities	9,878			3,283
Total noncurrent liabilities	373,454			346,818
Total liabilities	586,823			567,398

Stockholders' equity
Common stock, par value $0.01 per share (authorized 500,000 shares, issued and outstanding 105,030 and 104,188 shares, respectively)	1,039			1,038
Paid-in capital in excess of par value	471,361			455,447
Retained earnings	9,595			31,494
Accumulated other comprehensive loss	(9,991		)	(798		)
Total stockholders' equity	472,004			487,181

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Balance Sheets

(Amounts in thousands)



Total liabilities and stockholders' equity	$	1,058,827	$	1,054,579

See accompanying notes to unaudited condensed consolidated financial statements.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Amounts in thousands, except for per share amounts)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	443,953		$	558,908		$	1,293,340		$	1,650,457
Operating costs and expenses:
Cost of services⁽¹⁾	333,438			436,799			995,587			1,287,892
Depreciation and amortization	68,708			68,287			210,069			187,742
Selling, general and administrative expenses	33,230			27,783			93,737			85,792
Loss on disposal of assets	679			1,113			831			5,169
Total operating costs and expenses	436,055			533,982			1,300,224			1,566,595
Operating income (loss)	7,898			24,926			(6,884		)	83,862
Other income (expense):
Other income (expense), net	55			14,454			460			1,481
Interest expense, net⁽²⁾	(5,215		)	(5,978		)	(16,087		)	(27,285		)
Total other income (expense)	(5,160		)	8,476			(15,627		)	(25,804		)
Income (loss) before income taxes	2,738			33,402			(22,511		)	58,058
Income tax (expense) benefit	820			(2,623		)	(718		)	(4,855		)
Net income (loss)	3,558			30,779			(23,229		)	53,203
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—			28			(29		)	(37		)
Hedging activities	(2,120		)	1,119			(8,664		)	3,429
Total comprehensive income (loss)	$	1,438		$	31,926		$	(31,922	)	$	56,595

Net income (loss) per share:
Basic net income (loss) per share	$	0.03		$	0.28		$	(0.22	)	$	0.48
Diluted net income (loss) per share	0.03			0.28			(0.22		)	0.48

Weighted-average shares outstanding: basic	104,899			108,825			104,721			110,706
Weighted-average shares outstanding: diluted	105,259			108,990			105,080			110,871

⁽¹⁾Cost of services during the three and nine months ended September 30, 2019 excludes depreciation of $65.2 million and $199.2 million, respectively. Cost of services during the three and nine months ended September 30, 2018 excludes depreciation of $65.4 million and $177.9 million, respectively. Depreciation related to cost of services is presented within depreciation and amortization disclosed separately.

⁽²⁾ Interest expense, net during the nine months ended September 30, 2018 includes $7.6 million in write-offs of deferred financing costs incurred in connection with the extinguishment of the Company's pre-existing 2017 term loan facility.

See accompanying notes to unaudited condensed consolidated financial statements.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Amounts in thousands)

(Unaudited)



	Common stock			Paid-in capital in excess of par value				Retained earnings			Accumulated other comprehensive loss			Total
Balance as of December 31, 2018	$	1,038		$	455,447			$	31,494		$	(798	)	$	487,181
Stock-based compensation⁽¹⁾	2			8,277				—			—			8,279
Shares repurchased and retired related to stock-based compensation	—			(2,861		)		—			—			(2,861		)
Other comprehensive loss	—			—				—			(3,139		)	(3,139		)
New lease standard implementation	—			—				1,330			—			1,330
Net loss	—			—				(21,806		)	—			(21,806		)
Balance as of March 31, 2019	$	1,040		$	460,863			$	11,018		$	(3,937	)	$	468,984
Stock-based compensation⁽¹⁾	—			5,637				—			—			5,637
Shares repurchased and retired related to stock-based compensation	(1		)	(505		)		—			—			(506		)
Other comprehensive loss	—			—				—			(3,878		)	(3,878		)
Net loss	—			—				(4,981		)				(4,981		)
Balance as of June 30, 2019	$	1,039		$	465,995			$	6,037		$	(7,815	)	$	465,256
Stock-based compensation⁽¹⁾	—			5,488			—	—			—			5,488
Shares repurchased and retired related to stock-based compensation	—			(122		)		—			—			(122		)
Other comprehensive loss	—			—				—			(2,176		)	(2,176		)
Net Income	—			—				3,558						3,558
Balance as of September 30, 2019	$	1,039		$	471,361			$	9,595		$	(9,991	)	$	472,004


⁽¹⁾	Stock-based compensation during the nine months ended September 30, 2019 includes stock-based compensation expense recognized during the period of $15.1 million and the vested deferred stock awards of $4.3 million. Refer to Note (9) Stock-Based Compensation for further discussion of the Company's stock-based compensation.

See accompanying notes to unaudited condensed consolidated financial statements.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Amounts in thousands)

(Unaudited)



	Common stock			Paid-in capital in excess of par value			Retained (deficit) / earnings			Accumulated other comprehensive income (loss)			Total
Balance as of December 31, 2017	$	1,118		$	541,074		$	(27,372	)	$	(1,728	)	$	513,092
Stock-based compensation⁽²⁾	2			7,352			—			—			7,354
Shares repurchased and retired related to stock-based compensation	(1		)	(3,338		)	—			—			(3,339		)
Other comprehensive income	—			—			—			2,106			2,106
Net loss	—			—			(8,243		)	—			(8,243		)
Balance as of March 31, 2018	$	1,119		$	545,088		$	(35,615	)	$	378		$	510,970
Stock-based compensation⁽²⁾	3			4,037			—			—			4,040
Shares repurchased and retired related to stock repurchase program	(26		)	(38,825		)	(1,273		)	—			(40,124		)
Other comprehensive income	—			—			—			(172		)	(172		)
Net income	—			—			30,667			—			30,667
Balance as of June 30, 2018	$	1,096		$	510,300		$	(6,221	)	$	206		$	505,381
Stock-based compensation⁽²⁾	—			4,808			—			—			4,808
Shares repurchased and retired related to stock-based compensation	—			(76		)	—			—			(76		)
Shares repurchased and retired related to stock repurchase program	(24		)	(29,278		)	—			—			(29,302		)
Other comprehensive income	—			—			—			985			985
Net income	—			—			30,779			—			30,779
Balance as of September 30, 2018	$	1,072		$	485,754		$	24,558		$	1,191		$	512,575


⁽²⁾	Stock-based compensation during the nine months ended September 30, 2018 includes stock-based compensation expense recognized during the period of $11.9 million and the vested deferred stock awards of $4.3 million.

See accompanying notes to unaudited condensed consolidated financial statements.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(23,229	)	$	53,203
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	210,069			187,742
Amortization of deferred financing fees	966			2,329
Loss on debt extinguishment, including prepayment premiums	—			7,550
Loss on disposal of assets	831			5,169
Loss on contingent consideration liability	—			13,254
Realized gain on derivative	(500		)	(473		)
Stock-based compensation	15,125			11,924
Gain on insurance proceeds recognized in other income	—			(14,892		)
Unrealized gain (loss) on derivative	(8,664		)	3,429
Changes in operating assets and liabilities:
Decrease (increase) in trade and other accounts receivable, net	14,477			(8,432		)
Decrease in inventories	14,084			4,171
Increase in prepaid and other current assets	(626		)	(1,463		)
Increase in other assets	(41,891		)	(3,129		)
Increase in accounts payable	15,803			15,345
Decrease in accrued expenses	(22,284		)	(19,980		)
Increase (decrease) in customer contract liabilities	411			(3,720		)
Increase (decrease) in other liabilities	51,007			(923		)
Net cash provided by operating activities	225,579			251,104
Cash flows from investing activities:
Acquisition of business	—			(35,003		)
Purchase of property and equipment	(154,107		)	(211,962		)
Advances of deposit on equipment	(5,049		)	(3,801		)
Implementation of software	(3,321		)	(708		)
Proceeds from disposal of assets	23,449			2,512
Payments for leasehold improvements	—			(1,574		)
Equity method investment	—			(1,163		)
Proceeds from insurance recoveries	223			18,222
Net cash used in investing activities	(138,805		)	(233,477		)
Cash flows from financing activities:
Proceeds from the term loan facility	—			348,250
Payments on the secured notes and term loan facility	(2,625		)	(284,077		)
Payments on finance leases	(3,814		)	(2,874		)
Payment of debt issuance costs	—			(7,331		)
Payments on contingent consideration liability	—			(11,962		)
Shares repurchased and retired related to share repurchase program	—			(69,426		)
Shares repurchased and retired related to stock-based compensation	(3,487		)	(3,415		)
Net cash used in financing activities	(9,926		)	(30,835		)
Non-cash effect of foreign translation adjustments	(29		)	(64		)
Net increase (decrease) in cash, cash equivalents	76,819			(13,272		)

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)



Cash and cash equivalents, beginning	80,206			96,120
Cash and cash equivalents, ending	$	157,025		$	82,848

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest expense, net	$	15,847		$	18,454
Income taxes	1,630			5,226
Contingent value right (CVR) settlement	—			19,918
Non-cash investing and financing activities⁽¹⁾:
Change in accrued capital expenditures	(16,387		)	—
Non-cash additions to finance right-of-use assets	6,029			—
Non-cash additions to finance lease liabilities, including current maturities	6,164			—
Non-cash additions to operating right-of-use assets	62,698			—
Non-cash additions to operating lease liabilities, including current maturities	62,444			—


⁽¹⁾	Non-cash additions for finance and operating leases were nil for the nine months ended September 30, 2018, as the Company adopted ASC 842 January 1, 2019.

See accompanying notes to unaudited condensed consolidated financial statements.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

(1) Basis of Presentation and Nature of Operations

On October 13, 2016, NexTier Oilfield Solutions Inc. (the "Company") was formed as Keane Group, Inc. ("Keane"), a Delaware corporation to be a holding corporation for Keane Group Holdings, LLC and its subsidiaries (collectively referred to as "Keane Group"), for the purpose of facilitating the initial public offering (the "IPO") of shares of common stock of the Company.

On January 25, 2017, the Company completed the IPO of 30,774,000 shares of its common stock at the public offering price of $19.00 per share, which included 15,700,000 shares offered by the Company and 15,074,000 shares offered by the selling stockholder. Upon completion of the IPO and the reorganization, the Company had 103,128,019 shares of common stock outstanding.

On October 31, 2019, the Company completed its merger with C&J and changed its name to "NexTier Oilfield Solutions Inc." The accompanying unaudited condensed consolidated financial statements is that of Keane prior to the merger because the merger was consummated after the period covered by the financial statements included in this Quarterly Report on Form 10-Q. Accordingly, the historical financial information included in this Quarterly Report on Form 10-Q, unless otherwise indicated or as the context otherwise requires, is that of Keane prior to the merger.

The accompanying unaudited condensed consolidated financial statements were prepared using United States Generally Accepted Accounting Principles ("GAAP") and the instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by GAAP for annual financial statements and should be read together with the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the "SEC") on February 27, 2019.

The Company's accounting policies are in accordance with GAAP. The preparation of financial statements in conformity with these accounting principles requires the Company to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and (2) the reported amounts of revenue and expenses during the reporting period. Ultimate results could differ from the Company's estimates.

Management believes the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2019 and the results of its operations and cash flows for the three and nine months ended September 30, 2019 and 2018. Such adjustments are of a normal recurring nature.

All intercompany transactions and balances have been eliminated.

(2) Summary of Significant Accounting Policies

(a) Business Combinations

Business combinations are accounted for using the acquisition method of accounting in accordance with the Accounting Standards Codification ("ASC") 805, "Business Combinations," as amended by Accounting Standards Update ("ASU") 2017-01, "Business Combinations (Topic 805), Clarifying the Definition of a Business." The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 820, "Fair Value Measurements," using discounted cash flows and other applicable valuation techniques. Any acquisition related costs incurred by the Company are expensed as incurred. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill if the definition of a business is met. Fair value of the acquired assets and liabilities is measured in accordance with the guidance of ASC 820 using discounted cash flows and other applicable valuation techniques. The completion of a business combination may result in a change in our net deferred tax position. Any impact on the deferred tax position of an acquiring entity for accounting purposes caused by a business combination is recorded in the acquiring company's financial statements outside of acquisition accounting. These accounting requirements may result in a significant fluctuation in our effective tax rate, depending on the relevant facts and circumstances. Operating results of an acquired business are included in our results of operations from the date of acquisition. For further discussion related to Merger with C&J, see Note (3) Merger with C&J.

(b) Revenue Recognition

Effective January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, using the modified retrospective method. Changes were made to the relevant business processes and the related control activities, including

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

information systems, in order to monitor and maintain appropriate controls over financial reporting. There were no significant changes to the Company's internal control over financial reporting due to the Company's adoption of ASU 2014-09.

Revenue from the Company's Completion Services and Other Services segments are earned as services are rendered, which is generally on a per stage or fixed monthly rate for the Company's Completion Services segment and on a per job basis for the Other Services segment. All revenue is recognized when a contract with a customer exists, the performance obligations under the contract have been satisfied over time, the amount to which the Company has the right to invoice has been determined and collectability of amounts subject to invoice is probable. Contract fulfillment costs, such as mobilization costs and shipping and handling costs, are expensed as incurred and are recorded in cost of services in the unaudited condensed consolidated statements of operations and comprehensive loss. To the extent fulfillment costs are considered separate performance obligations that are billable to the customer, the amounts billed are recorded as revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company does not incur contract acquisition and origination costs. Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the unaudited condensed consolidated statements of operations and comprehensive loss and net cash provided by operating activities in the unaudited condensed consolidated statements of cash flows.

The Company has elected the practical expedient to recognize revenue based upon the transactional value it has the right to invoice upon completion of each performance obligation per the contract terms. The Company believes its right to consideration corresponds directly with the value transferred to the customer. The Company has also elected the practical expedient to expense immediately mobilization costs, as the amortization period would generally always be less than one year. As a result of electing these practical expedients, there was no material impact on the Company's current revenue recognition processes and no retrospective adjustments were necessary.

The Company's obligations for refunds as well as the warranties and related obligations stated in its contracts with its customers are standard to the industry and are related to the correction of any defectiveness in the execution of its performance obligations.

Revenue from the Company's Completion Services and Other Services segments are recognized as follows:

Completion Services

The Company provides hydraulic fracturing and wireline services pursuant to contractual arrangements, such as term contracts and pricing agreements. Revenue is recognized upon the completion of each performance obligation. The Company's performance obligations under its Completion Services segment represent each stage frac'd or each stage perforated. Once a stage has been completed, a field ticket is created that includes charges for the service performed and the chemicals and proppant consumed during the course of the service. The field ticket may also include charges for the mobilization of the equipment to the location, any additional equipment used on the job and other miscellaneous items. The field ticket represents the amounts to which the Company has the right to invoice and to recognize as revenue.

Other Services

The Company provides cementing services pursuant to contractual arrangements, such as term contracts or on a spot market basis. Revenue is recognized upon the completion of each performance obligation, which for cementing services represents the portion of the well cemented: surface casing, intermediate casing or production liner. The performance obligations are satisfied over time. Jobs for these services are typically short term in nature, with most jobs completed in a day. Once the well has been cemented, a field ticket is created that includes charges for the services performed and the consumables used during the course of service. The field ticket represents the amounts to which the Company has the right to invoice and to recognize as revenue.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

Disaggregation of Revenue

Revenue activities during the three and nine months ended September 30, 2019 and 2018 were as follows:



	(Thousands of Dollars)
	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue by segment:
Completion Services	437,343		$	548,418	1,269,681		1,625,798
Other Services	6,610		10,490		23,659		24,659
Total revenue	$	443,953	$	558,908	$	1,293,340	$	1,650,457

Revenue by geography:
East	$	134,757	$	192,977	$	419,687	$	622,496
North	78,435		71,263		222,520		199,242
South	230,761		294,668		651,133		828,719
Total revenue	$	443,953	$	558,908	$	1,293,340	$	1,650,457

Contract Balances

In line with industry practice, the Company bills its customers for its services in arrears, typically when the stage or well is completed or at month-end. The majority of the Company's jobs are completed in less than 30 days. Furthermore, it is currently not standard practice for the Company to execute contracts with prepayment features. As such, the Company's contract liabilities are immaterial to its unaudited condensed consolidated balance sheets. Payment terms after invoicing are typically 30 days or less.

Property and equipment, inclusive of equipment under capital lease, are generally stated at cost.

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 13 months to 40 years. Property and equipment with an estimated useful life less than 13 months are expensed as incurred and are immaterial to the unaudited condensed consolidated financial statements. Management bases the estimate of the useful lives and salvage values of property and equipment on expected utilization, technological change and effectiveness of maintenance programs. When components of an item of property and equipment have different useful lives, they are accounted for separately as major components of property and equipment. Equipment held under finance leases are generally amortized on a straight-line basis over the shorter of the estimated useful life of the underlying asset and the term of the lease.

Gains and losses on disposal of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognized net within operating costs and expenses in the unaudited condensed consolidated statements of operations and comprehensive loss.

Major classifications of property and equipment and their respective useful lives are as follows:



Land	Indefinite life
Building and leasehold improvements	13 months – 40 years
Machinery and equipment	13 months – 10 years
Office furniture, fixtures and equipment	3 years – 5 years

Leasehold improvements are assigned a useful life equal to the term of the related lease.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

In the first quarter of 2018, the Company reassessed the estimated useful lives of select machinery and equipment. The Company concluded that due to an increase in service intensity driven by a shift to more 24-hour work, higher stage volume, larger stages and more proppant usage per stage, the estimated useful lives of these select machinery and equipment should be reduced by approximately 50%. In accordance with ASC 250, "Accounting Changes and Error Corrections," the change in the estimated useful lives of the Company's property and equipment was accounted for as a change in accounting estimate, on a prospective basis, effective January 1, 2018. This change resulted in an increase in depreciation expense and decrease in net income during the nine months ended September 30, 2018 of $13.1 million in the unaudited condensed consolidated statement of operations and comprehensive loss.

Depreciation methods, useful lives and residual values are reviewed annually.

(d) Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, "Leases (Topic 842)," and subsequently-issued related ASUs, which set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors, using the modified retrospective method. In connection with the adoption of these standards, the Company implemented internal controls to ensure that the Company's contracts are properly evaluated to determine applicability under ASU 2016-02 and that the Company properly applies ASU 2016-02 in accounting for and reporting on all its qualifying leases.

In accordance with ASU 2016-02, the Company considers any contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration to be a lease. The Company determines whether the contract into which it has entered is a lease at the lease commencement date. Rental arrangements with term lengths of one month or less are expensed as incurred, but not recognized as qualifying leases.

For lessees, leases can be classified as finance leases or operating leases, while for lessors, leases can be classified as sales-type leases, direct financing leases or operating leases. As lessee, all leases, with the exception of short-term leases, are capitalized on the balance sheet by recording a lease liability, which represents the Company's obligation to make lease payments arising from the lease and a right-of-use asset, which represents the Company's right to use the underlying asset being leased.

For leases in which the Company is the lessee, the Company uses a collateralized incremental borrowing rate to calculate the lease liability, as for most leases, the implicit rate in the lease is unknown. The collateralized incremental borrowing rate is based on a yield curve over various term lengths that approximates the borrowing rate the Company would receive if it collateralized its lease arrangements with all of its assets. For leases in which the Company is the lessor, the Company uses the rate implicit in the lease.

For finance leases, the Company amortizes the right-of-use asset on a straight-line basis over the earlier of the useful life of the right-of-use asset or the end of the lease term and records this amortization in rent expense on the unaudited condensed consolidated statements of operations and comprehensive loss. The Company adjusts the lease liability to reflect lease payments made during the period and interest incurred on the lease liability using the effective interest method. The incurred interest expense is recorded in interest expense on the unaudited condensed consolidated statements of operations and comprehensive loss. For operating leases, the Company recognizes one single lease cost, comprised of the lease payments and amortization of any associated initial direct costs, within rent expense on the unaudited condensed consolidated statements of operations and comprehensive loss. Variable lease costs not included in the determination of the lease liability at the commencement of a lease are recognized in the period when the specified target that triggers the variable lease payments becomes probable.

In accordance with ASC 842, the Company has made the following elections for its lease accounting:


•	all short-term leases with term lengths of 12 months or less will not be capitalized; the underlying class of assets to which the Company has applied this expedient is primarily its apartment leases;


•	for non-revenue contracts containing both lease and non-lease components, both components will be combined and accounted for as one lease component and accounted for under ASC 842; and


•	for revenue contracts containing both lease and non-lease components, both components will be combined and accounted for as one component and accounted for under ASC 606.

As part of the Company's adoption of ASU 2016-02, the Company elected to adopt the standard using the modified retrospective transition method and elected the practical expedient transition method package whereby the Company did not:


•	reassess whether any expired or existing contracts contained leases;

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements


•	reassess the lease classification for any expired or existing leases; and


•	reassess initial direct costs for any existing leases.

For additional information, see Note (11) Leases.

(e) Derivative Instruments and Hedging Activities

The Company is exposed to certain risks relating to its ongoing business operations. The Company utilizes interest rate derivatives to manage interest rate risk associated with its floating-rate borrowings. The Company recognizes all derivative instruments as either assets or liabilities on the consolidated balance sheets at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive income (loss) until the hedged item affects earnings.

The Company only enters into derivative contracts that it intends to designate as hedges for the variability of cash flows to be received or paid related to a recognized asset or liability (i.e. cash flow hedge). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

The Company discontinues hedge accounting prospectively, when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is de-designated because a forecasted transaction is not probable of occurring or management determines to remove the designation of the cash flow hedge. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the condensed consolidated balance sheet and recognizes any subsequent changes in its fair value in earnings. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and recognizes immediately, in earnings, any gains and losses related to the hedging relationship that were recognized in accumulated other comprehensive income (loss).

(f) Stock-based compensation

The Company recognizes compensation expense for restricted stock awards, restricted stock units to be settled in common stock ("RSUs") and non-qualified stock options ("stock options") based on the fair value of the awards at the date of grant. The fair value of restricted stock awards and time-based RSUs is determined based on the number of shares or RSUs granted and the closing price of the Company's common stock on the date of grant. The grant-date fair value of performance-based RSUs with market conditions is valued using a Monte Carlo simulation method that incorporates the probability of the performance conditions being met as of the grant date. The fair value of stock options is determined by applying the Black-Scholes model to the grant date market value of the underlying common shares of the Company. The Company has elected to recognize forfeiture credits for these awards as they are incurred, as this method better reflects actual stock-based compensation expense.

Compensation expense from time-based restricted stock awards, RSUs and stock options is amortized on a straight-line basis over the requisite service period, which is generally the vesting period.

Deferred compensation expense associated with liability-based awards, such as deferred stock awards that are expected to settle with the issuance of a variable number of shares based on a fixed monetary amount at inception, is recognized at the fixed monetary amount at inception and is amortized on a straight-line basis over the requisite service period, which is generally the vesting period. Upon settlement, the holders receive an amount of common stock equal to the fixed monetary amount at inception, based on the closing price of the Company's stock on the date of settlement.

Tax deductions on the stock-based compensation awards are not realized until the awards are vested or exercised. The Company recognizes deferred tax assets for stock-based compensation awards that will result in future deductions on its income tax returns, based on the amount of stock-based compensation recognized at the statutory tax rate in the jurisdiction in which the

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

Company will receive a tax deduction. If the tax deduction for a stock-based award is greater than the cumulative GAAP compensation expense for that award upon realization of a tax deduction, an excess tax benefit will be recognized and recorded as a favorable impact on the effective tax rate. If the tax deduction for an award is less than the cumulative GAAP compensation expense for that award upon realization of the tax deduction, a tax shortfall will be recognized and recorded as an unfavorable impact on the effective tax rate. Any excess tax benefits or shortfalls will be recorded discretely in the period in which they occur. The cash flows resulting from any excess tax benefit will be classified as financing cash flows in the unaudited condensed consolidated statements of cash flows.

The Company provides its employees with the election to settle the income tax obligations arising from the vesting of their restricted or deferred stock-based compensation awards by the Company withholding shares equal to such income tax obligations. Shares acquired from employees in connection with the settlement of the employees' income tax obligations are accounted for as treasury shares that are subsequently retired. The cash flows resulting from any shares acquired will be classified as financing cash flows in the unaudited condensed consolidated statements of cash flows.

Restricted stock awards and RSUs are not considered issued and outstanding for purposes of earnings per share calculations until vested.

For additional information, see Note (9) Stock-Based Compensation.

(3) Merger with C&J

On June 16, 2019, the Company entered into an agreement and plan of merger (the "Merger Agreement") among the Company, C&J and King Merger Sub Corp. ("Merger Sub").

On October 31, 2019, the Company completed the transactions contemplated by the Merger Agreement. At the effective time:


•	Merger Sub merged with and into C&J, with C&J surviving and continuing as the surviving corporation as a direct, wholly-owned subsidiary of the Company (the "Merger");


•	each share of C&J common stock issued and outstanding immediately prior to the effective time was canceled and converted into the right to receive 1.6149 shares of the Company's common stock plus cash in lieu of any fractional shares that otherwise would have been issued;


•	Keane was renamed "NexTier Oilfield Solutions Inc." and the Company's common stock, including the shares issued in the Merger, was listed on the New York Stock Exchange under a new ticker symbol "NEX"; and

•

each outstanding C&J stock option was converted into a stock option relating to shares of Company common stock; each outstanding C&J restricted stock award was converted into a restricted award relating to shares of Company common stock; each outstanding C&J restricted stock unit award was converted into a Company restricted stock unit award relating to shares of Company common stock; and each outstanding C&J performance share award was converted into a restricted award relating to shares of Company common stock. The number of shares of C&J common stock subject to C&J performance share awards was deemed to be the number of shares subject to the C&J performance share award with performance deemed achieved at target performance levels.

Former holders of C&J common stock as of immediately prior to the effective time of the Merger received 106,626,705 shares of Company common stock, in the aggregate, and hold approximately 50% of the issued and outstanding shares of common stock of the Company (based on fully diluted shares outstanding of the Company) as of immediately following the effective time, and holders of shares of Company common stock as of immediately prior to the effective time hold, in the aggregate, approximately 50% of the issued and outstanding shares of common stock of the Company (based on fully diluted shares outstanding of the Company) as of immediately following the effective time. The financial information included in the Notes to the Unaudited Condensed Consolidated Financial Statements is that of Keane prior to the Merger because the Merger was consummated after the period covered by the financial statements included in this Quarterly Report on Form 10-Q. Accordingly, the historical financial information included in this Quarterly Report on Form 10-Q, unless otherwise indicated or as the context otherwise requires, is that of Keane prior to the Merger.

Accounting for Merger with C&J

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

The initial allocation of preliminary consideration to tangible and intangible assets acquired and liabilities assumed, if any, will be based on management's preliminary estimate of their respective fair values as of October 31, 2019, are not considered final, and may differ materially from the final amounts. The final allocation of consideration to tangible and intangible assets acquired and liabilities assumed will be known when the accounting for the Merger is completed, in accordance with ASC 805, Business Combinations.

GAAP requires that one of the two companies in the Merger be designated as the acquirer for accounting purposes based on the evidence available. In identifying the Company as the acquiring entity for accounting purposes, the Company and C&J took into account which entity is issuing its equity interests, the existence of a large minority interest, the intended corporate governance structure of the Company, and the intended senior management of the Company. No single factor was the sole determinant in the overall conclusion that the Company was the accounting acquirer; rather, all factors were considered in arriving at the conclusion.

The Company, as the accounting acquirer, accounts for the transaction by using Keane historical information and accounting policies and applying the acquisition method of accounting to the assets and liabilities of C&J as of the acquisition date.

Preliminary Consideration

The allocation of the preliminary consideration is approximately $485.6 million, consisting of (i) equity consideration in the form of Company shares issued to C&J stockholders of approximately $481.9 million and (ii) replacement stock-based compensation awards attributable to pre-Merger services with a value of approximately $3.7 million. The preliminary estimate of the consideration does not purport to represent the actual value of the total consideration that will be received by the C&J stockholders when the accounting for the Merger is completed.

(4) Inventories, net

Inventories, net, consisted of the following as of September 30, 2019 and December 31, 2018:



	(Thousands of Dollars)
	September 30, 2019		December 31, 2018
Sand, including freight	$	5,124	$	14,697
Chemicals and consumables	4,301		6,250
Materials and supplies	12,160		14,722
Total inventory, net	$	21,585	$	35,669

Inventories are reported net of obsolescence reserves of $1.6 million and $1.0 million as of September 30, 2019 and December 31, 2018, respectively. The Company recognized $0.2 million and $0.5 million of obsolescence expense during the three months ended September 30, 2019 and 2018, respectively. The Company recognized $0.6 million and $0.9 million of obsolescence expense during the nine months ended September 30, 2019 and 2018, respectively.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

(5) Property and Equipment, net

Property and Equipment, net consisted of the following as of September 30, 2019 and December 31, 2018:



	(Thousands of Dollars)
	September 30, 2019			December 31, 2018
Land	$	6,716		$	4,771
Building and leasehold improvements	32,158			32,134
Office furniture, fixtures and equipment	8,246			7,691
Machinery and equipment	1,040,653			1,041,212
	1,087,773			1,085,808
Less accumulated depreciation	(657,619		)	(562,813		)
Construction in progress	7,108			8,324
Total property and equipment, net	$	437,262		$	531,319

Three and nine months ended September 30, 2019

All (gains) and losses are presented within (gain) loss on disposal of assets in the unaudited condensed consolidated statements of operations and comprehensive loss. The following describes by segment the total (gains) losses recognized on the disposal of certain assets of $0.7 million and $0.8 million net loss for the three and nine months ended September 30, 2019, respectively:


•	During the three and nine months ended September 30, 2019, the Company recognized a net loss of $2.4 million and $8.1 million, respectively, primarily relating to early disposals of various hydraulic fracturing pump components and iron within the Completion Services segment, offset primarily by salvage value on transmission cores from failed transmissions.


•	During the three and nine months ended September 30, 2019, the Company divested of various hydraulic fracturing related equipment for a net gain of $1.3 million and $6.1 million, respectively, within the Completion Services segment.


•	During the three and nine months ended September 30, 2019, the Company divested vehicles and other equipment used across different service lines for a net gain of $0.3 million and $0.7 million, respectively, classified under Corporate segment.


•	During the three and nine months ended September 30, 2019, the Company recognized a net gain of $0.1 million and $0.5 million primarily related to divesting trailers, vehicles and other various immaterial assets.

Three and nine months ended September 30, 2018

The following describes by segment the total losses recognized on the disposal of certain assets of $1.1 million and $5.2 million for the three and nine months ended September 30, 2018:


•	During the nine months ended September 30, 2018, the Company recognized a loss of $2.7 million relating to the sale of its field operations facility in Mathis, Texas within the Corporate and Other business segment.


•	During the three and nine months ended September 30, 2018, the Company recognized a loss of $1.1 million and $2.5 million, respectively, primarily relating to early disposals of various hydraulic fracturing pump components, within the Completion Services segment, offset primarily by salvage value on cores from end of life transmissions.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

(6) Significant Risks and Uncertainties

The Company operates in two reportable segments: Completion Services and Other Services, with significant concentration in the Completion Services segment. During the three months ended September 30, 2019 and 2018, sales to Completion Services customers represented 99% and 98% of the Company's consolidated revenue, respectively. During the nine months ended September 30, 2019 and 2018, sales to Completion Services customers represented 98% and 99% of the Company's consolidated revenue, respectively.

The Company depends on its customers' willingness to make operating and capital expenditures to explore for, develop and produce oil and natural gas onshore in the U.S. This activity is driven by many factors, including current and expected crude oil and natural gas prices. The U.S. energy industry experienced a significant downturn in the second half of 2014 through early 2016, driven primarily by global oversupply and a decline in commodity prices. From early 2016 through late 2018, the U.S. generally experienced some recovery in commodity prices and drilling and completion activity. Over this time frame, the U.S. active rig count increased from a trough of 404 rigs in May 2016 to a peak of 1,083 rigs in December 2018, driving significant demand for the Company's completion services. From December 28, 2018 through September 27, 2019, U.S. active rig count decreased by approximately 21% to 860 rigs.

While U.S. active rig count increased from its low in 2016, supply and demand for completion services remains challenged, resulting in adverse pricing, utilization impacts and ongoing commodity price volatility. More recently, the increased focus on electric hydraulic fracturing or other advanced technological fleets, impacting demands on conventional fracturing technology, has led to growing oversupply and capital investment concerns.

In response to these ongoing pressures, the Company's continued success is attributable primarily to the Company's high level of efficiency achieved at the wellsite, as well as its high-quality customer base and dedicated contract model.

For the three months ended September 30, 2019 revenue from the Company's top four customers individually represented 10% or more and collectively represented 59% of the Company's consolidated revenue. For the three months ended September 30, 2018, revenue from the Company's top three customers individually represented 10% or more and collectively represented 37% of the Company's consolidated revenue. For the nine months ended September 30, 2019, revenue from each of the Company's top four customers individually represented 10% or more and collectively represented 60% of the Company's consolidated revenue. For the nine months ended September 30, 2018, revenue from each of the Company's top four customers individually represented 10% or more and collectively represented 49% of the Company's consolidated revenue. Revenue is earned from each of these customers within the Completion Services segment.

For the three and nine months ended September 30, 2019, purchases from one supplier represented approximately 5% to 10% of the Company's overall purchases, and for the three and nine months ended September 30, 2018, two suppliers represented approximately 5% to 10% of the Company's overall purchases. The costs for each of these suppliers were incurred within the Completion Services segment.

(7) Derivatives

The Company uses interest-rate-related derivative instruments to manage its variability of cash flows associated with changes in interest rates on its variable-rate debt.

On May 25, 2018, the Company, and certain subsidiaries of the Company as guarantors, entered into a term loan facility (the "2018 Term Loan Facility") with each lender from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent. The 2018 Term Loan Facility has an initial aggregate principal amount of $350 million and proceeds were used to repay the Company's pre-existing 2017 term loan facility. The 2018 Term Loan Facility has a variable interest rate based on the London Interbank Offer Rate ("LIBOR"), subject to a 1.0% floor. As a result of this transaction, the Company desired to hedge additional notional amounts to continue to hedge approximately 50% of its expected LIBOR exposure and to extend the terms of its swaps to align with the 2018 Term Loan Facility.

On June 22, 2018, the Company unwound its existing interest rate swaps and received $3.2 million in proceeds. The Company used the $3.2 million of proceeds to execute a new off-market interest rate swap. Under the terms of the new interest rate swap, the Company receives 1-month LIBOR, subject to a 1% floor, and makes payments based on a fixed rate of 2.625%. The new interest rate swap is effective through March 31, 2025 and has a notional amount of $175 million. The new interest rate swap was designated in a new cash flow hedge relationship.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company discontinued hedge accounting on the pre-existing interest rate swaps upon termination. At

the time hedge accounting was discontinued, the exiting interest rate swaps had $3.5 million of deferred gains in accumulated other comprehensive loss. This amount was not reclassified from accumulated other comprehensive loss into earnings, as it remained probable that the originally forecasted transaction will occur. This amount will be recognized into earnings through August 18, 2022, the termination date of the pre-existing interest rate swap.

The following tables present the fair value of the Company's derivative instruments on a gross and net basis as of the periods shown below:



	(Thousands of Dollars)
	Derivatives designated as hedging instruments		Derivatives not designated as hedging instruments	Gross Amounts of Recognized Assets and Liabilities		Gross Amounts Offset in the Balance Sheet⁽¹⁾	Net Amounts Presented in the Balance Sheet⁽²⁾
As of September 30, 2019:
Other current liability	(1,626	)	—	(1,626	)	—	(1,626	)
Other noncurrent liability	(7,047	)	—	(7,047	)	—	(7,047	)
As of December 31, 2018:
Other current liability	(129	)	—	(129	)	—	(129	)
Other noncurrent liability	(169	)	—	(169	)	—	(169	)


⁽¹⁾	The Company's agreement with its financial trading counterparty allows for the financial right of offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreement.


⁽²⁾	There are no amounts subject to an enforceable master netting arrangement that are not netted in these amounts. There are no amounts of related financial collateral received or pledged.

The following table presents gains and losses for the Company's interest rate derivatives designated as cash flow hedges (in thousands of dollars):



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018		Location
Amount of gain (loss) recognized in total other comprehensive loss on derivative	$	(2,120	)	$	1,119	$	(8,664	)	$	3,429	OCI
Amount of gain reclassified from accumulated other comprehensive loss into earnings	56			163		500			473		Interest Expense

The gain (loss) recognized in other comprehensive loss for the derivative instrument is presented within hedging activities in the unaudited condensed consolidated statements of operations and comprehensive loss.

There were no gains or losses recognized in earnings as a result of excluding amounts from the assessment of hedge effectiveness. Based on recorded values as of September 30, 2019, $1.3 million of net losses will be reclassified from accumulated other comprehensive loss into earnings within the next 12 months.

See Note (8) Fair Value Measurements and Financial Information for discussion on fair value measurements related to the Company's derivative instruments.

(8) Fair Value Measurements and Financial Information

The Company discloses the required fair values of financial instruments in its assets and liabilities under the hierarchy guidelines, in accordance with GAAP. As of September 30, 2019, the Company's financial instruments consisted of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, derivative instruments, long-term debt and lease obligations. As of September 30, 2019 and December 31, 2018, the carrying values of the Company's financial instruments, included in its condensed consolidated balance sheets, approximated or equaled their fair values.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

Recurring Fair Value Measurement

As of September 30, 2019 and December 31, 2018, the one financial instrument measured by the Company at fair value on a recurring basis was its interest rate derivative.

The fair market value of the derivative financial instrument reflected on the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018 were determined using industry-standard models that consider various assumptions, including current market and contractual rates for the underlying instrument, time value, implied volatilities, nonperformance risk as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data.

The following tables present the placement in the fair value hierarchy of assets and liabilities that were measured at fair value on a recurring basis at September 30, 2019 and December 31, 2018 (in thousands of dollars):



				Fair value measurements at reporting date using
	September 30, 2019			Level 1		Level 2			Level 3
Assets:
Interest rate derivative	$	—		$	—	$	—		$	—
Liabilities:
Interest rate derivative	(8,673		)	—		(8,673		)	—



				Fair value measurements at reporting date using
	December 31, 2018			Level 1		Level 2			Level 3
Assets:
Interest rate derivative	$	—		$	—	$	—		$	—
Liabilities:
Interest rate derivative	(298		)	—		(298		)	—

Non-Recurring Fair Value Measurement

The fair values of indefinite-lived assets and long-lived assets are determined with internal cash flow models based on significant unobservable inputs. The Company measures the fair value of its property, plant and equipment using the discounted cash flow method, the fair value of its customer contracts using the multi-period excess earning method and income based "with and without" method, the fair value of its trade names and acquired technology using the "income-based relief-from-royalty" method and the fair value of its non-compete agreement using the "lost income" approach.

Given the unobservable nature of the inputs used in the Company's internal cash flow models, the cash flows models are deemed to use Level 3 inputs.

During the nine months ended September 30, 2019 and 2018, the Company determined there were no events that would indicate the carrying amount of its indefinite-lived assets and long-lived assets may not be recoverable, and as such, no impairment charge was recognized.

Credit Risk

The Company's financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents, derivative contracts and trade receivables.

The Company's cash balances on deposit with financial institutions totaled $157.0 million and $80.2 million as of September 30, 2019 and December 31, 2018, respectively, which exceeded Federal Deposit Insurance Corporation insured limits. The Company regularly monitors these institutions' financial condition.

The credit risk from the derivative contract derives from the potential failure of the counterparty to perform under the terms of the derivative contracts. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties, whose Standard & Poor's credit rating is higher than BBB. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

The majority of the Company's trade receivables have payment terms of 30 days or less. Significant customers are those that individually account for 10% or more of the Company's consolidated revenue or total accounts receivable. As of September 30, 2019, trade receivables from three customers individually represented 10% or more and collectively represented 40% of the Company's total accounts receivable. As of December 31, 2018, trade receivables from three customers individually represented 10% or more and collectively represented 49% of the Company's total accounts receivable. The Company mitigates the associated credit risk by performing credit evaluations and monitoring the payment patterns of its customers. The Company has a process in place to collect all receivables within 30 to 60 days of aging. As of September 30, 2019 and December 31, 2018, the Company had $0.7 million and $0.5 million in allowance for doubtful accounts, respectively, based on specific identification. The Company wrote-off $0.3 million and $0.7 million of bad debts during the three and nine months ended September 30, 2019, but did not write-off of any bad debts during the nine months ended September 30, 2018.

(9) Stock-Based Compensation

As of September 30, 2019, the Company has four types of stock-based compensation under its Equity and Incentive Award Plan (the "Equity Plan"): (i) restricted stock awards issued to independent directors, (ii) time-based restricted stock units awards, (iii) performance-based restricted stock unit awards ("performance-based RSUs") and (iv) non-qualified stock options. RSUs and non-qualified stock options are issued to executive officers and other key management personnel. The Company has reserved 11,934,601 shares of its common stock for awards that may be issued under the Equity Plan.

The following table summarizes stock-based compensation costs for the three months ended September 30, 2019 and 2018 (in thousands of dollars):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Deferred stock awards	$	—		$	1,070		$	—		$	3,211
Restricted stock awards	238			185			859			366
Restricted stock time-based unit awards	4,166			2,864			11,390			6,620
Non-qualified stock options	670			690			2,025			1,727
Restricted stock performance-based unit awards	414			—			851			—
Equity-based compensation cost	$	5,488		$	4,809		$	15,125		$	11,924
Tax Benefit	(1,309		)	(1,158		)	(3,650		)	(2,871		)
Equity-based compensation cost, net of tax	$	4,179		$	3,651		$	11,475		$	9,053

Performance-based RSU awards

Effective March 25, 2019, the Company issued 327,401 of performance-based RSUs to four executive officers under the Equity Plan, which were fair valued at $3.6 million using a Monte Carlo simulation method. 163,700 of these performance-based RSUs vest at December 31, 2020 (the "two-year performance-based RSUs"), while the remaining 163,701 of these performance-based RSUs vest at December 31, 2021 (the "three-year performance-based RSUs"). Each vesting is subject to a payout percentage based on the Company's annualized total stockholder return ranking relative to its total stockholder return peer group achieved during the performance period, which extends from January 1, 2019 to December 31, 2020 for the two-year performance-based RSUs and January 1, 2019 to December 31, 2021 for the three-year performance-based RSUs. The number of shares that may be earned at the end of the vesting period ranges from 25% to 200% of the target award amount, if the threshold performance criteria is met. These performance-based RSUs will be settled in the Company's common stock and are classified as equity awards. The compensation expense associated with these performance-based RSUs will be amortized into earnings on a straight-line basis. As of September 30, 2019, total unamortized compensation cost related to unvested performance-based RSUs was $2.7 million, which the Company expects to recognize over the weighted-average period of 1.76 years.

(10) Earnings per Share

Basic income or (loss) per share is based on the weighted average number of common shares outstanding during the period. Diluted income or (loss) per share includes additional common shares that would have been outstanding if potential common shares with a dilutive effect, such as stock awards from the Equity Plan, had been issued. Anti-dilutive securities represent potentially dilutive securities which are excluded from the computation of diluted income or (loss) per share as their impact would be anti-dilutive.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

A reconciliation of the numerators and denominators used for the basic and diluted net income (loss) per share computations is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019			2018
Numerator:
Net income (loss)	$	3,558	$	30,779	$	(23,229	)	$	53,203

Denominator:
Basic weighted-average common shares outstanding⁽¹⁾	104,899		108,825		104,721			110,706
Dilutive effect of restricted stock awards granted to Board of Directors	33		53		30			52
Dilutive effect of time-based restricted stock awards granted under the Equity Plan	—		112		2			113
Dilutive effect of performance-based restricted stock awards granted under the Equity Plan	327		—		327			—
Diluted weighted-average common shares outstanding⁽¹⁾	105,259		108,990		105,080			110,871


⁽¹⁾	As a result of the net loss incurred by the Company for the nine months ended September 30, 2019, the calculation of diluted net loss per share gives no consideration to the potentially anti-dilutive securities shown in the above reconciliation, and as such is the same as basic net loss per share.

(11) Leases

The Company adopted ASU 2016-02, "Leases (Topic 842)," and subsequently-issued related ASUs, which set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors, effective January 1, 2019, using the modified retrospective method. Upon adoption, the Company recognized a lease right-of-use asset and lease liability of approximately $61.0 million on its unaudited condensed consolidated balance sheet on January 1, 2019, for its operating leases that existed upon the effective date, with no additional impact to its unaudited condensed consolidated statements of operations and comprehensive loss or statements of cash flows.

The Company has operating leases for certain of its corporate offices, field shops, apartments, warehouses, rail cars, frac pumps, trailers, tractors and certain other equipment. The Company also has both operating and finance leases for its light duty vehicles.

The Company's leases have variable payments with annual escalations that are based on the proportion by which the consumer price index ("CPI") for all urban consumers increased over the CPI index for the prior comparative year. The Company's leases have remaining lease terms of less than 1 year to 15 years, some of which include extension and termination option. None of these extension and termination options were used to determine the Company's right-of-use assets and lease liabilities, as the Company has not determined it is probable that it will exercise any of these options. None of the Company's leases have residual value guarantees.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

The components of the Company's lease costs are as follows:



	(Thousands of Dollars)
	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	6,596		$	19,822
Finance lease cost:
Amortization of right-of-use assets	812			2,516
Interest on lease liabilities	137			493
Total finance lease cost	949			3,009
Short-term lease cost	167			453
Variable lease cost⁽¹⁾	4,317			13,228
Sublease income	(27		)	(88		)
Total lease cost	$	12,002		$	36,424

(1)Cost from variable amounts excluded from determination of lease liability.

Supplemental cash flows related to leases are as follows:




	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flows from operating leases	$	18,305
Operating cash flows from finance leases	433
Financing cash flows from finance leases	3,814

Weighted average remaining lease terms are as follows:



	Nine Months Ended September 30, 2019
Operating leases	5.14 years
Finance leases	2.51 years

Weighted average discount rate on the Company's lease liabilities are as follows:



	Nine Months Ended September 30, 2019
Operating leases	6.62%
Finance leases	5.75%

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

Maturities of the Company's lease liabilities as of September 30, 2019, per ASU 2016-02, were as follows:



	(Thousands of Dollars)
Year ending December 31,	Operating leases			Finance leases
2019	$	5,947		$	2,025
2020	18,991			3,415
2021	5,598			3,149
2022	4,281			1,611
2023	2,838			246
Thereafter	12,492			—
Total undiscounted remaining minimum lease payments	50,147			10,446
Less imputed interest	(8,708		)	(721		)
Total discounted remaining minimum lease payments	$	41,439		$	9,725

Minimum lease commitments, excluding early termination buyouts, remaining under the Company's operating leases and capital leases, for the next five years per ASC 840, "Leases," as of December 31, 2018 were as follows:



	(Thousands of Dollars)
Year ending December 31,	Operating leases		Capital leases
2019	$	26,327	$	5,484
2020	18,017		2,652
2021	5,688		2,430
2022	4,795		883
2023	3,172		—
Total	$	57,999	$	11,449

The Company did not make any lease reassessments or modifications nor did it recognize any gains or losses on sale-leaseback transactions during the three and nine months ended September 30, 2019.

As of September 30, 2019, the Company does not have additional operating and finance leases that have not yet commenced, nor did the Company have any lease transactions with any of its related parties.

(12) Commitments and Contingencies

As of September 30, 2019 and December 31, 2018, the Company had $5.0 million and $4.2 million of deposits on equipment, respectively. Outstanding purchase commitments on equipment were $37.2 million and $43.6 million, as of September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019, the Company had committed $5.1 million to research and development with its equity-method investee.

As of September 30, 2019 and December 31, 2018, the Company had issued letters of credit of $2.8 million and $2.5 million, respectively, under the Company's asset-based revolving credit facility obtained on February 17, 2017, as amended on December 22, 2017, which secured performance obligations related to the Company's capital lease with CIT Finance LLC and the Company's casualty insurance policy.

In the normal course of operations, the Company enters into certain long-term raw material supply agreements for the supply of proppant to be used in hydraulic fracturing. As part of these agreements, the Company is subject to minimum tonnage purchase requirements and may pay penalties in the event of any shortfall. The Company purchased $47.5 million and $32.7 million amounts of proppant under its take-or-pay agreements during the three months ended September 30, 2019 and 2018, respectively. The Company purchased $98.2 million and $107.4 million amounts of proppant under it take-or-pay agreements during the nine months ended September 30, 2019 and 2018, respectively.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

Aggregate minimum commitments under long-term raw material supply contracts for the next five years as of September 30, 2019 are listed below:



	(Thousands of Dollars)
2019	$	9,510
2020	29,053
2021	14,925
2022	9,300
2023	1,600
	$	64,388

Litigation

From time to time, the Company is subject to legal and administrative proceedings, settlements, investigations, claims and actions, as is typical of the industry. These claims include, but are not limited to, contract claims, environmental claims, employment related claims, claims alleging injury or claims related to operational issues. The Company's assessment of the likely outcome of litigation matters is based on its judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial information and other evidence and facts specific to the matter. In accordance with GAAP, the Company accrues for contingencies where the occurrence of a material loss is probable and can be reasonably estimated, based on the Company's best estimate of the expected liability. The Company may increase or decrease its legal accruals in the future, on a matter-by-matter basis, to account for developments in such matters. Notwithstanding the uncertainty as to the final outcome and based upon the information currently available to it, the Company does not currently believe these matters in aggregate will have a material adverse effect on its financial position or results of operations.

In November 2017, the Company was served with two class or collective action claims, captioned Omar Castro v. Keane and Vu Tran v. Keane, both alleging that the Company failed to pay a Texas class of workers an appropriate overtime rate in compliance with the Fair Labor Standards Acts and state laws. These two claims were consolidated on January 30, 2018 and captioned Vu Tran, et al. v. Keane. After the Company substantially completed its discovery, the Company recognized an estimated liability in the third quarter of 2018, as the occurrence of a loss was probable and reasonably estimable. In the first quarter of 2019, the parties agreed to settle this consolidated claim for $1.0 million. In the second quarter of 2019, the settlement payments were submitted for a total of $0.9 million and the matter is no longer open.

In June 2016, the Company filed suit for declaratory judgment against Ceramifrac Proppants, LLC ("Ceramifrac"), captioned Keane Frac ND, LLC & Keane Group Holdings, LLC v. Ceramifrac Proppants, LLC, contending that the Company had no obligations to pay for ceramic proppant for which the Company was billed for in 2015, but of which it never took possession. The Company contended it never agreed to purchase the product in question. The case went to jury trial on March 19, 2019, and upon conclusion of the trial, the jury rendered an adverse verdict resulting in a judgment awarding Ceramifrac $4.1 million in damages. In the first quarter of 2019, the Company recognized an estimated liability of $4.1 million. During the second quarter of 2019, the parties settled for $3.8 million, which was subsequently paid in early July 2019, and the case is now closed.

Environmental

The Company is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. The Company cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Company continues to monitor the status of these laws and regulations. Currently, the Company has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of the Company's business, material costs could be incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of the Company's liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

Regulatory Audits

In 2017, the Company was notified by the Texas Comptroller of Public Accounts that it will conduct a routine audit of Keane Frac TX, LLC's direct payment sales tax for the periods of January 2014 through May 2017. The Company initially anticipated and recorded an estimate for a potential assessment of approximately $3.2 million during the first quarter of 2019. Subsequently, the Company made a $2.1 million prepayment in June 2019. The Company made an additional payment of $0.3 million in the third quarter of 2019 after receiving the notification of the audit result, concluding the audit. These amounts are recorded in selling, general and administrative expenses in the Company's consolidated statements of operations and comprehensive loss.

During the third quarter of 2019, the Company was notified by the Texas Comptroller of Public Accounts that it will conduct a routine audit of Keane Frac, LP's direct payment sales tax. The state has not provided the periods for this audit.

(13) Related Party Transactions

Cerberus Operations and Advisory Company and Cerberus Capital Management, L.P., affiliates of the Company's principal equity holder, provide certain consulting services to the Company. The Company paid $1.0 million and $0.1 million during the three months ended September 30, 2019 and 2018, respectively, for these services. The Company paid $2.5 million and $0.3 million during the nine months ended September 30, 2019 and 2018, respectively, for these services.

In connection with the Company's research and development initiatives, the Company has engaged in transactions with its equity-method investee. As of September 30, 2019, the Company has purchased $1.7 million of shares in its equity-method investee.

(14) Business Segments

Management operates the Company in two reporting segments: Completion Services and Other Services. Management evaluates the performance of these segments based on equipment utilization, revenue, and gross margin. All inter-segment transactions are eliminated in consolidation.

The following tables present financial information with respect to the Company's segments. Corporate and Other represents costs not directly associated with an operating segment, such as interest expense, income taxes and corporate overhead. Corporate assets include cash, deferred financing costs, derivatives and entity-level machinery and equipment.



	(Thousands of Dollars)
		Three months ended September 30,						Nine Months Ended September 30,
		2019			2018			2019			2018
Operations by business segment
Revenue:
Completion Services		$	437,343		$	548,418		$	1,269,681		$	1,625,798
Other Services		6,610			10,490			23,659			24,659
Total revenue		$	443,953		$	558,908		$	1,293,340		$	1,650,457
Operating income (loss):
Completion Services		$	43,505		$	56,771		$	98,331		$	186,731
Other Services		699			(1,221		)	(1,003		)	(5,114		)
Corporate and Other		(36,306		)	(30,624		)	(104,211		)	(97,755		)
Total operating income (loss)		$	7,898		$	24,926		$	(6,884	)	$	83,862
Depreciation and amortization:
Completion Services		$	64,735		$	64,579		$	197,152		$	174,376
Other Services		502			840			2,007			3,557
Corporate and Other		3,471			2,868			10,910			9,809
Total depreciation and amortization		$	68,708		$	68,287		$	210,069		$	187,742

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements



(Gain) loss on disposal of assets
Completion Services	$	1,074		$	1,140		$	1,267		$	3,015
Other Services	—			—			—			—
Corporate and Other	(395		)	(27		)	(436		)	2,154
Total loss on disposal of assets	$	679		$	1,113		$	831		$	5,169
Exit costs:
Corporate and Other	$	—		$	(1	)	$	—		$	(154	)
Total exit costs	$	—		$	(1	)	$	—		$	(154	)
Income tax provision:
Corporate and Other	$	820		$	(2,623	)	$	(718	)	$	(4,855	)
Total income tax:	820			$	(2,623	)	$	(718	)	$	(4,855	)
Net income (loss):
Completion Services	$	43,505		$	56,771		$	98,331		$	186,731
Other Services	699			(1,221		)	(1,003		)	(5,114		)
Corporate and Other	(40,646		)	(24,771		)	(120,557		)	(128,414		)
Total net income (loss)	$	3,558		$	30,779		$	(23,229	)	$	53,203
Capital expenditures⁽¹⁾:
Completion Services	$	38,762		$	89,904		$	138,461		$	233,665
Other Services	—			98			646			1,642
Corporate and Other	283			3,122			3,613			4,008
Total capital expenditures	$	39,045		$	93,124		$	142,720		$	239,315


⁽¹⁾	Excludes expenditures for leasehold improvements and finance leases.



	(Thousands of Dollars)
	September 30, 2019		December 31, 2018
Total assets by segment:
Completion Services	$	816,888	$	894,467
Other Services	15,256		20,974
Corporate and Other	226,683		139,138
Total assets	$	1,058,827	$	1,054,579

Goodwill by segment:
Completion Services	$	132,524	$	132,524
Total goodwill	$	132,524	$	132,524

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

(15) New Accounting Pronouncements

(a) Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a purchase financed by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months, regardless of their classification. Leases with a term of 12 months or less may be accounted for similarly to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. In December 2018, the FASB issued ASU 2019-20, "Leases (Topic 842): Narrow-Scope Improvements for Lessors," which allows lessors to make a policy election to exclude sales taxes and other similar taxes from determining the consideration in the contract and variable payments not included in the consideration in the contract, requires lessors to exclude from variable payments lessor costs paid by lessees directly to third parties and clarified the accounting for variable payments for contracts with lease and nonlease components. The Company adopted these standards effective January 1, 2019, using the modified retrospective transition method. The Company recognized a lease right-of-use asset and lease liability of approximately $61.0 million on its unaudited condensed consolidated balance sheet on January 1, 2019, for its operating leases that existed upon the effective date, with no additional impact to its unaudited condensed consolidated statements of operations and comprehensive loss or statements of cash flows. The Company also determined that while its hydraulic fracturing fleets represent lease components in its customer contracts, these lease components do not represent the predominant components in its customer contracts. As such the Company has elected to account for the combined components of its customer contracts under ASC 606. In connection with the adoption of these standards, the Company implemented internal controls to ensure that the Company's contracts are properly evaluated to determine applicability under ASU 2016-02 and that the Company properly applies ASU 2016-02 in accounting for and reporting on all its qualifying leases.

The effect of the lease standards adoption on the unaudited condensed consolidated balance sheet as of January 1, 2019 is as follows (in thousands of dollars):



	December 31, 2018						January 1, 2019
Balance sheet line item	As Previously Reported			ASU 2016-02 Adoption			As Adjusted
Operating lease right-of-use assets	$	—		$	60,946		$	60,946
Finance lease right-of-use assets	—			7,864			7,864
Property and equipment, net	531,319			(7,864		)	523,455
Other noncurrent assets	6,569			(9		)	6,560
Accrued expenses and other current liabilities	(101,833		)	1,066			(100,767		)
Current maturities of operating lease liabilities	—			(25,211		)	(25,211		)
Current maturities of finance lease liabilities	—			(4,928		)	(4,928		)
Current maturities of capital lease obligations	(4,928		)	4,928			—
Long-term operating lease liabilities, less current maturities	—			(35,512		)	(35,512		)
Long-term finance lease liabilities, less current maturities	—			(5,581		)	(5,581		)
Capital lease obligations, less current maturities	(5,581		)	5,581			—
Other noncurrent liabilities	(3,283		)	50			(3,233		)
Retained earnings	31,494			(1,330		)	30,164

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which allows companies to reclassify from accumulated other comprehensive income to retained earnings, any stranded tax effects resulting from complying with the Tax Cuts and Jobs Act legislation passed in December 2017. ASU 2018-02 is effective for annual periods beginning after December 15, 2018. The Company implemented the provisions of this ASU effective January 1, 2019, with no impact to its unaudited condensed

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

consolidated financial statements, as due to the Company's valuation allowance, there is no net tax effect stranded within accumulated other comprehensive loss.

In July 2018, the FASB issued ASU 2018-09, "Codification Improvements," which made clarifications, correction of errors and minor improvements to ASC 220, "Income Statement - Reporting Comprehensive Income - Overall," ASC 470-50, "Debt Modifications and Extinguishments," ASC 480-10, "Distinguishing Liabilities from Equity -Overall," ASC 718-740, "Compensation - Stock Compensation - Income Taxes," ASC 805-740, "Business Combinations - Income Taxes," ASC 815-10, "Derivatives and Hedging - Overall," ASC 820-10, "Fair Value Measurement - Overall," ASC 940-405, "Financial Services - Brokers and Dealers - Liabilities," and ASC 962-325, "Plan Accounting - Defined Contribution to Pension Plans - Investments - Other." The Company adopted this standard effective January 1, 2019, with no significant impact to its unaudited condensed consolidated financial statements, as the transactions it conducts that qualify under ASU 2018-09 are only impacted by the amendments to ASC 718-740.

In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes." The amendments in this standard permit use of the Overnight Index Swap rate based on Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815. ASU 2018-16 is effective for annual periods beginning after December 15, 2018. The Company adopted this standard effective January 1, 2019, with no impact to its unaudited condensed consolidated financial statements, as the benchmark interest rate on its existing debt facility and interest rate swap is LIBOR.

In January 2019, the FASB issued ASU 2019-01, "Leases (Topic 842) - Codification Improvements." The amendments in this standard provide implementation guidance with regards to determining the fair value of an underlying leased asset by lessors that are not manufacturers or dealers, presentation of cash received from leases by lessors in sales-type or direct financing leases on the statement of cash flows and transition disclosures related to ASC 250, "Accounting Changes and Error Corrections." The amendments in this standard are effective January 1, 2020, except for those related to transition disclosures that are effective immediately on January 1, 2019. Early adoption is permitted. The Company adopted this standard effective January 1, 2019 with no impact to its unaudited condensed consolidated financial statements, as the Company does not have any leases for which lessor accounting is applied under ASC 842.

(b) Recently Issued Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which introduces a new impairment model for financial instruments that is based on expected credit losses rather than incurred credit losses. The new impairment model applies to most financial assets, including trade accounts receivable and lease receivables. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments-Credit Losses," which clarified that receivables arising from operating leases are not within the scope of ASC 326-20, "Financial Instruments-Credit Losses-Measured at Amortized Cost," and should be accounted for in accordance with ASC 842. In April 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which clarified certain amendments related to ASU 2016-13. The Company is currently in the process of evaluating the impact the adoption of these standards will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This standard removed, modified and added disclosure requirements from ASC 820. ASU 2018-13 is effective for annual periods beginning after December 15, 2019. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements, as this standard primarily addresses disclosure requirements for Level 3 fair value measurements. The Company does not currently have or anticipate having Level 3 fair value instruments.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." The amendments in this standard aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods beginning after December 15, 2019. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606." The amendments in this standard clarified that certain transactions should be accounted for under

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

ASC 606 if one of the collaborative arrangement participants meets the definition of a customer and that transactions between collaborative participants not directly related to sales to third parties should not be recognized as revenue under Topic 606, if one of the collaborative arrangement participants is not a customer. ASU 2018-18 is effective for annual periods beginning after December 15, 2019. The Company is currently in the process of evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments- Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which clarifies certain aspects of the amendments in ASU 2016-01, 2016-13, and 2017-12. The Company has determined that only the clarifications related to ASU 2016-13 applies to it, as the Company does not currently have or anticipate to have fair value hedging. ASC 2019-04 is effective for annual periods beginning after December 15, 2019. The Company is currently in the process of evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief," which clarifies certain aspects of the amendments in ASU 2016-13, ASC 2019-05 is effective for annual periods beginning after December 15, 2019. The Company is currently in the process of evaluating the impact the adoption of this standard will have on its consolidated financial statements.

In July, the FASB issued ASU 2019-07, "Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates (SEC Update)". The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

(16) Subsequent Events

(a) Merger with C&J

On October 31, 2019, the Company completed the Merger with C&J and Merger Sub. At the closing of the Merger, each outstanding share of C&J capital stock was converted into the right to receive 1.6149 shares of the Company's common stock plus cash in lieu of any fractional shares that otherwise would have been issued. Upon completion of the Merger, the Company changed its name to NexTier Oilfield Solutions Inc. to create a new leading well completion and production services company. Shares of the Company's common stock commenced trading on the New York Stock Exchange under the ticker symbol "NEX" as of market open on October 31, 2019. The Company's previous ticker symbol was "FRAC". For additional information, see Note (3) Merger with C&J.

(b) Second Amended and Restated Asset-Based Revolving Credit Agreement

On October 31, 2019, the Company entered into a Second Amended and Restated Asset-Based Revolving Credit Agreement (the "Second A&R ABL Agreement"), by and among the Company, as parent guarantor, Keane Group, as the lead borrower, certain other subsidiaries of the Company as additional borrowers and guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent, to the original Asset-Based Revolving Credit Agreement, dated as of February 17, 2017, as amended December 22, 2017. The following is a summary of the material changes to the Second A&R ABL Agreement.

Commitments. The Second A&R ABL Agreement increases the commitments to make revolving credit loans from $300.0 million to $450.0 million, subject to a borrowing base (as described below). In addition, subject to approval by the applicable lenders and other customary conditions, the Second A&R ABL Agreement allows for an additional increase in commitments of up to $200.0 million, an increase from $150.0 million in the previous agreement.

Maturity. The Second A&R ABL Agreement extends the maturity date from December 22, 2022 to October 31, 2024.

Interest. The Second A&R ABL Agreement reduces the interest rate from a rate per annum equal to, at Keane Group's option, (a) the base rate, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 1.00%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 0.75% or (z) if the average excess availability is greater than or equal to 66%, 0.50%, or (b) the adjusted LIBOR rate for such interest period, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 2.00%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 1.75% or (z) if the average excess availability is greater than or equal to 66%, 1.50%, to a rate per annum equal to, at Keane Group's option, (a) the base rate, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 0.75%, (y) if the

NEXTIER OILFIELD SOLUTIONS INC. AND SUBSIDIARIES

(formerly Keane Group, Inc.)

Notes to the Unaudited Condensed Consolidated Financial Statements

average excess availability is greater than or equal to 33% but less than 66%, 0.50% or (z) if the average excess availability is greater than or equal to 66%, 0.25%, or (b) the adjusted LIBOR rate for such interest period, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 1.75%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 1.50% or (z) if the average excess availability is greater than or equal to 66%, 1.25%.

Borrowing Base. The amount of loans and letters of credit available under the Second A&R ABL Agreement is limited to, at any time of calculation, an amount equal to (a) 85% multiplied by the amount of eligible billed accounts (with a higher limit for accounts of certain investment grade customers); plus (b) 80% multiplied by the amount of eligible unbilled accounts (with a higher limit for accounts of certain investment grade customers); provided, that the amount attributable to clause (b) may not exceed 35% of the borrowing base (after giving effect to any reserve, this limitation and the limitation set forth in the proviso in clause (c)); plus (c) 85% of the appraised value of eligible inventory and eligible frac iron; provided, that the amount attributable to clause (c) may not exceed 35% of the borrowing base (after giving effect to any reserve, this limitation and the limitation set forth in the proviso in clause (b)); plus (d) 100% of all eligible cash; minus (e) the then applicable amount of all reserves.

Financial Covenants. The Second A&R ABL Agreement requires that, under certain circumstances, the consolidated fixed charge coverage ratio not be lower than 1.0:1.0 as of the last day of the most recently completed four consecutive fiscal quarters for which financial statements were required to have been delivered, including if excess availability (or liquidity if no loan or letter of credit, other than any letter of credit that has been cash collateralized, is outstanding) is less than the greater of (i) 10% of the loan cap and (ii) $30.0 million at any time.

Restricted Payments. The Second A&R ABL Agreement provides additional capacity to make cash dividends and other restricted payments in an aggregate amount not exceeding $50.0 million in any four consecutive fiscal quarter period, and to the extent Consolidated EBITDA in any four consecutive fiscal quarter period equals or exceeds $350.0 million, such amount is increased to $100.0 million for so long as Consolidated EBITDA continues to equal or exceed such threshold.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related condensed footnotes included within Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)" in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2018. The financial information included in this Management's Discussion and Analysis of Financial Condition and Results of Operations is that of Keane Group, Inc. ("Keane") prior to the merger because the merger was consummated after the period covered by the financial statements included in this Quarterly Report on Form 10-Q. Accordingly, the historical financial information included in this Quarterly Report on Form 10-Q, unless otherwise indicated or as the context otherwise requires, is that of Keane prior to the merger.

EXECUTIVE OVERVIEW

Merger

On October 31, 2019, NexTier Oilfield Solutions Inc. (the "Company," "we," "us," or "our") completed the merger (the "Merger") with C&J Energy Services, Inc., a Delaware corporation ("C&J"), and King Merger Sub Corp. pursuant to that Agreement and Plan of Merger dated June 16, 2019 (the "Merger Agreement"). At the closing of the Merger, each outstanding share of C&J capital stock was converted into the right to receive 1.6149 shares of the Company's common stock plus cash in lieu of any fractional shares that otherwise would have been issued. Upon completion of the Merger, the Company changed its name to NexTier Oilfield Solutions Inc. to create a new leading well completion and production services company. Shares of the Company's common stock commenced trading on the New York Stock Exchange under the ticker symbol "NEX" as of market open on October 31, 2019. The Company's previous ticker symbol was "FRAC".

Organization

We are an industry-leading U.S. land oilfield service company, with a diverse set of well completion and production services across the most active and demanding basins. Our integrated solutions approach delivers efficiency today, and our ongoing commitment to innovation helps our customers better address what is coming next. We are differentiated through four points of distinction, including safety performance, efficiency, partnership and innovation. We believe in living our core values from the basin to the boardroom, and helping customers win by safely unlocking affordable, reliable and plentiful sources of energy.

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 Bakken Formation, the SCOOP/STACK 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) our focus on value creation for all our stakeholders.

We provide our services in conjunction with onshore well development, including stimulation operations on existing wells, to well-capitalized oil and gas exploration and production ("E&P") 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 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 movements 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.

Financial results

Revenue for the three months ended September 30, 2019 and 2018 was $444.0 million and $558.9 million, respectively. Revenue for the nine months ended September 30, 2019 and 2018 was $1.3 billion and $1.7 billion, respectively. The net decline in each comparative period was driven primarily by a decrease in rig count and fleet utilization, combined with pricing pressures from macroeconomic market conditions. This decrease in utilization was primarily from our customers shifting their focus to capital discipline through reduced activity levels and pricing. Despite pricing pressures, we retained our core customer base by aligning with high quality and efficient customers under dedicated agreements. Also offsetting these declines was an increase in operational performance, with higher pumping times on a per fleet basis.

We reported net income of $3.6 million, or $0.03 per basic and diluted share during the three months ended September 30, 2019, compared to net income of $30.8 million or $0.28, per basic and diluted share, respectively, during the three months ended September 30, 2018. We reported net loss of $23.2 million, or $0.22 per basic and diluted share during the nine months ended September 30, 2019, compared to net income of $53.2 million or $0.48 per basic and diluted share, during the nine months ended September 30, 2018. The following tables reconcile net income to adjusted EBITDA and revenue to adjusted gross profit for the three and nine months ended September 30, 2019 and 2018. These non-GAAP financial measures exclude the financial impact of items management does not consider in assessing the Company's ongoing operating performance, and thereby facilitate review of the Company's operating performance on a period-to-period basis.




	Three Months Ended September 30, 2019
	Completion Services	Other Services	Corporate and Other		Total
Net Income (loss)	43,505	699	(40,646	)	3,558
Interest expense, net	—	—	5,215		5,215
Income tax benefit			(820	)	(820	)
Depreciation and amortization	64,735	502	3,471		68,708
EBITDA	108,240	1,201	(32,780	)	76,661
Plus Management Adjustments:
Acquisition, integration and expansion⁽¹⁾	—	—	6,651		6,651
Non-cash stock compensation⁽²⁾	—	—	5,488		5,488
Adjusted EBITDA	108,240	1,201	(20,641	)	88,800


⁽¹⁾	Represents transaction costs related to the Merger with C&J recorded in selling, general and administrative expenses.

⁽²⁾

Represents non-cash amortization of equity awards issued under Keane's Equity and Incentive Award Plan (the "Equity Plan"). According to the Equity 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. Consistent with prior policy, amortization of awards is made ratably over the vesting periods, beginning with the grant date, based on the total fair value determined on grant date and recorded in selling, general and administrative expenses.




	Three Months Ended September 30, 2018
	Completion Services	Other Services		Corporate and Other		Total
Net Income (loss)	56,771	(1,221	)	(24,771	)	30,779
Interest expense, net	—	—		5,978		5,978
Income tax expense	—	—		2,623		2,623
Depreciation and amortization	64,579	840		2,868		68,287
EBITDA	121,350	(381	)	(13,302	)	107,667
Plus Management Adjustments:
Acquisition, integration and expansion⁽¹⁾	227	—		301		528
Non-cash stock compensation ⁽²⁾	—	—		4,809		4,809
Other⁽³⁾	—	—		(12,127	)	(12,127	)
Adjusted EBITDA	121,577	(381	)	(20,319	)	100,877


⁽¹⁾	Represents integration costs related to the asset acquisition from Refinery Specialties, Incorporated ("RSI"), of which $0.2 million was recorded in cost of services and $0.3 million was recorded in selling, general and administrative expenses.

⁽²⁾

Represents non-cash amortization of equity awards issued under the Equity Plan. According to the Equity 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. Consistent with prior policy, amortization of awards is made ratably over the vesting periods, beginning with the grant date, based on the total fair value determined on grant date and recorded in selling, general and administrative expenses.


⁽³⁾	Represents gain of $14.9 million recognized for insurance proceeds received in connection with a fire that damaged a portion of one hydraulic fracturing fleet on July 1, 2018, which was recorded in (gain) loss on disposal of assets, offset by $2.8 million of legal contingencies, which were recorded in selling, general and administrative expenses.




	Nine Months Ended September 30, 2019
	Completion Services	Other Services		Corporate and Other		Total
Net Income (loss)	98,331	(1,003	)	(120,557	)	(23,229	)
Interest expense, net	—	—		16,087		16,087
Income tax expense				718		718
Depreciation and amortization	197,152	2,007		10,910		210,069
EBITDA	295,483	1,004		(92,842	)	203,645
Plus Management Adjustments:
Acquisition, integration and expansion⁽¹⁾	—	—		12,759		12,759
Non-cash stock compensation ⁽²⁾	—	—		15,098		15,098
Other⁽³⁾	—	—		3,794		3,794
Adjusted EBITDA	295,483	1,004		(61,191	)	235,296


⁽¹⁾	Represents transaction costs related to the Merger with C&J recorded in selling, general and administrative expenses.

⁽²⁾


⁽³⁾	Represents legal contingencies, which is recorded in selling, general and administrative expenses.




	Nine Months Ended September 30, 2018
	Completion Services	Other Services		Corporate and Other		Total
Net Income (loss)	186,731	(5,114	)	(128,414	)	53,203
Interest expense, net	—	—		27,285		27,285
Income tax expense	—	—		4,855		4,855
Depreciation and amortization	174,376	3,557		9,809		187,742
EBITDA	361,107	(1,557	)	(86,465	)	273,085
Plus Management Adjustments:
Acquisition, integration and expansion⁽¹⁾	227	—		16,382		16,609
Offering-related expenses⁽²⁾	—	—		12,969		12,969
Non-cash stock compensation ⁽³⁾	—	—		11,924		11,924
Other⁽⁴⁾	—	—		(11,138	)	(11,138	)
Adjusted EBITDA	361,334	(1,557	)	(56,328	)	303,449

⁽¹⁾

Represents adjustment to the contingent value right liability based on the final agreed-upon settlement, which was recorded in other income (expense), net and a markdown to fair value of idle real estate pending for sale in Mathis, Texas acquired as part of the acquisition of the majority of the U.S. assets and assumed certain liabilities of Trican Well Service L.P., which was recorded in (gain) loss on disposal of assets. Also represents integration costs related to the asset acquisition from RSI, of which $0.2 million was recorded in cost of services and $0.3 million was recorded in selling, general and administrative expenses.


⁽²⁾	Represents primarily professional fees and other miscellaneous expenses to consummate the secondary common stock offering completed in January 2018. These expenses were recorded in selling, general and administrative expenses, as Keane did not receive any proceeds in the offering to offset the expenses.

⁽³⁾

⁽⁴⁾

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, which was recorded in (gain) loss on disposal of assets. Also represents legal contingencies and rating agency fees for establishing initial ratings in connection with entering into a new $350 million senior secured term facility, which were recorded in selling, general and administrative expenses.




	Three Months Ended September 30, 2019
	Completion Services	Other Services	Total
Revenue	437,343	6,610	443,953
Cost of services	328,029	5,409	333,438
Gross profit excluding depreciation and amortization	109,314	1,201	110,515
Management adjustments associated with cost of services	—	—	—
Adjusted Gross Profit	109,314	1,201	110,515




	Three Months Ended September 30, 2018
	Completion Services	Other Services		Total
Revenue	548,418	10,490		558,908
Cost of services	425,928	10,871		436,799
Gross profit (loss) excluding depreciation and amortization	122,490	(381	)	122,109
Management adjustments associated with cost of services⁽¹⁾	227	—		227
Adjusted Gross Profit (Loss)	122,717	(381	)	122,336


⁽¹⁾	Represents integration costs related to the asset acquisition from RSI.




	Nine Months Ended September 30, 2019
	Completion Services	Other Services	Total
Revenue	1,269,681	23,659	1,293,340
Cost of services	972,932	22,655	995,587
Gross profit excluding depreciation and amortization	296,749	1,004	297,753
Management adjustments associated with cost of services	—	—	—
Adjusted Gross Profit	296,749	1,004	297,753




	Nine Months Ended September 30, 2018
	Completion Services	Other Services		Total
Revenue	1,625,798	24,659		1,650,457
Cost of services	1,261,676	26,216		1,287,892
Gross profit (loss) excluding depreciation and amortization	364,122	(1,557	)	362,565
Management adjustments associated with cost of services	227	—		227
Adjusted Gross Profit (Loss)	364,349	(1,557	)	362,792

Financial markets, liquidity, and capital resources

As of September 30, 2019, we had a cash balance of approximately $157.0 million. We also had $165.5 million available under our asset-based revolving credit facility as of September 30, 2019, which, with our cash balance, we believe provides us with sufficient liquidity for at least the next 12 months, including capital expenditures and working capital investments.

For additional information on market conditions and our liquidity and capital resources, see "Liquidity and Capital Resources."

Current highlights

Strategic Initiatives and Opportunities


•	On October 31, 2019, we completed the Merger with C&J. Upon completion of the Merger, the Company changed its name to NexTier Oilfield Solutions Inc. to create a new leading well completion and production services company. For additional information, see Note (3) Merger with C&J of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)".

Safety


•	We achieved a rolling 12 month average total recordable incident rate of 0.25 during the third quarter of 2019, which remains substantially lower than the industry average.

Customer Partnerships


•	During the third quarter of 2019, overall fleet utilization was flat. We continue to focus on serving high-quality customers under dedicated agreements, while delivering leading safety and strong efficiencies. As a result, our assets have been highly utilized and are realizing strong and improving profitability.

Technology


•	We are pursuing a strategy of driving efficiency and enhancing safety through our multi-pronged approach to surface, digital and downhole technologies. In close collaboration with our customers and industry partners, we continue to invest in the development and deployment of a range of new technologies across integrated completions. Our focus on innovation is contributing to tangible results,

as evidenced by increased pumping hours per fleet, reduction in non-productive time and cost savings during the third quarter of 2019.

Efficiency


•	We achieved record stage efficiency on a per fleet basis during the third quarter of 2019, driven by execution, deployment of technology, and improved client mix. Efficiency remains a key differentiator and why customers choose to partner with us.

Business outlook

Throughout a majority of 2018, market conditions for completion services were positive, including tightness in supply and demand for completion services equipment and supportive commodity prices. However, beginning in late 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 completion 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 completion services activity. Together, these factors led to lower activity levels, delays in the 2019 budgeting cycle for many E&P companies and an imbalance of hydraulic fracturing equipment supply at the end of 2018 and into early 2019.

Starting in the first quarter of 2019, improved crude oil prices, combined with budget resets and the alleviation of seasonal and other temporary headwinds resulted in a stabilization in pricing for completion services. Effectively managing these external factors impacting the industry, we performed well, achieving improving efficiencies and financial performance through the third quarter of 2019.

Currently, completion services activity and commodity prices remain in flux, with many operators remaining keenly focused on capital discipline. As a result, many of the same factors impacting the industry at the end of 2018 are expected to impact the fourth quarter of 2019, including budget exhaustion and uncertainty on the E&P budgeting process caused by volatile commodity prices. We are focused on remaining close to our customers and focusing on delivering strong efficiency and profitability, and will remain responsive to market conditions.

Beginning in the fourth quarter of 2019, demand for completions services began to weaken, driven primarily by customer budget exhaustion and continued focus on capital return. These dynamics, combined with normal year-end seasonality and holiday schedules, are expected to result in a continued decline in demand through the end of 2019. Partially offsetting this decline has been recent announcements of horsepower attrition by several public companies, reducing the supply of marketed equipment in the industry. We believe that industry participants will continue to compete for the remaining demand for completions services based on their profitability, balance sheet strength, and ability to deliver consistent operating performance and efficiencies.

RESULTS OF OPERATIONS IN 2019 COMPARED TO 2018

Three Months Ended September 30, 2019 Compared with Three Months Ended September 30, 2018



	Three Months Ended September 30,
(Thousands of Dollars)							As a % of Revenue				Variance
Description	2019			2018			2019		2018		$			%
Completion Services	$	437,343		$	548,418		99	%	98	%	$	(111,075	)	(20	%)
Other Services	6,610			10,490			1	%	2	%	(3,880		)	(37	%)
Revenue	443,953			558,908			100	%	100	%	(114,955		)	(21	%)
Completion Services	328,029			425,928			74	%	76	%	(97,899		)	(23	%)
Other Services	5,409			10,871			1	%	2	%	(5,462		)	(50	%)
Costs of services	333,438			436,799			75	%	78	%	(103,361		)	(24	%)
Depreciation and amortization	68,708			68,287			15	%	12	%	421			1	%
Selling, general and administrative expenses	33,230			27,783			7	%	5	%	5,447			20	%
Loss on disposal of assets	679			1,113			0	%	0	%	(434		)	(39	%)
Operating income	7,898			24,926			2	%	4	%	(17,028		)	(68	%)
Other income, net	55			14,454			0	%	3	%	(14,399		)	(100	%)
Interest expense	(5,215		)	(5,978		)	(1	%)	(1	%)	763			13	%
Total other income (expense)	(5,160		)	8,476			(1	%)	2	%	(13,636		)	(161	%)
Income tax benefit (expense)	820			(2,623		)	0	%	0	%	3,443			(131	%)
Net income (loss)	$	3,558		$	30,779		1	%	6	%	$	(27,221	)	(88	%)

Revenue: Revenue during the three months ended September 30, 2019 decreased by $115.0 million, or 21%, to $444.0 million from $558.9 million during the three months ended September 30, 2018. This change in revenue by reportable segment is discussed below.

Completion Services: Revenue for Completion Services during the three months ended September 30, 2019 decreased by $111.1 million, or 20%, to $437.3 million from $548.4 million during the three months ended September 30, 2018. Revenue for Completion Services decreases primarily relate to a lower fleet utilization year over year and continued pricing pressures from market conditions. This decrease in utilization was primarily from our customers shifting their focus to capital discipline through reduced activity levels and pricing. Despite pricing pressures, we retained our core customer base by aligning with high quality and efficient customers under dedicated agreements. Also offsetting these declines was an increase in operational performance, including higher pumping times on a per fleet basis.

Other Services: Revenue for Other Services decreased by $3.9 million, or 37%, to $6.6 million during the three months ended September 30, 2019 from $10.5 million during the three months ended September 30, 2018. Revenue for Other Services was down primarily related to our decision in the first quarter of 2019 to idle activity in one of our operating regions.

Equipment Utilization: Depreciation and amortization expense as a percentage of revenues was 15% and 12% during the three months ended September 30, 2019 and 2018, respectively. Loss on disposal of assets decreased by $0.4 million, or 39%, to a loss of $0.7 million during the three months ended September 30, 2019 from a loss of $1.1 million during the three months ended September 30, 2018. The change in depreciation and amortization was primarily related to additional equipment purchases from an acquisition in late 2018, maintenance spend for fleet readiness, and other equipment used for continuing to enhance safety and efficiency through our multi-faceted approach of surface, digital and downhole technologies. The decrease in loss on disposal of assets is primarily related to an increase in early failures of major components in 2018 compared to 2019, primarily due to a higher activity and use of equipment in 2018.

Selling, general and administrative expense: Selling, general and administrative ("SG&A") expense as a percentage of revenues was 7% and 5% during the three months ended September 30, 2019 and 2018, respectively. SG&A includes certain one-time items, including $5.5 million of non-cash stock compensation expense and $6.7 million of transaction costs related to the Merger.

Effective tax rate: Our effective tax rate on continuing operations for the three months ended September 30, 2019 resulted in an effective tax rate of 29.9% for $0.8 million of recorded income tax benefit. The difference between the effective tax rate and the U.S. federal statutory rate is due to state taxes and change in valuation allowance. After considering all available positive and negative evidence, we determined that it is unlikely that we will utilize our net deferred tax assets in the foreseeable future and continued to maintain a full valuation allowance. The net deferred tax liabilities as of September 30, 2019 were $0.2 million and were related to tax amortization on our indefinite-lived intangible assets and certain state deferred taxes.

Nine Months Ended September 30, 2019 Compared with Nine Months Ended September 30, 2018



	Nine Months Ended September 30,
(Thousands of Dollars)							As a % of Revenue				Variance
Description	2019			2018			2019		2018		$			%
Completion Services	$	1,269,681		$	1,625,798		98	%	99	%	$	(356,117	)	(22	%)
Other Services	23,659			24,659			2	%	1	%	(1,000		)	(4	%)
Revenue	1,293,340			1,650,457			100	%	100	%	(357,117		)	(22	%)
Completion Services	972,932			1,261,676			75	%	76	%	(288,744		)	(23	%)
Other Services	22,655			26,216			2	%	2	%	(3,561		)	(14	%)
Costs of services	995,587			1,287,892			77	%	78	%	(292,305		)	(23	%)
Depreciation and amortization	210,069			187,742			16	%	11	%	22,327			12	%
Selling, general and administrative expenses	93,737			85,792			7	%	5	%	7,945			9	%
Loss on disposal of assets	831			5,169			0	%	0	%	(4,338		)	(84	%)
Operating income (loss)	(6,884		)	83,862			(1	%)	5	%	(90,746		)	(108	%)
Other income, net	460			1,481			0	%	0	%	(1,021		)	(69	%)
Interest expense	(16,087		)	(27,285		)	(1	%)	(2	%)	11,198			41	%
Total other expenses	(15,627		)	(25,804		)	(1	%)	(2	%)	10,177			(39	%)
Income tax expense	(718		)	(4,855		)	0	%	0	%	4,137			(85	%)
Net income (loss)	$	(23,229	)	$	53,203		(2	%)	3	%	$	(76,432	)	(144	%)

Revenue: Revenue during the nine months ended September 30, 2019 decreased by $357.1 million, or 22%, to $1.3 billion from $1.6 billion during the nine months ended September 30, 2018. This change in revenue by reportable segment is discussed below.

Completion Services: Revenue for Completion Services during the nine months ended September 30, 2019 decreased by $356.1 million, or 22%, to $1.3 billion from $1.6 billion during the nine months ended September 30, 2018. Revenue for Completion Services decreases primarily relate to a lower utilization fleet year over year and continued pricing pressures from market conditions. This decrease in utilization was primarily from our customers shifting their focus to capital discipline through reduced activity levels and pricing. Despite pricing pressures, we retained our core customer base by aligning with high quality and efficient customers under dedicated agreements. Also offsetting these declines was an increase in operational performance, including higher pumping times on a per fleet basis.

Other Services: Revenue for Other Services decreased by $1.0 million, or 4%, to $23.7 million during the nine months ended September 30, 2019 from $24.7 million during the nine months ended September 30, 2018. Revenue for Other Services was down primarily related to our decision in the first quarter of 2019 to idle activity in one of our operating regions.

Equipment Utilization: Depreciation and amortization expense as a percentage of revenues was 16% and 11% during the nine months ended September 30, 2019 and 2018, respectively. Loss on disposal of assets decreased by $4.3 million, or 84%, to a loss of $0.8 million during the nine months ended September 30, 2019 from a loss of $5.2 million during the nine months ended September 30, 2018. The change in depreciation and amortization was primarily related to additional equipment purchases from an acquisition in late 2018, maintenance spend for fleet readiness, and other equipment used for continuing to enhance safety and efficiency through our multi-faceted approach of surface, digital and downhole technologies. The decrease in loss on disposal of assets is primarily related to an increase in early failures of major components in 2018 compared to 2019, primarily due to a higher activity and use of equipment in 2018.

Selling, general and administrative expense: SG&A expense as a percentage of revenues was 7% and 5% during the nine months ended September 30, 2019 and 2018, respectively. SG&A includes certain one-time items, including $15.1 million of non-cash stock compensation expense, $12.8 million of transaction costs related to the Merger, and $3.8 million related to legal matters.

Other income, net: Other income, net during the nine months ended September 30, 2019 was $0.5 million. Other income, net, during the nine months ended September 30, 2018 was $1.5 million, primarily related to the adjustment to the contingent value right liability in the first quarter of 2018.

Effective tax rate: Our effective tax rate on continuing operations for the nine months ended September 30, 2019 was 3.2% for $0.7 million of recorded income tax expense. The difference between the effective tax rate and the U.S. federal statutory rate is due to state taxes and change in valuation allowance. After considering all available positive and negative evidence, we determined that it is unlikely that we will utilize our net deferred tax assets in the foreseeable future and continued to maintain a full valuation allowance. The net deferred tax liabilities as of September 30, 2019 were $0.2 million and were related to tax amortization on our indefinite-lived intangible assets and certain state deferred taxes.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity represents a company's ability to adjust its future cash flows to meet its needs and opportunities, both expected and unexpected.



	(Thousands of Dollars)
	9/30/2019		12/31/2018
Cash	$	157,025	$	80,206
Debt, net of unamortized deferred financing costs and unamortized debt discount	338,317		340,730



	(Thousands of Dollars)
	Nine Months Ended September 30,
	2019			2018
Net cash provided by operating activities	$	225,579		$	251,104
Net cash used in investing activities	(138,805		)	(233,477		)
Net cash used in financing activities	(9,926		)	(30,835		)

Significant sources and uses of cash during the nine months ended September 30, 2019

Sources of cash:


•	Operating activities:

–

Net cash generated by operating activities during the nine months ended September 30, 2019 of $225.6 million was a result of our thoroughness in receiving collections from our customers and controlling costs. We continue to focus on maintaining operational and spend efficiencies, resulting in positive working capital and net operating cash to support our capital expenditures and other investing activities.

Uses of cash:


•	Investing activities:


–	Net cash used in investing activities for the nine months ended September 30, 2019 of $138.8 million, consisting primarily of capital expenditures. This activity primarily related to our Completion Services segment.


•	Financing activities:


–	Cash used to repay our debt facilities, excluding leases and interest, during the nine months ended September 30, 2019 was $2.6 million.


–	Cash used to repay our finance leases during the nine months ended September 30, 2019 was $3.8 million.


–	Shares repurchased and retired related to stock-based compensation during the nine months ended September 30, 2019 totaled $3.5 million.

Significant sources and uses of cash during the nine months ended September 30, 2018

Sources of cash:


•	Operating activities:


–	Net cash generated by operating activities during the nine months ended September 30, 2018 of $251.1 million was primarily driven by higher utilization of our combined asset base and increased gross profit in our Completion Services segment.


•	Financing activities:


–	Cash provided by the 2018 term loan facility entered into by the Company, and certain subsidiaries of the Company as guarantors, with each lender from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent (the "2018 Term Loan Facility"), net of debt discount was $348.2 million.

Uses of cash:


•	Operating activities


–	$7.9 million related to the portion of the cash settlement of the contingent value right ("CVR") liability that exceeded its acquisition-date fair value.


•	Investing activities:


–	Net cash used in investing activities of $233.5 million was primarily associated with our newbuild and maintenance capital spend on active fleets, offset by the insurance proceeds we received for our equipment that was damaged in July 2018 in an accidental fire. This activity primarily related to our Completion Services segment.


•	Financing activities:


–	Cash used to repay our debt facilities, including capital leases but excluding interest, during the nine months ended September 30, 2018 was $287.0 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 $69.4 million.


–	Shares repurchased and retired related to payroll tax withholdings on our stock-based compensation totaled $3.4 million.


–	The portion of the cash settlement of the CVR liability reflective of its acquisition-date fair value was $12.0 million. The remaining portion of the cash settlement of the CVR liability of $7.9 million is reflected in net cash provided by operating activities.

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, as well as to continue to complete Merger-related integration activities. 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 $160.0 million and $170.0 million.

Debt service, exclusive of leases, for the year ended December 31, 2019 is projected to be $26.4 million. Our leverage ratio, as calculated pursuant to the terms of our debt agreement, is 0.63x for the twelve rolling months ended September 30, 2019. We anticipate our debt service will be funded by cash flows from operations.

Effective February 25, 2019, our Board of Directors authorized a reset of capacity on our existing stock repurchase program back to $100 million. Additionally, the program's expiration date was extended to December 2019 from a previous expiration date of September 2019. On June 16, 2019, pursuant to the terms of the Merger Agreement, our existing stock repurchase program was suspended.

Other factors affecting liquidity

Financial position in current market. As of September 30, 2019, we had $157.0 million of cash and a total of $165.5 million available under our revolving credit facility. As of September 30, 2019, we were compliant with all financial and non-financial covenants in our bank agreements. 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, contingent liabilities and stock repurchases.

Guarantee agreements. In the normal course of business, we have agreements with a financial institution under which $2.8 million of letters of credit were outstanding as of September 30, 2019.

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. 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.

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 September 30, 2019:



(Thousands of Dollars) Contractual obligations	Total		2019		2020-2022		2023-2025		2026+
Long-term debt, including current portion⁽¹⁾	$	345,625	$	875	$	10,500	$	334,250	$	—
Estimated interest payments⁽²⁾	122,542		5,508		66,342		50,692		—
Finance lease obligations⁽³⁾	10,446		2,025		8,175		246		—
Operating lease obligations⁽⁴⁾	50,147		5,946		28,871		6,169		9,161
Purchase commitments⁽⁵⁾	101,614		19,489		80,525		1,600		—
Equity-method investment⁽⁶⁾	1,451		1,451		—		—		—
Legal contingency⁽⁷⁾	21		21		—		—		—
	$	631,846	$	35,315	$	194,413	$	392,957	$	9,161


⁽¹⁾	Long-term debt excludes interest payments on each obligation and represents our obligations under our 2018 Term Loan Facility. In addition, these amounts exclude $7.3 million of unamortized debt discount and debt issuance costs.


⁽²⁾	Estimated interest payments are based on debt balances outstanding as of September 30, 2019 and include interest related to the 2018 Term Loan Facility. Interest rates used for variable rate debt are based on the prevailing current London Interbank Offer Rate ("LIBOR").


⁽³⁾	Finance lease obligations consist of obligations on our finance leases of hydraulic fracturing equipment and ancillary equipment with CIT Finance LLC, light weight vehicles with ARI Financial Services Inc. and Enterprise FM Trust, and includes interest payments.


⁽⁴⁾	Operating lease obligations are related to our real estate, rail cars with Compass Rail VIII, SMBC Rail Services and Trinity Industries Leasing Company, and light duty vehicles with ARI Financial Services Inc., Enterprise FM Trust and PNC Bank.


⁽⁵⁾	Purchase commitments primarily relate to our agreements with vendors for sand purchases and deposits on equipment. The purchase commitments to sand suppliers represent our annual obligations to purchase a minimum amount of sand from vendors. If the minimum purchase requirement is not met, the shortfall at the end of the year is settled in cash or, in some cases, carried forward to the next year.


⁽⁶⁾	See Notes (12) Commitments and Contingencies and (13) Related Party Transactions of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)" for further details on our equity-method investment.


⁽⁷⁾	See Note (12) Commitments and Contingencies of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)" for further details.

Principal Debt Agreements

2017 ABL Facility

Structure. As of September 30, 2019, the Company's Asset-Based Revolving Credit Agreement, dated as of February 17, 2017, as amended December 22, 2017 (the "2017 ABL Facility") provided for a $300.0 million revolving credit facility (with a $20.0 million subfacility for letters of credit), subject to a borrowing base in accordance with the terms agreed between us and the lenders. In addition, subject to approval by the applicable lenders and other customary conditions, the 2017 ABL Facility allows for an additional increase in commitments of up to $150.0 million. The 2017 ABL Facility is subject to customary fees, guarantees of subsidiaries, restrictions and covenants, including certain restricted payments.

Maturity. The loans arising under the initial commitments under the 2017 ABL Facility mature on December 22, 2022. The loans arising under any tranche of extended loans or additional commitments mature as specified in the applicable extension amendment or increase joinder, respectively.

Interest. Pursuant to the terms of the 2017 ABL Facility, amounts outstanding under the 2017 ABL Facility bear interest at a rate per annum equal to, at Keane Group Holdings LLC and its subsidiaries' ("Keane Group") option, (a) the base rate, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 1.00%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 0.75% or (z) if the average excess availability is greater than or equal to 66%, 0.50%, or (b) the adjusted LIBOR rate for such interest period, plus an applicable margin equal to (x) if the average excess availability is less than 33%, 2.00%, (y) if the average excess availability is greater than or equal to 33% but less than 66%, 1.75% or (z) if the average excess availability is greater than or equal to 66%, 1.50%. The average excess availability is set on the first day of each full fiscal quarter ending after December, 22, 2017. On or after June 22, 2018, at any time when consolidated EBITDA as of the then most recently ended four fiscal quarters for which financial statements are required to be delivered is greater than or equal to $250.0 million, the applicable margin will be reduced by 0.25%; provided that if consolidated EBITDA is less than $250.0 million as of a later four consecutive fiscal quarters, the applicable margin will revert to the levels set forth above.

On October 31, 2019, the Company entered into a Second Amended and Restated Asset-Based Revolving Credit Agreement, by and among the Company, as parent guarantor, Keane Group, as the lead borrower, certain other subsidiaries of the Company as additional borrowers and guarantors party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent, to the 2017 ABL Facility. For additional information, see Note (16) Subsequent Events of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)".

Pro-forma total debt as of September 30, 2019 was approximately $338 million, net of unamortized debt discounts and unamortized deferred charges and excluding lease obligations. Pro-forma cash and equivalents as of September 30, 2019 was approximately $335 million, resulting in pro-forma net debt of approximately $3 million. Total pro-forma liquidity as of September 30, 2019 was $712 million, which includes $335 million in cash and $377 million of availability under our expanded asset based credit facility.

2018 Term Loan Facility

On May 25, 2018, Keane Group and the 2018 Term Loan Guarantors (as defined below) entered into the 2018 Term Loan Facility with each lender from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent. The proceeds of the 2018 Term Loan Facility were used to refinance Keane Group's then-existing term loan facility and to repay related fees and expenses, with the excess proceeds used to fund general corporate purposes.

Structure. The 2018 Term Loan Facility provides for a term loan facility in an initial aggregate principal amount of $350.0 million (the loans incurred under the 2018 Term Loan Facility, the "2018 Term Loans"). As of September 30, 2019, there was $345.6 million principal amount of 2018 Term Loans outstanding. In addition, subject to certain customary conditions, the 2018 Term Loan Facility allows for additional incremental term loans to be incurred thereunder in an amount equal to the sum of (a) $200.0 million plus the aggregate principal amount of voluntary prepayments of 2018 Term Loans made on or prior to the date of determination (less amounts incurred in reliance on the capacity described in this subclause (a)), plus (b) an unlimited amount, subject to, (x) in the case of debt secured on a pari passu basis with the 2018 Term Loans, immediately after giving effect to the incurrence thereof, a first lien net leverage ratio being less than or equal to 2.00:1.00, (y) in the case of debt secured on a junior basis with the 2018 Term Loans, immediately after giving effect to the incurrence thereof, a secured net leverage ratio being less than or equal to 3.00:1.00 and (z) in the case of unsecured debt, immediately after giving effect to the incurrence thereof, a total net leverage ratio being less than or equal to 3.50:1.00.

Maturity. May 25, 2025 or, if earlier, the stated maturity date of any other term loans or term commitments.

Amortization. The 2018 Term Loans amortize in quarterly installments equal to 1.00% per annum of the aggregate principal amount of all initial term loans outstanding.

Interest. The 2018 Term Loans bear interest at a rate per annum equal to, at Keane Group's option, (a) the base rate plus 2.75%, or (b) the adjusted LIBOR for such interest period (subject to a 1.00% floor) plus 3.75%, subject to, on and after the fiscal quarter ending September 30, 2018, a pricing grid with three 0.25% per annum step-ups and one 0.25% per annum step-down determined based on total net leverage for the relevant period. Following a payment event of default, the 2018 Term Loans bear interest at the rate otherwise applicable to such 2018 Term Loans at such time plus an additional 2.00% per annum during the continuance of such event of default.

Prepayments. The 2018 Term Loan Facility is required to be prepaid with: (a) 100% of the net cash proceeds of certain asset sales, casualty events and other dispositions, subject to the terms of an intercreditor agreement between the agent for the 2018 Term Loan Facility and the agent for the 2017 ABL Facility and certain exceptions; (b) 100% of the net cash proceeds of debt incurrences or issuances (other than debt incurrences permitted under the 2018 Term Loan Facility, which exclusion is not applicable to permitted refinancing debt) and (c) 50% (subject to step-downs to 25% and 0%, upon and during achievement of certain total net leverage ratios) of excess cash flow in excess of a certain amount, minus certain voluntary prepayments made under the 2018 Term Loan Facility or other debt secured on a pari passu basis with the 2018 Term Loans and voluntary prepayments of loans under the 2017 ABL Facility to the extent the commitments under the 2017 ABL Facility are permanently reduced by such prepayments.

Guarantees. Subject to certain exceptions as set forth in the definitive documentation for the 2018 Term Loan Facility, the amounts outstanding under the 2018 Term Loan Facility are guaranteed by the Company, Keane Frac, LP, KS Drilling, LLC, KGH Intermediate Holdco I, LLC, KGH Intermediate Holdco II, LLC, and Keane Frac GP, LLC, and each subsidiary of the Company that will be required to execute and deliver a facility guaranty in the future pursuant to the terms of the 2018 Term Loan Facility (collectively, the "2018 Term Loan Guarantors").

Security. Subject to certain exceptions as set forth in the definitive documentation for the 2018 Term Loan Facility, the obligations under the 2018 Term Loan Facility are secured by (a) a first-priority security interest in and lien on substantially all of the assets of Keane Group and the 2018 Term Loan Guarantors to the extent not constituting ABL Facility Priority Collateral (as defined below) and (b) a second-priority security interest in and lien on substantially all of the accounts receivable, inventory, and frac iron equipment, and certain other assets and property related to the foregoing including certain chattel paper, investment property, documents, letter of credit rights, payment intangibles, general intangibles, commercial tort claims, books and records and supporting obligations of the borrowers and guarantors under the 2017 ABL Facility (the "ABL Facility Priority Collateral").

Fees. Certain customary fees are payable to the lenders and the agents under the 2018 Term Loan Facility.

Restricted Payment Covenant. The 2018 Term Loan Facility includes a covenant restricting the ability of the Company and its restricted subsidiaries to pay dividends and make certain other restricted payments, subject to certain exceptions. The 2018 Term Loan Facility provides that the Company and its restricted subsidiaries may, among things, make cash dividends and other restricted payments in an aggregate amount during the life of the facility not to exceed (a) $100.0 million, plus (b) the amount of net proceeds received by Keane Group from the funding of the 2018 Term Loans in excess of the of such net proceeds required to finance the refinancing of the pre-existing term loan facility and pay fees and expenses related thereto and to the entry into the 2018 Term Loan Facility, plus (c) an unlimited amount so long as, after giving effect to such restricted payment, the total net leverage ratio would not exceed 2.00:1.00. In addition, the Company and its restricted subsidiaries may make restricted payments utilizing the Cumulative Credit (as defined below), subject to certain conditions including, if any portion of the Cumulative Credit utilized is comprised of amounts under clause (b) of the definition thereof below, the pro forma total net leverage ratio being no greater than 2.50:1.00.

"Cumulative Credit," generally, is defined as an amount equal to (a) $25.0 million, (b) 50% of consolidated net income of the Company and its restricted subsidiaries on a cumulative basis from April 1, 2018 (which cumulative amount shall not be less than zero), plus (c) other customary additions, and reduced by the amount of Cumulative Credit used prior to such time (whether for restricted payments, junior debt payments or investments).

Affirmative and Negative Covenants. The 2018 Term Loan Facility contains various affirmative and negative covenants (in each case, subject to customary exceptions as set forth in the definitive documentation for the 2018 Term Loan Facility). The 2018 Term Loan Facility does not contain any financial maintenance covenants.

Events of Default. The 2018 Term Loan Facility contains customary events of default (subject to exceptions, thresholds and grace periods as set forth in the definitive documentation for the 2018 Term Loan Facility).

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet financing arrangements, transactions or special purpose entities.

Related Party Transactions

Our Board of Directors has adopted a written policy and procedures (the "Related Party Policy") for the review, approval and ratification of the related party transactions by the independent members of the audit and risk committee of our Board of Directors. For purposes of the Related Party Policy, a "Related Party Transaction" is any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including the incurrence or issuance of any indebtedness or the guarantee of indebtedness) in which (1) the aggregate amount involved will or may be reasonably expected to exceed $120,000 in any fiscal year, (2) the Company or any of its subsidiaries is a participant and (3) any Related Party (as defined herein) has or will have a direct or indirect material interest. All Related Party Transactions will be reviewed in accordance with the standards set forth in the Related Party Policy after full disclosure of the Related Party's interests in the transaction.

The Related Party Policy defines "Related Party" as any person who is, or, at any time since the beginning of the Company's last fiscal year, was (1) an executive officer, director or nominee for election as a director of the Company or any of its subsidiaries, (2) a person with greater than five percent (5%) beneficial interest in the Company, (3) an immediate family member of any of the individuals or entities identified in (1) or (2) of this paragraph and (4) any firm, corporation or other entity in which any of the foregoing individuals or entities is employed or is a general partner or principal or in a similar position or in which such person or entity has a five percent (5%) or greater beneficial interest. Immediate family members include a person's spouse, parents, stepparents, children, stepchildren, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone residing in such person's home, other than a tenant or employee.

For further details about our transactions with Related Parties, see Note (13) Related Party Transactions of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements and related notes to the unaudited condensed consolidated financial statements included within Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)" requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

A critical accounting estimate is one that requires a high level of subjective judgment by management and has a material impact to our financial condition or results of operations. This discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included within Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)" of this Quarterly Report on Form 10-Q, as well as our consolidated and combined financial statements and related notes included in Part II, "Item 8. Financial Statements and Supplementary Data" and Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2018.

We believe the following is a new critical accounting policy used in the preparation of our unaudited condensed consolidated financial statements.

(a) Leases

Per ASU 2016-02, "Leases (Topic 842)," lessees can classify leases as finance leases or operating leases, while lessors can classify leases as sales-type, direct financing or operating leases. All leases, with the exception of short-term leases, are capitalized on the balance sheet by recording a lease liability, which represents our obligation to make lease payments arising from the lease, along with a corresponding right-of-use asset, which represents our right to use the underlying asset being leased. For leases in which we are the lessee, we use a collateralized incremental borrowing rate to calculate the lease liability, as in most cases we do not know the lessor's implicit rate in the lease. Establishing our lease obligations on our unaudited condensed consolidated balance sheets require judgmental assessments of the term lengths of each and the interest rate yield curve that best represents the collateralized incremental borrowing rate to apply to each lease. We engage third-party specialists to assist us in determining the collateralized incremental borrowing rate yield curve. Errors in determining the lease term lengths and/or selecting the best representative collateralized incremental borrowing rate can have a material adverse effect on our unaudited condensed consolidated financial statements. For further details about our leases, see Note (11) Leases of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

(b) Income Taxes

The income tax expense on continuing operations for the nine months ended September 30, 2019 resulted in an effective tax rate of 3.2%. The difference between the effective tax rate and the U.S. federal statutory rate is due to state taxes, foreign withholding taxes and change in valuation allowance.

After considering all available positive and negative evidence, we determined that it is unlikely that we will utilize our net deferred tax assets in the foreseeable future and continued to maintain a full valuation allowance. The net deferred tax liabilities at September 30, 2019 were $0.2 million and were related to tax amortization on our indefinite-lived intangible assets and certain state deferred taxes.

The completion of the Merger may result in a change in our net deferred tax position. Any impact on the deferred tax position of an acquiring entity for accounting purposes caused by a business combination is recorded in the acquiring company's financial statements outside of acquisition accounting. This accounting requirement may result in a significant fluctuation in our effective tax rate. We currently do not have an estimate for the tax impact.

For discussion on the potential impact of new accounting pronouncements issued but not yet adopted, see Note (15) New Accounting Pronouncements of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

NON-GAAP FINANCIAL MEASURES

From time to time in our financial reports, we will use certain non-GAAP financial measures to provide supplemental information that we believe is useful to analysts and investors to evaluate our ongoing results of operations, when considered alongside other GAAP measures such as net income, operating income and gross profit. These non-GAAP measures exclude the financial impact of items management does not consider in assessing the Company's ongoing operating performance, and thereby facilitates review of Keane's operating performance on a period-to-period basis. Other companies may have different capital structures, and comparability to Keane's results of operations may be impacted by the effects of acquisition accounting on our 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 Keane's 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 revenue less cost of services, further adjusted to eliminate items in cost of services that management does not consider in assessing ongoing performance.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As of September 30, 2019, we held no significant derivative instruments that materially increased our exposure to market risks for interest rates, foreign currency rates, commodity prices or other market price risks.

Our material and fuel purchases expose us to commodity price risk. Our material costs primarily include the cost of inventory consumed while performing our stimulation services such as proppant and chemicals. Our fuel costs consist primarily of diesel fuel used by our various trucks and other motorized equipment. The prices for fuel and the raw materials (particularly proppant) in our inventory are volatile and are impacted by changes in supply and demand, as well as market uncertainty and regional shortages. Depending on market conditions, we have generally been able to pass along price increases to our customers; however, we may be unable to do so in the future. We generally do not engage in commodity price hedging activities. However, 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. As a result of future decreases in the market price of proppants, we could be required to purchase goods and pay prices in excess of market prices at the time of purchase. Refer to Part I, "Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations" for the contractual commitments and obligations table as of September 30, 2019.

Our operations are currently conducted entirely within the U.S.; therefore, we had no significant exposure to foreign currency exchange rate risk as of September 30, 2019.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (the "SEC") rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

Effective January 1, 2019, we adopted ASU 2016-02, "Leases (Topic 842)." The adoption of this standard and subsequently-issued related ASUs resulted in the recording of operating lease right-of-use assets and operating lease liabilities on our unaudited condensed consolidated balance sheet, with no related impact to our unaudited condensed consolidated statements of operations and comprehensive loss or statements of cash flows. In connection with the adoption of these standards, we implemented internal controls to ensure we properly evaluate our contracts for applicability under ASU 2016-09 and properly apply ASU 2016-02 and subsequently-issued related ASUs in accounting for and reporting on all our qualifying leases. There were no other changes to our internal control over financial reporting that occurred during the quarter ended September 30, 2019 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

Information related to Part II, "Item 1. Legal Proceedings" is included in Note (12) Commitments and Contingencies of Part I, "Item 1. Condensed Consolidated Financial Statements (Unaudited)," as well as below.

Litigation Related to the Merger

In connection with the Merger Agreement and the transactions contemplated thereby, one putative class action complaint was filed in the United States District Court for the District of Colorado by a purported C&J stockholder on behalf of himself and all other C&J stockholders (excluding defendants and related or affiliated persons) against C&J and members of the C&J board of directors, two putative class action complaints were filed in the United States District Court for the District of Delaware by a purported C&J stockholder on behalf of himself and all other C&J stockholders (excluding defendants and related or affiliated persons) against C&J, members of the C&J board of directors, the Company and Merger Sub, one putative class action complaint was filed in the United States District Court for the Southern District of Texas by a purported stockholder of the Company on behalf of himself and all other stockholders of the Company (excluding defendants and related or affiliated persons) against the Company and members of its board of directors, and one putative class action was filed in the Delaware Chancery Court by a purported stockholder of the Company on behalf of himself and all other stockholders of the Company (excluding defendants and related or affiliated persons) against members of the Company's board of directors. The five stockholder actions are captioned as follows: Palumbos v. C&J Energy Services, Inc., et al., Case No. 1:19-cv-02386 (D. Colo.), Wuollet v. C&J Energy Services, Inc., et al., Case No. 1:19-cv-01411 (D. Del.), Plumley v. C&J Energy Services, Inc., et al., Case No. 1:19-cv-01446 (D. Del.), Bushansky v. Keane Group, Inc. et al., Case No. 4:19-cb-02924 (S.D. Tex) and Woods v. Keane Group, Inc., et al., Case No. 2019-0590 (Del. Chan.) (collectively, the "Stockholder Actions").

In general, the Stockholder Actions allege that the defendants violated Sections 14(a) and 20(a) of the Exchange Act, or aided and abetted in such alleged violations, because the Registration Statement on Form S-4 filed with the SEC on July 16, 2019 in

connection with the proposed Merger allegedly omitted or misstated material information. The Stockholder Actions seek, among other things, injunctive relief preventing the consummation of the Merger, unspecified damages and attorneys' fees.

C&J, the Company and the other named defendants believe that no supplemental disclosures were required under applicable laws; however, to avoid the risk of the Stockholder Actions delaying the Merger and to minimize the expense of defending the Stockholder Actions, and without admitting any liability or wrongdoing, C&J and the Company filed a Form 8-K on October 11, 2019 making certain supplemental disclosures in connection with the Merger. Following those supplemental disclosures, plaintiffs in the Woods and Bushansky actions voluntarily dismissed their claims as moot on October 16, 2019 and October 29, 2019, respectively. The defendants have not yet answered or otherwise responded to the complaints in the remaining Stockholder Actions, but the Company continues to believe that the allegations therein lack merit and no supplemental disclosures were required under applicable law, and intends to defend itself vigorously.

Other Litigation

On September 6, 2019, an action was filed in the Delaware Chancery Court by Gordian Triangle Holdings, LLC against various defendants, including the Company, captioned Gordian Triangle Holdings, LLC v. Samuels, et al., Case 2019-0715 (Del. Chan.) ("Gordian"). The complaint asserts four causes of action relating to the sale of the assets of RockPile Energy Services, LLC ("RockPile") to White Deer Energy, L.P. ("White Deer") in September 2016, which White Deer subsequently sold to the Company in July 2017. Among other things, plaintiff alleges that the initial sale of RockPile's assets to White Deer was for less than fair value and resulted from a flawed sales process and breaches of fiduciary duty committed by the seller's board of directors, as evidenced by White Deer's subsequent sale of RockPile's assets to the Company eight months later for a higher amount. Accordingly, the complaint asserts four causes of action relating to the RockPile transactions, two of which (claims for civil conspiracy and fraudulent transfer) are directed at the Company. In connection with the claims against the Company, the complaint seeks to unwind the Company's July 2017 acquisition of RockPile from White Deer as a fraudulent transfer under Delaware law.

In October 2019, the Company and the other defendants filed motions to dismiss the complaint for failure to state a claim, which motions remain pending. The Company believes the allegations in Gordian are without merit and intends to defend against them vigorously.

Item 1(a). Risk Factors

The statements in this section describe the known material risks to our business and should be considered carefully. There have been no material changes from the risk factors previously disclosed in Part I, "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, except as set forth below.

The following risk factors relate to the Company following the Merger. For more information on the Merger, please read our Registration Statement on Form S-4 filed with the SEC on July 16, 2019 and any subsequent amendments thereto, as well as any other related information on the Merger that we have filed with the SEC. The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding any statement in this Quarterly Report on Form 10-Q or elsewhere. The following information should be read in conjunction with the consolidated financial statements and related notes in Part I, Item 1, "Financial Statements" and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations." All capitalized terms used, but not defined, herein are as defined in the Registration Statement on Form S-4.

Risks Relating to the Company

The Company may not be able to retain customers or suppliers or customers or suppliers may seek to modify contractual obligations with the Company, which could have an adverse effect on the Company's business and operations. Third parties may terminate or alter existing contracts or relationships with the Company.

As a result of the Merger, the Company may experience impacts on relationships with customers and suppliers that may harm the Company's business and results of operations. Certain customers or suppliers may seek to terminate or modify contractual obligations following the Merger whether or not contractual rights are triggered as a result of the Merger. There can be no guarantee that customers and suppliers will remain with or continue to have a relationship with the Company or do so on the same or similar contractual terms following the Merger. If any customers or suppliers seek to terminate or modify contractual obligations or discontinue the relationship with the Company, then the Company's business and results of operations may be harmed. Furthermore, the Company does not have long-term arrangements with many of its significant suppliers. If the Company's suppliers were to seek to terminate or modify an arrangement with the Company, then the Company may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all.

Combining the businesses of Keane and C&J may be more difficult, costly or time-consuming than expected and the Company may fail to realize the anticipated benefits of the Merger, which may adversely affect the Company's business results and negatively affect the value of Company common stock following the Merger.

The success of the Merger will depend on, among other things, the ability of the Company to combine the businesses of Keane and C&J in a manner that realizes cost savings and facilitates growth opportunities. Keane and C&J entered into the Merger Agreement because each believed that the Merger and the other transactions contemplated by the Merger Agreement were fair to and in the best interests of its respective stockholders and that combining the businesses of Keane and C&J would produce cost savings and other benefits.

However, the Company must successfully combine the Keane and C&J businesses in a manner that permits these benefits to be realized. In addition, the Company must achieve the cost savings and anticipated growth without adversely affecting current revenues and investments in future growth. If the Company is not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected.

An inability to realize the full extent of the anticipated benefits of the Merger and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the Company, which may adversely affect the value of Company common stock.

In addition, the actual integration may result in additional and unforeseen expenses and may cost more than anticipated, and the anticipated benefits of the integration plan may not be realized. Actual cost savings, if achieved, may be lower than what the Company expects and may take longer to achieve than anticipated. If the Company is not able to adequately address integration challenges, it may be unable to successfully integrate the operations of Keane and C&J or realize the anticipated benefits of the integration of the two companies.

Because Keane Investor controls approximately 24.6% of Company common stock, Keane Investor may have the ability to influence major corporate decisions of the Company.

Keane Investor beneficially owns approximately 24.6% of the Company common stock. Accordingly, Keane Investor may have the ability to influence matters requiring approval by the Company's board of directors or a stockholder vote, such as the election of directors or the approval of significant transactions. Keane Investor may have interests that differ from the interests of other Company stockholders. The concentration of ownership and voting power in Keane Investor may have the effect of delaying, preventing or deterring significant transactions with respect to the Company and may affect the market price of Company common stock.

However, the Support Agreement places restrictions on the ability of Keane Investor and Cerberus to, among other things, acquire, offer to acquire, or agree to acquire, by purchase, or otherwise, beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of, or rights to acquire, (i) any shares of Company common stock, (ii) any option, warrant, convertible security, stock appreciation right or other right to acquire such ownership, including through any swap agreement or other security, contract right or derivative position, whether or not presently exercisable, that is exercisable for, converts into or has a settlement payment or mechanism or is priced by reference to or in relation to the value of the Company or shares of Company common stock or (iii) any material assets of the Company (other than as part of an authorized sale process) or any securities or material assets of any subsidiary of the Company; provided, however, that notwithstanding the foregoing, Keane Investor and Cerberus and each of their controlled affiliates may acquire beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of Company common stock provided that such beneficial ownership does not result in ownership of 30% or more of the issued and outstanding shares of Company common stock in the aggregate following such transaction (assuming any stock buy-back transaction announced but not yet consummated by the Company has been consummated as of the time of such acquisition).

Following the expiration of the Support Agreement lock-up period, Keane Investor and Cerberus will be permitted to sell their holdings in the Company.

Pursuant to the Support Agreement, Keane Investor and Cerberus have agreed that, subject to certain exceptions, during the period commencing at the effective time of the Merger and continuing for forty-five days thereafter, each of Keane Investor and Cerberus shall not sell, transfer, assign, pledge, encumber or otherwise dispose of, directly or indirectly, the shares of Company common stock or any other securities convertible into or exchangeable for Company common stock (including derivative securities), without the prior written consent of the Company's board of directors (which consent shall require the unanimous approval of the C&J designees to the board of directors). Following such time period, Keane Investor and Cerberus will no longer be subject to such restriction and may decide to sell any or all of their shares of Company common stock.

The failure to successfully integrate the businesses and operations of Keane and C&J in the expected time frame may adversely affect the Company's future results.

There can be no assurances that the businesses of Keane and C&J can be integrated successfully. It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integrating the operations of the two businesses in order to realize the anticipated benefits of the Merger so the Company performs as expected:


•	combining the companies' operations and corporate functions;

•

combining the businesses of Keane and C&J, in a manner that permits the Company to achieve any cost savings or revenue synergies anticipated to result from the Merger, including, specifically, achieving the anticipated annualized run-rate cost synergies of $100 million within 12 months after closing, the failure of which would result in the anticipated benefits of the Merger not being realized in the time frame currently anticipated or at all;


•	reducing additional and unforeseen expenses such that integration costs more than anticipated;


•	avoiding delays in the integration process;


•	integrating personnel from the two companies and minimizing the loss of key employees;


•	integrating the companies' technologies;


•	integrating and unifying the offerings and services available to customers;


•	identifying and eliminating redundant and underperforming functions and assets;


•	harmonizing the companies' operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;


•	maintaining existing agreements with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors;


•	addressing possible differences in business backgrounds, corporate cultures and management philosophies;


•	consolidating the companies' administrative and information technology infrastructure;


•	coordinating distribution and marketing efforts;


•	managing the movement of certain positions to different locations; and


•	effecting actions that may be required in connection with obtaining regulatory approvals.

In addition, at times the attention of certain members of the Company's management and resources may be focused on the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to the Company, which may disrupt the business of the Company.

Furthermore, the Company's board of directors and executive leadership of the Company consists of former directors and executive officers from each of Keane and C&J. Combining the boards of directors and management teams of each company into a single board and a single management team could require the reconciliation of differing priorities and philosophies.

The Company may be unable to retain Keane and C&J personnel successfully after the Merger is completed.

The success of the Merger will depend in part on the Company's ability to retain the talents and dedication of the key employees previously employed by Keane and C&J. It is possible that these employees may decide not to remain with the Company. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, the Company's business activities may be adversely affected and management's attention may be diverted from successfully integrating Keane and C&J to hiring suitable replacements, all of which may cause the Company's business to suffer. In addition, the Company

may not be able to locate suitable replacements for any key employees that leave the Company or offer employment to potential replacements on reasonable terms.

Declaration, payment and amounts of dividends, if any, distributed to stockholders of the Company will be uncertain.

Whether any dividends are declared or paid to stockholders of the Company following the Merger, and the amounts of any such dividends that are declared or paid, are uncertain and depend on a number of factors. The Company has not paid any dividends to its stockholders. Prior to the effective time of the Merger, the C&J Board declared, following a determination that surplus exists under Delaware law, a cash dividend of $1.00 per share on all of C&J's outstanding common stock to holders of record at the close of business on October 18, 2019. If dividends are paid to stockholders of the Company, they may not be of the same amount as paid by C&J to its respective stockholders prior to the effective time of the Merger. The Company's board of directors will have the discretion to determine the dividend policy of the Company, which may be impacted by any of the following factors:


•	the Company may not have enough cash to pay such dividends or to repurchase shares due to its cash requirements, capital spending plans, cash flow or financial position;


•	decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Company's board of directors, which could change its dividend practices at any time and for any reason;


•	the Company's desire to maintain or improve the credit ratings on its debt;


•	the amount of dividends that the Company may distribute to its stockholders is subject to restrictions under Delaware law and is limited by restricted payment and leverage covenants in the Company's credit facilities and indentures and, potentially, the terms of any future indebtedness that the Company may incur; and


•	certain limitations on the amount of dividends subsidiaries of the Company can distribute to the Company, as imposed by state law, regulators or agreements.

Stockholders should be aware that they have no contractual or other legal right to dividends that have not been declared.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Equity Securities

None.

(b) Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

Incorporated by Reference

Exhibit
Number

Exhibit Description

Filed/
Furnished
Herewith

Form

File No.

Exhibit

Filing
Date

3.1

Certificate of Amendment to the Certificate of Incorporation of Keane Group, Inc., effective October 31, 2019.

8-K

001-37988

3.1

October 31, 2019

10.1

Second Amended and Restated Stockholders' Agreement, dated October 31, 2019, by and among Keane Group, Inc. and Keane Investor Holdings LLC.

8-K

001-37988

10.1

October 31, 2019

10.2

Second Amended and Restated Asset-Based Revolving Credit Agreement, dated October 31, 2019, by and among Keane Group Holdings, LLC, as the Lead Borrower, certain other subsidiaries of Keane Group, Inc. as additional borrowers, the guarantors party thereto, the lenders party thereto, and Bank of America, N.A., as administrative and collateral agent.

8-K

001-37988

10.2

October 31, 2019

31.1

Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

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101.SCH

XBRL Taxonomy Extension Schema Document

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XBRL Taxonomy Extension Calculation Linkbase Document

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XBRL Taxonomy Extension Label Linkbase Document

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XBRL Taxonomy Extension Presentation Linkbase Document

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XBRL Taxonomy Extension Definition Linkbase Document

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* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on November 7, 2019.