Segment Information

Reporting Segments

Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the CODM in deciding how to allocate resources and assess performance. We are comprised of four reportable segments: International Services, U.S. Services, Tubular Sales and Blackhawk.

The International Services segment provides tubular services in international offshore markets and in several onshore international regions. Our customers in these international markets are primarily large exploration and production companies, including integrated oil and gas companies and national oil and gas companies.

The U.S. Services segment provides tubular services in the active onshore oil and gas drilling regions in the U.S., including the Permian Basin, Eagle Ford Shale, Haynesville Shale, Marcellus Shale, DJ Basin and Utica Shale, as well as in the U.S. Gulf of Mexico.

The Tubular Sales segment designs, manufactures and distributes large outside diameter ("OD") pipe, connectors and casing attachments and sells large OD pipe originally manufactured by various pipe mills. We also provide specialized fabrication and welding services in support of offshore projects, including drilling and production risers, flowlines and pipeline end terminations, as well as long length tubulars (up to 300 feet in length) for use as caissons or pilings. This segment also designs and manufactures proprietary equipment for use in our International and U.S. Services segments.

The Blackhawk segment provides well construction and well intervention rental equipment, services and products, in addition to cementing tool expertise, in the U.S. and Mexican Gulf of Mexico, onshore U.S. and other select international locations.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) before interest income, net, depreciation and amortization, income tax benefit or expense, asset impairments, gain or loss on sale of assets, foreign currency gain or loss, equity-based compensation, unrealized and realized gain or loss, the effects of the TRA, other non-cash adjustments and other charges. We review Adjusted EBITDA on both a consolidated basis and on a segment basis. We use Adjusted EBITDA to assess our financial performance because it allows us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure (such as varying levels of interest expense), asset base (such as depreciation and amortization), income tax, foreign currency exchange rates and other charges and credits. Adjusted EBITDA has limitations as an analytical tool and should not be considered as an alternative to net income (loss), operating income (loss), cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP. Previously reported Adjusted EBITDA for the three and nine months ended September 30, 2016 has been adjusted for investigation-related matters by $1.8 million and $5.1 million, respectively, as management believes removing the effect of these items allows for better comparability across periods.

Our CODM uses Adjusted EBITDA as the primary measure of segment reporting performance.

The following table presents a reconciliation of Segment Adjusted EBITDA to net income (loss) (in thousands):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Segment Adjusted EBITDA:
International Services	$	11,151		$	4,532		$	25,459		$	31,752
U.S. Services ⁽¹⁾	(11,322		)	(5,995		)	(27,775		)	(13,018		)
Tubular Sales	(1,333		)	165			1,736			1,343
Blackhawk	3,477			—			7,653			—
	1,973			(1,298		)	7,073			20,077
Interest income, net	1,019			646			2,170			1,050
Depreciation and amortization	(30,650		)	(26,545		)	(92,700		)	(84,278		)
Income tax (expense) benefit	(87,613		)	6,800			(72,419		)	15,311
Gain on sale of assets	829			46			2,091			1,095
Foreign currency gain (loss)	1,839			(1,696		)	3,184			(5,907		)
Derecognition of the TRA liability ⁽²⁾	122,515			—			122,515			—
Charges and credits ⁽³⁾	(7,616		)	(20,151		)	(22,231		)	(37,241		)
Net income (loss)	$	2,296		$	(42,198	)	$	(50,317	)	$	(89,893	)


⁽¹⁾	Amounts previously reported as Corporate and other of $159 and $361 for the three and nine months ended September 30, 2016, respectively, have been reclassified to U.S. Services to conform to the current presentation.


⁽²⁾	Please see Note 12 - Related Party Transactions for further discussion.

⁽³⁾

Comprised of Equity-based compensation expense (for the three months ended September 30, 2017 and 2016: $2,342 and $3,828, respectively, and for the nine months ended September 30, 2017 and 2016: $11,458 and $12,356, respectively), Mergers and acquisition expense (for the three months ended September 30, 2017 and 2016: none and none, respectively, and for the nine months ended September 30, 2017 and 2016: $459 and none, respectively), Severance and other charges (for the three months ended September 30, 2017 and 2016: $1,648 and $14,534, respectively, and for the nine months ended September 30, 2017 and 2016: $2,386 and $18,858, respectively), Unrealized and realized (losses) (for the three months ended September 30, 2017 and 2016: $(1,123) and $(10), respectively, and for the nine months ended September 30, 2017 and 2016: $(2,819) and $(973), respectively) and Investigation-related matters (for the three months ended September 30, 2017 and 2016: $2,503 and $1,779, respectively, and for the nine months ended September 30, 2017 and 2016: $5,109 and $5,054, respectively).

The following tables set forth certain financial information with respect to our reportable segments (in thousands):



	International Services			U.S. Services			Tubular Sales			Blackhawk			Eliminations			Total
Three Months Ended September 30, 2017
Revenue from external customers	$	53,742		$	29,065		$	7,701		$	17,575		$	—		$	108,083
Inter-segment revenue	3			4,062			3,111			33			(7,209		)	—
Operating loss	(2,647		)	(25,453		)	(3,967		)	(3,013		)	—			(35,080		)
Adjusted EBITDA	11,151			(11,322		)	(1,333		)	3,477			—			*

Three Months Ended September 30, 2016
Revenue from external customers	$	51,028		$	34,057		$	20,029		$	—		$	—		$	105,114
Inter-segment revenue	(1		)	3,641			5,036			—			(8,676		)	—
Operating loss	(17,697		)	(30,415		)	(820		)	—			—			(48,932		)
Adjusted EBITDA ⁽¹⁾	4,532			(5,995		)	165			—			—			*

Nine Months Ended September 30, 2017
Revenue from external customers	$	153,851		$	89,936		$	40,787		$	51,899		$	—		$	336,473
Inter-segment revenue	18			12,890			10,350			105			(23,363		)	—
Operating loss	(19,140		)	(73,092		)	(782		)	(12,642		)	—			(105,656		)
Adjusted EBITDA	25,459			(27,775		)	1,736			7,653			—			*

Nine Months Ended September 30, 2016
Revenue from external customers	$	191,440		$	119,955		$	68,151		$	—		$	—		$	379,546
Inter-segment revenue	45			11,691			15,053			—			(26,789		)	—
Operating loss	(25,834		)	(74,722		)	(1,936		)	—			—			(102,492		)
Adjusted EBITDA ⁽¹⁾	31,752			(13,018		)	1,343			—			—			*


⁽¹⁾	Amounts previously reported as Corporate and other of $159 and $361 for the three and nine months ended September 30, 2016, respectively, have been reclassified to U.S. Services to conform to the current presentation.

* Non-GAAP financial measure not disclosed.