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Business Acquisitions
 9 Months Ended
Sep. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]  
Business Acquisitions Business Acquisitions
AquaPropSM Wet Sand Solutions Acquisition
On May 31, 2024, the Company completed the acquisition of all of the outstanding equity interests in Aqua Prop, LLC (“AquaProp”). AquaProp is an oilfield service company based in Midland, Texas that provides wet sand solutions for hydraulic fracturing sand requirements at oil well sites. As a result of the acquisition, the Company expanded its operations into the wet sand service business unit.
The following table summarizes the consideration transferred to AquaProp at the acquisition date:
(in thousands)
Fair value of purchase consideration:
Cash$21,216 
Deferred cash consideration3,664 
Contingent consideration10,900 
Total consideration$35,780 
Cash consideration includes $13.7 million paid to the seller, $7.2 million paid to settle the seller’s outstanding debt, and $0.3 million paid for the seller’s transaction expenses.
Included in the deferred cash consideration is a liability incurred to the seller of $1.8 million. In the purchase agreement as a post-closing transaction, AquaProp's seller agreed to purchase and then sell to the Company, and the Company agreed to purchase from the seller, two additional equipment spreads within 90 days of the closing at a purchase price equal to cost plus a 50% premium. The post-closing transaction was determined to be a transaction separate from the business combination, but the premium was determined to represent consideration transferred in the business combination as the above market terms of the arrangement would not have been agreed upon absent the business combination. Accordingly, the liability incurred to the seller was recognized as consideration in the business combination as cash was not paid at closing. The post-closing transaction for the Company’s purchase of the additional equipment occurred in July 2024 and the purchases were accounted for as additions
to property and equipment in our condensed consolidated balance sheet and capital expenditures in our condensed consolidated statement of cash flows.
Also in the purchase agreement as an additional post-closing transaction, the seller agreed to purchase and then deliver to the Company up to five more additional equipment spreads at the request of the Company within a 30-month period following the delivery of the first additional spread at a purchase price equal to the lower of $4.8 million or cost. The additional post-closing transaction was determined to be a transaction separate from the business combination, and no portion of the transaction was determined to represent consideration transferred in the business combination as the terms were at market. The additional post-closing transaction for the Company’s purchase of the additional equipment will be accounted for as additions to property and equipment in our condensed consolidated balance sheet and capital expenditures in our condensed consolidated statement of cash flows.
The acquisition of AquaProp also included a contingent consideration arrangement that requires additional consideration to be paid by the Company to the seller based on the amount of wet sand delivered during a 30-month period following the delivery of the first additional spread, attributable to the five additional equipment spreads described above. Amounts are payable under the earnout arrangement if the Company reaches certain delivery thresholds (in tons) of wet sand using the specific equipment provided by the seller or by other parties. The range of the undiscounted amounts the Company could be obligated to pay under the contingent consideration agreement is between $0 and $12.5 million. The fair value of the contingent consideration for the business combination recognized at the acquisition date of $10.9 million was estimated by applying the probability-weighted expected return method for the different scenarios that may occur based on the amount of additional equipment delivered by the seller, at the request of the Company, and the amount of wet sand expected to be delivered by such equipment. The fair value measurement of the contingent consideration is based on significant inputs not observable in the market, and thus represent Level 3 measurements. The contingent consideration payable will be adjusted to estimated fair value at the end of each subsequent reporting period until the contingencies are resolved and consideration payments are made. The estimated fair value of the contingent consideration payable was $9.1 million at September 30, 2024, resulting in a $1.8 million decrease from June 30, 2024. The decrease in the estimated fair value of the contingent consideration payable was primarily driven by updated projections regarding the probability of different scenarios and the amount and timing of additional equipment to be delivered by the seller under those scenarios. The decrease in the estimated contingent consideration payable is included in other income (expense) in our condensed consolidated statements of operations for the three and nine months ended September 30, 2024.
The following table summarizes the recognized preliminary amounts of identified assets, and liabilities assumed at the acquisition date:
(in thousands)
Recognized amounts of assets acquired and liabilities assumed:
Cash$178 
Accounts receivable10,551 
Property and equipment13,468 
Intangible assets:
Trade name1,300 
Customer relationships18,600 
Accounts payable(1,423)
Factored receivables(10,024)
Total net assets acquired32,650 
Goodwill3,130 
Total consideration$35,780 
Preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on information provided by AquaProp's seller and available through the issuance of these condensed consolidated financial statements. The Company is continuing to evaluate the underlying inputs and assumptions used in the valuations and the completeness of assets and liabilities recognized as the AquaProp Acquisition closed on May 31, 2024. Amounts recorded for all assets acquired, other than cash, and liabilities assumed, and the completeness of assets and liabilities recognized, are provisional. Accordingly, these preliminary estimates are subject to change during the measurement period. The measurement period ends on the earlier of the Company obtaining all necessary information that existed as of the acquisition date or one year from the acquisition date. As we
continue to integrate the acquired business, we may obtain additional information on the acquired accounts receivable, property and equipment, identifiable intangible assets, accounts payable and factoring receivables which if significant, may require revisions to preliminary valuation assumptions, estimates and resulting fair values. We expect to finalize these amounts within one year from the acquisition date.
The fair value of the assets acquired includes accounts receivable of $10.6 million. The gross amount due under contracts is $10.6 million, of which none is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of AquaProp.
The assets acquired include two intangible assets, the trademark/trade name for AquaProp and the customer relationships. The trademark was assigned a fair value of $1.3 million with zero residual value and will be amortized on a straight‑line basis over fifteen years. The customer relationships were assigned a fair value of $18.6 million with zero residual value and will be amortized on a straight‑line basis over six years. The fair value of the trademark was estimated using the relief-from-royalty method, which calculates the hypothetical royalty fees that would be saved by owning an intangible asset rather than licensing it from another owner. This method forecasts revenue over the estimated useful life of the asset and then applies the following: a royalty rate based on comparable royalty and/or licensing transactions, income tax rate and discount rate, to calculate the discounted cash flows to arrive at the value of the trademark. Key assumptions include revenue forecasted at historical trends with a 0% long-term growth rate, 1.0% royalty rate, 21.6% income tax rate and a 40.5% discount rate. The fair value of the customer relationships was estimated using the multi-period excess earnings method. This method is a specific application of the discounted cash flow method, in which revenue derived from the intangible asset is estimated using total business revenue as a proxy and subsequently adjusted for attrition. Then deductions are made for business expenses and required returns attributable to other assets in the business. The excess earnings after these deductions are discounted to present value at an appropriate rate of return to arrive at the intangible asset value. Key assumptions include revenue forecasted at historical trends with a 0% long-term growth rate, 20.0% attrition rate, 21.6% income tax rate and a 40.5% discount rate.
The goodwill is attributable to the acquired workforce and significant synergies. Goodwill is assigned 100% to the hydraulic fracturing operating segment of the Company. The goodwill recognized is deductible for income tax purposes.
During the three months ended September 30, 2024, the Company made a measurement period adjustment to increase accounts payable acquired as part of the acquisition of AquaProp by $0.5 million to reflect facts and circumstances in existence as of the acquisition date. This adjustment decreased the deferred cash consideration payable to the seller.
The acquired business generated revenues of $18.7 million and a net loss of $2.2 million for the three months ended September 30, 2024, and revenues of $23.6 million and a net loss of $1.5 million for the period from May 31, 2024, to September 30, 2024.
The following combined supplemental pro forma information assumes the AquaProp Acquisition occurred on January 1, 2023. The supplemental pro forma information presented below is for illustrative purposes only and does not reflect future events that occurred after September 30, 2024 or any operating efficiencies or inefficiencies that may result from the AquaProp Acquisition. The information is not necessarily indicative of results that would have been achieved had the Company controlled AquaProp during the periods presented.
(unaudited, in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Revenue$360,868 $428,435 $1,166,222 $1,289,157 
Net (loss) income(136,647)35,413 (109,682)102,298 
For the three and nine ended September 30, 2024, the Company incurred acquisition-related costs of $0.4 million and $1.5 million, respectively. These expenses are included in general and administrative expenses on the Company’s condensed consolidated statement of operations.
Par Five Acquisition
On December 1, 2023, the Company completed the acquisition of certain assets and certain liabilities of Par Five Energy Services LLC ("Par Five"), an oilfield service company based in Artesia, New Mexico that provides cementing and remediation services across the Permian Basin in Texas and New Mexico (the "Par Five Acquisition"). As a result of the Par Five Acquisition, the Company expanded its operations in the cementing service business unit.
The following table summarizes the consideration transferred to Par Five and the recognized amounts of identified assets acquired and liabilities assumed at the acquisition date:
(in thousands)
Total purchase consideration:
Cash$22,215 
Deferred cash consideration3,109 
Total consideration$25,324 

(in thousands)
Recognized amounts of assets acquired and liabilities assumed:
Accounts receivable$8,641 
Inventory321 
Property, plant and equipment17,175 
Accrued liabilities(813)
Total net assets acquired$25,324 

The deferred cash consideration of $3.1 million will be used to cover the amount by which the estimated purchase price exceeds the final purchase price, if any. The unused amount is payable to Par Five or its beneficiary on June 1, 2025 and accrues interest at 4.0% per annum. This obligation is shown within other current liabilities in our condensed consolidated balance sheets. As of September 30, 2024, the outstanding amount for this obligation was $3.1 million.
The fair value of the assets acquired includes account receivables of $8.6 million. The gross amount due under contracts is $8.6 million, of which none is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of Par Five. The Company previously recognized a preliminary estimate of $8.7 million for accounts receivable acquired as part of the Par Five Acquisition. During the three months ended September 30, 2024, the Company made a measurement period adjustment to increase accounts receivable by $0.1 million. During the nine months ended September 30, 2024, the Company made a measurement period adjustment to decrease accounts receivable by $0.1 million. These measurement period adjustments reflect facts and circumstances in existence as of the acquisition date. The cumulative impact of these adjustments was a decrease in deferred cash consideration payable.