UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

Form 10-Q

_____________________________________________

(Mark One)



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

For the Quarterly Period Ended ~~September~~June 30, ~~2019~~2020



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

Commission file number: 001-08038

_____________________________________________

KEY ENERGY SERVICES, INC.

(Exact name of registrant as specified in its charter)

_____________________________________________



Delaware		04-2648081
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1301 McKinney Street, Suite 1800, Houston, Texas		77010
(Address of principal executive offices)		(Zip Code)

(713) 651-4300

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

____________________________________________

Securities registered pursuant to Section 12(b) of the Act: None.

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 ý 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 ý 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	ý¨

Non-accelerated filer	¨ý	Smaller reporting company	ý

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No ¨

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Common Stock, $0.01 par value~~	~~KEG~~	~~New York Stock Exchange~~
~~(Title of each class)~~	~~(Trading symbol)~~	~~(Name of each exchange on which registered)~~

As of ~~November 1, 2019,~~August 5, 2020, the number of outstanding shares of common stock of the registrant was ~~20,498,674.~~13,781,347.

KEY ENERGY SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~September~~June 30, ~~2019~~2020



Part I — Financial Information

Item 1.	Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2427

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3339

Item 4.	Controls and Procedures	3439

Part II — Other Information

Item 1.	Legal Proceedings	3540

Item 1A.	Risk Factors	3540

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3540

Item 3.	Defaults Upon Senior Securities	3540

Item 4.	Mine Safety Disclosures	3541

Item 5.	Other Information	3541

Item 6.	Exhibits	3541

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature or that relate to future events and conditions are, or may be deemed to be, forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections and management’s beliefs and assumptions concerning future events and financial trends affecting our financial condition and results of operations. In some cases, you can identify these statements by terminology such as “may,” “will,” “should,” “predicts,” “expects,” “believes,” “anticipates,” “projects,” ~~“potential”~~“potential�� or “continue” or the negative of such terms and other comparable terminology. These statements ~~are only predictions and~~ are subject to substantial risks and uncertainties and are not guarantees of performance. Future actions, events and conditions and future results of operations may differ materially from those expressed in these statements. In evaluating those statements, you should carefully consider the information ~~above~~herein as well as the risks outlined in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the “2019 Form 10-K”), and in Part II “Item 1A. Risk Factors” our Quarterly Report on Form 10-Q for the ~~other~~quarter ended March 31, 2020 (the “Q1 2020 Form 10-Q”) and our information in the reports we file with the Securities and Exchange Commission.

We undertake no obligation to update or withdraw any forward-looking statement to reflect events or circumstances after the date of this report except as required by law. All of our written and oral forward-looking statements are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

Important factors that may affect our expectations, estimates or projections include, but are not limited to, the following:

our ability to continue as a going concern;

public health crises, such as the COVID-19 pandemic, including its impact on economic and other conditions ~~in the~~globally, demand for oil and natural gas, ~~industry,~~and any related actions taken by businesses and governments, among others;

adverse conditions in the services and oil and natural gas industries, especially declines or volatility in oil and natural gas prices and capital expenditures by oil and natural gas companies;

~~volatility in oil~~our ability to satisfy our cash and ~~natural gas prices;~~liquidity needs, including our ability to generate sufficient liquidity or cash flow from operations or to obtain adequate financing to fund our operations or otherwise meet our obligations as they come due;

our ability to retain employees, customers or suppliers as a result of our financial condition generally or as a result of our recent Restructuring (as defined below);

our inability to achieve the potential benefits of the Restructuring;

our ability to achieve the benefits of cost-cutting initiatives, including our plan to optimize our geographic footprint (including exiting certain locations and reducing our regional and corporate overhead costs);

our ability to implement price increases or maintain pricing on our core services;

risks that we may not be able to reduce, and could even experience increases in, the costs of labor, fuel, equipment and supplies employed in our businesses;

industry capacity;

actions by OPEC and non-OPEC oil producing countries;

asset impairments or other charges;

the ~~periodic~~ low demand for our services and resulting operating losses and negative cash flows;

~~our~~the highly competitive ~~industry as well as~~ nature of our industry;

operating risks, which are primarily self-insured, and the possibility that our insurance may not be adequate to cover all of our losses or liabilities;

significant costs and potential liabilities resulting from compliance with applicable laws, including those resulting from environmental, health and safety laws and regulations, specifically those relating to hydraulic fracturing, as well as climate change legislation or initiatives;

our historically high employee turnover rate and our ability to replace or add workers, including executive officers and skilled workers;

our ability to implement technological developments and enhancements;

severe weather impacts on our business, including from hurricane activity;

our ability to successfully identify, make and integrate acquisitions and our ability to finance future growth of our operations or future acquisitions;

our ability to achieve the benefits expected from business combinations, disposition or acquisition transactions;

the loss of one or more of our larger customers;

~~our ability to generate sufficient cash flow and liquidity to meet debt service obligations, meet contractual payment obligations and fund our operations;~~

the amount of our debt, ~~and~~ the limitations imposed by the covenants in the agreements governing our debt, ~~including~~and our ability to comply with covenants under our debt agreements;

our ability to maintain sufficient liquidity and access to capital;

an increase in our debt service obligations due to variable rate indebtedness;

~~our ability to restructure our debt agreements with our lenders on acceptable terms, if at all, and adjust our debt levels;~~

the structure and timing of any financial, transactional, or other strategic alternative that we may pursue to address our capital structure and whether any such financial, transactional, or other strategic alternative will be completed;

~~our ability to achieve the benefits of our cost efficiency and cash flow growth initiatives;~~

our inability to achieve our financial, capital expenditure and operational projections, including quarterly and annual projections of revenue, and/or operating income ~~and/or loss margin~~ and the possibility of our inaccurate assessment of future activity levels, customer demand, and pricing stability which may not materialize (whether for Key as a whole or for geographic regions and/or business segments individually);

our ability to respond to changing or declining market conditions;

~~our ability to maintain sufficient liquidity;~~

adverse impact of ~~litigation;~~

~~our ability to regain compliance with the listing requirements of, and maintain the listing of our common stock on, the New York Stock Exchange;~~litigation or disputes; and

other factors affecting our business and financial condition described ~~in Part I “Item 1A. Risk~~under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and in our Quarterly Report on Form 10-Q for the ~~other reports we file with~~quarter ended March 31, 2020.

As noted in our financial statements in this Quarterly Report on Form 10-Q for the ~~Securities~~quarter ended June 30, 2020, pursuant to accounting principles generally accepted in the United States, these conditions raise substantial doubt about our ability to continue as a going concern within the 12 months post issuance of the consolidated financial statements. The unprecedented nature of the COVID-19 pandemic and ~~Exchange Commission.~~recent market decline may make it more difficult to identify potential risks, give rise to risks that are currently unknown, or amplify the impact of known risks.

PART I — FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	22,606		$	50,311		$	6,864		$	14,426
Accounts receivable, net of allowance for doubtful accounts of $476 and $1,056, respectively	67,246			74,253
Restricted cash							250			250
Accounts receivable, net of allowance for doubtful accounts of $1,085 and $881, respectively							20,069			51,091
Inventories	15,214			15,861			13,698			13,565
Other current assets	13,496			18,073			17,774			22,260
Total current assets	118,562			158,498			58,655			101,592
Property and equipment	443,774			439,043			388,229			432,917
Accumulated depreciation	(199,892		)	(163,333		)	(218,409		)	(205,352		)
Property and equipment, net	243,882			275,710			169,820			227,565
Intangible assets, net	361			404			318			347
Other non-current assets	11,341			8,562			40,400			18,366
TOTAL ASSETS	$	374,146		$	443,174		$	269,193		$	347,870
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	18,360		$	13,587		$	8,641		$	8,700
Current portion of long-term debt	2,914			2,500			1,076			2,919
Other current liabilities	73,533			87,377			51,607			90,715
Total current liabilities	94,807			103,464			61,324			102,334
Long-term debt	240,009			241,079			51,954			240,007
Workers’ compensation, vehicular and health insurance liabilities	25,880			24,775			27,394			26,072
Interest payable							16,283			—
Other non-current liabilities	31,701			28,336			31,094			30,710
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value; 10,000,000 authorized and one share issued and outstanding	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized, 20,498,674 and 20,363,198 outstanding	205			204
Common stock, $0.01 par value; 150,000,000 and 2,000,000 shares authorized, 13,781,262 and 410,990 outstanding							340			206
Additional paid-in capital	268,406			264,945			307,982			265,588
Retained deficit	(286,862		)	(219,629		)	(227,178		)	(317,047		)
Total equity	(18,251		)	45,520			81,144			(51,253		)
TOTAL LIABILITIES AND EQUITY	$	374,146		$	443,174		$	269,193		$	347,870

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)



	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
REVENUES	$	106,523		$	134,721		$	328,739		$	404,442		$	34,750		$	112,943		$	110,058		$	222,216
COSTS AND EXPENSES:
Direct operating expenses	87,956			106,103			266,714			314,061			29,904			90,564			91,565			178,758
Depreciation and amortization expense	14,584			21,808			43,142			62,881			8,054			14,262			18,280			28,558
General and administrative expenses	21,375			23,925			66,014			71,353			13,637			22,544			28,890			44,639
Impairment expense													—			—			41,242			—
Operating loss	(17,392		)	(17,115		)	(47,131		)	(43,853		)	(16,845		)	(14,427		)	(69,919		)	(29,739		)
Gain on debt restructuring													—			—			(170,648		)	—
Interest expense, net of amounts capitalized	8,411			8,708			26,164			25,425			2,066			8,520			10,287			17,753
Other income, net	(351		)	(213		)	(1,732		)	(1,972		)	(15		)	(239		)	(400		)	(1,381		)
Loss before income taxes	(25,452		)	(25,610		)	(71,563		)	(67,306		)
Income (loss) before income taxes													(18,896		)	(22,708		)	90,842			(46,111		)
Income tax benefit (expense)	(37		)	1,750			4,330			1,588			(229		)	4,405			(973		)	4,367
NET LOSS	$	(25,489	)	$	(23,860	)	$	(67,233	)	$	(65,718	)
NET INCOME (LOSS)													$	(19,125	)	$	(18,303	)	$	89,869		$	(41,744	)
Loss per share:
Basic and diluted	$	(1.25	)	$	(1.18	)	$	(3.30	)	$	(3.25	)
Basic													$	(1.39	)	$	(44.86	)	$	10.06		$	(102.31	)
Diluted													$	(1.39	)	$	(44.86	)	$	10.00		$	(102.31	)
Weighted average shares outstanding:
Basic and diluted	20,443			20,252			20,398			20,234
Basic													13,781			408			8,935			408
Diluted													13,781			408			8,991			408

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(67,233	)	$	(65,718	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	89,869		$	(41,744	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense	43,142			62,881			18,280			28,558
Impairment expense							41,242			—
Bad debt expense	538			387			1,175			261
Accretion of asset retirement obligations	126			121			85			82
Gain on debt restructuring							(170,648		)	—
Amortization of deferred financing costs	346			357			260			241
Gain on disposal of assets, net	(3,785		)	(7,402		)	(767		)	(1,459		)
Share-based compensation	3,499			4,582			252			2,230
Changes in working capital:
Accounts receivable	6,469			(20,994		)	29,847			2,422
Other current assets	5,224			8,365			4,353			(1,741		)
Accounts payable, accrued interest and accrued expenses	(9,077		)	(4,392		)	(38,526		)	(4,647		)
Share-based compensation liability awards	5			835			3			34
Other assets and liabilities	3,961			5,916			(13,636		)	4,400
Net cash used in operating activities	(16,785		)	(15,062		)	(38,211		)	(11,363		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(16,483		)	(28,521		)	(979		)	(12,362		)
Proceeds from sale of assets	8,362			11,955			3,363			4,780
Net cash used in investing activities	(8,121		)	(16,566		)
Net cash provided by (used in) investing activities							2,384			(7,582		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt							30,000			—
Repayments of long-term debt	(1,875		)	(1,875		)	(3		)	(1,250		)
Repayments of finance lease obligations	(59		)	—			(340		)	—
Payment of deferred financing costs	(828		)	—			(1,385		)	(828		)
Repurchases of common stock	(37		)	(271		)	(7		)	(4		)
Proceeds from exercise of warrants	—			3
Net cash used in financing activities	(2,799		)	(2,143		)
Net cash provided by (used in) financing activities							28,265			(2,082		)
Net decrease in cash, cash equivalents and restricted cash	(27,705		)	(33,771		)	(7,562		)	(21,027		)
Cash, cash equivalents, and restricted cash, beginning of period	50,311			77,065			14,676			50,311
Cash, cash equivalents, and restricted cash, end of period	$	22,606		$	43,294		$	7,114		$	29,284

See the accompanying notes which are an integral part of these condensed consolidated financial statements.

Key Energy Services, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

NOTE 1. GENERAL

Key Energy Services, Inc., and its wholly owned subsidiaries (collectively, “Key,” the “Company,” “we,” “us,” “its,” and “our”) provide a full range of well services to major oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States. An important component of ~~the Company’s~~our growth strategy is to make acquisitions that will strengthen ~~its~~our core services or presence in selected markets, and ~~the Company~~that we also ~~makes~~make strategic divestitures from time to time. ~~The Company expects~~We expect that the industry in which ~~it operates~~we operate will experience consolidation, and the ~~Company expects~~we expect to explore opportunities and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or further dispositions or other transactions, although there can be no assurance that any such activities will be consummated.

The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed December 31, ~~2018~~2019 balance sheet was prepared from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”). Certain information relating to our organization and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in this Quarterly Report on Form 10-Q. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our ~~2018~~2019 Form 10-K.

The unaudited condensed consolidated financial statements contained in this report include all normal and recurring material adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented herein. The results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are not necessarily indicative of the results expected for the full year or any other interim period, due to fluctuations in demand for our services, timing of maintenance and other expenditures, and other factors.

We have evaluated events occurring after the balance sheet date included in this Quarterly Report on Form 10-Q ~~and~~ through the date on which the unaudited condensed consolidated financial statements were issued, for possible disclosure of a subsequent event.

~~Forbearance Agreements~~Market Conditions, COVID-19 and Going Concern

~~The Company is party~~As a company that provides services to ~~two credit facilities: an ABL Facility~~oil and gas exploration and development companies, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the ~~financial institutions party thereto from time~~novel coronavirus (“COVID-19”) has, and is anticipated to ~~time as lenders (the “ABL Lenders”),~~continue to have, an adverse effect on global economic activity for the immediate future and ~~a Term Loan Facility among the Company, as borrower,~~has resulted in travel restrictions, business closures and the ~~financial institutions party thereto from time~~institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to time as lenders (the “Term Loan Lenders,” and together with the ABL Lenders, the “Lenders”) and Cortland Capital Market Services LLC and Cortland Products Corp., as agent for the lenders. See “~~Note 7. Debt.~~”

~~As announced on October 31, 2019, the Company~~COVID-19 has engaged external advisers to assist the Company in analyzing various strategic financial alternatives to address its capital structure. In connection with this strategic review, the Company elected not to make a scheduled interest payment due October 18, 2019 under the Term Loan Facility. The Company’s failure to make the October interest payment resulted in a ~~default under~~dramatic decline in the ~~Term Loan Facility~~demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a decline in late 2019 and a ~~cross default under~~collapse starting in early March 2020 as a direct result of failed negotiations between the ~~ABL Facility (such defaults, the “Specified Defaults”).~~

~~On October 29, 2019, the Company entered into forbearance agreements with the Term Loan Lenders collectively holding over 99.5%~~Organization of the ~~principal amount~~Petroleum Exporting Countries (“OPEC”) and Russia regarding reduced supply of oil. As the breadth of the ~~outstanding term loans (the “Term Loan Forbearance Agreement”~~COVID-19 health crisis expanded throughout the month of March 2020 and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately. The associated impact on the energy industry has been adverse and continued to be exacerbated by the unresolved conflict regarding production. In the second week of April, OPEC, Russia and certain other petroleum producing nations (“OPEC+”) reconvened to discuss the matter of production cuts in light of unprecedented disruption and ~~all~~supply and demand imbalances that expanded since the failed negotiations in early March 2020. Agreements were reached to cut production by up to 10 million barrels of oil per day with allocations to be made among the ~~ABL Lenders (the “ABL Forbearance Agreement”~~OPEC+ participants. In early June, these agreements were further extended through July 2020. These production cuts, other voluntary production curtailments and ~~collectively,~~reduced drilling have helped to bring demand and supply closer to balance and stabilized commodity prices. However, US and international crude oil stocks remain at historically high levels, commodity prices remain depressed relative to 2019 levels, and there remains continued uncertainty around the ~~“Forbearance Agreements”). Pursuant~~timing of any recovery in economic activity and demand for energy.

Despite a significant decline in drilling by U.S. producers starting in mid-March 2020, domestic supply continued to the Forbearance Agreements, the Lenders party thereto have agreed that, until the earlier of December 6, 2019 or the occurrence of certain specified early termination events, such Lenders will forbear from exercising any default-related rights and remediesexceed demand through May 2020, which led to significant operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the ~~Specified Defaults.~~Gulf Coast region. While these trends began to reverse in June 2020 due to production curtailments, natural well decline and reduced drilling activity, there remains a historically high amount of crude oil in storage. The ~~failure to comply with such covenants, among other things, would result~~combined effect of the aforementioned factors has had an adverse impact on the industry in general and our operations specifically.

These conditions and events have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the ~~early termination~~demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had, and is reasonably likely to continue to have, a material adverse impact on the demand for our services and the prices we can charge for our services. The decline in our customers’ demand for our services has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

To date, we have enhanced the ~~forbearance period. See “Note 7. Debt.~~”cost control measures related to operational and general and administrative expenses to optimize cost during this time period with the goal of ensuring that margins are preserved as well as increased efforts on improving working capital until customer spend increases.

~~The Specified Defaults and related matters including the Company’s level of debt raise substantial doubt as~~Due to the ~~ability~~uncertainty of ~~the Company to continue as a going concern. The Company is in active discussions with the Lenders regarding the Company’s capital structure~~future oil and natural gas prices and the ~~potential~~effect the COVID-19 pandemic will continue to ~~reduce its debt level, however an agreement with the Lenders has not been reached as~~have on our results of ~~the date of these~~operations and financial ~~statements. The Company believes that it~~condition, there is ~~probable that if such an agreement is reached, it will alleviate the~~ substantial doubt as to the Company’s ability to continue as a going concern.

~~The accompanying unaudited~~ Management has prepared these consolidated condensed ~~consolidated~~ financial statements ~~have been prepared under the assumption that the Company will continue as~~in accordance with US GAAP applicable to a going concern, which contemplates ~~the continuity of operations~~that assets will be realized and ~~the realization of assets and the satisfaction of~~ liabilities ~~as they come due~~will be discharged in the normal course of ~~business. The accompanying unaudited~~business as they become due. These consolidated condensed ~~consolidated~~ financial statements do not ~~include any~~reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that ~~might~~would be necessary ~~should~~if the Company bewere unable to ~~continue~~realize its assets and settle its liabilities as a going ~~concern.~~concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company.

Restructuring and Reverse Stock Split

On March 6, 2020, we closed the previously announced restructuring of our capital structure and indebtedness (the “Restructuring”) pursuant to the Restructuring Support Agreement, dated as of January 24, 2020 (the “RSA”), with lenders under our Prior Term Loan Facility (as defined below) collectively holding over 99.5% (the “Supporting Term Lenders”) of the principal amount of the Company’s then outstanding term loans. Pursuant to the RSA and the Restructuring contemplated thereby, among other things, we effected the following transactions and changes to our capital structure and governance:

pursuant to exchange agreements entered into at the closing of the Restructuring, we exchanged approximately $241.9 million aggregate outstanding principal of our term loans (together with accrued interest thereon) held by Supporting Term Lenders under our Prior Term Loan Facility into (i) approximately 13.4 million newly issued shares of common stock representing 97% of the Company’s outstanding shares after giving effect to such issuance (and without giving effect to dilution by the New Warrants and MIP (each as defined below)) and (ii) $20 million of term loans under our new $51.2 million term loan facility (the “New Term Loan Facility”), each on a pro rata basis based on their holdings of term loans under the Prior Term Loan Facility;

completed a 1-for-50 reverse stock split of our outstanding common stock. All pre-Restructuring shares prices, including shares outstanding and earnings per share, have been adjusted to reflect the 1-for-50 reverse stock split;

distributed to our common stockholders of record as of February 18, 2020 two series of warrants (the “New Warrants”);

entered into the $51.2 million New Term Loan Facility, of which (i) $30 million was funded at closing of the Restructuring with new cash proceeds from the Supporting Term Lenders and $20 million was issued in exchange for term loans held by the Supporting Term Lenders under the Prior Term Loan Facility as described above and (ii) an approximate $1.2 million was a senior secured term loan tranche in respect of term loans held by lenders under the Prior Term Loan Facility who were not Supporting Term Lenders;

entered into the New ABL Facility (as defined below);

adopted a new management incentive plan (the “MIP”) representing up to 9% of the Company’s outstanding shares after giving effect to the issuance of shares described above; and

made certain changes to the Company’s governance, including changes to our Board of Directors (the “Board”), amendments to our governing documents and entry into the Stockholders Agreement (as defined below) with the Supporting Term Lenders.

In accordance with the RSA at the closing of the Restructuring, the Company amended and restated its certificate of incorporation and entered into a stockholders agreement (the “Stockholders Agreement”) with the Supporting Term Lenders in order to, among other things, provide for a Board of seven members. Pursuant to the Stockholders Agreement, our Board consists

of our chief executive officer and six other members appointed by various Supporting Term Lenders. Specifically, pursuant to the Stockholders Agreement, Supporting Term Lenders who hold more than 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate two directors and Supporting Term Lenders who hold between 10% and 25% of the Company’s outstanding shares as of the closing of the Restructuring are entitled to nominate one director. All appointees or nominees of Supporting Term Lenders, other than any director appointed or nominated by Soter Capital LLC (“Soter”), must meet the “independent director” requirements set forth in Section 303A of the NYSE Listed Company Manual. In addition, pursuant to the Stockholders Agreement, Supporting Term Lenders are entitled to appoint a non-voting board observer subject to specified ownership thresholds.

In accordance with the RSA and following the closing of the Restructuring, the Company distributed to stockholders of record as of February 18, 2020 the New Warrants. The New Warrants were issued in two series each with a four-year exercise period. The first series entitles the holders to purchase in the aggregate 1,669,730 newly issued shares of common stock, representing 10% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate exercise price of the first series of New Warrants is $19.23 and was determined based on the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring. The second series of New Warrants entitles the holders to purchase in the aggregate 1,252,297 newly issued shares of common stock, representing 7.5% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate strike price of the second series of New Warrants is $28.85 and was determined based on the product of (i) the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring, multiplied by (ii) 1.50.

For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see “Note 7. Debt.”

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The preparation of these unaudited condensed consolidated financial statements requires us to develop estimates and to make assumptions that affect our financial position, results of operations and cash flows. These estimates may also impact the nature and extent of our disclosure, if any, of our contingent liabilities. Among other things, we use estimates to (i) analyze assets for possible impairment, (ii) determine depreciable lives for our assets, (iii) assess future tax exposure and realization of deferred tax assets, (iv) determine amounts to accrue for contingencies, (v) value tangible and intangible assets, (vi) assess workers’ compensation, vehicular liability, self-insured risk accruals and other insurance reserves, (vii) provide allowances for our uncollectible accounts receivable, (viii) value our asset retirement obligations, and (ix) value our equity-based compensation. We review all significant estimates on a recurring basis and record the effect of any necessary adjustments prior to publication of our financial statements. Adjustments made with respect to the use of estimates relate to improved information not previously available. Because of the limitations inherent in this process, our actual results may differ materially from these estimates. We believe that the estimates used in the preparation of these interim financial statements are reasonable.

There have been no material changes or developments in our evaluation of accounting estimates and underlying assumptions or methodologies that we believe to be a “Critical Accounting Policy or Estimate” as disclosed in our ~~2018~~2019 Form 10-K.

Recent Accounting Developments

ASU 2016-13. In June 2016, the ~~FASB~~Financial Accounting Standards Board issued ~~ASU~~Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments that will change how companies measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount. The amendments in this update ~~will be~~were effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods. ~~Early~~We adopted the new standard effective January 1, 2020 and the adoption ~~is permitted for annual periods beginning after December 15, 2018. The Company is evaluating the effect~~ of this standard did not have a material impact on our consolidated financial statements.

ASU ~~2016-02~~2019-12.. In ~~February 2016,~~December 2019, the ~~FASB~~Financial Accounting Standards Board issued ASU ~~2016-02,~~2019-12, ~~Leases~~Income Taxes (Topic ~~842)~~740): Simplifying the Accounting for Income Taxes~~, which replaced~~ that will simplify accounting for income taxes by eliminating certain exceptions to the ~~existing lease guidance. The new standard is intended to provide enhanced transparency~~guidance for intra-period tax allocation, the methodology for calculating income taxes in an interim period and ~~comparability by requiring lessees to record right-of-use assets~~the recognition of deferred tax liabilities for outside basis differences. It also simplifies aspects of the accounting for franchise taxes that are partially based on income and corresponding lease liabilities on the balance sheet. Additional disclosure requirements include qualitative disclosures along with specific quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Company for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. As part of our assessment, we have created additional internal controls over financial reporting and madeenacted changes in ~~business practices~~tax laws or rates and ~~processes related to~~clarifies the ~~ASU. Key has elected~~accounting for transactions that result in a step-up in the ~~new prospective “Comparatives Under 840” transition method as defined in ASU 2018-11 and~~tax basis of goodwill. We adopted the new standard ~~as of January~~effective April 1, ~~2019. As part~~2020. Most of the ~~adoption,~~changes were not applicable to Key and there was no significant impact to the Company elected several practical expedients which, for contracts that existed at the time of the adoption, allowed the Company to not reassess whether existing contracts are or contained leases, classification of a lease (i.e., operating leases will remain operating leases), initial direct costs and land easement arrangements. As part of the adoption, the Company also made several accounting policy elections which allow the Company to not apply the standard to short term leases as well as to choose not to separate non-lease components from lease components and instead account for all components as a single lease component. TheCompany’s financial statements upon adoption of this ~~standard did not~~standard.

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. It is a large tax-and-spending package intended to provide additional economic relief to address the impact of the COVID-19 pandemic. The CARES Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses (NOL) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; and generally increased the business interest limitation under section 163(j) from 30 percent to 50 percent. Key has analyzed the income tax provisions under the CARES Act, and concluded that none of the provisions have a significant impact to the Company's income tax positions. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods. In addition to income tax provisions, the CARES Act also includes tax provisions relating to refundable payroll tax credits and deferment of employer’s social security tax payments. Specifically, the CARES Act permits an employer to defer 50 percent of its 2020 social security tax payments to the end of 2021 and the remaining 50 percent to the end of 2022. Beginning in April of 2020, we began deferring our employer social security payments. The Company continues to evaluate the impact of the CARES Act on our ~~consolidated statement~~financial position, results of operations ~~or consolidated statement of~~and cash flows and had an immaterial impact on our consolidated balance sheet. Right of use assets obtained in exchange for operating leases liabilities was $4.1 million at the time of the adoption of the standard.flows.

NOTE 3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The following table presents our revenues disaggregated by revenue source (in thousands). Sales taxes are excluded from revenues.


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2019		2018		2020		2019
Rig Services	$	197,375	$	227,913	$	68,734	$	132,910
Fishing and Rental Services	43,534		47,801		13,563		29,399
Coiled Tubing Services	32,134		60,513		6,704		22,420
Fluid Management Services	55,696		68,215		21,057		37,487
Total	$	328,739	$	404,442	$	110,058	$	222,216

Disaggregation of Revenue

We have disaggregated our revenues by our reportable segments ~~including~~which include Rig Services, Fishing & Rental Services, Coiled Tubing Services and Fluid Management ~~Services.~~Services segments.

Rig Services

Our Rig Services segment include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of oil and gas wells.

We recognize revenue within the Rig Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Rig Services are billed monthly, and payment terms are usually 30 days from invoice receipt.

Fishing and Rental Services

We offer a full line of services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units, foam air units.

We recognize revenue within the Fishing and Rental Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically

daily, as we have the right to invoice the customer for the services performed. Fishing and Rental Services are billed and paid monthly. Payment terms for Fishing and Rental Services are usually 30 days from invoice receipt.

Coiled Tubing Services

Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel, which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.

We recognize revenue within the Coiled Tubing Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue, typically daily, as the services are provided as we have the right to invoice the customer for the services performed. Coiled Tubing Services are billed and paid monthly. Payment terms for Coiled Tubing Services are usually 30 days from invoice receipt.

Fluid Management Services

We recognize revenue within the Fluid Management Services segment by measuring progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer. The control over services is transferred as the services are rendered to the customer. Specifically, we recognize revenue as the services are provided, typically daily, as we have the right to invoice the customer for the services performed. Fluid Management Services are billed and paid monthly. Payment terms for Fluid Management Services are usually 30 days from invoice receipt.

Arrangements with Multiple Performance Obligations

While not typical for our business, our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or using expected cost-plus margin. For combined products and services within a contract, we account for individual products and services separately if they are distinct –- i.e., if a product or service is separately identifiable from other items in the contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services within a contract based on the prices at which we separately sell our services. For items that are not sold separately, we estimate the standalone selling prices using the expected cost-plus margin approach.

Contract Balances

Under our revenue contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our revenue contracts do not give rise to contract assets or liabilities under ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC ~~606.~~606”).

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within general and administrative expenses.

The majority of our services are short-term in nature, with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Additionally, our payment terms are short-term in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Further, in many of our service contracts we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date (for example, a service contract in which an

entity bills a fixed amount for each hour of service provided). For those contracts, we have utilized the practical expedient in ASC 606-10-55-18 exempting the Company from disclosure of the recognition of revenue in the amount that the Company has a right to invoice.

Accordingly, we do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

NOTE 4. EQUITY

A reconciliation of the total carrying amount of our equity accounts for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 is as follows (in thousands):


	COMMON STOCKHOLDERS														COMMON STOCKHOLDERS
	Common Stock				Additional Paid-in Capital			Retained Deficit				Total			Common Stock					Additional Paid-in Capital			Retained Deficit			Total
	Number of Shares		Amount at Par					Retained Deficit			Number of Shares					Amount at Par				Additional Paid-in Capital			Retained Deficit			Total
Balance at December 31, 2018	20,363		$	204	Additional Paid-in Capital	$	264,945		$	(219,629	)	Total		$	45,520
Balance at December 31, 2019															411		$	206		$	265,588		$	(317,047	)	$	(51,253	)
Common stock purchases															(1	)	(1		)	(7		)	—			(8		)
Share-based compensation															3		2			(75		)	—			(73		)
Issuance of shares pursuant to the Restructuring Support Agreement															13,368		133			41,855			—			41,988
Issuance of warrants pursuant to the Restructuring Support Agreement															—		—			296			—			296
Net income															—		—			—			108,994			108,994
Balance at March 31, 2020															13,781		340			$	307,657		(208,053		)	99,944
Share-based compensation	11		—		816			—				816			—		—			325			—			325
Net loss	—		—		—			(23,441		)		(23,441		)	—		—			—			(19,125		)	(19,125		)
Balance at March 31, 2019	20,374		$	204	$	265,761		$	(243,070	)		$	22,895
Common stock purchases	(1	)	—		(4		)	—				(4		)
Share-based compensation	35		—		1,414			—				1,414
Net loss	—		—		—			(18,303		)		(18,303		)
Balance at June 30, 2019	20,408		$	204	$	267,171		$	(261,373	)		$	6,002
Common stock purchases	(23	)	—		(33		)	—				(33		)
Share-based compensation	114		1		1,268			—				1,269
Net loss	—		—		—			(25,489		)		(25,489		)
Balance at September 30, 2019	20,499		$	205	$	268,406		$	(286,862	)		$	(18,251	)
Balance at June 30, 2020															13,781		$	340		$	307,982		$	(227,178	)	$	81,144

A reconciliation of the total carrying amount of our equity accounts for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 is as follows (in thousands):


	COMMON STOCKHOLDERS														COMMON STOCKHOLDERS
	Common Stock			Additional Paid-in Capital				Retained Deficit				Total			Common Stock				Additional Paid-in Capital			Retained Deficit			Total
	Number of Shares	Amount at Par					Number of Shares					Total			Amount at Par				Additional Paid-in Capital			Retained Deficit			Total
Balance at December 31, 2017	20,217	$	202	Additional Paid-in Capital		$	259,314	Retained Deficit			$	(130,833	)		$	128,683
Exercise of warrants	—	—		1				—				1
Balance at December 31, 2018															407		$	204	$	264,945		$	(219,629	)	$	45,520
Share-based compensation	14	—		2,400				—				2,400			—		—		816			—			816
Net loss	—	—		—				(24,963		)		(24,963		)	—		—		—			(23,441		)	(23,441		)
Balance at March 31, 2018	20,231	$	202	$	261,715			$	(155,796	)		$	106,121
Exercise of warrants	—	—		2				—				2
Share-based compensation	14	—		502				—				502
Net loss	—	—		—				(16,895		)		(16,895		)
Balance at June 30, 2018	20,245	$	202	$	262,219			$	(172,691	)		$	89,730
Balance at March 31, 2019															407		204		265,761			(243,070		)	22,895
Common stock purchases	—	—		(271		)		—				(271		)	—		—		(4		)	—			(4		)
Share-based compensation	52	1		1,679				—				1,680			1		—		1,414			—			1,414
Net loss	—	—		—				(23,860		)		(23,860		)	—		—		—			(18,303		)	(18,303		)
Balance at September 30, 2018	20,297	$	203	$	263,627			$	(196,551	)		$	67,279
Balance at June 30, 2019															408		$	204	$	267,171		$	(261,373	)	$	6,002

NOTE 5. OTHER BALANCE SHEET INFORMATION

The table below presents comparative detailed information about other current assets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):



	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Other current assets:
Prepaid current assets	$	4,057	$	11,207	$	7,545	$	13,118
Reinsurance receivable	6,617		6,365		6,636		6,475
Operating lease right-of-use assets	2,517		—		3,593		2,394
Other	305		501		—		273
Total	$	13,496	$	18,073	$	17,774	$	22,260

The table below presents comparative detailed information about other non-current assets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):



	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Other non-current assets:
Reinsurance receivable	$	6,980	$	6,743	$	7,054	$	6,887
Deposits	1,121		1,309		32,612		8,689
Operating lease right-of-use assets	2,853		—		439		2,404
Other	387		510		295		386
Total	$	11,341	$	8,562	$	40,400	$	18,366

The table below presents comparative detailed information about other current liabilities at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):



	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Other current liabilities:
Accrued payroll, taxes and employee benefits	$	15,760	$	19,346	$	8,504	$	14,463
Accrued operating expenditures	14,423		15,861		7,111		12,919
Income, sales, use and other taxes	4,993		8,911		2,869		5,115
Self-insurance reserve	25,819		25,358		24,543		25,366
Accrued interest	6,672		7,105		2,204		15,476
Accrued insurance premiums	4		5,651		1,721		4,990
Unsettled legal claims	2,545		4,356		2,013		7,020
Accrued severance	40		83		—		2,636
Operating leases	2,448		—		2,599		2,502
Other	829		706		43		228
Total	$	73,533	$	87,377	$	51,607	$	90,715

The table below presents comparative detailed information about other non-current liabilities at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):



	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Other non-current liabilities:
Asset retirement obligations	$	9,115	$	9,018	$	8,803	$	9,035
Environmental liabilities	2,395		2,227		1,851		2,047
Accrued sales, use and other taxes	17,005		17,024		17,005		17,005
Deferred tax liabilities					484		—
Operating leases	3,120		—		1,783		2,590
Federal insurance contributions act tax					1,137		—
Other	66		67		31		33
Total	$	31,701	$	28,336	$	31,094	$	30,710

NOTE 6. INTANGIBLE ASSETS

The components of our other intangible assets as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows (in thousands):



	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Trademark:
Gross carrying value	$	520		$	520		$	520		$	520
Accumulated amortization	(159		)	(116		)	(202		)	(173		)
Net carrying value	$	361		$	404		$	318		$	347

The weighted average remaining amortization periods and expected amortization expense for the next five years for our definite lived intangible assets are as follows:

Weighted
average remaining
amortization
period (years)
Expected amortization expense (in thousands)
Remainder
of 2019 2020 2021 2022 2023
Trademarks 6.3 $ 14
$ 58
$ 58
$ 58
$ 58



	Weighted average remaining amortization period (years)	Expected amortization expense (in thousands)
	Weighted average remaining amortization period (years)	Remainder of 2020		2021		2022		2023		2024
Trademarks	5.5	$	29	$	58	$	58	$	58	$	58

Amortization expense for our intangible assets was less than $0.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.

NOTE 7. DEBT

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the components of our debt were as follows (in thousands):



	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Term Loan Facility due 2025							$	50,000		$	—
Term Loan Facility due 2021	$	243,125		$	245,000		1,207			243,125
Unamortized debt issuance costs	(1,903		)	(1,421		)	(2,923		)	(1,799		)
Finance lease obligation	1,701			—			4,746			1,600
Total	242,923			243,579			53,030			242,926
Less current portion	(2,914		)	(2,500		)
Less current portion(1)							(1,076		)	(2,919		)
Long-term debt	$	240,009		$	241,079		$	51,954		$	240,007


(1)	Of the current portion of debt, $1.1 million and $0.4 million is related to finance leases as of June 30, 2020 and December 31, 2019, respectively.

Prior Long-Term Debt Arrangements

~~Forbearance Agreements~~

~~The~~Prior to the Restructuring, the Company iswas party to two credit facilities. The Company and Key Energy Services, LLC, ~~are~~were borrowers (the “ABL Borrowers”) under an ABL Facility with the financial institutions party thereto from time to time as lenders (the “ABL Lenders”), Bank of America, N.A., as administrative agent for the lenders (the “Administrative Agent”) and Bank of America, N.A., as sole collateral agent for the lenders, providing for aggregate commitments from the ABL Lenders of ~~$100 million.~~$80 million (the “Prior ABL Facility”). In addition, on December 15, 2016, the Company entered into ~~a Term Loan Facility~~the term loan facility among the Company, as borrower, certain subsidiaries of the

Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”) and Cortland Capital Market Services LLC and Cortland Products Corp., as agent for the ~~Lenders.~~Lenders (the “Prior Term Loan Facility”).

As previously announced, on October ~~31,~~29, 2019, the Company ~~has engaged external advisers~~ ~~to assist~~entered into a forbearance agreement (as amended on December 6, 2019, December 20, 2019, January 10, 2020 and January 31, 2020, the “ABL Forbearance Agreement”) with Bank of America, N.A., as administrative agent (the “Administrative Agent”), and all of the lenders party thereto (the “Lenders”) regarding a cross-default under the Loan and Security Agreement, dated as of December 15, 2016, by and among Key, the Administrative Agent and the Lenders.

On February 28, 2020, the Company ~~in analyzing various strategic financial alternatives~~and the Lenders party thereto amended the ABL Forbearance Agreement (the “Forbearance Agreement Amendment”). Pursuant to ~~address its capital structure~~the Forbearance Agreement Amendment, the Lenders party thereto agreed, among other things, to extend the forbearance period until the earliest of (i) March 6, 2020, (ii) the occurrence of certain specified early termination events and ~~to position~~(iii) the date on which the previously announced RSA between the Company ~~for future success.~~ and certain lenders under the Company’s term loan facility is terminated in accordance with its terms. In connection with ~~this strategic review,~~the ABL Forbearance Agreement, the Company elected not to make a scheduled interest ~~payment~~payments due October 18, 2019 and January 20, 2020 under the Prior Term Loan Facility. The Company’s failure to make ~~the October~~these interest ~~payment~~payments resulted in a default under the Prior Term Loan Facility and a ~~cross default~~cross-default under the Prior ABL Facility.

Effective March 6, 2020, upon the closing of the Restructuring, we entered into the New Term Loan Facility and the New ABL Facility, ~~(such defaults,~~which superseded the ~~“Specified Defaults”).~~Prior Term Loan Facility and Prior ABL Facility. A description of each of the new and prior facilities follows.

New ABL Facility

On October 29, 2019, the Company entered into forbearance agreements with Term Loan Lenders collectively holding over 99.5% of the principal amount of the outstanding term loans (the “Term Loan Forbearance Agreement”) and all of the ABL Lenders (the “ABL Forbearance Agreement” and, collectively, the “Forbearance Agreements”). Pursuant to the Forbearance Agreements, the Lenders party thereto have agreed that, until the earlier of DecemberMarch 6, 2019 or the occurrence of certain specified early termination events, such Lenders will forbear from exercising any default-related rights and remedies with respect to the Specified Defaults. The Forbearance Agreements contain certain representations and warranties of the Company and covenants with which the Company must comply during the forbearance period, including a requirement to maintain aggregate bank and book cash balances of at least $10,000,000 as measured on a weekly basis. The failure to comply with such covenants, among other things, would result in the early termination of the forbearance period.

~~ABL Facility~~

~~As described above,~~2020, the Company and Key Energy Services, LLC, are borrowers under the ABL Facility that provides for aggregate commitments from the ABL Lenders of $100 million, and matures on the earlier of (a) April 5, 2024 and (b) 6 months prior to the maturity date of the Term Loan Facility (as defined below) and other material debts, if any, as identified under the ABL Facility.

~~On April 5, 2019, the ABL Borrowers,~~ as borrowers ~~the financial institutions party thereto as lenders and Bank of America, N.A.~~ (the “ABL ~~Agent”~~Borrowers”), ~~as administrative agent for the lenders,~~ entered into Amendment No. ~~1 (“Amendment No. 1”)~~3 to the Company’s existing ABL ~~Facility, among~~facility, dated as of December 15, 2016 (as amended, the “New ABL ~~Borrowers,~~Facility”) with the financial institutions party thereto from time to time as lenders ~~the ABL Agent~~(the “ABL Lenders”) and ~~the co-collateral agents for the lenders,~~ Bank of America, N.A., as administrative agent and ~~Wells Fargo Bank, National Association. The amendment makes changes to, among other things, lower (i) the applicable margin~~collateral agent (the “ABL Agent”) for borrowings to (x) from between 2.50% and 4.50% to between 2.00% and 2.50% for LIBOR borrowings and (y) from 1.50% and 3.50% to between 1.00% and 1.50% for base rate borrowings, in each case depending on the ABL ~~Borrowers’ fixed charge coverage ratio at such time, (ii) appoint the Bank of America, N.A. as sole collateral agent under~~Lenders. The New ABL Facility provides for aggregate commitments from the ABL ~~Facility, (iii) extend the maturity~~Lenders of ~~the credit facility from June 15, 2021 to~~$70 million, which mature on the earlier of (x) April 5, 2024 and (y) ~~6 months~~181 days prior to the scheduled maturity date of the ~~ABL Borrowers’~~Company’s term loan ~~credit agreement and~~facility or the scheduled maturity date of the Company’s other material ~~debts, as identified under the ABL Facility, (iv) increase the maximum~~debt in an aggregate principal amount ~~of revolving loan commitment increases from $30 million to $50 million and (v) revise certain triggers applicable to the covenants under the ABL Facility.~~exceeding $15 million.

The New ABL Facility provides the ABL Borrowers with ~~a borrowing facility~~the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x) ~~$35~~$30 million and (y) 25% of the commitments. The amount that may be borrowed under the New ABL Facility is subject to increase or reduction based on certain segregated cash or reserves provided for by the New ABL Facility. In addition, the percentages of accounts receivable and unbilled accounts receivable included in the calculation described above is subject to reduction to the extent of certain bad debt write-downs and other dilutive items provided in the New ABL Facility.

Borrowings under the New ABL Facility ~~will bear~~bears interest, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from ~~2.0%~~2.75% to ~~2.5%~~3.25% depending on the ABL Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR plus 1.0% plus (b) an applicable margin that varies from ~~1.0%~~1.75% to ~~1.5%~~2.25% depending on the ABL Borrowers’ fixed charge coverage ratio at such time. The New ABL Facility provides that, in the event LIBOR becomes unascertainable for the requested interest period or otherwise becomes unavailable or replaced by other benchmark interest rates, then the Company and the ABL Agent may amend the New ABL Facility for the purpose of replacing LIBOR with one or more SOFR-based rates or another alternate benchmark rate giving consideration to the general practice in similar U.S. dollar denominated syndicated credit facilities.

In addition, the New ABL Facility provides for unused line fees of ~~1.00%~~0.5% to ~~1.25%~~0.375% per year, depending on utilization, letter of credit fees and certain other factors.

and related assets and proceeds of the foregoing (the “ABL Priority Collateral”). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under ~~“Term~~“New Term Loan Facility”).

The revolving loans under the New ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.

The New ABL Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the ABL Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New ABL Facility also contains a requirement that the ABL Borrowers comply, during certain periods, with a fixed charge coverage ratio of at least 1.00 to 1.00.

On May 20, 2020, the ABL Borrowers, the ABL Lenders and Administrative Agent, entered into Amendment No. 4 to the New ABL Facility. Pursuant to the Fourth Amendment, the parties agreed, among other things, to (i) reduce the Lenders’ aggregate commitments to make revolving loans to $50 million, (ii) increase the applicable interest rate margin by 100 basis points to 375-425 basis points for LIBOR borrowings (with a 1.00% LIBOR floor) and 275-325 basis points for base rate borrowings (with a 2.00% base rate floor), in each case depending on the fixed charge coverage ratio at the time of determination, (iii) lower the availability thresholds for triggering certain covenants and (iv) add certain reporting requirements.

As of ~~September~~June 30, ~~2019,~~2020, we ~~have~~had no borrowings outstanding, ~~and $34.6~~$36.3 million of letters of credit, ~~outstanding~~$28.6 million posted as additional collateral ($21.2 million of which was posted in the second quarter of 2020) recorded in deposits on our balance sheet and $7.8 million of borrowing capacity available under our New ABL Facility. ~~Due~~The letters of credit are related to our workers’ compensation and auto insurance costs. The additional collateral is required to collateralize our outstanding letters of credit and maintain compliance with the ~~Specified Defaults, the Company is currently unable to borrow any amounts~~minimum borrowing capacity available under ~~the~~our New ABL Facility.

As of June 30, 2020, we were in compliance with all covenants under our New ABL Facility.

New Term Loan Facility

~~As described above,~~On March 6, 2020, the Company entered into an amendment and ~~certain subsidiaries are parties to~~restatement agreement with the Supporting Term Lenders and Cortland Capital Market Services LLC and Cortland Products Corp., as agent (the “Term Agent”), which amended and restated the Prior Term Loan Facility, ~~which had an initial outstanding~~among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as lenders and the Term Agent (as amended and restated by the amendment and restatement agreement, the “New Term Loan Facility”). Prior to the closing of the Restructuring, there were approximately $243.1 million aggregate principal amount of ~~$250 million.~~term loans outstanding under the Prior Term Loan Facility. Following the closing of the Restructuring, the New Term Loan Facility is comprised of (i) $30 million new money term loans funded by the Supporting Term Lenders and $20 million new term loans excluding new money issued in exchange for existing term loans held by the Supporting Term Lenders (collectively, the “New Term Loans”) and (ii) an approximate $1.2 million senior secured term loan tranche in respect of the existing term loans held by lenders who are not Supporting Term Lenders (the “Continuing Term Loans”). As of June 30, 2020, there was $51.2 million outstanding under the New Term Loan Facility.

For the $20 million new term loans excluding new money which were accounted for as a troubled debt restructuring with a modification of terms in accordance with ASC 470-60, “Troubled Debt Restructurings by Debtors”, which addresses certain aspects of the accounting for debt, a total of $16.3 million of estimated future undiscounted interest payments has been accrued per ASC 470-60 and presented as Interest Payable in the accompanying balance sheet. Interest payments made in the future associated with the modified $20 million new term loans will be a reduction to interest payable, which is recorded as a long-term liability on our consolidated balance sheet, and not to interest expense. Fluctuations in the effective interest rate used to estimate future cash flows will be accounted for as changes in estimates for the period in which the change occurred. However, the carrying amount of the restructured payable will remain unchanged, and future cash payments will reduce the carrying amount until the time that any gain recognized cannot be offset by future cash payments.

The New Term Loan Facility will mature on August 28, 2025, with respect to the New Term Loans, and on December 15, 2021 ~~although such~~with respect to the Continuing Term Loans. Such maturity date may, at the Company’s request, be extended by one or more of the ~~Term Loan Lenders~~term loan lenders pursuant to the terms of the New Term Loan Facility. The New Term Loans will bear interest at a per annum rate equal to LIBOR for six months, plus 10.25%. The Company has the option to pay interest in kind at an annual rate of LIBOR plus 12.25% on the outstanding principal amount of the New Term Loans for the first two years following the closing of the Restructuring. The Continuing Term Loans will bear interest at a per annum rate equal to LIBOR for one, two, three, six or, with the consent of all term loan lenders, up to 12 months, and the Company has the option to pay interest in kind of up to 100 basis points of the per annum interest due on the Continuing Term Loans.

Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the Term Agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the New Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The New Term Loans may be prepaid at the Company’s option, subject to the payment of a prepayment premium (which may be waived by lenders holding New Term Loans under the New Term Loan Facility representing at least two-thirds of the aggregate outstanding principal amount of the New Term Loans) in certain circumstances as provided in the New Term Loan Facility. If a prepayment is made prior to the first anniversary of the closing of the Restructuring, such prepayment premium is equal to 3% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the first anniversary to the second anniversary of the closing of the Restructuring, the prepayment premium is equal to 2% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the second anniversary to the third anniversary of the closing of the Restructuring, the prepayment premium is equal to 1% of the principal amount of the New Term Loans prepaid; and there is no prepayment premium thereafter. The Company is required to make principal payments in respect of the Continuing Term Loans in the amount of $3,125 per quarter commencing with the quarter ended March 31, 2020 and is required to pay $1,190,625 on the maturity date of the Continuing Term Loans.

In addition, pursuant to the New Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, receipt of extraordinary cash proceeds (e.g., tax and insurance) and upon certain change of control transactions, subject in each case to certain exceptions.

The New Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New Term Loan Facility also contains a financial covenant requiring that the Company maintain Liquidity (as defined in the New Term Loan Facility) of not less than $10 million as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

As of June 30, 2020, we were in compliance with all covenants under our New Term Loan Facility.

The weighted average interest rate on the outstanding borrowings under the New Term Loan Facility for the three month periods ended June 30, 2020 and from March 6, 2020, the beginning of the New Term Loan Facility, to June 30, 2020 were 13.17%.

Prior ABL Facility

As described above, the Company and Key Energy Services, LLC were borrowers under the Prior ABL Facility that provided for aggregate commitments from the ABL Lenders of $80 million.

On April 5, 2019, the ABL Borrowers, as borrowers, the financial institutions party thereto as lenders and Bank of America, N.A. (the “ABL Agent”), as administrative agent for the lenders, entered into Amendment No. 1 (“Amendment No. 1”) to the Prior ABL Facility, among the ABL Borrowers, the financial institutions party thereto from time to time as lenders, the ABL Agent and the co-collateral agents for the lenders, Bank of America, N.A. and Wells Fargo Bank, National Association. The amendment, among other things, lowered the applicable margin for borrowings to (i) from between 2.50% and 4.50% to between 2.00% and 2.50% for LIBOR borrowings and (ii) from 1.50% and 3.50% to between 1.00% and 1.50% for base rate borrowings. On December 20, 2019, the Company and the Lenders amended the ABL Forbearance Agreement and the Loan Agreement to, among other things, (i) reduce the minimum availability Key is required to maintain under the ABL Forbearance Agreement from $12.5 million to $10 million and (ii) reduce the aggregate revolving commitments under the Loan Agreement from $100 million to $80 million.

The Prior ABL Facility provided the ABL Borrowers with the ability to borrow up to an aggregate principal amount equal to the lesser of (i) the aggregate revolving commitments then in effect and (ii) the sum of (a) 85% of the value of eligible accounts receivable plus (b) 80% of the value of eligible unbilled accounts receivable, subject to a limit equal to the greater of (x) $35 million and (y) 25% of the Commitments.

The contractual interest rates under the Prior ABL Facility were, at the ABL Borrowers’ option, at a per annum rate equal to (i) LIBOR for 30, 60, 90, 180, or, with the consent of the ABL Lenders, 360 days, plus an applicable margin that varies from 2.50% to 4.50% depending on the ABL Borrowers’ fixed charge coverage ratio at such time or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the federal funds rate, plus 0.50% or (z) 30-day LIBOR, plus 1.0% plus (b) an applicable margin that varied from 1.50% to 3.50% depending on the ABL Borrowers’ fixed charge coverage ratio at such time. In addition, the Prior ABL Facility provided for unused line fees of 1.0% to 1.25% per year, depending on utilization, letter of credit fees and certain other factors.

Prior Term Loan Facility

As described above, the Company and certain subsidiaries were parties to the Prior Term Loan Facility, which had an initial outstanding principal amount of $250 million.

Borrowings under the Prior Term Loan Facility ~~will bear~~bore interest, at the Company’s option, at a per annum rate equal to (i) LIBOR for one, two, three, six, or, with the consent of the Term Loan Lenders, 12 months, plus 10.25% or (ii) a base rate equal to the sum of (a) the greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 9.25%.

The Term Loan Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “Term Loan Guarantors,” and together with the Company, the “Term Loan Parties”). To secure their obligations under the Term Loan Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The loans under the Term Loan Facility may be prepaid at the Company’s option, subject to the payment of a prepayment premium in certain circumstances as provided in the Term Loan Facility. A prepayment prior to the first anniversary of the loan would have been required to have been made with a make-whole amount with the calculation of the make-whole amount as specified in the Term Loan Facility. If a prepayment is made after the first anniversary of the loan but prior to the second anniversary, such prepayment must be made at 106% of the principle amount, if a prepayment is made after the second anniversary but prior to the third anniversary, such prepayment must be made at 103% of the principle amount. After the third anniversary, if a prepayment is made, no prepayment premium is due. The Company is required to make principal payments in the amount of $625,000 per quarter. In addition, pursuant to the Term Loan Facility, the Company must prepay or offer to prepay, as applicable, term loans with the net cash proceeds of certain debt incurrences and asset sales, excess cash flow, and upon certain change of control transactions, subject in each case to certain exceptions.

The Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The Term Loan Facility also contains financial covenants requiring that the Company maintain an asset coverage ratio of at least 1.35 to 1.0 and that Liquidity (as defined in the Term Loan Facility) must not be less than $37.5 million (of which at least $20.0 million must be in cash or cash equivalents held in deposit accounts) as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

~~The~~ weighted average interest ~~rates~~rate on the outstanding borrowings under the Prior Term Loan Facility ~~for~~in 2020, prior to the ~~three and nine month periods ended September 30, 2019 were as follows:~~Restructuring, was 15.45%.

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
Term Loan Facility 12.61 % 12.82 %

NOTE 8. OTHER INCOME

The table below presents comparative detailed information about our other income and expense, shown on the condensed consolidated statements of operations as “other income, net” for the periods indicated (in thousands):



	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
Interest income	$	(122	)	$	(201	)	$	(639	)	$	(580	)	$	(25	)	$	(195	)	$	(82	)	$	(517	)
Other	(229		)	(12		)	(1,093		)	(1,392		)	10			(44		)	(318		)	(864		)
Total	$	(351	)	$	(213	)	$	(1,732	)	$	(1,972	)	$	(15	)	$	(239	)	$	(400	)	$	(1,381	)

NOTE 9. INCOME TAXES

The U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted on December 22, 2017. The 2017 Tax Act is comprehensive tax reform legislation that contains significant changes to corporate taxation. Provisions on the enacted law include a permanent reduction of the corporate income tax rate from 35% to 21%, imposing a mandatory one-time tax on un-repatriated accumulated earnings of foreign subsidiaries, a partial limitation on the deductibility of business interest expense, a limitation on net operating losses to 80% of taxable income each year, a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a partial territorial system (along with rules that create a new U.S. minimum tax on earnings of foreign subsidiaries), and other related provisions to maintain the U.S. tax base.

We recognized the income tax effects of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) during 2017. SAB 118 provided SEC staff guidance for the application of ASC Topic 740, Income Taxes, and allowed for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As such, our 2017 financial results reflected the provisional income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 was incomplete but a reasonable estimate could be determined. We did not identify any items for which the income tax effects of the 2017 Tax Act could not be reasonably estimated as of December 31, 2017. Additional clarifying guidance and law corrections were issued by the U.S. government during 2018 related to the 2017 Tax Act, which provided further insight into properly accounting for the impacts of U.S. tax reform. During 2018, we finalized our accounting for this matter and concluded that no adjustments were required from our provisionally recorded amounts from 2017. We no longer have any provisionally recorded items related to the enactment of the 2017 Tax Act as of December 31, 2018. In addition, there were no material 2017 Tax Act changes or clarifications that affected our accounting for the nine-month period ended September 30, 2019.

We are subject to U.S. federal income tax as well as income taxes in multiple state and foreign jurisdictions. Our effective tax rates for the three months ended ~~September~~June 30, 2020 and 2019 ~~and 2018~~ were ~~(0.1)~~(1.2)% and ~~6.8%~~19.4%, respectively, and ~~6.1%~~1.1% and ~~2.4%~~9.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The variance between our effective rate and the U.S. statutory rate is due to the impact of permanent differences and other tax adjustments, such as valuation allowances against deferred tax assets and a true-up adjustment to income tax ~~expense or benefit recognized for uncertain tax positions.~~ receivable.

We continued recording income taxes using a year-to-date effective tax rate method for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019. The use of this method was based on our expectations that a small change in our estimated ordinary income could result in a large change in the estimated annual effective tax rate. We will re-evaluate our use of this method each quarter until such time as a return to the annualized effective tax rate method is deemed appropriate.

The Company assesses the realizability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. Due to the history of losses in recent years and the continued challenges affecting the oil and gas industry and global economy, management continues to believe it is more likely than not that we will not be able to realize our net deferred tax assets. No release of our deferred tax asset valuation allowance was made during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

The Company did not recognize any unrecognized tax benefits during three or six months ended June 30, 2020. As of ~~September~~June 30, ~~2019,~~2020, we had no unrecognized tax ~~benefits,~~benefits.

Cancellation of Indebtedness Income (“CODI”)

Under the RSA, a substantial portion of the Company’s term loans were exchanged for newly issued shares and new term loans of the Company. Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than the adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that an insolvent debtor may exclude CODI from taxable income up to the amount of insolvency but must reduce certain of its tax attributes by the amount of any CODI excluded pursuant to the insolvency exception. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. Based on the market value of the Company’s equity, and the adjusted issue price of the term loans issued in the exchange, the estimated amount of U.S. CODI is approximately $206.0 million, $197.8 million of which is excluded pursuant to the insolvency exception and $8.2 million of which will be included in taxable income. Due to the application of the insolvency exception, the Company will reduce the value of its U.S. net operating losses that had a value of ~~federal tax benefit. All remaining unrecognized tax positions were recognized~~$476.8 million as of ~~December 31, 2018 as a result~~June 30, 2020. The actual reduction in tax attributes does not occur until the first day of the ~~statute~~Company’s tax year subsequent to the date of ~~limitations lapse,~~the restructuring, or January 1, 2021. Further

any remaining net operating losses, tax credits, and ~~there are no unrecognized tax positions~~certain built-in-losses or deductions existing as of ~~September~~the date of the ownership change will be limited under IRC Section 382 due to the change in control resulting from the restructuring.

The CARES Act

As noted above in Note 2 under the heading—Significant Accounting Policies Coronavirus Aid, Relief and Economic Security Act, the CARES Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses (NOL) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; and generally increased the business interest limitation under section 163(j) from 30 ~~2019.~~percent to 50 percent. Key has analyzed the income tax provisions under the CARES Act, and concluded that none of the provisions have a significant impact to the Company's income tax positions. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact our tax provision in future periods. In addition to income tax provisions, the CARES Act also includes tax provisions relating to refundable payroll tax credits and deferment of employer’s social security tax payments. Specifically, the CARES Act permits an employer to defer 50 percent of its 2020 social security tax payments to the end of 2021 and the remaining 50 percent to the end of 2022. Beginning in April of 2020, we began deferment of employer’s social security payments. The Company continues to evaluate the impact of the CARES Act on our financial position, results of operations and cash flows.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Litigation

Various suits and claims arising in the ordinary course of business are pending against us. We conduct business throughout the continental United States and may be subject to jury verdicts or arbitrations that result in outcomes in favor of the plaintiffs. We continually assess our contingent liabilities, including potential litigation liabilities, as well as the adequacy of our accruals and our need for the disclosure of these items, if any. We establish a provision for a contingent liability when it is probable that a liability has been incurred and the amount is reasonably estimable. We have ~~$2.5~~$2.0 million of other liabilities related to litigation that is deemed probable and reasonably estimable as of ~~September~~June 30, ~~2019.~~2020. We do not believe that the disposition of any of these matters will result in an additional loss materially in excess of amounts that have been recorded.

Self-Insurance Reserves

We maintain reserves for workers’ compensation and vehicle liability on our balance sheet based on our judgment and estimates using an actuarial method based on claims incurred. We estimate general liability claims on a case-by-case basis. We maintain insurance policies for workers’ compensation, vehicle liability and general liability claims. These insurance policies carry self-insured retention limits or deductibles on a per occurrence basis. The retention limits or deductibles are accounted for in our accrual process for all workers’ compensation, vehicular liability and general liability claims. The deductibles have a $5 million maximum per vehicular liability claim, and a $2 million maximum per general liability claim and a $1 million maximum per workers’ compensation claim. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we have recorded ~~$51.7~~$51.9 million and ~~$50.1~~$51.4 million, respectively, of self-insurance reserves related to workers’ compensation, vehicular liabilities and general liability claims. Partially offsetting these liabilities, we had ~~$13.6~~$13.7 million and ~~$13.1~~$13.4 million of insurance receivables as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

Environmental Remediation Liabilities

For environmental reserve matters, including remediation efforts for current locations and those relating to previously disposed properties, we record liabilities when our remediation efforts are probable and the costs to conduct such remediation efforts can be reasonably estimated. As of each of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we have recorded ~~$2.4~~$1.9 million and ~~$2.2~~$2.0 million, respectively, for our environmental remediation liabilities. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued.

NOTE 11. ~~LOSS~~EARNINGS (LOSS) PER SHARE

Basic ~~loss~~earnings (loss) per share is determined by dividing net loss attributable to Key by the weighted average number of common shares actually outstanding during the period. Diluted ~~loss~~earnings (loss) per common share is based on the increased number of shares that would be outstanding assuming conversion of potentially dilutive outstanding securities using the treasury stock and “as if converted” methods.

The components of our ~~loss~~income (loss) per share are as follows (in thousands, except per share amounts):



	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020		2019
Basic and Diluted EPS Calculation:
Basic Calculation:
Numerator
Net loss	$	(25,489	)	$	(23,860	)	$	(67,233	)	$	(65,718	)
Net income (loss)													$	(19,125	)	$	(18,303	)	$	89,869	$	(41,744	)
Denominator
Weighted average shares outstanding	20,443			20,252			20,398			20,234			13,781			408			8,935		408
Basic and diluted loss per share	$	(1.25	)	$	(1.18	)	$	(3.30	)	$	(3.25	)
Basic earnings (loss) per share													$	(1.39	)	$	(44.86	)	$	10.06	$	(102.31	)
Diluted EPS Calculation:
Numerator
Net income (loss)													$	(19,125	)	$	(18,303	)	$	89,869	$	(41,744	)
Denominator
Weighted average shares outstanding													13,781			408			8,935		408
RSUs													—			—			56		—
Total													13,781			408			8,991		408
Diluted earnings (loss) per share													$	(1.39	)	$	(44.86	)	$	10.00	$	(102.31	)

Restricted stock units (“RSUs”), stock options, and warrants are included in the computation of diluted earnings per share using the treasury stock method. Restricted stock awards are legally considered issued and outstanding when granted and are included in basic weighted average shares outstanding.

The ~~company~~Company has issued potentially dilutive instruments such as RSUs, stock options and warrants. However, the ~~company~~Company did not include these instruments in its calculation of diluted loss per share during the periods presented, because to include them would be anti-dilutive. The following table shows potentially dilutive instruments (in thousands):



	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2019	2018	2019	2018	2020	2019	2020	2019
RSUs	1,882	1,078	1,994	1,367	301	40	58	41
Stock options	54	159	74	163	1	1	1	1
Warrants	1,838	1,838	1,838	1,838	2,924	37	1,880	37
Total	3,774	3,075	3,906	3,368	3,226	78	1,939	79

No events occurred after ~~September~~June 30, ~~2019~~2020 that would materially affect the number of weighted average shares outstanding.

NOTE 12. SHARE-BASED COMPENSATION

Common Stock Awards

We recognized employee share-based compensation expense of ~~$1.2~~$0.3 million and ~~$1.6~~$1.4 million during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. We recognized employee share-based compensation expense of ~~$3.3~~$0.3 million and ~~$4.0~~$2.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Our employee share-based awards, including common stock awards, stock option awards and phantom shares, vest in equal installments over a three-year period or ~~which~~ vest in a 40%-60% split respectively over a two-year period. Additionally, we recognized share-based compensation expense related to our outside directors of ~~less than $0.1 million and $0.1~~zero and$0.1 million during the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. We recognized share-based compensation expense related to our outside directors of ~~$0.2~~less than negative $0.1 million and ~~$0.6~~$0.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The unrecognized compensation cost related to our unvested share-based awards as of ~~September~~June 30, ~~2019~~2020 is estimated to be ~~$4.1~~$3.1 million and is expected to be recognized over a weighted-average period of ~~1.2~~1.3 years.

Stock Option Awards

As of ~~September~~June 30, ~~2019,~~2020, all outstanding stock options are vested and there are no unrecognized costs related to our stock options.

Phantom Share Plan

We recognized compensation expense related to our phantom shares of less than $0.1 million and less than negative $0.1 million during the three months ended ~~September~~June 30, 2020 and 2019, ~~and 2018.~~respectively. We recognized compensation expense related to our phantom shares of less than $0.1 million and ~~$0.8~~less than $0.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The unrecognized compensation cost related to our unvested phantom shares as of ~~September~~June 30, ~~2019~~2020 is estimated to be less than $0.1 million and is expected to be recognized over a weighted-average period of ~~0.8~~0.5 years.

NOTE 13. TRANSACTIONS WITH RELATED PARTIES

The Company ~~has purchased or sold equipment or services from a few affiliates of certain directors. Additionally, the Company has~~previously had a corporate advisory services agreement between with Platinum Equity Advisors, LLC (“Platinum”), an affiliate of Soter, pursuant to which Platinum provides certain business advisory services to the Company. The dollar amounts related to these related party activities ~~are not~~were material to the Company’s condensed consolidated financial statements.

In March 2020, the Company and Platinum Equity Advisors, LLC (“Platinum”), entered into a letter agreement (the “CASA Letter Agreement”) regarding outstanding payments owed to Platinum by the Company under the Corporate Advisory Services Agreement, dated as of December 15, 2016 (the “Advisory Agreement”). Pursuant to the CASA Letter Agreement, Platinum agreed to release the Company from its outstanding payment obligations under the Advisory Agreement in exchange for the right to a potential payment of $4.0 million upon the occurrence of certain reorganization events involving the Company and ceased providing any business advisory services to the Company.

NOTE 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities. These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of ~~those instruments on the balance sheet date.~~these instruments.

New Term Loan Facility ~~due 2021~~. Because of the variable interest rates feature and recent initiation of these loans, ~~approximate current market rates,~~we believe the carrying value approximates the fair ~~values~~value of the loans borrowed under this ~~facility approximate their carrying values.~~facility.

NOTE 15. LEASES

We have operating leases for certain corporate offices and operating locations and finance leases for certain vehicles. We determine if a contract is a lease or contains an embedded lease at the inception of the contract. Operating lease right-of-use (“ROU”) assets are included in other current and other non-current assets, and operating lease liabilities are included in other current and other non-current liabilities in our consolidated balance sheets. Finance lease ROU assets are included in property and equipment, net, and finance lease liabilities are included in our current portion of long-term debt, and long-term debt on our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating and finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our risk adjusted incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease. Our leases have remaining lease terms of less than one year to five years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Lease expense for lease payments is recognized on a straight-line basis over the non-cancelable term of the lease.

We recognized ~~$0.8~~$0.7 million and ~~$2.2~~$0.7 million of costs related to our operating leases during the three ~~and nine~~ months ended ~~September~~June 30, 2020 and June 30, 2019, respectively. We recognized $1.4 million and $1.4 million of costs related to our operating leases during the six months ended June 30, 2020 and June 30, 2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, our operating leases have a weighted average remaining lease term of ~~2.7~~2.3 years and a weighted average discount rate of ~~5.97%~~5.63%.

We recognized ~~less than 0.1~~$0.3 million and zero of costs related to our finance leases during the three ~~and nine~~ months ended ~~September~~June 30, ~~2019.~~2020 and June 30, 2019, respectively. We recognized $0.4 million and zero of costs related to our finance leases during the six months ended June 30, 2020 and June 30, 2019, respectively. As of ~~September~~June 30, ~~2019,~~2020, our finance leases have a weighted average remaining lease term of ~~3.9~~4.3 years and a weighted average discount rate of ~~4.77%~~5.11%.

Supplemental balance sheet information related to leases as of ~~September~~June 30, ~~2019 are~~2020 and December 31, 2019are as follows (in thousands):



	September 30, 2019		June 30, 2020		December 31, 2019
Right-of-Use Assets under Operating Leases
Right-of-use assets under operating leases
Operating lease right-of-use assets, current portion	$	2,517	$	3,593	$	2,394
Operating lease right-of-use assets, non-current portion	2,853		439		2,404
Total operating lease assets	$	5,370	$	4,032	$	4,798

Operating lease liabilities, current portion	$	2,448	$	2,599	$	2,502
Operating lease liabilities, non-current portion	3,120		1,783		2,590
Total operating lease liabilities	$	5,568	$	4,382	$	5,092

Right-of-Use Assets under Finance Leases
Right-of-use assets under finance leases
Property and equipment, at cost	$	1,760	$	5,246	$	1,760
Less accumulated depreciation	73		554		183
Property and equipment, net	$	1,687	$	4,692	$	1,577

Current portion of long-term debt	$	414	$	1,063	$	419
Long-term debt	1,287		3,683		1,181
Total finance lease liabilities	$	1,701	$	4,746	$	1,600

The maturities of our operating and finance lease liabilities as of ~~September~~June 30, ~~2019~~2020 are as follows (in thousands):


	September 30, 2019						June 30, 2020
	Operating Leases			Finance Leases			Operating Leases			Finance Leases
Remainder of 2019	$	659		$	119
2020	2,676			485
Remainder of 2020							$	1,492		$	638
2021	1,508			485			1,747			1,277
2022	493			485			705			1,277
2023	493			283			528			1,075
2024							189			792
Thereafter	188			—			—			225
Total lease payments	6,017			1,857			4,661			5,284
Less imputed interest	(449		)	(156		)	(279		)	(538		)
Total	$	5,568		$	1,701		$	4,382		$	4,746

NOTE 16. SEGMENT INFORMATION

Our reportable business segments are Rig Services, Fishing and Rental Services, Coiled Tubing Services and Fluid Management Services. We also have a “Functional Support” segment associated with overhead and other costs in support of our reportable segments. We evaluate the performance of our segments based on gross margin measures. All inter-segment sales pricing is based on current market conditions.

Rig Services

Our Rig Services include the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells at the end of their useful lives. We also provide specialty drilling services to oil and natural gas producers with certain of our larger rigs that are capable of providing conventional and horizontal drilling services. Our rigs encompass various sizes and capabilities, allowing us to service all types of wells. Many of our rigs are outfitted with our proprietary KeyView® technology, which captures and reports well site operating data and provides safety control systems. We believe that this technology allows our customers and our crews to better monitor well site operations, improves efficiency and safety, and adds value to the services that we offer.

The completion and recompletion services provided by our rigs prepare wells for production, whether newly drilled, or recently extended through a workover operation. The completion process may involve selectively perforating the well casing to access production zones, stimulating and testing these zones, and installing tubular and downhole equipment. We typically provide

a well service rig and may also provide other equipment to assist in the completion process. Completion services vary by well and our work may take a few days to several weeks to perform, depending on the nature of the completion.

The workover services that we provide are designed to enhance the production of existing wells and generally are more complex and time consuming than normal maintenance services. Workover services can include deepening or extending wellbores into new formations by drilling horizontal or lateral wellbores, sealing off depleted production zones and accessing previously bypassed production zones, converting former production wells into injection wells for enhanced recovery operations and conducting major subsurface repairs due to equipment failures. Workover services may last from a few days to several weeks, depending on the complexity of the workover.

Maintenance services provided with our rig fleet are generally required throughout the life cycle of an oil or natural gas well. Examples of these maintenance services include routine mechanical repairs to the pumps, tubing and other equipment, removing debris and formation material from wellbores, and pulling rods and other downhole equipment from wellbores to identify and resolve production problems. Maintenance services are generally less complicated than completion and workover related services and require less time to perform.

Our rig fleet is also used in the process of permanently shutting-in oil or natural gas wells that are at the end of their productive lives. These plugging and abandonment services generally require auxiliary equipment in addition to a well servicing rig. The demand for plugging and abandonment services is not significantly impacted by the demand for oil and natural gas because well operators are required by state regulations to plug wells that are no longer productive.

Fishing and Rental Services

We offer a full line of fishing services and rental equipment designed for use in providing drilling and workover services. Fishing services involve recovering lost or stuck equipment in the wellbore utilizing a broad array of “fishing tools.” Our rental tool inventory consists of drill pipe, tubulars, handling tools (including our patented Hydra-Walk^® pipe-handling units and services), pressure-control equipment, pumps, power swivels, reversing units and foam air units. We sold our well testing assets and our frac stack equipment used to support hydraulic fracturing operations and the associated flowback of frac fluids in the second quarter of 2017.

Demand for our fishing and rental services is closely related to capital spending by oil and natural gas producers, which is generally a function of oil and natural gas prices.

Coiled Tubing Services

Coiled Tubing Services involve the use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells to perform various applications, such as wellbore clean-outs, nitrogen jet lifts, through-tubing fishing, and formation stimulations utilizing acid and chemical treatments. Coiled tubing is also used for a number of horizontal well applications such as milling temporary isolation plugs that separate frac zones, and various other pre- and post-hydraulic fracturing well preparation services.

Fluid Management Services

We provide transportation and well-site storage services for various fluids utilized in connection with drilling, completions, workover and maintenance activities. We also provide disposal services for fluids produced subsequent to well completion. These fluids are removed from the well site and transported for disposal in saltwater disposal wells owned by us or a third party. In addition, we operate a fleet of hot oilers capable of pumping heated fluids used to clear soluble restrictions in a wellbore. Demand and pricing for these services generally correspond to demand for our well service rigs.

Functional Support

Our Functional Support segment includes unallocated overhead costs associated with administrative support for our reporting segments.

Financial Summary

The following tables set forth our unaudited segment information as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


As of and for the three months ended September 30, 2019
As of and for the three months ended June 30, 2020																					As of and for the three months ended June 30, 2020
	Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Reconciling Eliminations			Total			Rig Services			Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Reconciling Eliminations			Total
Revenues from external customers	$	64,465	$	14,135		$	9,714		$	18,209		$	—		$	—		$	106,523		$	20,825		$	3,971		$	1,867		$	8,087		$	—		$	—		$	34,750
Intersegment revenues	87		241			—			58			—			(386		)	—			10			54			—			5			—			(69		)	—
Depreciation and amortization	6,289		4,139			1,397			2,294			465			—			14,584			4,138			1,349			1,164			717			686			—			8,054
Other operating expenses	55,424		11,713			9,862			16,338			15,994			—			109,331			18,992			4,340			2,521			7,259			10,429			—			43,541
Operating income (loss)	2,752		(1,717		)	(1,545		)	(423		)	(16,459		)	—			(17,392		)	(2,305		)	(1,718		)	(1,818		)	111			(11,115		)	—			(16,845		)
Interest expense, net of amounts capitalized	33		7			13			12			8,346			—			8,411			68			6			14			11			1,967			—			2,066
Income (loss) before income taxes	2,734		(1,724		)	(1,558		)	(424		)	(24,480		)	—			(25,452		)	(2,364		)	(1,718		)	(1,831		)	104			(13,087		)	—			(18,896		)
Long-lived assets(1)	124,078		41,897			17,165			47,980			24,464			—			255,584			115,036			16,001			14,135			15,202			50,164			—			210,538
Total assets	173,079		55,625			26,174			59,827			50,000			9,441			374,146			136,287			20,014			17,766			20,577			64,048			10,501			269,193
Capital expenditures	932		418			1,246			33			1,492			—			4,121			102			88			105			(9		)	11			—			297



As of and for the three months ended June 30, 2019
	Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Reconciling Eliminations			Total
Revenues from external customers	$	67,884	$	14,812		$	11,747		$	18,500	$	—		$	—		$	112,943
Intersegment revenues	166		287			—			32		—			(485		)	—
Depreciation and amortization	6,141		4,204			1,270			2,182		465			—			14,262
Other operating expenses	55,861		12,430			11,926			16,119		16,772			—			113,108
Operating income (loss)	5,882		(1,822		)	(1,449		)	199		(17,237		)	—			(14,427		)
Interest expense, net of amounts capitalized	26		6			14			10		8,464			—			8,520
Income (loss) before income taxes	5,867		(1,823		)	(1,461		)	185		(25,476		)	—			(22,708		)
Long-lived assets(1)	128,945		45,616			17,340			51,175		23,909			—			266,985
Total assets	178,747		59,541			27,949			63,880		58,610			14,788			403,515
Capital expenditures	983		—			1,151			1,898		3,290			—			7,322


As of and for the three months ended September 30, 2018
As of and for the six months ended June 30, 2020																				As of and for the six months ended June 30, 2020
	Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support			Reconciling Eliminations			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Reconciling Eliminations			Total
Revenues from external customers	$	77,153	$	17,477		$	18,220	$	21,871		$	—		$	—		$	134,721		$	68,734	$	13,563		$	6,704		$	21,057		$	—		$	—		$	110,058
Intersegment revenues	183		621			—		328			—			(1,132		)	—			125		225			—			34			5			(389		)	—
Depreciation and amortization	8,212		6,012			1,403		5,262			919			—			21,808			8,167		4,182			2,338			2,228			1,365			—			18,280
Impairment expense																				—		17,551			—			23,691			—			—			41,242
Other operating expenses	64,471		12,855			16,404		19,441			16,857			—			130,028			59,546		13,298			7,140			18,889			21,582			—			120,455
Operating income (loss)	4,470		(1,390		)	413		(2,832		)	(17,776		)	—			(17,115		)	1,021		(21,468		)	(2,774		)	(23,751		)	(22,947		)	—			(69,919		)
Gain on debt restructuring																				—		—			—			—			(170,648		)	—			(170,648		)
Interest expense, net of amounts capitalized	—		—			—		—			8,708			—			8,708			100		12			27			23			10,125			—			10,287
Income (loss) before income taxes	4,488		(1,378		)	413		(2,827		)	(26,306		)	—			(25,610		)	941		(21,468		)	(2,800		)	(23,769		)	137,938			—			90,842
Long-lived assets(1)	147,050		49,436			18,083		60,360			22,109			421			297,459			115,036		16,001			14,135			15,202			50,164			—			210,538
Total assets	204,823		65,798			36,493		75,811			70,927			8,881			462,733			136,287		20,014			17,766			20,577			64,048			10,501			269,193
Capital expenditures	5,602		1,891			563		433			2,859			—			11,348			390		106			272			123			88			—			979

As of and for the nine months ended September 30, 2019
Rig Services Fishing and Rental Services Coiled Tubing Services Fluid Management Services
Functional
Support

Reconciling
Eliminations
Total
Revenues from external customers $ 197,375
$ 43,534
$ 32,134
$ 55,696
$ —
$ —
$ 328,739
Intersegment revenues 341
1,436
—
133
—
(1,910 ) —
Depreciation and amortization 18,419
12,493
3,923
6,917
1,390
—
43,142
Other operating expenses 165,866
35,703
33,343
48,894
48,922
—
332,728
Operating income (loss) 13,090
(4,662 ) (5,132 ) (115 ) (50,312 ) —
(47,131 )
Interest expense, net of amounts capitalized 69
20
43
33
25,999
—
26,164
Income (loss) before income taxes 13,070
(4,671 ) (5,172 ) (133 ) (74,657 ) —
(71,563 )
Long-lived assets(1) 124,078
41,897
17,165
47,980
24,464
—
255,584
Total assets 173,079
55,625
26,174
59,827
50,000
9,441
374,146
Capital expenditures 3,745
2,491
3,163
2,088
4,996
—
16,483


As of and for the nine months ended September 30, 2018
As of and for the six months ended June 30, 2019																				As of and for the six months ended June 30, 2019
	Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support			Reconciling Eliminations			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Reconciling Eliminations			Total
Revenues from external customers	$	227,913	$	47,801		$	60,513	$	68,215		$	—		$	—		$	404,442		$	132,910	$	29,399		$	22,420		$	37,487	$	—		$	—		$	222,216
Intersegment revenues	439		1,692			19		1,025			—			(3,175		)	—			254		1,195			—			75		—			(1,524		)	—
Depreciation and amortization	23,869		17,657			3,887		15,581			1,887			—			62,881			12,130		8,354			2,526			4,623		925			—			28,558
Other operating expenses	188,570		37,627			49,128		60,136			49,953			—			385,414			110,442		23,990			23,481			32,556		32,928			—			223,397
Operating income (loss)	15,474		(7,483		)	7,498		(7,502		)	(51,840		)	—			(43,853		)	10,338		(2,945		)	(3,587		)	308		(33,853		)	—			(29,739		)
Interest expense, net of amounts capitalized	—		—			—		—			25,425			—			25,425			36		13			30			21		17,653			—			17,753
Income (loss) before income taxes	15,584		(7,458		)	7,501		(7,432		)	(75,501		)	—			(67,306		)	10,336		(2,947		)	(3,614		)	291		(50,177		)	—			(46,111		)
Long-lived assets(1)	147,050		49,436			18,083		60,360			22,109			421			297,459			128,945		45,616			17,340			51,175		23,909			—			266,985
Total assets	204,823		65,798			36,493		75,811			70,927			8,881			462,733			178,747		59,541			27,949			63,880		58,610			14,788			403,515
Capital expenditures	13,350		2,671			4,461		2,569			5,470			—			28,521			2,813		2,073			1,917			2,055		3,504			—			12,362


(1)	Long-lived assets include fixed assets, intangibles and other non-current assets.

NOTE 17. ~~SUBSEQUENT EVENTS~~ASSET IMPAIRMENT

~~As announced on October 31, 2019,~~Asset Impairments

During the six months ended June 30, 2020 the Company recognized an asset impairment of $41.2 million. The COVID-19 pandemic has ~~engaged external advisers~~resulted in significant economic disruption globally. Government action to ~~assist~~restrict travel and suspend business operations has significantly reduced global economic activity. In addition, the recent steep decline in the price of crude oil has decreased the value in some of our long-lived assets.

The Company assesses triggering events in ~~analyzing various strategic financial alternatives~~accordance with ASC 360-10-35-21. Triggering events that were deemed to ~~address~~be present included: a significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its ~~capital structure~~physical location, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group), and a current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. During the first quarter of 2020, we recognized an impairment expense to ~~position the Company for future success. In connection with this strategic review, the Company elected not to make a scheduled interest payment due October 18, 2019 under the Term Loan Facility.~~ long-lived assets.

Impairment of Long-Lived Assets

The Company’s ~~failure to make~~long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the ~~October interest payment resulted~~carrying amount of an asset may not be recoverable. Long-lived assets used in ~~a default under~~operations are assessed for impairment whenever changes in circumstances indicate that the ~~Term Loan Facility and a cross default under the ABL Facility (such defaults, the “Specified Defaults”).~~

~~On October 29, 2019, the Company entered into forbearance agreements with Term Loan Lenders collectively holding over 99.5%~~carrying value of the ~~principal amount~~assets may not be recoverable based on the expected undiscounted future cash flow of an asset group. Long-lived assets must be grouped at the lowest level for which independent cash flows can be identified (asset groups). If the sum of the ~~outstanding term loans (the “Term Loan Forbearance Agreement”)~~undiscounted cash flows is less than the carrying value of an asset group, the fair value of each asset group must be calculated and the carrying value is written down to the calculated fair value if necessary. If the fair value of an asset group exceeds the carrying value, no impairment expense is necessary for that asset group.

During the first quarter of 2020, we identified long-lived asset impairment triggers relating to all five of our asset groups as a result of the ~~ABL Lenders (the “ABL Forbearance Agreement”~~significant economic impacts and ~~collectively,~~ the ~~“Forbearance Agreements”). Pursuant~~effects of COVID-19. The five asset groups were determined to be Rigs, Fluid Management Services - Trucks, Fluid Management Services - Saltwater Disposal Wells, Fishing & Rental Services, and Coiled Tubing Services. We assessed each asset group for impairment by comparing the undiscounted pretax cash flows to the ~~Forbearance Agreements,~~carrying value of each asset group. We determined that all our asset groups, excluding Rigs, had carrying values that exceeded the ~~Lenders party thereto have agreed that, until the earlier~~undiscounted cash flows. The determination of December 6, 2019 or the occurrence of certain specified early termination events, such Lenders will forbear from exercising any default-related rights and remedies with respect to the Specified Defaults. The Forbearance Agreements contain certain representations and warrantiesundiscounted cash flows included management’s best estimates of the ~~Company~~expected future cash flows per asset group for the next five years. The determinations of expected future cash flows and ~~covenants with~~the salvage value of long-lived assets require considerable judgement and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for the purposes of this impairment analysis will prove to be an accurate prediction of the future. Should our assumptions change significantly in future periods, it is possible we may determine the carrying values of the Rigs asset group exceeds the undiscounted pretax cashflows, which the Company must comply during the forbearance period, including a requirement to maintain aggregate bank and book cash balances of at least $10,000,000 as measured on a weekly basis. The failure to comply with such covenants, among other things, would result in an impairment expense.

It was determined that the ~~early termination~~fair value of the ~~forbearance period.~~Fluid Management Services - Trucks, Fluid Management Services - Saltwater Disposal Wells, and Fishing & Rental Service asset groups was less than the carrying value of the respective asset groups by approximately $8.8 million, $14.8 million and $17.6 million, respectively, as of March 31, 2020. As a result, we recorded a total impairment charge of $41.2 million to asset impairment on the consolidated statements of income at March 31, 2020. We determined that the fair value of our Coiled Tubing Services asset group exceeded the carrying value. As such, no impairment expense was charged to the Coiled Tubing Services asset group.

The Company incorporated the income, market, and cost approaches to determine the fair value of each asset group. The income approach utilized significant assumptions including management’s best estimates of the expected future cash flows and the estimated useful life of the asset group. The market approach was utilized when there was an observable secondary market or where there was ample asset data available. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. Fair value determination requires a considerable amount of judgement and is sensitive to changes in underlying assumptions and economic factors. As a result, there can be no assurance that the fair value estimates made for the impairment analysis will prove to be an accurate prediction for the future.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Key Energy Services, Inc., and its wholly owned subsidiaries provide a full range of well services to major oil companies and independent oil and natural gas production companies. Our services include rig-based and coiled tubing-based well maintenance and workover services, well completion and recompletion services, fluid management services, fishing and rental services, and other ancillary oilfield services. Additionally, certain of our rigs are capable of specialty drilling applications. We operate in most major oil and natural gas producing regions of the continental United States. An important component of the Company’s growth strategy is to make acquisitions that will strengthen its core services or presence in selected markets, and the Company also makes strategic divestitures from time to time. The Company expects that the industry in which it operates will experience consolidation, and the Company expects to explore opportunities and engage in discussions regarding these opportunities, which could include mergers, consolidations or acquisitions or further dispositions or other transactions, although there can be no assurance that any such activities will be consummated.

The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, included elsewhere herein, and the audited consolidated financial statements and notes thereto included in ~~our 2018~~the 2019 Form 10-K and ~~Part I, Item 1A.~~ ~~Risk Factors~~ ~~of our 2018~~the Q1 2020 Form ~~10-K.~~10-Q.

We provide information regarding four business segments: Rig Services, Fishing and Rental Services, Coiled Tubing Services and Fluid Management Services. We also have a “Functional Support” segment associated with overhead and other costs in support of our reportable segments. See “Note 16. Segment Information” in “Item 1. Financial Statements” of Part I of this report for a summary of our business segments.

Restructuring and Reverse Stock Split

On March 6, 2020, we closed the previously announced restructuring of our capital structure and indebtedness (the “Restructuring”) pursuant to the Restructuring Support Agreement, dated as of January 24, 2020 (the “RSA”), with lenders under our Prior Term Loan Facility (as defined below) collectively holding over 99.5% (the “Supporting Term Lenders”) of the principal amount of the Company’s then outstanding term loans. Pursuant to the RSA and the Restructuring contemplated thereby, among other things we effected the following transactions and changes to our capital structure and governance:

distributed to our common stockholders of record as of February 18, 2020 two series of warrants (the “New Warrants”);

entered into the New ABL Facility (as defined below);

adopted a new management incentive plan (the “MIP”) representing up to 9% of the Company’s outstanding shares after giving effect to the issuance of shares described above; and

For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see “Note 7. Debt” in Part I, Item 1 of this report.

PERFORMANCE MEASURES

The Baker Hughes U.S. rig count data, which is publicly available on a weekly basis, is often used as an indicator of overall Exploration and Production (“E&P”) company spending and broader oilfield activity. In assessing overall activity in the U.S. onshore oilfield service industry in which we operate, we believe that the Baker Hughes U.S. land drilling rig count, which is publicly available on a weekly basis, is the best available barometer of exploration and production (“E&P&P”) companies’ capital spending and resulting activity levels. Historically, our activity levels have been highly correlated with U.S. onshore capital spending by our E&P company customers as a group.


							WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)	Average AESC Well Service Active Rig Count(3)
2020:
First Quarter							$	41.00	$	1.90	764	978
Second Quarter							$	27.96	$	1.70	378	498
	WTI Cushing Oil(1)		NYMEX Henry Hub Natural Gas(1)		Average Baker Hughes U.S. Land Drilling Rigs(2)	Average AESC Well Service Active Rig Count(3)
2019:
First Quarter	$	54.82	$	2.92	1,023	1,295	$	54.82	$	2.92	1,023	1,295
Second Quarter	$	59.88	$	2.57	967	1,311	$	59.88	$	2.57	967	1,311
Third Quarter	$	56.34	$	2.38	894	1,263	$	56.34	$	2.38	894	1,263

2018:
First Quarter	$	62.91	$	3.08	951	1,220
Second Quarter	$	68.07	$	2.85	1,021	1,297
Third Quarter	$	69.69	$	2.93	1,032	1,337
Fourth Quarter	$	59.97	$	3.77	1,050	1,316	$	56.82	$	2.40	797	1,143


(1)	Represents the average of the monthly average prices for each of the periods presented. Source: EIA and Bloomberg


(2)	Source: www.bakerhughes.com


(3)	Source: Association of Energy Service Companies data at www.aesc.net

Internally, we measure activity levels for our well servicing operations primarily through our rig and trucking hours. Generally, as capital spending by E&P companies increases, demand for our services also rises, resulting in increased rig and trucking services and more hours worked. Conversely, when activity levels decline due to lower spending by E&P companies, we generally provide fewer rig and trucking services, which results in fewer hours worked.

Rig activity occurs primarily on weekdays during daylight hours. Accordingly, we track rig activity on a “per working day” basis. Key’s working days per quarter, which exclude national holidays, are indicated in the table below. Our trucking activity tends to occur on a 24/7 basis. Accordingly, we track our trucking activity on a “per calendar day” basis. The following table presents our quarterly rig and trucking hours from ~~2018~~2019 through the ~~third~~second quarter of ~~2019:~~2020:


				Rig Hours	Trucking Hours	Key’s Working Days(1)
2020:
First Quarter				101,341	106,786	64
Second Quarter				43,526	71,007	63
Total 2020				144,867	177,793	127
	Rig Hours	Trucking Hours	Key’s Working Days(1)
2019:
First Quarter	151,309	150,740	63	151,309	150,740	63
Second Quarter	154,017	144,996	63	154,017	144,996	63
Third Quarter	142,151	150,518	64	142,151	150,518	64
Fourth Quarter				114,727	121,152	62
Total 2019	447,477	446,254	190	562,204	567,406	252

2018:
First Quarter	175,232	214,194	63
Second Quarter	187,578	201,427	64
Third Quarter	180,943	184,310	63
Fourth Quarter	156,456	179,405	62
Total 2018	700,209	779,336	252


(1)	Key’s working days are the number of weekdays during the quarter minus national holidays.

MARKET AND BUSINESS CONDITIONS AND OUTLOOK

~~Our core businesses depend on our customers’ willingness~~The outbreak of COVID-19 has caused an unprecedented global health crisis and ~~ability~~significant economic disruption. National, state and local governments have instituted various measures including quarantining, stay-at-home orders and travel restrictions designed to ~~make expenditures to produce, develop~~slow the spread of COVID-19 and ~~explore for oil~~protect their populations and ~~natural gas~~economies, including in ~~onshore U.S. basins. Industry conditions are influenced by numerous factors, such as oil~~the areas in which the Company operates. These actions have significantly curtailed economic activity, disrupted global supply chains and ~~natural gas prices, the supply of and~~materially reduced demand for oil and natural gas, ~~domestic and worldwide economic conditions, political instability in oil producing countries, and available~~creating a supply of and demand imbalance that has negatively impacted commodity prices. The decline in the demand and pricing for oil and natural gas has negatively impacted our customers and the ~~services~~demand for and pricing we ~~provide. Higher oil~~receive for our services. These production cuts, other voluntary production curtailments and reduced new well drilling have helped to bring supply and demand closer to balance and stabilized commodity prices. However, US and international crude stocks remain at historically high levels and there remains a high degree of uncertainty regarding the timing and extent of any recovery in economic activity and energy demand. Although commodity prices have ~~historically spurred~~recovered from the lows of April 2020, pricing remains depressed compared to 2019 levels. Additionally, recent increases in COVID-19 infections have resulted in the re-implementation of travel and other restrictions on economic activity that were recently relaxed, which could further delay any improvement in energy demand. COVID-19 has also impacted how we conduct our business. While we have taken steps to keep our employees safe by supporting those affected, mandating that as many employees as possible work from home, and monitoring those who cannot do so and are required to be at work, our ability to serve our customers and execute our business could be adversely affected should a significant number of our employees contract COVID-19 and require quarantine. The extent to which our future results are affected by the COVID-19 pandemic and related economic downturn will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic; additional actions by businesses and governments in response to the pandemic, and the speed and effectiveness of responses to combat the virus. COVID-19 may also adversely affect our results in a manner that is either not currently known or that we do not currently consider to be a significant risk to our business. For additional detail, please refer to Risk Factors in our 2019 Form 10-K and our Q1 2020 Form 10-Q.

We experienced a downturn in demand for our services in 2019, and this decline has increased in 2020 for the reasons discussed above. The macroeconomic events that began in March 2020 resulted in significant revisions to our customers’ capital spending programs for 2020. We expect reduced demand for our services and pricing pressure to continue for the foreseeable future, particularly as ~~oil and gas producers increase spending on~~compared to the previous year. While activity levels have improved to 63 well service rigs working in July 2020 as compared to 47 well service rigs working in May 2020, as of the date of this filing, we have limited visibility into whether our customers will continue to resume their production maintenance ~~and drilling and completion~~activities, the timing of ~~new wells.~~

~~During 2018, strengthening oil prices led to~~any increase in activity, or the extent of any improvement in demand for our ~~services particularly services associated with the completion of~~services. However, as oil supply adjusts to demand and ~~natural gas wells, and~~commodity prices stabilize, we ~~were able to increase prices for most of our service offerings. We did not, however, experience as substantial a change in~~expect demand for our services ~~related~~ to ~~the~~increase as our customers begin to bring shut-in wells back on line and resume normal well maintenance work.

We initiated a number of ~~existing oil and gas wells, particularly conventional wells. Since~~actions in the fourth quarter ~~of 2018 when oil prices fell from the highs of 2018, we began to experience reductions in demand for~~2019 aimed at conserving cash and protecting our ~~services, particularly our completion related services.~~

~~In 2019, oil prices began to recover from the lows experienced in late 2018. However, in the first quarter of 2019, we experienced a decline in revenues compared to the prior quarter~~liquidity, and ~~the corresponding period in 2018 due to seasonal effects and lower demand for completion-driven services as our activity declined despite the improvement in oil prices.~~

~~Activity did improve in~~these actions have continued into the second quarter of ~~2019 as compared to~~2020, including: completing the ~~first quarter of 2019 due to seasonality and the improved oil prices, however, many~~refinancing of our ~~clients did not react as favorably as expected to improved oil prices with higher spending or increases in planned expenditures that would have increased demand for~~capital structure,

internally realigning our services further. Lower spending by our customers and increased competition, primarily in completion activities, also resulted in lower activity than in the corresponding period in 2018. During the third quarter of 2019, we continued to experience weak or softening demand for our services, particularly completion related services, and experienced a decline in our well service rig activity as compared to the preceding quarter and the third quarter of 2018. In many instances, we believe this is a result of our customers’ managing their activity to achieve cash flow targets and a prioritization of their maintenance activities to the highest return opportunities due to continued uncertainty around future commodity prices and their access to capital. We expect this trend to continue into the fourth quarter, where we have also historically experienced reduced activity and demand for our services as compared to the third quarter due to seasonal effects as well as the impact of our customers’ completing their budgeted activities ahead of year-end.

~~In the fourth quarter of 2019, we have taken steps to reduce our labor costs and exit certain~~operations, exiting operations and areas to focus on certain ~~markets. Additionally,~~markets where we ~~have taken steps to reduce~~had the best competitive positions, and reducing our overhead costs, including suspension of our 401K match, given the reduced operating ~~footprint, which~~ footprint. We remain focused on maximizing our current equipment fleet, but we ~~believe will improve our operating cash flows and~~may further reduce our ~~operating losses.~~ planned expenditures and defer acquisition of new equipment or maintenance if market conditions decline further.

Given the ~~uncertainty surrounding future commodity prices and~~dynamic nature of the macroeconomic events discussed above, we are unable to reasonably estimate the period of time that these market conditions will exist, the extent of the impact they will have on our ~~customers’ spending and thus demand for our services, visibility into near to mid-term future periods is limited.~~

~~Longer term however, we believe that over~~business, liquidity, results of operations, financial condition, or the ~~next several years the continued aging~~timing of horizontal wells will increase demand for well maintenance services as customers seek to maintain or increase production through accretive regular well maintenance at economically supportive oil prices.any subsequent recovery.

RESULTS OF OPERATIONS

The following table shows our consolidated results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019~~, respectively~~ (in thousands):



	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
REVENUES	$	106,523		$	134,721		$	328,739		$	404,442		$	34,750		$	112,943		$	110,058		$	222,216
COSTS AND EXPENSES:
Direct operating expenses	87,956			106,103			266,714			314,061			29,904			90,564			91,565			178,758
Depreciation and amortization expense	14,584			21,808			43,142			62,881			8,054			14,262			18,280			28,558
General and administrative expenses	21,375			23,925			66,014			71,353			13,637			22,544			28,890			44,639
Impairment expense													—			—			41,242			—
Operating loss	(17,392		)	(17,115		)	(47,131		)	(43,853		)	(16,845		)	(14,427		)	(69,919		)	(29,739		)
Gain on debt restructuring													—			—			(170,648		)	—
Interest expense, net of amounts capitalized	8,411			8,708			26,164			25,425			2,066			8,520			10,287			17,753
Other income, net	(351		)	(213		)	(1,732		)	(1,972		)	(15		)	(239		)	(400		)	(1,381		)
Loss before income taxes	(25,452		)	(25,610		)	(71,563		)	(67,306		)
Income (loss) before income taxes													(18,896		)	(22,708		)	90,842			(46,111		)
Income tax benefit (expense)	(37		)	1,750			4,330			1,588			(229		)	4,405			(973		)	4,367
NET LOSS	$	(25,489	)	$	(23,860	)	$	(67,233	)	$	(65,718	)
NET INCOME (LOSS)													$	(19,125	)	$	(18,303	)	$	89,869		$	(41,744	)

Consolidated Results of Operations — Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

Revenues

Our revenues for the three months ended ~~September~~June 30, ~~2019~~2020 decreased ~~$28.2~~$78.2 million, or ~~20.9%~~69.2%, to ~~$106.5~~$34.8 million from ~~$134.7~~$112.9 million for the three months ended ~~September~~June 30, ~~2018,~~2019, due to lower customer spending ~~from our customers~~and activity as a result of lower oil ~~prices. These market conditions resulted~~prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in ~~reduced customer activity.~~the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations. See “Segment Operating Results — Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018”~~2019” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses decreased ~~$18.1~~$60.7 million, to ~~$88.0~~$29.9 million ~~(82.6%~~(86.1% of revenues), for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$106.1~~$90.6 million ~~(78.8%~~(80.2% of revenues) for the three months ended ~~September~~June 30, ~~2018.~~2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, fuel expense and repair and maintenance expense due to athe decrease in activity ~~levels.~~levels discussed above.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased ~~$7.2~~$6.2 million, or ~~33.1%~~43.5%, to ~~$14.6~~$8.1 million during the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$21.8~~$14.3 million for the three months ended ~~September~~June 30, ~~2018.~~2019. This decrease is primarily due to certain assets becoming fully ~~depreciated.~~depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 of $41.2 million that reduced their depreciable base for future periods.

General and Administrative Expenses

General and administrative expenses decreased ~~$2.6~~$8.9 million, to ~~$21.4~~$13.6 million ~~(20.1%~~(39.2% of revenues), for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$23.9~~$22.5 million ~~(17.8%~~(20.0% of revenues) for the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease is primarily due to lower employee compensation costs of $4.4 million due to reduced staffing levels and a $3.1 million decrease in ~~facilities costs.~~professional fees.

Interest Expense, Net of Amounts Capitalized

Interest expense decreased ~~$0.3~~$6.5 million, or ~~3.4%~~75.8%, to ~~$8.4~~$2.1 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$8.7~~$8.5 million for the same period in ~~2018.~~

2019. This decrease is primarily related to the March 2020 restructuring that reduced debt balances by approximately $190 million and the related decrease in interest expense under the New Term Loan Facility.

Other Income, Net

During the quarter ended ~~September~~June 30, ~~2019,~~2020, we recognized other income, net, of ~~$0.4~~less than $0.1 million, compared to other income, net, of $0.2 million for the quarter ended ~~September~~June 30, ~~2018.~~2019.

The following table summarizes the components of other income, net for the periods indicated (in thousands):



	Three Months Ended						Three Months Ended
	September 30,						June 30,
	2019			2018			2020			2019
Interest income	$	(122	)	$	(201	)	$	(25	)	$	(195	)
Other	(229		)	(12		)	10			(44		)
Total	$	(351	)	$	(213	)	$	(15	)	$	(239	)

Income Tax Benefit (Expense)

We recorded an income tax expense of ~~less than $0.1~~$0.2 million on a pre-tax loss of ~~$25.5~~$18.9 million in the three months ended ~~September~~June 30, ~~2019,~~2020, compared to an income tax benefit of ~~$1.8~~$4.4 million on a pre-tax loss of ~~$25.6~~$22.7 million in the three months ended ~~September~~June 30, ~~2018.~~2019. Our effective tax rate was ~~(0.1)~~(1.2)% for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~6.8%~~19.4% for the three months ended ~~September~~June 30, ~~2018. Our~~2019. The variance between our effective ~~tax rates differ from~~rate and the ~~applicable~~ U.S. statutory ~~rates~~rate is due to ~~a number of factors, including~~ the impact of permanent differences, and other tax adjustments, such as valuation allowances against deferred tax assets and a true-up adjustment to income tax ~~expense or benefit recognized for uncertain tax positions.~~receivable.

Segment Operating Results — Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

The following table shows operating results for each of our segments for the three months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


For the three months ended September 30, 2019
For the three months ended June 30, 2020																		For the three months ended June 30, 2020
	Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Total			Rig Services			Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Total
Revenues from external customers	$	64,465	$	14,135		$	9,714		$	18,209		$	—		$	106,523		$	20,825		$	3,971		$	1,867		$	8,087	$	—		$	34,750
Operating expenses	61,713		15,852			11,259			18,632			16,459			123,915			23,130			5,689			3,685			7,976		11,115			51,595
Operating income (loss)	2,752		(1,717		)	(1,545		)	(423		)	(16,459		)	(17,392		)	(2,305		)	(1,718		)	(1,818		)	111		(11,115		)	(16,845		)


For the three months ended September 30, 2018
For the three months ended June 30, 2019																	For the three months ended June 30, 2019
	Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Total
Revenues from external customers	$	77,153	$	17,477		$	18,220	$	21,871		$	—		$	134,721		$	67,884	$	14,812		$	11,747		$	18,500	$	—		$	112,943
Operating expenses	72,683		18,867			17,807		24,703			17,776			151,836			62,002		16,634			13,196			18,301		17,237			127,370
Operating income (loss)	4,470		(1,390		)	413		(2,832		)	(17,776		)	(17,115		)	5,882		(1,822		)	(1,449		)	199		(17,237		)	(14,427		)

Rig Services

Revenues for our Rig Services segment decreased ~~$12.7~~$47.1 million, or ~~16.4%~~69.3%, to ~~$64.5~~$20.8 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$77.2~~$67.9 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease for this segment is primarily due to lower customer activity and spending ~~from our customers~~ as a result of lower oil ~~prices. These market conditions resulted~~prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in ~~reduced customer activity.~~the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $7.9 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our Rig Services segment were ~~$61.7~~$23.1 million during the three months ended ~~September~~June 30, ~~2019,~~2020, which represented a decrease of ~~$11.0~~$38.9 million, or ~~15.1%~~62.7%, compared to ~~$72.7~~$62.0 million for the same period in ~~2018.~~2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, ~~fuel expense and repair and maintenance~~equipment expense due to a decrease in activity levels and a decrease in depreciation ~~expense.~~expense of due certain assets becoming fully depreciated in December of 2019.

Fishing and Rental Services

Revenues for our Fishing and Rental Services segment decreased ~~$3.3~~$10.8 million, or ~~19.1%~~73.2%, to ~~$14.1~~$4.0 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$17.5~~$14.8 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease for this segment is primarily due to lower customer activity and spending as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy.

Operating expenses for our Fishing and Rental Services segment were $5.7 million during the three months ended June 30, 2020, which represented a decrease of $10.9 million, or 65.8%, compared to $16.6 million for the same period in 2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, equipment expense due to a decrease in activity levels, and a decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 that reduced their depreciable base for future periods and a decrease in repair and maintenance expense due to lower activity levels.

Coiled Tubing Services

Revenues for our Coiled Tubing Services segment decreased $9.9 million, or 84.1%, to $1.9 million for the three months ended June 30, 2020, compared to $11.7 million for the three months ended June 30, 2019. The decrease for this segment is primarily due to lower spending from our customers on ~~oil and gas well~~ drilling and ~~completion,~~completions as a result of lower oil ~~prices.~~prices and the negative impact the COVID-19 pandemic has had on the economy. These market conditions ~~resulted~~also reduced the price we received for our services. Additionally, in ~~reduced customer activity.~~

the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $4.2 million of revenue in the corresponding 2019 period.

Operating expenses for our ~~Fishing and Rental~~Coiled Tubing Services segment were ~~$15.9~~$3.7 million during the three months ended ~~September~~June 30, ~~2019,~~2020, which represented a decrease of ~~$3.0~~$9.5 million, or ~~16.0%~~72.1%, compared to ~~$18.9~~$13.2 million for the same period in ~~2018. The~~2019. This decrease ~~for this segment~~ is primarily ~~due to~~a result of a decrease in ~~depreciation~~employee headcount and related compensation costs, fuel expense and repair and maintenance ~~expense.~~expense due to lower activity levels.

~~Coiled Tubing~~Fluid Management Services

Revenues for our ~~Coiled Tubing~~Fluid Management Services segment decreased ~~$8.5~~$10.4 million, or ~~46.7%~~56.3%, to ~~$9.7~~$8.1 million for the three months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$18.2~~$18.5 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease for this segment is primarily due to lower spending from our customers on ~~oil and gas well~~ drilling and ~~completion,~~completions as a result of lower oil ~~prices. These market conditions resulted in reduced customer activity~~prices and ~~a reduction~~the negative impact the COVID-19 pandemic has had on the economy. Additionally, in the ~~price received for our services.~~fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $2.2 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our ~~Coiled Tubing~~Fluid Management Services segment were ~~$11.3~~$8.0 million during the three months ended ~~September~~June 30, ~~2019,~~2020, which represented a decrease of ~~$6.5~~$10.3 million, or ~~36.8%~~56.4%, compared to ~~$17.8~~$18.3 million for the same period in ~~2018.~~2019. This decrease is primarily a result of a decrease in employee ~~compensation costs~~headcount and ~~repair and maintenance expense due to a decrease in activity levels.~~

~~Fluid Management Services~~

Revenues for our Fluid Management Services segment decreased $3.7 million, or 16.7%, to $18.2 million for the three months ended September 30, 2019, compared to $21.9 million for the three months ended September 30, 2018. The decrease for this segment is primarily due to lower spending from our customers on oil and gas well drilling and completion, as a result of lower oil prices. These market conditions resulted in reduced customer activity.

Operating expenses for our Fluid Management Services segment were $18.6 million during the three months ended September 30, 2019, which represented a decrease of $6.1 million, or 24.6%, compared to $24.7 million for the same period in 2018. This decrease is primarily a result of a decrease in employeerelated compensation costs, fuel expense and repair and maintenance expense due to ~~a decrease in~~lower activity levels and a decrease in depreciation ~~expense.~~expense certain assets becoming fully depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 that reduced their depreciable base for future periods.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our reporting segments, decreased ~~$1.3~~$6.1 million, or ~~7.4%~~35.5%, to ~~$16.5~~$11.1 million ~~(15.5%~~(32.0% of consolidated revenues) for the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$17.8~~$17.2 million ~~(13.2%~~(15.3% of consolidated revenues) for the same period in ~~2018.~~2019. The decrease is primarily due to lower employee compensation costs of $3.0 million due to reduced staffing levels and a $3.1 million decrease in ~~facilities costs.~~professional fees.

Consolidated Results of Operations — ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

Revenues

Our revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 decreased ~~$75.7~~$112.2 million, or ~~18.7%~~50.5%, to ~~$328.7~~$110.1 million from ~~$404.4~~$222.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, due to lower customer activity and spending ~~from our customers primarily~~ as a result of lower oil ~~prices. These market conditions resulted~~prices and the negative impact the COVID-19 pandemic has had on the economy. Additionally, in ~~reduced customer activity.~~the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations. See “Segment Operating Results — ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018”~~2019” below for a more detailed discussion of the change in our revenues.

Direct Operating Expenses

Our direct operating expenses decreased ~~$47.3~~$87.2 million, to ~~$266.7~~$91.6 million ~~(81.1%~~(83.2% of revenues), for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$314.1~~$178.8 million ~~(77.7%~~(80.4% of revenues) for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, fuel expense and repair and maintenance expense due to ~~a decrease in~~lower activity ~~levels.~~levels as compared to the corresponding 2019 period.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased ~~$19.7~~$10.3 million, or ~~31.4%~~36.0%, to ~~$43.1~~$18.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$62.9~~$28.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. This decrease is primarily due to certain assets becoming fully ~~depreciated.~~depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 that reduced their depreciable base for future periods.

General and Administrative Expenses

General and administrative expenses decreased ~~$5.3~~$15.7 million, to ~~$66.0~~$28.9 million ~~(20.1%~~(26.2% of revenues), for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$71.4~~$44.6 million ~~(17.6%~~(20.1% of revenues) for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease is primarily due to lower employee compensation costs of $5.8 million due to reduced staffing levels and a $13.6 million decrease in ~~facilities costs.~~professional fees.

Impairment Expense

During the six months ended June 30, 2020, the Company recognized an asset impairment of $41.2 million. It was determined that the fair value of the assets of Fluid Management Services and Fishing & Rental Services was less than the carrying value of those respective segment’s assets. As a result, we recorded an impairment of $17.6 million and $23.7 million at those segments, respectively.

Gain on debt restructuring

During the six months ended June 30, 2020 the Company recognized a gain of $170.6 million related to the recent restructuring of corporate debt. For more information on our New Term Loan Facility and New ABL Facility entered into in connection with the Restructuring, see “Note 1. General” and “Note 7. Debt.”

Interest Expense, Net of Amounts Capitalized

Interest expense ~~increased $0.7~~decreased $7.5 million, or ~~2.9%~~42.1%, to ~~$26.2~~$10.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$25.4~~$17.8 million for the same period in ~~2018.~~2019. This ~~increase~~decrease is primarily related to the ~~increase~~March 2020 restructuring that reduced debt balances by approximately $190 million and the related decrease in interest expense under the ~~variable interest rate on our long-term debt.~~

New Term Loan Facility.

Other Income, Net

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we recognized other income, net, of ~~$1.7~~$0.4 million, compared to other income, net, of ~~$2.0~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

The following table summarizes the components of other income, net for the periods indicated (in thousands):



	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2019			2018			2020			2019
Interest income	$	(639	)	$	(580	)	$	(82	)	$	(517	)
Other	(1,093		)	(1,392		)	(318		)	(864		)
Total	$	(1,732	)	$	(1,972	)	$	(400	)	$	(1,381	)

Income Tax Benefit (Expense)

We recorded an income tax ~~benefit~~expense of ~~$4.3~~$1.0 million on a pre-tax ~~loss~~income of ~~$71.6~~$90.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to an income tax benefit of ~~$1.6~~$4.4 million on a pre-tax loss of ~~$67.3~~$46.1 million for the same period in ~~2018.~~2019. Our effective tax rate was ~~6.1%~~1.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~2.4%~~9.5% for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Our variance between our effective ~~tax rates differ from~~rate and the ~~applicable~~ U.S. statutory ~~rates~~rate is due to ~~a number of factors, including~~ the impact of permanent differences, and other tax adjustments, such as valuation allowances against deferred tax assets and a true-up adjustment to income tax ~~expense or benefit recognized for uncertain tax positions.~~ receivable.

Segment Operating Results — ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019

The following table shows operating results for each of our segments for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


For the nine months ended September 30, 2019
For the six months ended June 30, 2020																		For the six months ended June 30, 2020
	Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services			Functional Support			Total
Revenues from external customers	$	197,375	$	43,534		$	32,134		$	55,696		$	—		$	328,739		$	68,734	$	13,563		$	6,704		$	21,057		$	—		$	110,058
Operating expenses	184,285		48,196			37,266			55,811			50,312			375,870			67,713		35,031			9,478			44,808			22,947			179,977
Operating income (loss)	13,090		(4,662		)	(5,132		)	(115		)	(50,312		)	(47,131		)	1,021		(21,468		)	(2,774		)	(23,751		)	(22,947		)	(69,919		)


For the nine months ended September 30, 2018
For the six months ended June 30, 2019																	For the six months ended June 30, 2019
	Rig Services		Fishing and Rental Services			Coiled Tubing Services		Fluid Management Services			Functional Support			Total			Rig Services		Fishing and Rental Services			Coiled Tubing Services			Fluid Management Services		Functional Support			Total
Revenues from external customers	$	227,913	$	47,801		$	60,513	$	68,215		$	—		$	404,442		$	132,910	$	29,399		$	22,420		$	37,487	$	—		$	222,216
Operating expenses	212,439		55,284			53,015		75,717			51,840			448,295			122,572		32,344			26,007			37,179		33,853			251,955
Operating income (loss)	15,474		(7,483		)	7,498		(7,502		)	(51,840		)	(43,853		)	10,338		(2,945		)	(3,587		)	308		(33,853		)	(29,739		)

Rig Services

Revenues for our Rig Services segment decreased ~~$30.5~~$64.2 million, or ~~13.4%~~48.3%, to ~~$197.4~~$68.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$227.9~~$132.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease for this segment is primarily due to lower customer activity and spending ~~from our customers~~ as a result of lower oil prices and ~~unfavorable weather. These market conditions resulted~~the negative impact the COVID-19 pandemic has had on the economy. Additionally, in ~~reduced customer activity.~~the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $17.3 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our Rig Services segment were ~~$184.3~~$67.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, which represented a decrease of ~~$28.2~~$54.9 million, or ~~13.3%~~44.8%, compared to ~~$212.4~~$122.6 million for the same period in ~~2018.~~2019. This decrease is primarily a result of a decrease in employee headcount and related compensation costs, ~~fuel expense and repair and maintenance~~equipment expense due to a decrease in activity levels and a decrease in depreciation ~~expense.~~expense of due certain assets becoming fully depreciated in December of 2019.

Fishing and Rental Services

Revenues for our Fishing and Rental Services segment decreased ~~$4.3~~$15.8 million, or ~~8.9%~~53.9%, to ~~$43.5~~$13.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$47.8~~$29.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease for this segment is primarily due to lower customer activity and spending on drilling and completions as a result of lower oil prices and the negative impact the COVID-19 pandemic has had on the economy.

Operating expenses for our Fishing and Rental Services segment were $35.0 million for the six months ended June 30, 2020, which represented an increase of $2.7 million, or 8.3% compared to $32.3 million for the same period in 2019. This increase is primarily a result of the $17.6 million impairment of assets in the first quarter of 2020 partially offset by a decrease in employee headcount and related compensation costs due to a decrease in activity levels and a decrease in depreciation expense due to certain assets becoming fully depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 that reduced their depreciable base for future periods and a decrease in repair and maintenance expense due to lower activity levels.

Coiled Tubing Services

Revenues for our Coiled Tubing Services segment decreased $15.7 million, or 70.1%, to $6.7 million for the six months ended June 30, 2020, compared to $22.4 million for the six months ended June 30, 2019. The decrease for this segment is primarily due to lower spending from our customers on ~~oil and gas well~~ drilling and ~~completion,~~completions as a result of lower oil ~~prices.~~prices and the negative impact the COVID-19 pandemic has had on the economy. These market conditions ~~resulted~~also reduced the price we received for our services. Additionally, in ~~reduced customer activity.~~

the fourth quarter of 2019, the Company strategically exited a number of non-core and underperforming locations which represented $6.7 million of revenue in the corresponding 2019 period that did not re-occur in 2020.

Operating expenses for our ~~Fishing and Rental~~Coiled Tubing Services segment were ~~$48.2~~$9.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, which represented a decrease of ~~$7.1~~$16.5 million, or ~~12.8%~~63.6%, compared to ~~$55.3~~$26.0 million for the same period in ~~2018. The~~2019. This decrease ~~for this segment~~ is primarily ~~due to the~~a result of a decrease in ~~depreciation~~employee headcount and related compensation costs, fuel expense and repair and maintenance ~~expense.~~expense due to lower activity levels as compared to the prior year.

~~Coiled Tubing~~Fluid Management Services

Revenues for our ~~Coiled Tubing~~Fluid Management Services segment decreased ~~$28.4~~$16.4 million, or ~~46.9%~~43.8%, to ~~$32.1~~$21.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, compared to ~~$60.5~~$37.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The decrease for this segment is primarily due to lower spending from our customers on ~~oil and gas well~~ drilling and ~~completion,~~completions as a result of lower oil ~~prices. These market conditions resulted in reduced customer activity~~prices and ~~a reduction~~the negative impact the COVID-19 pandemic has had on the economy. Additionally, in the ~~price received for our services.~~

~~Operating expenses for our Coiled Tubing Services segment were $37.3 million for~~fourth quarter of 2019, the ~~nine months ended September 30, 2019,~~Company strategically exited a number of non-core and underperforming locations which represented ~~a decrease~~$4.6 million of ~~$15.7 million, or 29.7%, compared to $53.0 million for~~revenue in the ~~same~~corresponding 2019 period that did not re-occur in ~~2018. This decrease is primarily a result of a decrease in employee compensation costs and repair and maintenance expense due to a decrease in activity levels.~~

~~Fluid Management Services~~

Revenues for our Fluid Management Services segment decreased $12.5 million, or 18.4%, to $55.7 million for the nine months ended September 30, 2019, compared to $68.2 million for the nine months ended September 30, 2018. The decrease for this segment is primarily due to lower spending from our customers on oil and gas well drilling and completion, as a result of lower oil prices. These market conditions resulted in reduced customer activity.2020.

Operating expenses for our Fluid Management Services segment were ~~$55.8~~$44.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, which represented ~~a decrease~~an increase of ~~$19.9~~$7.6 million, or ~~26.3%~~20.5%, compared to ~~$75.7~~$37.2 million for the same period in ~~2018.~~2019. This ~~decrease~~increase is primarily a result of the $23.7 million impairment of assets recorded in the first quarter of 2020, partially offset by a decrease in employee headcount and related compensation costs, fuel expense and repair and maintenance expense due to ~~a decrease in~~lower activity levels versus the prior year and a decrease in depreciation ~~expense.~~expense certain assets becoming fully depreciated in December of 2019 and the impairment of certain assets in the first quarter of 2020 that reduced their depreciable base for future periods.

Functional Support

Operating expenses for Functional Support, which represent expenses associated with managing our reporting segments, decreased ~~$1.5~~$10.9 million, or ~~2.9%~~32.2%, to ~~$50.3~~$22.9 million ~~(15.3%~~(20.8% of consolidated revenues) for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$51.8~~$33.9 million ~~(12.8%~~(15.2% of consolidated revenues) for the same period in ~~2018.~~2019. The decrease is primarily ~~due~~related to a credit of $4.3 million recorded in March 2020 related to a restructuring related concession on accrued professional fees and lower employee compensation costs of $3.2 due to reduced staffing levels and a $13.7 million decrease in ~~facilities costs and legal settlements.~~professional fees, partially offset by an increase in insurance claims of $5.6 million.

LIQUIDITY AND CAPITAL RESOURCES

~~Forbearance Agreements~~

~~The Company is party to two credit facilities. The Company and Key Energy Services, LLC, are borrowers (the “ABL Borrowers”) under an ABL Facility with~~Effective as of March 6, 2020, we completed the ~~financial institutions party thereto from time to time as lenders (the “ABL Lenders”), Bank~~Restructuring of America, N.A., as administrative agent for the lenders (the “Administrative Agent”) and Bank of America, N.A., as sole collateral agent for the lenders, providing for aggregate commitments from the ABL Lenders of $100 million. In addition, on December 15, 2016, the Company entered into a Term Loan Facility among the Company, as borrower, certain subsidiaries of the Company named as guarantors therein, the financial institutions party thereto from time to time as Lenders (collectively, the “Term Loan Lenders”) and Cortland Capital Market Services LLC and Cortland Products Corp., as agent for the Lenders.

~~As announced on October 31, 2019, the Company has engaged external advisers to assist the Company in analyzing various strategic financial alternatives to address its~~our capital structure and indebtedness and, among other things, reduced our outstanding debt from $241.9 million as of December 31, 2019 to ~~position~~$51.2 million as of the ~~Company for future success. In connection with this strategic review,~~closing of the ~~Company elected not~~Restructuring. For more information on the Restructuring, see “--Restructuring and Reverse Stock Split” above.

We require capital to ~~make a scheduled interest payment due October 18, 2019~~fund our ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions, our debt service payments and our other obligations. We expect to utilize our internally generated cash flows from operations, current reserves of cash, availability under the ~~Term Loan Facility.~~ New ABL Facility and proceeds from the sale of assets to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations.

The ~~Company’s failure~~conditions and events discussed in “Note 1. General-Market Conditions, COVID-19 and Going Concern” in “Item 1. Financial Statements” and in “Market and Business Conditions and Outlook” above have adversely affected the demand for oil and natural gas, as well as for our services. The collapse in the demand for oil caused by this unprecedented global health and economic crisis, coupled with oil oversupply, has had, and is reasonably likely to ~~make~~continue to have, a material adverse impact on the ~~October interest payment~~demand for our services and the prices we can charge for our services. The decline in our customers’ demand for our services has had, and is likely to continue to have, a material adverse impact on our financial condition, results of operations and cash flows.

The decrease in oil and natural gas prices has adversely affected our customers and resulted in a ~~default under~~decrease in the ~~Term Loan Facility~~creditworthiness of some our customers. While we historically have not experienced significant losses related to customer creditworthiness, our allowance for doubtful accounts as a percentage of accounts receivable has increased and ~~a cross default under~~if current conditions persist, there is no assurance that we will not experience losses in the ~~ABL Facility (such defaults,~~future or delays in collecting our receivables.

Beginning in the ~~“Specified Defaults”).~~fourth quarter of 2019, we have focused on cost control measures related to operational and general and administrative expenses to reduce cash costs during this time period and with the goal of preserving margins and improving working capital until our customers increase spending.

On October 29, 2019, the Company entered into forbearance agreements with Term Loan Lenders collectively holding over 99.5% of the principal amount of the outstanding term loans (the “Term Loan Forbearance Agreement”) and all of the ABL Lenders (the “ABL Forbearance Agreement” and, collectively, the “Forbearance Agreements”). PursuantDue to the Forbearance Agreements, the Lenders party thereto have agreed that, until the earlier of December 6, 2019 or the occurrence of certain specified early termination events, such Lenders will forbear from exercising any default-related rightsuncertainty regarding future oil and remedies with respect to the Specified Defaults. The Forbearance Agreements contain certain representations and warranties of the Company and covenants with which the Company must comply during the forbearance period, including a requirement to maintain aggregate bank and book cash balances of at least $10,000,000 as measured on a weekly basis. The failure to comply with such covenants, among other things, would result in the early termination of the forbearance period.

The Specified Defaults and related matters including the Company’s level of debt raise substantial doubt as to the ability of the Company to continue as a going concern. The Company is in active discussions with the Lenders regarding the Company’s capital structurenatural gas prices and the ~~potential~~effect the COVID-19 pandemic will continue to ~~reduce its debt level, however an agreement with the Lenders has not been reached as~~have on our results of ~~the date of these~~operations and financial ~~statements. The Company believes that it~~condition, there is ~~probable that if such an agreement is reached, it will alleviate the~~ substantial doubt as to the Company’s ability to continue as a going concern. Management has prepared the consolidated condensed financial statements as of June 30, 2020 in accordance with US GAAP applicable to a going concern, which contemplates that assets will be realized and liabilities will be discharged in the normal course of business as they become due. These consolidated condensed financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material and adverse to the financial results of the Company.

Current Financial Condition and Liquidity

As of ~~September~~June 30, ~~2019,~~2020, we had ~~$22.6~~total liquidity of $14.7 million which consisted of $6.9 million cash and cash ~~equivalents. Due~~equivalents and $7.8 million of borrowing capacity available under our ABL Facility. As of December 31, 2019, prior to the ~~Specified Defaults,~~Restructuring, we ~~are currently~~had $14.4 million cash and cash equivalents and, although we had $24.0 million of borrowing capacity available, we were unable to borrow any amounts under the ABL Facility. ~~As of December 31, 2018, we had total liquidity of $74.3 million which consisted of $50.3 million cash and cash equivalents and $24 million of borrowing capacity available under our ABL Facility.~~

Our working capital was ~~$23.8~~$(2.7) million as of ~~September~~June 30, ~~2019,~~2020, compared to ~~$55.0~~$(0.7) million as of December 31, ~~2018.~~2019. Our working capital decreased from the prior year end primarily as a result of a decrease in cash and cash equivalents, ~~and~~ accounts receivable ~~which was~~and prepaid assets partially offset by a decrease in accrued interest and other accrued ~~liabilities.~~interest expenses attributable to the March 2020 restructuring. As of ~~September~~June 30, ~~2019,~~2020, we had no borrowings outstanding, ~~and $34.6~~$36.3 million ~~in committed~~of letters of credit, $28.6 million posted as additional collateral recorded in deposits on our balance sheet and $7.8 million of borrowing capacity available under our ABL Facility.The additional collateral is required to support our outstanding letters of credit and to maintain compliance with the minimum borrowing capacity covenant under our New ABL Facility. As of August 7, 2020, we had no borrowings outstanding $36.3 million of letters of credit, $28.9 million posted as additional collateral recorded in deposits on our balance sheet and $9.3 million of borrowing capacity available under our ABL Facility.

The following table summarizes our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):



	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2019			2018			2020			2019
Net cash used in operating activities	$	(16,785	)	$	(15,062	)	$	(38,211	)	$	(11,363	)
Cash paid for capital expenditures	(16,483		)	(28,521		)	(979		)	(12,362		)
Proceeds received from sale of fixed assets	8,362			11,955			3,363			4,780
Proceeds from long-term debt							30,000			—
Repayments of long-term debt	(1,875		)	(1,875		)	(3		)	(1,250		)
Repayments of finance lease obligations	(59		)	—			(340		)	—
Payment of deferred financing costs	(828		)	—			(1,385		)	(828		)
Other financing activities, net	(37		)	(268		)	(7		)	(4		)
Net decrease in cash, cash equivalents and restricted cash	$	(27,705	)	$	(33,771	)	$	(7,562	)	$	(21,027	)

Cash used in operating activities was ~~$16.8~~$38.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to cash used in operating activities of ~~$15.1~~$11.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, 2020 was primarily related to net losses adjusted for noncash items and a decrease in accrued interest and other accrued liabilities partially offset by a decrease in accounts receivables. Cash used in operating activities for the six months ended June 30, 2019 was primarily related to net losses adjusted for noncash items.

Cash ~~used in operating~~provided by investing activities was $2.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018 was primarily related to changes~~2020 which consisted of $3.4 million in ~~working capital.~~

proceeds from sales in assets, partially offset by $1.0 million of capital expenditures. Cash used in investing activities ~~was $8.1~~of $7.6 million for the ~~nine~~six months ended ~~September~~June 30, 2019 ~~compared to cash used in investing activities of $16.6 million for the nine months ended September 30, 2018. Cash outflows during these periods~~which consisted of $12.4 million of capital ~~expenditures.~~expenditures, partially offset by $4.8 million in proceeds from sales of assets. Our capital expenditures are primarily related to the ~~addition of new equipment and the~~ ongoing maintenance of our ~~equipment. Cash inflows during these periods consisted~~equipment and the addition of ~~proceeds from sales of fixed assets.~~new equipment.

Cash ~~used in~~provided by financing activities was ~~$2.8~~$28.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to cash used in financing activities of $2.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Financing cash inflows for the six months ended June 30, 2020 primarily relate to proceeds of long-term debt related to the March 2020 refinancing. Financing cash outflows for the ~~nine~~six months ended ~~September~~June 30, 2019 ~~and September 30, 2018~~ primarily relate to the repayment of long-term debt. ~~Financing cash outflows for the nine months ended September~~

Debt Service

As of June 30, ~~2019 also include payment of deferred financing costs.~~

~~Sources of Liquidity and Capital Resources~~

Historically, we have relied on cash reserves and availability under our ABL Facility to finance our cash requirements for current and future operations, budgeted capital expenditures, debt service and other obligations. Due to the Specified Defaults, we are currently unable to borrow any amounts under the ABL Facility. As such, management has been focused on the preservation of our liquidity. In addition, as described elsewhere, as part of its strategic review, the Company has determined to focus its operations on the Company’s core areas of operations and exit certain low margin markets in an effort to reduce its cost structure and improve its operating cash flows, in addition to generating future capital expenditure savings.

~~At September 30, 2019,~~2020, our annual debt maturities for our ~~2021~~New Term Loan Facility were as follows (in thousands):



Year	Principal Payments		Principal Payments
2019	$	625
2020	2,500
Remainder of 2020			$	7
2021	240,000		1,200
2022			—
2023			—
2024			—
2025			50,000
Total principal payments	$	243,125	$	51,207

New ABL Facility

~~As described above,~~On March 6, 2020, the Company and Key Energy Services, LLC, are borrowers under the ABL Facility that provides for aggregate commitments from the ABL Lenders of $100 million, and matures on the earlier of (a) April 5, 2024 and (b) 6 months prior to the maturity date of the Term Loan Facility and other material debts, if any, as identified under the ABL Facility.

In addition, the New ABL Facility provides for unused line fees of ~~1.00%~~0.5% to ~~1.25%~~0.375% per year, depending on utilization, letter of credit fees and certain other factors.

The New ABL Facility may in the future be guaranteed by certain of the Company’s existing and future subsidiaries (the “ABL Guarantors,” and together with the ABL Borrowers, the “ABL Loan Parties”). To secure their obligations under the New ABL Facility, each of the ABL Loan Parties has granted or will grant, as applicable, to the ~~Administrative~~ABL Agent a first-priority security interest for the benefit of the ABL Lenders in its present and future accounts receivable, inventory and related assets and proceeds of the foregoing (the “ABL Priority Collateral”). In addition, the obligations of the ABL Loan Parties under the ABL Facility are secured by second-priority liens on the Term Priority Collateral (as described below under ~~“Term~~“New Term Loan Facility”).

The revolving loans under the New ABL Facility may be voluntarily prepaid, in whole or in part, without premium or penalty, subject to breakage or similar costs.

dividends and the sale of assets. The New ABL Facility also contains a requirement that the ABL Borrowers comply, during certain periods, with a fixed charge coverage ratio of at least 1.00 to 1.00.

As of ~~September~~June 30, ~~2019,~~2020, we have no borrowings outstanding, ~~under the ABL Facility and $34.6~~$36.3 million of letters of credit, ~~outstanding. Due~~$28.6 million posted as additional collateral recorded in deposits on our balance sheet and $7.8 million of borrowing capacity available under our ABL Facility.The additional collateral is required to maintain compliance with the minimum borrowing capacity available under our New ABL Facility.

On May 20, 2020, the ABL Borrowers, the ABL Lenders and Administrative Agent, entered into Amendment No. 4 to the ~~Specified Defaults,~~New ABL Facility. Pursuant to the Fourth Amendment, the parties agreed, among other things, to (i) reduce the Lenders’ aggregate commitments to make revolving loans to $50 million, (ii) increase the applicable interest rate margin by 100 basis points to 375-425 basis points for LIBOR borrowings (with a 1.00% LIBOR floor) and 275-325 basis points for base rate borrowings (with a 2.00% base rate floor), in each case depending on the fixed charge coverage ratio at the time of determination, (iii) lower the availability thresholds for triggering certain covenants and (iv) add certain reporting requirements.

As of June 30, 2020, we ~~are currently unable to borrow any amounts~~were in compliance with all covenants under ~~the~~our New ABL Facility.

New Term Loan Facility

The New Term Loan Facility will mature on August 28, 2025, with respect to the New Term Loans, and on December 15, 2021 ~~although such~~with respect to the Continuing Term Loans. Such maturity date may, at the Company’s request, be extended by one or more of the ~~Term Loan Lenders~~term loan lenders pursuant to the terms of the New Term Loan Facility. ~~Borrowings under the~~The New Term ~~Loan Facility~~Loans will bear interest ~~at the Company’s option,~~ at a per annum rate equal to ~~(i)~~LIBOR for six months, plus 10.25%. The Company has the option to pay interest in kind at an annual rate of LIBOR plus 12.25% on the outstanding principal amount of the New Term Loans for the first two years following the closing of the Restructuring. The Continuing Term Loans will bear interest at a per annum rate equal to LIBOR for one, two, three, six or, with the consent of ~~the Term Loan Lenders,~~all term loan lenders, up to 12 months, ~~plus~~ ~~10.25% or (ii) a base rate equal~~and the Company has the option to pay interest in kind of up to 100 basis points of the ~~sum of (a)~~per annum interest due on the ~~greatest of (x) the prime rate, (y) the Federal Funds rate, plus 0.50% and (z) 30-day LIBOR, plus 1.0% plus (b) 9.25%.~~Continuing Term Loans.

The New Term Loan Facility is guaranteed by certain of the Company’s existing and future subsidiaries (the “Term Loan Guarantors,” and together with the Company, the “Term Loan Parties”). To ~~secure~~ensure their obligations under the New Term Loan Facility, each of the Term Loan Parties has granted or will grant, as applicable, to the Term Agent a first-priority security interest for the benefit of the Term Loan Lenders in substantially all of each Term Loan Party’s assets other than certain excluded assets and the ABL Priority Collateral (the “Term Priority Collateral”). In addition, the obligations of the Term Loan Parties under the New Term Loan Facility are secured by second-priority liens on the ABL Priority Collateral (as described above under “ABL Facility”).

The ~~loans under the~~New Term ~~Loan Facility~~Loans may be prepaid at the Company’s option, subject to the payment of a prepayment premium (which may be waived by lenders holding New Term Loans under the New Term Loan Facility representing at least two-thirds of the aggregate outstanding principal amount of the New Term Loans) in certain circumstances as provided in the Term Loan Facility. A prepayment prior to the first anniversary of the loan would have been required to have been made with a make-whole amount with the calculation of the make-whole amount as specified in theNew Term Loan Facility. If a prepayment is made ~~after~~prior to the first anniversary of the ~~loan but prior to~~closing of the ~~second anniversary,~~Restructuring, such prepayment ~~must be made at 106%~~premium is equal to 3% of the ~~principle~~principal amount of the New Term Loans prepaid; if a prepayment is made ~~after~~from the first anniversary to the second anniversary ~~but prior to the third anniversary, such prepayment must be made at 103%~~ of the ~~principle amount. After~~closing of the ~~third anniversary,~~Restructuring, the prepayment premium is equal to 2% of the principal amount of the New Term Loans prepaid; if a prepayment is made from the second anniversary to the third anniversary of the closing of the Restructuring, the prepayment premium is equal to 1% of the principal amount of the New Term Loans prepaid; and there is no prepayment premium ~~is due.~~thereafter. The Company is required to make principal payments in respect of the Continuing Term Loans in the amount of ~~$625,000~~$3,125 per ~~quarter.~~ quarter commencing with the quarter ended March 31, 2020 and is required to pay $1,190,625 on the maturity date of the Continuing Term Loans.

The New Term Loan Facility contains certain affirmative and negative covenants, including covenants that restrict the ability of the Term Loan Parties to take certain actions including, among other things and subject to certain significant exceptions, the incurrence of debt, the granting of liens, the making of investments, entering into transactions with affiliates, the payment of dividends and the sale of assets. The New Term Loan Facility also contains a financial ~~covenants~~covenant requiring that the Company maintain ~~an asset coverage ratio of at least 1.35 to 1.0 and that~~ Liquidity (as defined in the New Term Loan Facility) ~~must~~of not be less than ~~$37.5~~$10 million ~~(of which at least $20.0 million must be in cash or cash equivalents held in deposit accounts)~~ as of the last day of any fiscal quarter, subject to certain exceptions and cure rights.

As of June 30, 2020, we were in compliance with all covenants under our Term Loan Facility.

Capital Expenditures

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, our capital expenditures totaled ~~$16.5~~$1.0 million. ~~Our current~~In light of the decline in planned E&P capital spending, reduced activity by our customers and consequent reduced demand for our services, in April, we reduced our capital expenditure plan for ~~2019 contemplates spending~~2020 from the original amount of $15 to $20 million to the current amount of approximately ~~$20 million for the full year, subject to market conditions. This is~~$5 million. These capital expenditures are primarily related to the ~~addition of new equipment needed and the~~ ongoing maintenance of our equipment and addition of new equipment. Our capital expenditure program for ~~2019~~2020 is subject to market conditions, including activity levels, commodity prices, industry capacity and specific customer needs as well as cash flows, including cash generated from asset sales. Our focus for 2020 will be the maximization of our current equipment fleet. We ~~currently anticipate funding~~may also further reduce our ~~2019 capital~~planned expenditures, ~~through a combination~~defer acquisition of ~~cash on hand, operating cash flow~~new equipment or maintenance and ~~proceeds from sales~~dispose of ~~assets.~~noncore assets if market conditions decline further. Should our operating cash flows or activity levels prove to be insufficient to fund our currently planned capital spending levels, management expects ~~that~~ it will adjust our capital spending plans accordingly. ~~We may also incur capital expenditures for strategic investments and acquisitions.~~

Off-Balance Sheet Arrangements

At ~~September~~June 30, ~~2019~~2020 we did not, and we currently do not, have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our ~~2018~~2019 Form 10-K. More detailed information concerning market risk can be found in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our ~~2018~~2019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, management performed, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, management concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the ~~third~~second quarter of ~~2019~~2020 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

We are subject to various suits and claims that have arisen in the ordinary course of business. We do not believe that the disposition of any of our ordinary course litigation will result in a material adverse effect on our consolidated financial position, results of operations or cash flows. For additional information on legal proceedings, see “Note 10. Commitments and Contingencies” in “Item 1. Financial Statements” of Part I of this report, which is incorporated herein by reference.


ITEM 1A.	RISK FACTORS

AsThere are numerous factors that may adversely affect our business and results of ~~the date~~operations, many of which are beyond our control, which seem immaterial or which are unknown to us currently. In addition to information set forth in this ~~filing, there have been no material changes in the risk factors previously disclosed~~report, including in Part I, “Item ~~1A. Risk Factors~~8 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” you should carefully read and consider the factors set out in Part I, Item 1A “Risk Factors” of our ~~2018~~2019 Form 10-K and Part II, “Item ~~1A. Risk Factors~~”1A “Risk Factors” in our Q1 2020 Form 10-Q. The unprecedented nature of the current pandemic and downturn in the worldwide economy and oil and gas industry may make it more difficult to identify all the risks to our ~~Form 10-Q for~~business, results of operations and financial condition and the ~~quarter ended June 30, 2019.~~ultimate impact of identified risks.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

During the three months ended ~~September~~June 30, ~~2019,~~2020, we repurchased the shares shown in the table below to satisfy tax withholding obligations upon the vesting of restricted stock awarded to certain of our employees:

Period
Number of
Shares Purchased

Average Price
Paid per Share(1)
July 1, 2019 to July 31, 2019 2,215
$ 2.55
August 1, 2019 to August 31, 2019 20,387
1.30
September 1, 2019 to September 30, 2019 —
—
Total 22,602
$ 1.42



Period	Number of Shares Purchased	Average Price Paid per Share(1)
April 1, 2020 to April 30, 2020	60	$	2.09
May 1, 2020 to May 31, 2020	—	—
June 1, 2020 to June 30, 2020	—	—
Total	60	$	2.09


(1)	The price paid per share with respect to the tax withholding repurchases was determined using the closing prices on the applicable vesting date.

Unregistered Sales of Equity Securities

As discussed in Part I of this report, in accordance with the RSA and following the closing of the Restructuring, the Company distributed to stockholders of record as of February 18, 2020 the New Warrants. The New Warrants were issued in two series each with a four-year exercise period. The first series entitles the holders to purchase in the aggregate 1,669,730 newly issued shares of common stock, representing 10% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate exercise price of the first series of New Warrants is $19.23 and was determined based on the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring. The second series of New Warrants entitles the holders to purchase in the aggregate 1,252,297 newly issued shares of common stock, representing 7.5% of the Company’s common shares at the closing of the Restructuring on an as-exercised basis (after giving effect to the exercise of all New Warrants, but subject to dilution by issuances under the MIP). The aggregate strike price of the second series of New Warrants is $28.85 and was determined based on the product of (i) the aggregate outstanding principal amount of term loans under the Prior Term Loan Facility plus accrued interest thereon at the default rate as of the closing of the Restructuring, multiplied by (ii) 1.50. Such securities were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

None.


ITEM 6.	EXHIBITS

~~The Exhibit Index, which follows the signature pages to this report and is incorporated by reference herein, sets forth a list of exhibits to this report.~~

EXHIBIT INDEX



Exhibit No.		Description

~~10.1~~
3.1		~~Forbearance Agreement dated October 29, 2019, by~~Amended and ~~among~~Restated Certificate of Incorporation of Key Energy Services, ~~Inc,~~Inc., dated March 6, 2020 (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 9, 2020, File No. 001-08038).

3.2		Amended and Restated Bylaws of Key Energy Services, Inc., dated March 6, 2020 (Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on March 9, 2020, File No. 001-08038).

10.1+		Employment Agreement, dated as ~~borrower, the Lenders party thereto,~~of June 15, 2020, between Key Energy Services, Inc. and ~~Cortland Products Corp., as agent (incorporated herein~~Nelson Haight (Incorporated by reference to Exhibit 10.1 to ~~the Company’s~~our Current Report on Form 8-K filed ~~with the SEC~~ on ~~October 31, 2019)~~June 15, 2020, File No. 001-08038).

10.2		~~Forbearance~~Amendment No. 4 to Loan Agreement, dated ~~October 29, 2019,~~as of May 20, 2020, by and among Key Energy Services, Inc., Key Energy Services, LLC, the Lenders party thereto, and Bank of America, N.A., as administrative agent ~~(incorporated herein~~(Incorporated by reference to Exhibit ~~10.2~~10.1 to ~~the Company’s~~our Current Report on Form 8-K filed ~~with the SEC~~ on ~~October 31, 2019)~~May 22, 2020, File No. 001-08038).

10.3*+		Form of Amended and Restated 2019 Equity and Cash Incentive Plan Performance-Based Restricted Stock Unit Award Agreement

10.4*+		Form of Amended and Restated 2019 Equity and Cash Incentive Plan Time-Vested Restricted Stock Unit Award Agreement

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document




*	Filed herewith

**	Furnished herewith

+	Compensatory arrangement

SIGNATURE

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.



~~Date:~~	~~November 8, 2019~~	~~By:~~	~~/s/ J. MARSHALL DODSON~~KEY ENERGY SERVICES INC.
			~~J. Marshall Dodson~~
Date:	August 14, 2020	By:	/s/ NELSON M. HAIGHT
			Nelson M. Haight
			Senior Vice President, ~~and~~ Chief Financial Officer and Treasurer
			(~~As duly authorized officer~~Duly Authorized Officer and Principal Financial Officer)

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