UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

______________________________________________

FORM 10-Q

______________________________________________

(Mark one)


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

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


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

Commission File Number: 1-8182

PIONEER ENERGY SERVICES CORP.

(Exact name of registrant as specified in its charter)

~~____________________________________________~~


Delaware						74-2088619
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

1250 N.E. Loop 410, Suite 1000 San Antonio, Texas						78209
(Address of principal executive offices)						(Zip Code)
Registrant’s telephone number, including area code: (855) 884-0575


~~Securities registered pursuant to Section 12(b) of the Act~~
~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~


Securities registered pursuant to Section 12(b) of the Act
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
0	0	0

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

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 x No o

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	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	☒o
		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 x

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 x No ¨

As of ~~November 6, 2020,~~April 30, 2021, there were ~~1,138,185~~1,837,641 shares of common stock, par value $0.001 per share, of the registrant outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

~~(in thousands, except share data)~~


		Successor			Predecessor
		September 30, 2020			December 31, 2019			March 31, 2021		December 31, 2020
		(unaudited)			(audited)			(unaudited)		(audited)
				(in thousands, except share data)
ASSETS	ASSETS						ASSETS

Cash and cash equivalents	Cash and cash equivalents	$	28,081		$	24,619	Cash and cash equivalents	$	28,992	$	31,181
Restricted cash	Restricted cash	4,021			998		Restricted cash	1,503		1,148
Receivables:	Receivables:						Receivables:
Trade, net of allowance for doubtful accounts	Trade, net of allowance for doubtful accounts	24,908			79,135		Trade, net of allowance for doubtful accounts	31,626		29,803
Unbilled receivables	Unbilled receivables	5,846			12,590		Unbilled receivables	7,487		4,740
Insurance recoveries	Insurance recoveries	21,609			22,873		Insurance recoveries	21,918		22,106
Other receivables	Other receivables	3,990			8,928		Other receivables	2,597		2,716
Inventory	Inventory	13,297			22,453		Inventory	12,093		12,641
Assets held for sale	Assets held for sale	4,295			3,447		Assets held for sale	2,733		3,608
Prepaid expenses and other current assets	Prepaid expenses and other current assets	4,341			7,869		Prepaid expenses and other current assets	3,697		5,190
Total current assets	Total current assets	110,388			182,912		Total current assets	112,646		113,133

Property and equipment, at cost	Property and equipment, at cost	191,376			1,119,546		Property and equipment, at cost	196,160		193,529
Less accumulated depreciation	Less accumulated depreciation	18,979			648,376		Less accumulated depreciation	44,026		31,760
Net property and equipment	Net property and equipment	172,397			471,170		Net property and equipment	152,134		161,769
Intangible assets, net of accumulated amortization	Intangible assets, net of accumulated amortization	9,058			0		Intangible assets, net of accumulated amortization	8,707		8,942

Deferred income taxes	Deferred income taxes	10,433			11,540		Deferred income taxes	12,253		12,746

Operating lease assets	Operating lease assets	4,664			7,264		Operating lease assets	4,228		4,383
Other noncurrent assets	Other noncurrent assets	12,162			1,068		Other noncurrent assets	12,585		13,457

Total assets	Total assets	$	319,102		$	673,954	Total assets	$	302,553	$	314,430

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY						LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable	Accounts payable	$	15,445		$	32,551	Accounts payable	$	16,784	$	17,516
Current portion of long-term debt	Current portion of long-term debt	2,199			0		Current portion of long-term debt	505		150
Deferred revenues	Deferred revenues	715			1,339		Deferred revenues	824		1,019

Accrued expenses:	Accrued expenses:						Accrued expenses:
Employee compensation and related costs	Employee compensation and related costs	7,062			13,781		Employee compensation and related costs	8,891		7,325
Insurance claims and settlements	Insurance claims and settlements	21,608			22,873		Insurance claims and settlements	21,918		22,106
Insurance premiums and deductibles	Insurance premiums and deductibles	4,787			5,940		Insurance premiums and deductibles	3,783		3,928
Interest	Interest	3,387			5,452		Interest	3,662		2,015
Other	Other	3,759			9,645		Other	4,162		4,959

Total current liabilities	Total current liabilities	58,962			91,581		Total current liabilities	60,529		59,018

Long-term debt, less unamortized discount and debt issuance costs	Long-term debt, less unamortized discount and debt issuance costs	143,017			467,699		Long-term debt, less unamortized discount and debt issuance costs	149,222		147,167
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	3,838			5,700		Noncurrent operating lease liabilities	3,422		3,622
Deferred income taxes	Deferred income taxes	903			4,417		Deferred income taxes	1,825		947
Other noncurrent liabilities	Other noncurrent liabilities	2,337			481		Other noncurrent liabilities	1,770		1,779

Total liabilities	Total liabilities	209,057			569,878		Total liabilities	216,768		212,533

Commitments and contingencies (Note 13)
Commitments and contingencies (Note 10)							Commitments and contingencies (Note 10)

Stockholders’ equity:	Stockholders’ equity:						Stockholders’ equity:

Predecessor common stock $0.10 par value; 200,000,000 shares authorized; 79,202,216 shares outstanding at December 31, 2019		0			8,008

Successor common stock, $0.001 par value; 25,000,000 shares authorized; 1,138,185 shares outstanding at September 30, 2020		1			0

Successor common stock, $0.001 par value; 25,000,000 shares authorized; 1,647,224 shares outstanding at both March 31, 2021 and December 31, 2020							Successor common stock, $0.001 par value; 25,000,000 shares authorized; 1,647,224 shares outstanding at both March 31, 2021 and December 31, 2020	2		2
Additional paid-in capital	Additional paid-in capital	139,931			553,210		Additional paid-in capital	142,949		142,119
Predecessor treasury stock, at cost; 877,047 shares at December 31, 2019		0			(5,090)

Accumulated deficit	Accumulated deficit	(29,887)			(452,052)		Accumulated deficit	(57,166)		(40,224)
Total stockholders’ equity	Total stockholders’ equity	110,045			104,076		Total stockholders’ equity	85,785		101,897
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	319,102		$	673,954	Total liabilities and stockholders’ equity	$	302,553	$	314,430

See accompanying notes to condensed consolidated financial statements.

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~(unaudited)~~

(in thousands, except per share data)

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Revenues $ 38,998 $ 146,398
Costs and expenses:
Operating costs 28,893 108,059
Depreciation and amortization 14,699 22,924
General and administrative 11,626 30,485
Bad debt expense (recovery), net (315) 196
Loss (gain) on dispositions of property and equipment, net (3,829) 17
Total costs and expenses 51,074 161,681
Loss from operations (12,076) (15,283)
Other income (expense):
Interest expense, net of interest capitalized (6,253) (10,013)
Reorganization items, net (2,522) 0
Other income (expense), net (848) (588)
Total other expense, net (9,623) (10,601)
Loss before income taxes (21,699) (25,884)
Income tax (expense) benefit 1,629 (132)
Net loss $ (20,070) $ (26,016)
Loss per common share - Basic $ (17.94) $ (0.33)
Loss per common share - Diluted $ (17.94) $ (0.33)
Weighted average number of shares outstanding—Basic 1,119 78,473
Weighted average number of shares outstanding—Diluted 1,119 78,473
(unaudited)


	Successor		Predecessor
	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020




Revenues	$	58,738	$	114,322




Costs and expenses:
Operating costs	45,326		92,022


Depreciation and amortization	13,365		21,984
General and administrative	9,713		14,655
Prepetition restructuring charges	0		17,074
Impairment	0		17,853
Bad debt expense (recovery), net	(197)		727
Gain on dispositions of property and equipment, net	(2,298)		(717)
Total costs and expenses	65,909		163,598
Loss from operations	(7,171)		(49,276)

Other income (expense):
Interest expense, net of interest capitalized	(6,534)		(8,651)
Reorganization items, net	(146)		(6,663)
Loss on extinguishment of debt	(83)		0
Other expense, net	(2,550)		(5,545)
Total other expense, net	(9,313)		(20,859)

Loss before income taxes	(16,484)		(70,135)
Income tax (expense) benefit	(458)		1,031




Net loss	$	(16,942)	$	(69,104)

Loss per common share - Basic	$	(14.89)	$	(0.88)

Loss per common share - Diluted	$	(14.89)	$	(0.88)











Weighted average number of shares outstanding—Basic	1,138		78,753

Weighted average number of shares outstanding—Diluted	1,138		78,753

See accompanying notes to condensed consolidated financial statements.

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~STOCKHOLDERS’ EQUITY

(unaudited)

(in ~~thousands, except per share data)~~thousands)

Successor Predecessor
Four Months Ended September 30, 2020 Five Months Ended May 31, 2020 Nine Months Ended September 30, 2019
Revenues $ 50,161 $ 142,370 $ 445,809
Costs and expenses:
Operating costs 37,636 114,047 332,614
Depreciation and amortization 19,935 35,647 68,428
General and administrative 15,839 22,047 68,271
Pre-petition restructuring charges 0 16,822 0
Impairment 388 17,853 1,378
Bad debt expense (recovery), net (598) 1,209 (90)
Loss (gain) on dispositions of property and equipment, net (4,289) (989) (2,184)
Total costs and expenses 68,911 206,636 468,417
Loss from operations (18,750) (64,266) (22,608)
Other income (expense):
Interest expense, net of interest capitalized (8,468) (12,294) (30,003)
Reorganization items, net (3,666) (21,903) 0
Loss on extinguishment of debt 0 (4,215) 0
Other income (expense), net (1,078) (3,333) 445
Total other expense, net (13,212) (41,745) (29,558)
Loss before income taxes (31,962) (106,011) (52,166)
Income tax (expense) benefit 2,075 1,786 (1,909)
Net loss $ (29,887) $ (104,225) $ (54,075)
Loss per common share - Basic $ (27.15) $ (1.32) $ (0.69)
Loss per common share - Diluted $ (27.15) $ (1.32) $ (0.69)
Weighted average number of shares outstanding—Basic 1,101 78,968 78,405
Weighted average number of shares outstanding—Diluted 1,101 78,968 78,405


	As of and for the three months ended March 31, 2021 (Successor)
	Shares		Amount				Additional Paid In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Common	Treasury	Common		Treasury

Balance as of December 31, 2020	1,649	(1)	$	2	$	0	$	142,119	$	(40,224)	$	101,897
Net loss	—	—	—		—		—		(16,942)		(16,942)









Stock-based compensation expense	—	—	—		—		830		—		830
Balance as of March 31, 2021	1,649	(1)	$	2	$	0	$	142,949	$	(57,166)	$	85,785



	As of and for the three months ended March 31, 2020 (Predecessor)
	Shares		Amount				Additional Paid In Capital		Accumulated Deficit		Total Stockholders’ Equity
	Common	Treasury	Common		Treasury

Balance as of December 31, 2019	80,079	(877)	$	8,008	$	(5,090)	$	553,210	$	(452,052)	$	104,076
Net loss	—	—	—		—		—		(69,104)		(69,104)


Purchase of treasury stock	—	(165)	—		(7)		—		—		(7)




Issuance of restricted stock	542	—	54		—		(54)		—		—
Stock-based compensation expense	—	—	—		—		328		—		328
Balance as of March 31, 2020	80,621	(1,042)	$	8,062	$	(5,097)	$	553,484	$	(521,156)	$	35,293

See accompanying notes to condensed consolidated financial statements.

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~

~~(unaudited)~~CASH FLOWS

(in thousands)

(unaudited)

Shares Amount Additional Paid In Capital Accumulated
Deficit Total Stockholders’ Equity
Common Treasury Common Treasury
Balance as of December 31, 2019 (Predecessor) 80,079 (877) $ 8,008 $ (5,090) $ 553,210 $ (452,052) $ 104,076
Net loss — — — — — (69,104) (69,104)
Purchase of treasury stock — (165) — (7) — — (7)
Equity awards vested or exercised 542 — 54 — (54) — —
Stock-based compensation expense — — — — 328 — 328
Balance as of March 31, 2020 (Predecessor) 80,621 (1,042) $ 8,062 $ (5,097) $ 553,484 $ (521,156) $ 35,293
Net loss — — — — — (35,121) (35,121)
Purchase of treasury stock — (100) — (1) — — (1)
Equity awards vested or exercised 363 — 36 — (36) — —
Equity awards vested in connection with the Plan 7,946 — 795 — (795) — —
Stock-based compensation expense — — — — 978 — 978
Balance as of May 31, 2020 (Predecessor) 88,930 (1,142) $ 8,893 $ (5,098) $ 553,631 $ (556,277) $ 1,149
Cancellation of Predecessor equity (88,930) 1,142 (8,893) 5,098 (553,631) 556,277 (1,149)
Balance as of May 31, 2020 (Predecessor) 0 0 $ 0 $ 0 $ 0 $ 0 $ 0
Balance as of June 1, 2020 (Successor) — — $ — $ — $ — $ — $ —
Issuance of Successor common stock 1,050 (1) 1 — 18,083 — 18,084
Equity component of Convertible Notes, net of offering costs — — — — 120,875 — 120,875
Net loss — — — — — (9,817) (9,817)
Balance as of June 30, 2020 (Successor) 1,050 (1) $ 1 $ 0 $ 138,958 $ (9,817) $ 129,142
Net loss — — — — — (20,070) (20,070)
Equity awards vested 90 — — — — — —
Stock-based compensation expense — — — — 973 — 973
Balance as of September 30, 2020 (Successor) 1,140 (1) $ 1 $ 0 $ 139,931 $ (29,887) $ 110,045


	Successor		Predecessor
	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020

Cash flows from operating activities:
Net loss	$	(16,942)	$	(69,104)


Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	13,365		21,984
Allowance for doubtful accounts, net of recoveries	(197)		727

Gain on dispositions of property and equipment, net	(2,298)		(717)
Reorganization items, net	0		988

Stock-based compensation expense	830		328
Phantom stock compensation expense	0		(3)
Amortization of debt issuance costs and discount	2,578		1,219

Interest paid in-kind	1,057		0
Loss on extinguishment of debt	83		0

Impairment	0		17,853
Deferred income taxes	1,370		1,115
Change in other noncurrent assets	64		690
Change in other noncurrent liabilities	(162)		(562)
Changes in current assets and liabilities:
Receivables	(3,386)		14,234
Inventory	548		834
Prepaid expenses and other current assets	1,548		(1,253)
Accounts payable	(816)		(4,114)
Deferred revenues	(195)		(342)
Commitment premium	0		9,584
Accrued expenses	2,211		1,148


Net cash used in operating activities	(342)		(5,391)

Cash flows from investing activities:


Purchases of property and equipment	(3,744)		(7,503)
Proceeds from sale of property and equipment	3,522		727




Net cash used in investing activities	(222)		(6,776)

Cash flows from financing activities:
Debt repayments	(1,270)		0


Proceeds from DIP Facility	0		4,000

DIP Facility issuance costs	0		(988)




Purchase of treasury stock	0		(7)



Net cash provided by (used in) financing activities	(1,270)		3,005

Net decrease in cash, cash equivalents and restricted cash	(1,834)		(9,162)
Beginning cash, cash equivalents and restricted cash	32,329		25,617
Ending cash, cash equivalents and restricted cash	$	30,495	$	16,455

Supplementary disclosure:
Interest paid	$	1,203	$	4,306
Income tax paid	$	406	$	623
Reorganization items paid	$	521	$	2,322
Noncash investing and financing activity:
Change in capital expenditure accruals	$	70	$	358

See accompanying notes to condensed consolidated financial statements.

~~PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(unaudited)~~

~~(in thousands)~~

Shares Amount Additional Paid In Capital Accumulated
Deficit Total Stockholders’ Equity
Common Treasury Common Treasury
Balance as of December 31, 2018 (Predecessor) 79,004 (790) $ 7,900 $ (4,965) $ 550,548 $ (388,425) $ 165,058
Net loss — — — — — (15,115) (15,115)
Purchase of treasury stock — (84) — (120) — — (120)
Cumulative-effect adjustment due to adoption of ASC Topic 842 — — — — — 277 277
Equity awards vested or exercised 326 — 33 — (33) — —
Stock-based compensation expense — — — — 867 — 867
Balance as of March 31, 2019 (Predecessor) 79,330 (874) $ 7,933 $ (5,085) $ 551,382 $ (403,263) $ 150,967
Net loss — — — — — (12,944) (12,944)
Purchase of treasury stock — (3) — (5) — — (5)
Equity awards vested or exercised 667 — 67 — (67) — —
Stock-based compensation expense — — — — 327 — 327
Balance as of June 30, 2019 (Predecessor) 79,997 (877) $ 8,000 $ (5,090) $ 551,642 $ (416,207) $ 138,345
Net loss — — — — — (26,016) (26,016)
Equity awards vested or exercised 81 — 8 — (8) — —
Stock-based compensation expense — — — — 819 — 819
Balance as of September 30, 2019 (Predecessor) 80,078 (877) $ 8,008 $ (5,090) $ 552,453 $ (442,223) $ 113,148

~~See accompanying notes to condensed consolidated financial statements.~~

~~PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(unaudited)~~

~~(in thousands)~~

Successor Predecessor
Four Months Ended September 30, 2020 Five Months Ended May 31, 2020 Nine Months Ended September 30, 2019

Cash flows from operating activities:
Net loss $ (29,887) $ (104,225) $ (54,075)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 19,935 35,647 68,428
Allowance for doubtful accounts, net of recoveries (598) 1,209 (90)
Write-off of obsolete inventory 0 0 502
Gain on dispositions of property and equipment, net (4,289) (989) (2,184)
Reorganization items, net 0 18,713 0
Stock-based compensation expense 973 552 2,013
Phantom stock compensation expense 0 0 (99)
Amortization of debt issuance costs and discount 3,194 1,084 2,335
Interest paid in-kind 907 0 0
Loss on extinguishment of debt 0 4,215 0
Impairment 388 17,853 1,378
Deferred income taxes (1,861) (546) 1,020
Change in other noncurrent assets (722) (800) 3,125
Change in other noncurrent liabilities 83 1,524 (4,163)
Changes in current assets and liabilities:
Receivables 15,647 44,041 (2,126)
Inventory (2) 1,441 (3,652)
Prepaid expenses and other current assets 1,528 1,121 30
Accounts payable 175 (15,174) 2,346
Deferred revenues 594 (1,219) (106)
Accrued expenses (6,802) (6,692) (6,044)
Net cash provided by (used in) operating activities (737) (2,245) 8,638
Cash flows from investing activities:
Purchases of property and equipment (2,384) (10,848) (40,543)
Proceeds from sale of property and equipment 8,303 1,665 4,778
Proceeds from insurance recoveries 155 22 641
Net cash provided by (used in) investing activities 6,074 (9,161) (35,124)
Cash flows from financing activities:
Debt repayments 0 (175,000) 0
Proceeds from debt issuance 0 195,187 0
Proceeds from DIP Facility 0 4,000 0
Repayment of DIP Facility 0 (4,000) 0
Payments of debt issuance costs 0 (7,625) 0
Purchase of treasury stock 0 (8) (125)
Net cash provided by (used in) financing activities 0 12,554 (125)
Net increase (decrease) in cash, cash equivalents and restricted cash 5,337 1,148 (26,611)
Beginning cash, cash equivalents and restricted cash 26,765 25,617 54,564
Ending cash, cash equivalents and restricted cash $ 32,102 $ 26,765 $ 27,953
Supplementary disclosure:
Interest paid $ 1,010 $ 8,105 $ 32,773
Income tax paid $ 809 $ 893 $ 3,103
Reorganization items paid $ 13,678 $ 14,947 0
Noncash investing and financing activity:
Change in capital expenditure accruals $ (141) $ (1,924) $ (4,267)

~~See accompanying notes to condensed consolidated financial statements.~~

PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Business

Our drilling services business segments provide contract land drilling services through 3 domestic divisions which are located in the Marcellus/Utica, Permian Basin and Eagle Ford, and Bakken regions, and internationally in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs. Our fleet is 100% pad-capable and offers the latest advancements in pad drilling. The following table summarizes our current rig fleet count and composition for each drilling services business segment:


	Multi-well, Pad-capable
	AC rigs	SCR rigs	Total
Domestic drilling	17	0	17
International drilling	0	8	8
			25

Our production services business segments provide a range of services to producers primarily in Texas, North Dakota and the Rocky Mountain ~~region, and Louisiana.~~region. As of ~~September 30, 2020,~~March 31, 2021, the fleet counts for each of our production services business segments were as follows:


		550 HP	600 HP	Total		550 HP	600 HP	Total
Well servicing rigs, by horsepower (HP) rating	Well servicing rigs, by horsepower (HP) rating	111	12	123	Well servicing rigs, by horsepower (HP) rating	111	12	123

Wireline services units	Wireline services units			78	Wireline services units			72

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer Energy Services Corp. and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, all adjustments (consisting of normal, recurring accruals) necessary for a fair presentation have been included. We suggest that you read these unaudited condensed consolidated financial statements together with the consolidated financial statements and the related notes included in our annual report on Form 10-K for the year ended December 31, ~~2019, as amended.~~ 2020.

As described ~~below, as a result of the application of fresh start accounting~~in Note 2, Emergence from Voluntary Reorganization under Chapter 11, and the effects of the implementation of our Plan of Reorganization (as defined below), the consolidated financial statements after the Effective Date (as defined below) are not comparable with the consolidated financial statements on or before that date. See Note 3, Fresh Start Accounting, to our consolidated financial statements included in our annual report on Form 10-K for ~~additional information.~~

~~Chapter 11 Cases~~ ~~— On~~the year ended December 31, 2020, on March 1, 2020 (the “Petition Date”), Pioneer and certain of our domestic subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On May 11, 2020, the Bankruptcy Court confirmed the plan of reorganization (the “Plan”) that was filed with the Bankruptcy Court on March 2, 2020, and on May 29, 2020 (the “Effective Date”), the conditions to effectiveness of the plan were satisfied and we emerged from Chapter 11. ~~See Note 2,~~ ~~Emergence from Voluntary Reorganization under Chapter 11~~,~~for more information.~~

The accompanying condensed consolidated financial statements have been prepared as if we are a going concern and in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 852, ~~Reorganizations~~ ~~(ASC Topic 852).~~ Upon our emergence from ~~bankruptcy,~~Chapter 11, we adopted fresh start accounting in accordance

with ~~ASC~~Accounting Standards Codification (ASC) Topic 852 and became a new entity for financial reporting purposes. As a result, the condensed consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to our financial position and results of operations on or before the Effective Date.

We evaluated the events between May 29, 2020 and May 31, 2020 and concluded that the use of an accounting convenience date of May 31, 2020 (the “Fresh Start Reporting Date”) would not have a material impact on our condensed consolidated financial statements. As such, the application of fresh start accounting was reflected in our condensed consolidated balance sheet as of May 31, 2020 and related fresh start accounting adjustments were included in our condensed consolidated statement of operations for the five months ended May 31, 2020. See Note 3, ~~Fresh Start Accounting, for additional information.~~

Use of Estimates — In preparing the accompanying unaudited condensed consolidated financial statements, we make various estimates and assumptions that affect the amounts of assets and liabilities we report as of the dates of the balance sheets and

income and expenses we report for the periods shown in the income statements and statements of cash flows. Our actual results could differ significantly from those estimates. Material estimates affecting our financial results, including those that are particularly susceptible to significant changes in the near term, relate to ~~our application of fresh start accounting,~~ our estimates of certain variable revenues and amortization periods of certain deferred revenues and costs associated with drilling daywork contracts, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, and our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance. ~~For information about our use of estimates relating to fresh start accounting, see Note 3,~~ ~~Fresh Start Accounting~~.

Subsequent Events — In preparing the accompanying unaudited condensed consolidated financial statements, we have reviewed events that have occurred after ~~September 30, 2020,~~March 31, 2021, through the filing of this Form 10-Q, for inclusion as necessary.

Recently Issued Accounting Standards

Changes to accounting principles generally accepted in the United States of America (“U.S. GAAP”) are established by the ~~FASB~~Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASUs) to the FASB ASC. We consider the applicability and impact of all ASUs. Additionally, because we have securities registered under the Securities and Exchange Act of 1934, we consider the applicability and impact of releases issued by the Securities & Exchange Commission (the “SEC”). Other than ~~the ASU~~those listed below, we have determined that there are currently no new or recently adopted ASUs or SEC releases which we believe will have a material impact on our consolidated financial position and results of operations.

•Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and preferred stock. Additionally, this ASU improves the consistency of EPS calculations by requiring entities to apply one method, the if-converted method, to all convertible instruments in diluted earnings-per-share calculations. ~~As a smaller reporting company, this~~This ASU will be effective for us on January 1, ~~2024,~~2022, however, early adoption is permitted on January 1, 2021. We are currently evaluating the effect that the ASU will have on our consolidated financial statements.

•Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting and disclosure requirements for income taxes by, among other changes, removing certain exceptions and by clarifying certain aspects of the current accounting guidance. We adopted this ASU on January 1, 2021, and it did not have a material impact on our condensed consolidated financial statements.

Additional Detail of Account Balances

~~Cash and Cash Equivalents~~ ~~— We had 0 cash equivalents at September 30, 2020. Cash equivalents at December 31, 2019 were $8.9 million, consisting of investments in highly-liquid money-market mutual funds.~~

Restricted Cash — Our restricted cash balance at September 30, 2020 reflects the professional fees escrow balance which will be released in accordance with the Plan, as well as $2.2 million of proceeds from asset sales which were used to fund the redemption of Senior Secured Notes tendered in October 2020, as described further in Note 7, b~~Debt. Our restricted cash balance at December 31, 2019~~alance primarily reflects the portion of net proceeds from the issuance of our senior secured term loan held in a restricted account until the completion of certain administrative tasks related to providing access rights to certain of our real property, a condition which is still in effect under the terms of our post-emergence debt ~~instruments.~~instruments, as well as $0.5 million and $0.2 million of proceeds from asset sales received at March 31, 2021 and December 31, 2020, respectively, which were used to fund the redemption of Senior Secured Notes tendered in January and April 2021, respectively, as further described in Note 5,

Debt

Other Receivables — Our other receivables ~~primarily~~primarily consist of recoverable taxes related to our international operations, as well as refundable payroll tax credit receivables associated with the CARES ~~Act, vendor rebates and net income tax receivables.~~Act.

Prepaid Expenses and Other Current Assets — Prepaid expenses and other current assets include items such as insurance, rent deposits, software subscriptions, and other fees. We routinely expense these items in the normal course of business over the periods that we benefit from these expenses. Prepaid expenses and other current assets also include deferred mobilization costs for short-term drilling contracts and demobilization revenues recognized on drilling contracts expiring in the near term.

Other Noncurrent Assets — Other noncurrent assets primarily consist of prepaid taxes in Colombia which are creditable against future income taxes, ~~as well as~~but also includes the noncurrent portion of prepaid insurance premiums, unamortized debt issuance costs associated with our ABL Credit Facility, deferred mobilization costs on long-term drilling contracts, cash deposits related to the deductibles on our workers’ compensation insurance policies, ~~the noncurrent portion of prepaid insurance premiums, unamortized debt issuance costs associated with our ABL Credit Facility,~~ and deferred compensation plan investments.

Other Accrued Expenses — Our other accrued expenses include accruals for items such as sales taxes, property taxes and withholding tax liabilities related to our international operations and accruals for professional ~~fees, including those associated with fresh start accounting.~~fees. We routinely expense these items in the normal course of business over the periods these expenses benefit. Our other accrued expenses also includes the current portion of the lease liability associated with our long-term operating leases.

Other Noncurrent Liabilities — Our other noncurrent liabilities primarily relate to the noncurrent portion of payroll taxes deferred in connection with the CARES Act, as well as ~~noncurrent deferred compensation and~~ the noncurrent portion of deferred mobilization revenues.

2. ~~Emergence from Voluntary Reorganization under Chapter 11~~

~~Reorganization and Chapter 11 Proceedings~~

On March 1, 2020 (the “Petition Date”), Pioneer Energy Services Corp. (“Pioneer”) and its affiliates Pioneer Coiled Tubing Services, LLC, Pioneer Drilling Services, Ltd., Pioneer Fishing & Rental Services, LLC, Pioneer Global Holdings, Inc., Pioneer Production Services, Inc., Pioneer Services Holdings, LLC, Pioneer Well Services, LLC, Pioneer Wireline Services Holdings, Inc., Pioneer Wireline Services, LLC (collectively with Pioneer, the “Pioneer RSA Parties”) filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Chapter 11 proceedings were being jointly administered under the caption ~~In re Pioneer Energy Services Corp. et al~~ ~~(the “Chapter 11 Cases”).~~

In connection with the Bankruptcy Petitions, the Pioneer RSA Parties entered into a restructuring support agreement (the “RSA”) with holders of approximately 99% in aggregate principal amount of our outstanding Term Loan (the “Consenting Term Lenders”) and holders of approximately 75% in aggregate principal amount of our Prepetition Senior Notes (the “Consenting Noteholders” and together with the Consenting Term Lenders, the “Consenting Creditors”). Pursuant to the RSA, the Consenting Creditors and the Pioneer RSA Parties made certain customary commitments to each other, including the Consenting Noteholders committing to vote for, and the Consenting Creditors committing to support, the restructuring transactions (the “Restructuring”) to be effectuated through a plan of reorganization that incorporates the economic terms included in the RSA (the “Plan”). The Pioneer RSA Parties filed the Plan with the Bankruptcy Court on March 2, 2020.

After commencement of the Chapter 11 Cases, we continued to operate our businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

On May 11, 2020, the Bankruptcy Court entered an order, Docket No. 331 (the “Confirmation Order”) confirming the Plan. On May 29, 2020 (the “Effective Date”) the conditions to effectiveness of the Plan were satisfied, and we emerged from Chapter 11.

The commencement of the Chapter 11 Cases constituted an event of default that accelerated our obligations under our Prepetition Senior Notes, the Prepetition ABL Facility, and Term Loan. Under the Bankruptcy Code, holders of our Prepetition Senior Notes and the lenders under our Term Loan and the Prepetition ABL Facility were stayed from taking any action against us as a result of this event of default. On the Effective Date, all applicable agreements governing the obligations under the Term Loan, Prepetition Senior Notes and Prepetition ABL Facility were terminated. The Term Loan and Prepetition ABL Facility were paid in full and all outstanding obligations under the Prepetition Senior Notes were canceled in exchange for 94.25% of the pro forma common equity (subject to the dilution from the Convertible Notes and new management incentive plan).

On the Effective Date, we entered into a $75 million senior secured asset-based revolving credit agreement which was later amended and reduced to $40 million in August 2020 (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”), all of which are further described in Note 7, ~~Debt~~.

Also on the Effective Date, by operation of the Plan, all agreements, instruments, and other documents evidencing, relating to or connected with any equity interests of the Company, including the existing common stock, issued and outstanding immediately prior to the Effective Date, and any rights of any holder in respect thereof, were deemed canceled, discharged and of no force or effect. Pursuant to the Plan, we issued a total of 1,049,804 shares of our new common stock, with approximately 94.25% of such new common stock being issued to holders of the Prepetition Senior Notes outstanding immediately prior to the Effective Date. Holders of the existing common stock received an aggregate of 5.75% of the proforma common equity (subject to the dilution from the Convertible Notes and new management incentive plan), at a conversion rate of 0.0006849838 new shares for each existing share.

As part of the transactions undertaken pursuant to the Plan, we converted from a Texas corporation to a Delaware corporation, filed the Certificate of Incorporation of the Company with the office of the Secretary of State of the State of Delaware, and adopted Amended and Restated Bylaws of the Company.

~~Backstop Commitment Agreement~~

Prior to filing the Plan, we entered into a separate backstop commitment agreement with the Consenting Noteholders and certain members of our senior management (the “Backstop Commitment Agreement”), pursuant to which the Consenting Noteholders and certain members of our senior management committed to backstop approximately $118 million and $1.8 million, respectively, of new convertible bonds to be issued in a rights offering. As consideration for this commitment, we committed to make an aggregate payment of $9.4 million and $0.1 million to the Consenting Noteholders and certain members of our senior management, respectively, in the form of additional new convertible bonds, or in cash if the Backstop Commitment Agreement was terminated under certain circumstances as forth therein. As a result, we incurred a liability and expense at the time we entered into the Backstop Commitment Agreement for the aggregate amount of $9.6 million (the “Commitment Premium”) which was recognized in our Predecessor condensed consolidated financial statements as of and for the three months ended March 31, 2020. The Commitment Premium was settled in conjunction with our emergence from Chapter 11 and the issuance of the Convertible Notes.

~~Debtor-in-Possession Financing~~

On February 28, 2020, we received commitments pursuant to the Commitment Letter from PNC Bank, N.A. for a $75 million asset-based revolving loan debtor-in-possession financing facility (the “DIP Facility”) and a $75 million asset-based revolving exit financing facility. On March 3, 2020, with the approval of the Bankruptcy Court, we entered into the DIP Facility and used the proceeds thereunder to refinance all outstanding letters of credit under the Prepetition ABL Facility in connection with the termination of the Prepetition ABL Facility and to pay fees and expenses in connection with the Chapter 11 proceedings and transaction and professional fees related thereto.

The DIP Facility provided financing with a 5-month maturity, bearing interest at a rate of LIBOR plus 200 basis points per annum, and contained customary covenants and events of default. The DIP Facility was terminated upon our emergence from the Chapter 11 Cases on May 29, 2020.

~~Chapter 11 Accounting~~

~~Pre-petition restructuring charges~~ — All expenses and losses incurred prior to the Petition Date which were related to the Chapter 11 proceedings are presented as pre-petition restructuring charges in our Predecessor condensed consolidated statements of operations, including $9.6 million of expense incurred for the Commitment Premium pursuant to the Backstop Commitment Agreement.

~~Reorganization items, net~~ — Any expenses, gains, and losses incurred subsequent to and as a direct result of the Chapter 11 proceedings are presented as reorganization items in our condensed consolidated statements of operations. Reorganization items consisted of the following (amounts in thousands):

Successor Predecessor
Three Months Ended September 30, 2020 Four Months Ended September 30, 2020 Five Months Ended May 31, 2020
Gain on settlement of liabilities subject to compromise $ 0 $ 0 $ (291,378)
Fresh start valuation adjustments 0 0 284,392
Legal and professional fees 2,522 3,263 26,038
Unamortized debt costs on liabilities subject to compromise 0 0 2,003
Accelerated stock-based compensation 0 0 713
Loss (gain) on rejected leases 0 403 (378)
DIP facility costs 0 0 513
$ 2,522 $ 3,666 $ 21,903

Contractual interest expense on our Prepetition Senior Notes totaled $7.6 million for the five months ended May 31, 2020, which is in excess of the $3.1 million included in interest expense on our Predecessor condensed consolidated statements of operations because we discontinued accruing interest on the Petition Date in accordance with the terms of the Plan and ASC Topic 852.

~~3. Fresh Start Accounting~~

~~Fresh Start Accounting~~

In connection with our emergence from bankruptcy and in accordance with ASC Topic 852, we qualified for and adopted fresh start accounting on the Effective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company, and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

In accordance with ASC Topic 852, with the application of fresh start accounting, we allocated the reorganization value to our individual assets and liabilities (except for deferred income taxes) based on their estimated fair values in conformity with ASC Topic 805, ~~Business Combinations. The amount of deferred taxes was determined in accordance with ASC Topic 740,~~ ~~Income Taxes. The Effective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets.~~

~~Reorganization Value~~

The reorganization value represents the fair value of the Successor Company’s total assets before considering liabilities and is intended to approximate the amount a willing buyer would pay for the Company’s assets immediately after restructuring. The reorganization value was derived from the enterprise value, which represents the estimated fair value of an entity’s long-term debt and equity. As set forth in the Plan, the enterprise value of the Successor Company was estimated to be in the range of $275 million to $335 million with a midpoint of $305 million. However, the third-party valuation advisor engaged to assist in determining the enterprise value subsequently revised this range to $249 million to $303 million, with a midpoint of $276 million, which was filed with the Bankruptcy Court in order to update the initial assumptions for current information. Based on the estimates and assumptions discussed below, we estimated the enterprise value to be the midpoint of the range of estimated enterprise value of $276 million.

~~The following table reconciles the enterprise value to the estimated fair value of our Successor Common Stock as of the Fresh Start Reporting Date (dollars in thousands, except per share data):~~


~~Enterprise value~~	$	~~276,000~~
~~Plus: cash and cash equivalents~~	~~10,592~~
~~Less: fair value of debt~~	~~(145,420)~~


~~Total implied equity (prior to debt issuance costs on equity component on Convertible Notes)~~	~~141,172~~
~~Less: equity portion of Convertible Notes~~	~~(123,088)~~


~~Fair value of Successor stockholders’ equity~~	$	~~18,084~~
~~Shares issued upon emergence~~	~~1,049,804~~
~~Per share value~~	$	~~17.23~~

The following table reconciles enterprise value to the reorganization value of our Successor’s assets to be allocated to our individual assets as of the Fresh Start Reporting Date (amounts in thousands):


~~Enterprise value~~	$	~~276,000~~
~~Plus: cash and cash equivalents~~	~~10,592~~
~~Plus: current liabilities~~	~~65,799~~
~~Plus: non-current liabilities excluding long-term debt~~	~~6,626~~
~~Less: debt issuance costs on Successor debt~~	~~(6,394)~~
~~Reorganization value of Successor assets~~	$	~~352,623~~

With the assistance of our financial advisors, we determined the enterprise and corresponding equity value of the Successor using various valuation methods, including (i) discounted cash flow analysis, (ii) comparable company analysis and (iii) precedent transaction analysis. The use of each approach provides corroboration for the other approaches.

In order to estimate the enterprise value using the discounted cash flow (DCF) analysis approach, management’s estimated future cash flow projections through 2024, plus a terminal value calculated assuming a perpetuity growth rate and applying a multiple to the terminal year’s projected earnings before interest, tax, depreciation and amortization (EBITDA), were discounted to an assumed present value using our estimated weighted average cost of capital (WACC), which represents the internal rate of return (IRR).

The comparable company analysis provides an estimate of the company’s value relative to other publicly traded companies with similar operating and financial characteristics, by which a range of EBITDA multiples of the comparable companies was then applied to management’s projected EBITDA to derive an estimated enterprise value.

Precedent transaction analysis provides an estimate of enterprise value based on recent sale transactions of similar companies, by deriving the implied EBITDA multiple of those transactions, based on sales prices, which was then applied to management’s projected EBITDA.

~~Certain inputs and assumptions used to estimate the enterprise value are considered significant unobservable inputs which are classified as Level 3 inputs under ASC Topic 820,~~ ~~Fair Value Measurements and Disclosures~~, including management’s estimated future cash flow projections. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties beyond our control, and accordingly, our actual results could vary materially.

~~Valuation Process~~

The fair values of our principal assets (including inventory, drilling and production services equipment, land and buildings, and intangible assets), and our liabilities were estimated with the assistance of third-party valuation advisors. The cost, income and market approaches were utilized in estimating these fair values. As more than one approach was used in our valuation analysis, the various approaches were reconciled to determine a final value conclusion. Further, economic obsolescence was considered in determining the fair value of our inventory and property and equipment. The fair value was allocated to our individual assets and liabilities as follows:

~~Inventory~~ —Inventory valued consisted of spare parts and consumables that support our international, coiled tubing and wireline operations. The fair value of the international spare parts and coiled tubing inventory was determined using the

indirect method of the cost approach, with adjustments for economic obsolescence. For wireline inventory, the cost basis was adjusted to account for the changes in cost between the acquisition date and the valuation date.

~~Property and Equipment~~ — Property and equipment valued consisted of leasehold improvements, machinery and equipment, transportation equipment, office furniture, fixtures and equipment, computers and software, construction-in-progress and assets held for sale. The fair value of our property and equipment was estimated using the cost approach and market approach, while the income approach was considered in the context of the economic obsolescence analysis which was applied to certain assets. As a part of the valuation process, the third-party advisors performed site inspections and utilized internal data to identify and value assets.

~~Land and Buildings~~ — Land and buildings valued consisted of four facilities and the underlying land, for which the fair value was estimated using the cost approach and sales comparison (market) approach, with adjustments for economic obsolescence to certain assets.

~~Intangible Assets~~ — Intangible assets valued consisted of trademark and tradename, for which the fair value was estimated using the relief-from-royalty income approach. As a part of the valuation process, the third-party advisors considered overall revenue and cash flow projections and guidance on long-term growth rates. Additionally, above or below market leases and contracts and relationships were examined and determined to have no fair value. The value of our intangible assets will be amortized using the straight-line method over the economic useful life, which we estimated to be ten years.

~~Senior Secured Notes~~ — The fair value of the Senior Secured Notes was estimated by applying a stochastic interest rate model implemented within a binomial lattice framework that considers the call provisions associated with the notes and captures the decision of prepaying the notes or holding to maturity by evaluating the optimal decision at each time step constructed within the lattice model.

~~Convertible Notes~~ — The fair value of the Convertible Notes was estimated by applying a binomial lattice model and a recovery rate adjustment model, which provides a quantitative method for estimating the yield for a debt or debt-like security based on an observed market yield for a security of a different seniority. Certain inputs and assumptions used to derive the fair value of the Convertible Notes are considered significant unobservable inputs which are classified as Level 3 inputs under ASC Topic 820, ~~Fair Value Measurements and Disclosures, including the company’s stock price, the volatility and the market yield related to the Convertible Notes.~~

~~Consolidated Balance Sheet~~

The adjustments set forth in the following consolidated balance sheet as of May 31, 2020 reflect the effects of the transactions contemplated by the Plan and executed on the fresh start reporting date (reflected in the column entitled “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of Fresh Start Accounting (reflected in the column entitled “Fresh Start Accounting Adjustments”).

As of May 31, 2020
(in thousands) Predecessor Reorganization Adjustments Fresh Start Accounting Adjustments Successor
ASSETS
Cash and cash equivalents $ 21,253 $ (10,661) (1) $ 0 $ 10,592
Restricted cash 4,452 11,721 (2) 0 16,173
Receivables:
Trade, net of allowance for doubtful accounts 33,537 0 0 33,537
Unbilled receivables 9,163 0 0 9,163
Insurance recoveries 23,636 0 0 23,636
Other receivables 5,256 1,000 (3) 0 6,256
Inventory 21,012 0 (6,883) (18) 14,129
Assets held for sale 1,825 0 29 (19) 1,854
Prepaid expenses and other current assets 4,817 0 952 (20) 5,769
Total current assets 124,951 2,060 (5,902) 121,109
Property and equipment, at cost 1,082,704 0 (886,733) (21) 195,971
Less accumulated depreciation 655,512 0 (655,512) (21) 0
Net property and equipment 427,192 0 (231,221) 195,971
Intangible assets, net of accumulated amortization 0 0 9,370 (22) 9,370
Deferred income taxes 10,897 0 (2,157) (23) 8,740
Operating lease assets 5,234 0 0 5,234
Other noncurrent assets 13,247 (5,023) (4) 3,975 (24) 12,199
Total assets $ 581,521 $ (2,963) $ (225,935) $ 352,623
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 24,601 $ (9,478) (5) $ 0 $ 15,123
Deferred revenues 121 0 0 121
Commitment premium 9,584 (9,584) (6) 0 0
Debtor in possession financing 4,000 (4,000) (7) 0 0
Accrued expenses:
Employee compensation and related costs 4,970 0 0 4,970
Insurance claims and settlements 23,517 0 0 23,517
Insurance premiums and deductibles 5,269 0 0 5,269
Interest 3,775 (3,731) (8) 0 44
Other 12,436 4,329 (9) (10) 16,755
Total current liabilities 88,273 (22,464) (10) 65,799
Long-term debt, less unamortized discount and debt issuance costs 175,000 (53,831) (10) 20,070 (25) 141,239
Noncurrent operating lease liabilities 4,189 0 0 4,189
Deferred income taxes 4,296 0 (3,225) (26) 1,071
Other noncurrent liabilities 1,366 0 0 1,366
Total liabilities not subject to compromise 273,124 (76,295) 16,835 213,664
Liabilities subject to compromise 308,422 (308,422) (11) 0 0
Stockholders’ equity:
Predecessor common stock 8,893 (8,893) (12) 0 0
Successor common stock 0 1 (13) 0 1
Predecessor additional paid-in capital 553,631 (553,631) (14) 0 0
Successor additional paid-in capital 0 98,413 (15) 40,545 (27) 138,958
Predecessor treasury stock, at cost (5,098) 5,098 (16) 0 0
Accumulated deficit (557,451) 840,766 (17) (283,315) (28) 0
Total stockholders’ equity (25) 381,754 (242,770) 138,959
Total liabilities and stockholders’ equity $ 581,521 $ (2,963) $ (225,935) $ 352,623

~~(1)Represents the following net change in cash and cash equivalents:~~


~~Cash proceeds from Convertible Notes~~	$	~~120,187~~
~~Cash proceeds from Senior Secured Notes~~	~~75,000~~
~~Payment to fund claims reserve~~	~~(950)~~
~~Payment to escrow remaining professional fees~~	~~(10,771)~~
~~Payment of professional fees~~	~~(9,468)~~
~~Payment in full to extinguish DIP Facility~~	~~(4,000)~~
~~Payment of accrued interest on DIP Facility~~	~~(55)~~
~~Payment of DIP Facility fees~~	~~(177)~~
~~Payment in full to extinguish Prepetition Term Loan~~	~~(175,000)~~
~~Payment of accrued interest on Prepetition Term Loan~~	~~(3,677)~~
~~Payment of prepayment penalty on Prepetition Term Loan~~	~~(1,750)~~
	$	~~(10,661)~~

~~(2)Represents the following net change in restricted cash:~~


~~Payment to fund rejected leases claims reserve~~	$	~~950~~
~~Payment to escrow remaining professional fees~~	~~10,771~~
	$	~~11,721~~

~~(3)Represents recognition of a receivable for a portion of the proceeds from the issuance of the Senior Secured Notes which was received in June 2020.~~

~~(4)Represents the reclassification of previously paid debt issuance costs from deferred assets to offset the carrying amount of long-term debt.~~

~~(5)Represents the payment of professional fees which were incurred prior to emergence.~~

~~(6)Represents the settlement of the Backstop Commitment Premium upon issuance of the Convertible Notes.~~

~~(7)Represents the payment to extinguish the DIP Facility.~~

~~(8)Represents the payment of accrued interest on the Prepetition Term Loan and DIP Facility.~~

~~(9)Represents the increase in accrued expenses for fees which were incurred upon our emergence from Chapter 11.~~

~~(10)Represents the following changes in long-term debt, less unamortized discount and debt issuance costs:~~


~~Payment in full to extinguish Prepetition Term Loan~~	$	~~(175,000)~~
~~Issuance of Senior Secured Notes at Par~~	~~78,125~~
~~Recognition of debt issue costs on Senior Secured Notes~~	~~(2,913)~~
~~Recognition of liability component of Convertible Notes issuance~~	~~47,225~~
~~Recognition of debt issuance costs on liability component of Convertible Notes~~	~~(1,268)~~
	$	~~(53,831)~~

~~Due to the Convertible Notes’ embedded conversion option, the liability and equity components were reported separately, as described further in Note 7,~~ ~~Debt~~.

~~(11)Represents the settlement of liabilities subject to compromise in accordance with the Plan, for which the resulting gain is as follows:~~


~~Prepetition Senior Notes~~	$	~~300,000~~
~~Accrued interest on Prepetition Senior Notes~~	~~8,422~~
~~Liabilities subject to compromise~~	~~308,422~~
~~Cash paid by holders of Prepetition Senior Notes~~	~~118,013~~
~~Issuance of equity to Prepetition Senior Notes creditors~~	~~(17,044)~~
~~Notes Received by Prepetition Senior Note holders~~	~~(118,013)~~
	$	~~291,378~~

~~(12)Represents the cancellation of Predecessor common stock.~~

~~(13)Represents the issuance of Successor common stock to prior equity holders and to settle the Prepetition Senior Notes.~~

~~(14)Represents the cancellation of Predecessor additional paid-in capital.~~

~~(15)The changes in Successor additional paid-in capital were as follows:~~


~~Recognition of equity component of Convertible Notes~~	$	~~82,546~~
~~Issuance of Successor common stock to Prepetition Senior Notes creditors and prior equity holders~~	~~18,083~~
~~Recognition of debt issuance costs of Convertible Notes equity component~~	~~(2,216)~~
	$	~~98,413~~

~~Due to the Convertible Notes’ embedded conversion option, the liability and equity components were reported separately, as described further in Note 7,~~ ~~Debt~~.

~~(16)Represents the cancellation of Predecessor treasury stock.~~

~~(17)Represents the cumulative impact to Predecessor retained earnings of the reorganization adjustments described above.~~

~~(18)Represents the fair value adjustment to inventory, as described further in the previous section under the heading “Valuation Process~~”.

~~(19)Represents the fair value adjustment to assets held for sale, as described further in the previous section under the heading “Valuation Process~~”.

~~(20)~~Represents deferred compensation associated with the excess of fair value over the par value of Convertible Notes purchased by senior management, which is compensation to the Successor and therefore was expensed in June 2020.

~~(21)Represents the following fair value adjustments to property and equipment:~~

Predecessor
Historical Value Fair Value
Adjustment Successor
Fair Value
Drilling rigs and equipment $ 1,010,612 $ (832,294) $ 178,318
Vehicles 41,283 (28,561) 12,722
Building and improvements 16,619 (13,742) 2,877
Office equipment 12,231 (11,743) 488
Land 1,959 (393) 1,566
$ 1,082,704 $ (886,733) $ 195,971
Less: Accumulated Depreciation (655,512) 655,512 0
$ 427,192 $ (231,221) $ 195,971

~~(22)Represents the fair value adjustment to recognize the trademark and tradename of Pioneer Energy Services Corp. as an intangible, as described further in the above section under the heading “Valuation Process~~”.

~~(23)Represents the recognition of the noncurrent deferred tax asset as a result of the cumulative tax impact of the fresh start adjustments herein.~~

~~(24)Represents a prepaid tax asset established as part of the fresh start accounting adjustments.~~

~~(25)Represents the following fair value adjustments to long-term debt less unamortized discount and debt issuance costs:~~


~~Fair value adjustment to the liability component of the Convertible Notes~~	$	~~23,195~~
~~Discount on Senior Secured Notes~~	~~(3,125)~~
	$	~~20,070~~

~~Due to the Convertible Notes’ embedded conversion option, the liability and equity components were reported separately, as described further in Note 7,~~ ~~Debt~~.

~~(26)Represents the derecognition of the deferred tax liability as a result of the cumulative tax impact of the fresh start adjustments herein.~~

~~(27)Represents the fair value adjustment to the equity component of the Convertible Notes.~~

~~(28)Represents the cumulative impact of the fresh start accounting adjustments discussed above and the elimination of Predecessor accumulated earnings.~~

4. Revenue from Contracts with Customers

Our production services business segments earn revenues for well servicing and wireline services pursuant to master services agreements based on purchase orders or other contractual arrangements with the client. Production services jobs are generally short-term (ranging in duration from several hours to less than 30 days) and are charged at current market rates for the labor, equipment and materials necessary to complete the job. Production services jobs are varied in nature but typically represent a single performance obligation, either for a particular job, a series of distinct jobs, or a period of time during which we stand ready to provide services as our client needs them. Revenue is recognized for these services over time, as the services are performed.

Our drilling services business segments earn revenues by drilling oil and gas wells for our clients under daywork contracts. Daywork contracts are comprehensive agreements under which we provide a comprehensive service offering, including the drilling rig, crew, supplies, and most of the ancillary equipment necessary to operate the rig. Contract modifications that extend the term of a dayrate contract are generally accounted for prospectively as a separate dayrate contract. We account for our services provided under daywork contracts as a single performance obligation comprised of a series of distinct time increments which are satisfied over time. Accordingly, dayrate revenues are recognized in the period during which the services are performed.

With most drilling contracts, we also receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site. Revenues associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service and are recognized ratably over the related contract term.

The amount of demobilization revenue that we ultimately collect is dependent upon the specific contractual terms, most of which include provisions for reduced (or no) payment for demobilization when, among other things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client prior to the termination of the current contract. Since revenues associated with demobilization activity are typically variable, at each period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable. Any change in the expected amount of demobilization revenue is accounted for with the net cumulative impact of the change in estimate recognized in the period during which the revenue estimate is revised.

The upfront costs that we incur to mobilize the drilling rig to our client’s initial drilling site are capitalized and recognized ratably over the term of the related contract, including any contracted renewal or extension periods, which is our estimate of the period during which we expect to benefit from the cost of mobilizing the rig. Costs associated with the final demobilization at the end of the contract term are expensed when incurred, when the demobilization activity is performed.

From time to time, we may receive fees from our clients for capital improvements to our rigs to meet our client’s requirements. Such revenues are not considered to be distinct within the terms of the contract and are therefore allocated to the overall performance obligation, satisfied over the term of the contract. We record deferred revenue for such payments and recognize them ratably as revenue over the initial term of the related drilling contract.

Contract Asset and Liability Balances and Contract Cost Assets

Contract asset and contract liability balances relate to demobilization and mobilization revenues, respectively. Demobilization revenue that we expect to receive is recognized ratably over the related contract term, but invoiced upon completion of the demobilization activity. Mobilization revenue, which is typically collected upon the completion of the initial mobilization activity, is deferred and recognized ratably over the related contract term. Contract asset and liability balances are netted at the contract level, with the net current and noncurrent portions separately classified in our condensed consolidated balance sheets, and the resulting contract liabilities are referred to herein as “deferred revenues.” When demobilization revenues are recognized prior to the activity being performed, they are not yet billable, and the resulting contract assets are included in our other current assets in our unaudited condensed consolidated financial statements.

Contract cost assets represent the costs associated with the initial mobilization required in order to fulfill the contract, which are deferred and recognized ratably over the period during which we expect to benefit from the mobilization, or the period during which we expect to satisfy the performance obligations of the related contract. Contract cost assets are presented as either current or noncurrent, according to the duration of the original contract to which it relates, and referred to herein as “deferred costs.”

Our current and noncurrent deferred revenues, contract assets and deferred costs as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows (amounts in thousands):


		Successor		Predecessor
		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

Current deferred revenues	Current deferred revenues	$	715	$	1,339	Current deferred revenues	$	824	$	1,019
Current deferred costs	Current deferred costs	592		1,071		Current deferred costs	47		361
Current contract assets						Current contract assets	0		300

Noncurrent deferred revenues		$	0	$	57
Noncurrent deferred costs	Noncurrent deferred costs	24		267		Noncurrent deferred costs	291		194

The changes in contract balances and contract assets during ~~2020~~2021 are primarily related to the amortization of deferred revenues and costs and the impact of demobilization performed in January for which the revenue was earned over the contract period in 2020. These decreases were partially offset by increases r~~elated~~related to 42 rigs deployed under new contracts in ~~2020.~~ 2021. Amortization of deferred revenues and costs were as follows (amounts in thousands):


		Successor			Predecessor					Successor				Predecessor
			Four Months Ended September 30, 2020			Five Months Ended May 31, 2020		Nine Months Ended September 30, 2019				Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Amortization of deferred revenues	Amortization of deferred revenues		$	288		$	2,705	$	3,453		Amortization of deferred revenues	$	528		$	1,613
Amortization of deferred costs	Amortization of deferred costs		205			1,876		3,389			Amortization of deferred costs	381			1,263

~~Beginning in late~~As of March ~~2020, rather than terminating their contracts with us, certain~~31, 2021, 16 of our ~~clients elected to temporarily stack 3~~25 rigs are earning under daywork contracts, of ~~our rigs, placing them on an extended standby for a reduced revenue rate~~which 6 are under domestic term contracts, and ~~the option to reactivate the rigs through the remainder of the contract term. In May~~ ~~2020,~~ 1 of our domestic clients elected to early terminate their contract with us and make an upfront early termination payment based on a per day rate for the respective remaining contract term, resulting in $1.6 million of revenues recognized in the Predecessor period.additional international rig is contracted but pending operations.

5.3. Property and Equipment

~~Capital Expenditures~~ — Capital additions during 2020 primarily related to routine expenditures that are necessary to maintain our fleets, while capital additions during 2019 also included the completion of construction on our 17th ~~AC drilling rig which we deployed in March 2019, and various vehicle and ancillary equipment purchases and upgrades.~~

Assets Held for Sale — In April 2020, we closed our coiled tubing services business and placed all of our coiled tubing services assets as held for sale at June 30, 2020, which represents ~~$3.8~~$2.4 million of our total assets held for sale at ~~September 30, 2020.~~March 31, 2021. We have various other equipment designated as held for sale which is carried at fair value. When the net carrying value of an asset designated as held for sale exceeds its estimated fair value, which we estimate based on expected sales prices, which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures, we recognize the difference as an impairment charge.

Impairments — In accordance with ASC Topic 360, Property, Plant and Equipment, we monitor all indicators of potential impairments. We evaluate for potential impairment of long-lived assets when indicators of impairment are present, which may include, among other things, significant adverse changes in industry trends (including revenue rates, utilization rates, oil and natural gas market prices, and industry rig counts). In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of the assets grouped at the lowest level that independent cash flows can be identified. We perform an impairment evaluation and estimate future undiscounted cash flows for each of our asset groups separately, which are our domestic drilling services, international drilling services, well servicing and wireline services segments, and, prior to being placed as held for sale, our coiled tubing services segment. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we determine the fair value of the asset group, and the amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of the assets.

Due to the significant decline in industry conditions, commodity prices, and projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the first quarter of 2020, and we performed recoverability testing on all our reporting units. As a result of this analysis, we incurred impairment charges of $16.4 million to reduce the carrying values of our coiled tubing assets to their estimated fair values during the three months ended March 31, 2020. For all our other reporting units, excluding coiled tubing, we determined that the sum of the estimated future undiscounted net cash flows were in excess of the carrying amounts and that no impairment

existed for these reporting units at March 31, 2020. We ~~continued~~continue to monitor potential indicators of impairment ~~through September 30, 2020~~ and concluded that none of our reporting units are currently at risk of ~~impairment.~~impairment at March 31, 2021.

The assumptions we use in the evaluation for impairment are inherently uncertain and require management judgment. Although we believe the assumptions and estimates used in our impairment analysis are reasonable, different assumptions and estimates could materially impact the analysis and resulting conclusions. The most significant inputs used in our impairment analysis include the projected utilization and pricing of our services, as well as the estimated proceeds upon any future sale or disposal of the assets, all of which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. If commodity prices decrease or remain at current levels for an extended period of time, or if the demand for any of our services decreases below what we are currently projecting, our estimated cash flows may decrease and our estimates of the fair value of certain assets may decrease as well. If any of the foregoing were to occur, we could incur impairment charges on the related assets.

6.4. Leases

As a drilling and production services provider, we provide the drilling rigs and production services equipment which are necessary to fulfill our performance obligations and which are considered leases under ASU No. 2016-02, Leases, (together with its amendments, herein referred to as “ASC Topic 842”). However, ASU No. 2018-11, Leases: Targeted Improvements, allows lessors to (i) combine the lease and non-lease components of revenues when the revenue recognition pattern is the same and when the lease component, when accounted for separately, would be considered an operating lease, and (ii) account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component. We elected to apply this expedient and therefore recognize our revenues (both lease and service components) under ASC Topic 606, and present them as one revenue stream in our unaudited condensed consolidated statements of operations.

As a lessee, we lease our corporate office headquarters in San Antonio, Texas, and we conduct our business operations through 1514 other regional offices located throughout the United States and internationally in Colombia. These operating locations typically include regional offices, storage and maintenance yards and employee housing sufficient to support our operations in the area. We lease most of these properties under non-cancelable term and month-to-month operating leases, many of which contain renewal options that can extend the lease term from one year to five years and some of which contain escalation clauses. We also lease various items of supplemental equipment, typically under cancelable short-term and very short term (less than 30 days) leases. Due to the nature of our business, any option to renew these short-term leases, and the options to extend certain of our long-term real estate leases, are generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.

The following table summarizes our lease expense recognized, excluding variable lease costs (amounts in thousands):

Successor Predecessor
Four Months Ended September 30, 2020 Five Months Ended May 31, 2020 Nine Months Ended September 30, 2019
Long-term operating lease expense $ 517 $ 1,080 $ 2,943
Short-term operating lease expense 1,705 4,456 11,490


	Successor			Predecessor
		Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Long-term operating lease expense		$	315		$	662
Short-term operating lease expense		2,001			3,526

The following table summarizes the amount and timing of our obligations associated with our long-term operating leases (amounts in thousands):


		Successor		Predecessor
		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

Within 1 year	Within 1 year	$	1,118	$	2,496	Within 1 year	$	1,120	$	1,069
In the second year	In the second year	994		1,933		In the second year	1,000		985
In the third year	In the third year	957		1,447		In the third year	886		921
In the fourth year	In the fourth year	869		1,117		In the fourth year	880		874
In the fifth year	In the fifth year	890		912		In the fifth year	740		895
Thereafter	Thereafter	522		811		Thereafter	229		299
Total undiscounted lease obligations	Total undiscounted lease obligations	$	5,350	$	8,716	Total undiscounted lease obligations	$	4,855	$	5,043
Impact of discounting	Impact of discounting	(584)		(818)		Impact of discounting	(486)		(532)
Discounted value of operating lease obligations	Discounted value of operating lease obligations	$	4,766	$	7,898	Discounted value of operating lease obligations	$	4,369	$	4,511

Current operating lease liabilities	Current operating lease liabilities	$	928	$	2,198	Current operating lease liabilities	$	947	$	889
Noncurrent operating lease liabilities	Noncurrent operating lease liabilities	3,838		5,700		Noncurrent operating lease liabilities	3,422		3,622
		$	4,766	$	7,898		$	4,369	$	4,511

~~During 2020, leased assets obtained in exchange for new operating lease liabilities totaled approximately $2.1 million.~~

5. Debt

~~As of September 30, 2020, the~~ principal amount of our outstanding debt obligations, including those issued in payment of in-kind interest, were as follows (amounts in thousands):


			~~Successor~~
			~~September 30, 2020~~
~~Convertible Notes~~			~~129,771~~
~~Senior Secured Notes, including in-kind interest~~			~~79,032~~


	March 31, 2021		December 31, 2020
Convertible Notes	$	132,763	$	132,763
Senior Secured Notes	77,226		77,439

~~Due to the application of fresh start accounting,~~Upon our emergence from Chapter 11, our debt obligations were recognized at fair value on our ~~condensed~~ consolidated balance sheet atdue to the ~~Fresh Start Reporting Date, as described further in Note 3,~~ ~~Fresh Start Accounting. Additionally,~~application of fresh start accounting and a portion of the fair value of our Convertible Notes is classified as equity, as described further below.

ABL Credit Facility

On the Effective Date, pursuant to the terms of the Plan, we entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $75 million (the “ABL Credit Facility”) among us and substantially all of our domestic subsidiaries as borrowers (the “Borrowers”), the lenders party thereto and PNC Bank, National Association as administrative agent, and on August 7, 2020, we entered into a First Amendment to the ABL Credit Facility (together, herein referred to as the “ABL Credit Facility”) which, among other things, reduced the maximum amount of the revolving credit agreement to $40 million.

Among other things, proceeds of loans under the ABL Credit Facility may be used to ~~pay fees and expenses associated with the ABL Credit Facility and~~ finance ongoing working capital and general corporate needs.

The maturity date of loans made under the ABL Credit Facility is the earliest of 90 days prior to maturity of the Senior Secured Notes or the Convertible Notes (both of which are described further below) and May 29, 2025. Borrowings under the ABL Credit Facility will bear interest at a rate of (i) the LIBOR rate (subject to a floor of 0%) plus an applicable margin of 375 basis points per annum or (ii) the base rate plus an applicable margin of 275 basis points per annum.

The ABL Credit Facility limits our annual capital expenditures to 125% of the budget set forth in the projections for any fiscal year and provides that if our availability plus pledged cash of up to $3 million falls below $6 million (15% of the maximum revolver amount), we will be required to comply with a fixed charge coverage ratio of 1.0 to 1.0, all of which is defined in the ABL Credit Facility. As of ~~September 30, 2020,~~March 31, 2021, we had 0 borrowings and approximately ~~$8.8~~$7.3 million in outstanding letters of credit under the ABL Credit Facility and subject to the availability requirements in the ABL Credit Facility, based on eligible accounts receivable and inventory balances at ~~September 30, 2020,~~March 31, 2021, availability under the ABL Credit Facility was ~~$10.7~~$16.3 million, which our access to would be ~~limited by~~subject to (i) our requirement to maintain 15% available or comply with a fixed charge coverage ratio, as described above and (ii) the requirement to maintain availability of at least $4.0 million, which may include up to $2.0 million of pledged cash.

Convertible Notes

We entered into an indenture, dated as of the Effective Date, among the Company and Wilmington Trust, N.A., as trustee (the “Convertible Notes Indenture”), and issued $129.8 million aggregate principal amount of convertible senior unsecured pay-in-kind notes due 2025 thereunder (the “Convertible Notes”). We received net issuance proceeds of $120.2 million, which was net of the $9.6 million Backstop Commitment ~~Premium.~~Premium, which is described further below.

The Convertible Notes are general unsecured obligations which will mature on November 15, 2025, unless earlier accelerated, redeemed, converted or repurchased, and bear interest at a fixed rate of 5% per annum, which will be payable semi-annually on May 15 and November 15 in-kind in the form of an increase to the principal amount. The Convertible Notes are convertible at the option of the holders at any time into shares of our common stock and will convert mandatorily into our common stock at maturity; provided, however, that if the value of our common stock otherwise deliverable in connection with a mandatory conversion of a Convertible Note on the maturity date would be less than the principal amount of such Convertible Note plus accrued and unpaid interest, then the Convertible Note will instead convert into an amount of cash equal to the principal amount thereof plus accrued and unpaid interest. The initial conversion rate is 75 shares of common stock per $1,000 principal amount of the Convertible Notes, which in aggregate represents 9,732,825 shares of

common stock and an initial conversion price of $13.33 per share. The conversion rate is subject to customary anti-dilution adjustments.

If we undergo a “fundamental change” as defined in the Convertible Notes Indenture, subject to certain conditions, holders may require us to repurchase all or any portion of their Convertible Notes for cash at an amount equal to 100% of the principal amount of the Convertible Notes to be repurchased plus any accrued and unpaid interest. In the case of certain fundamental change events that constitute merger events (as defined in the Convertible Notes Indenture), we have a superseding right to cause the mandatory conversion of all or part of the Convertible Notes into a number of shares of common stock, per $1,000 principal amount of Convertible Notes, equal to the then-current conversion rate or the cash value of such number of shares of common ~~stock (but not less than the principal amount).~~stock.

Holders of Convertible Notes are entitled to vote on all matters on which holders of our common stock generally are entitled to vote (or, if any, to take action by written consent of the holders of our common stock), voting together as a single class together with the shares of our common stock and not as a separate class, on an as-converted basis, at any annual or special meeting of holders of our common stock and each holder is entitled to such number of votes as such holder would receive on an as-converted basis on the record date for such vote.

The Convertible Notes Indenture contains customary events of default and covenants that limit our ability and the ability of certain of our subsidiaries to incur, assume or guarantee additional indebtedness and create liens and enter into mergers or consolidations.

Because the Convertible Notes contain an embedded conversion option whereby they, or a portion of them, may be settled in cash, we have separately accounted for the liability and equity components of the Convertible Notes in accordance with the accounting requirements for convertible debt instruments set forth in ASC Topic 470-20, Debt with Conversion and Other Options. The initial fair value of the Convertible Notes was estimated and allocated, along with related debt issuance costs, to the liability and equity components in accordance with the application of Fresh Start Accounting ~~as described further in Note 3,~~ ~~Fresh Start Accounting. In order to allocate~~and the ~~initial fair value, we first calculated~~requirements of ASC Topic 470. We treat the ~~value~~issuance of ~~the liability component by estimating the fair value~~new Convertible Notes for the ~~debt~~payment of in-kind interest as an issuance of a new instrument that retains the original economics associated with the conversion option at inception, and therefore, the Convertible Notes issued in payment of in-kind interest are accounted for with their separate equity and liability components that are proportionally the same as the original issuance.

Backstop Commitment Agreement

Prior to filing the Plan, we entered into a separate backstop commitment agreement with some of our previous creditors as well as certain members of our senior management (the “Backstop Commitment Agreement”), pursuant to which these parties committed to backstop the issuance of new Convertible Notes upon our emergence from Chapter 11. As consideration for this commitment, we committed to make an aggregate payment of $9.6 million in the form of additional new convertible bonds, or in cash if ~~it did not contain~~the Backstop Commitment Agreement was terminated under certain circumstances as forth therein. As a ~~conversion feature.~~result, we incurred a liability and expense at the time we entered into the Backstop Commitment Agreement for the aggregate amount of $9.6 million (the “Commitment Premium”) which was recognized in our Predecessor condensed consolidated financial statements as of and for the three months ended March 31, 2020. The ~~amount by which~~Commitment Premium was settled in conjunction with our emergence from Chapter 11 and the ~~initial fair value~~issuance of the Convertible Notes exceeded the estimated fair value of the liability component represented the estimated fair value of the equity component. We also allocated the debt issuance costs incurred to the liability and equity components, for which the portion attributable to the equity component is netted with the respective equity component in additional paid-in capital.

The below table summarizes the allocation of issuance proceeds, fair value and debt issuance costs to the liability and equity components of the Convertible Notes at the Fresh Start Reporting Date (in thousands):

Successor
Liability Component Equity Component Total
Issuance proceeds, net of Backstop Commitment Premium $ 43,738 $ 76,449 $ 120,187
Face value 47,225 82,546 129,771
Issuance discount 23,195 40,542 63,737
Fair value $ 70,420 $ 123,088 $ 193,508
Debt issuance costs (1,268) (2,216) (3,484)
Net carrying value at Fresh Start Reporting Date $ 69,152 $ 120,872 $ 190,024
Notes.

Senior Secured Notes

We entered into an indenture, dated as of the Effective Date, among the Company, the subsidiary guarantors party thereto and Wilmington Trust, N.A., as trustee, as supplemented by the First Supplemental Indenture, dated March 4, 2021 (the “Senior Secured Notes Indenture”), and issued $78.1 million aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”) thereunder. The Senior Secured Notes are guaranteed on a senior secured basis by substantially all of our existing domestic subsidiaries, ~~that~~which also guarantee our obligations under the ABL Credit Facility, (the “Guarantors”) on a full and unconditional basis and are secured by a second lien on the accounts receivable and inventory and a first lien on substantially all of the other assets and properties (including the cash proceeds thereof) of the Company and the Guarantors. We received net issuance proceeds of $75 million, which was net of the original issue discount of $3.1 million.

interest will be payable in cash and 50% of the interest will be paid in-kind in the form of an increase to the principal amount; however, a majority in interest of the holders of the Senior Secured Notes may elect to have 100% of the interest due on or prior to May 29, 2021 payable in-kind. For all interest periods commencing on or after May 15, 2024, the interest rate for the Senior Secured Notes will be a rate equal to LIBOR plus 10.50%, with a LIBOR rate floor of 1.5%.

We may redeem all or part of the Senior Secured Notes on or after June 1, 2021 at redemption prices (expressed as percentages of the principal amount) equal to (i) 104% for the twelve-month period beginning on June 1, 2021; (ii) 102% for the twelve-month period beginning on June 1, 2022; (iii) 101% for the twelve-month period beginning on June 1, 2023 and (iv) 100% for the twelve-month period beginning June 1, 2024 and at any time thereafter, plus accrued and unpaid interest at the redemption date. Notwithstanding the foregoing, if a change of control (as defined in the Senior Secured Notes Indenture) occurs prior to June 1, 2022, we may elect to purchase all remaining outstanding Senior Secured Notes not tendered to us as described below at a redemption price equal to 103% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the applicable redemption date. If a change of control (as defined in the Senior Secured Notes Indenture) occurs, holders of the Senior Secured Notes will have the right to require us to repurchase all or any part of their Senior Secured Notes at a purchase price equal to 101% of the aggregate principal amount of the Senior Secured Notes repurchased, plus accrued and unpaid interest, if any, to the repurchase date.

The Senior Secured Notes Indenture contains a minimum asset coverage ratio of 1.5 to 1.0 as of any June 30 or December 31, beginning December 31, 2020. The Senior Secured Notes Indenture provides for certain customary events of default and contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; repay junior debt; sell stock of our subsidiaries; transfer or sell assets; enter into sale and lease back transactions; create liens; enter into transactions with affiliates; and enter into mergers or consolidations.

Having completed aggregate qualifying asset sales in excess of $5 million, in accordance with the ~~aggregate of $7.2 million by the end of September 2020,~~Senior Notes Indenture, we commenced and completed ~~an offer~~offers to purchase ~~$2.2~~$2.6 million in aggregate principal amount of the Senior Secured Notes ~~in October~~during the year ended December 31, 2020 ~~in accordance with the Senior Secured Notes Indenture,~~ at a purchase price equal to 100% of the principal amount, plus accrued and unpaid interest through, but not including, the respective purchase ~~date. As~~dates. During the three months ended March 31, 2021, we completed additional qualifying asset sales and associated offers to purchase an aggregate $1.3 million in principal amount of the Senior Secured Notes and recognized $0.1 million of loss on extinguishment of debt associated with these repayments.

When we have completed qualifying asset sales before a ~~result,~~reporting period end which require us to commence an offer to purchase Senior Secured Notes in the ~~$2.2 million~~subsequent period, the related amount of Senior Secured Notes is presented as a current liability, ~~in our unaudited condensed consolidated balance sheet as of September 30, 2020. The purchase was funded through~~and the cash on hand which will fund the purchase is classified as “restricted cash” ~~as of September 30, 2020.~~in our consolidated balance sheet.

Successor Debt Issuance Costs and Discount

Costs incurred in connection with the issuance of our Convertible Notes (which were allocated to the liability component, as described above) and Senior Secured Notes, as well as the issuance discounts, were capitalized and are being amortized using the effective interest method over the term of the related debt instrument. Costs incurred in connection with our ABL Credit Facility were capitalized and are being amortized using the straight-line method over the expected term of the agreement. Our unamortized debt issuance costs and discounts are presented below (amounts in thousands):


	Successor
	~~September 30, 2020~~March 31, 2021









Unamortized discount on Convertible Notes (based on imputed interest rate of 20.9%)	$	~~56,660~~54,205
Unamortized discount on Senior Secured Notes (based on imputed interest rate of 13.2%)	~~2,958~~2,556
Unamortized debt issuance costs	~~3,969~~3,501

8.6. Taxes

~~As described in Note 2~~, ~~Emergence~~Upon emergence from ~~Voluntary Reorganization under~~ Chapter 11,~~, in accordance with the Plan,~~ our Prepetition Senior Notes were exchanged for shares of our new common stock. Absent an exception, a debtor recognizes cancellation of debt income (CODI) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code (IRC) provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of ~~CODI~~cancellation of debt income (CODI) for federal income tax purposes is approximately ~~$217~~$229 million, which ~~will reduce~~reduces the value of our net operating losses by an equal amount. The ~~actual reduction in tax attributes does not occur until the first day of our tax year subsequent to the date of emergence, or January 1, 2021. The~~ reduction of net operating losses ~~is expected to be~~was fully offset by a corresponding decrease in valuation allowance.

Upon our emergence from Chapter 11, we underwent an ownership change, as defined in the IRC, which we expect will result in future annual limitations on the usage of our remaining domestic net operating losses. The majority of our remaining domestic net operating losses will begin to expire in 2030, while losses generated after 2017 are carried forward indefinitely but are limited in usage to 80% of taxable income beginning in 2021. The majority of our foreign net operating losses are carried forward indefinitely, but losses generated after 2016 are carried forward for 12 years and will begin to expire in 2029.

We provide a valuation allowance when it is more likely than not that some portion of our deferred tax assets will not be realized. We evaluated the impact of the reorganization, including the change in control, resulting from our bankruptcy emergence and determined it is more likely than not that we will not fully realize future income tax benefits related to our domestic net deferred tax assets based on the annual limitations ~~discussed above,~~that impact us, historical results, and expected market conditions known on the date of measurement.

~~On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response~~Our deferred tax assets related to ~~the COVID-19 pandemic. The CARES Act contains numerous corporate income tax provisions, some of which impact our calculation of income taxes, including providing for the carryback of certain~~ net operating losses ~~modifications~~available to reduce future taxable income, and our valuation allowance that offset a portion of our domestic net deferred tax assets, consist of the net interest deduction limitations, refundable payroll tax credits, and deferment of employer social security payments. However, the provisions did not have a material impact on our Predecessor or Successor financial statements.following (amounts in thousands):


	Successor		Predecessor
	March 31, 2021		December 31, 2020
Net operating loss carryforward deferred tax asset	$	83,277	$	82,901
Valuation allowance	(76,061)		(74,676)

9.7. Fair Value of Financial Instruments

The FASB’s Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, defines fair value and provides a hierarchical framework associated with the level of subjectivity used in measuring assets and liabilities at fair value. Currently, our financial instruments consist primarily of cash and cash equivalents, trade and other receivables, trade payables and long-term debt. The carrying value of cash and cash equivalents, trade and other receivables, and ~~tra~~detrade payables are considered to be representative of their respective fair values due to the short-term nature of these instruments. As a result of the application of fresh start accounting and subsequent stability in the market for energy bonds, we estimate that the carrying value of our long-term debt approximates fair value.

~~10.~~8. Earnings (Loss) Per Common Share

Basic earnings (loss) per share (EPS) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period.

Diluted EPS is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock-based compensation awards and the Convertible Notes. Potentially dilutive common shares from outstanding stock-based compensation awards are determined using the average share price for each period under the treasury stock method. Potentially dilutive shares from the Convertible Notes are determined using the if-converted method, whereby the Convertible Notes are assumed to be converted and included in the denominator of the EPS calculation and the interest expense, net of tax, recorded in connection with the Convertible Notes is added back to net income (loss).

The following presents a reconciliation of the numerators and denominators of the basic and diluted EPS computations (amounts in thousands, except per share data):

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Numerator:
Net loss (numerator for basic EPS) $ (20,070) $ (26,016)
Interest expense on Convertible Notes, net of tax 0 0
Numerator for diluted EPS, if-converted method (20,070) (26,016)
Denominator:
Weighted-average shares (denominator for basic EPS) 1,119 78,473
Potentially dilutive shares issuable from Convertible Notes, if-converted method 0 0
Potentially dilutive shares issuable from outstanding stock-based compensation awards, treasury stock method 0 0
Denominator for diluted EPS 1,119 78,473
Loss per common share - Basic $ (17.94) $ (0.33)
Loss per common share - Diluted $ (17.94) $ (0.33)
Potentially dilutive securities excluded as anti-dilutive 9,733 5,577

Successor Predecessor
Four Months Ended September 30, 2020 Five Months Ended May 31, 2020 Nine Months Ended September 30, 2019
Numerator:
Net loss (numerator for basic EPS) $ (29,887) $ (104,225) $ (54,075)
Interest expense on Convertible Notes, net of tax 0 0 0
Numerator for diluted EPS, if-converted method (29,887) (104,225) (54,075)
Denominator:
Weighted-average shares (denominator for basic EPS) 1,101 78,968 78,405
Potentially dilutive shares issuable from Convertible Notes, if-converted method 0 0 0
Potentially dilutive shares issuable from outstanding stock-based compensation awards, treasury stock method 0 0 0
Denominator for diluted EPS 1,101 78,968 78,405
Loss per common share - Basic $ (27.15) $ (1.32) $ (0.69)
Loss per common share - Diluted $ (27.15) $ (1.32) $ (0.69)
Potentially dilutive securities excluded as anti-dilutive 9,733 4,517 4,962

~~11. Stock-Based Compensation Plans~~

Prior to the Effective Date, we had various outstanding stock option, restricted stock, and restricted stock unit awards, as well as phantom stock unit awards which were classified as liability awards under ASC Topic 718, ~~Compensation—Stock Compensation. Upon our emergence from the Chapter 11 Cases in May 2020, all unvested equity-based incentive compensation awards vested in full and settled in shares of our new post-emergence common stock.~~

Pursuant to the terms of the Plan, we adopted the Pioneer Energy Services Corp. 2020 Employee Incentive Plan (the “Employee Incentive Plan”) providing for the issuance from time to time, as approved by our new board of directors, of equity and equity-based awards with respect to the Common Stock in the aggregate and on a fully-diluted basis, of up to 1,198,074 shares of Common Stock, representing approximately 114% of the shares of Common Stock issued on the Effective Date, but representing 10% of the shares of Common Stock issued on the Effective Date on a fully-diluted basis. The shares of Common Stock issued under the Employee Incentive Plan in the future will dilute all of the shares of Common Stock issued on the Effective Date and all shares of Common Stock issued upon conversion of the Convertible Notes equally.


	Successor			Predecessor
		Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Numerator:


Net loss (numerator for basic EPS)		$	(16,942)		$	(69,104)
Interest expense on Convertible Notes, net of tax		0			0
Numerator for diluted EPS, if-converted method		(16,942)			(69,104)

Denominator:
Weighted-average shares (denominator for basic EPS)		1,138			78,753
Potentially dilutive shares issuable from Convertible Notes, if-converted method		0			0
Potentially dilutive shares issuable from outstanding stock-based compensation awards, treasury stock method		0			0
Denominator for diluted EPS		1,138			78,753


Loss per common share - Basic		$	(14.89)		$	(0.88)
Loss per common share - Diluted		$	(14.89)		$	(0.88)
Potentially dilutive securities excluded as anti-dilutive		9,957			4,794

In ~~July 2020, we issued 90,000~~April 2021, our Compensation, Nominating and Governance Committee approved the grant of an aggregate 196,417 shares of restricted stock to our ~~former Chief Executive Officer in connection with his resignation.~~directors and certain employees.

~~12.~~9. Segment Information

As of ~~September 30, 2020,~~March 31, 2021, we have 4 operating segments, comprised of 2 drilling services business segments (domestic and international drilling) and 2 production services business segments (well servicing and wireline services), which reflects the basis used by management in making decisions regarding our business for resource allocation and performance assessment, as required by ASC Topic 280, Segment Reporting. In April 2020, we closed our coiled tubing services business and placed all of our coiled tubing services assets as held for sale at June 30, 2020. Historical financial information for our coiled tubing services business, which had previously been presented as a separate operating segment, continues to be presented in the following tables as a component of continuing operations.

Our domestic and international drilling services segments provide contract land drilling services to a diverse group of exploration and production companies through our 3 drilling divisions in the US and internationally in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs.

Our well servicing and wireline services segments provide a range of production services to producers primarily in Texas, North Dakota and the Rocky Mountain ~~region, and Louisiana.~~region. Our former coiled tubing services segment also provided various production services primarily in Texas, Wyoming, and surrounding areas.

The following tables set forth certain financial information for each of our segments and corporate (amounts in thousands):


		Successor		Predecessor			Successor			Predecessor
		Three Months Ended September 30, 2020		Three Months Ended September 30, 2019				Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Revenues:	Revenues:					Revenues:
Domestic drilling	Domestic drilling	$	17,567	$	38,168	Domestic drilling		$	22,483		$	35,891
International drilling	International drilling	4,061		21,617		International drilling		11,063			14,455
Drilling services	Drilling services	21,628		59,785		Drilling services		33,546			50,346
Well servicing	Well servicing	12,871		30,293		Well servicing		14,857			25,616
Wireline services	Wireline services	4,499		43,874		Wireline services		10,335			33,133
Coiled tubing services	Coiled tubing services	0		12,446		Coiled tubing services		0			5,227
Production services	Production services	17,370		86,613		Production services		25,192			63,976
Consolidated revenues	Consolidated revenues	$	38,998	$	146,398	Consolidated revenues		$	58,738		$	114,322

Operating costs:	Operating costs:					Operating costs:
Domestic drilling	Domestic drilling	$	9,706	$	21,931	Domestic drilling		$	15,459		$	23,865
International drilling	International drilling	3,449		15,844		International drilling		8,075			12,138
Drilling services	Drilling services	13,155		37,775		Drilling services		23,534			36,003
Well servicing	Well servicing	10,577		21,414		Well servicing		11,888			20,951
Wireline services	Wireline services	4,938		38,349		Wireline services		9,878			28,284
Coiled tubing services	Coiled tubing services	223		10,521		Coiled tubing services		26			6,784
Production services	Production services	15,738		70,284		Production services		21,792			56,019
Consolidated operating costs	Consolidated operating costs	$	28,893	$	108,059	Consolidated operating costs		$	45,326		$	92,022

Gross margin:	Gross margin:					Gross margin:
Domestic drilling	Domestic drilling	$	7,861	$	16,237	Domestic drilling		$	7,024		$	12,026
International drilling	International drilling	612		5,773		International drilling		2,988			2,317
Drilling services	Drilling services	8,473		22,010		Drilling services		10,012			14,343
Well servicing	Well servicing	2,294		8,879		Well servicing		2,969			4,665
Wireline services	Wireline services	(439)		5,525		Wireline services		457			4,849
Coiled tubing services	Coiled tubing services	(223)		1,925		Coiled tubing services		(26)			(1,557)
Production services	Production services	1,632		16,329		Production services		3,400			7,957
Consolidated gross margin	Consolidated gross margin	$	10,105	$	38,339	Consolidated gross margin		$	13,412		$	22,300

Identifiable Assets:	Identifiable Assets:					Identifiable Assets:
Domestic drilling (1)	Domestic drilling (1)	$	144,433	$	354,534	Domestic drilling (1)		$	141,186		$	336,260
International drilling (1) (2)	International drilling (1) (2)	43,033		47,320		International drilling (1) (2)		41,048			51,443
Drilling services	Drilling services	187,466		401,854		Drilling services		182,234			387,703
Well servicing	Well servicing	47,207		118,686		Well servicing		41,778			107,747
Wireline services	Wireline services	21,174		80,054		Wireline services		19,399			66,712
Coiled tubing services	Coiled tubing services	4,062		34,339		Coiled tubing services		2,357			11,373
Production services	Production services	72,443		233,079		Production services		63,534			185,832
Corporate	Corporate	59,193		54,760		Corporate		56,785			42,199
Consolidated identifiable assets(3)	Consolidated identifiable assets(3)	$	319,102	$	689,693	Consolidated identifiable assets(3)		$	302,553		$	615,734

Depreciation and amortization:						Depreciation and amortization:
Domestic drilling						Domestic drilling		$	6,290		$	10,905
International drilling						International drilling		3,148			1,301
Drilling services						Drilling services		9,438			12,206
Well servicing						Well servicing		2,936			4,781
Wireline services						Wireline services		890			3,077
Coiled tubing services						Coiled tubing services		0			1,693
Production services						Production services		3,826			9,551
Corporate						Corporate		101			227
Consolidated depreciation						Consolidated depreciation		$	13,365		$	21,984

2817

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Depreciation and amortization:
Domestic drilling $ 6,195 $ 10,864
International drilling 3,242 1,512
Drilling services 9,437 12,376
Well servicing 3,539 5,132
Wireline services 1,620 3,537
Coiled tubing services 0 1,660
Production services 5,159 10,329
Corporate 103 219
Consolidated depreciation $ 14,699 $ 22,924
Capital Expenditures:
Domestic drilling $ 1,006 $ 2,777
International drilling 167 1,162
Drilling services 1,173 3,939
Well servicing 313 2,146
Wireline services 45 775
Coiled tubing services 0 1,756
Production services 358 4,677
Corporate 0 44
Consolidated capital expenditures $ 1,531 $ 8,660

Successor Predecessor
Four Months Ended September 30, 2020 Five Months Ended May 31, 2020 Nine Months Ended September 30, 2019
Revenues:
Domestic drilling $ 23,433 $ 53,341 $ 115,829
International drilling 4,889 15,928 68,682
Drilling services 28,322 69,269 184,511
Well servicing 16,627 31,947 86,053
Wireline services 5,212 35,543 137,134
Coiled tubing services 0 5,611 38,111
Production services 21,839 73,101 261,298
Consolidated revenues $ 50,161 $ 142,370 $ 445,809
Operating costs:
Domestic drilling $ 13,352 $ 33,101 $ 69,098
International drilling 4,512 13,676 50,884
Drilling services 17,864 46,777 119,982
Well servicing 13,387 26,877 61,348
Wireline services 6,023 31,836 119,500
Coiled tubing services 362 8,557 31,784
Production services 19,772 67,270 212,632
Consolidated operating costs $ 37,636 $ 114,047 $ 332,614


		Successor			Predecessor
			Four Months Ended September 30, 2020			Five Months Ended May 31, 2020		Nine Months Ended September 30, 2019
Gross margin:
Domestic drilling			$	10,081		$	20,240	$	46,731
International drilling			377			2,252		17,798
Drilling services			10,458			22,492		64,529
Well servicing			3,240			5,070		24,705
Wireline services			(811)			3,707		17,634
Coiled tubing services			(362)			(2,946)		6,327
Production services			2,067			5,831		48,666
Consolidated gross margin			$	12,525		$	28,323	$	113,195

Identifiable Assets:
Domestic drilling (1)			$	144,433		$	158,283	$	354,534
International drilling (1) (2)			43,033			49,611		47,320
Drilling services			187,466			207,894		401,854
Well servicing			47,207			49,388		118,686
Wireline services			21,174			23,948		80,054
Coiled tubing services			4,062			6,336		34,339
Production services			72,443			79,672		233,079
Corporate			59,193			65,057		54,760
Consolidated identifiable assets			$	319,102		$	352,623	$	689,693

Depreciation and amortization:
Domestic drilling			$	8,207		$	18,058	$	32,297
International drilling			4,318			2,144		4,228
Drilling services			12,525			20,202		36,525
Well servicing			4,800			7,820		14,956
Wireline services			2,383			5,088		11,519
Coiled tubing services			0			2,164		4,719
Production services			7,183			15,072		31,194
Corporate			227			373		709
Consolidated depreciation			$	19,935		$	35,647	$	68,428
											Successor			Predecessor
												Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Capital Expenditures:	Capital Expenditures:									Capital Expenditures:
Domestic drilling	Domestic drilling		$	1,490		$	3,862	$	14,344	Domestic drilling		$	2,385		$	3,241
International drilling	International drilling		305			1,273		3,444		International drilling		565			1,167
Drilling services	Drilling services		1,795			5,135		17,788		Drilling services		2,950			4,408
Well servicing	Well servicing		343			1,918		8,182		Well servicing		335			1,717
Wireline services	Wireline services		105			1,684		5,198		Wireline services		492			1,572
Coiled tubing services	Coiled tubing services		0			166		4,567		Coiled tubing services		0			163
Production services	Production services		448			3,768		17,947		Production services		827			3,452
Corporate	Corporate		0			21		541		Corporate		37			1
Consolidated capital expenditures	Consolidated capital expenditures		$	2,243		$	8,924	$	36,276	Consolidated capital expenditures		$	3,814		$	7,861

(1) Identifiable assets for our drilling segments include the impact of a ~~$28.3~~$28.5 million and ~~$37.5~~$32.9 million intercompany balance, as of ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, between our domestic drilling segment (intercompany receivable) and our international drilling segment (intercompany payable).

(2) Identifiable assets for our international drilling segment include 5 drilling rigs that are owned by our Colombia subsidiary and 3 drilling rigs that are owned by one of our domestic subsidiaries and leased to our Colombia subsidiary.

(3) Upon our emergence from Chapter 11, due to the application of fresh start accounting, the carrying value of our identifiable assets was reduced to the estimated fair value and a new historical cost basis was established for all our property and equipment.

The following is a reconciliation of consolidated gross margin of our segments reported above to loss from operations as reported on the condensed consolidated statements of operations (amounts in thousands):

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Consolidated gross margin $ 10,105 $ 38,339
Depreciation and amortization (14,699) (22,924)
General and administrative (11,626) (30,485)
Bad debt (expense) recovery, net 315 (196)
Gain on dispositions of property and equipment, net 3,829 (17)
Loss from operations $ (12,076) $ (15,283)


		Successor			Predecessor					Successor		Predecessor
			Four Months Ended September 30, 2020			Five Months Ended May 31, 2020		Nine Months Ended September 30, 2019				Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Consolidated gross margin	Consolidated gross margin		$	12,525		$	28,323	$	113,195		Consolidated gross margin	$	13,412	$	22,300
Depreciation and amortization	Depreciation and amortization		(19,935)			(35,647)		(68,428)			Depreciation and amortization	(13,365)		(21,984)
General and administrative	General and administrative		(15,839)			(22,047)		(68,271)			General and administrative	(9,713)		(14,655)
Pre-petition restructuring charges			0			(16,822)		0
Prepetition restructuring charges											Prepetition restructuring charges	0		(17,074)
Impairment	Impairment		(388)			(17,853)		(1,378)			Impairment	0		(17,853)
Bad debt (expense) recovery, net	Bad debt (expense) recovery, net		598			(1,209)		90			Bad debt (expense) recovery, net	197		(727)
Gain on dispositions of property and equipment, net	Gain on dispositions of property and equipment, net		4,289			989		2,184			Gain on dispositions of property and equipment, net	2,298		717

Loss from operations	Loss from operations		$	(18,750)		$	(64,266)	$	(22,608)		Loss from operations	$	(7,171)	$	(49,276)

~~13.~~10. Commitments, Contingencies and ~~Contingencies~~Insurance Claim Liabilities

In connection with our operations in Colombia, our foreign subsidiaries routinely obtain bonds for bidding on drilling contracts, performing under drilling contracts, and remitting customs and importation duties. Based on historical experience and information currently available, we believe the likelihood of demand for payment under these bonds and guarantees is remote.

In February 2021, we received a $2.5 million assessment from the Colombian tax and customs authority related to an administrative delay in documentation provided for one of our drilling rigs. After evaluating the assessment with our customs advisors, we do not believe that it is probable that we will be required to pay the customs duty assessment.

We are ~~currently undergoing~~routinely subject to various states’ sales and use tax ~~audits for multi-year periods.~~audits. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, our accrued liability was ~~$0.8~~$1.0 million and ~~$2.0~~$0.9 million, respectively, based on our estimate of the ~~sales and use~~indirect tax ~~obligations that are expected to result from these audits.~~obligations. Due to the inherent uncertainty of the audit process, we believe that it is reasonably possible that we may incur additional tax assessments with respect to one or more ~~of the~~potential audits in excess of the amount accrued. We believe that such an outcome would not have a material adverse effect on our results of operations or financial ~~position. Because certain~~position, but because of ~~these audits are in a preliminary stage,~~the aforementioned uncertainty, an estimate of the possible loss or range of loss from an adverse ~~result in all or substantially all of these cases~~audit results cannot reasonably be made.

Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment-related disputes. Legal costs relating to these matters are expensed as incurred. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flow from operations.

Insurance Claim Liabilities

~~14. Guarantor/Non-Guarantor Condensed Consolidating Financial Statements~~We use a combination of self-insurance and third-party insurance for various types of coverage. At March 31, 2021, our accrued insurance premiums and deductibles include approximately $0.7 million of accruals for costs incurred under the self-insurance portion of our health insurance and approximately $1.8 million of accruals for costs associated with our workers’ compensation insurance. We accrue for these costs as claims are incurred using an actuarial calculation that is based on industry and our company’s historical claim development data, and we accrue the cost of administrative services associated with claims processing. Based upon our past experience, management believes that we have adequately provided for potential losses. However, future multiple occurrences of serious injuries to employees could have a material adverse effect on our financial position and results of operations.

Our ~~Prepetition Senior Notes were fully~~insurance recoveries receivables and ~~unconditionally guaranteed, jointly~~our accrued liability for insurance claims and ~~severally, on a senior unsecured basis~~settlements represent our estimate of claims in excess of our deductible, which are covered and managed by ~~all existing 100% owned domestic subsidiaries, except for Pioneer Services Holdings, LLC. The Prepetition Senior Notes,~~our third-party insurance providers, some of which may ultimately be settled by the ~~guarantees, and~~insurance provider in the ~~Prepetition Senior Notes Indenture were terminated on the Effective Date pursuant~~long-term. These are presented in our condensed consolidated balance sheets as current due to the ~~Plan. See Note 2,~~ ~~Emergence from Voluntary Reorganization under Chapter 11, for more information.~~

~~Our Senior Secured Notes are fully~~uncertainty in the timing of reporting and ~~unconditionally guaranteed, jointly and severally, on a senior secured basis by all existing 100% owned domestic subsidiaries, except for Pioneer Services Holdings, LLC.~~payment of claims.

The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Secured Notes and did not guarantee our Prepetition Senior Notes. The non-guarantor subsidiaries do not have any payment obligations under the Senior Secured Notes, the guarantees or the Senior Secured Notes Indenture.

In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary would be obligated to pay the holders of its debt and other liabilities, including its trade creditors, before it would be able to distribute any of its assets to us. As of September 30, 2020, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

As a result of the guarantee arrangements, we are presenting the following Predecessor and Successor condensed consolidating balance sheets, statements of operations and statements of cash flows of the issuer, the guarantor subsidiaries, and the non-guarantor subsidiaries.

~~PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATING BALANCE SHEETS~~

~~(unaudited, in thousands)~~

Successor
September 30, 2020
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 22,616 $ 0 $ 5,465 $ 0 $ 28,081
Restricted cash 4,021 0 0 0 4,021
Receivables, net of allowance 1,110 46,252 8,991 0 56,353
Intercompany receivable (payable) (3,131) 31,141 (28,010) 0 0
Inventory 0 5,636 7,661 0 13,297
Assets held for sale 0 4,295 0 0 4,295
Prepaid expenses and other current assets 2,365 1,319 657 0 4,341
Total current assets 26,981 88,643 (5,236) 0 110,388
Net property and equipment 402 149,982 22,013 0 172,397
Investment in subsidiaries 235,479 33,817 0 (269,296) 0
Intangible assets, net of accumulated amortization 1,902 7,156 0 0 9,058
Deferred income taxes 0 0 10,433 0 10,433
Operating lease assets 2,687 1,977 0 0 4,664
Other noncurrent assets 2,212 52 9,898 0 12,162
Total assets $ 269,663 $ 281,627 $ 37,108 $ (269,296) $ 319,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 4,725 $ 8,608 $ 2,112 $ 0 $ 15,445
Current portion of long-term debt 2,199 0 0 0 2,199
Deferred revenues 0 205 510 0 715
Accrued expenses 6,915 33,019 669 0 40,603
Total current liabilities 13,839 41,832 3,291 0 58,962
Long-term debt, less unamortized discount and debt issuance costs 143,017 0 0 0 143,017
Noncurrent operating lease liabilities 2,349 1,489 0 0 3,838
Deferred income taxes 171 732 0 0 903
Other noncurrent liabilities 242 2,095 0 0 2,337
Total liabilities 159,618 46,148 3,291 0 209,057
Total stockholders’ equity 110,045 235,479 33,817 (269,296) 110,045
Total liabilities and stockholders’ equity $ 269,663 $ 281,627 $ 37,108 $ (269,296) $ 319,102
Predecessor
December 31, 2019
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
ASSETS
Current assets:
Cash and cash equivalents $ 14,461 $ 0 $ 10,158 $ 0 $ 24,619
Restricted cash 998 0 0 0 998
Receivables, net of allowance 107 92,394 30,908 117 123,526
Intercompany receivable (payable) (28,664) 64,485 (35,821) 0 0
Inventory 0 10,325 12,128 0 22,453
Assets held for sale 0 3,447 0 0 3,447
Prepaid expenses and other current assets 2,849 4,122 898 0 7,869
Total current assets (10,249) 174,773 18,271 117 182,912
Net property and equipment 2,374 441,567 27,229 0 471,170
Investment in subsidiaries 547,123 47,953 0 (595,076) 0
Deferred income taxes 44,224 0 11,540 (44,224) 11,540
Operating lease assets 3,114 3,581 569 0 7,264
Other noncurrent assets 506 562 0 0 1,068
Total assets $ 587,092 $ 668,436 $ 57,609 $ (639,183) $ 673,954
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,811 $ 24,436 $ 6,304 $ 0 $ 32,551
Deferred revenues 0 513 826 0 1,339
Accrued expenses 10,570 44,893 2,111 117 57,691
Total current liabilities 12,381 69,842 9,241 117 91,581
Long-term debt, less unamortized discount and debt issuance costs 467,699 0 0 0 467,699
Noncurrent operating lease liabilities 2,749 2,536 415 0 5,700
Deferred income taxes 0 48,641 0 (44,224) 4,417
Other noncurrent liabilities 187 294 0 0 481
Total liabilities not subject to compromise 483,016 121,313 9,656 (44,107) 569,878
Total stockholders’ equity 104,076 547,123 47,953 (595,076) 104,076
Total liabilities and stockholders’ equity $ 587,092 $ 668,436 $ 57,609 $ (639,183) $ 673,954

~~PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

~~(unaudited, in thousands)~~

Successor
Three Months Ended September 30, 2020
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Revenues $ 0 $ 34,937 $ 4,061 $ 0 $ 38,998
Costs and expenses:
Operating costs 0 25,443 3,450 0 28,893
Depreciation and amortization 103 11,354 3,242 0 14,699
General and administrative 7,672 3,711 438 (195) 11,626
Intercompany leasing 0 (1,215) 1,215 0 0
Bad debt expense (recovery), net 0 (315) 0 0 (315)
Loss (gain) on dispositions of property and equipment, net (14) (3,822) 7 0 (3,829)
Total costs and expenses 7,761 35,156 8,352 (195) 51,074
Income (loss) from operations (7,761) (219) (4,291) 195 (12,076)
Other income (expense):
Equity in earnings of subsidiaries (3,589) (3,639) 0 7,228 0
Interest expense (6,261) 0 8 0 (6,253)
Reorganization items, net (2,522) 0 0 0 (2,522)
Other income 18 272 (943) (195) (848)
Total other income (expense), net (12,354) (3,367) (935) 7,033 (9,623)
Income (loss) before income taxes (20,115) (3,586) (5,226) 7,228 (21,699)
Income tax (expense) benefit 1
45 (3) 1,587 0 1,629
Net income (loss) $ (20,070) $ (3,589) $ (3,639) $ 7,228 $ (20,070)
Predecessor
Three months ended September 30, 2019
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Revenues $ 0 $ 124,781 $ 21,617 $ 0 $ 146,398
Costs and expenses:
Operating costs 0 92,216 15,843 0 108,059
Depreciation and amortization 219 21,193 1,512 0 22,924
General and administrative 15,979 13,640 1,001 (135) 30,485
Intercompany leasing 0 (1,215) 1,215 0 0
Bad debt expense, net of recovery 0 196 0 0 196
Loss (gain) on dispositions of property and equipment, net 0 28 (11) 0 17
Total costs and expenses 16,198 126,058 19,560 (135) 161,681
Income (loss) from operations (16,198) (1,277) 2,057 135 (15,283)
Other income (expense):
Equity in earnings of subsidiaries (640) 1,164 0 (524) 0
Interest expense (10,020) 3 4 0 (10,013)
Other income (expense) 86 236 (775) (135) (588)
Total other income (expense), net (10,574) 1,403 (771) (659) (10,601)
Income (loss) before income taxes (26,772) 126 1,286 (524) (25,884)
Income tax (expense) benefit 1
756 (766) (122) 0 (132)
Net income (loss) $ (26,016) $ (640) $ 1,164 $ (524) $ (26,016)
1 The income tax (expense) benefit reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries.

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

~~(unaudited, in thousands)~~

Successor
Four Months Ended September 30, 2020
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Revenues $ 0 $ 45,272 $ 4,889 $ 0 $ 50,161
Costs and expenses:
Operating costs 0 33,123 4,513 0 37,636
Depreciation and amortization 227 15,390 4,318 0 19,935
General and administrative 10,101 5,414 584 (260) 15,839
Intercompany leasing 0 (1,620) 1,620 0 0
Impairment 0 388 0 0 388
Bad debt recovery, net of expense 0 (598) 0 0 (598)
Loss (gain) on dispositions of property and equipment, net (14) (4,282) 7 0 (4,289)
Total costs and expenses 10,314 47,815 11,042 (260) 68,911
Loss from operations (10,314) (2,543) (6,153) 260 (18,750)
Other income (expense):
Equity in earnings of subsidiaries (7,901) (5,295) 0 13,196 0
Interest expense (8,478) 0 10 0 (8,468)
Reorganization items, net (3,263) (403) 0 0 (3,666)
Other income (expense) 24 361 (1,203) (260) (1,078)
Total other expense, net (19,618) (5,337) (1,193) 12,936 (13,212)
Loss before income taxes (29,932) (7,880) (7,346) 13,196 (31,962)
Income tax (expense) benefit 1
45 (21) 2,051 0 2,075
Net income (loss) $ (29,887) $ (7,901) $ (5,295) $ 13,196 $ (29,887)
Predecessor
Five Months Ended May 31, 2020
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Revenues $ 0 $ 126,442 $ 15,928 $ 0 $ 142,370
Costs and expenses:
Operating costs 0 100,372 13,675 0 114,047
Depreciation and amortization 374 33,129 2,144 0 35,647
General and administrative 8,865 12,489 918 (225) 22,047
Pre-petition restructuring charges 16,822 0 0 0 16,822
Intercompany leasing 0 (2,025) 2,025 0 0
Impairment 0 17,853 0 0 17,853
Bad debt expense, net of recovery 0 1,209 0 0 1,209
Loss (gain) on dispositions of property and equipment, net 3 (992) 0 0 (989)
Total costs and expenses 26,064 162,035 18,762 (225) 206,636
Loss from operations (26,064) (35,593) (2,834) 225 (64,266)
Other income (expense):
Equity in earnings of subsidiaries (227,497) (8,594) 0 236,091 0
Interest expense (12,315) 0 21 0 (12,294)
Reorganization items, net 210,346 (231,420) (829) 0 (21,903)
Loss on extinguishment of debt (4,215) 0 0 0 (4,215)
Other income (expense) (4) 394 (3,498) (225) (3,333)
Total other expense, net (33,685) (239,620) (4,306) 235,866 (41,745)
Loss before income taxes (59,749) (275,213) (7,140) 236,091 (106,011)
Income tax (expense) benefit 1
(44,476) 47,716 (1,454) 0 1,786
Net income (loss) $ (104,225) $ (227,497) $ (8,594) $ 236,091 $ (104,225)

Predecessor
Nine months ended September 30, 2019
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Revenues $ 0 $ 377,127 $ 68,682 $ 0 $ 445,809
Costs and expenses:
Operating costs 0 281,735 50,879 0 332,614
Depreciation and amortization 709 63,491 4,228 0 68,428
General and administrative 30,882 35,665 2,129 (405) 68,271
Intercompany leasing 0 (3,645) 3,645 0 0
Impairment 0 1,378 0 0 1,378
Bad debt recovery, net of expense 0 (90) 0 0 (90)
Gain on dispositions of property and equipment, net 0 (2,077) (107) 0 (2,184)
Total costs and expenses 31,591 376,457 60,774 (405) 468,417
Income (loss) from operations (31,591) 670 7,908 405 (22,608)
Other income (expense):
Equity in earnings of subsidiaries 5,433 7,059 0 (12,492) 0
Interest expense (29,953) (12) (38) 0 (30,003)
Other income (expense) 383 903 (436) (405) 445
Total other income (expense), net (24,137) 7,950 (474) (12,897) (29,558)
Income (loss) before income taxes (55,728) 8,620 7,434 (12,492) (52,166)
Income tax (expense) benefit 1
1,653 (3,187) (375) 0 (1,909)
Net income (loss) $ (54,075) $ 5,433 $ 7,059 $ (12,492) $ (54,075)
1 The income tax (expense) benefit reflected in each column does not include any tax effect of the equity in earnings (losses) of subsidiaries.

~~PIONEER ENERGY SERVICES CORP. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS~~

~~(unaudited, in thousands)~~

Successor
Four Months Ended September 30, 2020
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Cash flows from operating activities $ (16,592) $ 20,169 $ (4,314) $ 0 $ (737)
Cash flows from investing activities:
Purchases of property and equipment (13) (1,991) (380) 0 (2,384)
Proceeds from sale of property and equipment 18 8,271 14 0 8,303
Proceeds from insurance recoveries 0 155 0 0 155
5 6,435 (366) 0 6,074
Cash flows from financing activities:
Intercompany contributions/distributions 26,617 (26,604) (13) 0 0
26,617 (26,604) (13) 0 0
Net decrease in cash, cash equivalents and restricted cash 10,030 0 (4,693) 0 5,337
Beginning cash, cash equivalents and restricted cash 16,607 0 10,158 0 26,765
Ending cash, cash equivalents and restricted cash $ 26,637 $ 0 $ 5,465 $ 0 $ 32,102
Predecessor
Five Months Ended May 31, 2020
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Cash flows from operating activities $ (127,760) $ 132,354 $ (6,839) $ 0 $ (2,245)
Cash flows from investing activities:
Purchases of property and equipment (569) (8,755) (1,524) 0 (10,848)
Proceeds from sale of property and equipment 0 1,819 0 (154) 1,665
Proceeds from insurance recoveries 0 22 0 0 22
(569) (6,914) (1,524) (154) (9,161)
Cash flows from financing activities:
Debt repayments (175,000) 0 0 0 (175,000)
Proceeds from debt issuance 195,187 0 0 0 195,187
Proceeds from DIP Facility 4,000 0 0 0 4,000
Repayment of DIP Facility (4,000) 0 0 0 (4,000)
Payments of debt issuance costs (7,625) 0 0 0 (7,625)
Purchase of treasury stock (8) 0 0 0 (8)
Intercompany contributions/distributions 116,923 (125,440) 8,363 154 0
129,477 (125,440) 8,363 154 12,554
Net decrease in cash, cash equivalents and restricted cash 1,148 0 0 0 1,148
Beginning cash, cash equivalents and restricted cash 15,459 0 10,158 0 25,617
Ending cash, cash equivalents and restricted cash $ 16,607 $ 0 $ 10,158 $ 0 $ 26,765
Predecessor
Nine months ended September 30, 2019
Parent Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Consolidated
Cash flows from operating activities $ (38,177) $ 41,854 $ 4,961 $ 0 $ 8,638
Cash flows from investing activities:
Purchases of property and equipment (637) (36,644) (3,262) 0 (40,543)
Proceeds from sale of property and equipment 0 4,688 90 0 4,778
Proceeds from insurance recoveries 0 641 0 0 641
(637) (31,315) (3,172) 0 (35,124)
Cash flows from financing activities:
Purchase of treasury stock (125) 0 0 0 (125)
Intercompany contributions/distributions 10,784 (10,539) (245) 0 0
10,659 (10,539) (245) 0 (125)
Net increase (decrease) in cash, cash equivalents and restricted cash (28,155) 0 1,544 0 (26,611)
Beginning cash, cash equivalents and restricted cash 51,348 0 3,216 0 54,564
Ending cash, cash equivalents and restricted cash $ 23,193 $ 0 $ 4,760 $ 0 $ 27,953

3719

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

Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements made in good faith that are subject to risks, uncertainties and assumptions. These forward-looking statements are based on our current beliefs, intentions, and expectations and are not guarantees or indicators of future performance. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including risks and uncertainties relating to the effects of our bankruptcy on our business and relationships, the concentration of our equity ownership following bankruptcy, the ~~application of fresh start accounting, the~~ effect of the coronavirus (COVID-19) pandemic on our industry, general economic and business conditions and industry trends, levels and volatility of oil and gas prices, the continued demand for drilling services or production services in the geographic areas where we operate, the highly competitive nature of our business, the supply of marketable equipment within the industry, technological advancements and trends in our industry and improvements in our competitors' equipment, the loss of one or more of our major clients or a decrease in their demand for our services, operating hazards inherent in our operations, the ~~supply of marketable equipment within the industry, the~~ continued availability of ~~new components for~~supplies, equipment and qualified personnel required to operate our fleets, ~~the continued availability of qualified personnel,~~ the political, economic, regulatory and other uncertainties encountered by our operations, ~~and~~ changes in, or our failure or inability to comply with, governmental regulations, including those relating to the environment, the occurrence of cybersecurity incidents, the success or failure of future acquisitions or dispositions, ~~or acquisitions,~~our level of indebtedness and future compliance with covenants under our debt agreements, and the impact of not having our common stock listed on a national securities exchange or quoted on an over-the-counter market. We have discussed many of these factors in more detail elsewhere in this report, and in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, as amended by Form 10-K/A for the year ended December 31, ~~2019, and our Quarterly Reports for the quarterly periods ended March 31, 2020 and June 30,~~ 2020, including under the headings “Risk Factors” in Item 1A and “Special Note Regarding Forward-Looking ~~Statements”~~Statements and Risk Factor Summary” in the Introductory Note to Part I. These factors are not necessarily all the important factors that could affect us. Other unpredictable or unknown factors could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as of the date on which they are made and we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. We advise our stockholders that they should (1) recognize that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto and with our Annual Report on Form 10-K for the year ended December 31, 2019, as amended by Form 10-K/A for the year ended December 31, 2019.

3820

~~Recent Developments~~

~~Reorganization and Emergence from Chapter 11~~

On March 1, 2020, we filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. On May 11, 2020, the Bankruptcy Court confirmed the Plan and on May 29, 2020, the conditions to effectiveness of the Plan were satisfied and the Pioneer RSA Parties emerged from Chapter 11. Our completion of the Chapter 11 Cases has allowed us to significantly reduce our level of indebtedness and our future cash interest obligations.

On the Effective Date, all applicable agreements governing the obligations under the Term Loan, Prepetition Senior Notes and Prepetition ABL Facility were terminated. The Term Loan and Prepetition ABL Facility were paid in full and all outstanding obligations under the Prepetition Senior Notes were canceled in exchange for 94.25% of the pro forma common equity. On the Effective Date, we entered into a $75 million senior secured asset-based revolving credit agreement which was later amended and reduced to $40 million in August 2020 (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”), the proceeds of which were used to repay our outstanding Term Loan and certain related fees, all of which are described in more detail in the ~~Liquidity and Capital Resources~~ ~~section below, under the headings entitled~~ ~~ABL Credit Facility~~ ~~and~~ ~~Debt Instruments and Compliance Requirements~~.

~~Shares of our common stock were delisted from the OTC Pink Marketplace. We anticipate the trading of our new common stock on the OTC market to commence again in the near future.~~

~~For additional information concerning our bankruptcy proceedings under Chapter 11, see Note 2,~~ ~~Emergence from Voluntary Reorganization under Chapter 11~~,~~of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1~~ ~~Financial Statements~~.

~~Fresh Start Accounting —~~ The financial statements included herein have been prepared as if we are a going concern and in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 852, ~~Reorganizations~~ (ASC Topic 852). In connection with our emergence from bankruptcy and in accordance with ASC Topic 852, we qualified for and adopted fresh start accounting on the Effective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company, and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

~~their recorded values as reflected on the historical balance sheets. For additional information about the application of fresh start accounting, see Note 3,~~ ~~Fresh Start Accounting~~,~~of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1~~ ~~Financial Statements~~.

As a result of the application of fresh start accounting and the effects of the implementation of the Plan, our condensed consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to our financial position and results of operations on or before the Effective Date.

~~Industry Impacts~~

Measures taken by federal, state and local governments, both globally and domestically, to reduce the rate of spread of COVID-19 have resulted in a decrease in general economic activity and a corresponding decrease in global and domestic energy demand, which has negatively impacted oil and gas prices, which in turn has reduced demand for, and the pricing of, products and services provided to the oil and gas industry, including the products and services which we provide. In addition, actions by OPEC and a group of other oil-producing nations led by Russia have negatively impacted crude oil prices. These events pushed crude oil storage near capacity and drove prices down significantly, as described further in the below section entitled “~~Market Conditions and Outlook~~”. To the extent these conditions continue to exist in future periods, our clients’ willingness and ability to explore for, develop and produce hydrocarbons will be adversely affected, which will reduce demand for our products and services and adversely affect our results of operations and liquidity.

~~We have worked to respond to the recent and current market conditions in a number of ways, including:~~

•~~Safety Measures.~~ We have taken proactive steps in our field operations and corporate offices to protect the health and safety of our employees and contractors, including temperature screenings at field job sites, remote working for our office employees, and we implemented procedures for hygiene and distancing at all our locations.

•~~Reduced Capital Spending.~~ ~~We significantly reduced our initial~~ ~~2020 capital expenditure budget. Currently, we expect to spend a tot~~al of $15 million to $17 million on capital expenditures during 2020; our original budget contemplated capital expenditures of approximately $40 million. During the three months ended September 30, 2020, we limited our capital expenditure spending to $1.5 million.

•~~Closure of Under-performing Operations.~~ ~~In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale. We have also closed or consolidated 9 operating locations within our wireline and well servicin~~g operations and exited 13 long-term leases during 2020 as well as various other short-term leases that support our business, and renegotiated or otherwise downsized other leased locations in order to reduce overhead and improve profitability.

•~~Cost-Cutting Measures.~~ Throughout 2020, we have implemented various cost-cutting measures including, among other things, (i) a 60% reduction in our total headcount, (ii) the suspension of our Employee Incentive Plan and determining that no bonuses would be payable thereunder, (iii) a reduction in the base salaries of each of our executive officers by 24% to 35%, (iv) certain hourly, salary and incentive compensation reductions for administrative and operations personnel throughout the company, (v) a20% reduction in the cash compensation of each of our non-employee directors effective until June 30, 2021 (or such other date as determined by the Board) and (vi) the elimination of certain employee benefits, including matching 401(k) contributions.

•~~Liquidating Non-strategic Assets. We have received $10.0 million of proceeds from sales of various assets since the beginning of 2020 and have an additional $4.3 million~~ ~~designated as held for sale at September 30, 2020.~~

Company Overview

Pioneer Energy Services Corp. provides land-based drilling services and production services to a diverse group of oil and gas exploration and production companies in the United States and internationally in Colombia. Drilling services and production services are fundamental to establishing and maintaining the flow of oil and natural gas throughout the productive life of a well.

•Drilling Services — Our current drilling rig fleet is 100% pad-capable and offers the latest advancements in pad drilling, with 17 AC rigs in the US and 8 SCR rigs in Colombia. We provide a comprehensive service offering which includes the drilling rig, crews, supplies, and most of the ancillary equipment needed to operate our drilling rigs, which are deployed through our division offices in the following regions:


						Rig Count
Domestic drilling:
Marcellus/Utica						5

Permian Basin and Eagle Ford						10
Bakken						2
International drilling						8
						25

•Production Services — Our production services business segments provide a range of services to producers primarily in Texas, North Dakota and the Rocky Mountain ~~region, and Louisiana.~~region.

◦Well Servicing. Our fleet consists of 111 rigs with 550 horsepower and 12 rigs with 600 horsepower which are deployed through 5 operating locations in Texas and North Dakota.

◦Wireline Services. Our fleet of 7872 wireline units, including nine units that offer greaseless electric wireline used to reach further depths in longer laterals and two greaseless EcoQuietTM units designed to reduce noise when operating in proximity to urban areas, is deployed through 65 operating locations in Texas, the Rocky Mountain region ~~Louisiana~~ and North Dakota.

Pioneer Energy Services Corp. was incorporated under the laws of the State of Texas in 1979 as the successor to a business that had been operating since 1968. Since then, we have significantly expanded and transformed our business through acquisitions and organic growth. Upon emergence from Chapter 11 in May 2020, we converted from a Texas corporation to a Delaware corporation.

Our current business is comprised of two business lines — Drilling Services (consisting of Domestic Drilling and International Drilling reportable segments) and Production Services (consisting of Well Servicing and Wireline Services reportable segments). In April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale as of June 30, 2020. Financial information about our operating segments is included in Note ~~12,~~9, Segment Information, of the Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Pioneer Energy Services Corp.’s corporate office is located at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. Our phone number is (855) 884-0575 and our website address is www.pioneeres.com. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (SEC). Information on our website is not incorporated into this report or otherwise made part of this report.

Reorganization and Emergence from Chapter 11

On March 1, 2020, we filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. On May 11, 2020, the Bankruptcy Court confirmed the plan of reorganization (the “Plan”) that was filed with the Bankruptcy Court on March 2, 2020, and on May 29, 2020 (the “Effective Date”), the conditions to effectiveness of the Plan were satisfied, and we emerged from Chapter 11.

before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. References to “Successor” relate to our financial position and results of operations after the Effective Date. References to “Predecessor” refer to our financial position and results of operations on or before the Effective Date.

Market Conditions and Outlook

Industry Overview — Demand for oilfield services offered by our industry is a function of our clients’ willingness and ability to make ~~operating expenditures~~capital and ~~capital~~operating expenditures to explore for, develop and produce hydrocarbons, which is primarily driven by current and expected oil and natural gas prices.

~~Our business is influenced substantially by exploration and production companies’ spending that is generally categorized as either a capital expenditure or an operating expenditure.~~ Capital expenditures for the drilling and completion of exploratory and development wells ~~in proven areas~~ are more directly influenced by current and expected oil and natural gas ~~prices. In contrast,~~prices while operating expenditures for the maintenance of existing wells, for which a range of production services are required in order to maintain production, are relatively more stable and predictable.

~~Drilling~~Although over the longer term, drilling and production services have historically trended similarly in response to fluctuations in commodity ~~prices. However,~~prices, because exploration and production companies often adjust their budgets for exploration and development drilling first in response to a change in commodity prices, the demand for drilling services is generally impacted first and to a greater extent than the demand for production services which is more dependent on ongoing expenditures that are necessary to maintain production. Additionally, within the range of production services businesses, those that derive more revenue from production-related activity, as opposed to completion of new wells, tend to be less affected by ~~fluctuations~~volatility in commodity ~~prices and temporary reductions in industry activity.~~prices.

However, in a severe downturn that is prolonged, both operating and capital expenditures are significantly reduced, and the demand for all our service offerings is significantly impacted. After a prolonged or severe downturn, ~~among the production services,~~ the demand for production-related workover services generally improves first, followed by the demand for completion-oriented services as exploration and production companies begin to complete wells that were previously drilled but not completed during the downturn, and ~~to complete newly drilled wells as~~finally by the ~~demand for~~ drilling ~~services improves during recovery.~~of new wells.

For additional information concerning the potential effects of volatility in oil and gas prices and other industry trends, see Item 1A – “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, ~~2019, filed with the SEC on March 6, 2020, as amended by Form 10-K/A filed with the SEC on April 28,~~ 2020.

Market Conditions and Outlook — ~~Since January 2020, the~~The COVID-19 pandemic ~~and oil and natural gas market volatility have~~which began in early 2020 resulted in a significant decrease in oil prices and significant disruption and uncertainty in the oil and natural gas market. ~~Beginning in~~In March 2020, the decline in demand due to the COVID-19 pandemic coincided with the announcement of price reductions and possible production increases by members of OPEC and other oil exporting nations, including Russia. Although OPEC and other oil exporting nations ultimately agreed to cut production, ~~the downward pressure on commodity prices has remained and could continue in the foreseeable future. These~~these extreme supply and demand dynamics caused significant crude oil price declines, negatively impacting our industry’s oil producers who responded with significant cuts in their ~~recent~~previously planned and projected spending.

The trends in spot prices of WTI crude oil and Henry Hub natural gas, and the resulting trends in domestic land rig counts (per Baker Hughes) and domestic well servicing rig counts (per Association of Energy Service Companies/Energy Workforce & Technology Council) from January 2019 through March 2021 are illustrated in the graphs below.

The commodity price environment and global oversupply of oil during 2020 resulted in an oversupply of equipment in the industry, declining rig counts and dayrates, and substantially reduced activity for all our service offerings. Additionally, because our business depends on the level of spending by our clients, we are also affected by our clients’ ability to access the capital markets. After several consecutive years without significant improvement in commodity prices, many exploration and production companies have limited their spending to a level which can be supported by net operating cash flows alone, as access to the capital markets through debt or equity financings has become more challenging in our industry. ~~This challenge has~~

However, the recovery of supply chain disruptions and the recent rollout of COVID-19 vaccinations have led to signs of stabilization and improvements in commodity pricing, with oil prices of approximately $60 per barrel at the end of March 2021, versus approximately $20 per barrel one year ago. Steadily increasing commodity prices and rig counts since the latter half of 2020 and continued market stabilization led to improved activity levels for all of our business segments.

Activity levels for our domestic drilling, international drilling, and well servicing operations (measured in revenue days and hours, respectively) in the first quarter of 2021 increased ~~recently due~~6%, 9%, and 3%, respectively, as compared to the ~~major stock market and bond market indices experiencing elevated levels of volatility in 2020.~~

~~The trends in spot prices of WTI crude oil and Henry Hub natural gas, and the resulting trends in domestic land rig~~prior quarter, while our wireline stage counts ~~(per Baker Hughes) and domestic well servicing rig counts (per Guiberson/Association of Energy Service Companies) from January 2019 through September 2020 are illustrated in the graphs below.~~

The commodity price environment and global oversupply of oil during 2020 has resulted in an oversupply of equipment in our industry, declining rig counts and dayrates, and substantially reduced activity for all our service offerings. Oil and gas exploration and production companies reduced their previously planned capital spending programs for 2020, thereby reducing demand for our services. In March 2020, many operators began to curtail operations and several of our clients terminated their drilling contracts with us in April and May 2020.

completed were down approximately 7%. At the end of ~~September 30, 2020, 12~~March 2021, 16 of our 25 drilling rigs were earning ~~revenues, 9~~revenue, 10 of which were under term ~~contracts with an~~contracts. Including the one additional rig we have contracted but which is pending operations, the aggregate average term remaining of approximately 7 months, and 3 more were under contract but with suspended or pending operations. Additionally, 2 of the domestic rigs currently under spot contracts are each contracted to begin 1-yearon our term contracts ~~at the beginning of 2021. Utilization of~~is approximately 11 months.

As our production services fleets also dropped significantly in response to recent market conditions, and in April 2020, we closed our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale.

~~We cannot predict whether or when the current imbalance in supply and demand will correct, and when and to what extent crude oil production activities will return to normalized levels. While rig counts and gas prices have continued to increase through October 2020, oil and natural gas commodity prices are expected to~~clients continue to ~~be volatile, and demand for our products and services will continue to be affected if our clients continue to revise~~adjust their capital budgets ~~downward~~ and ~~adjust their~~ operations in response to ~~lower oil prices.~~

Weimproving but uncertain industry conditions, we are ~~currently focusing~~continuing to focus our efforts on reducing costs and managing labor pressures, the realignment of certain businesses, ~~while~~and maintaining essential functions and re~~adiness~~readiness for the ~~moderately~~ improving market conditions ~~which~~ we expect ~~for the remainder of 2020 and into the first part of~~to continue through 2021. We ~~belie~~vebelieve our high-quality equipment, services, and excellent safety record position us well to compete as our industry recovers.

Liquidity and Capital Resources

Liquidity Overview

Our ~~completion of the~~emergence from Chapter 11 ~~Cases~~ has allowed us to significantly reduce our level of indebtedness and our future cash interest obligations. We currently expect that cash and cash equivalents, cash generated from operations, and available funds under the ABL Credit Facility are adequate to cover our liquidity requirements for at least the next 12 months. However, our ability to maintain sufficient liquidity and compliance with our debt instruments over the next 12 months, grow, make capital expenditures, and service our debt depends primarily upon (i) the level of demand for, and pricing of, our products and services; (ii) the level of spending by our clients; (iii) our ability to collect our receivables and access borrowings under the ABL Credit Facility; (iv) the supply and demand for oil and gas; (v) oil and gas prices; (vi) general economic and market conditions; and (vii) and other factors that are beyond our control.

The market competition between OPEC and non-OPEC countries ~~and~~coupled with the impact of the COVID-19 pandemic ~~has~~ caused significant crude oil price declines in 2020, negatively impacting our industry’s oil producers who responded with significant cuts in their recent and projected ~~spending. A continued decrease in the demand for oil, combined with current depressed oil prices, has~~spending which affected, and could continue to negatively affect, the amount of cash we generate and have available for working capital requirements, capital expenditures, and debt service.

Our availability under the ABL Credit Facility at ~~September 30, 2020~~March 31, 2021 was ~~$10.7~~$16.3 million, which our access to would be ~~limited by~~subject to (i) our requirement to maintain 15% of the maximum revolver amount available or comply with a fixed charge coverage ratio and (ii) the requirement to maintain availability of at least $4 million, which may include up to $2 million of pledged cash. In addition, as a result of current market conditions, certain of our clients are facing financial pressures and liquidity issues. There can be no assurance that one or more of our clients will not delay or default on payments owed to us or file for bankruptcy protection, in which case we may be unable to collect all, or any portion, of the accounts receivable owed to us by such clients. Delays or defaults in payments of accounts receivable owed to us may also adversely affect our borrowing base and our ability to borrow under our ABL Credit Facility.

Sources of Capital Resources

Our principal sources of liquidity currently consist of:

•total cash and cash equivalents, including restricted cash ($~~32.1~~30.5 million as of ~~September 30, 2020)~~March 31, 2021);

•cash generated from operations; and

•~~the~~ availability under the ABL Credit Facility ($~~10.7~~16.3 million as of ~~September 30, 2020,~~March 31, 2021, as discussed below).

In the future, we may also consider equity and/or debt offerings, as appropriate, to meet our liquidity needs. However, our ability to access the capital markets by issuing debt or equity securities will be dependent on market conditions, our financial condition, and other factors beyond our control. Additionally, the ABL Credit Facility and the indentures for our Convertible Notes and Senior Secured Notes contain covenants that limit our ability to incur additional indebtedness, the incurrence of which would also first require the approval of two of our principal stockholders, and our bylaws limit our ability to issue equity securities without the prior written consent of one of our principal stockholders.

ABL Credit Facility — On the Effective Date, pursuant to the terms of the Plan, we entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $75 million among us and substantially all of our domestic subsidiaries as borrowers (the “Borrowers”), the lenders party thereto and PNC Bank, National Association as administrative agent. On August 7, 2020, we entered into a First Amendment to the ABL Credit Facility (together, herein referred to as the “ABL Credit Facility”) which, among other things, reduced the maximum amount of the revolving credit agreement to $40 million.

The maturity date of loans made under the ABL Credit Facility is the earliest of 90 days prior to maturity of the Senior Secured Notes or the Convertible Notes (both of which are described below in the section entitled Debt Instruments and Compliance Requirements) and May 29, 2025. Borrowings under the ABL Credit Facility will bear interest at a rate of (i) the LIBOR rate (subject to a floor of 0%) plus an applicable margin of 375 basis points per annum or (ii) the base rate plus an applicable margin of 275 basis points per annum.

The ABL Credit Facility is guaranteed by the Borrowers and is secured by a first lien on the Borrowers’ accounts receivable and inventory, and the cash proceeds thereof, and a second lien on substantially all of the other assets and properties of the Borrowers. The ABL Credit Facility limits our annual capital expenditures to 125% of the budget set forth in the projections for any fiscal year and provides that if our availability plus pledged cash of up to $3 million falls below $6 million (15% of the maximum revolver amount), we will be required to comply with a fixed charge coverage ratio of 1.0 to 1.0, all of which is defined in the ABL Credit Facility.

As of ~~September 30, 2020,~~March 31, 2021, we had no borrowings and approximately ~~$8.8~~$7.3 million in outstanding letters of credit under the ABL Credit Facility and subject to the availability requirements in the ABL Credit Facility, based on eligible accounts receivable and inventory balances at ~~September 30, 2020,~~March 31, 2021, availability under the ABL Credit Facility was ~~$10.7~~$16.3 million, which our access to would be ~~limited by~~subject to (i) our requirement to maintain 15% of the maximum revolver amount available or comply with a fixed charge coverage ratio, as described above, and (ii) the requirement to maintain availability of at least $4 million, which may include up to $2 million of pledged cash.

Uses of Capital Resources

Our principal liquidity requirements are currently for:

•working capital needs;

•capital expenditures; and

•debt service.

Our working capital needs typically fluctuate in relation to activity and pricing. Following a sustained period of low activity, our working capital needs generally increase as we invest in reactivating previously idle equipment and in purchases of inventory and supplies for expected increasing activity. Our capital requirements to maintain our equipment also fluctuate in relation to activity, and increase following a period of sustained low activity. ~~Our capital requirements are also increased during~~During periods of expansion ~~at which times~~and/or organic growth, we have been more likely to ~~access~~meet increased capital requirements through equity or debt financing. During periods of sustained low activity and pricing, when our cash flow from operations are negatively impacted, we may also access additional capital through the use of available funds under the ABL Credit Facility.

Working Capital — Our working capital and current ratio, which we calculate by dividing current assets by current liabilities, were as follows as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (amounts in thousands, except current ratio):


		September 30, 2020		December 31, 2019		Change			March 31, 2021		December 31, 2020		Change

Current assets	Current assets	$	110,388	$	182,912	$	(72,524)	Current assets	$	112,646	$	113,133	$	(487)

Current liabilities	Current liabilities	58,962		91,581		(32,619)		Current liabilities	60,529		59,018		1,511
Working capital	Working capital	$	51,426	$	91,331	$	(39,905)	Working capital	$	52,117	$	54,115	$	(1,998)
Current ratio	Current ratio	1.9		2.0		(0.1)		Current ratio	1.9		1.9		—

~~The decrease in our working capital~~Our current assets decreased by $0.5 million during ~~2020 is~~2021, primarily due to a $1.8 million decrease in total cash including restricted cash, a $1.5 million decrease in prepaid expenses and other current assets, and a $0.9 million decrease in assets held for sale, all of ~~$61.0~~which were largely offset by a $4.6 million ~~or 66%,~~increase in ~~our~~ total trade and unbilled ~~receivables, despite a decrease of $17.1 million, or 53%, in our accounts payable and a $6.7 million~~receivables.

•The decrease in ~~accrued employee costs, all of which are primarily a result of the significant decline in demand for our service offerings which resulted in decreased revenue and related costs.~~

~~Total~~total cash, including cash equivalents and restricted cash, ~~increased by $6.5 million,~~is primarily due to ~~$12.6~~repayments of Senior Secured Notes totaling $1.3 million, ~~of cash provided by the refinancing of our debt obligations upon emergence from Chapter 11, which was partially offset by a net investment of $3.1 million in capital expenditures~~ as well as ~~$3.0~~$0.3 million of net cash used in operating ~~activities.~~activities and a net investment of $0.2 million in capital expenditures.

~~Other decreases in our current assets during 2020 included a $9.2 million~~•The decrease in inventory primarily due to the revaluation of assets upon our adoption of fresh start accounting, a $4.9 million decrease in other receivables primarily due to an income tax refund in 2020 related to our international operations, and a $3.5 million decrease in prepaid expenses and other current assets ~~partially~~is primarily due to ~~the usage of professional fee retainers associated with our bankruptcy proceedings as well as~~ the amortization of prepaid insurance premiums which are generally paid ~~annually~~ in ~~October.~~late October each year.

~~Other decreases~~•The increase in our total trade and unbilled receivables during 2021 is attributable primarily to an increase in activity for our international drilling operations, which experienced an increase in revenue of approximately 50% for the quarter ended March 31, 2021 as compared to the quarter ended December 31, 2020. This increase in activity during 2021, combined with the impact of the timing of the billing and collection cycles for our international drilling contracts, drove the 13% increase in our total trade and unbilled receivables.

Our current liabilities increased $1.5 million during ~~2020 include a $5.9~~2021, due to $1.6 million ~~decrease~~increases in both accrued employee costs and accrued interest, offset partially by decreases in other accrued expenses ~~primarily related to lower accrued taxes associated with our well servicing~~ and international drilling operations, reduced legal and other professional fee accruals associated with our bankruptcy proceedings and reduced current lease liabilities associated with leases that were exited during 2020, as well as a $2.1 million decreasetrade accounts payable.

•The increase in accrued ~~interest expense~~employee costs during 2021 is primarily ~~because~~due to the ~~Prepetition Senior Notes stopped accruing interest as~~timing of ~~March 1, 2020 in accordance with~~pay periods and the ~~terms of the Plan.~~ ~~These decreases were~~associated withholding and unemployment tax payments. The decrease was partially offset by a ~~$1.8 million increase~~decrease in accrued severance costs associated with payments made to former executives in accordance with their respective severance agreements.

•The increase in accrued interest during 2021 is attributable to the timing of interest payments on our Convertible Notes, for which interest is payable semi-annually in May and November, and our Senior Secured Notes, for which interest is payable quarterly in February, May, August and November each year.

•The $0.8 million and $0.7 million decreases in other accrued expenses and trade accounts payable, respectively, during 2021 are primarily due to the timing of payments made for various items including property taxes that were accrued for at December 31, 2020 and wireline job supplies which were received in December 2020.

Capital Expenditures — During the three months ended March 31, 2021 and 2020, our capital expenditures totaled $3.7 million and $7.5 million, respectively, primarily related to routine expenditures that are necessary to maintain our fleets. Currently, we expect to spend a total of ~~$15~~approximately $17 million to ~~$17~~$19 million on capital expenditures during ~~2020, primarily for~~2021, which is limited to routine expenditures ~~which are~~ necessary to maintain our ~~fleets. As of September 30, 2020, we have spent $13.2 million of this expected annual total. Anticipated remaining~~fleets. Actual capital expenditures may vary depending on the climate of our industry and any resulting increase or decrease in activity levels, the timing of commitments and payments, availability of capital resources, and the level of investment opportunities that meet our strategic and return on capital employed criteria. We expect to fund the remaining capital expenditures in ~~2020~~2021 from cash

and operating cash flow in excess of our working capital requirements, although available borrowings under our ABL Credit Facility are also available, if necessary.

Debt Instruments and Compliance Requirements — On the Effective Date, we entered into a $75 million senior secured asset-based revolving credit agreement which was later amended and reduced to $40 million in August 2020 (the “ABL Credit Facility”), and issued $129.8 million of aggregate principal amount of 5% convertible senior unsecured pay-in-kind notes due 2025 (the “Convertible Notes”) and $78.1 million of aggregate principal amount of floating rate senior secured notes due 2025 (the “Senior Secured Notes”). The proceeds from the issuance of the Convertible Notes and the Senior Secured Notes were used to repay the then outstanding ~~Term Loan.~~term loan.

The following is a summary of our debt instruments and compliance requirements including covenants, restrictions and guarantees, as it relates to our Convertible Notes and Senior Secured Notes, and a summary of our ABL Credit Facility is included in the above section entitled ABL Credit ~~Facility~~.Facility. As of ~~September 30, 2020,~~March 31, 2021, we were in compliance with all covenants required by our debt instruments. However, our ability to maintain compliance with our debt instruments, and to service our debt, is dependent upon the level of demand for our products and services, the level of spending by our clients, the supply and demand for oil, oil and gas prices, general economic and market conditions and other factors which are beyond our control. If we are unable to generate cash flow sufficient for debt service and repayment at maturity, we may seek to refinance our debts or access additional capital through debt/equity offerings.

Convertible Notes Indenture and Convertible Notes due 2025. We entered into an indenture, dated as of the Effective Date, among the Company and Wilmington Trust, N.A., as trustee (the “Convertible Notes Indenture”), and issued $129.8 million aggregate principal amount of convertible senior unsecured pay-in-kind notes due 2025 thereunder.

The Convertible Notes are convertible at the option of the holders at any time into shares of our common stock and will convert mandatorily into our common stock at maturity; provided, however, that if the value of our common stock otherwise deliverable in connection with a mandatory conversion of a Convertible Note on the maturity date would be less than the principal amount of such Convertible Note plus accrued and unpaid interest, then the Convertible Note will instead convert into an amount of cash equal to the principal amount thereof plus accrued and unpaid interest. The initial conversion rate is 75 shares of common stock per $1,000 principal amount of the Convertible Notes, which in aggregate represents 9,732,825 shares of common stock and an initial conversion price of $13.33 per share. The conversion rate is subject to customary anti-dilution adjustments.

The Convertible Notes Indenture contains covenants that limit our ability and the ability of certain of our subsidiaries to incur, assume or guarantee additional indebtedness and create liens and enter into mergers or consolidations.

The Convertible Notes Indenture also contains customary events of default. In the case of an event of default arising from certain events of bankruptcy, insolvency or other similar law, with respect to us or any of our significant subsidiaries, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other event of default occurs and is continuing, then the trustee or the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding may declare the Convertible Notes due and payable immediately.

The Convertible Notes Indenture provides, subject to certain exceptions, that for so long as our common stock is registered under the Securities Exchange Act of 1934 (the “Exchange Act”), a beneficial owner of the Convertible Notes is not entitled to receive shares of our common stock upon an optional conversion of any Convertible Notes during any period of time in which the aggregate number of shares of our common stock that may be acquired by such beneficial owner upon conversion of Convertible Notes shall, when added to the aggregate number of shares of our common stock deemed beneficially owned, directly or indirectly, by such beneficial owner and each person subject to aggregation of our common stock with such beneficial owner under Section 13 or Section 16 of the Exchange Act at such time, exceed 9.99% of the total issued and outstanding shares of our common stock. Certain of the holders of Convertible Notes opted out of this provision at the Effective Date.

Senior Secured Notes Indenture and Senior Secured Notes due 2025. We entered into an indenture, dated as of the Effective Date, among the Company, the subsidiary guarantors party thereto and Wilmington Trust, N.A., as trustee, as supplemented by the First Supplemental Indenture, dated March 4, 2021 (the “Senior Secured Notes Indenture”), and issued $78.1 million aggregate principal amount of floating rate senior secured notes due 2025 thereunder. The Senior Secured Notes are guaranteed on a senior secured basis by substantially all of our existing domestic subsidiaries, ~~that~~which also guarantee our obligations under the ABL Credit Facility, (the “Guarantors”) on a full and unconditional basis and are secured by a second lien on the accounts receivable and inventory and a first lien on substantially all of the other assets and properties (including the cash proceeds thereof) of the Company and the Guarantors.

The Senior Secured Notes will mature on May 15, 2025 and interest will accrue at the rate of LIBOR plus 9.5% per annum, with a LIBOR rate floor of 1.5%, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2020. With respect to any interest payment due on or prior to May 29, 2021, 50% of the interest will be payable in cash and 50% of the interest will be paid in-kind in the form of an increase to the principal amount; however, a majority in interest of the holders of the Senior Secured Notes may elect to have 100% of the interest due on or prior to May 29, 2021 payable in-kind. For all interest periods commencing on or after May 15, 2024, the interest rate for the Senior Secured Notes will be a rate equal to LIBOR plus 10.5%, with a LIBOR rate floor of 1.5%.

The Senior Secured Notes Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries, to incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; repay junior debt; sell stock of our subsidiaries; transfer or sell assets; enter into sale and lease back transactions; create liens; enter into transactions with affiliates; and enter into mergers or consolidations. The Senior Secured Notes Indenture contains a minimum asset coverage ratio of 1.5 to 1.0 as of any June 30 or December 31, beginning December 31, 2020. As of December 31, 2020, the asset coverage ratio, as calculated under the Senior Secured Notes Indenture, was 3.2 to 1.0.

The Senior Secured Notes Indenture also provides for certain customary events of default, including, among others, nonpayment of principal or interest, breach of covenants, failure to pay final judgments in excess of a specified threshold, failure of a guarantee to remain in effect, failure of a security document to create an effective security interest in collateral, bankruptcy and insolvency events, and cross acceleration, which would permit the principal, premium, if any, interest and other monetary obligations on all the then outstanding Senior Secured Notes to be declared due and payable immediately.

Pursuant to the Senior Secured Notes Indenture, we commenced ~~an offer~~and completed offers to purchase ~~$2.2~~$2.6 million in aggregate principal amount of the Senior Secured Notes ~~in October~~during the year ended December 31, 2020 at a purchase price equal to 100% of the principal amount, ~~of the Senior Secured Notes purchased,~~ plus accrued and unpaid interest through, but not including, the respective purchase ~~date.~~dates. During the three months ended March 31, 2021, we completed additional qualifying asset sales and associated offers to purchase an aggregate $1.3 million in principal amount of the Senior Secured Notes and recognized $0.1 million of loss on extinguishment of debt associated with these repayments. As of ~~October 22, 2020,~~March 31, 2021, the aggregate principal amount of Senior Secured Notes outstanding is ~~$76.8~~$77.2 million.

Supplemental Guarantor Information

Our Senior Secured Notes are issued by Pioneer Energy Services Corp. (the “Parent Issuer”) and are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by all existing 100%-owned domestic subsidiaries (the “Guarantors”), except for Pioneer Services Holdings, LLC. The subsidiaries that generally operate our non-U.S. business concentrated in Colombia do not guarantee our Senior Secured Notes (and did not guarantee our Prepetition Senior Notes). The non-guarantor subsidiaries do not have any payment obligations under the Senior Secured Notes, the guarantees, or the

Senior Secured Notes Indenture. In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary would be obligated to pay the holders of its debt and other liabilities, including its trade creditors, before it would be able to distribute any of its assets to us. As of March 31, 2021, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

The following tables present summarized financial information for the Parent Issuer and Guarantors, on a combined basis after the elimination of intercompany balances and transactions between the Parent Issuer and Guarantors and investments in any subsidiary that is a non-guarantor (amounts in thousands):


	March 31, 2021

Current assets, excluding those due from non-guarantor subsidiaries	$	86,885
Current assets due from non-guarantor subsidiaries	28,213
Property and equipment, net	136,225

Noncurrent assets, excluding property and equipment	15,082


Current liabilities	$	55,650

Long-term debt	149,222
Noncurrent liabilities, excluding long-term debt	7,017


	Three Months Ended March 31, 2021
Revenues	$	47,675
Operating costs	37,251
Loss from operations(1)	(5,502)
Net loss(1)	(13,038)

(1) Includes intercompany lease income from non-guarantor subsidiary totaling $1.2 million during the period.

Results of Operations

As a result of our emergence from Chapter 11 on May 29, 2020, our financial results for the periods prior to the ~~Fresh Start Reporting~~fresh start reporting date of May 31, 2020 are referred to as those of the “Predecessor,” and our financial results for the periods subsequent to May 31, 2020 are referred to as those of the “Successor.”

Although the Successor period(s) and the Predecessor period(s) are distinct reporting periods, we have combined the Successor and Predecessor period results during the nine months ended September 30, 2020 in order to provide some comparability of such information to the corresponding Predecessor period ended September 30, 2019. While this combined presentation is not presented according to generally accepted accounting principles in the United States of America (GAAP) and no comparable GAAP measures are presented, management believes that providing this financial information is the most relevant and useful method for making comparisons to the corresponding Predecessor period as reviewing the Successor period results in isolation would not be useful in identifying trends in or reaching conclusions regarding our overall operating performance.

The following table provides certain information about our operations, including details of each of our business segments’ revenues, operating costs and gross margin for the periods indicated (amounts in thousands).

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Revenues:
Domestic drilling $ 17,567 $ 38,168
International drilling 4,061 21,617
Drilling services 21,628 59,785
Well servicing 12,871 30,293
Wireline services 4,499 43,874
Coiled tubing services — 12,446
Production services 17,370 86,613
Consolidated revenues $ 38,998 $ 146,398
Operating costs:
Domestic drilling $ 9,706 $ 21,931
International drilling 3,449 15,844
Drilling services 13,155 37,775
Well servicing 10,577 21,414
Wireline services 4,938 38,349
Coiled tubing services 223 10,521
Production services 15,738 70,284
Consolidated operating costs $ 28,893 $ 108,059

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Gross margin:
Domestic drilling $ 7,861 $ 16,237
International drilling 612 5,773
Drilling services 8,473 22,010
Well servicing 2,294 8,879
Wireline services (439) 5,525
Coiled tubing services (223) 1,925
Production services 1,632 16,329
Consolidated gross margin $ 10,105 $ 38,339
Consolidated:
Net loss $ (20,070) $ (26,016)
Adjusted EBITDA (1)
$ 1,775 $ 7,053


		Successor	Predecessor	Combined (Non-GAAP)			Predecessor								Successor	Predecessor
					Four Months Ended September 30, 2020			Five Months Ended May 31, 2020		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019				Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Revenues:	Revenues:													Revenues:
Domestic drilling	Domestic drilling				$	23,433		$	53,341	$	76,774	$	115,829	Domestic drilling		$	22,483	$	35,891
International drilling	International drilling				4,889			15,928		20,817		68,682		International drilling		11,063		14,455
Drilling services	Drilling services				28,322			69,269		97,591		184,511		Drilling services		33,546		50,346
Well servicing	Well servicing				16,627			31,947		48,574		86,053		Well servicing		14,857		25,616
Wireline services	Wireline services				5,212			35,543		40,755		137,134		Wireline services		10,335		33,133
Coiled tubing services	Coiled tubing services				—			5,611		5,611		38,111		Coiled tubing services		—		5,227
Production services	Production services				21,839			73,101		94,940		261,298		Production services		25,192		63,976
Consolidated revenues	Consolidated revenues				$	50,161		$	142,370	$	192,531	$	445,809	Consolidated revenues		$	58,738	$	114,322

Operating costs:	Operating costs:													Operating costs:
Domestic drilling	Domestic drilling				$	13,352		$	33,101	$	46,453	$	69,098	Domestic drilling		$	15,459	$	23,865
International drilling	International drilling				4,512			13,676		18,188		50,884		International drilling		8,075		12,138
Drilling services	Drilling services				17,864			46,777		64,641		119,982		Drilling services		23,534		36,003
Well servicing	Well servicing				13,387			26,877		40,264		61,348		Well servicing		11,888		20,951
Wireline services	Wireline services				6,023			31,836		37,859		119,500		Wireline services		9,878		28,284
Coiled tubing services	Coiled tubing services				362			8,557		8,919		31,784		Coiled tubing services		26		6,784
Production services	Production services				19,772			67,270		87,042		212,632		Production services		21,792		56,019
Consolidated operating costs	Consolidated operating costs				$	37,636		$	114,047	$	151,683	$	332,614	Consolidated operating costs		$	45,326	$	92,022

Gross margin:	Gross margin:													Gross margin:
Domestic drilling	Domestic drilling				$	10,081		$	20,240	$	30,321	$	46,731	Domestic drilling		$	7,024	$	12,026
International drilling	International drilling				377			2,252		2,629		17,798		International drilling		2,988		2,317
Drilling services	Drilling services				10,458			22,492		32,950		64,529		Drilling services		10,012		14,343
Well servicing	Well servicing				3,240			5,070		8,310		24,705		Well servicing		2,969		4,665
Wireline services	Wireline services				(811)			3,707		2,896		17,634		Wireline services		457		4,849
Coiled tubing services	Coiled tubing services				(362)			(2,946)		(3,308)		6,327		Coiled tubing services		(26)		(1,557)
Production services	Production services				2,067			5,831		7,898		48,666		Production services		3,400		7,957
Consolidated gross margin	Consolidated gross margin				$	12,525		$	28,323	$	40,848	$	113,195	Consolidated gross margin		$	13,412	$	22,300

Consolidated:	Consolidated:													Consolidated:
Net loss	Net loss				$	(29,887)		$	(104,225)	$	(134,112)	$	(54,075)	Net loss		$	(16,942)	$	(69,104)
Adjusted EBITDA (1)	Adjusted EBITDA (1)				$	495		$	2,723	$	3,218	$	47,643	Adjusted EBITDA (1)		$	3,644	$	2,090

(1) Adjusted EBITDA represents income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, ~~pre-petition~~prepetition restructuring charges, impairment, reorganization items, and loss on extinguishment of

debt. Adjusted EBITDA is a non-GAAP measure that our management uses to facilitate period-to-period comparisons of our core operating performance and to evaluate our long-term financial performance against that of our peers. We believe that this measure is useful to investors and analysts in allowing for greater transparency of our core operating performance and makes it easier to compare our results with those of other companies within our industry. Adjusted EBITDA should not be considered (a) in isolation of, or as a substitute for, net income (loss), (b) as an indication of cash flows from operating activities or (c) as a measure of liquidity. In addition, Adjusted EBITDA does not represent funds available for discretionary use. Adjusted EBITDA may not be comparable to other similarly titled measures reported by other companies.

A reconciliation of net loss, as reported, to Adjusted EBITDA, and to consolidated gross margin, are set forth in the following table (amounts in thousands):

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Net loss $ (20,070) $ (26,016)
Depreciation and amortization 14,699 22,924
Reorganization items, net 2,522 —
Interest expense 6,253 10,013
Income tax expense (benefit) (1,629) 132
Adjusted EBITDA 1,775 7,053
General and administrative 11,626 30,485
Bad debt recovery (expense), net (315) 196
Loss (gain) on dispositions of property and equipment, net (3,829) 17
Other expense (income) 848 588
Consolidated gross margin $ 10,105 $ 38,339


		Successor			Predecessor	Combined (Non-GAAP)		Predecessor					Successor			Predecessor
			Four Months Ended September 30, 2020			Five Months Ended May 31, 2020		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019				Three Months Ended March 31, 2021			Three Months Ended March 31, 2020

Net loss	Net loss		$	(29,887)		$	(104,225)	$	(134,112)	$	(54,075)	Net loss		$	(16,942)		$	(69,104)
Depreciation and amortization	Depreciation and amortization		19,935			35,647		55,582		68,428		Depreciation and amortization		13,365			21,984
Pre-petition restructuring charges			—			16,822		16,822		—
Prepetition restructuring charges												Prepetition restructuring charges		—			17,074
Impairment	Impairment		388			17,853		18,241		1,378		Impairment		—			17,853
Reorganization items, net	Reorganization items, net		3,666			21,903		25,569		—		Reorganization items, net		146			6,663
Interest expense	Interest expense		8,468			12,294		20,762		30,003		Interest expense		6,534			8,651
Loss on extinguishment of debt	Loss on extinguishment of debt		—			4,215		4,215		—		Loss on extinguishment of debt		83			—

Income tax expense (benefit)	Income tax expense (benefit)		(2,075)			(1,786)		(3,861)		1,909		Income tax expense (benefit)		458			(1,031)
Adjusted EBITDA	Adjusted EBITDA		495			2,723		3,218		47,643		Adjusted EBITDA		3,644			2,090
General and administrative	General and administrative		15,839			22,047		37,886		68,271		General and administrative		9,713			14,655
Bad debt recovery (expense), net	Bad debt recovery (expense), net		(598)			1,209		611		(90)		Bad debt recovery (expense), net		(197)			727
Loss (gain) on dispositions of property and equipment, net			(4,289)			(989)		(5,278)		(2,184)
Gain on dispositions of property and equipment, net												Gain on dispositions of property and equipment, net		(2,298)			(717)

Other expense (income)			1,078			3,333		4,411		(445)
Other expense												Other expense		2,550			5,545
Consolidated gross margin	Consolidated gross margin		$	12,525		$	28,323	$	40,848	$	113,195	Consolidated gross margin		$	13,412		$	22,300

Consolidated gross margin — We experienced a significant decline in demand for all our service offerings beginning in March 2020 as a result of the economic downturn caused by the COVID-19 pandemic and adverse global oil production and pricing decisions made by OPEC and non-OPEC countries, as described in more detail in the earlier section ~~above~~ entitled, “Market Conditions and Outlook.” Our consolidated gross margin decreased by ~~$28.2~~$8.9 million, or ~~74%~~40%, for the three months ended September 30, 2020, and decreased by $72.3 million, or 64%, for the nine months ended September 30, 2020, as compared to the corresponding periods in 2019. Our production services offerings, which are heavily completion-oriented businesses, were most significantly impacted by the decline in demand, with a combined gross margin decrease of 84% for the nine months ended September 30, 2020March 31, 2021, as compared to the corresponding period in ~~2019. While~~2020 with our domestic drilling ~~services business were also significantly impacted,~~ and ~~experienced~~wireline businesses experiencing a combined ~~49%~~$9.4 million decrease in gross ~~margin decrease~~margin.

~~during this same period, the impact was mitigated by the longer-term nature of the operations, which are typically supported by term contracts.~~

•Drilling Services — ~~Our~~On a percentage basis, our drilling services revenues and operating costs decreased ~~by 64% and 47%~~in tandem for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 as compared to the corresponding ~~periods~~period in ~~2019, while operating costs decreased~~2020, declining by ~~65%~~33% and ~~46%~~35%, ~~respectively.~~respectively, driven primarily by a 20% decrease in revenue days. The following table provides operating statistics for each of our drilling services segments:

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Domestic drilling:
Average number of drilling rigs 17 17
Utilization rate 53 % 88 %
Revenue days 835 1,383
Average revenues per day $ 21,038 $ 27,598
Average operating costs per day 11,624 15,858
Average margin per day $ 9,414 $ 11,740
International drilling:
Average number of drilling rigs 8 8
Utilization rate 22 % 71 %
Revenue days 162 521
Average revenues per day $ 25,068 $ 41,491
Average operating costs per day 21,290 30,411
Average margin per day $ 3,778 $ 11,080


		Successor				Predecessor	Combined (Non-GAAP)						Predecessor				Successor					Predecessor
			Four Months Ended September 30, 2020				Five Months Ended May 31, 2020			Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019					Three Months Ended March 31, 2021				Three Months Ended March 31, 2020

Domestic drilling:	Domestic drilling:																	Domestic drilling:
Average number of drilling rigs	Average number of drilling rigs		17				17			17				17				Average number of drilling rigs	17				17
Utilization rate	Utilization rate		53		%		81		%	69		%		94		%		Utilization rate	68		%		89		%
Revenue days	Revenue days		1,105				2,100			3,205				4,279				Revenue days	1,034				1,382

Average revenues per day	Average revenues per day		$	21,206			$	25,400		$	23,954			$	27,069			Average revenues per day	$	21,744			$	25,970
Average operating costs per day	Average operating costs per day		12,083				15,762			14,494				16,148				Average operating costs per day	14,951				17,268
Average margin per day	Average margin per day		$	9,123			$	9,638		$	9,460			$	10,921			Average margin per day	$	6,793			$	8,702

International drilling:	International drilling:																	International drilling:
Average number of drilling rigs	Average number of drilling rigs		8				8			8				8				Average number of drilling rigs	8				8
Utilization rate	Utilization rate		19		%		28		%	24		%		79		%		Utilization rate	44		%		43		%
Revenue days	Revenue days		187				335			522				1,724				Revenue days	319				315

Average revenues per day	Average revenues per day		$	26,144			$	47,546		$	39,879			$	39,839			Average revenues per day	$	34,680			$	45,889
Average operating costs per day	Average operating costs per day		24,128				40,824			34,843				29,515				Average operating costs per day	25,313				38,533
Average margin per day	Average margin per day		$	2,016			$	6,722		$	5,036			$	10,324			Average margin per day	$	9,367			$	7,356

Our domestic drilling average margin per day decreased by 20% and 13% for the three and nine months ended September 30, 2020, respectively, as compared to the corresponding periods in 2019, as revenue days decreased by 40% and 25%, respectively. Average revenues per day declined during 2020 as dayrates for contracts that were renewed and renegotiated in late 2019 were reduced. Additionally, average revenues and margin per day for the three ~~and nine~~ months ended ~~September 30, 2019 benefited from $2.2 million~~March 31, 2021 decreased by 16% and ~~$1.0 million,~~22%, respectively, as compared to the corresponding period in 2020 primarily due to the decline in dayrates for contracts that were renewed or renegotiated during 2020, as well as the impact of ~~additional~~increased amortization of deferred mobilization revenue ~~associated with the early termination of two of our domestic drilling~~and costs during 2020 for rigs that were deployed under new contracts in ~~2019, which is net~~the second half of $1.6 million of early termination revenue recognized in May 2020. These decreases were offset in part by the benefit of rigs placed on standby in 2020. Beginning in late March 2020, rather than terminating their contracts with us, certain of our clients elected to temporarily stack three of our rigs, placing them on an extended standby for a2019.

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reduced revenue rate and the option to reactivate the rigs through the remainder of the contract term. Although these drilling rigs earn lower standby rates as compared to daywork rates, operating costs incurred are minimal, which reduces operating costs per day and benefits overall margin per day.

Our international drilling average margin per day ~~decreased by 66% and 51%~~improved 27% for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 as compared to the corresponding ~~periods~~period in ~~2019, primarily driven~~2020, despite only a 2% improvement in utilization over the same period. Average revenues and operating costs per day decreased by ~~the 69%~~24% and ~~70% reduction in revenue days during these respective periods~~34%, respectively, as certain customers terminated or suspended drilling contracts in 2020 in response to the decline in industry conditions. These contract terminations and suspensions in 2020 also resulted in an increase in rig demobilization activity, for ~~whi~~chwhich revenues and costs are higher than daywork activity, ~~and~~ but for which there are no associated revenue days. ~~Average revenue per day during the three months ended September 30, 2019 also benefited from $1.4 million of revenues associated with the demobilization of three rigs during the third quarter of 2019.~~ The ~~decline in utilization combined with the increase~~decrease in rig standby and demobilization costs for the three months ended March 31, 2021 as compared to the corresponding period in 2020 ~~and higher demobilization revenue in 2019 all~~ contributed to the ~~decreases~~improvement in average margin per ~~day.~~day during 2021.

•Production Services — Our revenues and operating costs from production services each decreased ~~80% and 64%~~61% for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 as compared to the corresponding ~~periods~~period in ~~2019, while operating costs decreased 78% and 59%, respectively.~~2020. The following table provides operating statistics for each of our production services segments:

Successor Predecessor
Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Well servicing:
Average number of rigs 123 125
Utilization rate 30 % 59 %
Rig hours 25,926 52,210
Average revenue per hour $ 496 $ 580
Wireline services:
Average number of units 80 94
Number of stages 563 6,732
Coiled tubing services:
Average number of units — 9
Revenue days — 339
Average revenue per day $ — $ 36,714


		Successor				Predecessor	Combined (Non-GAAP)			Predecessor						Successor					Predecessor
			Four Months Ended September 30, 2020				Five Months Ended May 31, 2020			Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019					Three Months Ended March 31, 2021				Three Months Ended March 31, 2020
Well servicing:	Well servicing:																Well servicing:
Average number of rigs	Average number of rigs		123				123			123			125				Average number of rigs	123				123
Utilization rate	Utilization rate		29		%		40		%	35		%	58		%		Utilization rate	35		%		51		%
Rig hours	Rig hours		33,691				56,797			90,488			151,169				Rig hours	29,858				44,232
Average revenue per hour	Average revenue per hour		$	494			$	562		$	537		$	569			Average revenue per hour	$	498			$	579

Wireline services:	Wireline services:																Wireline services:

Average number of units	Average number of units		83				93			89			98				Average number of units	74				93
Number of stages	Number of stages		655				6,510			7,165			20,941				Number of stages	2,591				6,070

Coiled tubing services:
Average number of units			2				9			6			9

Revenue days			—				226			226			997
Average revenue per day			$	—			$	24,827		$	24,827		$	38,226

Our well servicing rig hours decreased by ~~50% and 40%~~32% for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 as compared to the corresponding ~~periods~~period in ~~2019,~~2020, while average revenues per hour decreased by 14% ~~and 6%, respectively.~~. Although overall activity declined beginning in March 2020, especially for completion

services, average revenues per hour remained relatively stable until June 2020 in regions where pricing was slower to respond to economic conditions.

Our wireline services business segment experienced decreases of ~~92%~~57% and ~~40%~~32% in the number of perforating stages performed and revenue per stage, respectively, for the three months ended ~~September 30, 2020, and decreases of 66% and 15% in the number of perforating stages performed and revenue per stage, respectively, for the nine months ended September 30, 2020,~~March 31, 2021, as compared to the corresponding ~~periods~~period in ~~2019.~~2020. Already decreasing demand for completion-related services worsened with the sharp decline in industry conditions beginning in late February 2020, and resulted in our decision to close several underperforming operating locations and downsize our fleet beginning in the second quarter of 2020.

In ~~April 2020,~~early 2021, we closed ~~our coiled tubing operations and idled all our coiled tubing equipment, which were subsequently placed as held for sale. This closure, combined with the~~another operating location that experienced a decline in ~~demand~~revenue and are continuing our evaluation of this business for our coiled tubing services prior to April 2020, resulted in the 77% decrease in revenue days and the 35% decrease in average revenue per day for the nine months ended September 30, 2020 as compared to the corresponding period in 2019.further cost reductions.

Depreciation and amortization expense — Our depreciation expense decreased by ~~$8.2~~$8.6 million, or ~~36%, and $12.8 million, or 19%~~39%, for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 as compared to the corresponding ~~periods~~period in ~~2019,~~2020, primarily as a result of the application of fresh start accounting which resulted in reductions to the values of our long-lived assets as of May 31, 2020 as well as the designation of all our coiled tubing assets as held-for-sale at June 30, 2020. The overall decrease in depreciation expense was partially offset by an increase ~~due to the deployment of our 17th domestic AC drilling rig in March 2019 and an increase~~ for the amortization of ~~intangibles whi~~chintangible assets which were established in connection with fresh start accounting at May 31, 2020. Also, as a result of applying fresh start accounting, we assigned new useful lives to our long-lived assets, several of which were assigned a remaining useful life of one year. Therefore, with no significant capital expenditures expected for the remainder of 2021, we expect a decline in depreciation and amortization expense in mid-2021 as this class of assets becomes fully depreciated.

~~Pre-petition~~Prepetition restructuring charges — All expenses and losses incurred prior to the Petition Date which were related to the Chapter 11 proceedings are presented as ~~pre-petition~~prepetition restructuring charges in our Predecessor condensed consolidated statements of operations, including $9.6 million of expense incurred for the Commitment Premium pursuant to the Backstop Commitment Agreement. For more detail, see Note 2, Emergence from Voluntary Reorganization under Chapter 11, of the Notes to ~~Condensed~~ Consolidated Financial Statements, included in Part I,II, Item 1,8, Financial Statements and Supplementary Data, of ~~this Quarterly Report~~our annual report on Form ~~10-Q.~~10-K for the year ended December 31, 2020.

Impairment — Due to the significant decline in industry conditions, commodity prices, and projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the first quarter of 2020, and we performed recoverability testing on all our reporting units. As a result of this analysis, we incurred

impairment charges of $16.4 million and ~~$1.9~~$1.5 million during 2020 to reduce the carrying values of our coiled tubing assets and certain held-for-sale assets, respectively, to their estimated fair values. ~~For more detail, see Note 5,~~ ~~Property and Equipment,~~ ~~of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1,~~ ~~Financial Statements, of this Quarterly Report on Form 10-Q.~~

Reorganization items, net — Any expenses, gains, and losses incurred subsequent to ~~and as a direct result of~~ the filing for Chapter 11 and directly related to such proceedings are presented as reorganization items in our condensed consolidated statements of operations. For more detail, see Note 2, Emergence from Voluntary Reorganization under Chapter 11, of the Notes to ~~Condensed~~ Consolidated Financial Statements, included in Part I,II, Item 1,8, Financial Statements and Supplementary Data, of ~~this Quarterly Report~~our annual report on Form ~~10-Q.~~10-K for the year ended December 31, 2020.

Interest expense — Our interest expense decreased by ~~$9.2~~$2.1 million, or 24% for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared to the corresponding period in ~~2019,~~2020, primarily because the Prepetition Senior Notes stopped accruing interest as of March 1, 2020, in accordance with the terms of the Plan, and because our total outstanding debt was significantly reduced upon our emergence from Chapter 11. The overall decreases were slightly offset by an increase in amortization of debt discounts and issuance costs, which increased the total effective interest rate during the period.

Income tax expense (benefit) — Our effective tax rates differ from the applicable U.S. statutory rates primarily due to the impact of valuation allowances, as well as the impact of state taxes, other permanent differences, and the mix of profit and loss between federal, state and international taxing jurisdictions with different tax rates. ~~For more information, see Note 8,~~ ~~Taxes,~~ ~~of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1,~~ ~~Financial Statements, of this Quarterly Report on Form 10-Q.~~

General and administrative expense — Our general and administrative expense decreased by ~~$30.4~~$4.9 million, or ~~45%~~34%, for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 as compared to the corresponding period in ~~2019,~~2020, of which ~~$22.2~~$3.9 million is attributable to reduced employee ~~costs~~costs. During 2020, we implemented various cost cutting measures including, among other things, reductions in ~~connection with the decline in operational activity, including a $16.7 million decrease in~~headcount, incentive compensation, ~~primarily associated with the one-time retention~~ and ~~incentive~~base salary compensation ~~awards granted in the third quarter of 2019 as well as the termination of~~for our ~~previous annual~~executives and ~~long-term~~other administrative personnel, and reduced cash ~~incentive awards in 2019 and the suspension of incentive awards in early~~ ~~2020. This overall decrease in general and administrative expense was partially offset by $3.6 million of severance costs~~compensation for ~~certain executives whose employment was terminated during the third quarter of 2020.~~our non-employee directors.

~~Loss (gain)~~Gain on dispositions of property and equipment, net — During the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and the corresponding period in ~~2019,~~2020, we ~~recognized~~recognized net gains of ~~$5.3~~$2.3 million and ~~$2.2~~$0.7 million, respectively, on the disposition or sale of various property and equipment, ~~including~~primarily for the sale of coiled tubing equipment ~~drill pipe and collars and certain older and/or underutilized equipment.~~during the three months ended March 31, 2021.

Other expense ~~(income)~~ — The decrease in our other expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 as compared to the corresponding period in 2020 is primarily related to ~~$4.8~~$2.6 million of net foreign currency losses recognized for our Colombian operations, as compared to ~~$0.5~~$5.6 million of net foreign currency losses during the corresponding period in ~~2019.~~2020.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates. ~~Except for the application~~As of ~~fresh start accounting,~~March 31, 2021, there w~~ere~~were no significant changes to our critical accounting policies since the date of our annual report on Form 10-K for the year ended December 31, ~~2019, as amended.~~2020.

Accounting estimates — Material estimates affecting our financial results, including those that are particularly susceptible to significant changes in the near term, relate to ~~our application of fresh start accounting,~~ our estimates of certain variable revenues and amortization periods of certain deferred revenues and costs associated with drilling daywork contracts, our estimates of projected cash flows and fair values for impairment evaluations, our estimate of the valuation allowance for deferred tax assets, and our estimate of the liability relating to the self-insurance portion of our health and workers’ compensation insurance.

•Fresh Start Accounting. In connection with our emergence from bankruptcy and in accordance with ASC Topic 852, we qualified for and adopted fresh start accounting on the Effective Date. We were required to adopt fresh start accounting because (i) the holders of existing voting shares of the Predecessor Company received less than 50% of the voting shares of the Successor Company, and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims.

~~Fresh start accounting involved a comprehensive valuation process in which we determined the fair value of all our assets and liabilities on the Effective Date. For more information, see Note 3,~~ ~~Fresh Start Accounting, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1,~~ ~~Financial Statements, of this Quarterly Report on Form 10-Q.~~

•Revenues. In accordance with ASC Topic 606, Revenue from Contracts with Customers, we estimate certain variable revenues associated with the demobilization of our drilling rigs under daywork drilling contracts. We also make estimates of the applicable amortization periods for deferred mobilization costs, and for mobilization revenues related to cancelable term contracts which represent a material right to our clients. These estimates and assumptions are described in more detail in Note 4,2, Revenue from Contracts with Customers. In order to make these estimates, management considers all the facts and circumstances pertaining to each particular contract, our past experience and knowledge of current market conditions. For more information, see Note 4,2, Revenue from Contracts with

Customers, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

•Impairment Evaluation. In accordance with ASC Topic 360, Property, Plant and Equipment, we monitor all indicators of potential impairments. Due to the significant decline in industry conditions, commodity prices, and projected utilization of equipment, as well as the COVID-19 pandemic’s impact on our industry, our projected cash flows declined during the

first quarter of 2020, and we performed recoverability testing on all our reporting units. As a result of this analysis, we incurred impairment charges of $16.4 million to reduce the carrying values of our coiled tubing assets to their estimated fair values during the three months ended March 31, 2020. For all our other reporting units, excluding coiled tubing, we determined that the sum of the estimated future undiscounted net cash flows were in excess of the carrying amounts and that no impairment existed for these reporting units at March 31, 2020. We ~~continued~~continue to monitor potential indicators of impairment ~~through September 30, 2020~~ and concluded that none of our reporting units are currently at risk of ~~impairment.~~impairment at March 31, 2021.

•Deferred Tax Assets. We provide a valuation allowance when it is more likely than not that some portion of our deferred tax assets will not be realized. We evaluated the impact of the reorganization, including the change in control, resulting from our bankruptcy emergence and determined it is more likely than not that we will not fully realize future income tax benefits related to our domestic net deferred tax assets based on the annual limitations that impact us, historical results, and expected market ~~conditions.~~conditions known on the date of measurement. For more information, see Note 8,6, Taxes, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

•Insurance Claim Liabilities. We use a combination of self-insurance and third-party insurance for various types of coverage. We have stop-loss coverage of $225,000 per covered individual per year under our health insurance and deductibles of $500,000 and $250,000 per occurrence under our workers’ compensation and auto liability insurance, respectively. We have a $500,000 self-insured retention and an additional aggregate deductible of $500,000 under our general liability insurance as well as an annual aggregate deductible of $1,000,000 on the first layer of excess coverage. At ~~September 30, 2020,~~March 31, 2021, our accrued insurance premiums and deductibles include approximately $0.7 million of accruals for costs incurred under the self-insurance portion of our health insurance and approximately ~~$2.7~~$1.8 million of accruals for costs associated with our workers’ compensation insurance. We accrue for these costs as claims are incurred using an actuarial calculation that is based on industry and our company’s historical claim development data, and we accrue the cost of administrative services associated with claims processing. For more information, see Note 10, Commitments, Contingencies and Insurance Claim Liabilities of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Recently Issued Accounting Standards

For information about recently issued accounting standards, see Note 1, Organization and Summary of Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

~~Off-Balance Sheet Arrangements~~

~~We do not have any off-balance sheet arrangements.~~

5533

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Not applicable.~~Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable rate debt and (ii) foreign currency exchange rate risk associated with our international operations in Colombia.

Interest Rate Risk — We are exposed to interest rate market risk on our variable rate debt. We do not use financial instruments for trading or other speculative purposes. As of March 31, 2021, the principal amount outstanding under our variable rate debt, the Senior Secured Notes, was $77.2 million. The impact of a hypothetical 1% increase or decrease in interest rates on this amount of debt would have resulted in a corresponding increase or decrease, respectively, in interest expense of approximately $0.2 million during the three months ended March 31, 2021. This potential increase or decrease is based on the simplified assumption that the level of variable rate debt remains constant with an immediate across-the-board interest rate increase or decrease as of January 1, 2021.

Foreign Currency Risk — While the U.S. dollar is the functional currency for reporting purposes for our Colombian operations, we enter into transactions denominated in Colombian Pesos. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period. Income statement accounts are translated at average rates for the period. As a result, Colombian Peso denominated transactions are affected by changes in exchange rates. We generally accept the exposure to exchange rate movements without using derivative financial instruments to manage this risk. Therefore, both positive and negative movements in the Colombian Peso currency exchange rate against the U.S. dollar have and will continue to affect the reported amount of revenues, expenses, profit, and assets and liabilities in our consolidated financial statements. The impact of currency rate changes on our Colombian Peso denominated transactions and balances resulted in net foreign currency losses of $2.6 million for the three months ended March 31, 2021.

ITEM 4. CONTROLS AND PROCEDURES

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, under the supervision and with the participation of management, including our ~~Interim~~ Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our ~~Interim~~ Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 30, 2020,~~March 31, 2021, to ~~ensure~~provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our ~~Interim~~ Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In the ordinary course of business, we may make changes to our systems and processes to improve controls and increase efficiency, and make changes to our internal controls over financial reporting in order to ensure that we maintain an effective internal control environment.

~~During the second quarter of 2020, upon our emergence from Chapter 11, we established controls over the application of fresh start accounting.~~ There has been no change in our internal control over financial reporting that occurred during the three months ended ~~September 30, 2020~~March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

5634

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in routine litigation or subject to disputes or claims arising out of our business activities, including workers’ compensation claims and employment-related disputes. In the opinion of our management, none of the pending litigation, disputes or claims against us will have a material adverse effect on our financial condition, results of operations or cash flows. For information on Legal Proceedings, see Note ~~13,~~10, Commitments, Contingencies and ~~Contingencies~~Insurance Claim Liabilities, of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 Financial Statements, of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

In addition to the risk factors described below and the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Item 1A – “Risk Factors” in our Form 10-K for the year ended December 31, 2019, as amended by Form 10-K/A for the year ended December 31, 2019, which could materially affect our business, financial condition or future results.

~~Risks Relating to the Restructuring~~

•~~We recently emerged from bankruptcy, which may adversely affect our business and relationships.~~

~~As a result of our bankruptcy filing and recent emergence:~~

•~~key suppliers, vendors or other contract counterparties may terminate their relationships with us or require additional financial assurances or enhanced performance from us;~~

•~~our ability to renew existing contracts and compete for new business may be adversely affected;~~

•~~our ability to attract, motivate and/or retain key executives and employees may be adversely affected;~~

•~~our competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted;~~

•~~our employees may be distracted from performance of their duties or more easily attracted to other employment opportunities; and~~

•~~we may have difficulty obtaining the capital we need to run and grow our business.~~

~~The occurrence of one or more of these events could have a material adverse effect on our operations, financial condition and reputation.~~

•~~Upon our emergence from Chapter 11, the composition of our stockholder base and concentration of equity ownership changed significantly.~~

As a result of the concentration of our equity ownership, the future strategy and plans of the Company may differ materially from those in the past. Upon our emergence from Chapter 11, twelve stockholder groups beneficially own approximately 95% (the “Significant Stockholders”) of our issued and outstanding common stock and, therefore, have significant control on the outcome of matters submitted to a vote of stockholders, including, but not limited to, electing directors and approving corporate transactions. In addition, our incurrence of additional indebtedness requires the consent of each of our current stockholders that, together with their affiliates and related funds, owns more than 17.5% of our outstanding common stock on a fully-diluted basis, and the consent of one particular stockholder is required for us to issue additional equity as long as such stockholder, together with its affiliates and related funds, owns more than 12.5% of our outstanding common stock on a fully-diluted basis. As a result, our future strategy and plans may differ materially from those of the past. Circumstances may occur in which the interests of the Significant Stockholders could be in conflict with the interests of other stockholders, and the Significant Stockholders would have substantial influence to cause us to take actions that align with their interests. Should conflicts arise, we can provide no assurance that the Significant Stockholders would act in the best interests of other stockholders or that any conflicts of interest would be resolved in a manner favorable to our other stockholders.

•~~Upon our emergence from Chapter 11, the composition of our board of directors changed significantly.~~

Pursuant to the Plan, the composition of our board of directors (the “Board”) changed significantly. Upon emergence, our Board consisted of five directors, only one of whom, our former Chief Executive Officer, Wm. Stacy Locke, had served on the Board prior to our emergence from Chapter 11. In July 2020, Wm. Stacy Locke resigned his officer and director positions, at which time Matthew S. Porter, a member of the Board, was also appointed to serve as Interim Chief Executive Officer. Our Board currently consists of four members.

The new directors have different backgrounds, experiences and perspectives from those individuals who previously served on our Board and, thus, may have different views on the issues that will determine our future. There is no guarantee that our new Board will pursue, or will pursue in the same manner, our current strategic plans. As a result, the future strategy and our plans may differ materially from those of the past.

•~~Certain information contained in our historical financial statements will not be comparable to the information contained in our financial statements after the application of fresh start accounting.~~

Upon emergence from bankruptcy, we adopted fresh start accounting in accordance with ASC Topic 852 and became a new entity for financial reporting purposes. As a result, we revalued our assets and liabilities based on our estimate of our enterprise value and the fair value of each of our assets and liabilities. These estimates, projections and enterprise valuation were prepared solely for the purpose of the bankruptcy proceedings and should not be relied upon by investors for any other purpose. At the time they were prepared, the determination of these values reflected numerous estimates and assumptions, and the fair values recorded based on these estimates may not be fully realized in periods subsequent to our emergence from bankruptcy.

The condensed consolidated financial statements after the Effective Date are not comparable with the consolidated financial statements on or before that date as indicated by the “black line” division in the financial statements and footnote tables, which emphasizes the lack of comparability between amounts presented. This will make it difficult for stockholders to assess our performance in relation to prior periods. Please see Note 2, ~~Emergence from Voluntary Reorganization under Chapter 11, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1~~ ~~Financial Statements~~ ~~for further information.~~

~~Risks Relating to Our Common Stock~~

•We cannot assure you that an active trading market for our common stock will develop or be maintained, and the market price of our common stock may be volatile, which could cause the value of your investment to decline.

Our shares of common stock are not currently listed on the OTC Market Place or on any other stock exchange. We anticipate the trading of our new common stock on the OTC market to commence again in the near future.

We cannot assure you that an active public market for our common stock will develop or, if it develops, that it will be sustained. In the absence of an active public trading market, it may be difficult to liquidate your investment in our common stock.

In the event our common stock commences trading, the trading price of our common stock may fluctuate significantly. Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common stock. These factors include, among other things:

•~~our operating and financial performance and prospects;~~

•~~our ability to repay our debt;~~

•~~investor perceptions of us and the industry and markets in which we operate;~~

•~~future sales, or the availability for sale, of equity or equity-related securities;~~

•~~changes in earnings estimates or buy/sell recommendations by analysts;~~

•~~conversion of our Convertible Notes;~~

•~~limited trading volume of our common stock; and~~

•~~general financial, domestic, economic and other market conditions.~~

•~~In the event our common stock commences trading, the trading price of our common stock may not accurately reflect the value of our business.~~

Upon our emergence from Chapter 11, ownership of our common stock is highly concentrated, and there are a limited number of shares available for trading on any public market. As a result, any future reported trading prices for our common stock at any given time may not accurately reflect the underlying economic value of our business at that time. Any future reported trading prices could be higher or lower than the price a stockholder would be able to receive in a sale transaction, and there can be no assurance that there will be sufficient public trading in our common stock in the future to create a liquid trading market that accurately reflects the underlying economic value of our business.

Not applicable.

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

On July 17, 2020, we entered into a separation agreement with our former Chief Executive Officer, pursuant to which we issued him a restricted stock award of 90,000 shares of Common Stock under the Pioneer Energy Services Corp. 2020 Employee Incentive Plan. The shares were issued in reliance on the exemption set forth in Section 4(a)(2) of the Securities Act. We did not repurchase any common shares during the quarter ended September 30, 2020.

Upon emergence from Chapter 11 on May 29, 2020 and the effectiveness of the Plan, all previously issued and outstanding equity interests were canceled and we issued a total of 1,049,804 shares of common stock, with approximately 94.25% of such new common stock being issued to the holders of existing Prepetition Senior Notes and the remaining 5.75% being issued to the holders of existing common stock prior to the Effective Date. Upon the effectiveness of the Plan, we also issued $129.8 million aggregate principal amount of Convertible Notes, which are convertible into 75 shares of common stock per $1,000 principal amount of the Convertible Notes and which on the Effective Date were convertible into approximately 9,732,825 shares of common stock.

The shares of common stock described above were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 1145 of Chapter 11 of Title 11 of the United States Code (which generally exempts from such registration requirements the issuance of securities under a plan of reorganization). The Convertible Notes described above were exempt from registration under the Securities Act pursuant to Section 4(a)(2) thereof and Regulation D promulgated thereunder.

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

5935

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

Exhibit
Number

Description

3.1*

Certificate of Incorporation of Pioneer Energy Services Corp. (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 3.1)).

3.2*

Amended and Restated Bylaws of Pioneer Energy Services Corp. (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 3.2)).

4.1*

Specimen Common Stock Certificate (New Common Stock) (Form 8-A/A dated June 5, 2020 (File No. 1-8182, Exhibit 4.4)).

4.2*

Convertible Notes Indenture, dated May 29, 2020 (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 4.1)).

4.3*

Convertible Notes (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 4.2)).

4.4*

Senior Secured Notes Indenture, dated May 29, 2020 (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 4.3)).

4.5*

Senior Secured Notes (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 4.4)).

4.6*

Registration Rights Agreement, dated May 29, 2020 (Form 8-K dated May 29, 2020 (File No. 1-8182, Exhibit 10.3)).

10.1*4.7*

First ~~Amendment~~Supplemental Indenture to ~~ABL Credit Agreement,~~Senior Secured Notes Indenture, dated as of August 7, 2020, by and among Pioneer Energy Services Corp., certain of its subsidiaries party thereto, the several lenders party thereto, and PNC Bank, National Association, as administrative agentMarch 3, 2021, (Form ~~8-K~~10-K dated ~~August 7, 2020~~March 5, 2021 (File No. 1-8182, Exhibit ~~10.1)~~4.8)).

~~10.2*+~~

~~Consulting Agreement, dated as of July 17, 2020, by and between Pioneer Energy Services Corp. and Matthew S. Porter (Form 8-K dated July 22, 2020 (File No. 1-8182, Exhibit 10.1)).~~

~~10.3*+~~

~~Separation Agreement and Release, dated as of July 17, 2020, by and between Pioneer Energy Services Corp. and Wm. Stacy Locke (Form 8-K dated July 22, 2020 (File No. 1-8182, Exhibit 10.2)).~~

~~10.4*+~~

~~Extension of Consulting Agreement, dated as of October 14, 2020, by and between Pioneer Energy Services Corp. and Matthew S. Porter (Form 8-K dated October 14, 2020 (File No. 1-8182. Exhibit 10.1)).~~

31.1**

Certification by Matthew S. Porter, ~~Interim~~President and Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.

31.2**

Certification by Lorne E. Phillips, Executive Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.

32.1#

Certification by Matthew S. Porter, ~~Interim~~President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2#

Certification by Lorne E. Phillips, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit
Number

~~Description~~

101.INS

Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

Incorporated by reference to the filing indicated.

Filed herewith.

Furnished herewith.

~~Management contract or compensatory plan or arrangement.~~

6136

SIGNATURES

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


PIONEER ENERGY SERVICES CORP.

/s/ Lorne E. Phillips
Lorne E. Phillips
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)

Dated: ~~November 13, 2020~~May 7, 2021

6237


		Page
	PART I
Item 1.	Financial Statements and Supplementary Data	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Stockholders’ Equity	65
	Condensed Consolidated Statements of Cash Flow	86
	Notes to Unaudited Condensed Consolidated Financial Statements	97
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3820
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5633
Item 4.	Controls and Procedures	5634

	PART II
Item 1.	Legal Proceedings	5735
Item 1A.	Risk Factors	5735
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5935
Item 3.	Defaults Upon Senior Securities	5935
Item 4.	Mine Safety Disclosures	5935
Item 5.	Other Information	5935
Item 6.	Exhibits	6035


	As of May 31, 2020
(in thousands)	Predecessor		Reorganization Adjustments			Fresh Start Accounting Adjustments			Successor


ASSETS

Cash and cash equivalents	$	21,253	$	(10,661)	(1)	$	0		$	10,592
Restricted cash	4,452		11,721		(2)	0			16,173
Receivables:
Trade, net of allowance for doubtful accounts	33,537		0			0			33,537
Unbilled receivables	9,163		0			0			9,163
Insurance recoveries	23,636		0			0			23,636
Other receivables	5,256		1,000		(3)	0			6,256
Inventory	21,012		0			(6,883)		(18)	14,129
Assets held for sale	1,825		0			29		(19)	1,854
Prepaid expenses and other current assets	4,817		0			952		(20)	5,769
Total current assets	124,951		2,060			(5,902)			121,109

Property and equipment, at cost	1,082,704		0			(886,733)		(21)	195,971
Less accumulated depreciation	655,512		0			(655,512)		(21)	0
Net property and equipment	427,192		0			(231,221)			195,971
Intangible assets, net of accumulated amortization	0		0			9,370		(22)	9,370

Deferred income taxes	10,897		0			(2,157)		(23)	8,740

Operating lease assets	5,234		0			0			5,234
Other noncurrent assets	13,247		(5,023)		(4)	3,975		(24)	12,199

Total assets	$	581,521	$	(2,963)		$	(225,935)		$	352,623

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable	$	24,601	$	(9,478)	(5)	$	0		$	15,123

Deferred revenues	121		0			0			121
Commitment premium	9,584		(9,584)		(6)	0			0
Debtor in possession financing	4,000		(4,000)		(7)	0			0
Accrued expenses:
Employee compensation and related costs	4,970		0			0			4,970
Insurance claims and settlements	23,517		0			0			23,517
Insurance premiums and deductibles	5,269		0			0			5,269
Interest	3,775		(3,731)		(8)	0			44
Other	12,436		4,329		(9)	(10)			16,755

Total current liabilities	88,273		(22,464)			(10)			65,799

Long-term debt, less unamortized discount and debt issuance costs	175,000		(53,831)		(10)	20,070		(25)	141,239
Noncurrent operating lease liabilities	4,189		0			0			4,189
Deferred income taxes	4,296		0			(3,225)		(26)	1,071
Other noncurrent liabilities	1,366		0			0			1,366

Total liabilities not subject to compromise	273,124		(76,295)			16,835			213,664


Liabilities subject to compromise	308,422		(308,422)		(11)	0			0

Stockholders’ equity:

Predecessor common stock	8,893		(8,893)		(12)	0			0

Successor common stock	0		1		(13)	0			1
Predecessor additional paid-in capital	553,631		(553,631)		(14)	0			0
Successor additional paid-in capital	0		98,413		(15)	40,545		(27)	138,958
Predecessor treasury stock, at cost	(5,098)		5,098		(16)	0			0
Accumulated deficit	(557,451)		840,766		(17)	(283,315)		(28)	0
Total stockholders’ equity	(25)		381,754			(242,770)			138,959
Total liabilities and stockholders’ equity	$	581,521	$	(2,963)		$	(225,935)		$	352,623


	Predecessor Historical Value		Fair Value Adjustment		Successor Fair Value
Drilling rigs and equipment	$	1,010,612	$	(832,294)	$	178,318
Vehicles	41,283		(28,561)		12,722
Building and improvements	16,619		(13,742)		2,877
Office equipment	12,231		(11,743)		488
Land	1,959		(393)		1,566
	$	1,082,704	$	(886,733)	$	195,971
Less: Accumulated Depreciation	(655,512)		655,512		0
	$	427,192	$	(231,221)	$	195,971


	Successor
	Liability Component		Equity Component		Total

Issuance proceeds, net of Backstop Commitment Premium	$	43,738	$	76,449	$	120,187

Face value	47,225		82,546		129,771
Issuance discount	23,195		40,542		63,737
Fair value	$	70,420	$	123,088	$	193,508
Debt issuance costs	(1,268)		(2,216)		(3,484)
Net carrying value at Fresh Start Reporting Date	$	69,152	$	120,872	$	190,024


	Successor
	September 30, 2020
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	22,616	$	0	$	5,465	$	0	$	28,081
Restricted cash	4,021		0		0		0		4,021
Receivables, net of allowance	1,110		46,252		8,991		0		56,353
Intercompany receivable (payable)	(3,131)		31,141		(28,010)		0		0
Inventory	0		5,636		7,661		0		13,297
Assets held for sale	0		4,295		0		0		4,295
Prepaid expenses and other current assets	2,365		1,319		657		0		4,341
Total current assets	26,981		88,643		(5,236)		0		110,388
Net property and equipment	402		149,982		22,013		0		172,397
Investment in subsidiaries	235,479		33,817		0		(269,296)		0
Intangible assets, net of accumulated amortization	1,902		7,156		0		0		9,058

Deferred income taxes	0		0		10,433		0		10,433

Operating lease assets	2,687		1,977		0		0		4,664
Other noncurrent assets	2,212		52		9,898		0		12,162
Total assets	$	269,663	$	281,627	$	37,108	$	(269,296)	$	319,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,725	$	8,608	$	2,112	$	0	$	15,445
Current portion of long-term debt	2,199		0		0		0		2,199
Deferred revenues	0		205		510		0		715


Accrued expenses	6,915		33,019		669		0		40,603
Total current liabilities	13,839		41,832		3,291		0		58,962
Long-term debt, less unamortized discount and debt issuance costs	143,017		0		0		0		143,017
Noncurrent operating lease liabilities	2,349		1,489		0		0		3,838
Deferred income taxes	171		732		0		0		903
Other noncurrent liabilities	242		2,095		0		0		2,337
Total liabilities	159,618		46,148		3,291		0		209,057

Total stockholders’ equity	110,045		235,479		33,817		(269,296)		110,045
Total liabilities and stockholders’ equity	$	269,663	$	281,627	$	37,108	$	(269,296)	$	319,102

	Predecessor
	December 31, 2019
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	14,461	$	0	$	10,158	$	0	$	24,619
Restricted cash	998		0		0		0		998
Receivables, net of allowance	107		92,394		30,908		117		123,526
Intercompany receivable (payable)	(28,664)		64,485		(35,821)		0		0
Inventory	0		10,325		12,128		0		22,453
Assets held for sale	0		3,447		0		0		3,447
Prepaid expenses and other current assets	2,849		4,122		898		0		7,869
Total current assets	(10,249)		174,773		18,271		117		182,912
Net property and equipment	2,374		441,567		27,229		0		471,170
Investment in subsidiaries	547,123		47,953		0		(595,076)		0


Deferred income taxes	44,224		0		11,540		(44,224)		11,540
Operating lease assets	3,114		3,581		569		0		7,264
Other noncurrent assets	506		562		0		0		1,068
Total assets	$	587,092	$	668,436	$	57,609	$	(639,183)	$	673,954
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,811	$	24,436	$	6,304	$	0	$	32,551

Deferred revenues	0		513		826		0		1,339
Accrued expenses	10,570		44,893		2,111		117		57,691
Total current liabilities	12,381		69,842		9,241		117		91,581
Long-term debt, less unamortized discount and debt issuance costs	467,699		0		0		0		467,699
Noncurrent operating lease liabilities	2,749		2,536		415		0		5,700
Deferred income taxes	0		48,641		0		(44,224)		4,417
Other noncurrent liabilities	187		294		0		0		481
Total liabilities not subject to compromise	483,016		121,313		9,656		(44,107)		569,878
Total stockholders’ equity	104,076		547,123		47,953		(595,076)		104,076
Total liabilities and stockholders’ equity	$	587,092	$	668,436	$	57,609	$	(639,183)	$	673,954