MAMMOTH ENERGY SERVICES, INC. Management report and analysis of the financial position and operating results (Form 10-Q)

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The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes thereto presented
in this Quarterly Report and the consolidated financial statements and related
notes thereto included in our Annual Report on Form 10-K. This discussion
contains forward-looking statements reflecting our current expectations,
estimates and assumptions concerning events and financial trends that may affect
our future operating results or financial position. Actual results and the
timing of events may differ materially from those contained in these
forward-looking statements due to a number of factors, including those discussed
in Item 1A. "Risk Factors" in our Form 10-K for the year ended December 31,
2020, filed with the Securities and Exchange Commission, or the SEC, on March 1,
2021 and the section entitled "Forward-Looking Statements" appearing elsewhere
in this Quarterly Report.

Overview

  We are an integrated, growth-oriented company serving both the electric
utility and oil and gas industries in North America. Our primary business
objective is to grow our operations and create value for stockholders through
organic growth opportunities and accretive acquisitions. Our suite of services
includes infrastructure services, well completion services, natural sand
proppant services, drilling services and other services. Our infrastructure
services division provides construction, upgrade, maintenance and repair
services to the electrical infrastructure industry. Our well completion services
division provides hydraulic fracturing, sand hauling and water transfer
services. Our natural sand proppant services division mines, processes and sells
natural sand proppant used for hydraulic fracturing. Our drilling services
division currently provides rental equipment, such as mud motors and operational
tools, for both vertical and horizontal drilling. In addition to these service
divisions, we also provide aviation services, equipment rentals, crude oil
hauling services, remote accommodations, equipment manufacturing and
infrastructure engineering and design services. We believe that the services we
offer play a critical role in maintaining and improving electrical
infrastructure as well as in increasing the ultimate recovery and present value
of production streams from unconventional resources. Our complementary suite of
services provides us with the opportunity to cross-sell our services and expand
our customer base and geographic positioning.

  Our transformation towards an industrial based company is ongoing. We offer
infrastructure engineering services focused on the transmission and distribution
industry and also have equipment manufacturing operations as well as fiber optic
services. Our equipment manufacturing operations provide us with the ability to
repair much of our existing equipment in-house, as well as the option to
manufacture certain new equipment we may need in the future. The equipment
manufacturing operations have initially served the internal needs for our water
transfer, equipment rental and infrastructure businesses, but we expect to
expand into third party sales in the future. Our fiber optic services include
the installation of both aerial and buried fiber. We are continuing to explore
other opportunities to expand our business lines as we shift to a broader
industrial focus.

Recent developments

Impact of the COVID-19 pandemic and the volatility of commodity prices

In March and April 2020, concurrent with the spread of COVID-19 and quarantine
orders in the U.S. and worldwide, oil prices dropped sharply to below zero for
the first time in history due to factors including significantly reduced demand
and a shortage of storage facilities. Beginning in early March 2020, in response
to the COVID-19 pandemic and the depressed commodity prices, many exploration
and production companies, including our customers, immediately began to
substantially reduce their capital expenditure budgets. As a result, demand for
our oilfield services declined at the end of the first quarter of 2020 and
continued to decline further throughout the remainder of 2020. Exploration and
production companies set their 2021 budgets based on the prevailing prices for
oil and gas at the time. Although demand for oil and natural gas and commodity
prices have recently increased, these budgets have remained and are expected to
remain relatively unchanged throughout the fourth quarter of 2021 with any
excess cash flows used for debt repayment or return to shareholders rather than
to increase production, as has been the case in the past. Despite the recent
improvement in the U.S. economic activity, easing of the COVID-19 pandemic and
rising energy use and commodity prices, the near term energy outlook remains
subject to heightened levels of uncertainty related to the ongoing economic
recovery. Further, on July 18, 2021, the OPEC+ reached an agreement to phase out
5.8 million barrels per day of oil production cuts by September 2022 as prices
of crude oil reached their highest levels in more than two years. Coordinated
increases in oil supply by OPEC+ began in August 2021, increasing overall oil
production by 400,000 barrels per day on a monthly basis from that point
forward. We cannot predict the impact of the gradual OPEC+ supply boost on
commodity prices and expect a competitive and challenging market for oilfield
services for the foreseeable future, which has had, and is likely to continue to
have, an adverse effect on both pricing and utilization for our oilfield
services and our financial condition and results of operations.

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We have taken, and continue to take, responsible steps to protect the health and
safety of our employees during the COVID-19 pandemic. We are also actively
monitoring the recovery process from the COVID-19 pandemic and the adverse
industry and market conditions and have taken mitigating steps in an effort to
preserve liquidity, reduce costs and lower capital expenditures. These actions
have included reducing headcount, adjusting pay and limiting spending. We will
continue to take further actions that we deem to be in the best interest of the
Company and our stockholders if the current conditions worsen. Given the dynamic
nature of these events, we are unable to predict the ultimate impact of the
COVID-19 pandemic, the volatility in commodity markets, the reduced demand for
oil and oilfield services and uncertain macroeconomic conditions on our
business, financial condition, results of operations, cash flows and stock price
or the pace or extent of any subsequent recovery.


Third Quarter 2021 Financial Overview

• Announced a 21% increase in revenues for the third quarter of 2021, compared to the second quarter of 2021, reflecting the increase in revenues in each of our operating segments.

• Net loss of $ 41 million, Where $ 0.88 per diluted share for the three months ended
September 30, 2021.

• Adjusted EBITDA of (30) million dollars for the three months ended September 30, 2021, which includes bad debts from $ 31 million. See “Non-GAAP Financial Measures” below for a reconciliation of net loss to Adjusted EBITDA.

Industry overview

Energy infrastructure industry

  In 2017, we expanded into the electric infrastructure business, offering both
commercial and storm restoration services to government-funded utilities,
private utilities, public investor owned utilities and cooperatives. Since we
commenced operations in this line of business, a substantial portion of our
infrastructure revenue has been generated from storm restoration work, primarily
from the Puerto Rico Electric Power Authority, or PREPA, due to damage caused by
Hurricane Maria. On October 19, 2017, Cobra Acquisitions LLC, or Cobra, and
PREPA entered into an emergency master services agreement for repairs to PREPA's
electrical grid. The one-year contract, as amended, provided for payments of up
to $945 million. On May 26, 2018, Cobra and PREPA entered into a new one-year,
$900 million master services agreement to provide additional repair services and
begin the initial phase of reconstruction of the electrical power system in
Puerto Rico. Our work under each of the contracts with PREPA ended on March 31,
2019.

  As of September 30, 2021, PREPA owed us approximately $227 million for
services performed excluding approximately $101 million of interest charged on
these delinquent balances as of September 30, 2021. See Note 2. Basis of
Presentation and Significant Accounting Policies-Accounts Receivable of our
unaudited condensed consolidated financial statements. PREPA is currently
subject to bankruptcy proceedings, which were filed in July 2017 and are
currently pending in the U.S. District Court for the District of Puerto Rico. As
a result, PREPA's ability to meet its payment obligations under the contracts is
largely dependent upon funding from the Federal Emergency Management Agency, or
FEMA, or other sources. On September 30, 2019, we filed a motion with the U.S.
District Court for the District of Puerto Rico seeking recovery of the amounts
owed to us by PREPA, which motion was stayed by the court. On March 25, 2020, we
filed an urgent motion to modify the stay order and allow our recovery of
approximately $62 million in claims related to a tax gross-up provision
contained in the emergency master service agreement, as amended, that was
entered into with PREPA on October 19, 2017. This emergency motion was denied on
June 3, 2020 and the court extended the stay of our motion. On December 9, 2020,
the Court again extended the stay of our motion and directed PREPA to file a
status motion by June 7, 2021. On April 6, 2021, we filed a motion to lift the
stay order. Following this filing, PREPA initiated discussion, which resulted in
PREPA and Cobra filing a joint motion to adjourn all deadlines relative to the
April 6, 2021 motion until the June 16, 2021 omnibus hearing as a result of
PREPA's understanding that FEMA will release a report in the near future
relating to the emergency master service agreement between PREPA and Cobra that
was executed on October 19, 2017. The joint motion was granted by the court on
April 14, 2021. On May 26, 2021, FEMA issued a Determination Memorandum related
to the first contract between Cobra and PREPA in which, among other things, FEMA
raised two contract compliance issues and, as a result, concluded that
approximately $47 million in costs were not authorized costs under the contract.
On June 14, 2021, the Court issued an order adjourning Cobra's motion to lift
the stay order to a hearing on August 4, 2021 and directing Cobra and PREPA to
meet and confer in good faith concerning (i) the May 26, 2021 Determination
Memorandum issued by FEMA and (ii) whether and when a second determination
memorandum is expected. The parties were further directed to file an additional
status report, which was filed on July 20, 2021. On July 23, 2021, with our aid,
PREPA filed an appeal of the entire $47 million that FEMA de-
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obligated in the May 26, 2021 Determination Memorandum. In the event PREPA (i)
does not have or does not obtain the funds necessary to satisfy its obligations
to Cobra under the contracts, (ii) obtains the necessary funds but refuses to
pay the amounts owed to us or (iii) otherwise does not pay amounts owed to us
for services performed, the receivable may not be collected and our financial
condition, results of operations and cash flows would be materially and
adversely affected. In addition, government contracts are subject to various
uncertainties, restrictions and regulations, including oversight audits and
compliance reviews by government agencies and representatives. In this regard,
on September 10, 2019, the U.S. District Court for the District of Puerto Rico
unsealed an indictment that charged the former president of Cobra with
conspiracy, wire fraud, false statements and disaster fraud. Two other
individuals were also charged in the indictment. The indictment is focused on
the interactions between a former FEMA official and the former President of
Cobra. Neither we nor any of our subsidiaries were charged in the indictment. We
are continuing to cooperate with the related investigation. We are also subject
to investigations and legal proceedings related to our contracts with PREPA.
Given the uncertainty inherent in the criminal litigation, investigations and
legal proceedings, it is not possible at this time to determine the potential
outcome or other potential impacts that they could have on us. See Note 18.
Commitments and Contingencies to our unaudited condensed consolidated financial
statements included elsewhere in this report for additional information
regarding these investigations and proceedings. Further, as noted above, our
contracts with PREPA have concluded and we have not obtained, and there can be
no assurance that we will be able to obtain, one or more contracts with PREPA or
other customers to replace the level of services that we provided to PREPA under
our previous contracts.

Our crew count declined from approximately 100 crews as of December 31, 2020 to
approximately 83 crews as of September 30, 2021. Although the COVID-19 pandemic
and resulting economic conditions have not had a material impact on demand or
pricing for our infrastructure services, revenues for our infrastructure
services have declined in 2021 as a result of certain management changes, which
resulted in crew departures. During the third quarter of 2021, we made
leadership changes in our infrastructure group. We are focused on cutting costs
and enhancing accountability across the division, both of which we have already
seen improving.

Funding for projects in the infrastructure space remains strong with the added
opportunity of a new federal infrastructure bill, which we are optimistic will
occur in the near future. We continue to pursue opportunities within this sector
as we strategically structure our service offerings for growth, intending to
increase our infrastructure services activity and expand both our geographic
footprint and depth of projects. During the third quarter of 2021, we won our
first fiber installation job, which we expect to begin in November 2021. We work
for multiple utilities primarily across the northeastern, southwestern,
midwestern and western portions of the United States. Our infrastructure
management team also has experience with both solar and wind projects and we
believe that this experience, combined with our vertically integrated service
offerings, positions us well to compete and win renewable projects. We believe
we will be able to grow our customer base and increase our revenues in the
continental United States over the coming years.

Oil and natural gas industry

  The oil and natural gas industry has traditionally been volatile and is
influenced by a combination of long-term, short-term and cyclical trends,
including the domestic and international supply and demand for oil and natural
gas, current and expected future prices for oil and natural gas and the
perceived stability and sustainability of those prices, production depletion
rates and the resultant levels of cash flows generated and allocated by
exploration and production companies to their drilling, completion and related
services and products budgets. The oil and natural gas industry is also impacted
by general domestic and international economic conditions, political instability
in oil producing countries, government regulations (both in the United States
and elsewhere), levels of customer demand, the availability of pipeline
capacity, storage capacity and other conditions and factors that are beyond our
control. See "Recent Developments-Impact of the COVID-19 Pandemic and Volatility
in Commodity Prices" above.

Demand for most of our oil and natural gas products and services depends
substantially on the level of expenditures by companies in the oil and natural
gas industry. The levels of capital expenditures of our customers are
predominantly driven by the prices of oil and natural gas. As discussed above,
oil prices dropped sharply throughout March and April of 2020. While improved
commodity pricing has contributed to positive industry movement and increased
equipment utilization, oil and natural gas prices are expected to continue to be
volatile and we cannot predict if, or at what levels, commodity prices will
stabilize. We experienced a weakening in demand for our oilfield services during
2019 as a result of reductions in our customers' capital expenditure budgets.
The sharp decline in oil prices beginning in March 2020, the continued
volatility and strategic operating decisions by producers to curtail drilling
activity have adversely impacted the utilization and pricing of our oilfield
services.

In response to market conditions, we have temporarily shut down our cementing
and acidizing operations and flowback operations beginning in July 2019, our
contract drilling operations beginning in December 2019, our rig hauling
operations beginning in April 2020, our coil tubing and full service
transportation operations beginning in July 2020 and our
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crude oil hauling operations beginning in July 2021. We continue to monitor the
market to determine if and when we can recommence these services. We are
currently operating two of our six pressure pumping fleets. Based on feedback
from our exploration and production customers, they are taking a cautious
approach to activity levels for the remainder of 2021 given the recent
volatility in oil prices and investor sentiment calling for activities to remain
within or below cash flows. Market fundamentals are challenging for our oilfield
businesses and we expect this trend to continue. Although we believe the
reported retirement of equipment across the industry may, at some point, help
the market, pricing and utilization for our oilfield services are expected to
remain competitive for the foreseeable future. While the oilfield portion of our
service offerings continue to experience significant challenges, we expect to be
ready to ramp up our oilfield service offerings when oilfield demand, pricing
and margins strengthen.

We continue to closely monitor our cost structure in response to market
conditions and intend to pursue additional cost savings where possible. Further,
a significant portion of our revenue from our pressure pumping business had been
derived from Gulfport. On December 28, 2019, Gulfport filed a lawsuit alleging
our breach of our pressure pumping contract with Gulfport and seeking to
terminate the contract and recover damages for alleged overpayments, audit costs
and legal fees. Gulfport did not make the payments owed to us under this
contract for any periods subsequent to its alleged December 28, 2019 termination
date. Further, on November 13, 2020, Gulfport filed petitions for voluntary
relief under chapter 11 of the Bankruptcy Code. On September 21, 2021, we
reached a settlement with Gulfport under which all litigation relating to the
Stingray Pressure Pumping contract will be terminated, Stingray Pressure Pumping
will release all claims against Gulfport and its subsidiaries with respect to
Gulfport's bankruptcy proceedings and each of the parties will release all
claims they had against the others with respect to the litigation matters
discussed above. We have not been able to obtain long-term contracts with other
customers to replace our contract with Gulfport. See Note 18. Commitments and
Contingencies to our unaudited condensed consolidated financial statements
included elsewhere in this report for additional information.

Natural sand proppant industry

  In the natural sand proppant industry, demand growth for frac sand and other
proppants is primarily driven by advancements in oil and natural gas drilling
and well completion technology and techniques, such as horizontal drilling and
hydraulic fracturing, as well as overall industry activity growth.

  In 2018 and 2019, several new and existing suppliers completed planned
capacity additions of frac sand supply, particularly in the Permian Basin. The
industry expansion, coupled with increased capital discipline, budget exhaustion
and the impact on oil demand from the COVID-19 pandemic, caused the frac sand
market to become oversupplied, particularly in finer grades. With the frac sand
market oversupplied, pricing for all grades has fallen significantly from the
peaks experienced throughout 2018 and during the first half of 2019. This
oversupply resulted in several industry participants idling and closing high
cost mines in an attempt to restore the supply and demand balance and reduce the
number of industry participants. Nevertheless, demand for our sand declined
significantly in the second half of 2019 and throughout 2020 as a result of
completion activity falling due to lower oil demand and pricing as discussed
above, increased capital discipline by our customers, budget exhaustion and the
COVID-19 pandemic. Activity has rebounded modestly in 2021 as we have seen an
increase in the volume of sand sold, however the prices of frac sand have
continued to be depressed compared to prior levels. We cannot predict if and
when pricing and demand will recover sufficiently to return our natural sand
proppant services segment to profitability.

  Further, as a result of adverse market conditions, production at our Muskie
sand facility in Pierce County, Wisconsin has been temporarily idled since
September 2018. Our contracted capacity has provided a baseline of business,
which has kept our Taylor and Piranha plants operating and our costs low.

  A portion of our revenue from our natural sand proppant business had been
derived from Gulfport pursuant to a contract. Gulfport did not made the payments
owed to us under this contract for any periods subsequent to May 2020. In
September 2020, we filed a lawsuit seeking to recover delinquent payments owed
to us under this contract. On November 13, 2020, Gulfport filed petitions for
voluntary relief under chapter 11 of the Bankruptcy Code. On September 21, 2021,
the Company and Gulfport reached a settlement under which all litigation
relating to the Muskie contract will be terminated and a portion of Muskie's
contract claim against Gulfport will be allowed under Gulfport's plan of
reorganization. The settlement remains subject to the final approval by the
bankruptcy court overseeing Gulfport's bankruptcy. See Note 18. Commitments and
Contingencies to our unaudited condensed consolidated financial statements
included elsewhere in this report for additional information.



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Results of operations

Three Months Ended September 30, 2021 Compared to Three Months Ended September
30, 2020
                                                                            Three Months Ended
                                                              September 30, 2021           September 30, 2020
                                                                              (in thousands)
Revenue:
Infrastructure services                                     $            23,489          $            43,582
Well completion services                                                 22,732                       15,765
Natural sand proppant services                                            8,419                        6,031
Drilling services                                                         1,207                        1,204
Other services                                                            6,153                        4,677
Eliminations                                                             (4,515)                        (725)
Total revenue                                                            57,485                       70,534

Cost of turnover: Infrastructure services (excluding depreciation and amortization of $ 4,933 and $ 7,294, respectively, for the three months ended September 30, 2021 and 2020)

                          20,595                       29,045

Well completion services (excluding depreciation and amortization of $ 6,538 and $ 7,189, respectively, for the three months ended September 30, 2021 and 2020)

                          21,329                        6,959

Natural sand proppant services (excluding damping, depletion and accretion of $ 2,533 and $ 2,700, respectively, for the three months ended September 30, 2021 and 2020)

                   9,368                        4,154

Drilling services (excluding depreciation and amortization of $ 1,942 and $ 2,294, respectively, for the three months ended September 30, 2021 and 2020)

                           1,566                        1,955

Other services (excluding depreciation and amortization of $ 3,202 and $ 3,655, respectively, for the three months ended September 30, 2021 and 2020)

5,241                        4,541
Eliminations                                                             (4,515)                        (725)
Total cost of revenue                                                    53,584                       45,929
Selling, general and administrative expenses                             41,866                       12,180
Depreciation, depletion, amortization and accretion                      19,148                       23,132

Impairment of other long-lived assets                                       547                            -
Operating loss                                                          (57,660)                     (10,707)
Interest expense, net                                                    (1,484)                      (1,098)
Other income (expense), net                                              11,056                        9,042
Loss before income taxes                                                (48,088)                      (2,763)
Benefit for income taxes                                                 (7,187)                      (6,193)
Net (loss) income                                           $           (40,901)         $             3,430



  Revenue. Revenue for the three months ended September 30, 2021 decreased $13.0
million, or 18%, to $57.5 million from $70.5 million for the three months ended
September 30, 2020. The decrease in total revenue is primarily attributable to a
decline in infrastructure services revenue of $20.1 million during the three
months ended September 30, 2021, partially offset by an increase in well
completion services revenue of $6.9 million. Revenue derived from related
parties was a nominal amount for the three months ended September 30, 2021 and
$10.4 million, or 15% of our total revenue, for the three months ended
September 30, 2020. Substantially all of our related party revenue was derived
from Gulfport under pressure pumping and sand contracts. For additional
information regarding the status of these contracts and the litigation related
to the pressure pumping contract, see "Industry Overview - Oil and Natural Gas
Industry," "Industry Overview - Natural Sand Proppant Industry" and Note 18.
Commitments and Contingencies to our unaudited condensed consolidated financial
statements included elsewhere in
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this report. Following its exit from bankruptcy, Gulfport is no longer a related party. The turnover by operational division is as follows:

  Infrastructure Services. Infrastructure services division revenue decreased
$20.1 million, or 46%, to $23.5 million for the three months ended September 30,
2021 from $43.6 million for the three months ended September 30, 2020 primarily
due to a decline in storm activity during the three months ended September 30,
2021 compared to the three months ended September 30, 2020, resulting in a $20.4
million decline in storm restoration revenue.

  Well Completion Services. Well completion services division revenue increased
$6.9 million, or 44%, to $22.7 million for the three months ended September 30,
2021 from $15.8 million for the three months ended September 30, 2020. Revenue
derived from related parties was $8.4 million, or 53% of total well completion
revenue, for the three months ended September 30, 2020. We did not recognize any
related party revenue for the three months ended September 30, 2021. All of our
well completion related party revenue for the three months ended September 30,
2020 was derived from Gulfport under a pressure pumping contract. For additional
information regarding the status of this contract and the litigation related to
this contract, see "Industry Overview - Oil and Natural Gas Industry" above and
Note 18 to our unaudited condensed consolidated financial statements included
elsewhere in this report.

  The increase in our well completion services revenue was primarily driven by a
53% increase in the number of stages completed from 449 for the three months
ended September 30, 2020 to 688 for the three months ended September 30, 2021 as
well as an increase in sand and chemical materials revenue. An average of 1.2 of
our fleets were active for the three months ended September 30, 2021 as compared
to an average of 0.9 fleets for the three months ended September 30, 2020.

  Natural Sand Proppant Services. Natural sand proppant services division
revenue increased $2.4 million, or 40%, to $8.4 million for the three months
ended September 30, 2021, from $6.0 million for the three months ended
September 30, 2020. Revenue derived from related parties was $1.9 million,
or 32% of total sand revenue, for the three months ended September 30, 2020. We
did not recognize any related party revenue for the three months ended
September 30, 2021. All of our related party revenue for the three months ended
September 30, 2020 was derived from Gulfport under a sand supply contract. For
additional information regarding the status of this contract and the pending
litigation related to this contract, see "Industry Overview - Natural Sand
Proppant Industry" above and Note 18 to our unaudited condensed consolidated
financial statements included elsewhere in this report. Inter-segment revenue,
consisting primarily of revenue derived from our pressure pumping segment, was
$4.0 million, or 47% of total sand revenue, for the three months ended
September 30, 2021. The natural sand proppant services division did not have
inter-segment revenues for the three months ended September 30, 2020.

  The increase in our natural sand proppant services revenue was primarily
attributable to a 365% increase in tons of sand sold from 67,715 tons for the
three months ended September 30, 2020 to 315,066 tons for the three months ended
September 30, 2021, and a 6% increase in the average price per ton of sand sold
from $15.59 per ton during the three months ended September 30, 2020 to $16.58
per ton during the three months ended September 30, 2021. These increases were
partially offset by a decrease in shortfall revenue by $4.9 million.

Drilling services. Revenues for the Drilling Services division remained stable at $ 1.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. In response to market conditions, we have temporarily closed our contract drilling operations from
December 2019 and our towing operations from april 2020.

  Other Services. Other services revenue, consisting of revenue derived from our
aviation, coil tubing, pressure control, equipment rental, full service
transportation, crude oil hauling, remote accommodation, equipment manufacturing
and infrastructure engineering and design businesses, increased $1.5 million, or
32%, to $6.2 million for the three months ended September 30, 2021 from $4.7
million for the three months ended September 30, 2020. Inter-segment revenue,
consisting primarily of revenue derived from our well completion segment, was
$0.5 million and $0.7 million for the three months ended September 30, 2021 and
2020, respectively.

The increase in our other services revenue was primarily due to an increase in
utilization for our equipment rental business. An average of 162 pieces of
equipment was rented to customers during the three months ended September 30,
2021, an increase of 131% from an average of 70 pieces of equipment rented to
customers during the three months ended September 30, 2020. Due to market
conditions, we have temporarily shut down our coil tubing and full service
transportation operations beginning in July 2020 and our crude oil hauling
business beginning in July 2021.
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Cost of Revenue (exclusive of depreciation, depletion, amortization and
accretion expense). Cost of revenue, exclusive of depreciation, depletion,
amortization and accretion expense, increased $7.7 million from $45.9 million,
or 65% of total revenue, for the three months ended September 30, 2020 to $53.6
million, or 93% of total revenue, for the three months ended September 30, 2021.
The increase is primarily due to an increase in cost of revenue for the well
completion services division, partially offset by a decrease in cost of revenue
for the infrastructure services division. Cost of revenue by operating division
was as follows:

  Infrastructure Services. Infrastructure services division cost of revenue,
exclusive of depreciation and amortization expense, decreased $8.4 million, or
29%, to $20.6 million for the three months ended September 30, 2021 from $29.0
million for the three months ended September 30, 2020, primarily due to a
decline in activity. As a percentage of revenue, cost of revenue, exclusive of
depreciation and amortization expense of $4.9 million and $7.3 million for the
three months ended September 30, 2021 and 2020, respectively, was 88% and 67%
for the three months ended September 30, 2021 and 2020, respectively. The
increase as a percentage of revenue is primarily due to increases in labor
related costs and insurance costs as a percentage of revenue.

  Well Completion Services. Well completion services division cost of revenue,
exclusive of depreciation and amortization expense, increased $14.3 million, or
204%, to $21.3 million for the three months ended September 30, 2021 from $7.0
million for the three months ended September 30, 2020, primarily due to an
increase in costs of goods sold as a result of providing sand and chemicals with
our service package to customers during the three months ended September 30,
2021. As a percentage of revenue, our well completion services division cost of
revenue, exclusive of depreciation and amortization expense of $6.5 million and
$7.2 million for the three months ended September 30, 2021 and 2020,
respectively, was 94% and 44% for the three months ended September 30, 2021 and
2020, respectively. The increase as a percentage of revenue is primarily due to
the recognition of standby revenue during the three months ended September 30,
2020, of which there was a lower percentage of costs recognized compared to the
three months ended September 30, 2021. Additionally, during the three months
ended September 30, 2021, we provided sand and chemicals with our service
package to customers, resulting in higher cost of goods sold as a percentage of
revenue for this period in comparison to the three months ended September 30,
2020.

  Natural Sand Proppant Services. Natural sand proppant services division cost
of revenue, exclusive of depreciation, depletion and accretion expense,
increased $5.2 million, or 124%, to $9.4 million for the three months ended
September 30, 2021 from $4.2 million for the three months ended September 30,
2020. As a percentage of revenue, cost of revenue, exclusive of depreciation,
depletion and accretion expense of $2.5 million and $2.7 million for the three
months ended September 30, 2021 and 2020, respectively, was 112% and 70% for the
three months ended September 30, 2021 and 2020, respectively. The increase is
primarily due to the recognition of shortfall revenue during the three months
ended September 30, 2020, for which there are no associated costs, compared to
the three months ended September 30, 2021.

Drilling Services. Drilling services division cost of revenue, exclusive of
depreciation and amortization expense, decreased $0.4 million, or 20%, to $1.6
million for the three months ended September 30, 2021 from $2.0 million for the
three months ended September 30, 2020. As a percentage of revenue, our drilling
services division cost of revenue, exclusive of depreciation and amortization
expense of $1.9 million and $2.3 million for the three months ended
September 30, 2021 and 2020, respectively, was 133% and 167% for the three
months ended September 30, 2021 and 2020, respectively.

  Other Services. Other services division cost of revenue, exclusive of
depreciation and amortization expense, increased $0.7 million, or 16%, to $5.2
million for the three months ended September 30, 2021 from $4.5 million for the
three months ended September 30, 2020, primarily due to increased activity. As a
percentage of revenue, cost of revenue, exclusive of depreciation and
amortization expense of $3.2 million and $3.7 million for the three months ended
September 30, 2021 and 2020, respectively, was 84% and 96% for the three months
ended September 30, 2021 and 2020, respectively. The decrease is primarily due
to a decline in labor costs as a percentage of revenue.

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Selling, general and administrative expenses. Selling, general and administrative expenses, or SG&A, represent the costs associated with managing and supporting our operations. The table below shows the breakdown of general and administrative expenses for the periods indicated (in thousands):

                                            Three Months Ended
                               September 30, 2021       September 30, 2020
Cash expenses:
Compensation and benefits     $             3,353      $             3,449
Professional services                       4,571                    5,651
Other(a)                                    2,252                    2,163
Total cash SG&A expense                    10,176                   11,263
Non-cash expenses:
Bad debt provision(b)                      31,449                      626

Stock based compensation                      241                      291
Total non-cash SG&A expense                31,690                      917
Total SG&A expense            $            41,866      $            12,180


a.  Includes travel-related costs, information technology expenses, rent,
utilities and other general and administrative-related costs.
b.  The bad debt provision for the three months ended September 30, 2021
includes $31.2 million related to the Stingray Pressure Pumping and Muskie
contracts with Gulfport. See "Industry Overview - Oil and Natural Gas Industry,"
"Industry Overview - Natural Sand Proppant Industry" and Note 18. Commitments
and Contingencies to our unaudited condensed consolidated financial statements
included elsewhere in this report.

  Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion,
amortization and accretion decreased $4.0 million, or 17%, to $19.1 million for
the three months ended September 30, 2021 from $23.1 million for the three
months ended September 30, 2020. The decrease is primarily attributable to a
decline in property and equipment depreciation expense.

Impairment of long-lived assets. During the three months ended September 30, 2021, we began the temporary shutdown of our crude oil transportation operations, resulting in a depreciation of the trade names of $ 0.5 million.

  Operating Loss. We reported an operating loss of $57.7 million for the three
months ended September 30, 2021 compared to an operating loss of $10.7 million
for the three months ended September 30, 2020. The increase in operating loss is
primarily due to the recognition of $31.4 million in bad debt expense
attributable to our contracts with Gulfport, as well as an increase in costs of
revenue as a percentage of revenue.

  Interest Expense, Net. Interest expense, net increased $0.4 million, or 36%,
to $1.5 million for the three months ended September 30, 2021 from $1.1 million
for the three months ended September 30, 2020. The increase is primarily due to
an increase in average borrowings outstanding under our revolving credit
facility.

  Other Income (Expense), Net. Other income increased $2.0 million during the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020 primarily due to an increase in interest on trade accounts
receivable.

  Income Taxes. We recorded an income tax benefit of $7.2 million on pre-tax
losses of $48.1 million for the three months ended September 30, 2021 compared
to an income tax expense of $6.2 million on pre-tax losses of $2.8 million for
the three months ended September 30, 2020. During the three months ended
September 30, 2020, we recorded a benefit of $8 million related to provisions in
the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
                                                                            Nine Months Ended
                                                             September 30,

2021 September 30, 2020

                                                                             (in thousands)
Revenue:
Infrastructure services                                     $           69,965          $           99,307
Well completion services                                                63,059                      75,629
Natural sand proppant services                                          24,011                      22,516
Drilling services                                                        3,288                       7,182
Other services                                                          17,365                      26,629
Eliminations                                                            (5,958)                     (3,237)
Total revenue                                                          171,730                     228,026

Cost of turnover: Infrastructure services (excluding depreciation and amortization of $ 17,499 and $ 22,416, respectively, for the nine months ended September 30, 2021 and 2020)

                          67,029                      80,977

Well completion services (excluding depreciation and amortization of $ 19,668 and $ 23,346, respectively, for the nine months ended September 30, 2021 and 2020)

                          47,788                      41,864

Natural sand proppant services (excluding damping, depletion and accretion of $ 7,059 and $ 7,380, respectively, for the nine months ended September 30, 2021 and 2020)

                  22,631                      21,845

Drilling services (excluding amortization of $ 6,185 and
$ 7,814, respectively, for the nine months ended September 30, 2021 and 2020)

                                                       4,739                       9,743

Other services (excluding depreciation and amortization of $ 10,148 and $ 12,174, respectively, for the nine months ended September 30, 2021 and 2020)

15,810                      25,396
Eliminations                                                            (5,958)                     (3,237)
Total cost of revenue                                                  152,039                     176,588
Selling, general and administrative expenses                            74,697                      36,677
Depreciation, depletion, amortization and accretion                     60,559                      73,130
Impairment of goodwill                                                       -                      54,973
Impairment of long-lived assets                                            547                      12,897
Operating loss                                                        (116,112)                   (126,239)
Interest expense, net                                                   (3,878)                     (4,207)
Other income, net                                                        5,489                      25,721
Loss before income taxes                                              (114,501)                   (104,725)
Benefit for income taxes                                               (26,370)                     (8,979)
Net loss                                                    $          (88,131)         $          (95,746)



  Revenue. Revenue for the nine months ended September 30, 2021 decreased $56.3
million, or 25%, to $171.7 million from $228.0 million for the nine months ended
September 30, 2020. The decrease in total revenue is primarily attributable to
declines in revenue across most business lines. Revenue derived from related
parties was $17.8 million, or 10% of our total revenue, for the nine months
ended September 30, 2021 and $40.9 million, or 18% of our total revenue, for the
nine months ended September 30, 2020. Substantially all of our related party
revenue was derived from Gulfport under pressure pumping and sand contracts. For
additional information regarding the status of these contracts and the pending
litigation related to the pressure pumping contract, see "Industry Overview -
Oil and Natural Gas Industry," "Industry Overview - Natural Sand Proppant
Industry" and Note 18. Commitments and Contingencies to our unaudited condensed
consolidated financial statements included elsewhere in this report. Revenue by
operating division was as follows:

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Infrastructure Services. Infrastructure services division revenue decreased
$29.3 million, or 30%, to $70.0 million for the nine months ended September 30,
2021 from $99.3 million for the nine months ended September 30, 2020 primarily
due to crew departures as a result of certain changes in management.
Additionally, there was less storm activity during the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020,
resulting in an $11.5 million decline in storm restoration revenue.

Well Completion Services. Well completion services division revenue decreased
$12.5 million, or 17%, to $63.1 million for the nine months ended September 30,
2021 from $75.6 million for the nine months ended September 30, 2020. Revenue
derived from related parties was $14.8 million, or 23% of total well completion,
for the nine months ended September 30, 2021 compared to $35.0 million, or 46%
of total well completion revenue, for the nine months ended September 30, 2020.
All of our well completion related party revenue was derived from Gulfport under
a pressure pumping contract. On November 13, 2020, Gulfport filed petitions for
voluntary relief under chapter 11 of the Bankruptcy Code. During the nine months
ended September 30, 2021, we recognized revenue totaling $15 million related to
the modification of our pressure pumping contract with Gulfport. For additional
information regarding the status of this contract and the pending litigation
related to this contract, see "Industry Overview - Oil and Natural Gas Industry"
above and notes 2 and 3 to our unaudited condensed consolidated financial
statements included elsewhere in this report. Inter-segment revenues, consisting
primarily of revenue derived from our sand segment, was $0.1 million and $1.1
million for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in our well completion services revenue was primarily driven by a
declines in pressure pumping services utilization and pricing. The number of
stages completed decreased 36% to 1,653 for the nine months ended September 30,
2021 from 2,589 for the nine months ended September 30, 2020. An average of 1.0
of our six fleets were active for the nine months ended September 30, 2021 as
compared to an average of 1.8 fleets for the nine months ended September 30,
2020.

Natural Sand Proppant Services. Natural sand proppant services division revenue
increased $1.5 million, or 7%, to $24.0 million for the nine months ended
September 30, 2021, from $22.5 million for the nine months ended September 30,
2020. Revenue derived from related parties was $2.1 million, or 9% of total sand
revenue, for the nine months ended September 30, 2021 and $6.0 million,
or 27% of total sand revenue, for the nine months ended September 30, 2020. All
of our related party revenue was derived from Gulfport under a sand supply
contract. On November 13, 2020, Gulfport filed petitions for voluntary relief
under chapter 11 of the Bankruptcy Code. During the three months ended March 31,
2021, we recognized revenue totaling $2 million related to the modification of
our sand supply contract with Gulfport. For additional information regarding the
status of this contract and the pending litigation related to this contract, see
"Industry Overview - Natural Sand Proppant Industry" above and notes 2 and 3 to
our unaudited condensed consolidated financial statements included elsewhere in
this report. Inter-segment revenue, consisting primarily of revenue derived from
our pressure pumping segment, was $4.0 million, or 17% of total sand revenue,
for the nine months ended September 30, 2021. The natural sand proppant services
division did not have inter-segment revenues for the nine months ended
September 30, 2020.

The increase in our natural sand proppant services revenue was primarily
attributable to a 90% increase in tons of sand sold from
approximately 389,436 tons for the nine months ended September 30, 2020 to
approximately 741,458 tons for the nine months ended September 30, 2021 and a
14% increase in the average sales price per ton of sand sold from $14.32 per ton
during the nine months ended September 30, 2020 to $16.37 per ton during the
nine months ended September 30, 2021. This increase was partially offset by an
$8.7 million decline in shortfall revenue for the nine months ended
September 30, 2021.

Drilling Services. Drilling services division revenue decreased $3.9 million, or
54%, to $3.3 million for the nine months ended September 30, 2021 from $7.2
million for the nine months ended September 30, 2020. The decline in our
drilling services revenue was primarily attributable to declines in directional
drilling and rig hauling revenue. In response to market conditions, we have
temporarily shut down our contract land drilling operations beginning in
December 2019 and our rig hauling operations beginning in April 2020.

Other Services. Other services revenue, consisting of revenue derived from our
coil tubing, equipment rental, full service transportation, crude oil hauling,
remote accommodation, equipment manufacturing and infrastructure engineering
businesses, decreased $9.2 million, or 35%, to $17.4 million for the nine months
ended September 30, 2021 from $26.6 million for the nine months ended
September 30, 2020. Inter-segment revenue, consisting primarily of revenue
derived from our infrastructure and well completion segments, totaled $1.8
million and $2.0 million for the nine months ended September 30, 2021 and 2020,
respectively.

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The decrease in our other services revenue was primarily due to a decline in
utilization for our equipment rental business. An average of 117 pieces of
equipment was rented to customers during the nine months ended September 30,
2021, a decrease of 52% from an average of 245 pieces of equipment rented to
customers during the nine months ended September 30, 2020. Additionally,
utilization for remote accommodations business declined. Due to market
conditions, we have temporarily shut down our coil tubing and full service
transportation operations beginning in July 2020. These decreases were partially
offset by increases in revenue from our infrastructure engineering business.

  Cost of Revenue (exclusive of depreciation, depletion, amortization and
accretion expense). Cost of revenue, exclusive of depreciation, depletion,
amortization and accretion expense, decreased $24.6 million from $176.6 million,
or 77% of total revenue, for the nine months ended September 30, 2020 to $152.0
million, or 89% of total revenue, for the nine months ended September 30, 2021.
The decrease in cost of revenue was primarily due to a decline in activity for
our infrastructure services and other services divisions. Cost of revenue by
operating division was as follows:

Infrastructure Services. Infrastructure services division cost of revenue,
exclusive of depreciation and amortization expense, decreased $14.0 million, or
17%, to $67.0 million for the nine months ended September 30, 2021 from $81.0
million for the nine months ended September 30, 2020, primarily due to a decline
in activity. As a percentage of revenue, cost of revenue, exclusive of
depreciation and amortization expense of $17.5 million and $22.4 million,
respectively, for the nine months ended September 30, 2021 and 2020 was 96%
and 82% for the nine months ended September 30, 2021 and 2020, respectively. The
increase as a percentage of revenue is primarily due to increased labor costs as
a percentage of revenue.

Well Completion Services. Well completion services division cost of revenue,
exclusive of depreciation and amortization expense, increased $5.9 million, or
14%, to $47.8 million for the nine months ended September 30, 2021 from $41.9
million for the nine months ended September 30, 2020, primarily due to an
increase in cost of goods sold as a result of providing sand and chemicals with
our service package to customers during the nine months ended September 30,
2021. As a percentage of revenue, our well completion services division cost of
revenue, exclusive of depreciation and amortization expense of $19.7 million and
$23.3 million for the nine months ended September 30, 2021 and 2020,
respectively, was 76% and 55% for the nine months ended September 30, 2021 and
2020, respectively. The increase as a percentage of revenue is primarily due to
the recognition of more pressure pumping services standby revenue during the
nine months ended September 30, 2020, of which there was a lower percentage of
costs recognized compared to the nine months ended September 30, 2021.
Additionally, during the nine months ended September 30, 2021, we provided sand
and chemicals with our service package to customers, resulting in higher cost of
goods sold as a percentage of revenue for this period in comparison to the nine
months ended September 30, 2020.

Natural Sand Proppant Services. Natural sand proppant services division cost of
revenue, exclusive of depreciation, depletion and accretion expense, increased
$0.8 million, or 4%, from $21.8 million for the nine months ended September 30,
2020 to $22.6 million for the nine months ended September 30, 2021. As a
percentage of revenue, cost of revenue, exclusive of depreciation, depletion and
accretion expense of $7.1 million and $7.4 million for each of the nine months
ended September 30, 2021 and 2020, respectively, was 94% and 97% for the nine
months ended September 30, 2021 and 2020, respectively. The decrease in cost as
a percentage of revenue is primarily due to a 14% increase is average sales
price.

Drilling Services. Drilling services division cost of revenue, exclusive of
depreciation and amortization expense, decreased $5.0 million, or 52%, from $9.7
million for the nine months ended September 30, 2020 to $4.7 million for the
nine months ended September 30, 2021, as a result of reduced activity. In
response to market conditions, we have temporarily shut down our contract land
drilling operations beginning in December 2019 and our rig hauling operations
beginning in April 2020. As a percentage of revenue, our drilling services
division cost of revenue, exclusive of depreciation and amortization expense of
$6.2 million and $7.8 million, for the nine months ended September 30, 2021 and
2020, respectively, was 142% and 135% for the nine months ended September 30,
2021 and 2020, respectively. The increase as a percentage of revenue is
primarily due to a decline in utilization.

Other Services. Other services division cost of revenue, exclusive of
depreciation and amortization expense, decreased $9.6 million, or 38%, from
$25.4 million for the nine months ended September 30, 2020 to $15.8 million for
the nine months ended September 30, 2021, primarily due to a decline in costs
for our equipment rental, coil tubing and full service transportation businesses
as a result of reduced activity. Due to market conditions, we have temporarily
shut down our coil tubing and full service transportation operations beginning
in July 2020. These declines were partially offset by an increase in costs for
our infrastructure engineering business. As a percentage of revenue, cost of
revenue, exclusive of depreciation and amortization expense of $10.1 million and
$12.2 million for the nine
                                       42
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months ended September 30, 2021 and 2020, respectively, was 91% and 95% for the nine months ended September 30, 2021 and 2020, respectively.

Selling, general and administrative expenses. Selling, general and administrative expenses represent the costs associated with managing and supporting our operations. The table below shows the breakdown of general and administrative expenses for the periods indicated (in thousands):

                                             Nine Months Ended
                                September 30, 2021      September 30, 2020
Cash expenses:
Compensation and benefits      $           11,379      $            11,138
Professional services                      13,783                   15,335
Other(a)                                    7,058                    6,572
Total cash SG&A expenses                   32,220                   33,045
Non-cash expenses:
Bad debt provision                         41,650                    2,306

Stock based compensation                      827                    1,326
Total non-cash SG&A expenses               42,477                    3,632
Total SG&A expenses            $           74,697      $            36,677


a.  Includes travel-related costs, IT expenses, rent, utilities and other
general and administrative-related costs.
b. The bad debt provision for the nine months ended September 30, 2021 includes
$41.2 million related to the Stingray Pressure Pumping and Muskie contracts with
Gulfport. See "Industry Overview - Oil and Natural Gas Industry," "Industry
Overview - Natural Sand Proppant Industry" and Note 18. Commitments and
Contingencies to our unaudited condensed consolidated financial statements
included elsewhere in this report.

  Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion,
amortization and accretion decreased $12.5 million to $60.6 million for the nine
months ended September 30, 2021 from $73.1 million for the nine months ended
September 30, 2020. The decrease is primarily attributable to a decline in
property and equipment depreciation expense.

  Impairment of Goodwill. As a result of market conditions, we performed an
impairment assessment of our goodwill as of March 31, 2020. We determined that
the carrying value of goodwill for certain of our entities exceeded their fair
values, resulting in impairment expense of $55.0 million.

  Impairment of Other Long-Lived Assets. During the three months ended
September 30, 2021, we temporarily shut down our crude oil hauling operations,
resulting in impairment of trade names of $0.5 million. During the nine months
ended September 30, 2020, we recorded impairment of property and equipment,
including water transfer, crude oil hauling, coil tubing and equipment rental
assets, totaling $12.9 million.

  Operating Loss. We reported an operating loss of $116.1 million for the nine
months ended September 30, 2021 compared to an operating loss of $126.2
million for the nine months ended September 30, 2020. The reduced operating loss
was primarily due to the recognition of $67.9 million in impairment expense
during the nine months ended September 30, 2020, partially offset by a $39.3
million increase in bad debt expense.

Interest charges, net. Interest expense, net reduced $ 0.3 million during the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020 mainly due to a decrease in the average outstanding loans.

  Other Income (Expense), Net. We recognized other income, net of $5.5 million
during the nine months ended September 30, 2021 compared to $25.7 million for
the nine months ended September 30, 2020. During the nine months ended
September 30, 2021 we recognized expense of $25.0 million related to an
agreement to settle a legal matter. We recognized interest on trade accounts
receivable of $25.1 million for the nine months ended September 30, 2021
compared to $26.1 million for nine months ended September 30, 2020.

  Income Taxes. We recorded an income tax benefit of $26.4 million on pre-tax
losses of $114.5 million for the nine months ended September 30, 2021 compared
to an income tax benefit of $9.0 million on pre-tax loss of $104.7 million for
the nine months ended September 30, 2020. Our effective tax rate was 23% for the
nine months ended September 30, 2021 compared to 9% for the nine months ended
September 30, 2020. The increase compared to the nine months ended September 30,
2020 was partially due to the mix of earnings between the United States and
Puerto Rico as well as changes in
                                       43
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the valuation allowance. Additionally, during the nine months ended
September 30, 2020, we recorded a benefit of $2 million related to provisions in
the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was
enacted on March 27, 2020. Our effective tax rate was also impacted by permanent
differences such as goodwill impairment for the nine months ended September 30,
2020.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by
management and external users of our financial statements, such as industry
analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as
net (loss) income before depreciation, depletion, amortization and accretion,
impairment of goodwill, impairment of other long-lived assets, public offering
costs, stock based compensation, interest expense, net, other (income) expense,
net (which is comprised of the (gain) or loss on disposal of long-lived assets
and interest on trade accounts receivable) and (benefit) provision for income
taxes, further adjusted to add back interest on trade accounts receivable. We
exclude the items listed above from net (loss) income in arriving at Adjusted
EBITDA because these amounts can vary substantially from company to company
within our industries depending upon accounting methods and book values of
assets, capital structures and the method by which the assets were acquired.
Adjusted EBITDA should not be considered as an alternative to, or more
meaningful than, net (loss) income or cash flows from operating activities as
determined in accordance with GAAP or as an indicator of our operating
performance or liquidity. Certain items excluded from Adjusted EBITDA are
significant components in understanding and assessing a company's financial
performance, such as a company's cost of capital and tax structure, as well as
the historic costs of depreciable assets, none of which are components of
Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to
other similarly titled measures of other companies. We believe that Adjusted
EBITDA is a widely followed measure of operating performance and may also be
used by investors to measure our ability to meet debt service requirements.

The following tables provide a reconciliation of Adjusted EBITDA to the GAAP
financial measure of net income or (loss) for each of our operating segments for
the specified periods (in thousands).

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