U.S. WELL SERVICES, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes included within "Item 8. Financial Statements and
Supplementary Data." In addition to historical consolidated financial
information, the following discussion contains forward-looking statements that
reflect the Company's plans, estimates, or beliefs. Actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to these differences include those discussed below and
elsewhere in this Annual Report, including, without limitation, those described
in the sections titled "Cautionary Note Regarding Forward Looking Statements"
and Part I, Item 1A "Risk Factors" of this Annual Report.

Overview


We provide pressure pumping services in oil and natural gas basins. Our Clean
Fleet® electric fleets are among the most reliable and highest performing fleets
in the industry, with the capability to meet the most demanding pressure and
pump rate requirements. In May 2021, we announced the next generation of our
Clean Fleet® technology with the unveiling of our newly designed Nyx Clean
Fleet®. We anticipate the first Nyx Clean Fleet® to be delivered in the second
quarter of 2022.

We operate in many of the active shale and unconventional oil and natural gas
basins of the United States and our clients benefit from the performance and
reliability of our equipment and personnel. Specifically, all our fleets operate
on a 24-hour basis and have the ability to withstand high utilization rates,
which results in more efficient operations. Our senior management team has
extensive industry experience providing pressure pumping services to exploration
and production ("E&P") companies across North America. Since our announcement in
May 2021 of our commitment to becoming an all-electric pressure pumping services
provider, we have sold most of our legacy, diesel-powered pressure pumping
equipment. We have retained some of our legacy, diesel-powered pressure pumping
equipment for use during our transition to support our electric fleets and
bridge the time gap between our customers' current service needs and the
deployment of our newbuild Nyx Clean Fleets®. Upon delivery, our Nyx Clean
Fleets® are intended to replace any conventional fleet in operation.

How the Company Generates Revenue


We generate revenue by providing pressure pumping services to our customers. We
own and operate a fleet of pressure pumping equipment to perform these services.
We seek to enter into contractual arrangements with our customers or fleet
dedications, which establish pricing terms for a fixed duration. Under the terms
of these agreements, we charge our customers base monthly rates, adjusted for
activity and provision of materials such as proppant and chemicals, or we charge
a variable rate based on the nature of the job including pumping time, well
pressure, proppant and chemical volumes and transportation.

Our Costs of Conducting Business


The principal costs involved in conducting our pressure pumping services are
labor, maintenance, materials, and transportation costs. A large portion of our
costs are variable, based on the number and requirements of pressure pumping
jobs. We manage our fixed costs, other than depreciation and amortization, based
on factors including industry conditions and the expected demand for our
services.

Materials include the cost of proppant delivered to the basin of operations,
chemicals, and other consumables used in our operations. These costs vary based
on the quantity and type of proppant and chemicals utilized when providing
pressure pumping services. Transportation represents the costs to transport
materials and equipment from receipt points to customer locations. Labor costs
include payroll and benefits related to our field crews and other employees, as
well as severance costs. Most of our employees are paid on an hourly basis.
During the year ended December 31, 2020, our labor cost included approximately
$2.3 million of severance expense. There was no severance expense incurred
during the year ended December 31, 2021. Maintenance costs include preventative
and other repair costs that do not require the replacement of major components
of our fleets. Maintenance and repair costs are expensed as incurred.

The following table presents our cost of services for the periods indicated (in
thousands):

                     Year Ended December 31,
                       2021             2020
Materials          $     26,969       $  18,838
Transportation           15,785          11,883
Labor                    80,270          71,395
Maintenance              45,510          43,876
Other (1)                52,830          41,811
Cost of services   $    221,364       $ 187,803


(1)

Other consists of fuel, lubes, equipment rentals, travel and lodging costs for
our crews, site safety costs and other costs incurred in performing our
operating activities.

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Significant Trends


Since our announcement in May 2021 of our commitment to becoming an all-electric
pressure pumping services provider, we have sold most of our legacy,
diesel-powered pressure pumping equipment. The proceeds received from these
sales were used to reduce the outstanding principal balance of our Term A Loan
and Term B Loan (collectively the "Senior Secured Term Loan"), which will result
in lower cash interest payments in 2022. Pursuant to the fifth term loan
amendment as described in "Note 11 - Debt" to our audited consolidated financial
statements included in "Item 8. Financial Statements and Supplementary Data" the
reduced debt balance as of December 31, 2021, resulted in no cash interest
payments for the first quarter of 2022. In addition, as of the filing date, our
outstanding principal balance on our Senior Secured Term Loan is less than
$103.0 million and therefore the interest rate from April 1, 2022 through
December 31, 2022 shall be payable as follows: (i) 1.0% per annum in cash and
(ii) 4.125% per annum shall be paid-in-kind by increasing the outstanding
principal amount of the Senior Secured Term Loan on each interest payment date.

Additionally, the corresponding reduction in the average number of active fleets
had significant impact on our results of operations beginning late in the third
quarter of 2021. Specifically, revenues and cost of services were lower in the
fourth quarter of 2021 compared to preceding quarters. We expect this short-term
trend to continue into the first half of 2022, until such time as we can
generate business activity from our new Nyx Clean Fleets®. We have retained some
of our legacy, diesel-powered pressure pumping equipment for use during our
transition to support our electric fleets and bridge the time gap between our
customers' current service needs and the deployment of our newbuild Nyx Clean
Fleets®. Upon delivery, our Nyx Clean Fleets® are intended to replace any
conventional fleet in operation. We anticipate the first Nyx Clean Fleet® to be
delivered in the second quarter of 2022. Delays in the delivery of our new
fleets could have an adverse impact on our results of operations.

During the fourth quarter of 2021, prompt month futures contracts for WTI crude
oil and Henry Hub natural gas averaged $77.17 per Bbl and $4.85 per MMBtu,
respectively, as compared to $42.67 per Bbl and $2.77 per MMBtu in the fourth
quarter of 2020. Although we benefited from the increased demand for pressure
pumping services as commodity prices recovered, supply chain disruptions
adversely impacted our business during the fourth quarter of 2021. As demand for
completions services rose sharply during the quarter, sand mines that produce
proppant for use in well completions faced difficulty in meeting demand and
customers also experienced difficulties in sourcing water for use in fracturing
operations, limiting actual completions activity. Additionally, the ongoing
shortage of truck drivers and onset of the Omicron variant of the COVID-19 virus
created tightness in the labor market, resulting in increased downtime in our
operations. During the fourth quarter of 2021, we experienced significant
non-productive time due to sand and water shortages.

Although these challenges have persisted into the first quarter of 2022, we
worked diligently to modify existing contracts with key customers to mitigate
the severity of the financial impact we may face from supply chain driven
non-productive time. Given the current outlook for commodity prices, we expect
completions activity to remain elevated and demand for electric pressure pumping
services to outstrip the available supply of electric fleets, which is expected
to create favorable pricing dynamics for us in 2022.
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Results of Operations

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
(in thousands, except percentages)

                                            Year Ended December 31,
                                   2021         % (1)       2020         % (1)     Variance         %
Revenues                        $  250,463     100.0%    $  244,007     100.0%    $    6,456       2.6%
Costs and expenses:
Cost of services (excluding
depreciation and
amortization)                      221,364      88.4%       187,803      77.0%        33,561      17.9%
Depreciation and amortization       35,444      14.2%        80,353      32.9%       (44,909 )   (55.9)%
Selling, general and
administrative expenses             32,578      13.0%        43,632      17.9%       (11,054 )   (25.3)%
Impairment of long-lived
assets                                   -      0.0%        147,543      60.5%      (147,543 )   (100.0)%
Litigation settlement               35,000      14.0%             -      0.0%         35,000      100.0%
(Gain) loss on disposal of
assets                             (21,896 )   (8.7)%         7,112      2.9%        (29,008 )   (407.9)%
Loss from operations               (52,027 )   (20.8)%     (222,436 )   (91.2)%      170,409      *  (2)
Interest expense, net              (33,370 )   (13.3)%      (25,226 )   (10.3)%       (8,144 )    32.3%
Change in fair value of
warrant liabilities                 (2,152 )   (0.9)%         6,342      2.6%         (8,494 )    *  (2)
Patent license sales                22,500      9.0%              -      0.0%         22,500      100.0%
Loss on extinguishment of
debt, net                           (6,142 )   (2.5)%             -      0.0%         (6,142 )    100.0%
Other income                           515      0.2%            108      0.0%            407      *  (2)
Income tax benefit                     (27 )   (0.0)%          (824 )   (0.3)%           797      *  (2)
Net loss                        $  (70,649 )   (28.2)%   $ (240,388 )   (98.5)%   $  169,739      *  (2)



(1)
As a percentage of revenues. Percentage totals or differences in the above table
may not equal the sum or difference of the components due to rounding.
(2)
Not meaningful.

Revenues. The increase in revenue was primarily attributable to an increase in
business activity due to economic recovery from the COVID-19 pandemic and
depressed oil prices in the prior period. During the fourth quarter of 2021,
however, we experienced significant non-productive time driven by supply chain
constraints limiting the availability of sand and water, which resulted in
substantial lost revenue. Our fleet count peaked in 2021 at 11 fleets, however
that number decreased throughout the year as we began to transition to an
all-electric pressure pumping service provider. We exited the year with five
electric fleets. Our average active fleet count during the year increased to 8
fleets compared to 6 fleets in the prior comparable period.

Cost of services, excluding depreciation and amortization. The increase in cost
of services, excluding depreciation and amortization, was attributable to the
increase in business activity due to economic recovery from the COVID-19
pandemic and depressed oil prices in the prior period. During the second half of
2021, we experienced elevated costs for labor as well as other costs associated
with procuring third-party power generation services as we transitioned away
from owning power generation assets.

Depreciation and amortization. The decrease in depreciation and amortization was
primarily due to the lower cost basis of depreciating long-lived assets because
of impairment losses recorded in the first quarter of 2020. Additionally,
depreciation and amortization decreased as we have sold most of our
diesel-powered pressure pumping equipment.

Selling, general and administrative expenses. The decrease in selling, general,
and administrative expenses was primarily attributable to our recording of a bad
debt reserve of $12.0 million during the year ended December 31, 2020, due to
the economic downturn, with no similar reserve recorded in the year ended
December 31, 2021, which was partly offset by increases in the year ended
December 31, 2021, associated with the reinstatement of salary levels due to
improved economic conditions as compared to the prior period. Additionally,
share-based compensation expense increased in the current period due to
share-based awards issued in the fourth quarter of 2020 and third quarter of
2021.

Impairment of long-lived assets. As a result of impairment tests that we
performed in the first quarter of 2020, we determined that the carrying value of
long-lived assets exceeded their fair value. Therefore, we recorded an
impairment charge of $147.5 million in the first quarter of 2020 to reduce the
carrying value of property and equipment and finite-lived intangible assets to
fair value. No such impairment charge was recorded during the year ended
December 31, 2021.

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Litigation settlement. The Company was named as a defendant in a lawsuit filed
in January 2019 by a vendor alleging that the Company breached a multi-year
contract. In June 2021, following entry of the final judgement by the court in
favor of the vendor, the Company entered into a settlement agreement to pay
$35.0 million in cash and to provide Smart Sand certain rights of first refusal
related to the supply of proppant for a period of two years. The cash portion of
the settlement agreement was paid in June 2021.

(Gain) loss on disposal of assets. Since our announcement in May 2021 of our
commitment to becoming an all-electric pressure pumping services provider, we
have sold most of our legacy, diesel-powered pressure pumping equipment. As a
result, we recognized a net gain on disposal of assets during the year ended
December 31, 2021 as compared to a loss on disposal of assets in the prior
period. Excluding these sales, the amount of gain or loss on disposal of assets
fluctuates period over period due to differences in the operating conditions of
our pressure pumping equipment, such as wellbore pressure and rate of barrels
pumped per minute, that impact the timing of disposals of our pump components.

Interest expense, net. The increase was primarily attributable to the interest
expense associated with the Convertible Senior Notes issued during 2021, offset
by the Senior Secured Term Loan interest rate being reduced to 0.0% beginning
April 1, 2020 through December 31, 2021. On December 31, 2021, the outstanding
principal amount of the Senior Secured Term Loan was less than $132.0 million
but greater than $110.0 million and therefore the interest rate will be 0.0% per
annum from January 1, 2022 through March 31, 2022. As of the filing date, our
outstanding principal balance on the Senior Secured Term Loan is less than
$103.0 million and therefore the interest rate from April 1, 2022 through
December 31, 2022 shall be payable as follows: (i) 1.0% per annum in cash and
(ii) 4.125% per annum shall be paid-in-kind by increasing the outstanding
principal amount of the Senior Secured Term Loan on each interest payment date.

Patent license sales. On June 24, 2021, the Company issued a Convertible Senior
Note in the principal amount of $22.5 million that was convertible into the
License Agreement. On June 29, 2021, the holder exercised its right to convert
the Convertible Senior Note in full and the Company entered into the License
Agreement, which provides the licensee a five-year option to purchase up to 20
licenses to build and operate electric fleets using the Company's patented Clean
Fleet® technology. Upon entry into the License Agreement, the Company sold three
licenses to build and operate three electric fleets, each valued at $7.5
million.

Loss on extinguishment of debt, net. During the year ended December 31, 2021, we
recognized a loss on extinguishment of debt of $16.2 million for the unamortized
debt discount and issuance costs and prepayment fees associated with the early
repayment of our Senior Secured Term Loan, offset by a gain on extinguishment of
debt of $10.1 million for the forgiveness of the PPP loan and accrued interest.

Non-GAAP Financial Measures


EBITDA and Adjusted EBITDA are non-GAAP financial measures and should not be
considered as a substitute for net income (loss), operating income (loss) or any
other performance measure derived in accordance with GAAP or as an alternative
to net cash provided by operating activities as a measure of our profitability
or liquidity. Our management believes EBITDA and Adjusted EBITDA are useful
because they allow external users of our consolidated financial statements, such
as industry analysts, investors, lenders and rating agencies, to more
effectively evaluate our operating performance, compare the results of our
operations from period to period and against our peers without regard to our
financing methods or capital structure and because it highlights trends in our
business that may not otherwise be apparent when relying solely on GAAP
measures. We present EBITDA and Adjusted EBITDA because we believe EBITDA and
Adjusted EBITDA are important supplemental measures of our performance that are
frequently used by others in evaluating companies in our industry. Because
EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net
income (loss) and may vary among companies, the EBITDA and Adjusted EBITDA we
present may not be comparable to similarly titled measures of other companies.
We define EBITDA as earnings before interest, income taxes, depreciation, and
amortization. We define Adjusted EBITDA as EBITDA excluding the following:
impairments, litigation settlement, (gain) loss on disposal of assets; change in
fair value of warrant liabilities; (gain) loss on extinguishment of debt;
share-based compensation; and other items that management believes to be
nonrecurring in nature.

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The following table presents a reconciliation of EBITDA and Adjusted EBITDA from
net loss, our most directly comparable financial measure calculated and
presented in accordance with GAAP (in thousands):

                                                         Year Ended December 31,
                                                        2021                 2020
Net loss                                          $        (70,649 )    $      (240,388 )
Interest expense, net                                       33,370               25,226
Income tax benefit                                             (27 )               (824 )
Depreciation and amortization                               35,444               80,353
EBITDA                                                      (1,862 )           (135,633 )
Impairment loss (1)                                              -              147,543
Litigation settlement (2)                                   35,000                    -
(Gain) loss on disposal of assets (3)                      (21,896 )        

7,112

Change in fair value of warrant liabilities (4)              2,152               (6,342 )
Loss on extinguishment of debt, net (5)                      6,142          

Share-based compensation (6)                                11,694          

10,056

Fleet laydown and reactivation costs (7)                     6,185          

3,033

Severance, business restructuring, and
market-driven costs (8)                                      1,826          

5,377

Transaction related costs (9)                                  149          

Non-recurring labor and mobilization costs (10)                393          

Sales and use tax audit expense (11)                           206                    -
Adjusted EBITDA                                   $         39,989      $        31,146



(1)
Represents non-cash impairment charge on long-lived assets.
(2)
Represents cash payment of a litigation settlement.
(3)
Represents net (gains) and losses on the disposal of property and equipment.
(4)
Represents a non-cash change in fair value of warrant liabilities.
(5)
Represents costs related to early debt repayments on the Senior Secured Term
Loan, offset by the gain associated with the forgiveness of the PPP Loan in the
third quarter of 2021.
(6)
Represents non-cash share-based compensation.
(7)
Represents costs related to the start-up, relocation and / or reactivation of
pressure pumping fleets, as well as costs associated with exiting the diesel
pressure pumping market.
(8)
Represents restructuring costs, severance related to reductions in force and
facility closures, and market driven-costs including COVID-19 testing for
employees.
(9)
Represents third-party professional fees and other costs related to strategic
and capital markets transactions.
(10)
Represents costs associated with mobilizing equipment and personnel for
terminated disaster relief-related power generation project.
(11)
Represents interest and penalties associated with Ohio sales and use tax audit
related to 2012 and 2013 tax years.


Liquidity and Capital Resources

Overview


Our primary sources of liquidity and capital resources have historically been
cash, cash flow generated from operating activities, proceeds from the issuance
of debt or equity and borrowings under our ABL Credit Facility. As of December
31, 2021, our total liquidity was $20.2 million, consisting of $9.1 million of
cash and restricted cash and $11.1 million of availability under our ABL Credit
Facility. As of March 15, 2022, our total liquidity was $68.0 million,
consisting of $58.5 million of cash and restricted cash and $9.5 million of
availability under our ABL Credit Facility.

Our short-term and long-term liquidity requirements consist primarily of capital
expenditures, payments of contractual obligations, including debt service
obligations and working capital.


We believe that our current cash position, current and expected working capital
balances, favorable payment terms under our Term A Loan and Term B Loan
(collectively the "Senior Secured Term Loan"), availability under our ABL Credit
Facility, proceeds received from issuance of debt or equity, as well as amounts
raised from issuances of Class A common stock under our ATM Agreement, and other
anticipated sources of credit will be sufficient to satisfy cash requirements
associated with our existing operations, capital expenditures and contractual
obligations for the next twelve months. Although there is no assurance, we plan
to satisfy our long-term financial obligations through operating cash flows that
we could generate as we increase our number of working fleets with our planned
additions of Nyx Clean Fleets® and additional financing as our long-term
financial obligations mature.

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During the first quarter of 2022, we raised approximately $68.4 million of gross
proceeds from the issuance of approximately $46.9 million common equity through
a registered direct offering and under our ATM Agreement and borrowings of $21.5
million under the last-out senior secured term loan (the "Term C Loan"). We
intend to use the proceeds for general working capital, including the funding of
capital expenditures related to our newbuild Nyx Clean Fleets®.

Registered Direct Offering


On March 11, 2022, the Company completed a registered direct offering of
14,180,375 shares of Class A common stock for gross proceeds of approximately
$25.0 million, before deducting placement agent fees and other offering
expenses. The Company intends to use the net proceeds for working capital
purposes, including the funding of certain capital expenditures. Refer to "Note
20 - Subsequent Events" to our audited consolidated financial statements
included in "Item 8. Financial Statements and Supplementary Data" for more
information regarding registered direct offering.

ATM Agreement


On June 26, 2020, we entered into an Equity Distribution Agreement (the "ATM
Agreement") with Piper Sandler & Co. relating to our Class A common stock. In
accordance with the terms of the ATM Agreement, we may offer and sell shares of
our Class A common stock over a period of time. The ATM Agreement relates to an
"at-the-market" offering program. Under the ATM Agreement, we will pay Piper
Sandler an aggregate commission of up to 3% of the gross sales price per share
of Class A common stock sold under the ATM Agreement. On March 19, 2021, we
increased the number of shares of Class A common stock that we may offer in
accordance with the terms of the ATM Agreement to a total amount of $50.0
million.

During the year ended December 31, 2021, we sold 5,091,800 shares of Class A
common stock for total net proceeds of $14.7 million and paid $0.5 million in
commissions under the ATM Agreement. Since inception on June 26, 2020 through
December 31, 2021, we have sold a total of 5,318,159 shares of Class A common
stock under the ATM Agreement for total net proceeds of $15.1 million and paid
$0.5 million in commissions.

As of March 15, 2022, we sold an additional 9,767,941 shares of Class A common
stock for a total net proceeds of $21.3 million and paid $0.6 million in
commissions.


Cash Flows
(in thousands)

                                    Year Ended December 31,
                                      2021             2020
Net cash provided by (used in):
Operating activities              $    (19,277 )     $   8,616
Investing activities                    56,156         (34,999 )
Financing activities                   (33,021 )        (9,759 )


Operating Activities. Net cash provided by (used in) operating activities
primarily represents the results of operations exclusive of non-cash expenses,
including depreciation, amortization, provision for losses on accounts
receivable and inventory, interest, impairment losses, (gains) losses on
disposal of assets, changes in fair value of warrant liabilities, loss on
extinguishment of debt and share-based compensation and the impact of changes in
operating assets and liabilities. Net cash used in operating activities was
$19.3 million for the year ended December 31, 2021, compared to net cash
provided by operating activities of $8.6 million in the prior corresponding
period. This change was primarily due to a litigation settlement of $35.0
million and $3.0 million of working capital payments from proceeds under our
USDA Loan in the 2021 period.

Net cash provided by operating activities was $8.6 million for the year ended
December 31, 2020, primarily attributable to a significant decline in business
activity from the COVID-19 pandemic and depressed oil prices. We also
experienced slower collection of customer receivables in the fourth quarter of
2020. Additionally, we made interest payments amounting to $24.3 million related
to our Senior Secured Term Loan, which represented interest from May 7, 2019
through March 31, 2020.

Investing Activities. Net cash provided by investing activities increased by
$91.2 million from the prior period, primarily related to proceeds from the sale
of property and equipment as we have sold most of our legacy, diesel-powered
pressure pumping equipment in 2021. Net cash provided by investing activities
was $56.2 million for the year ended December 31, 2021, primarily due to $106.0
million in proceeds from the sale of property and equipment and $7.9 million of
insurance proceeds related to damaged property and equipment, offset in part by
$57.7 million in purchases of property and equipment, consisting of $29.3
million related to growth capital expenditures and the remainder related to
maintaining and supporting our pressure pumping equipment.

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Net cash used in investing activities was $35.0 million for the year ended
December 31, 2020, primarily due to purchases of property and equipment
amounting to $55.9 million of which, $30.8 million related to maintaining and
supporting our pressure pumping equipment, $0.3 million of which related to
fleet enhancements, and $24.8 million related to growth. This was offset in part
by $20.9 million total proceeds from the sale of certain property and equipment
and insurance proceeds from damaged property and equipment.

Financing Activities. Net cash used in financing activities was $33.0 million
for the year ended December 31, 2021, primarily attributable to $125.5 million
of payments on our Senior Secured Term Loan, $9.5 million of net payments on our
ABL Credit Facility, $7.5 million of debt issuance costs and $4.3 million of
repayments of equipment financing notes, offset in part by $97.5 million of
proceeds from the issuance of Convertible Senior Notes, proceeds of $14.7
million from the issuance of Class A common stock, $1.3 million of net proceeds
from notes payable and $3.0 million of proceeds from the USDA Loan.

Net cash used in financing activities was $9.8 million for the year ended
December 31, 2020, primarily attributable to net payments of $16.5 million
related to our ABL Credit Facility, $3.8 million in repayments of long-term
debt, $6.4 million net repayments of notes payable, $10.5 million of payments
for capital leases, $3.2 million repayments of equipment financing notes and
debt issuance costs of $21.4 million. This was offset in part by $19.6 million
in net proceeds from the issuance of Series B preferred stock, $10.0 million of
proceeds from the PPP Loan and $22.0 million of proceeds from the USDA Loan.

Contractual Cash Obligations and Other Commitments


Our material cash commitments from known contractual and other obligations
consist primarily of debt service obligations, including interest, operating and
capital leases, and purchase commitments. Certain amounts included in our
contractual obligations as of December 31, 2021 are based on our estimates and
assumptions about these obligations, including their duration, anticipated
actions by third parties and other factors.

As of December 31, 2021, we expect cash payments for estimated interest and
principal payments on our long-term debt of $22.5 million payable within the
next twelve months and $201.7 million payable thereafter.

Senior Secured Term Loan and Term C Loan


As of December 31, 2021, the outstanding principal balance of the Senior Secured
Term Loan was $120.7 million, of which $5.0 million is due within one year. The
Senior Secured Term Loan matures on December 5, 2025. As of December 31, 2021,
we were in compliance with all of the covenants under our Senior Secured Term
Loan.

On February 28, 2022, we entered into a sixth term loan amendment to our Senior
Secured Term Loan Agreement. Pursuant to the sixth term loan amendment, the
quarterly principal payments on the Senior Secured Term Loan were amended to
$1.25 million until March 31, 2023 and $5.0 million from June 30, 2023 through
September 30, 2025, with final payment due at maturity.

The Senior Secured Term Loan interest rate is 0.0% per annum from January 1,
2022 through March 31, 2022. As of the filing date, our outstanding principal
balance on the Senior Secured Term Loan is less than $103.0 million and
therefore the interest rate from April 1, 2022 through December 31, 2022 shall
be payable as follows: (i) 1.0% per annum in cash and (ii) 4.125% per annum
shall be paid-in-kind by increasing the outstanding principal amount of the
Senior Secured Term Loan on each interest payment date.

The sixth term loan amendment to our Senior Secured Term Loan Agreement also
provided for the Term C Loan of up to $35.0 million, which matures on December
5, 2025. Our Term C Loan has a PIK interest rate of 14.0% and contains
provisions with up to a 100% premium payable upon any repayment, prepayment or
acceleration. As of March 15, 2022, we had $21.5 million of borrowings
outstanding under our Term C Loan. Refer to "Note 20 - Subsequent Events" to our
audited consolidated financial statements included in "Item 8. Financial
Statements and Supplementary Data" for more information regarding our Term C
Loan.

ABL Credit Facility

All borrowings under our ABL Credit Facility are subject to the satisfaction of
customary conditions, including the absence of a default and the accuracy of
representations and warranties and certifications regarding sales of certain
inventory, and to a borrowing base. As of December 31, 2021, the outstanding
balance on our ABL Credit Facility was $14.2 million. The ABL Credit Facility
matures on April 1, 2025. As of December 31, 2021, we were in compliance with
all of the covenants under our ABL Credit Facility. As of March 15, 2022, the
outstanding balance on our ABL Credit Facility was $6.4 million.

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USDA Loan


In November 2020, we entered into a Business Loan Agreement (the "USDA Loan")
with a commercial bank pursuant to the United States Department of Agriculture,
Business & Industry Coronavirus Aid, Relief, and Economic Security Act
Guaranteed Loan Program, in the aggregate principal amount of up to $25.0
million for the purpose of providing long-term financing for eligible working
capital. Interest payments are due monthly at the interest rate of 5.75% per
annum beginning on December 12, 2020 but principal payments are not required
until December 12, 2023. As of December 31, 2021 and March 15, 2022, the
outstanding principal balance of the USDA Loan was $25.0 million. The USDA Loan
matures on November 12, 2030.

The USDA Loan is subject to certain financial covenants. The Company is required
to maintain a Debt Service Coverage Ratio (as defined in the USDA Loan) of not
less than 1.25:1, to be monitored annually, beginning in calendar year 2021.
Additionally, the Company is required to maintain a ratio of debt to net worth
of not more than 9:1, to be monitored annually based upon year-end financial
statements beginning in calendar year 2022. As of December 31, 2021, we were in
compliance with all of the covenants under our USDA Loan.

Equipment Financing


We have entered into equipment financing notes with a financial institution for
the purchase of certain pressure pumping equipment. The equipment financing
notes have an interest rate of 5.75% and mature in May 2024. As of December 31,
2021, the aggregate outstanding balance under our equipment financing notes was
$8.5 million. As of March 15, 2022, the aggregate outstanding balance under our
equipment financing notes was $7.7 million, of which $3.1 million is due within
one year.

Leases

As of December 31, 2021, we expect cash payments on our operating and capital
lease obligations of $19.9 million within the next twelve months and $2.9
million payable thereafter. The most significant of these off-balance sheet
arrangements include equipment and office lease commitments. Refer to "Note 12 -
Commitments and Contingencies" to our audited consolidated financial statements
included in "Item 8. Financial Statements and Supplementary Data" for more
information regarding our operating and capital lease commitments, including
leases commencing in the first half of 2022.

Purchase Commitments


The Company entered into an Equipment Purchase and Sale Agreement to purchase
equipment for growth capital expenditures. As of December 31, 2021, we have
purchase commitments of $32.8 million payable within the next twelve months,
which is included in our 2022 growth capital expenditures below and $16.4
million payable thereafter.

Capital Expenditures


Our business requires continual investments to upgrade or enhance existing
property and equipment and to ensure compliance with safety and environmental
regulations. Capital expenditures primarily relate to maintenance capital
expenditures, growth capital expenditures and fleet enhancement capital
expenditures. Maintenance capital expenditures include expenditures needed to
maintain and to support our current operations. Growth capital expenditures
include expenditures to add additional fleets and generate incremental
distributable cash flow. Fleet enhancement capital expenditures include
expenditures on new equipment related to technology enhancements to existing
fleets that increase the productivity of the fleet.

We currently expect that growth capital expenditures, on an accrual basis, will
be approximately $105 million to $125 million in 2022, primarily related to the
buildout of our four new Nyx Clean Fleets® and associated equipment. Capital
expenditures for growth and fleet enhancement initiatives are discretionary. We
continuously evaluate our capital expenditures and the amount we ultimately
spend will depend on several factors, including expected industry activity
levels and company initiatives.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. We regularly evaluate estimates
and judgments based on historical experience and other relevant facts and
circumstances.

We discuss our significant estimates used in the preparation of the financial
statements in the notes accompanying the financial statements. Listed below are
the accounting policies we believe are critical to our financial statements due
to the degree of uncertainty regarding the estimates or assumptions involved.

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Revenue Recognition


We recognize revenue based on our customer's ability to benefit from the
services we render in an amount that reflects the consideration we expect to
receive in exchange for those services. Revenues are earned as services are
rendered, which is generally on a per stage basis, per hour rate basis or daily
rate basis. Customers are invoiced according to contract terms, which is
generally upon the completion of a well or monthly with payment due typically 30
days from invoice date. Our performance obligations are satisfied over time,
typically measured in number of stages completed or the number of pumping days a
fleet is available to pump for a customer in a month. Revenue is recognized when
a contract with a customer exists, collectability of amounts subject to invoice
is probable, the performance obligations under the contract have been satisfied
over time, and the amount to which we have the right to invoice has been
determined. A portion of our contracts contain variable consideration; however,
this variable consideration is typically unknown at the time of contract
inception, and is not known until the job is complete, at which time the
variability is resolved. We have elected to use the "as invoiced" practical
expedient to recognize revenue based upon the amount we have the right to
invoice the customer if that amount corresponds directly with the value to the
customer of our performance completed to date. We believe that this is an
accurate reflection of the value transferred to the customer as each incremental
obligation is performed.

Accounts Receivable

We analyze the need for an allowance for doubtful accounts for estimated losses
related to potentially uncollectible accounts receivable on a case-by-case basis
throughout the year. We reserve amounts based on specific identification after
considering each customer's situation, including payment patterns, current
financial condition as well as general economic conditions. It is reasonably
possible that our estimates of the allowance for doubtful accounts will change
and that losses ultimately incurred could differ materially from the amounts
estimated in determining the allowance.

Impairment of Long-Lived Assets


Long-lived assets, such as property and equipment and amortizable identifiable
intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When impairment is indicated, we determine the amount by which the
assets carrying value exceeds its fair value. We consider several factors such
as estimated future cash flows, appraisals, and current market value analysis in
determining fair value. Assets are written down to fair value if the concluded
current fair value is below the net carrying value. If actual results or
performance are not consistent with our estimates and assumptions, we may be
subject to additional impairment charges, which could be material to our results
of operations. For example, if our results of operations significantly decline
because of an extended decline in the price of oil, there could be a material
increase in the impairment of long-lived assets in future periods.

Warrants


We evaluate all of our financial instruments, including issued stock purchase
warrants, to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives, pursuant to ASC 480, Distinguishing
Liabilities from Equity and ASC 815-15, Derivatives and Hedging-Embedded
Derivatives. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or equity is evaluated
pursuant to ASC 815-40, Derivatives and Hedging-Contracts in Entity's Own
Equity.

As of December 31, 2021, all of our outstanding warrants are recognized as
liabilities at fair value upon issuance and we adjust the instruments to fair
value at the end of each reporting period. Any change in fair value is
recognized in our consolidated statement of operations. The Public Warrants are
valued using their quoted market price since they are publicly traded and thus
had an observable market price. The Private Placement Warrants are valued using
a Monte Carlo simulation model. The Series A Warrants are valued using the
Black-Scholes option pricing model.

Share-based Compensation


Share based compensation is measured on the grant date and fair value is
recognized as expense over the requisite service period, which is generally the
vesting period of the award. We recognize forfeitures as they occur rather than
estimating expected forfeitures.

The fair value of time-based restricted stock, deferred stock units, or other
performance incentive awards is determined based on the number of shares or
units granted and the closing price of our Class A common stock on the date of
grant. The fair value of stock options is determined by applying the
Black-Sholes model on the grant-date market value of the underlying Class A
common stock. Restricted stock with market conditions is valued using a Monte
Carlo simulation analysis.

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Deferred compensation expense associated with liability-based awards, such as
certain performance incentive awards that could be settled either in cash or the
issuance of a variable number of shares based on a fixed monetary amount at
inception, is recognized at the fixed monetary amount at inception and is
amortized on a straight-line basis over the requisite service period, which is
generally the vesting period. However, we consider any delayed settlement as a
post-vesting restriction which impacts the determination of the grant-date fair
value of the award. We estimate fair value by using a risk-adjusted discount
rate, which reflects the weighted average cost of capital of similarly traded
public companies.

Each of these valuation approaches involves significant judgments and estimates,
including estimates regarding our future operations or the determination of a
comparable public company peer group.

Recent Accounting Pronouncements

See “Note 3 – Accounting Standards” to our audited consolidated financial
statements included in “Item 8. Financial Statements and Supplementary Data” for
further discussion regarding recently issued accounting standards.

Related Party Transactions


See "Note 18 - Related Party Transactions" to our audited consolidated financial
statements included in "Item 8. Financial Statements and Supplementary Data" for
further discussion regarding related party transactions.

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