Note 8 - Segment Information

6 Months Ended

Jun. 30, 2019

Segment Reporting Disclosure [Text Block]

Note 8 - Segment Information

In accordance with ASC No. 280 - Segment Reporting ("ASC 280"), the Company routinely evaluates whether its separate operating and reportable segments have changed. This determination is made based on the following factors: (1) the Company’s chief operating decision maker (“CODM”) is currently managing each operating segment as a separate business and evaluating the performance of each segment and making resource allocation decisions distinctly and expects to do so for the foreseeable future, and (2) discrete financial information for each operating segment is available.

As of June 30, 2019, the Company's operating and reportable segments were: (i) Completion Services, (ii) WC&I and (iii) Well Support Services. This segment structure reflects the financial information and reports used by the Company’s management, including its CODM, to make decisions regarding the Company’s business, including performance evaluation and resource allocation decisions.

The following is a brief description of the Company's reportable segments:

Completion Services

The Company’s Completion Services segment consists of the following businesses and service lines: (1) fracturing services; (2) cased-hole wireline and pumpdown services; and (3) completion support services, which includes the Company's R&T department.

Well Construction and Intervention Services

The Company’s WC&I Services segment consists of the following businesses and service lines: (1) cementing services and (2) coiled tubing services. During the first quarter of 2018, the Company exited its directional drilling business.

Well Support Services

The Company’s Well Support Services segment consists of the following businesses and service lines: (1) rig services; (2) fluids management services; and (3) other specialty well site services. During the first quarter of 2018, the Company decided to exit its artificial lift business.

The following table summarizes certain financial information related to the Company’s reportable segments.

	Completion Services		WC&I			Well Support Services			Corporate/ Elimination			Total
	(In thousands)
Three months ended June 30, 2019
Revenue from external customers	$	322,423	$	72,709		$	105,950		$	—		$	501,082
Inter-segment revenues		73		—			30			(103	)		—
Depreciation and amortization		36,907		8,950			10,368			1,868			58,093
Operating income (loss)		5,450		(83,988	)		(4,208	)		(27,734	)		(110,480	)
Net income (loss)		5,138		(84,019	)		(4,052	)		(27,373	)		(110,306	)
Adjusted EBITDA		47,706		6,947			13,383			(16,056	)		51,980
Capital expenditures		25,853		1,920			8,182			6,977			42,932
Six months ended June 30, 2019
Revenue from external customers	$	649,522	$	151,802		$	210,527		$	—		$	1,011,851
Inter-segment revenues		133		—			73			(206	)		—
Depreciation and amortization		76,744		16,835			20,616			3,654			117,849
Operating income (loss)		16,237		(87,362	)		(9,017	)		(53,109	)		(133,251	)
Net income (loss)		15,741		(87,393	)		(8,520	)		(53,707	)		(133,879	)
Adjusted EBITDA		102,137		13,371			20,371			(34,342	)		101,537
Capital expenditures		57,172		10,675			13,338			10,088			91,273
As of June 30, 2019
Total assets	$	734,455	$	160,543		$	230,727		$	204,362		$	1,330,087
Three months ended June 30, 2018
Revenue from external customers	$	412,895	$	99,086		$	98,540		$	—		$	610,521
Inter-segment revenues		221		—			44			(265	)		—
Depreciation and amortization		29,466		10,018			13,600			1,303			54,387
Operating income (loss)		55,208		8,311			(3,110	)		(29,515	)		30,894
Net income (loss)		53,953		8,538			(3,231	)		(30,764	)		28,496
Adjusted EBITDA		84,118		19,940			11,437			(23,581	)		91,914
Capital expenditures		79,663		11,234			988			877			92,762
Six months ended June 30, 2018
Revenue from external customers	$	787,040	$	186,503		$	189,978		$	—		$	1,163,521
Inter-segment revenues		283		—			149			(432	)		—
Depreciation and amortization		52,339		20,054			25,875			2,462			100,730
Operating income (loss)		113,283		13,663			(11,876	)		(63,834	)		51,236
Net income (loss)		112,096		13,885			(11,813	)		(65,078	)		49,090
Adjusted EBITDA		165,895		36,242			17,049			(48,714	)		170,472
Capital expenditures		136,788		14,876			3,194			932			155,790
As of December 31, 2018
Total assets	$	713,738	$	249,712		$	233,650		$	227,354		$	1,424,454

The CODM evaluates reportable segment performance and allocates resources based on total earnings (loss) before net interest expense, income taxes, depreciation and amortization, other income (expense), net gain or (loss) on disposal of assets, merger/transaction-related costs, non-cash share-based compensation and non-routine items (“Adjusted EBITDA”), because Adjusted EBITDA is considered an important measure of each reportable segment’s performance. Adjusted EBITDA at the segment level is not considered to be a non-GAAP financial measure as it is the Company's segment measure of profit and loss and is required to be disclosed under GAAP pursuant to ASC 280. During the first quarter of 2019, Adjusted EBITDA, the Company's segment measure of profit and loss, was changed to exclude non-cash share-based compensation expense. Prior period amounts have been adjusted for comparability.

Management believes that the disclosure of Adjusted EBITDA on a consolidated basis allows investors to make a direct comparison to competitors, without regard to differences in capital and financing structure. Investors should be aware, however, that there are limitations inherent in using Adjusted EBITDA as a measure of overall profitability because it excludes significant expense items. An improving trend in Adjusted EBITDA may not be indicative of an improvement in the Company’s profitability. To compensate for the limitations in utilizing Adjusted EBITDA as an operating measure, management also uses U.S. GAAP measures of performance, including operating income (loss) and net income (loss), to evaluate performance, but only with respect to the Company as a whole and not on a reportable segment basis.

As required under Item 10(e) of Regulation S-K of the Exchange Act, included below is a reconciliation of consolidated Adjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure on a consolidated basis for the three and six months ended June 30, 2019 and 2018.

	Three Months Ended June 30,
	2019			2018
	(In thousands)
Net income (loss)	$	(110,306	)	$	28,496
Depreciation and amortization		58,093			54,387
Impairment expense		79,935			—
Loss on disposal of assets		8,762			49
Interest expense, net		442			2,185
Other (income) expense, net		449			1,106
Income tax benefit		(1,065	)		(893	)
Severance and business divestiture costs		7,668			40
Merger/transaction-related costs		2,640			243
Non-cash share-based compensation, excluding severance		5,292			4,138
Restructuring costs and other		70			2,163
Adjusted EBITDA	$	51,980		$	91,914

	Six Months Ended June 30,
	2019			2018
	(In thousands)
Net income (loss)	$	(133,879	)	$	49,090
Depreciation and amortization		117,849			100,730
Impairment expense		79,935			—
(Gain) loss on disposal of assets		10,718			(440	)
Interest expense, net		789			2,613
Other (income) expense, net		(16	)		486
Income tax benefit		(145	)		(953	)
Severance and business divestiture costs		11,004			6,180
Merger/transaction-related costs		2,640			970
Non-cash share-based compensation, excluding severance		10,865			8,510
Restructuring costs and other		1,777			3,286
Adjusted EBITDA	$	101,537		$	170,472

C&J Energy Services, Inc. 10-Q