Quarterly report pursuant to Section 13 or 15(d)

Organization and Nature of Operations and Basis of Presentation (Policies)

Organization and Nature of Operations and Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation and Principles of Consolidation
Basis of Presentation and Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These interim unaudited condensed consolidated financial accounts include all QES accounts and all of our subsidiaries. All inter-company transactions and account balances have been eliminated upon consolidation.
The accompanying interim unaudited condensed consolidated financial statements have not been audited by the Company’s independent registered public accounting firm, except that the Consolidated Balance Sheet at December 31, 2018, is derived from previously audited consolidated financial statements. In the opinion of management, all material adjustments, consisting of normal recurring adjustments, necessary for fair statement have been included.

Certain reclassifications have been made to the prior year financial statements to conform to the current period financial statement presentation. Included in the reclassifications is a change to the classification methodology in the unaudited condensed consolidated statements of operations for direct operating costs and general and administrative costs. Historically, and through December 31, 2018, certain direct operating costs related to business operations were classified and reported as general and administrative costs ("G&A"). The historical classification was consistent with the information used by our chief operating decision maker ("CODM") to assess performance of our segments and make resource allocation decisions, and the classification of such costs within the condensed consolidated statements of income was aligned with the segment presentation. Effective January 1, 2019, we changed the classification of certain of these costs in our segment reporting disclosures and within the condensed consolidated statements of income to reflect a change in the presentation of the information used by the Company’s CODM. For the three months ended March 31, 2018, we reclassified certain cost from G&A to direct operating costs, which decreased G&A by $9.6 million and increased direct operating cost by $9.6 million.
This reclassification of costs between direct operating costs and G&A has no net impact to the condensed consolidated statements of income or to total segment reporting. The change will better reflect the CODM's philosophy on assessing performance and allocating resources, as well as improve comparability to our peer group. This is a change in costs classification and has been reflected retrospectively for all periods presented.
These interim unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. Therefore, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”) filed with the SEC on March 8, 2019. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
There have been no material changes to the Company’s critical accounting policies or estimates from those disclosed in the 2018 Annual Report. The Company adopted certain accounting policies including the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases, effective January 1, 2019. This ASU requires lessees to recognize an operating lease asset and a lease liability on the balance sheet.
Accounting Pronouncements
Accounting Pronouncements
Recently Adopted Accounting Standard Update
In February 2016, the FASB issued ASU No. 2016-2, Leases ("Topic 842"), to provide guidance for the accounting for leasing transactions. The standard requires the lessee to recognize a lease liability along with a right-of-use ("ROU") asset for all leases with a term longer than one year. A lessee is permitted to make an accounting policy election by class of underlying asset to not recognize the lease liability and related ROU asset for leases with a term of one year or less. The provisions of this standard also apply to situations where the Company is the lessor. The requirements in this update are effective during interim and annual periods beginning after December 15, 2018. The Company adopted this new guidance effective January 1, 2019. ASC 842 requires a modified retrospective approach to each lease that existed at the date of initial application as well as leases entered into after that date. Under the transition method selected by QES, leases existing at, or entered into after, January 1, 2019 were required to be recognized and measured. Prior period amounts have not been adjusted and continue to be reflected in accordance with QES historical accounting. The Company has elected to report all leases at the beginning of the period of adoption and not restate its comparative periods. The adoption of ASU No. 2016-02 is discussed below and in Note 5 to our unaudited condensed consolidated financial statements herein.
The standard had a material impact on our unaudited condensed consolidated balance sheets, but did not have an impact on our unaudited condensed consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.
The Company has elected to adopt the following practical expedients upon the transition date to Topic 842 on January 1, 2019:

Transitional practical expedients package: An entity may elect to apply the listed practical expedients as a package to all the leases that commenced before the effective date. The practical expedients are:
The entity need not reassess whether any expired or existing contracts are or contain leases;
The entity need not reassess the lease classification for expired or existing contracts;
The entity need not reassess initial direct costs for any existing leases.

Use of portfolio approach: An entity can apply this guidance to a portfolio of leases with similar characteristics if the entity reasonably expects that the application of the lease model to the portfolio would not differ materially from the application of the lease model to the individual leases in that portfolio. This approach can also be applied to other aspects of the lease guidance for which lessees/lessors need to make judgments and estimates, such as determining the discount rate and determining and reassessing the lease term.
Accounting Standard Update not yet adopted
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of stock-based compensation issued to non-employees by making the guidance consistent with the accounting for employee stock-based compensation. The guidance is effective for the Company for the fiscal year beginning January 1, 2020. While the exact impact of this standard is not known, the guidance is not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements, as non-employee stock compensation is nominal relative to the Company's total expenses as of March 31, 2019.