Ranger Energy Services, Inc. quarterly report, Q3 FY2021

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Ranger Energy Services, Inc. — Q3 2021 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Ranger provides U.S. onshore well-service rigs, wireline and other completion services, and modular natural-gas processing solutions.

Financial performance and liquidity

  • Third-quarter revenue: $81.7 million, up 136% from $34.6 million. High-spec rig revenue rose 106% to $29.9 million; Completion and Other Services rose 169% to $50.8 million, reflecting wireline growth and the Patriot and PerfX acquisitions. Processing Solutions revenue declined 17% to $1.0 million.
  • Nine-month revenue: $170.0 million, up 16% from $146.3 million. High-spec rigs contributed $80.6 million, Completion and Other Services $86.1 million, and Processing Solutions $3.3 million.
  • Profitability: Q3 operating loss was $8.1 million versus $5.0 million; consolidated net loss was $9.1 million versus $5.7 million, and loss attributable to Ranger was $5.6 million versus $3.2 million. Diluted loss per share was $0.51 versus $0.38. For nine months, operating loss was $23.9 million versus $9.1 million, consolidated net loss was $26.5 million versus $11.8 million, and Ranger-attributable loss was $15.8 million versus $6.6 million; diluted loss per share was $1.63 versus $0.77.
  • Margins: Cost of services was 91% of Q3 revenue versus 77% a year earlier, and 90% for the nine-month period versus 78%. The resulting gross margin before depreciation and amortization was approximately 9% in Q3 and 10% for nine months, down from approximately 23% and 22%, respectively. Operating margin was approximately negative 10% for Q3 and negative 14% for nine months.
  • Adjusted EBITDA: Non-GAAP Adjusted EBITDA was $3.3 million in Q3, down from $4.4 million, and $5.1 million for nine months, down from $19.0 million. Nine-month weakness was concentrated in Completion and Other Services, whose Adjusted EBITDA declined to $3.9 million from $21.2 million; acquisitions and higher service costs affected comparability.
  • Cash flow: Nine-month operating cash flow was $23.4 million, down from $27.3 million. Investing used $5.9 million, including $3.9 million of property and equipment purchases and $2.4 million net cash paid for businesses. Financing provided $24.5 million, versus $25.2 million used in the prior-year period. Cash, cash equivalents and restricted cash totaled $44.8 million at period-end, including $42.0 million of restricted cash; unrestricted cash was $2.8 million.
  • Debt and liquidity: Debt carrying value was $51.3 million, including $29.7 million drawn on the revolving facility, $12.5 million on the machinery-and-equipment term loan, $10.7 million under the PerfX secured note, and $1.1 million of installment purchases. Reported current debt was $35.0 million; total principal maturities were $54.0 million, including $35.0 million in the twelve months ending September 30, 2022. Management reported $10.6 million of liquidity: $2.8 million cash plus $7.8 million revolver availability. Working capital was $0.7 million, down from $2.7 million at year-end 2020.
  • Balance sheet: Total assets were $338.9 million, compared with $240.6 million at December 31, 2020. Total liabilities were $163.0 million and stockholders’ equity was $175.9 million.

Material changes and transactions

  • Rig activity improved: Q3 rig hours increased 70% to 51,200 and average revenue per rig hour rose 22% to $584. For nine months, rig hours increased 26% to 146,300 and average revenue per hour increased 6% to $551. Management attributed the activity improvement to higher utilization.
  • Patriot was acquired in May 2021 for aggregate consideration of $11.0 million, including shares and cash. PerfX was acquired in July for $20.1 million, including shares and a secured promissory note; its results are included in Completion and Other Services. The PerfX purchase also included a warrant for a potential 30% interest in XConnect, subject to minimum purchase requirements and forfeiture provisions.
  • In September, Ranger replaced its prior credit arrangements with an Eclipse senior secured facility having up to $77.5 million of aggregate capacity. The facility includes a $50.0 million revolver, a $12.5 million machinery-and-equipment term loan, and a $15.0 million Term Loan B. The revolver and term loan carried stated pricing tied to LIBOR or the base rate; the Term Loan B pricing is higher.
  • Ranger entered into sale-leaseback transactions that generated $15.6 million of financing proceeds during the nine months. The transactions did not qualify for sale accounting, so the assets remained on the balance sheet and no gain or loss was recorded.

Outlook, risks and contingencies

  • No specific revenue, earnings or margin guidance was provided. Management said it expected sufficient funds to meet liquidity needs and comply with debt covenants for at least 12 months from issuance of the statements.
  • Management cautioned that COVID-19, possible new variants, oil and gas demand and price volatility, OPEC+ actions, customer spending, supply-chain constraints and customer payment delays could affect utilization, pricing, margins, liquidity and asset values. Ranger does not hedge its indirect exposure to commodity prices.
  • Customer concentration is material: EOG, Pioneer and ConocoPhillips represented 19%, 11% and 11% of nine-month 2021 revenue, respectively; approximately 32% of net receivables was due from those three customers. A hypothetical 1% change in weighted average interest rates was estimated to change annual interest expense by approximately $0.3 million.
  • Management reported no material pending litigation and no material off-balance-sheet arrangements. It stated that disclosure controls were effective and that no material change in internal control occurred during the quarter.
  • Subsequent events: Ranger closed the Basic Energy asset acquisition on October 1, 2021, paying $36.65 million in cash, subject to closing adjustments and assumed liabilities. On that date it also drew the $15.0 million Term Loan B, used to repay revolver borrowings, and issued 6.0 million Series A Convertible Preferred shares for $42.0 million. The preferred stock is intended to convert into Class A shares after required stockholder approval and registration effectiveness. Certain Class B shares were redeemed in a related transaction; no Class B shares remained outstanding after the redemptions.

Investor verification priorities

  • Verify post-quarter liquidity and the funding, cash requirements and integration progress of the Basic acquisition, including the effect of the preferred financing and Term Loan B.
  • Assess the near-term debt burden, interest costs, borrowing-base availability, cash-dominion and acceleration provisions, covenant headroom, and the $35.0 million of reported 2022 principal maturities.
  • Track whether revenue growth translates into improved service margins and Adjusted EBITDA, particularly in Completion and Other Services, where costs rose faster than revenue.
  • Separate unrestricted cash from restricted cash: the $42.0 million restricted balance related to the preferred-stock transaction and was not ordinary operating cash at September 30.
  • Evaluate acquisition-related dilution and obligations, including preferred-stock conversion, share issuance, and PerfX’s promissory note and XConnect warrant conditions.
  • Monitor customer concentration, accounts-receivable collection, oilfield activity and commodity-driven customer spending, as well as the impact of COVID-19 and supply constraints.