Ranger Energy Services, Inc. — Q2 2019 Form 10-Q
Business context and reporting period
For the quarter and six months ended June 30, 2019. Ranger provides well-service rigs and related completion, wireline, snubbing, rental and natural-gas processing services across U.S. oil and gas basins. The company reported three segments: High Specification Rigs, Completion and Other Services, and Processing Solutions. Amounts below are in millions of dollars unless noted.
Key financial results
| Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 |
|---|---|---|---|---|
| Revenue | $84.3 | $73.1 | $172.6 | $135.7 |
| Operating income (loss) | $4.0 | $1.0 | $9.2 | $(9.8) |
| Net income (loss) | $1.8 | $(1.2) | $5.4 | $(11.5) |
| Net income (loss) attributable to Ranger | $1.0 | $(0.7) | $3.0 | $(6.4) |
| Diluted EPS | $0.11 | $(0.08) | $0.32 | $(0.76) |
| Adjusted EBITDA (non-GAAP) | $13.0 | $9.6 | $27.2 | $14.8 |
- Revenue grew 15% in Q2 and 27% in H1. Completion and Other Services drove growth, increasing 57% and 85%, respectively, mainly from wireline expansion. Processing Solutions revenue rose 23% in Q2 and 43% in H1.
- High Specification Rigs revenue declined 16% in Q2 and 15% in H1. Rig hours fell 18% in both periods; higher average revenue per rig hour partly offset the decline. Average monthly utilization fell to 147 hours per rig in Q2 from 187, and to 145 in H1 from 186.
- Cost of services was 78% of revenue in Q2 in both years and 77% in H1 2019 versus 80% in H1 2018. Operating margin was approximately 4.7% in Q2 2019 versus 1.4% in Q2 2018, and 5.3% in H1 2019 versus negative 7.2% in H1 2018.
- Cash from operations was $14.2 in H1, versus $12.1 a year earlier. Investing used $15.5, including $16.0 of property and equipment purchases; financing provided $0.4. Cash decreased $0.9 to $1.7. Operating cash flow less cash property and equipment purchases was negative $1.8, before asset-sale proceeds.
- At June 30, cash was $1.7, working capital was $15.2, total assets were $317.9 and total liabilities were $115.8. Debt carrying value was $63.6, compared with $60.5 at year-end 2018; debt principal repayments scheduled for the 12 months ending June 30, 2020 were $15.8. Finance lease obligations totaled $9.6 and operating lease obligations $6.7.
- The $50.0 revolving facility had approximately $14.0 available; the company reported covenant compliance. Encina financing carried a 10.5% weighted-average rate, versus 4.7% on the credit facility. Management estimated a 1 percentage-point rate change would affect annual interest expense by approximately $0.6.
Material changes and notable items
- H1 2019 returned to operating and net profitability from losses in H1 2018. The comparison includes a $9.0 goodwill impairment in H1 2018 and none in H1 2019.
- Q2 interest expense rose to $1.9 from $0.5, and H1 interest expense to $3.2 from $0.9, primarily due to Encina borrowing and increased credit-facility borrowings.
- Ranger adopted the new lease accounting standard in January 2019, recognizing an $8.3 operating lease right-of-use asset and corresponding liability at adoption.
- The company settled a $3.0 obligation to related parties by issuing 206,897 Class A shares. A board-authorized buyback of up to 580,000 shares or $5.0 was announced; no shares had been repurchased through June 30.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management expected available resources to meet liquidity requirements for at least the next 12 months.
- Management said it could achieve three-year cumulative profitability within the next 12 months, possibly as early as Q3 2019, potentially supporting release of some or substantially all of the deferred-tax-asset valuation allowance. Timing and amount remain uncertain.
- Results depend on U.S. oil and gas activity, commodity prices, customer demand and service pricing. The decline in rig activity is a key operating concern. Two customers accounted for 32% of Q2 revenue, and approximately 19% of receivables was due from those customers.
- Liquidity and financing risks include low cash on hand, borrowing-base availability, debt maturities and covenants, and Encina’s relatively high interest rate. The $5.8 ESCO seller note remained unpaid while Ranger pursued contract-indemnification claims; resolution was pending.
- Management said existing legal matters were not expected to have a material adverse effect. Disclosure controls were judged effective at quarter-end, and no material change in internal control was reported.
Important facts for investors to verify
- Whether rig-hour declines and lower utilization persist, and whether improved wireline and processing activity can offset them.
- Revolving-facility borrowing-base availability, covenant headroom, scheduled debt service and the status of the ESCO note dispute.
- Cash conversion and working-capital trends, given H1 operating cash flow below capital expenditures and cash of $1.7 at quarter-end.
- Whether the anticipated profitability supports a valuation-allowance release, and the resulting tax and earnings impact.
- Customer concentration, exposure to commodity-driven reductions in U.S. oilfield activity, and any execution or funding of the authorized share repurchase program.