Ranger Energy Services, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are to the corresponding 2022 periods. Ranger provides onshore well-service rigs, wireline, processing and ancillary services to U.S. exploration and production companies.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $163.2m | $153.6m | $320.7m | $277.2m |
| Operating income (loss) | $11.4m | ($2.2m) | $20.6m | ($7.4m) |
| Net income (loss) | $6.1m | ($0.4m) | $12.3m | ($6.1m) |
| Diluted EPS | $0.24 | ($0.02) | $0.49 | ($0.29) |
| Adjusted EBITDA (non-GAAP) | $21.9m | $18.0m | $42.0m | $27.6m |
Q2 revenue rose 6% year over year; first-half revenue rose 16%. First-half growth came from all three segments: high-spec rigs revenue increased 10% to $155.1m, wireline increased 19% to $104.4m, and processing and ancillary services increased 27% to $61.2m. First-half cost of services grew 12%, slower than revenue, and declined to 83% of revenue from 86% in the prior-year period. Q2 cost of services was 84% of revenue versus 85%. Operating margin was approximately 7.0% in Q2 and 6.4% for the first half, compared with losses in the prior-year periods.
Q2 segment-level activity was mixed: high-spec rig hours declined to 113,200 from 119,900, while average revenue per rig hour increased 9% to $687. Wireline completed stage counts fell 8% to 7,400. Higher pricing, production and pump-down services, and increased activity in plugging and abandonment and coil tubing supported revenue. Management cited improved pricing and utilization, as well as lower G&A and depreciation, in the return to profitability.
Cash flow, liquidity and capital
- First-half operating cash flow was $40.9m, versus $7.8m in 2022. Investing used $8.2m, including $12.9m of property and equipment purchases; financing used $30.0m, including $5.9m for share repurchases. Cash increased $2.7m to $6.4m.
- At June 30, working capital was $67.8m, compared with $65.6m at December 31, 2022. Total assets were $364.8m and total liabilities were $90.8m.
- Ranger replaced its prior debt facilities on May 31 with a secured Wells Fargo revolving facility of up to $75m, maturing May 31, 2028 and secured by substantially all company assets. At quarter-end, the borrowing base was $64.3m; there were no borrowings, a $1.6m letter of credit, and $62.7m available. The company reported covenant compliance.
- Reported debt was $0.3m, consisting of installment purchases. In addition, the balance sheet includes operating lease obligations and $11.9m of other financing liabilities, primarily sale-leaseback arrangements. The filing reports $69.1m total liquidity, including cash and facility availability.
Outlook, risks and unusual items
- Management expects business opportunities and financial results to show “mild increases” if the global economy stabilizes and improves. It cited expected market tightening from OPEC+ production cuts, while warning that commodity prices and demand remain uncertain. The filing gives no numerical revenue or earnings guidance.
- Management stated an intention to return at least 25% of annual cash flows to investors. A $35m share repurchase program was authorized for up to 36 months; 548,100 shares had been repurchased for $5.9m through June 30. The board declared a $0.05-per-share quarterly dividend on August 7, payable September 8, 2023.
- The May refinancing resulted in a $2.4m debt-retirement loss. First-half capital expenditures were $17.4m per segment disclosure. No material litigation or material off-balance-sheet arrangements were reported.
- A June 2023 ownership change triggered another Section 382 limitation on use of net operating loss carryforwards. The company was assessing the tax consequences and did not expect a material cash-tax impact for the remainder of 2023. Management said a release of some or substantially all of the deferred-tax valuation allowance might be possible if profitability expectations are achieved; timing and amount are uncertain.
- Disclosure controls were deemed ineffective at June 30 because previously identified material weaknesses remained. These concerned segregation of duties and manual entries, IT access controls, and accounting for complex transactions. Remediation was underway but was not yet considered complete.
- Principal risks include sensitivity to oil and gas prices and customer activity, customer and receivable concentration, interest-rate exposure, labor and operating costs, safety and environmental incidents, severe weather, regulation, competition and geopolitical uncertainty. One customer represented 11% of Q2 revenue.
Important facts for investors to verify
- Whether revenue growth, pricing and utilization can offset declining rig hours or completed stage counts, and whether segment margins remain sustainable.
- Borrowing-base availability, facility covenants and the effects of the secured, asset-backed credit agreement if receivables or operating conditions weaken.
- Cash generation and capital spending relative to the stated capital-return objective, including the capacity to sustain repurchases and dividends.
- Progress in remediating the material weaknesses and the results of the Section 382 analysis and any valuation-allowance reassessment.
- The filing’s repurchase disclosure reports 548,100 shares bought through June 30 but also states that only 399,361 shares may yet be purchased under the plan; investors should verify how that remaining-share figure relates to the stated $35m authorization. Segment commentary also contains an apparent inconsistency: the Q2 wireline Adjusted EBITDA table shows $5.7m versus $4.3m, while accompanying narrative describes the prior-year amount as a loss.