Ranger Energy Services, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. Ranger provides U.S. onshore well-servicing rigs, wireline, processing and ancillary services. Its three reporting segments are High Specification Rigs, Wireline Services, and Processing Solutions and Ancillary Services.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $177.0 million | $81.7 million | $454.2 million | $170.0 million |
| Operating income (loss) | $18.0 million | $(8.1) million | $10.6 million | $(23.9) million |
| Net income (loss) | $13.6 million | $(9.1) million | $7.5 million | $(26.5) million |
| Diluted EPS | $0.54 | $(0.51) | $0.33 | $(1.63) |
| Adjusted EBITDA | $30.3 million | $3.3 million | $57.9 million | $5.1 million |
Q3 revenue increased 117% year over year; nine-month revenue increased 167%. Cost of services was 78% of revenue in Q3 versus 91% a year earlier, and 83% for the nine-month period versus 90%. Adjusted EBITDA is a non-GAAP measure defined by the company.
- Q3 segment revenue: High Specification Rigs $79.7 million; Wireline Services $60.6 million; Processing Solutions and Ancillary Services $36.7 million.
- Nine-month segment revenue: $220.6 million, $148.7 million and $84.9 million, respectively.
- Cash flow, nine months: Operating cash flow was $18.5 million, investing activities provided $12.5 million, and financing activities used $26.4 million. Cash increased $4.6 million to $5.2 million.
- Balance sheet at September 30: Total assets $408.2 million; total liabilities $150.5 million; stockholders’ equity $257.7 million. Working capital was $54.0 million.
- Debt and liquidity: Debt carrying value was $43.3 million (aggregate principal maturities shown as $43.5 million). Cash plus revolver availability totaled $35.7 million, including $30.5 million available on the revolving facility. The company reported covenant compliance.
Changes and key drivers
- Growth reflects higher activity and pricing, as well as the October 2021 Basic asset acquisition and the 2021 Patriot and PerfX acquisitions. Basic assets contributed $60.8 million of Q3 revenue and $157.3 million for the first nine months of 2022.
- High-spec rig hours rose 140% in Q3 and 143% year to date; average revenue per rig hour increased 11% and 13%, respectively. Wireline stage counts fell 19% in Q3 but rose 43% year to date.
- Operating cash flow declined by $4.9 million year over year despite the return to profitability, principally as working capital consumed cash; contract assets increased $25.7 million in the nine-month cash flow statement.
- Total debt carrying value declined from $62.5 million at December 31, 2021. Term Loan B was repaid and terminated in August 2022; the revolving facility was amended in September, including transition from LIBOR to SOFR effective October 1.
Outlook, risks and unusual items
- Management said it currently expects sufficient funds to meet short- and long-term liquidity needs and comply with debt covenants; the filing provides no quantified revenue, earnings or activity guidance.
- Management cited commodity-price volatility, COVID-19, the Russia-Ukraine conflict, inflation, higher interest rates and potential recession as uncertainties that could affect customer activity, costs, cash flows and financial condition. A prolonged decline in oil and gas prices could reduce demand for services; the company does not intend to hedge this indirect commodity exposure.
- Unusual items include a $0.8 million Q3 and $3.6 million year-to-date net-of-tax bargain-purchase gain from measurement-period adjustments to the Basic acquisition; a $1.1 million Q3 gain on asset disposals; and $1.3 million year-to-date impairment of assets held for sale. The $5.1 million held-for-sale balance primarily comprised excess Basic-acquired assets, intended for sale to help repay debt.
- Disclosure controls were deemed ineffective at quarter-end because of a continuing material weakness in controls over non-routine and complex transactions. Management said remediation was in progress. The company also expected to lose emerging-growth-company status on December 31, 2022.
- The company reported no material litigation and stated that existing legal matters were not expected to have a material adverse effect. It had $1.1 million of deferred payroll taxes due December 31, 2022.
Important facts for investors to verify
- Whether operating cash generation improves as accounts receivable and contract assets are collected, and how much of reported earnings converts to cash.
- Availability and terms of the borrowing-base revolver, the $30.4 million current portion of debt, scheduled maturities, and reliance on asset sales to repay debt.
- How much of revenue and profitability growth is attributable to the Basic acquisition versus underlying activity, pricing and utilization; compare GAAP results with Adjusted EBITDA.
- Progress in remediating the material weakness and any effects on reporting reliability or future filings.
- Exposure to customer concentration (Occidental Petroleum was 11% of Q3 revenue and 15% of net receivables) and to oilfield demand, inflation and interest-rate changes.