Ranger Energy Services, Inc. quarterly report, Q2 FY2020

Ranger Energy Services, Inc. — Q2 2020 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2020. Ranger provides U.S. onshore well-service rigs, completion and other services, and modular natural-gas processing solutions. Amounts below are in millions of dollars unless noted.

Financial performance and position

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Revenue	$30.7	$84.3	$111.7	$172.6
Operating income (loss)	$(8.1)	$4.0	$(4.1)	$9.2
Net income (loss), consolidated	$(8.9)	$1.8	$(6.1)	$5.4
Net income (loss) attributable to Ranger	$(4.9)	$1.0	$(3.4)	$3.0
Adjusted EBITDA, non-GAAP	$3.2	$13.0	$14.6	$27.2

• Q2 revenue fell 64% year over year; six-month revenue fell 35%. Every segment contracted. Q2 revenue was $11.4 from High Specification Rigs, $17.7 from Completion and Other Services, and $1.6 from Processing Solutions.
• Cost of services was 78% of revenue in both Q2 and the first half, implying an approximately 22% margin before depreciation and amortization. Depreciation and amortization was $9.5 in Q2 and $18.4 for the first half; operating margins were negative.
• Q2 diluted loss per share was $0.58; first-half diluted loss per share was $0.40. Q2 interest expense was $0.8, down from $1.9; first-half interest expense was $1.9, down from $3.2.
• First-half cash from operations was $24.2, compared with $14.2 in 2019; investing used $5.5, compared with $15.5. Financing used $19.6, including debt repayments, the ESCO settlement and share repurchases. Cash declined $0.9 to $6.0.
• At June 30, cash was $6.0, current assets $26.9 and current liabilities $28.3, a working-capital deficit of $1.4. Total assets were $248.1, liabilities $52.9 and equity $195.2.
• Debt carrying value was $26.8 ($10.0 current and $16.8 long-term); aggregate principal due was $27.7. Separately, finance lease obligations totaled $6.3. The Encina financing principal was $22.7 and bore 9.5% interest at quarter-end.
• The credit facility borrowing base was reduced to $15.8; $5.0 was drawn and $10.8 remained available at June 30. Ranger paid the $5.0 draw in July; as of July 22, it reported no facility borrowings and $10.1 of availability.

Material changes versus comparable periods

• The downturn sharply reduced activity: Q2 rig hours declined 60% to 24,600 and average revenue per rig hour declined 13% to $463. First-half rig hours fell 29% to 87,000, while average revenue per hour rose 1% to $531.
• Active wireline units fell from 10 to 5 year over year; processing-equipment utilization fell from 78% to 12%, partly because certain customer contracts ended without renewal.
• Q2 Adjusted EBITDA fell $9.8 to $3.2; first-half Adjusted EBITDA fell $12.6 to $14.6. These are non-GAAP measures and should be considered alongside GAAP results.
• Accounts receivable declined to $16.0 from $41.5 at year-end 2019, contributing to operating cash generation. Property and equipment, net, declined to $206.6 from $218.9.
• Debt declined from $42.4 at year-end to $26.8 carrying value. First-half capital expenditures were $5.8 in the cash-flow statement, versus $16.0 in 2019; management said planned growth capex for the remainder of 2020 was eliminated.

Outlook, commentary and risks

• Management attributed the downturn to COVID-19-related demand reductions and the oil supply-demand imbalance, including OPEC Plus production actions. It said the duration and financial effects remained uncertain and provided no specific revenue or earnings guidance.
• Ranger reported workforce reductions of approximately 60% and payroll expense down more than 70% since the beginning of 2020, alongside salary, travel and other expense cuts. Management expected sufficient liquidity for at least 12 months and expected to remain covenant-compliant.
• The company identified risks from continued weak commodity prices and customer spending, limited storage or transportation capacity, lower asset utilization, customer payment delays, and possible impairment of long-lived assets. It performed an impairment analysis after a sustained share-price decline and recorded no impairment.
• Two customers represented 23% and 18% of Q2 revenue; each represented 19% of first-half revenue. Management also disclosed concentrated receivables, particularly in Completion and Other Services and Processing Solutions.
• The ESCO seller-note settlement generated a $2.1 gain on debt retirement. A proposed $6.00-per-share take-private transaction was abandoned in May 2020. The company repurchased shares during the first half, including 344,827 shares from ESCO; its separate repurchase program ended June 30.
• Ranger reported compliance with its credit-facility and Encina covenants at June 30. Credit-facility cash-dominion provisions, borrowing-base reductions and scheduled debt maturities remain relevant liquidity considerations. No material litigation or material off-balance-sheet arrangements were reported.

Investor verification priorities

1. Test whether reported operating cash flow is repeatable: first-half cash generation benefited materially from receivables collection and working-capital movements.
2. Track cash, borrowing-base availability, covenant headroom and upcoming debt principal payments, especially if receivables or customer activity decline further.
3. Verify recovery in rig hours, rig utilization, wireline unit count and processing-equipment utilization, as well as pricing and segment margins.
4. Assess whether cost reductions can be sustained without impairing operating capacity, safety or the ability to respond to a recovery.
5. Monitor customer concentration, receivables collection, commodity-price and storage-market developments, and any future impairment testing or material contingencies.
6. Reconcile non-GAAP Adjusted EBITDA to GAAP results and distinguish the one-time $2.1 debt-retirement gain from recurring performance.