Ranger Energy Services, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Ranger provides U.S. onshore well-service rigs, completion and other services, and modular gas-processing solutions.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $81.0 million | $88.3 million | Down 8% |
| Operating income | $4.0 million | $5.2 million | Down 23% |
| Net income | $2.8 million | $3.6 million | Down 22% |
| Net income attributable to Ranger | $1.5 million | $2.0 million | Down 25% |
| Basic / diluted EPS | $0.17 / $0.15 | $0.24 / $0.19 | Both lower |
| Adjusted EBITDA | $11.4 million | $14.2 million | Down $2.8 million |
Cost of services was $63.1 million, or 78% of revenue, versus $67.5 million, or 76%, a year earlier. Gross margin before depreciation and amortization was $17.9 million (22.1% of revenue), compared with $20.8 million (23.6%).
- High Specification Rigs: Revenue increased 10% to $34.9 million. Rig hours rose 4% to 62,400, utilization increased 6%, and average revenue per rig hour rose 7% to $558. Segment operating loss improved to $0.3 million from $0.5 million.
- Completion and Other Services: Revenue declined 16% to $43.3 million, primarily from a $6.3 million decrease in wireline revenue. Segment operating income fell to $8.9 million from $10.9 million.
- Processing Solutions: Revenue declined 44% to $2.8 million; MRU utilization fell to 16% from 76%, partly because customer contracts ended without renewal. Segment operating income was $0.7 million, down from $2.3 million.
General and administrative expense declined to $5.0 million from $7.2 million, largely reflecting a $2.1 million gain on retirement of the ESCO note. Net interest expense declined to $1.1 million from $1.3 million.
Cash flow, debt and liquidity
- Operating cash flow was $8.5 million, versus $9.9 million. Investing activities used $4.6 million, versus $10.5 million; financing activities provided $0.6 million, versus $3.7 million.
- Cash increased $4.5 million during the quarter to $11.4 million. Capital expenditures reported in the cash-flow statement were $4.7 million of property and equipment purchases.
- At March 31, cash was $11.4 million and credit-facility availability was $10.2 million. Working capital was a deficit of $6.3 million, versus a $3.6 million surplus at year-end, mainly because credit-facility debt was reclassified as current during cash dominion.
- Debt carrying value was $45.5 million, compared with $42.4 million at December 31, 2019. Aggregate principal maturities were $46.5 million, including $31.3 million due in the twelve months ending March 31, 2021. The company reported covenant compliance at quarter-end.
- Cash dominion reverted to Ranger on April 29, 2020, after the company maintained the required availability for 30 consecutive days. At that date, borrowings were $8.9 million and available borrowings were $15.8 million. The filing also describes cash plus available borrowings as approximately $20.3 million; these disclosures do not clearly reconcile.
Material changes and unusual items
- Overall revenue and Adjusted EBITDA declined, despite growth in High Specification Rigs, as weakness in Completion and Other Services and Processing Solutions more than offset rig-segment growth.
- Ranger paid $3.8 million to settle the ESCO seller note and related interest, recognizing a $2.1 million gain. It also repurchased 437,890 Class A shares for $3.1 million in total: 344,827 shares in a privately negotiated ESCO-related transaction and 93,063 under its announced repurchase program.
- After noting a stock-price decline and potential impairment indicators, the company tested long-lived assets and reported no impairment.
- Two customers accounted for 18% and 17% of Q1 revenue; together they represented approximately 28% of accounts receivable at quarter-end.
Outlook, commentary and risks
Management said the direct operational impact of COVID-19 began near quarter-end and that the subsequent effect on results, financial condition and liquidity was uncertain. The pandemic, reduced energy demand, the oil supply surplus and storage and transport constraints could reduce customer activity, utilization, pricing and collections. The filing cited April WTI futures prices as low as negative $37.63 per barrel and noted the April 12 OPEC Plus production-cut agreement. Ranger initiated organization-wide cost reductions, including workforce reductions, and said it expected sufficient liquidity and covenant compliance for at least the next 12 months. No quantified revenue or earnings guidance was provided.
A non-binding proposal received March 12 offered $6.00 per share in cash to acquire shares not owned by the proposing parties and T. Rowe Price Associates. An independent special committee was evaluating and negotiating the proposal; completion, terms and timing were uncertain. Other key risks include commodity-price volatility, customer spending cuts or payment delays, possible production curtailments, credit-facility restrictions and the risk of accelerated debt if covenants are breached. Management reported effective disclosure controls and no material litigation expected to adversely affect the company.
Important facts for investors to verify
- How post-quarter COVID-19 and oil-market conditions affected customer activity, segment utilization, pricing, collections and liquidity.
- The company’s actual cash position and credit availability after April 29; reconcile the stated $20.3 million combined liquidity figure with $8.9 million of borrowings and $15.8 million of availability.
- The effect of the current-debt reclassification and near-term maturities on covenant headroom and refinancing needs.
- Any developments in the $6.00-per-share take-private proposal, including whether an agreement is reached and on what terms.
- Customer concentration and the collectibility of receivables as customer spending and financial conditions change.