Ranger Energy Services, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Ranger provides well-service rigs, completion services and natural-gas processing solutions across U.S. oil and gas basins.
Financial performance
- Third quarter revenue: $84.1 million, up 2% year over year. High-spec rig revenue fell 16% to $32.5 million; Completion and Other Services rose 15% to $45.3 million; Processing Solutions rose 58% to $6.3 million.
- Third quarter earnings: Operating income was $1.6 million versus $4.4 million; net loss was $0.9 million versus net income of $4.0 million. Net loss attributable to Ranger was $0.5 million, or $0.06 per share, versus income of $2.1 million, or $0.25 per share.
- Third quarter margins: Cost of services was 79% of revenue versus 77% a year earlier. Operating margin was approximately 1.9% versus 5.4%. Adjusted EBITDA, a non-GAAP measure, was $12.2 million versus $12.6 million.
- Nine-month revenue: $256.7 million, up 18%. High-spec rig revenue declined 15% to $97.3 million, while Completion and Other Services increased 55% to $143.2 million and Processing Solutions increased 49% to $16.2 million.
- Nine-month earnings: Operating income was $10.8 million versus an operating loss of $5.4 million; net income was $4.5 million versus a net loss of $7.5 million. Ranger-attributable income was $2.5 million, or $0.29 per share, versus a loss of $4.3 million, or $0.51 per share. The prior-year period included a $9.0 million goodwill impairment.
- Nine-month cash flow: Operating cash flow was $36.3 million, up from $24.9 million. Investing used $19.0 million versus $56.1 million; financing used $11.9 million versus providing $27.9 million. Cash increased $5.4 million to $8.0 million.
- Liquidity and debt: Working capital was $9.6 million. The company reported $17.2 million available under its revolving facility. Debt carrying value was $52.8 million; disclosed principal outstanding was approximately $54.0 million, including a $5.8 million ESCO seller note. The Encina financing carried a 10.2% weighted-average rate; the credit facility rate was 4.2%. Finance lease obligations totaled $9.6 million, and operating lease obligations were $7.0 million.
Changes and management commentary
- Rig activity weakened: third-quarter rig hours fell 16% to approximately 62,400, and average monthly utilization declined to 149 hours per rig from 178. Nine-month rig hours fell 18%; average revenue per rig hour rose to $524 from $505.
- Completion growth, primarily wireline, and expanded processing equipment offset lower rig revenue. Wireline units increased to 13 from nine year over year.
- Management said it expects sufficient funds to meet liquidity needs for at least the next 12 months, based on cash, operating cash generation and credit availability. This is management’s assessment, not quantified earnings guidance.
- Management believed it could achieve three-year cumulative profitability within the next 12 months, potentially as early as Q1 2020, which could support releasing some or substantially all of its deferred-tax valuation allowance. Timing and amount remain uncertain.
Risks, contingencies and unusual items
- Results depend on U.S. oil and gas activity, commodity prices, customer spending, pricing and operating conditions. The filing highlights interest-rate exposure; a 1 percentage-point rate change was estimated to affect annual interest expense by approximately $0.5 million.
- Customer concentration is significant: EOG and Concho accounted for 19% and 14% of third-quarter revenue, respectively; together they represented approximately 25% of receivables at September 30.
- The company withheld payment of the $5.8 million ESCO seller note and accrued interest while pursuing indemnification claims for alleged contract breach. The filing does not quantify the eventual resolution or outcome.
- Debt agreements contain financial and other covenants. Ranger reported compliance at September 30, 2019. The Encina facility is secured by certain high-spec rig assets.
- Adoption of lease accounting effective January 1, 2019 added an $8.3 million operating-lease right-of-use asset and corresponding liability. Ranger repurchased 47,474 Class A shares for $0.3 million during the nine months and settled a $3.0 million related-party liability by issuing 206,897 Class A shares.
- The filing reported no material litigation and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material quarter-to-quarter change in internal control over financial reporting.
Investor verification priorities
- Track rig utilization, rig hours and pricing, and whether completion-services growth translates into durable segment profitability.
- Verify cash conversion, working-capital needs, borrowing-base availability and covenant headroom as activity changes.
- Confirm the status and accounting treatment of the ESCO indemnification dispute and $5.8 million seller note.
- Monitor interest costs, debt maturities and the secured Encina financing, as well as customer concentration and receivable collections.
- Assess whether the anticipated profitability supports any valuation-allowance release; the timing and amount are uncertain.