Ranger Energy Services, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Ranger provides U.S. onshore well-service rigs, completion and related services, and modular natural-gas processing equipment.
Financial results and liquidity
Amounts are in millions of dollars except per-share data. Results were sharply lower year over year as customer activity and demand declined amid COVID-19 and oil-market disruption.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $34.6 | $84.1 | $146.3 | $256.7 |
| Operating income (loss) | $(5.0) | $1.6 | $(9.1) | $10.8 |
| Net income (loss), consolidated | $(5.7) | $(0.9) | $(11.8) | $4.5 |
| Net income (loss) attributable to Ranger | $(3.2) | $(0.5) | $(6.6) | $2.5 |
| Adjusted EBITDA | $4.4 | $12.2 | $19.0 | $39.4 |
Q3 cost of services was $26.6 million, or 77% of revenue, versus $66.7 million, or 79%, a year earlier. For the nine months, cost of services was $113.5 million, approximately 78% of revenue, versus $199.8 million, also approximately 78%. Revenue less cost of services was $8.0 million in Q3 and $32.8 million for the nine months. Interest expense was $0.8 million and $2.7 million, respectively. Ranger reported basic and diluted loss per share of $0.38 for Q3 and $0.77 for the nine months.
Operating cash flow was $27.3 million for the nine months, compared with $36.3 million in 2019. Investing activities used $5.6 million, including $6.4 million of property and equipment purchases; financing activities used $25.2 million. Cash declined $3.5 million to $3.4 million. At September 30, working capital was a deficit of $1.8 million, versus a surplus of $3.6 million at year-end 2019.
Balance-sheet debt carrying value was $22.4 million, down from $42.4 million at December 31, 2019; finance lease obligations were a further $4.7 million. The $50 million revolving facility had a $13.4 million borrowing base, $3.0 million drawn and $10.4 million available at September 30. Total liabilities were $50.8 million and total assets were $241.4 million. Management reported compliance with debt covenants and approximately $14.0 million of cash and available revolver borrowings at October 21.
Material changes and operating performance
- Q3 revenue fell 59%; nine-month revenue fell 43%. All three segments declined. Nine-month segment revenue was $60.8 million for High Specification Rigs, $79.9 million for Completion and Other Services, and $5.6 million for Processing Solutions.
- High-spec rig hours declined 52% in Q3 and 36% for the nine months; rig utilization also fell 51% and 36%, respectively. Average revenue per rig hour was $480 in Q3, down 7%, and $518 for the nine months, down 1%.
- Wireline activity was a major factor in Completion and Other Services weakness: active units fell from 10 to 6. Processing Solutions MRU utilization fell from 52% to 9%, partly because customer contracts ended without renewal.
- Nine-month Adjusted EBITDA fell $20.4 million to $19.0 million. Q3 Adjusted EBITDA fell $7.8 million to $4.4 million. These are non-GAAP measures and should be considered alongside GAAP results.
- Capital spending was reduced substantially; the company eliminated planned growth capital expenditures for the rest of 2020 and expected minimal remaining-year capital expenditures.
Outlook, risks and unusual items
- Management said it expected liquidity to fund operations and covenant compliance for at least 12 months from the financial statements’ issuance. This is a management expectation, not quantified earnings guidance; the filing provides no revenue or profit forecast.
- Cost actions included an approximately 50% workforce reduction and salary cuts; management said payroll expense had fallen by more than 60% since the start of 2020. Further actions may be taken.
- Management cited ongoing uncertainty from COVID-19, oil and gas oversupply, commodity-price volatility, customer spending cuts, storage and transportation constraints, supplier or workforce disruption, and potential customer payment delays. Prolonged weakness could reduce asset utilization and affect property and intangible asset carrying values.
- The revolving facility’s borrowing base depends on eligible receivables and had declined to $13.4 million from $30.5 million at December 31, 2019. Cash-dominion provisions and financial covenants may constrain liquidity; revolver pricing increased effective October 1, 2020.
- Two customers represented 40% of Q3 revenue combined, and approximately 27% of net receivables was due from those customers. Customer concentration and collection risk remain relevant.
- Ranger settled the ESCO seller note and accrued interest for $3.8 million and recognized a $2.1 million debt-retirement gain. It also paid $2.4 million to repurchase shares from ESCO. The filing reports no material litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether customer demand, rig hours, utilization and wireline activity recover, and whether ended processing contracts are replaced.
- Whether the stated 12-month liquidity expectation holds given the working-capital deficit, low cash balance and receivables-based borrowing base.
- Current revolver availability, borrowing-base changes, cash-dominion status, covenant compliance and the impact of the October 1 rate-margin increase.
- Customer concentration, payment patterns and exposure to further reductions in E&P spending or oil and gas prices.
- The treatment and cash implications of the ESCO settlement, share repurchases and remaining debt and lease obligations.