Ranger Energy Services, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Ranger provides U.S. well services and natural gas processing. Comparisons with 2017 are affected by the August 2017 ESCO acquisition and the company’s reorganization and IPO; the 2017 periods largely exclude ESCO’s results.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $82.1 million | $41.1 million | $217.8 million | $103.8 million |
| Operating income (loss) | $4.4 million | $(4.8) million | $(5.4) million | $(15.2) million |
| Net income (loss), consolidated | $4.0 million | $(9.5) million | $(7.5) million | $(21.5) million |
| Net income (loss) attributable to Ranger | $2.1 million | $(3.5) million | $(4.3) million | $(3.5) million |
| Adjusted EBITDA | $12.6 million | $3.0 million | $27.4 million | $7.6 million |
Q3 revenue doubled, led by Well Services ($78.1 million, up 100%); Processing Solutions revenue was $4.0 million, up 90%. For the nine months, Well Services revenue rose 111% and Processing Solutions rose 85%. Management cited the larger active rig fleet and the expansion of wireline operations, particularly in the Permian. Adjusted EBITDA is a non-GAAP measure.
Cost of services was 77% of revenue in Q3 versus 82% a year earlier, and 79% for the nine-month period versus 80%. Q3 operating margin was approximately 5.4%, compared with approximately negative 11.7%; nine-month operating margin was approximately negative 2.5%, compared with approximately negative 14.6%. Q3 diluted EPS was $0.23; nine-month diluted loss per share was $0.48.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $24.9 million, versus cash used of $7.6 million in 2017. Investing cash outflow was $56.1 million, including $56.1 million of PP&E purchases, partly offset by asset-sale proceeds. Financing provided $27.9 million. Cash fell $3.3 million to $2.0 million.
- At September 30, current assets were $63.6 million and current liabilities $75.5 million, a working-capital deficit of $11.9 million. Accounts receivable was $49.7 million.
- Debt carrying value was $44.1 million, versus $7.1 million at year-end 2017; capital lease obligations were another $10.4 million. Disclosed principal outstanding included $18.5 million on the revolving facility, $21.1 million under the equipment financing agreement and $5.8 million of seller notes. The revolver had $21.7 million available, and management reported covenant compliance.
- Management expected cash, operating cash flow and available borrowing capacity—including approximately $18.0 million under the equipment financing agreement—to meet liquidity needs for the next 12 months.
Material changes, outlook and risks
- The active rig fleet averaged 139 rigs in Q3, versus 99 a year earlier; operating rig hours increased 25%. However, average monthly hours per rig declined to 178 from 199. Nine-month average revenue per rig hour increased to about $505 from $448.
- The company recorded a $9.0 million goodwill impairment after a sustained share-price decline triggered testing. It reported no remaining goodwill and concluded its long-lived assets were not impaired.
- In October 2018, Ranger borrowed an additional $9.9 million under its equipment financing agreement, intended for capital equipment. It also notified ESCO Leasing of a claim for contractual indemnification and stopped payments on the remaining $5.8 million seller-note principal and unpaid interest. The filing does not resolve the dispute’s outcome.
- No specific earnings or revenue guidance was provided. Results remain exposed to oil and gas activity and commodity-price effects on customer demand, service pricing, competition, weather and financing conditions. EOG represented about 22% of nine-month Well Services revenue; EOG and Centennial together represented approximately 27% of receivables at quarter-end.
- Disclosure controls were reported ineffective because of a material weakness in controls over non-routine and complex transactions. Management was evaluating additional controls and accounting-staffing needs. The company reported no material litigation and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Progress and outcome of the ESCO indemnification claim, and any consequences of withholding seller-note payments.
- Actual borrowing availability, covenant headroom and liquidity after the October financing draw and planned equipment purchases.
- Whether accounts receivable collection and customer concentration affect operating cash flow and working capital.
- Whether rig utilization, revenue per rig hour and service margins can be sustained as the fleet and wireline business expand.
- Remediation of the material weakness and the effect of acquisition-related comparability and the company’s dual-class/non-controlling ownership structure.