Ranger Energy Services, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 13, 2018. Although the request references 2017 Q4, this is an annual filing. Fourth-quarter figures are noted below. Results include the ESCO assets only from August 16, 2017, and are not directly comparable with prior periods because of acquisitions and the August IPO and reorganization.
Business context
Ranger provides high-spec well servicing and related equipment and services, plus modular natural-gas processing solutions, across U.S. oil and gas basins. At year-end it had 135 well-service rigs, 134 high-spec, and more than 25 mechanical refrigeration units. It operates through Well Services and Processing Solutions segments.
Financial and operating highlights
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $154.0 million | $52.8 million |
| Operating loss | $20.6 million | $4.5 million |
| Net loss | $27.3 million | $5.0 million |
| Adjusted EBITDA (non-GAAP) | $11.2 million | $3.1 million |
| Cash used in operating activities | $17.3 million | $5.2 million |
| Cash used in investing activities | $68.9 million | $25.4 million |
| Cash provided by financing activities | $89.9 million | $31.1 million |
- Revenue rose 192%. Well Services revenue increased 215% to $145.7 million, largely reflecting a larger fleet, acquisitions and higher activity; Processing Solutions revenue increased 28% to $8.3 million.
- Cost of services increased to $126.4 million, or 82% of revenue, from $39.3 million, or 75%. Implied gross margin fell to approximately 18% from 25%. Operating and net losses widened despite higher revenue.
- General and administrative expense increased to $30.4 million from $11.4 million, including offering-related, payroll, severance, professional and equity-compensation costs. Net interest expense was $6.3 million, including a $5.2 million make-whole payment associated with settling related-party debt.
- Adjusted EBITDA is a company-defined non-GAAP measure and excludes, among other items, equity compensation, acquisition and severance costs, and offering costs; it should not be treated as GAAP profit or cash flow.
- Rig utilization averaged 194 monthly hours per rig versus 178 in 2016; reported rig hours were 211,200 versus 58,800. Acquisitions and fleet growth materially affect these comparisons.
- For Q4 2017, revenue was $50.1 million, operating loss $5.2 million and net loss $5.6 million; diluted loss per share was $0.36.
- Year-end cash was $5.3 million; working capital was negative $3.2 million. Total assets were $259.7 million and equity was $195.7 million.
- Year-end long-term debt was $7.1 million, principally $7.0 million in ESCO seller notes; capital-lease obligations were $9.5 million. The company reported less than $0.1 million drawn on its $50 million asset-based revolver and $21.9 million of available borrowing capacity.
- Capital expenditures were reported as $56.9 million. Cash used in investing also included $47.7 million for the ESCO acquisition. Operating cash use and working-capital use increased; the company reported $14.5 million of working-capital cash use in 2017.
Material changes, outlook and risks
- The August IPO raised $85.0 million gross and $80.8 million net. Proceeds funded debt repayment, the cash portion of the ESCO acquisition, offering costs, bonuses, capital expenditures and general business needs. ESCO consideration totaled $59.7 million, including $47.7 million cash, $7.0 million seller notes and $5.0 million stock.
- Management said cash, expected operating cash flow and revolver availability were expected to meet liquidity needs for the next 12 months. No specific revenue, earnings or utilization guidance was provided.
- The company expected delivery of nine additional high-spec rigs during 2018, but the supplier was not obligated to meet that timetable and faced no delay penalties. Rig purchase obligations included $37.6 million due in 2018.
- Principal business risks include oil and gas spending and commodity-price volatility, competitive pricing, customer concentration and credit risk, labor availability and costs, weather, regulation and environmental exposure, and integration of acquisitions. The top five customers generated approximately 47% of 2017 revenue; Processing Solutions’ top five accounted for approximately 92% of that segment’s revenue.
- The filing reports a material weakness in internal control over financial reporting related to accounting for non-routine and complex transactions, as well as staffing and close-process deficiencies. Management was implementing remediation; the filing does not establish that remediation was complete. An immaterial error correction recorded a $3.0 million liability and reduced equity by the same amount, without changing net loss or total assets.
- A potential Tax Receivable Agreement termination at December 31, 2017 was estimated to require approximately $8.1 million in present-value payments; this was an estimate and could differ materially. The agreement generally entitles covered holders to 85% of specified realized tax savings.
- Management did not expect ordinary-course legal matters to have a material adverse effect. The company reported no cash dividends planned for the foreseeable future.
Important facts for investors to verify
- How much of revenue and EBITDA growth reflects acquired operations versus organic activity, pricing and utilization; compare reported results with the filing’s unaudited pro forma acquisition figures.
- Whether operating cash flow, negative working capital and available revolver capacity support planned operations and the 2018 rig purchases and other obligations.
- Current customer concentration, payment performance and Processing Solutions exposure to a small number of customers.
- Progress in remediating the material weakness and controls over complex transactions, financial close and reporting.
- Actual rig-delivery timing and final acquisition, seller-note and capital-lease obligations, plus any Tax Receivable Agreement payments or covenant constraints.