Ranger Energy Services, Inc. — Q1 2018 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2018. Ranger provides high-spec well-service rigs and complementary oilfield services, plus modular natural-gas processing equipment, across U.S. basins. Results include Well Services and Processing Solutions. Comparisons with Q1 2017 are affected by the August 2017 IPO and reorganization, and by the ESCO acquisition, whose assets were not included in reported Q1 2017 results.
Financial performance and position
- Revenue: $62.6 million, up 115% from $29.1 million. Well Services contributed $59.7 million (up 119%); Processing Solutions contributed $2.9 million (up 61%). Workover-rig revenue was $37.6 million versus $21.8 million.
- Profit and margins: Operating loss was $10.8 million versus $5.7 million; net loss was $10.3 million versus $6.2 million. Net loss attributable to Ranger was $5.7 million, or $0.68 per share. Cost of services was 82% of revenue in both periods, implying an approximately 18% service margin before overhead and depreciation. The reported loss includes a $9.0 million goodwill impairment.
- Adjusted EBITDA: $5.2 million, compared with a $0.6 million loss in Q1 2017. This is a non-GAAP measure; the filing reconciles it to net loss.
- Cash flow: Operating cash use was $1.1 million, versus $6.8 million used in Q1 2017. Investing activities used $11.0 million, including $8.2 million of cash property and equipment purchases and $4.0 million for the MVCI acquisition. Financing provided $7.9 million, including $15.6 million of revolver borrowings and $7.7 million of capital-lease principal payments. Cash declined $4.2 million to $1.1 million.
- Liquidity: Working capital was negative $4.7 million, compared with negative $3.2 million at year-end 2017. The $50 million revolver had $14.9 million drawn and approximately $16.1 million available, subject to borrowing-base limits. Management said cash, expected operating cash flow and revolver availability should cover requirements for the next 12 months.
- Debt and obligations: Long-term debt was $21.9 million, comprising $14.9 million under the revolver and $7.0 million of ESCO seller notes; $7.0 million was classified as current. Capital-lease obligations totaled $3.2 million. The filing lists $70.1 million of contractual commitments, including $31.3 million of rig purchase obligations, all due within one year.
- Balance sheet: Total assets were $262.5 million and total liabilities were $77.1 million at March 31, 2018. Net property, plant and equipment was $199.9 million. Goodwill fell from $9.0 million to zero following the impairment.
Changes versus the prior comparable period
- Rig hours increased 88% to approximately 73,600, while average active rigs rose from 67 to 134. Average monthly hours per rig declined from 194 to 184; average revenue per rig hour rose from approximately $457 to $487.
- Revenue growth reflected the expanded rig fleet and acquired assets. ESCO-acquired assets generated $9.6 million of Q1 2018 revenue; the filing attributes approximately $7.5 million of the year-over-year workover-rig revenue increase to ESCO.
- Operating expenses rose 111%, including higher service costs and depreciation, and the $9.0 million impairment. G&A declined 4% to $7.0 million, partly because Q1 2017 included IPO-related professional and other expenses.
- On January 31, 2018, Ranger acquired MVCI Energy Services for $4.0 million cash, adding well-testing services. The purchase-price allocation was still under evaluation; pro forma results were not presented because the impact was deemed immaterial.
Outlook, commentary, risks and unusual items
- No specific revenue, earnings, utilization or capital-spending guidance is provided. Management identifies operating cash flow and revolver borrowings as expected primary liquidity sources and says liquidity is expected to be sufficient for 12 months.
- The $9.0 million goodwill impairment followed a sustained decline in the company’s stock price and a quantitative test that found Well Services’ fair value below carrying value. Management concluded that property, plant and equipment and intangible assets were not impaired.
- Demand and pricing depend on U.S. oil and gas activity, commodity prices, customer capital availability, weather and other industry conditions. Ranger does not hedge its indirect commodity-price exposure or its interest-rate exposure. A 1 percentage-point rate change was estimated to affect annual interest expense by approximately $0.2 million.
- Customer concentration is material: EOG Resources and PDC Energy generated approximately 21% and 7% of Q1 revenue, respectively. The three largest Processing Solutions receivable balances represented approximately 35%, 27% and 26% of that segment’s receivables.
- Disclosure controls were reported as not effective at March 31, 2018 because of a previously identified material weakness involving insufficient qualified accounting personnel, complex/non-routine transaction accounting, and financial-close and reporting controls. Remediation efforts were ongoing.
- The company reported no material litigation and said existing matters were not expected to materially adversely affect its financial position or results. It recorded $0.7 million of severance liability at quarter-end.
Key facts investors should verify
- Whether operating cash generation improves enough to support negative working capital, low cash on hand and committed rig purchases.
- Actual borrowing-base availability and compliance with revolver covenants, including the liquidity-linked fixed-charge coverage requirement.
- Whether fleet expansion sustains rig utilization and margins, given lower average hours per rig despite higher total rig hours.
- The assumptions and valuation inputs behind the goodwill impairment, and whether further impairment indicators arise.
- Progress in remediating the material weakness in disclosure controls and financial reporting.
- The final MVCI purchase-price allocation, customer concentration, and timing and funding of seller-note and rig-purchase obligations.