Ranger Energy Services, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are primarily with fiscal 2018. The filing also reports unaudited quarterly results, including the fourth quarter.
Business context
Ranger provides U.S. onshore oilfield services through High Specification Rigs, Completion and Other Services (including wireline), and Processing Solutions (modular natural-gas processing equipment). Demand depends substantially on customer drilling and completion activity, commodity prices, and industry capital spending.
Financial performance and liquidity
- Revenue: $336.9 million, up 11% from $303.1 million. High Specification Rigs revenue fell 12% to $132.1 million; Completion and Other Services rose 36% to $184.3 million; Processing Solutions rose 19% to $20.5 million.
- Profitability: Operating income was $12.4 million, versus an operating loss of $2.1 million. Net income was $4.4 million, versus a net loss of $5.8 million; net income attributable to Ranger, Inc. was $1.8 million, or $0.21 per share, versus a $3.3 million loss, or $0.39 per share. Cost of services was 78% of revenue in both years; operating margin was approximately 3.7%, versus negative 0.7%.
- Adjusted EBITDA: $50.8 million, up from $41.1 million. This is a non-GAAP measure; the company cautions it is not a substitute for GAAP results.
- Cash flow and investment: Operating cash flow was $51.9 million, compared with $27.6 million. Investing cash outflow was $23.4 million, versus $74.4 million; capital expenditures were $23.5 million, versus $75.9 million. Financing cash outflow was $24.2 million, compared with $44.1 million of financing inflow.
- Balance sheet and liquidity: Cash was $6.9 million; working capital was $3.6 million, versus $2.2 million. Total assets were $293.5 million and stockholders’ equity was $203.0 million. Debt carrying value was $42.4 million, down from $60.5 million. The company reported $20.5 million available under its revolving facility and stated that it expected sufficient liquidity for at least 12 months.
- Fourth quarter: Revenue was $80.2 million, versus $85.3 million in Q4 2018; operating income was $1.6 million, versus $3.3 million. Net loss was $0.1 million, or $0.01 per share, versus net income of $1.7 million, or $0.11 per diluted share.
Changes versus 2018
- Rig activity weakened: rig hours declined 14% to 249,100 and average monthly hours per rig fell to 148 from 176. Lower crude-oil pricing was cited as a factor; average revenue per rig hour rose 3% to $527.
- Wireline drove most of the Completion and Other Services increase, contributing approximately $43.0 million of that segment’s $48.3 million revenue growth, as the business continued to expand following its 2017 launch.
- Processing Solutions growth included a rise in gas coolers rented to 50 units from eight.
- Adjusted EBITDA improved despite lower rig-segment EBITDA, supported by growth in Completion and Other Services and lower corporate and administrative costs. The 2018 results included a $9.0 million goodwill impairment; none was recorded in 2019.
- Debt declined, while net interest expense increased to $5.8 million from $3.7 million, primarily associated with the Encina financing arrangement.
Outlook, risks and notable items
- Management provided no specific revenue or earnings guidance. It said future liquidity is expected to rely primarily on operating cash flow and projected adequate liquidity for at least 12 months.
- Management said improved profitability could support release of some or substantially all of the deferred-tax valuation allowance, potentially as early as the first half of 2020; timing and amount remained uncertain.
- Key risks include oil-and-gas price volatility and reduced customer spending; customer concentration (EOG and Concho represented approximately 17% and 14% of 2019 revenue; the top five customers represented 49%); competition; operating, safety and environmental exposures; and regulatory changes affecting oilfield activity.
- Debt covenants and maturities remain important: the company reported compliance at year-end. The Encina financing carried an 8% plus LIBOR rate and was secured by certain rig assets. A 1 percentage-point rate change was estimated to affect annual interest expense by approximately $0.4 million; the company did not hedge interest-rate exposure.
- The company withheld payment of the $5.8 million ESCO seller note pending resolution of indemnification claims. It reported no legal proceedings expected to have a material adverse effect, but outcomes of ordinary-course claims cannot be assured.
- Potential Tax Receivable Agreement payments are a liquidity and transaction risk. The company estimated a $11.3 million present-value termination payment at December 31, 2019, subject to significant assumptions; change-of-control or early-termination payments may exceed realized tax benefits.
- Ranger repurchased 113,937 Class A shares for $0.7 million during 2019. It also settled a $3.0 million related-party liability by issuing 206,897 Class A shares.
- The filing identified an immaterial correction to previously reported 2019 interim diluted EPS and share counts. Management said the error would be revised in later interim filings. Management concluded internal controls were effective at year-end; the auditor did not attest to internal controls.
Important facts for investors to verify
- Whether the recovery in Completion and Other Services offsets continued weakness in rig utilization and pricing.
- Cash conversion, maintenance and growth capital needs, debt repayments, borrowing availability, and compliance with facility covenants.
- Customer concentration, receivable collectability, and the effect of the increased 2019 bad-debt allowance and expense.
- Resolution of the ESCO indemnification dispute and treatment of the $5.8 million seller note.
- Actual timing and amount of any valuation-allowance release or Tax Receivable Agreement payments, especially in a change-of-control scenario.
- Corrected interim diluted EPS disclosures and the distinction between GAAP earnings and Adjusted EBITDA.