Ranger Energy Services, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Ranger provides U.S. onshore well-service rigs, wireline services, and processing and ancillary services. This unaudited quarterly report covers the three and six months ended June 30, 2022; comparisons are to the corresponding 2021 periods. Results include businesses acquired in 2021, notably Basic, PerfX and Patriot, so year-over-year growth reflects both acquisitions and higher activity.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $153.6 million | $50.0 million | $277.2 million | $88.3 million |
| Operating loss | $2.2 million | $8.5 million | $7.4 million | $15.8 million |
| Net loss | $0.4 million | $9.1 million | $6.1 million | $17.4 million |
| Adjusted EBITDA, non-GAAP | $18.0 million | $2.0 million | $27.6 million | $1.8 million |
| Operating cash flow | Not stated for the quarter | $7.8 million | $(4.1) million |
- Revenue and margins: Q2 revenue rose 207%; six-month revenue rose 214%. Cost of services was 85% of revenue in Q2 and 86% for the six months, versus 88% and 89% a year earlier. Implied gross margin before depreciation and amortization was approximately 15.4% in Q2 and 14.1% for the six months. Operating margins were approximately -1.4% and -2.7%, respectively.
- Segment performance: Q2 segment revenues were $76.0 million for High Specification Rigs, $49.5 million for Wireline, and $28.1 million for Processing Solutions and Ancillary Services. Six-month segment operating income was $13.8 million, a $3.0 million loss, and $6.4 million, respectively; corporate and other costs contributed to the consolidated operating loss.
- Cash flow and capital spending: Six-month investing cash flow was positive $8.2 million, including $13.9 million of asset-sale proceeds; purchases of property and equipment were $5.7 million in the cash flow statement. Financing cash flow was negative $11.5 million. Cash increased $4.5 million to $5.1 million. Operating cash flow benefited from improved operations but was offset by $20.9 million of working-capital use, including growth in contract assets.
- Liquidity: June 30 working capital was $24.3 million, versus $2.5 million at December 31, 2021. Total liquidity was $28.3 million: $5.1 million cash plus $23.2 million available under the revolving facility.
- Debt: Debt carrying value was $56.5 million ($56.9 million aggregate principal), compared with $62.5 million at year-end. Current debt was $42.3 million and long-term debt $14.2 million. The company had $33.9 million drawn on its revolving facility and $11.7 million principal outstanding on its M&E term loan. Term Loan B, with $2.8 million principal outstanding at quarter-end, was scheduled to mature in September 2022. The company reported covenant compliance at June 30.
Material changes versus the prior comparable period
- Growth spanned all segments and reflected acquired operations as well as higher industry activity. Q2 rig hours increased 139% to 119,900, and completed wireline stage counts increased 167% to 8,000. Six-month rig hours rose 149% and stage counts 166%.
- Q2 cost of services increased 195%, less than revenue growth of 207%; six-month cost of services increased 204%, below revenue growth of 214%. General and administrative expense rose 97% in Q2 and 121% for the six months, with management citing added corporate staffing and professional and transaction costs.
- Net losses narrowed year over year, while six-month Adjusted EBITDA increased to $27.6 million from $1.8 million. Adjusted EBITDA is a non-GAAP measure and excludes items including interest, taxes, depreciation and acquisition-related costs.
- Q2 and six-month results included a $2.8 million after-tax bargain-purchase gain from measurement-period adjustments to the Basic acquisition. The company also recorded a $1.1 million impairment of assets held for sale and a $1.1 million loss on asset sales.
- On April 18, 2022, 6.0 million Series A preferred shares converted into Class A common shares. The filing reports 24,817,028 Class A shares outstanding as of July 31, 2022.
Outlook, risks, contingencies and unusual items
- Management stated it expected sufficient funds to meet liquidity needs and debt covenants for at least 12 months from issuance of the financial statements. No specific revenue, earnings, or capital-spending guidance was provided.
- Management noted improved commodity prices and operating activity in Q2 but cautioned that market volatility could continue. COVID-19 effects and the Russia-Ukraine conflict may affect customer activity, commodity prices, supply chains, earnings and cash flows; the duration and impact were uncertain.
- Oilfield-service demand is indirectly exposed to oil and natural-gas prices. The company does not intend to hedge this indirect commodity-price exposure. It also faces variable interest-rate exposure; management estimated a 1 percentage-point rate change would affect annual interest expense by less than $0.5 million.
- Two customers each represented 10% or 11% of Q2 revenue, and those two customers together represented approximately 22% of net accounts receivable at June 30. Customer concentration creates collection and demand exposure.
- The company had $1.1 million of deferred payroll taxes due December 31, 2022. Management reported no material pending litigation and no material off-balance-sheet arrangements.
- Controls: Management concluded disclosure controls were ineffective at June 30 because of an unresolved material weakness in controls over non-routine and complex transactions. Remediation was underway; failure to remediate could impair reporting reliability.
- The company expected to lose emerging growth company status on December 31, 2022. It was in compliance with its credit agreement covenants at quarter-end, but substantial secured debt and the near-term Term Loan B maturity warrant attention.
Important facts for investors to verify
- Whether Term Loan B and other near-term principal obligations were repaid, refinanced, or otherwise addressed after June 30, 2022; the filing notes a subsequent $1.8 million Term Loan B payment.
- Whether the $23.2 million of revolving availability and stated 12-month liquidity outlook remain adequate as working-capital needs and activity change.
- How much reported growth and profitability is attributable to acquired businesses versus sustained organic activity, and whether segment margins hold up as costs change.
- Whether increased contract assets and receivables convert to cash promptly, given six-month working-capital cash use and customer concentration.
- Progress in remediating the material weakness in controls over complex transactions and the effect of losing emerging growth company status.