Ranger Energy Services, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Ranger provides high-spec well services and modular natural gas processing services across U.S. oil and gas basins. Comparisons with 2017 require caution: 2017 results are predecessor-company results, exclude the ESCO assets before their August 2017 acquisition, and predate the public-company reorganization.
Key financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $73.1 million | $33.7 million | $135.7 million | $62.8 million |
| Operating income (loss) | $1.0 million | $(4.9) million | $(9.8) million | $(10.5) million |
| Net income (loss) | $(1.2) million | $(6.0) million | $(11.5) million | $(12.1) million |
| Net loss attributable to Ranger | $(0.7) million | Not applicable in predecessor period | $(6.4) million | Not applicable in predecessor period |
| Adjusted EBITDA | $9.7 million | $3.4 million | $14.9 million | $4.5 million |
| Operating cash flow | Not stated separately | Not stated separately | $12.1 million | $(8.6) million |
Q2 cost of services was 79% of revenue, leaving a 21% margin before G&A, depreciation and amortization. For the first six months, cost of services was 80% of revenue. Adjusted EBITDA is a non-GAAP measure.
At June 30, cash was $10.5 million, working capital was a $5.2 million deficit, total assets were $289.9 million and total liabilities were $104.8 million. Long-term debt, including its current portion, was $42.6 million; capital lease obligations were $7.2 million. The company reported $16.7 million available under its revolving facility and approximately $18 million of additional capacity under its equipment financing agreement.
Changes and operating drivers
- Revenue rose 117% year over year in Q2 and 116% for the first half. Growth reflected a larger active well-service fleet, higher rig hours, ESCO acquisition assets and wireline activity that largely began in the Permian during 2018.
- Average active rigs were 136 in both Q2 and the first half of 2018, versus 68 and 63, respectively, in the comparable 2017 periods. First-half rig hours increased to approximately 149,800 from 82,200; average revenue per rig hour was approximately $500 versus $462.
- Q2 operating results improved to income from a loss in the prior-year quarter. First-half operating loss included a $9.0 million goodwill impairment, recorded after a sustained decline in the company’s share price; goodwill was zero at June 30. Management said long-lived assets were not impaired.
- Capital spending was $34.1 million for the first half, compared with $10.5 million in the prior-year period; investing cash outflow was $34.5 million and included a $4.0 million MVCI acquisition. Cash from operations was $12.1 million, while financing activities provided $27.6 million.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance was provided. Management said cash, expected operating cash flow, revolving-credit availability and remaining equipment-financing capacity were expected to meet liquidity needs for the next 12 months.
- In June, Ranger entered an equipment financing agreement and had borrowed $22.0 million by quarter-end. The agreement bears interest at 8% plus LIBOR and includes leverage-ratio requirements that tighten over time. The revolving credit facility had $15.0 million drawn and a 3.5% effective rate at June 30. Ranger reported compliance with both facilities’ covenants.
- Contractual obligations totaled $85.9 million, including $23.2 million of rig purchase obligations due within one year. The company also had $12.9 million of operating lease obligations and $7.2 million of capital lease obligations.
- Customer concentration is material: EOG Resources accounted for approximately 23% of Q2 revenue and 18% of accounts receivable at June 30. Demand and pricing are exposed to oil and gas activity, commodity prices, customer financing, weather, regulation and competition. The company did not hedge interest-rate or indirect commodity-price exposure.
- Disclosure controls were deemed ineffective at June 30 because of a previously identified material weakness in controls over non-routine and complex transactions. Management said it was evaluating and strengthening controls and accounting staffing.
- The company reported no material litigation and said existing ordinary-course matters were not expected to materially affect its financial position or results. A $0.8 million severance liability remained accrued at June 30.
Investor verification points
- Assess whether revenue and rig-hour growth can be sustained and translated into improved utilization and margins, given first-half utilization declined to 186 average monthly hours per rig from 203.
- Review the goodwill impairment assumptions and any subsequent changes in the Well Services reporting unit’s outlook or asset valuations.
- Verify borrowing-base availability, covenant headroom and the effect of the equipment financing’s interest cost and leverage tests.
- Monitor working-capital needs, receivable collections, customer concentration and the substantial near-term rig purchase obligations.
- Track remediation of the material weakness and whether disclosure controls are subsequently reported as effective.