Ranger Energy Services, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Ranger provides onshore well-service rigs, wireline and other completion services, and modular natural-gas processing equipment. Amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $50.0 | $30.7 | $88.3 | $111.7 |
| Operating loss | $(8.5) | $(8.1) | $(15.8) | $(4.1) |
| Net loss | $(9.1) | $(8.9) | $(17.4) | $(6.1) |
| Net loss attributable to Ranger | $(5.6) | $(4.9) | $(10.2) | $(3.4) |
| Adjusted EBITDA (non-GAAP) | $2.0 | $3.2 | $1.8 | $14.6 |
- Revenue mix: Q2 high-spec rig revenue rose 154% to $29.0, while Completion and Other Services increased 12% to $19.8; Processing Solutions declined 25% to $1.2. For the first half, revenue fell 21%, principally due to a 42% decline in Completion and Other Services and a 48% decline in Processing Solutions.
- Margins: Cost of services was 88% of revenue in Q2 versus 78% a year earlier, and 89% for the first half versus 78%. Revenue less cost of services was $5.9 (12% of revenue) in Q2 and $10.1 (11%) in the first half. Operating margin was approximately negative 17% in Q2 and negative 18% for the first half.
- Rig activity: Q2 rig hours rose 104% to 50,100; utilization increased 109%, and average revenue per rig hour rose 27% to $587. First-half rig hours increased 7% to 93,300.
- Cash flow: First-half operating cash flow was negative $4.1, versus positive $24.2 in 2020; investing cash use was $4.9. Financing provided $9.6, including $15.6 from sale-leasebacks. Cash increased $0.6 to $3.4.
- Balance sheet at June 30: Current assets were $50.7 and current liabilities $40.3, for working capital of $10.4. Total assets were $250.5; total liabilities $74.3; stockholders’ equity $176.2. Reported debt was $22.9 net of issuance costs, including $10.4 current. Other financing liabilities from sale-leasebacks totaled $16.0, of which $2.6 was current.
- Liquidity: Management reported $16.2 of liquidity: $3.4 cash and $12.8 available on its revolving facility. The $50.0 facility was limited by a $22.5 borrowing base; Ranger reported covenant compliance. The filing states management expected sufficient funds and covenant compliance for at least 12 months from issuance.
Changes, transactions and management commentary
- Q2 revenue rebounded 63% year over year, led by high-spec rigs, but operating and net losses persisted and adjusted EBITDA declined. First-half results weakened substantially year over year; the prior period included a $2.1 gain on debt retirement, while this period’s lower Completion and Other Services activity was a major factor.
- Ranger completed its Patriot wireline acquisition on May 14, 2021, for aggregate consideration of $11.0, including 1.3 million Class A shares and $3.3 cash net of cash acquired. Patriot contributed $2.3 of Q2 revenue and $2.8 of Q2 costs to Completion and Other Services. The filing recognized $1.8 of goodwill.
- After quarter-end, Ranger completed the PerfX asset acquisition on July 8, 2021, for 1.0 million Class A shares and an $11.4 secured promissory note bearing 8.5% interest, due January 2024. Initial purchase accounting was incomplete at filing.
- During the first half, Ranger received $12.1 from a sale-leaseback of land and a building (15-year lease, with 2% annual rent escalations) and $3.5 from sale-leasebacks of other assets. Certain asset transfers did not qualify for sale accounting and were treated as financing leases.
- Management attributed the broader business uncertainty to COVID-19, oil-and-gas supply and demand, commodity-price volatility, customer spending, and possible renewed restrictions. It noted activity improved as restrictions eased, but future growth could be curtailed. Ranger had deferred $1.9 of payroll taxes under the CARES Act.
Risks, contingencies and other matters
- Results remain exposed to oil and gas prices and E&P customer activity, supplier and workforce disruptions, and customers’ ability to pay. Ranger does not hedge its indirect commodity-price exposure. A hypothetical 1 percentage-point interest-rate change would affect annual interest expense by approximately $0.2.
- Customer concentration is material: EOG Resources and ConocoPhillips represented 20% and 14% of Q2 revenue, respectively; together they accounted for about 28% of net receivables at June 30.
- Debt covenants and borrowing-base availability constrain liquidity and certain distributions. The Credit Facility matures in August 2022; Encina financing tranches mature from July 2022 through January 2023. Ranger reported compliance with both facilities’ covenants at June 30.
- Management reported no material litigation and stated pending matters were not expected to materially harm financial position or results. Disclosure controls were assessed as effective; no material change in internal control was reported.
- The filing provides no numerical revenue or earnings guidance.
Most important facts for investors to verify
- Whether rig utilization, pricing and segment margins improve enough to offset continued cost pressure and losses.
- Whether operating cash flow recovers, and whether borrowing-base availability and covenant headroom remain adequate as debt matures.
- The final purchase accounting, integration costs, performance and financing impact of Patriot and PerfX, including the dilution from issued shares and PerfX’s secured note.
- Whether Completion and Other Services and Processing Solutions activity stabilizes, and how customer concentration affects receivables and cash collection.
- The assumptions behind management’s 12-month liquidity assessment, including sale-leaseback obligations and deferred payroll tax payments.