☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38183
RANGER ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware
81-5449572
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
10350 Richmond, Suite 550
Houston, Texas77042
(Address of principal executive offices) (Zip Code)
(713) 935-8900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, $0.01 par value
RNGR
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated Filer ☒
Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 27, 2022, the registrant had 24,700,212 shares of Class A Common Stock and zero shares of Class B Common Stock outstanding.
Preferred stock, $0.01 per share; 50,000,000 shares authorized; 6,000,001 shares issued and outstanding as of March 31, 2022 and December 31, 2021
0.1
0.1
Class A Common Stock, $0.01 par value, 100,000,000 shares authorized; 19,223,189 shares issued and 18,671,361 shares outstanding as of March 31, 2022; 18,981,172 shares issued and 18,429,344 shares outstanding as of December 31, 2021
0.2
0.2
Class B Common Stock, $0.01 par value, 100,000,000 shares authorized; no shares issued or outstanding as of March 31, 2022 and December 31, 2021
—
—
Less: Class A Common Stock held in treasury at cost; 551,828 treasury shares as of March 31, 2022 and December 31, 2021
(3.8)
(3.8)
Accumulated deficit
(13.7)
(8.0)
Additional paid-in capital
259.9
260.2
Total controlling stockholders' equity
242.7
248.7
Noncontrolling interest
—
—
Total stockholders' equity
242.7
248.7
Total liabilities and stockholders' equity
$
394.5
$
393.1
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
RANGER ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except share and per share amounts)
Three Months Ended
March 31,
2022
2021
Revenues
High specification rigs
$
64.9
$
21.7
Wireline services
38.6
12.1
Processing solutions and ancillary services
20.1
4.5
Total revenues
123.6
38.3
Operating expenses
Cost of services (exclusive of depreciation and amortization):
High specification rigs
50.8
19.0
Wireline services
40.4
11.3
Processing solutions and ancillary services
16.8
3.8
Total cost of services
108.0
34.1
General and administrative
9.2
3.5
Depreciation and amortization
11.6
8.0
Total operating expenses
128.8
45.6
Operating loss
(5.2)
(7.3)
Other expenses
Interest expense, net
2.1
0.6
Total other expenses
2.1
0.6
Loss before income tax expense
(7.3)
(7.9)
Tax (benefit) expense
(1.6)
0.4
Net loss
(5.7)
(8.3)
Less: Net loss attributable to noncontrolling interests
—
(3.7)
Net loss attributable to Ranger Energy Services, Inc.
$
(5.7)
$
(4.6)
Loss per common share
Basic
$
(0.31)
$
(0.54)
Diluted
$
(0.31)
$
(0.54)
Weighted average common shares outstanding
Basic
18,472,909
8,581,642
Diluted
18,472,909
8,581,642
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
RANGER ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in millions, except share amounts)
Three Months Ended March 31,
2022
2021
2022
2021
Quantity
Amount
Shares, Series A Preferred Stock
Balance, beginning of period
6,000,001
—
$
0.1
$
—
Balance, end of period
6,000,001
—
$
0.1
$
—
Shares, Class A Common Stock
Balance, beginning of period
18,981,172
9,093,743
$
0.2
$
0.1
Issuance of shares under share-based compensation plans
339,401
333,076
—
—
Shares withheld for taxes on equity transactions
(97,384)
(97,513)
—
—
Balance, end of period
19,223,189
9,329,306
$
0.2
$
0.1
Shares, Class B Common Stock
Balance, beginning of period
—
6,866,154
$
—
$
0.1
Balance, end of period
—
6,866,154
$
—
$
0.1
Treasury Stock
Balance, beginning of period
(551,828)
(551,828)
$
(3.8)
$
(3.8)
Balance, end of period
(551,828)
(551,828)
$
(3.8)
$
(3.8)
Accumulated deficit
Balance, beginning of period
$
(8.0)
$
(18.4)
Net loss attributable to controlling interest
(5.7)
(4.6)
Balance, end of period
$
(13.7)
$
(23.0)
Additional paid-in capital
Balance, beginning of period
$
260.2
$
123.9
Equity based compensation
0.8
0.9
Shares withheld for taxes on equity transactions
(1.1)
(0.5)
Impact of transactions affecting noncontrolling interest
—
0.7
Balance, end of period
$
259.9
$
125.0
Total controlling interest shareholders’ equity
Balance, beginning of period
$
248.7
$
101.9
Net loss attributable to controlling interest
(5.7)
(4.6)
Equity based compensation
0.8
0.9
Shares withheld for taxes on equity transactions
(1.1)
(0.5)
Impact of transactions affecting noncontrolling interest
—
0.7
Balance, end of period
$
242.7
$
98.4
Noncontrolling interest
Balance, beginning of period
$
—
$
82.9
Net loss attributable to noncontrolling interest
—
(3.7)
Impact of transactions affecting noncontrolling interest
—
(0.7)
Balance, end of period
$
—
$
78.5
Total Stockholders' Equity
Balance, beginning of period
$
248.7
$
184.8
Net loss
(5.7)
(8.3)
Equity based compensation
0.8
0.9
Shares withheld for taxes on equity transactions
(1.1)
(0.5)
Balance, end of period
$
242.7
$
176.9
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
RANGER ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
Three Months Ended March 31,
2022
2021
Cash Flows from Operating Activities
Net loss
$
(5.7)
$
(8.3)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
11.6
8.0
Equity based compensation
0.8
0.9
Gain on disposal of property and equipment
(1.0)
(0.4)
Income tax expense (benefit)
(1.6)
0.4
Other expense, net
0.2
—
Changes in operating assets and liabilities
Accounts receivable
(7.8)
(1.4)
Contract assets
(7.3)
(0.6)
Inventory
(1.4)
—
Prepaid expenses
4.2
(1.0)
Other assets
0.9
—
Accounts payable
2.4
(1.2)
Accrued expenses
(5.9)
1.7
Other current liabilities
(0.2)
—
Other long-term liabilities
(1.3)
—
Net cash used in operating activities
(12.1)
(1.9)
Cash Flows from Investing Activities
Purchase of property and equipment
(1.6)
(0.4)
Proceeds from disposal of property and equipment
6.6
0.4
Net cash provided by investing activities
5.0
—
Cash Flows from Financing Activities
Borrowings under Credit Facility
137.9
6.4
Principal payments on Credit Facility
(120.0)
(5.3)
Principal payments on Eclipse M&E Term Loan
(0.2)
—
Principal payments under Eclipse Term Loan B
(1.4)
—
Principal payments on Secured Promissory Note
(2.1)
—
Principal payments on financing lease obligations
(1.2)
(0.8)
Principal payments on other financing liabilities
(1.5)
—
Shares withheld on equity transactions
(1.1)
(0.5)
Payments on Installment Purchases
(0.1)
(0.2)
Principal payments on Encina Master Financing Agreement
—
(2.5)
Proceeds from financing of sale-leasebacks
—
3.5
Net cash provided by financing activities
10.3
0.6
Increase in cash and cash equivalents
3.2
(1.3)
Cash and cash equivalents, Beginning of Period
0.6
2.8
Cash and cash equivalents, End of Period
$
3.8
$
1.5
Supplemental Cash Flow Information
Interest paid
$
0.3
$
0.5
Supplemental Disclosure of Non-cash Investing and Financing Activities
Capital expenditures
$
—
$
(0.6)
Additions to fixed assets through installment purchases and financing leases
$
(0.8)
$
(0.2)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
RANGER ENERGY SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Organization and Business Operations
Business
Ranger Energy Services, Inc. (“Ranger, Inc.,” “Ranger,” or the “Company”) is a provider of onshore high specification (“high-spec”) well service rigs and complementary services in the United States. The Company also provides an extensive range of well site services to leading United States (“U.S”). exploration and production (“E&P”) companies that are fundamental to establishing and maintaining the flow of oil and natural gas throughout the productive life of a well.
Our service offerings consist of well completion support, workover, well maintenance, wireline, fluid management, other complementary services, as well as installation, commissioning and operating of modular equipment, which are conducted in three reportable segments, as follows:
•High Specification Rigs. Provides high-spec well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well.
•Wireline Services. Provides services necessary to bring and maintain a well on production and consists of our wireline completion, wireline production, and pump down lines of business.
•Processing Solutions and Ancillary Services. Provides other services often utilized in conjunction with our High Specification Rigs and Wireline Services segments. These services include equipment rentals, plug and abandonment, logistics hauling, processing solutions, as well as snubbing and coil tubing.
The Company’s operations take place in most of the active oil and natural gas basins in the U.S., including the Permian Basin, Denver-Julesburg Basin, Bakken Shale, Eagle Ford Shale, Haynesville Shale, Gulf Coast, South Central Oklahoma Oil Province and Sooner Trend Anadarko Basin Canadian and Kingfisher Counties plays.
Organization
Ranger, Inc. was incorporated as a Delaware corporation in February 2017. Ranger, Inc. is a holding company, and its sole material assets consist of membership interests in RNGR Energy Services, LLC, a Delaware limited liability company (“Ranger LLC”). Ranger LLC owns all of the outstanding equity interests in Ranger Energy Services, LLC (“Ranger Services”) and Torrent Energy Services, LLC (“Torrent Services”), the subsidiaries through which it operates its assets. Ranger LLC is the sole managing member of Ranger Services and Torrent Services, and is responsible for all operational, management and administrative decisions relating to Ranger Services and Torrent Services’ business and consolidates the financial results of Ranger Services and Torrent Services and their subsidiaries.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements and the Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and the Securities and Exchange Commission’s (the “SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain notes and other information have been condensed or omitted. The Condensed Consolidated Financial Statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results of operations for the interim periods. These interim financial statements should be read in conjunction with the consolidated financial statements and related notes for the years ended December 31, 2021 and 2020, included in the Annual Report filed on Form 10-K for the year ended December 31, 2021 (the “Annual Report”). Interim results for the periods presented may not be indicative of results that will be realized for future periods.
Investments in which the Company exercises control are consolidated and the noncontrolling interests of such investments, which are not attributable directly or indirectly to the Company are presented as a separate component of net income or loss and equity in the accompanying condensed consolidated financial statements. The Company had ownership interests in Ranger, LLC, which was consolidated within the Company’s consolidated financial statements, but was not wholly owned by the Company. Upon conversion of the Class B Common Stock during the year-ended December 31, 2021, all noncontrolling interests were eliminated. Changes in the Company’s ownership interest in Ranger, LLC, while it retains its controlling interest, are accounted for as equity transactions.
We have made certain reclassifications to our prior period operating revenue and cost of sales amounts due to the change in reportable segments whereby our Wireline and Ancillary Services were bifurcated from our historical Completion and Other
7
Services segment as a result of our fourth quarter operating segment changes. The Ancillary Services were combined with the historical Processing Solutions segment. None of these reclassifications have an impact on our consolidated operations results, cash flows or financial position.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 2 — Summary of Significant Accounting Policies of the Annual Report.
Use of Estimates
The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Management uses historical and other pertinent information to determine these estimates. Actual results could differ from such estimates. Areas where critical accounting estimates are made by management include:
•Depreciation and amortization of property and equipment and intangible assets;
•Assets acquired and liabilities assumed in business combinations;
•Impairment of property and equipment and intangible assets;
•Revenue recognition;
•Income taxes; and
•Equity-based compensation.
Emerging Growth Company Status and Smaller Reporting Company Status
The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012. The Company will remain an emerging growth company until the earlier of (1) the last day of its fiscal year (a) following the fifth anniversary of the completion of its initial public offering (“IPO”), (b) in which its total annual gross revenue is at least $1.07 billion, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of its most recently completed second fiscal quarter, or (2) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. The Company has irrevocably opted out of the extended transition period and, as a result, the Company will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. The Company will lose its EGC status on December 31, 2022, as this will represent the last day of the fiscal year following the fifth anniversary of our first Form S-1, which was filed in August 2017.
The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as Amended. Smaller reporting company means an issuer that is not an investment company, an asset-back issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that has (i) market value of common stock held by non-affiliates of less than $250 million; or (ii) annual revenues of less than $100 million and either no common stock held by non-affiliates or a market value of common stock held by non-affiliates of less than $700 million. Smaller reporting company status is determined on an annual basis.
New Accounting Pronouncements
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses, which replaces the incurred loss impairment methodology to reflect expected credit losses. The amendment requires the measurement of all expected credit losses for financial assets held at the reporting date to be performed based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the effect of this accounting standard on its condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for accounting contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships and other transactions that reference the London Interbank Offering Rate (“LIBOR”) or another reference rate expected to be discontinued due to the reference rate reform. ASU 2020-04 became effective as of March 12,
8
2020 and can be applied through December 31, 2022. The Company has not made any contract modifications as of the date of this report to transition to a different reference rate, however it will consider this guidance as future modifications are made.
With the exception of the standards above, there have been no new accounting pronouncements not yet effective that have significance, or potential significance, to the Company’s Condensed Consolidated Financial Statements.
Note 3 — Business Combinations
The Company completed three acquisitions during the year ended December 31, 2021 where all purchases were accounted for using the acquisition method of accounting under the FASB Accounting Standards Codification 805, Business Combinations (“ASC 805”). The results of operations for each of the acquisitions are included in the accompanying Condensed Consolidated Statements of Operations from the respective date of each acquisition. Under the acquisition method of accounting, the assets and liabilities have been recorded at their respective estimated fair values as of the date of completion of the acquisition and reported into Ranger’s Condensed Consolidated Balance Sheets.
Patriot Well Solutions (“Patriot”) Acquisition
On May 14, 2021, the Company acquired all of the outstanding stock of Patriot, a provider of wireline evaluation and intervention services that operate in the Permian, Denver-Julesburg and Powder River Basins and Bakken Shale.
As consideration for the Patriot Acquisition the Company paid an aggregate of $11.0 million, which included 1.3 million shares of Class A Common Stock and cash payments of $3.3 million, net of cash acquired. The financial results of Patriot are included in the Wireline Services reporting segment. The Company finalized the purchase price allocation in the fourth quarter of 2021.
PerfX Wireline Services (“PerfX”) Acquisition
On July 8, 2021, the Company acquired the assets of PerfX, a provider of wireline services that operate in Williston, North Dakota and Midland, Texas. Following the acquisition of PerfX, the Company significantly expanded its scale and scope of the existing wireline business. The financial results of PerfX are included within the Wireline Services reporting segment.
The aggregate consideration was $20.1 million, which included 1,000,000 shares of Class A Common Stock and a Secured Promissory Note of $11.4 million. The Class A Common Stock issuance includes 100,000 shares that will be issued by the Company on the 12-month anniversary of the acquisition date. The Secured Promissory Note bears an interest rate of 8.5% per annum and holds certain assets as collateral through the scheduled maturity date of January 31, 2024. Refer to “Note 10 — Debt” for further details related to the Secured Promissory Note. The Company finalized the purchase price allocation in the fourth quarter of 2021.
The Company reported revenue and an operating loss during the three months ended March 31, 2022 of approximately $24.5 million and $2.1 million, respectively.
The PerfX purchase price includes a warrant to acquire a 30% ownership in the XConnect Business (“XConnect”), which expires on July 8, 2031. XConnect is the manufacturer of a perforating gun system developed by the PerfX sellers alongside the PerfX wireline service business. The warrant requires the Company to maintain a specific minimum level of purchases of XConnect’s manufactured products. Should the Company fail to maintain the specified minimum level of purchases, a forfeiture event would occur. The Company may elect to cure the forfeiture event through a cash payment to XConnect. If the Company elects to not cure the forfeiture event, the ownership percentage would reduce to 15%. Upon the occurrence of a second uncured forfeiture event, the warrant is deemed to be cancelled. The value of the warrant by the Company is negligible as of March 31, 2022. The Company finalized the purchase price allocation in the fourth quarter of 2021.
The following table presents the fair value of assets acquired and liabilities assumed in accordance with ASC 805 (in millions):
9
Cash
$
1.0
Accounts receivable
4.6
Inventory
2.4
Prepaid and other current assets
0.1
Operating leases, right-of-use asset
1.1
Property and equipment
18.4
Total assets acquired
27.6
Accounts payable
5.4
Accrued expenses
1.0
Operating lease right-of-use obligation
1.1
Total liabilities assumed
7.5
Allocated purchase price
$
20.1
Basic Energy Services, Inc. (“Basic”) Acquisition
On September 15, 2021, Ranger Energy Acquisition, LLC (“Ranger Acquisitions”) entered into an Asset Purchase Agreement for certain assets of Basic and certain of its subsidiaries (the “Basic Sellers”), which closed on October 1, 2021. Ranger Acquisitions purchased assets associated with Basic’s well servicing, fishing and rental, coiled tubing operations, and rolling stock assets required to support the operating assets being purchased and real property locations inclusive of, but not limited to, real property owned in New Mexico, North Dakota, Oklahoma, and Texas.
All assets associated with the Basic Acquisition, were recorded at their fair value based on a preliminary purchase price allocation. The purchase price allocation has not been finalized due to additional items to be settled that the Company expects to be immaterial to the financial statements. The Company used the market approach to value as of the closing date, October 1, 2021, to apply fair values to the assets purchased based on the selling price of similar assets. As a result of comparing the purchase price to the fair value of the assets acquired, a $37.2 million bargain purchase gain, net of tax, was recognized in year ended December 31, 2021. The bargain purchase gain is primarily attributable Basic’s distressed financial position and lack of financing options available to avoid liquidation. The Company reported revenue and operating income during the three months ended March 31, 2022 of approximately $42.2 million and $7.5 million, respectively.
The following table presents the fair value of assets acquired and liabilities assumed in accordance with ASC 805 (in millions):
Property and equipment
$
89.5
Total assets acquired
89.5
Finance lease obligations
3.9
Bargain purchase deferred tax liability
10.8
Total liabilities assumed
14.7
Net assets acquired
74.8
Bargain purchase
37.2
Purchase price
$
37.6
10
Note 4 — Property and Equipment, Net
Property and equipment, net include the following (in millions):
Estimated Useful Life (years)
March 31, 2022
December 31, 2021
High specification rigs
20
$
144.8
$
145.4
High specification rigs machinery and equipment
5 - 10
45.8
47.8
Wireline services machinery and equipment
5 - 10
52.5
53.1
Processing solutions and ancillary services machinery and equipment
3 - 30
77.7
78.0
Vehicles
3 - 15
53.0
52.7
Other property and equipment
5 - 25
23.3
31.2
Property and equipment
397.1
408.2
Less: accumulated depreciation
(149.2)
(140.5)
Construction in progress
2.6
2.9
Property and equipment, net
$
250.5
$
270.6
Depreciation expense was $11.4 million and $7.8 million for the three months ended March 31, 2022 and 2021, respectively.
Note 5 — Assets Held for Sale
Assets held for sale includes the net book value of excess assets acquired as part of the Basic Acquisition that the Company plans to sell within the next 12 months. Long-lived assets that meet the held for sale criteria are held for sale and reported at the lower of their carrying value or fair value less estimated costs to sell. The Company intends to sell the excess assets to fund repayment of the Eclipse M&E Term Loan and the Eclipse Term Loan B. Refer to “Note 10 — Debt” for further details related to the Eclipse M&E Term Loan and the Eclipse Term Loan B.
As of March 31, 2022, the Company classified land and building assets and supporting equipment, within our High Specification Rigs and Processing Solutions and Ancillary Services segments and being actively marketed, as held for sale. During the three months ended March 31, 2022, the Company did not record any gain or loss to assets held for sale as the carrying value was less than fair value less estimated costs to sell. Assets held for sale at March 31, 2022 consisted of the following (in millions):
March 31, 2022
Land and buildings
$
4.4
Other PP&E
1.3
Assets held for sale
$
5.7
Note 6 — Intangible Assets
Definite lived intangible assets are comprised of the following (in millions):
Estimated Useful Life (years)
March 31, 2022
December 31, 2021
Customer relationships
10-18
$
11.4
$
11.4
Less: accumulated amortization
(3.8)
(3.6)
Intangible assets, net
$
7.6
$
7.8
Amortization expense was $0.2 million and $0.2 million for the three months ended March 31, 2022 and 2021 respectfully. Amortization expense for the future periods is expected to be as follows (in millions):
11
For the twelve months ending March 31,
Amount
2023
$
0.7
2024
0.7
2025
0.7
2026
0.7
2027
0.8
Thereafter
4.0
Total
$
7.6
Note 7 — Accrued Expenses
Accrued expenses include the following (in millions):
March 31, 2022
December 31, 2021
Accrued payables
$
12.6
$
12.5
Accrued compensation
8.3
12.7
Accrued taxes
1.8
2.1
Accrued insurance
1.7
3.0
Accrued expenses
$
24.4
$
30.3
Note 8 — Leases
Operating Leases
The Company has operating leases, primarily for real estate and equipment, with terms that vary from one to seven years, included in operating lease costs in the table below. The operating leases are included in operating leases, right-of-use assets, other current liabilities and operating leases, right-of-use obligations in the Condensed Consolidated Balance Sheets.
Lease costs associated with yard and field offices are included in cost of services and executive offices are included in general and administrative costs in the Condensed Consolidated Statements of Operations. Lease costs and other information related to operating leases for the three months ended March 31, 2022 and 2021 and 2021, are as follows (in millions):
Three Months Ended March 31,
2022
2021
Short-term lease costs
$
2.5
$
0.3
Operating lease cost
$
0.6
$
0.3
Operating cash outflows from operating leases
$
0.5
$
0.3
Weighted average remaining lease term
5.0 years
5.9 years
Weighted average discount rate
8.9
%
8.5
%
Aggregate future minimum lease payments under operating leases are as follows (in millions):
For the twelve months ending March 31,
Total
2023
$
1.4
2024
1.4
2025
1.4
2026
1.4
2027
1.3
Thereafter
1.2
Total future minimum lease payments
8.1
Less: amount representing interest
(1.3)
Present value of future minimum lease payments
6.8
Less: current portion of operating lease obligations
(1.2)
Long-term portion of finance lease obligations
$
5.6
12
Finance Leases
The Company leases certain assets, primarily automobiles, under finance leases with terms that are generally three to five years. The assets and liabilities under finance leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the assets. The assets are amortized over the shorter of the estimated useful lives or over the lease term. The finance leases are included in Property and equipment, net, Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.
Lease costs and other information related to finance leases for the three months ended March 31, 2022 and 2021, are as follows (in millions):
Three Months Ended March 31,
2022
2021
Amortization of finance leases
$
0.5
$
0.8
Interest on lease liabilities
$
0.1
$
0.1
Financing cash outflows from finance leases
$
1.2
$
0.8
Weighted average remaining lease term
1.4 years
3.0 years
Weighted average discount rate
1.9
%
6.2
%
Aggregate future minimum lease payments under finance leases are as follows (in millions):
For the twelve months ending March 31,
Total
2023
$
4.7
2024
2.2
2025
0.5
Total future minimum lease payments
7.4
Less: amount representing interest
(0.4)
Present value of future minimum lease payments
7.0
Less: current portion of finance lease obligations
(4.4)
Long-term portion of finance lease obligations
$
2.6
Note 9 — Other Financing Liabilities
During the year ended December 31, 2021, the Company entered into an agreement to sell a parcel of land and a building attached thereto, and subsequently leased back the property. The Company received cash of $12.1 million from the sale and the lease has a 15 year term with an annual rent escalation of two percent per annum.
During the year ended December 31, 2021, the Company entered into an agreement to sell certain of other fixed assets and subsequently leased back such assets. The Company received cash of $3.5 million to be paid over 18 to 60 months.
These sales did not qualify for sale accounting, therefore these leases were classified as finance leases and no gain or loss was recorded. The net book value of the assets remained in Property and equipment, net and are depreciating over their original useful lives.
As of March 31, 2022, aggregate future lease payments of the financing liabilities are as follows (in millions):
For the twelve months ending March 31,
Total
2023
$
1.1
2024
0.6
2025
0.6
2026
0.7
2027
0.7
Thereafter
9.5
Total future minimum lease payments
$
13.2
13
Note 10 — Debt
The aggregate carrying amounts, net of issuance costs, of the Company’s debt consists of the following (in millions):
March 31, 2022
December 31, 2021
Eclipse Revolving Credit Facility
44.8
27.0
Eclipse M&E Term Loan, net
12.0
12.2
Eclipse Term Loan B
10.7
11.9
Secured Promissory Note
8.3
10.4
Installment Purchases
0.9
1.0
Total Debt
76.7
62.5
Current portion of long-term debt
(61.1)
(44.1)
Long term-debt, net
$
15.6
$
18.4
Eclipse Loan and Security Agreement
On September 27, 2021, the Company entered into a Loan and Security Agreement with Eclipse Business Capital LLC (“EBC”) and Eclipse Business Capital SPV, LLC, as administrative agent, providing the Company with a senior secured credit facility in an aggregate principal amount of $77.5 million (the “EBC Credit Facility”), consisting of (i) a revolving credit facility in an aggregate principal amount of up to $50.0 million (the “Revolving Credit Facility”), (ii) a machinery and equipment term loan facility in an aggregate principal amount of up to $12.5 million (the “M&E Term Loan Facility”) and (iii) a term loan B facility in an aggregate principal amount of up to $15.0 million (the “Term Loan B Facility”). Debt under the Eclipse Loan and Security Agreement is secured by a lien on substantially all of the Company’s assets. The Company was in compliance with the Eclipse Loan and Security Agreement covenants as of March 31, 2022.
On January 7, 2022, the Company entered into the First Amendment to Loan and Security Agreement (the Eclipse Loan and Security Agreement, as amended by the First Amendment, the “Amended Loan Agreement”) with EBC and Eclipse Business Capital SPV, LLC, which increased the Maximum Revolving Credit Facility Amount (as defined in the Amended Loan Agreement) to $65.0 million, among other things.
Revolving Credit Facility
The Revolving Credit Facility was drawn in part on September 27, 2021, to repay the indebtedness under the existing EBC Credit Facility, which was terminated in connection with such repayment, and to pay for the fees, costs and expenses incurred in connection with the EBC Credit Facility. The undrawn portion of the Revolving Credit Facility is available to fund working capital and other general corporate expenses and for other-permitted uses, including the financing of permitted investments and restricted payments. The Revolving Credit Facility is subject to a borrowing base that is calculated based upon a percentage of the Company’s eligible accounts receivable less certain reserves. The Company’s eligible accounts receivable serve as collateral for the borrowings under the Revolving Credit Facility, which is scheduled to mature in September 2025. The Revolving Credit Facility includes a subjective acceleration clause and cash dominion provisions that permits the administrative agent to sweep cash daily from certain bank accounts into an account of the administrative agent to repay the Company’s obligations under the Revolving Credit Facility. The borrowings of the Revolving Credit Facility, therefore, will be classified as Long-term debt, current portion on the Condensed Consolidated Balance Sheet.
Under the Revolving Credit Facility, the total loan capacity was $51.2 million, which was based on a borrowing base certificate in effect as of March 31, 2022. The Company had outstanding borrowings of $44.8 million under the Revolving Credit Facility, leaving a residual $6.4 million available for borrowings as of March 31, 2022. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to 5% in excess of the LIBOR Rate and 4% in excess of the Base Rate through April 1, 2022. The weighted average interest rate for the loan was 6.0% for the three months ended March 31, 2022.
The Company capitalized fees of $1.8 million associated with the Revolving Credit Facility, which are included in Other assets in the Condensed Consolidated Balance Sheets. Such fees will continue to be amortized through maturity and are included in Interest expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of March 31, 2022 were $1.6 million.
M&E Term Loan Facility
Under the M&E Term Loan Facility, the Company had outstanding borrowings of $12.3 million where the monthly principal installments commenced on March 1, 2022. Borrowings under the M&E Term Loan Facility bear interest at a rate per annum equal to 8% in excess of the LIBOR Rate and 7% in excess of the Base Rate. The weighted average interest rate for the M&E Term Loan was 9.0% for the three months ended March 31, 2022. The M&E Term Loan Facility is scheduled to mature in September 2025. Any principal amounts repaid may not be reborrowed.
14
The Company capitalized fees of $0.3 million associated with this M&E Term Loan Facility, which are included in the Consolidated Balance Sheets as a discount to the Long-term debt, net. Such fees will continue to be amortized through maturity and are included in Interest expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of March 31, 2022 were $0.3 million. The Company paid approximately $0.2 million on M&E Term Loan subsequent to March 31, 2022, where such cash was generated from the sale of certain assets under the M&E Term Loan.
Term Loan B
On October 1, 2021, the Term Loan B, was finalized in connection with the closing of the Basic Acquisition. Borrowings under Term Loan B bear interest at a rate per annum equal to 13% in excess of the LIBOR Rate and 11% in excess of the Base Rate. Term Loan B is scheduled to mature in September 2022. The weighted average interest rate for Term Loan B was 13.0% for the three months ended March 31, 2022.
On October 1, 2021, the Term Loan B was drawn in full to repay borrowings under the Revolving Credit Facility and as of March 31, 2022 the principal balance outstanding was $11.0 million. Principal payments are generated from the proceeds from the sale of Basic assets, and may not be reborrowed. The Company capitalized fees of $0.6 million associated with Term Loan B, which are included in the Condensed Consolidated Balance Sheets as a discount to the Long-term debt, current portion. Such fees will continue to be amortized through maturity and are included in Interest Expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of March 31, 2022 were $0.3 million. The Company paid approximately $4.9 million on Term Loan B subsequent to March 31, 2022, where such cash was generated from the sale of Basic assets under the Term Loan B.
Secured Promissory Note
In connection with the PerfX Acquisition, on July 8, 2021, Bravo Wireline, LLC, a wholly owned subsidiary of Ranger, entered into a security agreement with Chief Investments, LLC, as administrative agent, for the financing of certain assets acquired. Certain of the assets acquired serve as collateral under the Secured Promissory Note. As of March 31, 2022, the aggregate principal balance outstanding was $8.3 million. Borrowings under the Secured Promissory Note bear interest at a rate of 8.5% per annum and is scheduled to mature in January 2024. The Company made a cash payment of $1.5 million payment in February 2022 on the Secured Promissory Note, where such cash was generated from the sale of assets with an attached lien.
Other Installment Purchases
During the year ended December 31, 2021, the Company entered into various Installment and Security Agreements (collectively, the “Installment Agreements”) in connection with the purchase of certain ancillary equipment, where such assets are being held as collateral. As of March 31, 2022, the aggregate principal balance outstanding under the Installment Agreements was $0.9 million and is payable ratably over 36 months from the time of each purchase. The monthly installment payments contain an imputed interest rate that are consistent with the Company’s incremental borrowing rate and is not significant to the Company.
Debt Obligations and Scheduled Maturities
As of March 31, 2022, aggregate future principal payments of total debt are as follows (in millions):
For the twelve months ending March 31,
Total
2023
$
61.4
2024
8.5
2025
2.5
2026
4.8
Total
$
77.2
Note 11 — Equity
Series A Preferred Stock
On September 10, 2021, the Company consummated the private placement under the Securities Purchase Agreement, dated September 10, 2021, with certain accredited investors of 6.0 million newly issued shares of Series A Convertible Preferred Stock, par value $0.01 per share, in exchange for cash consideration in an aggregate amount of $42 million. The transaction closed on October 1, 2021 and in April 2022, the Preferred Stock automatically converted into shares of the
15
Company’s Class A Common Stock upon effectiveness of the registration statement filed on Form S-1 by the Company on March 31, 2022 (File No. 001-699-039).
Equity-Based Compensation
In 2017, the Company adopted the Ranger Energy Services, Inc. 2017 Long Term Incentive Plan (the “2017 Plan”). The Company has granted shares of restricted stock (“restricted shares” or “RSAs”) and performance-based restricted stock units (“performance stock units” or “PSUs”) under the 2017 Plan.
Restricted Stock Awards
The Company has granted RSAs, which generally vest in three equal annual installments beginning on the first anniversary date of the grant. As of March 31, 2022, there was an aggregate $2.5 million of unrecognized expense related to restricted shares issued which is expected to be recognized over a weighted average period of 1.5 years. Subsequent to March 31, 2022, the Company granted approximately 398,000 RSAs with an approximated aggregate value of $4.0 million.
Performance Stock Units
The performance criteria applicable to performance stock units that have been granted by the Company are based on relative total shareholder return, which measures the Company’s total shareholder return as compared to the total shareholder return of a designated peer group, and absolute total shareholder return. Generally, the performance stock units are subject to an approximated three-year performance period. As of March 31, 2022, there was an aggregate $1.0 million of unrecognized compensation cost related to performance stock units which are expected to be recognized over a weighted average period of 1.5 years. Subsequent to March 31, 2022, the Company granted approximately 72,000 PSUs (based on target).
Note 12 — Risk Concentrations
Customer Concentrations
For the three months ended March 31, 2022, two customers, Occidental Petroleum Corporation and Chevron, accounted for 11% and 10%, respectively, of the Company’s consolidated revenues. As of March 31, 2022, approximately 27% of the net accounts receivable balance was due from these two customers.
For the three months ended March 31, 2021, one customer, EOG Resources, accounted for 24% of the Company’s consolidated revenues. As of March 31, 2021, approximately 12% of the accounts receivable balance was due from this customer.
Note 13 — Income Taxes
The Company is a corporation and is subject to U.S. federal income tax. The effective U.S. federal income tax rate applicable to the Company for the three months ended March 31, 2022 and 2021 was 22.5% and (5.4)%, respectively. The Company is subject to the Texas Margin Tax that requires tax payments at a maximum statutory effective rate of 0.75% on the taxable margin of each taxable entity that does business in Texas.
As a result of the initial public offering and subsequent reorganization, the Company recorded a deferred tax asset. However, a valuation allowance (“VA”) has been recorded to reduce the Company’s net deferred tax assets to an amount that is more likely than not to be realized. The VA is based upon the uncertainty of the realization of certain federal and state deferred tax assets related to net operating loss carryforwards and other tax attributes.
Total income tax expense for the three months ended March 31, 2022 and 2021 differed from amounts computed by applying the U.S. federal statutory tax rates to pre-tax income or loss primarily due to the release of the valuation allowance on deferred tax assets, the impact of permanent differences between book and taxable income, and income attributable to noncontrolling interest that is not subject to federal income taxes.
The Company is subject to the following material taxing jurisdictions: the United States and Texas. As of March 31, 2022, the Company has no current tax years under audit. The Company remains subject to examination for federal income taxes and state income taxes for tax years 2019, 2018, 2017 and 2016.
The Company has evaluated all tax positions for which the statute of limitations remains open and believes that the material positions taken would more likely than not be sustained upon examination. Therefore, as of March 31, 2022, the Company had not established any reserves for, nor recorded any unrecognized benefits related to, uncertain tax positions.
The Coronavirus, Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020 in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. For the three months ended March 31, 2022, there were no material tax impacts to the Condensed Consolidated Financial Statements as it relates to COVID-19 measures. However, the Company has deferred payroll tax payments of $1.1 million as of
16
March 31, 2022 and was included in Accrued expenses on the Condensed Consolidated Balance Sheet. The Company will continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.
Note 14 — Loss per Share
Loss per share is based on the amount of net loss allocated to the shareholders and the weighted average number of shares outstanding during the period for each class of Common Stock. The numerator and denominator used to compute loss per share were as follows (in millions, except share and per share data):
Three Months Ended March 31,
2022
2021
Loss (numerator):
Basic:
Net loss attributable to Ranger Energy Services, Inc.
$
(5.7)
$
(4.6)
Net loss attributable to Class A Common Stock
$
(5.7)
$
(4.6)
Diluted:
Net loss attributable to Ranger Energy Services, Inc.
$
(5.7)
$
(4.6)
Net loss attributable to Class A Common Stock
$
(5.7)
$
(4.6)
Weighted average shares (denominator):
Weighted average number of shares - basic
18,472,909
8,581,642
Weighted average number of shares - diluted
18,472,909
8,581,642
Basic loss per share
$
(0.31)
$
(0.54)
Diluted loss per share
$
(0.31)
$
(0.54)
During the three months ended March 31, 2022 and 2021, the Company excluded approximately 0.7 million and 0.9 million of equity-based awards, respectively, in calculating diluted loss per share, as the effect was anti-dilutive. During the three months ended March 31, 2022 and 2021, the Company excluded 6.0 million shares of Series A Preferred Stock issuable upon an effective registration statement and 6.9 million shares of Common Stock issuable upon conversion of the Company’s Class B Common Stock, respectively, in calculating diluted loss per share, as the effect was anti-dilutive.
Note 15 — Commitments and Contingencies
Legal Matters
From time to time, the Company is involved in various legal matters arising in the normal course of business. The Company does not believe that the ultimate resolution of these currently pending matters will have a material adverse effect on its condensed consolidated financial position or results of operations.
Note 16 — Segment Reporting
The Company’s operations are located in the United States and organized into three reportable segments: High Specification Rigs, Wireline Services and Processing Solutions and Ancillary Services. The reportable segments comprise the structure used by the Chief Operating Decision Maker (“CODM”) to make key operating decisions and assess performance during the years presented in the accompanying Condensed Consolidated Financial Statements. The CODM evaluates the segments’ operating performance based on multiple measures including Operating income, Adjusted EBITDA, rig hours and state counts. The tables below present the operating income measurement, as the Company believes this is most consistent with the principals used in measuring the Condensed Consolidated Financial Statements.
The following is a description of each operating segment:
High Specification Rigs. Provides high-spec well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well.
Wireline Services. Provides services necessary to bring and maintain a well on production and consists of our wireline completion, wireline production and pump down lines of business.
17
Processing Solutions and Ancillary Services. Provides other services often utilized in conjunction with our High Specification Rigs and Wireline Services segments. These services include equipment rentals, plug and abandonment, logistics hauling, processing solutions, as well as snubbing and coil tubing.
Other. The Company incurs costs, indicated as Other, that are not allocable to any of the operating segments or lines of business and include corporate general and administrative expenses as well as depreciation of office furniture and fixtures and other corporate assets.
Segment information as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022 and 2021 is as follows (in millions):
High Specification Rigs
Wireline Services
Processing Solutions and Ancillary Services
Other
Total
Three Months Ended March 31, 2022
Revenues
$
64.9
$
38.6
$
20.1
$
—
$
123.6
Cost of services
50.8
40.4
16.8
—
108.0
Depreciation and amortization
6.4
2.7
2.0
0.5
11.6
Operating income (loss)
7.7
(4.5)
1.3
(9.7)
(5.2)
Interest expense, net
—
—
—
2.1
2.1
Net income (loss)
7.7
(4.5)
1.3
(10.2)
(5.7)
Capital expenditures
$
1.2
$
0.9
$
0.3
$
—
$
2.4
As of March 31, 2022
Property and equipment, net
$
133.7
$
38.3
$
61.0
$
17.5
$
250.5
Total assets
$
210.5
$
60.3
$
96.1
$
27.6
$
394.5
High Specification Rigs
Wireline Services
Processing Solutions and Ancillary Services
Other
Total
Three Months Ended March 31, 2021
Revenues
$
21.7
$
12.1
$
4.5
$
—
$
38.3
Cost of services
19.0
11.3
3.8
—
34.1
Depreciation and amortization
4.8
1.2
1.6
0.4
8.0
Operating income (loss)
(2.1)
(0.4)
(0.9)
(3.9)
(7.3)
Interest expense, net
—
—
—
0.6
0.6
Net income (loss)
(2.1)
(0.4)
(0.9)
(4.9)
(8.3)
Capital expenditures
$
1.0
$
0.2
$
—
$
—
$
1.2
As of December 31, 2021
Property and equipment, net
$
140.4
$
41.5
$
63.3
$
25.4
$
270.6
Total assets
$
203.9
$
60.3
$
91.9
$
37.0
$
393.1
Note 17 — Subsequent Events
Series A Preferred Stock
On September 10, 2021, the Company consummated the private placement under the Securities Purchase Agreement, dated September 10, 2021, with certain accredited investors of 6.0 million newly issued shares of Series A Convertible Preferred Stock, par value $0.01 per share, in exchange for cash consideration in an aggregate amount of $42 million. On April 18, 2022, the Preferred Stock were automatically converted into shares of the Company’s Class A Common Stock upon effectiveness of the registration statement filed on Form S-1 by the Company on March 31, 2022 (File No. 001-699-039).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the historical financial statements and related notes included in Part I, Item 1. Financial Statements of this Quarterly Report on Form 10-Q (the “Quarterly Report”). This discussion contains “forward-looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil and natural gas, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this report. Please read Cautionary Note Regarding Forward-Looking Statements. Also, please read the risk factors and other cautionary statements described under Part II, Item 1A.-“Risk Factors” included elsewhere in this Quarterly Report and in our Annual Report filed on Form 10-K for the year ended December 31, 2021 (our “Annual Report”). We assume no obligation to update any of these forward-looking statements. Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Ranger,” “we,” “us,” or “our” relate to Ranger Energy Services, Inc. (“Ranger, Inc.”) and its consolidated subsidiaries.
How We Evaluate Our Operations
Our service offerings consist of well completion support, workover, well maintenance, wireline, fluid management, other complementary services, as well as installation, commissioning and operating of modular equipment, which are conducted in three reportable segments, as follows:
•High Specification Rigs. Provides high-specification (“high-spec”) well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well.
•Wireline Services. Provides services necessary to bring and maintain a well on production and consists of our wireline completion, wireline production and pump down lines of business.
•Processing Solutions and Ancillary Services. Provides other services often utilized in conjunction with our High Specification Rigs and Wireline Services segments. These services include equipment rentals, plug and abandonment, logistics hauling, processing solutions, as well as snubbing and coil tubing.
For additional financial information about our segments, please see “Item 1. Financial Information — Note 15 — Segment Reporting.”
Recent Events and Outlook
Significant progress has been made to combat COVID-19 and its multiple variants, however, it remains a global challenge and continues to have an impact on our financial results. The extent of the COVID-19 outbreak on the Company’s operational and financial performance will significantly depend on further developments, including the duration and spread of the outbreak and continued impact on our personnel, customer activity and third-party providers. While commodity prices, as well as our stock price and operational activity, have improved during the quarter ended March 31, 2022, we expect this global market volatility to continue at least until the outbreak of COVID-19, including any new variants, stabilizes, if not longer.
The U.S. government implemented a number of programs in the early wake of the impacts of COVID-19, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the largest relief package in U.S. history, and the Main Street Lending Program established by the Federal Reserve. We qualified for limited aid under the CARES Act and have deferred payroll tax payments of $1.1 million as of March 31, 2022 under the CARES Act, which will become due on December 31, 2022.
In February 2022, Russia invaded neighboring Ukraine. The conflict has caused turmoil in global markets, resulting in higher oil prices, and injected even more uncertainty into a worldwide economy recovering from the effects of COVID-19. Given the evolving conflict, there are many unknown factors and events that could materially impact our operations. These events have and continue to impact commodity prices, which could have a material effect on our earnings, cash flows, and financial condition. In the short-term, commodity price fluctuations are highly uncertain. Actual price outcomes will be dependent on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market. In addition, the degree to which other oil producers respond to current oil prices, as well as the effects macroeconomic developments might have on global oil demand, will be important for oil price formation in the coming months.
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Financial Metrics
How We Generate Revenues
Rig hours and stage counts, as it relates to our High Specification Rigs and Wireline Services segments, respectively, are important indicators of our activity levels and profitability. The stage count metric has become increasingly important with the update in our external reporting segments. Rig hours represent the aggregate number of hours that our well service rigs actively worked, whereas stage counts represent the number of completed stages during the periods presented. Generally, during the period our services are being provided, our customers are billed on an hourly basis for our high-spec rig services or, as it relates to our wireline services, they are billed upon the earlier of the completion of the well or on a monthly basis. The rates for such rig hours and completed wells at which the customer is billed is generally predetermined based upon a contractual agreement.
Costs of Conducting Our Business
The principal costs associated with conducting our business are personnel, repairs and maintenance, general and administrative, and depreciation expense.
Cost of Services. Our primary costs associated with our cost of services are related to personnel expenses, repairs and maintenance of our fixed assets and perforating and gun costs. A significant portion of these expenses are variable, and therefore typically managed, based on industry conditions and demand for our services. Further, there is generally a correlation between our revenues generated and personnel and repairs and maintenance costs, which are dependent upon the operational activity.
Personnel costs associated with our operational employees represent a significant cost of our business. A substantial portion of our labor costs is attributable to our field crews and is partly variable based on the requirements of specific customers. A key component of personnel costs relates to the ongoing training of our employees, which improves safety rates and reduces attrition.
General & Administrative. As described above general and administrative expenses are corporate in nature and are included within the Other segment. These costs are not attributable to any of our lines of businesses nor reporting segments.
We analyze our operating income or loss by segment, which we have defined as revenues less cost of services and depreciation expense. We believe this is a key financial metric as it provides insight on profitability and operational performance based on the historical cost basis of our assets.
Operating Income or Loss
We analyze our operating income or loss by segment, which we have defined as revenues less cost of services and depreciation expense. We believe this is a key financial metric as it provides insight on profitability and operational performance based on the historical cost basis of our assets.
Adjusted EBITDA
We view Adjusted EBITDA, which is a non‑GAAP financial measure, as an important indicator of performance. We define Adjusted EBITDA as net income or loss before net interest expense, income tax provision (benefit), depreciation and amortization, equity‑based compensation, acquisition‑related and severance costs, gain and loss on disposal of assets, legal fees and settlements, and other non‑cash and certain other items that we do not view as indicative of our ongoing performance. See “—Results of Operations” and “—Note Regarding Non‑GAAP Financial Measure” for more information and reconciliations of net income (loss) to Adjusted EBITDA, the most directly comparable financial measure calculated and presented in accordance with GAAP.
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Results of Operations
Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021
The following is an analysis of our operating results. See “—How We Evaluate Our Operations” for definitions of rig hours, stage counts and other analogous information.
Three Months Ended
March 31,
Variance
2022
2021
$
%
Revenues
High specification rigs
$
64.9
$
21.7
$
43.2
199
%
Wireline services
38.6
12.1
26.5
219
%
Processing solutions and ancillary services
20.1
4.5
15.6
347
%
Total revenues
123.6
38.3
85.3
223
%
Operating expenses
Cost of services (exclusive of depreciation and amortization):
High specification rigs
50.8
19.0
31.8
167
%
Wireline services
40.4
11.3
29.1
258
%
Processing solutions and ancillary services
16.8
3.8
13.0
342
%
Total cost of services
108.0
34.1
73.9
217
%
General and administrative
9.2
3.5
5.7
163
%
Depreciation and amortization
11.6
8.0
3.6
45
%
Gain on sale of assets
—
—
—
100
%
Total operating expenses
128.8
45.6
83.2
182
%
Operating loss
(5.2)
(7.3)
2.1
(29)
%
Other expenses
Interest expense, net
2.1
0.6
1.5
250
%
Total other expenses
2.1
0.6
1.5
250
%
Loss before income tax expense
(7.3)
(7.9)
0.6
(8)
%
Tax (benefit) expense
(1.6)
0.4
(2.0)
(500)
%
Net loss
$
(5.7)
$
(8.3)
$
2.6
(31)
%
Revenues. Revenues for the three months ended March 31, 2022 increased $85.3 million, or 223%, to $123.6 million from $38.3 million for the three months ended March 31, 2021. The change in revenues by segment was as follows:
High Specification Rigs. High Specification Rig revenues for the three months ended March 31, 2022 increased $43.2 million, or 199%, to $64.9 million from $21.7 million for the three months ended March 31, 2021. The increase in rig services revenue included a 161% increase in total rig hours to 112,500 for the three months ended March 31, 2022 from 43,200 for the three months ended March 31, 2021. The average revenue per rig hour increased 17% to $577 for the three months ended March 31, 2022 from $493 for the three months ended March 31, 2021. Of the total segment revenue increase, $32.7 million is attributable to the assets acquired in the Basic Acquisition. The increase in revenue, rig hours and average revenue per rig hour is also related to increased crude oil pricing and industry activity.
Wireline Services. WirelineServices revenues for the three months ended March 31, 2022 increased $26.5 million, or 219%, to $38.6 million from $12.1 million for the three months ended March 31, 2021. The increased wireline services revenue was primarily attributable to completion services which included a 163% increase in completed stage count to 7,400 for the three months ended March 31, 2022 from 2,800 for the three months ended March 31, 2021 related to completion services. The increase in wireline services revenue included a 133% increase in average active wireline units to fourteen units for the three months ended March 31, 2022 from six units for the three months ended March 31, 2021. Of the segment revenue, $7.3 million and $24.5 million are attributable to the assets acquired in the Patriot and PerfX Acquisitions, respectively.
Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services revenues for the three months ended March 31, 2022 increased $15.6 million, or 347%, to $20.1 million from $4.5 million for the three months ended March 31, 2021. Of the total segment revenue increase, $9.5 million is attributable to the Basic Acquisition. The increase in processing
21
solutions and ancillary services is primarily attributable to a $5.5 million increase in both of our equipment rentals and plugging and abandonment services to $6.0 million and $5.7 million, respectively.
Cost of services (exclusive of depreciation and amortization). Cost of services (exclusive of depreciation and amortization) for the three months ended March 31, 2022 increased $73.9 million, or 217%, to $108.0 million from $34.1 million for the three months ended March 31, 2021. As a percentage of revenue, cost of services was 87% and 89% for the three months ended March 31, 2022 and 2021, respectively. The change in cost of services by segment was as follows:
High Specification Rigs. High Specification Rig cost of services for the three months ended March 31, 2022 increased $31.8 million, or 167% to $50.8 million from $19.0 million for the three months ended March 31, 2021. The increase was primarily attributable to an increase in variable expenses, notably employee costs and fuel costs, which amounted to $18.3 million and $2.9 million, respectively. Additionally, the increase corresponds with the increase in rig hours and revenues. Of the segment cost of services, $25.0 million is attributable to the Basic Acquisition.
Wireline Services. Wireline Services cost of services for the three months ended March 31, 2022 increased $29.1 million, or 258%, to $40.4 million from $11.3 million for the three months ended March 31, 2021. The increase was primarily attributable to increased employee costs due to the acquisitions of PerfX and Patriot, and, to a lesser extent, maintenance costs. Of the total segment cost of services, $26.6 million and $6.4 million is attributable to the assets acquired in the PerfX and Patriot Acquisitions, respectively, whereas the increased maintenance costs amounted to $1.6 million.
Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services cost of services for the three months ended March 31, 2022 increased $13.0 million, or 342%, to $16.8 million from $3.8 million for the three months ended March 31, 2021. The increase was primarily attributable to increased employee costs with the upturn in operational activity, which amounted to $6.2 million. Of the segment cost of services increase, $9.8 million is attributable to the Basic Acquisition.
General & Administrative. General and administrative expenses for the three months ended March 31, 2022 increased $5.7 million, or 163%, to $9.2 million from $3.5 million. The increase in general and administrative expenses is primarily due to corporate employee costs and increased professional fees during three months ended March 31, 2022.
Depreciation and Amortization. Depreciation and amortization for the three months ended March 31, 2022 increased $3.6 million, or 45%, to $11.6 million from $8.0 million for the three months ended March 31, 2021. The increase was attributable to assets acquired through the business combinations during the last half of the year ended December 31, 2021. This was partially offset by depreciation expense related to fixed assets disposed of during the three months ended March 31, 2021.
Interest Expense, net. Interest expense, net for the three months ended March 31, 2022 increased $1.5 million, or 250%, to $2.1 million from $0.6 million for the three months ended March 31, 2021. The increase to net interest expense was attributable to the increased principal balance on our Revolving Credit Facility (as defined below), higher interest rates on each tranche of the Loan and Security Agreement that closed on September 27, 2021, and interest paid on the Secured Promissory Note issued in connection with the PerfX Acquisition.
Note Regarding Non-GAAP Financial Measure
Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. We define Adjusted EBITDA as net income or loss before net interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation, acquisition-related and severance costs, gain or loss on disposal of assets, legal fees and settlements, and other non-cash and certain other items that we do not view as indicative of our ongoing performance.
We believe Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net loss determined in accordance with U.S. GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from Adjusted EBITDA. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies. The following table presents reconciliations of net income (loss) to Adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
22
Three Months Ended March 31, 2022 compared to Three Months Ended March 31, 2021
The following is an analysis of our Adjusted EBITDA. See “Item 1. Financial Information—Note 15—Segment Reporting” and “—Results of Operations” for further details.
Three Months Ended March 31, 2022
High Specification Rigs
Wireline Services
Processing Solutions and Ancillary Services
Other
Total
(in millions)
Net income (loss)
$
7.7
$
(4.5)
$
1.3
$
(10.2)
$
(5.7)
Interest expense, net
—
—
—
2.1
2.1
Tax (benefit) expense
—
—
—
(1.6)
(1.6)
Depreciation and amortization
6.4
2.7
2.0
0.5
11.6
Equity based compensation
—
—
—
0.8
0.8
Gain on disposal of property and equipment
—
—
—
(1.0)
(1.0)
Severance and reorganization costs
—
—
—
—
—
Acquisition related costs
—
—
—
3.2
3.2
Legal fees and settlements
—
—
—
0.2
0.2
Adjusted EBITDA
$
14.1
$
(1.8)
$
3.3
$
(6.0)
$
9.6
Three Months Ended March 31, 2021
High Specification Rigs
Wireline Services
Processing Solutions and Ancillary Services
Other
Total
(in millions)
Net income (loss)
$
(2.1)
$
(0.4)
$
(0.9)
$
(4.9)
$
(8.3)
Interest expense, net
—
—
—
0.6
0.6
Tax (benefit) expense
—
—
—
0.4
0.4
Depreciation and amortization
4.8
1.2
1.6
0.4
8.0
Equity based compensation
—
—
—
0.9
0.9
Gain on disposal of property and equipment
—
—
—
(0.4)
(0.4)
Severance and reorganization costs
—
—
—
(1.4)
(1.4)
Acquisition related costs
—
—
—
—
—
Legal fees and settlements
—
—
—
—
—
Adjusted EBITDA
$
2.7
$
0.8
$
0.7
$
(4.4)
$
(0.2)
Variance ($)
High Specification Rigs
Wireline Services
Processing Solutions and Ancillary Services
Other
Total
(in millions)
Net income (loss)
$
9.8
$
(4.1)
$
2.2
$
(5.3)
$
2.6
Interest expense, net
—
—
—
1.5
1.5
Tax (benefit) expense
—
—
—
(2.0)
(2.0)
Depreciation and amortization
1.6
1.5
0.4
0.1
3.6
Equity based compensation
—
—
—
(0.1)
(0.1)
Gain on disposal of property and equipment
—
—
—
(0.6)
(0.6)
Severance and reorganization costs
—
—
—
1.4
1.4
Acquisition related costs
—
—
—
3.2
3.2
Legal fees and settlements
—
—
—
0.2
0.2
Adjusted EBITDA
$
11.4
$
(2.6)
$
2.6
$
(1.6)
$
9.8
23
Adjusted EBITDA for the three months ended March 31, 2022 increased $9.8 million to income of $9.6 million from a loss of $0.2 million for the three months ended March 31, 2021. The change by segment was as follows:
High Specification Rigs. High Specification Rigs Adjusted EBITDA for the three months ended March 31, 2022 increased $11.4 million to $14.1 million from $2.7 million for the three months ended March 31, 2021, primarily due to increased revenues of $43.2 million, partially offset by a corresponding increase in cost of services of $31.8 million.
Wireline Services. Wireline Services Adjusted EBITDA for the three months ended March 31, 2022 decreased $2.6 million to a loss of $1.8 million from income of $0.8 million for the three months ended March 31, 2021, primarily due to an increase in cost of services of $29.1 million, offset by increased revenues of $26.5 million.
Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services Adjusted EBITDA for the three months ended March 31, 2022 increased $2.6 million to $3.3 million from $0.7 million for the three months ended March 31, 2021, due to increased revenues of $15.6 million, offset by a corresponding increase in cost of services of $13.0 million.
Other. Other Adjusted EBITDA for the three months ended March 31, 2022 decreased $1.6 million to a loss of $6.0 million from a loss of $4.4 million for the three months ended March 31, 2021. The balances included in Other reflect other general and administrative costs, which are not directly attributable to High Specification Rigs, Wireline Services or Processing Solutions and Ancillary Services.
Liquidity and Capital Resources
Overview
We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions. Our primary sources of liquidity are cash generated from operations and borrowings under our EBC Credit Facility. As of March 31, 2022, we had total liquidity of $10.2 million, consisting of $3.8 million of cash on hand and availability under our Revolving Credit Facility of $6.4 million.
As of March 31, 2022, our borrowing base under the Revolving Credit Facility was $51.2 million compared to $19.8 million and $45.0 million as of March 31, 2021 and December 31, 2021, respectively, as a result of increased operational activity and accounts receivable balances. We strive to maintain financial flexibility and proactively monitor potential capital sources to meet our investment and target liquidity requirements and to permit us to manage the cyclicality associated with our business. We currently expect to have sufficient funds to meet the Company’s liquidity requirements and comply with our covenants of our debt agreements for at least the next 12 months from the date of issuance of these financial statements. For further details, see “— Our Debt Agreements.”
Cash Flows
The following table presents our cash flows for the periods indicated:
Three Months Ended March 31,
Change
2022
2021
$
%
(in millions)
Net cash used in operating activities
$
(12.1)
$
(1.9)
$
(10.2)
537
%
Net cash provided by investing activities
5.0
—
5.0
100
%
Net cash provided by financing activities
10.3
0.6
9.7
1,617
%
Net change in cash
$
3.2
$
(1.3)
$
4.5
(346)
%
Operating Activities
Net cash used in operating activities increased $10.2 million to cash used of $12.1 million for three months ended March 31, 2022 compared to cash used of $1.9 million for the three months ended March 31, 2021. The change in cash flows from operating activities is primarily attributable to a decrease in gross margins and operating income for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The use of working capital cash increased $6.3 million to $8.6 million for the three months ended March 31, 2022, compared to $2.3 million for the three months ended March 31, 2021.
Investing Activities
Net cash provided by investing activities increased $5.0 million from no cash provided, nor used in, investing activities for the three months ended March 31, 2021. The change in cash flows from investing activities is attributable to the significant asset sales that took place during the three months ended March 31, 2022, partially offset by the fixed asset additions.
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Financing Activities
Net cash provided by financing activities increased $9.7 million from cash provided of $0.6 million for the three months ended March 31, 2021 compared to cash provided of $10.3 million for the three months ended March 31, 2022. The change in cash flows from financing activities is attributable to increased net borrowings of $16.8 million to fund working capital obligations.
Supplemental Disclosures
During the three months ended March 31, 2022, the Company added fixed assets of $0.8 million in finance leased assets, within our High-Spec Rigs and Wireline segments.
Working Capital
Our working capital, which we define as total current assets less total current liabilities, was $11.7 million as of March 31, 2022, compared to $2.5 million as of December 31, 2021. The increased accounts receivable and contract assets, coupled with assets considered to be held for sale led to the working capital increase, however was partially offset by increased net borrowings under the EBC Revolving Credit Facility.
Our Debt Agreements
Eclipse Loan and Security Agreement
On September 27, 2021, the Company entered into a Loan and Security Agreement with Eclipse Business Capital LLC (“EBC”) and Eclipse Business Capital SPV, LLC, as administrative agent, providing the Company with a senior secured credit facility in an aggregate principal amount of $77.5 million (the “EBC Credit Facility”), consisting of (i) a revolving credit facility in an aggregate principal amount of up to $50.0 million (the “Revolving Credit Facility”), (ii) a machinery and equipment term loan facility in an aggregate principal amount of up to $12.5 million (the “M&E Term Loan Facility”) and (iii) a term loan B facility in an aggregate principal amount of up to $15.0 million (the “Term Loan B Facility”). Debt under the Eclipse Loan and Security Agreement is secured by a lien on substantially all of the Company’s assets. The Company was in compliance with the Eclipse Loan and Security Agreement covenants as of March 31, 2022.
On January 7, 2022, the Company entered into the First Amendment to Loan and Security Agreement (the Eclipse Loan and Security Agreement, as amended by the First Amendment, the “Amended Loan Agreement”) with EBC and Eclipse Business Capital SPV, LLC, which increased the Maximum Revolving Facility Amount (as defined in the Amended Loan Agreement) to $65.0 million, among other things.
Revolving Credit Facility
The Revolving Credit Facility was drawn in part on September 27, 2021, to repay the indebtedness under the existing Credit Facility, which was terminated in connection with such repayment, and to pay for the fees, costs and expenses incurred in connection with the EBC Credit Facility. The undrawn portion of the Revolving Credit Facility is available to fund working capital and other general corporate expenses and for other-permitted uses, including the financing of permitted investments and restricted payments. The Revolving Credit Facility is subject to a borrowing base that is calculated based upon a percentage of the Company’s eligible accounts receivable less certain reserves. The Company’s eligible accounts receivable serve as collateral for the borrowings under the Revolving Credit Facility, which is scheduled to mature in September 2025. The Revolving Credit Facility includes a subjective acceleration clause and cash dominion provisions that permits the administrative agent to sweep cash daily from certain bank accounts into an account of the administrative agent to repay the Company’s obligations under the Revolving Credit Facility. The borrowings of the Revolving Credit Facility, therefore, will be classified as Long-term debt, current portion on the Condensed Consolidated Balance Sheet.
Under the Revolving Credit Facility, the total loan capacity was $51.2 million, which was based on a borrowing base certificate in effect as of March 31, 2022. The Company had outstanding borrowings of $44.8 million under the Revolving Credit Facility, leaving a residual $6.4 million available for borrowings as of March 31, 2022. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to 5% in excess of the LIBOR Rate and 4% in excess of the Base Rate through April 1, 2022. The weighted average interest rate for the loan was 6.0% for the three months ended March 31, 2022.
The Company capitalized fees of $1.8 million associated with the Revolving Credit Facility, which are included in Other assets in the Condensed Consolidated Balance Sheets. Such fees will continue to be amortized through maturity and are included in Interest expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of March 31, 2022 were $1.6 million.
25
M&E Term Loan Facility
Under the M&E Term Loan Facility, the Company had outstanding borrowings of $12.3 million where the monthly principal installments commenced on March 1, 2022. Borrowings under the M&E Term Loan Facility bear interest at a rate per annum equal to 8% in excess of the LIBOR Rate and 7% in excess of the Base Rate. The weighted average interest rate for the M&E Term Loan was 9.0% for the three months ended March 31, 2022. The M&E Term Loan Facility is scheduled to mature in September 2025. Any principal amounts repaid may not be reborrowed.
The Company capitalized fees on $0.3 million associated with this M&E Term Loan Facility, which are included in the Condensed Consolidated Balance Sheets as a discount to the Long-term debt, net. Such fees will continue to be amortized through maturity and are included in Interest expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of March 31, 2022 were $0.3 million.
Term Loan B
On October 1, 2021, the Term Loan B, was finalized in connection with the closing of the Basic Acquisition. Borrowings under Term Loan B bear interest at a rate per annum equal to 13% in excess of the LIBOR Rate and 11% in excess of the Base Rate. Term Loan B is scheduled to mature in September 2022. The weighted average interest rate for Term Loan B was 13.0% for the three months ended March 31, 2022.
On October 1, 2021, the Term Loan B was drawn in full to repay borrowings under the Revolving Credit Facility and as of March 31, 2022 the principal balance outstanding was $11.0 million. Principal payments are generated from the proceeds from the sale of Basic assets, and may not be reborrowed. The Company capitalized fees of $0.6 million associated with Term Loan B, which are included in the Condensed Consolidated Balance Sheets as a discount to the Long-term debt, current portion. Such fees will continue to be amortized through maturity and are included in Interest Expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of March 31, 2022 were $0.3 million. The Company paid approximately $4.9 million on Term Loan B subsequent to March 31, 2022, where such cash was generated from the sale of Basic assets under the Term Loan B.
Secured Promissory Note
In connection with the PerfX Acquisition, on July 8, 2021, Bravo Wireline, LLC, a wholly owned subsidiary of Ranger, entered into a security agreement with Chief Investments, LLC, as administrative agent, for the financing of certain assets acquired. Certain of the assets acquired serve as collateral under the Secured Promissory Note. As of March 31, 2022, the aggregate principal balance outstanding was $8.3 million. Borrowings under the Secured Promissory Note bear interest at a rate of 8.5% per annum and is scheduled to mature in January 2024. The Company made a cash payment of $1.5 million payment in February 2022 on the Secured Promissory Note, where such cash was generated from the sale of assets with an attached lien.
Other Installment Purchases
During the year ended December 31, 2021, the Company entered into various Installment and Security Agreements (collectively, the “Installment Agreements”) in connection with the purchase of certain ancillary equipment, where such assets are being held as collateral. As of March 31, 2022, the aggregate principal balance outstanding under the Installment Agreements was $0.9 million and is payable ratably over 36 months from the time of each purchase. The monthly installment payments contain an imputed interest rate that are consistent with the Company’s incremental borrowing rate and is not significant to the Company.
Tax Receivable Agreement (“TRA”)
During the year ended December 31, 2021, the Company entered into a definitive agreement with affiliates of CSL Capital Management (“CSL”) and Bayou Holdings (“Bayou”) to terminate the TRA (the “Tax Receivable Agreement”). In consideration of the TRA Termination Agreement, the Company issued an aggregate of 376,185 shares of Class A Common Stock of the Company to affiliates of CSL Capital Management and Bayou Holdings.
During the year ended December 31, 2021, in connection with the TRA Termination Agreement, Ranger LLC redeemed CSL’s and Bayou’s outstanding units in Ranger LLC and the corresponding shares of its Class B Common Stock for an equivalent number of shares of Class A Common Stock. Following this redemption, no shares of Class B Common Stock were issued or outstanding.
Critical Accounting Policies and Estimates
Our significant accounting policies are discussed in our Annual Report and have not materially changed since December 31, 2021.
Off-Balance Sheet Arrangements
We currently have no material off-balance sheet arrangements.
26
Emerging Growth Company Status and Smaller Reporting Company Status
The Company is an “emerging growth company” as defined in the JOBS Act. The Company will remain an emerging growth company until the earlier of (1) the last day of its fiscal year (a) following the fifth anniversary of the completion of the Offering, (b) in which its total annual gross revenue is at least $1.07 billion, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of its most recently completed second fiscal quarter, or (2) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable to public companies. The Company has irrevocably opted out of the extended transition period and, as a result, the Company will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. The Company will lose its EGC status on December 31, 2022, as this will represent the last day of the fiscal year following the fifth anniversary of our first Form S-1, which was filed in August 2017.
The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act. Smaller reporting company means an issuer that is not an investment company, an asset-back issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that (i) has a market value of common stock held by non-affiliates of less than $250 million; or (i) has annual revenues of less than $100 million and either no common stock held by non-affiliates or a market value of common stock held by non-affiliates of less than $700 million. Smaller reporting company status is determined on an annual basis.
The information in this Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Exchange Act. All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements included in our Annual Report. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
Forward-looking statements may include statements about:
•our business strategy;
•our operating cash flows, the availability of capital and our liquidity;
•our future revenue, income and operating performance;
•the volatility in global crude oil demand and crude oil prices for an uncertain period of time that may lead to a significant reduction of domestic crude oil and natural gas production;
•global or national health concerns, including pandemics such as the outbreak of COVID-19;
•political and economic conditions and events in foreign oil, natural gas and NGL producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America and China and acts of terrorism or sabotage;
•our ability to sustain and improve our utilization, revenues and margins;
•our ability to maintain acceptable pricing for our services;
•our future capital expenditures;
•our ability to finance equipment, working capital and capital expenditures;
•competition and government regulations, including new and proposed legislation by the Biden Administration aimed at reducing the impact of climate change;
•our ability to obtain permits and governmental approvals;
•pending legal or environmental matters;
•marketing of oil and natural gas;
•business or asset acquisitions;
•general economic conditions;
•credit markets;
•our ability to successfully develop our research and technology capabilities and implement technological developments and enhancements;
•uncertainty regarding our future operating results; and
•plans, objectives, expectations and intentions contained in this report that are not historical.
We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, the risks described under “Risk Factors” in our Annual Report previously filed. Should one or more of the risks or uncertainties described occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by
28
applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Recent Events
The outbreak of COVID-19 has spread across the globe and has been declared a public health emergency by the WHO and a National Emergency by the President of the United States. The extent of the impact of the COVID-19 outbreak on our operational and financial performance will significantly depend on certain developments, including the duration and spread of the outbreak and its continued impact on customer activity and third-party providers. The direct impact to our operations began to take affect at the close of the first quarter ended March 31, 2020, and has continued through March 31, 2022, however the extent to which the COVID-19 outbreak may further affect our financial condition or results of operations is uncertain. For more information, please see “Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition — Recent Events and Outlook”
Interest Rate Risk
We are exposed to interest rate risk, primarily associated with our Credit Facility and Financing Agreement. For a complete discussion of our interest rate risk, see our Annual Report. As of March 31, 2022, we had $44.8 million outstanding under our Revolving Credit Facility, with a weighted average interest rate of 6.0%. As of March 31, 2022, the aggregate principal balance outstanding under the M&E Term Loan was $12.3 million, with a weighted average interest rate of 9.0%. A hypothetical 1.0% increase or decrease in the weighted average interest rate would increase or decrease interest expense by approximately $0.7 million per year. We do not engage in derivative transactions for speculative or trading purposes.
Credit Risk
The majority of our trade receivables have payment terms of 30 days or less. As of March 31, 2022, the top three trade receivable balances represented approximately 17%, 10%, and 9%, respectively, of consolidated net accounts receivable. Within our High Specification Rig segment, the top three trade receivable balances represented 19%, 17% and 16%, respectively, of total High Specification Rig net accounts receivable. Within our Wireline Services segment, the top three trade receivable balances represented 21%, 12%, and 9%, respectively, of total Wireline Services net accounts receivable. Within our Processing Solutions and Ancillary Services segment, the top three trade receivable balances represented 34%, 10%, and 7%, respectively, of total Processing Solutions and Ancillary Services net accounts receivable. We mitigate the associated credit risk by performing credit evaluations and monitoring the payment patterns of our customers.
Commodity Price Risk
The market for our services is indirectly exposed to fluctuations in the prices of oil and natural gas to the extent such fluctuations impact the activity levels of our E&P customers. See “— Recent Events” above for further details. Any prolonged substantial reduction in oil and natural gas prices would likely affect oil and natural gas production levels and therefore affect demand for our services. We do not currently intend to hedge our indirect exposure to commodity price risk.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report.
Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective as of March 31, 2022 due to the material weakness identified during the year ended December 31, 2021.
The material weakness related to ineffective controls over accounting for non-routine and/or complex transactions. To address this material weakness, we along with the oversight of our audit committee, are evaluating our controls over accounting for non-routine and/or complex transactions in an effort to identify additional controls to timely identify misstatements and strengthen our overall control environment as well as continuing to assess our accounting personnel staffing requirements.
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Any failure to implement and maintain the improvements in the controls over our financial reporting, or difficulties encountered in the implementation of these improvements in our controls, could cause us to fail to meet our reporting obligations. Any failure to improve our internal controls to address these identified weaknesses could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.
Changes in Internal Control over Financial Reporting
Other than the material weakness described above, there were no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Our operations are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. However, we are not currently subject to any material litigation and in the opinion of management, the outcome of any existing matters will not have a material adverse effect on the Company’s consolidated financial position or consolidated results of operations. We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our insurance advisers and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal injury and property damage or that these levels of insurance will be available in the future at economical prices.
Item 1A. Risk Factors
Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our Class A Common Stock are described under “Risk Factors,” included in our Annual Report. This information should be considered carefully, together with other information in the Quarterly Report and the other reports and materials we file with the SEC.
The ongoing military action between Russia and Ukraine could adversely affect our business, financial condition and results of operations.
On February 24, 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage.
Russia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic, including, among others:
•blocking sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system) and certain Russian businesses, some of which have significant financial and trade ties to the European Union;
•blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians and those with government connections or involved in Russian military activities; and
•blocking of Russia’s foreign currency reserves as well as expansion of sectoral sanctions and export and trade restrictions, limitations on investments and access to capital markets and bans on various Russian imports.
In retaliation against new international sanctions and as part of measures to stabilize and support the volatile Russian financial and currency markets, the Russian authorities also imposed significant currency control measures aimed at restricting the outflow of foreign currency and capital from Russia, imposed various restrictions on transacting with non-Russian parties, banned exports of various products and other economic and financial restrictions. The situation is rapidly evolving as a result of the conflict in Ukraine, and the United States, the European Union, the United Kingdom and other countries may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories. Such sanctions and other measures, as well as the existing and potential further responses from Russia or other countries to such sanctions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, financial condition and results of operations.
We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our business partners and customers. To date we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations. We have no way to predict the progress or outcome of the conflict in Ukraine or its impacts in Ukraine, Russia or Belarus as the conflict, and any resulting government reactions, are rapidly developing and beyond our control. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown
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period of time. Any of the above mentioned factors could affect our business, financial condition and results of operations. Any such disruptions may also magnify the impact of other risks described in this prospectus.
Item 2. Unregistered Sales of Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table provides information with respect to Class A Common Stock purchases made by the Company during the three months ended March 31, 2022.
Period
Total Number of Shares Repurchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2022 - January 31, 2022
—
$
—
—
—
February 1, 2022 - February 28, 2022
—
—
—
—
March 1, 2022 - March 31, 2022
97,384
10.75
—
—
Total
97,384
$
10.75
—
—
_________________________
(1) Total number of shares repurchased during the first quarter of 2022 consists of 97,384 shares withheld by us in satisfaction of withholding taxes due upon the vesting of restricted shares granted to our employees under the 2017 Plan.
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Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report.
Cover page interactive data file (formatted in iXBRL and contained in Exhibit 101)
* Filed as an exhibit to this Quarterly Report on Form 10-Q.
** Furnished as an exhibit to this Quarterly Report on Form 10-Q.
+ Compensatory plan or arrangement.
† Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a supplemental copy of any omitted schedule or similar attachment to the SEC upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
