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Ranger Energy Services Second Quarter 2020 Results

Share Print Bookmark    |    Thursday,July 23,2020

Ranger Energy Services, Inc. reported its Q2 2020 results.

• Cash flow from operations of $16 million

• Net debt reduction of $15 million

• Q2 Gross profit margin exceeded Q1 performance

• Aggressive cost cutting and market share gains helped offset the impact of declining activity

Consolidated Financial Highlights

Revenues decreased $50.3 million, or 62%, to $30.7 million in Q2, from $81.0 million in Q1. Revenue declines took place across all segments.

Net income decreased $11.7 million, from net income of $2.8 million in Q1, to a net loss of $8.9 million in Q2. The decrease in net income was largely driven by lower revenues partially offset by a reduction in cost of services.

Adjusted EBITDA¹ decreased $8.2 million from $11.4 million in Q1 to $3.2 million in Q2.

“Despite the speed and intensity of the recent downturn, our management team’s extraordinary efforts allowed us to deliver Q2 results that featured both positive EBITDA and positive cash flow alongside near stable sequential segment margins.

"As discussed last quarter, when market conditions changed late Q1, our team aggressively took the difficult, yet necessary steps in response. We immediately downsized our organization to match the requirements of current activity levels. Our revenue decreased 62%, we reduced our staffing levels by 60% and total payroll expense by 70% when including the full impact of our salary and wage cuts for all current employees.

"Although our decline in activity was significant, I am very pleased with our performance relative to the overall OFS market. As our customers have contracted their operations, we have several examples of being the sole service provider for their remaining work resulting in market share percentage gains. Our Q2 results are a reflection of our high quality operations and disciplined cost management. We maintained positive adjusted EBITDA and cash flow through each month of the quarter. Our two largest business lines; High Spec Rigs and Wireline were able to hold segment level margins at pre-downturn levels. An exceptional achievement reflecting the success of our management team’s efforts through this downturn.

"Reducing costs in real-time against the revenue decline allowed us to reap the full benefit of a reduction in working capital. As a result, we were able to reduce our net debt by $15.1 million over the course of the quarter.

"As we look forward, what we had already thought of as a lean, efficient organization is now even more so. Maintaining our new level of efficiency and increasing market share will pay dividends as we ramp our operations back to higher activity levels.

"While still too early to call a recovery underway, our High Spec Rig and Wireline businesses did see activity move higher off of a late May trough.

"With much of the heavy lifting of internal restructuring now complete, our attention has fully moved back externally with a focus on both further development of new customer relationships and ongoing consolidation efforts.

"On the new customer front, we have seen incremental Wireline deployments with a new customer, made progress on a new contractual agreement with a High Spec Rig customer along with the potential for a meaningfully expanded Processing solutions customer base.

"As to consolidation, historically we have taken a particularly disciplined approach to merger and acquisition opportunities and do not expect that mindset to change. However, we do note that the opportunity set today is a multiple of what it was at the beginning of the year and post downturn feel that the likelihood of executing an attractive transaction has materially increased.

"While we continue to work through an extraordinarily challenging period in our industry, our team members are up for this challenge and we expect to consolidate our position of strength as we move toward an industry recovery.”

Business Segment Financial Results

High Specification Rigs

High Specification Rigs segment revenue decreased by $23.5 million, to $11.4 million in Q2 from $34.9 million in Q1 2020. The decrease in revenues was driven by a 61% decline in rig hours to 24,600 hours in Q2 from 62,400 hours in Q1. Hourly average rig rate declined $95, or 17%, to $463 in Q2 from $558 in Q1 on customer mix shift.

Operating loss increased by $3.6 million to a loss of $3.9 million in Q2 from a loss of $0.3 million in Q1. Adjusted EBITDA decreased 66%, or $3.3 million, to $1.7 million in Q2from $5.0 million in Q1. The decrease in operating loss and Adjusted EBITDA was attributable to reduction in revenues, partially offset by a reduction in cost of services.

Completion and Other Services

Completion and Other Services segment revenue decreased 59%, or $25.6 million, to $17.7 million in Q2 from $43.3 million in Q1 2020. The decrease in revenue for the quarter is attributable to all service lines within the segment, however $20.9 million, or 82%, of the segment decline was related to our Wireline services.

Operating income decreased $7.1 million to $1.8 million in Q2 from $8.9 million in Q1. Adjusted EBITDA decreased 60%, or $7.0 million, to $4.6 million in Q2 from $11.6 million in Q1. The decrease in operating income and Adjusted EBITDA was driven by decreased revenues, partially offset by reductions in the cost of services related to our Wireline services.

Processing Solutions

Processing Solutions revenue decreased 43% or $1.2 million, to $1.6 million in Q2 from $2.8 million in Q1 2019. The decrease was driven primarily by a reduction in service revenue along with reduced MRU utilization, within the segment.

Operating income decreased $0.8 million to a loss of $0.1 million in Q2 from income of $0.7 million in Q1. Adjusted EBITDA decreased 8%, or $0.1 million, to $1.2 million in Q2 from $1.3 million in Q1. The decrease in operating income is attributable to a catch up in depreciation expense in Q2.

Liquidity

We ended the quarter with $11.1 million of liquidity, consisting of $5.1 million of capacity available on our revolving credit facility and $6.0 million of cash. The Q2 cash ending balance of $6.0 million compares to $11.4 million at the end of Q1 2020. Currently, our liquidity approximated $11.1 million.

Debt

We ended Q2 with aggregate net debt of $28.0 million, a reduction of $15.1 million as compared to $43.1 million at the end of Q1.

We had an outstanding draw on our revolving credit facility of $5.0 million at the end of Q2 compared to $21.3 million at the end of Q1. During the quarter, we made aggregate payments of $32.0 million on the principal credit facility balance, partially offset by borrowings of $15.7 million.

We had an outstanding balance on our Encina Financing Agreement of $25.2 million at the end of Q1 and we made aggregate payments of $2.5 million during Q2, leaving a principal balance of $22.7 million at the end of Q2.

During Q1, we paid an aggregate $3.6 million to settle the Esco Note Payable balance of $5.8 million and recognized a gain on the retirement of debt of $2.1 million.

Capital Expenditures

Total capital expenditures recorded during the quarter were $0.7 million. Completion and Other Services segment incurred $0.5 million related to previously ordered Wireline trucks and other equipment while Processing Solutions segment incurred $0.2 million. Maintenance capital expense across all segments was $0.2 million for the quarter.

Also, across all segments, $0.1 million of leased vehicles and $0.3 million of other leased equipment were added during the quarter.