Company Quick10K Filing
Ranger Energy Services
Price6.49 EPS1
Shares9 P/E9
MCap61 P/FCF2
Net Debt46 EBIT13
TEV107 TEV/EBIT8
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-05-06
10-K 2020-12-31 Filed 2021-02-26
10-Q 2020-09-30 Filed 2020-10-23
10-Q 2020-06-30 Filed 2020-07-28
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-28
10-Q 2019-09-30 Filed 2019-10-25
10-Q 2019-06-30 Filed 2019-07-26
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-03-06
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-13
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-09-01
8-K 2020-10-22
8-K 2020-07-23
8-K 2020-05-08
8-K 2020-03-31
8-K 2020-03-26
8-K 2020-02-27
8-K 2019-10-24
8-K 2019-07-25
8-K 2019-06-27
8-K 2019-05-15
8-K 2019-04-30
8-K 2018-12-31
8-K 2018-12-04
8-K 2018-11-06
8-K 2018-08-07
8-K 2018-07-30
8-K 2018-06-22
8-K 2018-06-15
8-K 2018-06-04
8-K 2018-05-08
8-K 2018-03-06
8-K 2018-01-05

RNGR 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Business Operations
Note 2 - Summary of Significant Accounting Policies
Note 3 - Property and Equipment, Net
Note 4 - Intangible Assets
Note 5 - Accrued Expenses
Note 6 - Leases
Note 7 - Debt
Note 8 - Equity
Note 9 - Risk Concentrations
Note 10 - Income Taxes
Note 11 - Earnings (Loss) per Share
Note 12 - Commitments and Contingencies
Note 13 - Segment Reporting
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 rngr-033121xex311dma.htm
EX-31.2 rngr-033121xex312jbb.htm
EX-32.1 rngr-033121xex321dma.htm
EX-32.2 rngr-033121xex322jbb.htm

Ranger Energy Services Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
3252601951306502017201820192020
Assets, Equity
9070503010-102017201820192020
Rev, G Profit, Net Income
754923-3-29-552017201820192020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38183
rngr-20210331_g1.jpg
RANGER ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware81-5449572
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
10350 Richmond, Suite 550
Houston, Texas 77042
(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 classTrading 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 May 4, 2021, the registrant had 8,849,818 shares of Class A Common Stock and 6,866,154 shares of Class B Common Stock outstanding.



RANGER ENERGY SERVICES, INC.
TABLE OF CONTENTS
Page



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
RANGER ENERGY SERVICES, INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts)
March 31, 2021December 31, 2020
Assets
Cash and cash equivalents$1.5 $2.8 
Accounts receivable, net27.3 25.9 
Contract assets1.7 1.1 
Inventory2.3 2.3 
Prepaid expenses4.6 3.6 
Total current assets37.4 35.7 
Property and equipment, net182.8 189.4 
Intangible assets, net8.3 8.5 
Operating leases, right-of-use assets5.6 5.8 
Other assets1.2 1.2 
Total assets$235.3 $240.6 
Liabilities and Stockholders' Equity
Accounts payable$9.3 $10.5 
Accrued expenses10.9 9.3 
Finance lease obligations, current portion4.1 2.5 
Long-term debt, current portion10.3 10.0 
Other current liabilities0.7 0.7 
Total current liabilities35.3 33.0 
Operating leases, right-of-use obligations5.0 5.2 
Finance lease obligations2.6 1.3 
Long-term debt, net13.7 14.5 
Other long-term liabilities1.8 1.8 
Total liabilities58.4 55.8 
Commitments and contingencies (Note 12)
Stockholders' equity
Preferred stock, $0.01 per share; 50,000,000 shares authorized; no shares issued or outstanding as of March 31, 2021 and December 31, 2020
  
Class A Common Stock, $0.01 par value, 100,000,000 shares authorized; 9,329,306 shares issued and 8,777,478 shares outstanding as of March 31, 2021; 9,093,743 shares issued and 8,541,915 shares outstanding as of December 31, 2020
0.1 0.1 
Class B Common Stock, $0.01 par value, 100,000,000 shares authorized; 6,866,154 shares issued and outstanding as of March 31, 2021 and December 31, 2020
0.1 0.1 
Less: Class A Common Stock held in treasury at cost; 551,828 treasury shares as of March 31, 2021 and December 31, 2020
(3.8)(3.8)
Accumulated deficit(23.0)(18.4)
Additional paid-in capital125.0 123.9 
Total controlling stockholders' equity98.4 101.9 
Noncontrolling interest78.5 82.9 
Total stockholders' equity176.9 184.8 
Total liabilities and stockholders' equity$235.3 $240.6 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3


RANGER ENERGY SERVICES, INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share and per share amounts)
Three Months Ended
March 31,
20212020
Revenues
High specification rigs$21.7 $34.9 
Completion and other services15.5 43.3 
Processing solutions1.1 2.8 
Total revenues38.3 81.0 
Operating expenses
Cost of services (exclusive of depreciation and amortization):
High specification rigs19.0 29.9 
Completion and other services14.6 31.7 
Processing solutions0.5 1.5 
Total cost of services34.1 63.1 
General and administrative3.5 5.0 
Depreciation and amortization8.0 8.9 
Total operating expenses45.6 77.0 
Operating income (loss)(7.3)4.0 
Other expenses
Interest expense, net0.6 1.1 
Total other expenses0.6 1.1 
Income (loss) before income tax expense(7.9)2.9 
Tax expense0.4 0.1 
Net income (loss)(8.3)2.8 
Less: Net income (loss) attributable to noncontrolling interests(3.7)1.3 
Net income (loss) attributable to Ranger Energy Services, Inc.$(4.6)$1.5 
Earnings (loss) per common share
Basic$(0.54)$0.17 
Diluted$(0.54)$0.15 
Weighted average common shares outstanding
Basic8,581,642 8,617,781 
Diluted8,581,642 15,549,684 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4


RANGER ENERGY SERVICES, INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share amounts)
Three Months Ended March 31,
2021202020212020
QuantityAmount
Shares, Class A Common Stock
Balance, beginning of period9,093,743 8,839,788 $0.1 $0.1 
Issuance of shares under share-based compensation plans333,076 152,633 — — 
Shares withheld for taxes on equity transactions(97,513)(44,591)— — 
Balance, end of period9,329,306 8,947,830 $0.1 $0.1 
Shares, Class B Common Stock
Balance, beginning of period6,866,154 6,866,154 $0.1 $0.1 
Balance, end of period6,866,154 6,866,154 $0.1 $0.1 
Treasury Stock
Balance, beginning of period(551,828)(113,937)$(3.8)$(0.7)
Repurchase of Class A Common Stock— (437,891)— (3.1)
Balance, end of period(551,828)(551,828)$(3.8)$(3.8)
Accumulated deficit
Balance, beginning of period$(18.4)$(8.1)
Net income (loss) attributable to controlling interest(4.6)1.5 
Balance, end of period$(23.0)$(6.6)
Additional paid-in capital
Balance, beginning of period$123.9 $121.8 
Equity based compensation amortization0.9 0.7 
Shares withheld for taxes on equity transactions(0.5)(0.1)
Impact of transactions affecting noncontrolling interest0.7 (2.2)
Balance, end of period$125.0 $120.2 
Total controlling interest shareholders’ equity
Balance, beginning of period$101.9 $113.2 
Net income (loss) attributable to controlling interest(4.6)1.5 
Equity based compensation amortization0.9 0.7 
Shares withheld for taxes on equity transactions(0.5)(0.1)
Impact of transactions affecting noncontrolling interest0.7 (2.2)
Repurchase of Class A Common Stock— (3.1)
Balance, end of period$98.4 $110.0 
Noncontrolling interest
Balance, beginning of period$82.9 $89.8 
Net income (loss) attributable to noncontrolling interest(3.7)1.3 
Impact of transactions affecting noncontrolling interest(0.7)2.2 
Equity based compensation amortization— 0.1 
Balance, end of period$78.5 $93.4 
Total Stockholders' Equity
Balance, beginning of period$184.8 $203.0 
Net income (loss)(8.3)2.8 
Equity based compensation amortization0.9 0.8 
Shares withheld for taxes on equity transactions(0.5)(0.1)
Repurchase of Class A Common Stock— (3.1)
Balance, end of period$176.9 $203.4 
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
5


RANGER ENERGY SERVICES, INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended March 31,
20212020
Cash Flows from Operating Activities
Net income (loss)$(8.3)$2.8 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization8.0 8.9 
Equity based compensation0.9 0.8 
Gain on sale of property and equipment(0.4) 
Gain on debt retirement (2.1)
Other costs, net0.4 0.1 
Changes in operating assets and liabilities
Accounts receivable(1.4)(0.7)
Contract assets(0.6)(2.5)
Inventory (0.3)
Prepaid expenses(1.0)2.0 
Other assets (0.4)
Accounts payable(1.2)(1.3)
Accrued expenses1.7 1.2 
Operating lease, right-of-use obligations(0.2)0.6 
Other long-term liabilities0.2 (0.6)
Net cash (used in) provided by operating activities(1.9)8.5 
Cash Flows from Investing Activities
Purchase of property and equipment(0.4)(4.7)
Proceeds from disposal of property and equipment0.4 0.1 
Net cash used in investing activities (4.6)
Cash Flows from Financing Activities
Borrowings under Credit Facility6.4 16.9 
Principal payments on Credit Facility(5.3)(5.6)
Principal payments on Encina Master Financing Agreement(2.5)(2.5)
Payments on Installment Purchases(0.2) 
Proceeds from financing of sale-leaseback3.5  
Principal payments on financing lease obligations(0.8)(1.3)
Shares withheld on equity transactions(0.5)(0.1)
Repurchase of Class A Common Stock (3.1)
Principal payments on ESCO Note Payable (3.7)
Net cash provided by financing activities0.6 0.6 
Increase (decrease) in Cash and Cash equivalents(1.3)4.5 
Cash and Cash Equivalents, Beginning of Period2.8 6.9 
Cash and Cash Equivalents, End of Period$1.5 $11.4 
Supplemental Cash Flow Information
Interest paid$0.5 $1.0 
Supplemental Disclosure of Non-cash Investing and Financing Activities
Capital expenditures$(0.6)$(0.8)
Additions to fixed assets through financing leases$(0.2)$(0.5)
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
6


RANGER ENERGY SERVICES, INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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.
The Company offers services that 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.
Completion and Other Services. Provides wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with the high-spec rig services to enhance the production of a well.
Processing Solutions. Provides proprietary, modular equipment for the processing of natural gas.
The Company’s operations take place in most of the active oil and natural gas basins in the United States, 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.
Recent Events
The outbreak of the novel coronavirus (“COVID-19”) has spread across the globe and has been declared a public health emergency by the World Health Organization and a National Emergency by the President of the United States. The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has, and is likely to continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas. Federal, state and local governments mobilized to implement containment mechanisms to minimize impacts to their populations and economies. Various containment measures, which include the quarantining of cities, regions and countries, while aiding in the prevention of further outbreak, have resulted in a severe drop in general economic activity and a resulting decrease in energy demand. In addition, the global economy has experienced a significant disruption to global supply chains. The extent of the COVID-19 outbreak on the Company’s operational and financial performance will continue to 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 the Company’s operations began to take effect at the close of the first quarter ended March 31, 2020, and continued through the issuance of these Condensed Consolidated Financial Statements. The full extent to which the COVID-19 outbreak may affect the Company’s financial conditions, results of operations or liquidity subsequent to the issuance of these Condensed Consolidated Financial Statements is uncertain.
The severe drop in economic activity, travel restrictions and other restrictions due to COVID-19 have had a significant negative impact on the demand for oil and gas. In addition to the impact of the COVID-19 outbreak, in March 2020, the Organization of the Petroleum Exporting Countries (“OPEC”), Russia and certain other oil producing states, commonly referred to as “OPEC Plus,” failed to agree on a plan to cut production of oil and natural gas. Subsequently, Saudi Arabia announced plans to increase production to record levels and reduce the prices at which they sell oil and, in turn, Russia responded with threats to also increase production. Collectively, these events created an unprecedented global oil and natural gas supply and demand imbalance, reduced global oil and natural gas storage capacity, caused oil prices to decline significantly and resulted in continued volatility in oil, natural gas and natural gas liquids (“NGLs”) prices through the first quarter of 2021. With the
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combined effects of the increased production levels earlier in 2020, the recent increase in production and the reduction in demand caused by COVID-19, the global oil and natural gas supply and demand imbalance persists and continues to have a significant adverse effect on the oil and gas industry.
Due to the significantly reduced demand for oil and natural gas as a result of the COVID-19 pandemic and the current oversupply of oil and natural gas in the market, available storage and capacity for the Company’s customers’ production may be limited or completely unavailable in the future, which may further negatively impact the price of oil. The Company cannot predict whether, or when, the global supply and demand imbalance will be resolved or whether, or when, oil and natural gas production and economic activities will return to normalized levels. In the absence of additional reductions to global production, oil, natural gas and NGLs prices could remain at current levels, or decline further, for an extended period of time.
Factors deriving from the COVID-19 response, as well as the oil oversupply, that have or may negatively impact sales, liquidity and gross margins in the future include, but are not limited to: limitations on the ability of the Company’s customers to conduct business, which would result in a decrease in demand for services and lower utilization of the Company’s assets; limitations on the ability of suppliers to provide materials or equipment, limitations on the ability of the Company’s employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home; reduction of capital expenditures and discretionary spend; and limitations on the ability of customers to pay us on a timely basis. If prolonged, such factors may also negatively affect the carrying values of the Company’s property and equipment and intangible assets. At the close of the first quarter of 2020, the Company initiated cost reductions throughout the organization, including a reduction in the workforce and salary reductions. Additionally, various other operational, travel and organizational expense reductions will continue to manage costs to preserve liquidity through the downturn. We believe these actions will provide sufficient liquidity to finance our operations for twelve months post issuance of these condensed consolidated financial statements. During the first quarter of 2021, increased activity can be attributed to stay-at-home orders and other restrictions being lifted in certain geographical areas, however any future containment measure could curtail such growth. We will continue to actively monitor the situation and may take further actions that alter business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of the Company’s employees, customers and stakeholders.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements and the unaudited 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 unaudited 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, 2020 and 2019, included in the Annual Report filed on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). Interim results for the periods presented may not be indicative of results that will be realized for future periods.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 2 — Summary of Significant Accounting Policies of the Annual Report. There have been no changes in such policies or the application of such policies during the three months ended March 31, 2021.
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;
Impairment of property and equipment and intangible assets;
Revenue recognition;
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Income taxes; and
Equity-based compensation.
Emerging Growth Company Status and Smaller Reporting Company Status
The Company is an “emerging growth company” 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 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 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, 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 — Property and Equipment, Net
Property and equipment, net include the following (in millions):
Estimated Useful Life
(years)
March 31, 2021December 31, 2020
High specification rigs20$127.3 $127.2 
High specification rigs machinery and equipment
5 - 10
40.4 39.7 
Completion and other services machinery and equipment
5 - 10
56.5 56.5 
Processing solutions machinery and equipment
3 - 30
46.0 45.9 
Vehicles
3 - 15
20.5 20.4 
Other property and equipment
5 - 25
10.8 10.9 
Property and equipment301.5 300.6 
Less: accumulated depreciation(120.5)(113.0)
Construction in progress1.8 1.8 
Property and equipment, net$182.8 $189.4 
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Depreciation expense was $7.8 million and $8.7 million for the three months ended March 31, 2021 and 2020, respectively.
Note 4 — Intangible Assets
Definite lived intangible assets are comprised of the following (in millions):
Estimated Useful Life
(years)
March 31, 2021December 31, 2020
Customer relationships
10-18
$11.4 $11.4 
Less: accumulated amortization(3.1)(2.9)
Intangible assets, net$8.3 $8.5 
Amortization expense was $0.2 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense for the future periods is expected to be as follows (in millions):
For the twelve months ending March 31,Amount
2022$0.7 
20230.7 
20240.7 
20250.7 
20260.8 
Thereafter4.7 
Total$8.3 
Note 5 — Accrued Expenses
Accrued expenses include the following (in millions):
March 31, 2021December 31, 2020
Accrued payables$4.0 $2.7 
Accrued compensation5.5 4.5 
Accrued taxes0.7 1.0 
Accrued insurance0.7 1.1 
Accrued expenses$10.9 $9.3 
Note 6 — Leases
Operating Leases
The Company has operating leases, primarily for real estate and equipment, with terms that vary from 12 months 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, 2021 and 2020, are as follows (in millions):
Three Months Ended March 31,
20212020
Short-term lease costs$0.3 $0.8 
Operating lease cost$0.3 $0.7 
Operating cash outflows from operating leases$0.3 $0.7 
Weighted average remaining lease term5.9 years5.8 years
Weighted average discount rate8.5 %9.3 %
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Aggregate future minimum lease payments under operating leases are as follows (in millions):
For the twelve months ending March 31,Total
2022$1.2 
20231.2 
20241.2 
20251.2 
20261.2 
Thereafter1.4 
Total future minimum lease payments7.4 
Less: amount representing interest(1.7)
Present value of future minimum lease payments5.7 
Less: current portion of operating lease obligations(0.7)
Long-term portion of finance lease obligations$5.0 
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, Finance lease obligations, current portion and Finance lease obligations in the Condensed Consolidated Balance Sheets.
During the three months ended March 31, 2021, the Company entered into an agreement to sell certain of the fixed assets and subsequently leased back such assets and received cash of $3.5 million to be paid over 18 to 60 months. This transaction did not qualify for sale accounting.
Lease costs and other information related to finance leases for the three months ended March 31, 2021 and 2020, are as follows (in millions):
Three Months Ended March 31,
20212020
Amortization of finance leases$0.8 $1.4 
Interest on lease liabilities$0.1 $0.2 
Financing cash outflows from finance leases$0.8 $1.3 
Weighted average remaining lease term3.0 years1.5 years
Weighted average discount rate6.2 %4.2 %
Aggregate future minimum lease payments under finance leases are as follows (in millions):
For the twelve months ending March 31,Total
2022$4.4 
20232.2 
20240.6 
Total future minimum lease payments7.2 
Less: amount representing interest(0.5)
Present value of future minimum lease payments6.7 
Less: current portion of finance lease obligations(4.1)
Long-term portion of finance lease obligations$2.6 
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Note 7 — Debt
The aggregate carrying amounts, net of issuance costs, of the Company’s debt consists of the following (in millions):
March 31, 2021December 31, 2020
Credit Facility$8.3 $7.2 
Encina Master Financing Agreement14.9 17.3 
Installment Purchases0.8  
Total Debt24.0 24.5 
Current portion of long-term debt(10.3)(10.0)
Long term-debt, net$13.7 $14.5 
Credit Facility
On August 16, 2017, Ranger Services, entered into a $50.0 million senior secured revolving credit facility (the “Credit Facility”) by and among certain of Ranger’s subsidiaries, as borrowers, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent (the “Administrative Agent”). The 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 serves as collateral for the borrowings under the Credit Facility and is scheduled to mature in August 2022.
The applicable margin for the LIBOR loans ranges from 1.5% to 2.0% and the applicable margin for Base Rate loans ranges from 0.5% to 1.0%, in each case, depending on Ranger LLC’s average excess availability under the Credit Facility. The applicable margins for the LIBOR loan was 2.1% and the Base Rate loan was 4.3% as of March 31, 2021. The weighted average interest rate for the borrowings under the Credit Facility was 2.5% for the three months ended March 31, 2021.
Under the Credit Facility, the total loan capacity was $19.8 million, which was based on a borrowing base certificate in effect as of March 31, 2021. The Company had outstanding borrowings of $8.6 million under the Credit Facility, leaving a residual $11.2 million available for borrowings as of March 31, 2021. The Company was in compliance with the Credit Facility covenants as of March 31, 2021. The Company capitalized fees of $0.7 million associated with the Credit Facility, which are included in the Condensed Consolidated Balance Sheets as a discount to the Credit Facility. 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, 2021 was $0.3 million.
Encina Master Financing and Security Agreement
On June 22, 2018, the Company entered into a Master Financing and Security Agreement (the “Financing Agreement”) with Encina Equipment Finance SPV, LLC (the “Lender”). The amount available to be provided by the Lender to the Company under the Financing Agreement was contemplated to be not less than $35.0 million, and not to exceed $40.0 million. The first financing was required to be in an amount up to $22.0 million, which was used by the Company to acquire certain capital equipment. Subsequent to the first financing, the Company borrowed an additional $17.8 million, net of expenses and in two tranches, under the Financing Agreement. The Company utilized the additional net proceeds to acquire certain capital equipment. The Financing Agreement is secured by a lien on certain high-spec rig assets. As of March 31, 2021, the aggregate principal balance outstanding under the Financing Agreement was $15.2 million. The total borrowings under the Financing Agreement were borrowed in three tranches, where the amounts outstanding are payable ratably over 48 months from the time of each borrowing. The three tranches mature in July 2022, November 2022 and January 2023.
Borrowings under the Financing Agreement bear interest at a rate per annum equal to the sum of 8.0% plus LIBOR, which was 1.5% as of March 31, 2021. Under the terms of the Financing Agreement, in no event will LIBOR fall below 1.5% and it requires the Company to maintain a leverage ratio of 2.5 to 1.0. The Company was in compliance with the covenants under the Financing Agreement as of March 31, 2021.
The Company capitalized fees of $0.9 million associated with the Financing Agreement, which are included in the Condensed Consolidated Balance Sheets as a discount to the long term debt. Such fees will continue to be amortized through maturity and are included in Interest Expense, net in the Condensed Consolidated Statements of Operations. Unamortized debt issuance costs as of March 31, 2021 was $0.3 million.
Other Installment Purchases
During the three months ended March 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, 2021, the aggregate principal balance outstanding under the Installment Agreements was $0.8 million and each balance 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.
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ESCO Notes Payable
In connection with the IPO and the ESCO Leasing, LLC (“ESCO”) acquisition, both of which occurred on August 16, 2017, the Company issued $7.0 million of Seller’s Notes as partial consideration for the ESCO acquisition. These notes included a note for $5.8 million, which was settled in March 2020. During the three months ended March 31, 2020, the Company paid $3.8 million to settle the note and any unpaid interest, in full, and recognized a gain on the retirement of debt of $2.1 million, which is included in the Condensed Consolidated Statement of Operations within General and administrative expenses.
Debt Obligations and Scheduled Maturities
As of March 31, 2021, aggregate future principal payments of total debt are as follows (in millions):
For the twelve months ending March 31,Total
2022$10.3 
202314.0 
20240.3 
Total$24.6 
Note 8 — Equity
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, 2021, there was an aggregate $2.5 million of unrecognized expense related to restricted shares issued which are expected to be recognized over a weighted average period of 1.2 years.
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 a three-year performance period. As of March 31, 2021, there was an aggregate $0.8 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.
Share Repurchases
During the three months ended March 31, 2020, the Company repurchased 344,827 shares of the Company’s Class A Common Stock for an aggregate $2.4 million in a privately negotiated transaction with ESCO. See Note 12 — Commitments and Contingencies for further details.
In June 2019, the Board of Directors approved a share repurchase program, authorizing the Company to purchase up to 10% of the outstanding Class A Common Stock held by non-affiliates, not to exceed 580,000 shares or $5.0 million in aggregate value. Share repurchases may have taken place from time to time on the open market or through privately negotiated transactions. The duration of the share repurchase program was 12 months and therefore ended in June 2020. During the three months ended March 31, 2020, the Company repurchased 93,063 shares of the Company’s Class A Common Stock for an aggregate $0.7 million.
Note 9 — Risk Concentrations
Customer Concentrations 
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 net accounts receivable balance was due from this customer.
For the three months ended March 31, 2020, two customers, EOG Resources and Concho Resources, Inc., accounted for 18% and 17%, respectively, of the Company’s consolidated revenues. As of March 31, 2020, approximately 28% of the accounts receivable balance was due from these customers.
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Note 10 — 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, 2021 and 2020 was (5.4)% and 5.9%, 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 full 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, 2021 and 2020 differed from amounts computed by applying the U.S. federal statutory tax rates to pre-tax income or loss primarily due to changes in the valuation allowance related to pre-tax book income or loss and the impact of permanent differences between book and taxable income or loss attributable to noncontrolling interest. The effective tax rate includes a rate benefit attributable to the fact that Ranger LLC operates as a limited liability company treated as a partnership for federal and state income tax purposes and as such, is not subject to federal and state income taxes, except for the State of Texas for which Ranger LLC files with the Company. Accordingly, the portion of earnings attributable to noncontrolling interest is subject to tax when reported as a component of the noncontrolling interest’s taxable income.
The Company is subject to the following material taxing jurisdictions: the United States and Texas. As of March 31, 2021, 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, 2021, 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, 2021, 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 $1.9 million as of March 31, 2021, where 50% of the deferral is due by December 31, 2021. The Company will continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.
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Note 11 — Earnings (Loss) per Share
Earnings (loss) per share is based on the amount of net income (loss) allocated to the shareholders and the weighted average number of shares outstanding during the period for each class of Common Stock. The numerator and denominator used to compute earnings (loss) per share were as follows (in millions, except share and per share data):
Three Months Ended March 31,
20212020
Income (loss) (numerator):
Basic:
Net income (loss) attributable to Ranger Energy Services, Inc.$(4.6)$1.5 
Net income (loss) attributable to Class A Common Stock$(4.6)$1.5 
Diluted:
Net income (loss) attributable to Ranger Energy Services, Inc.$(4.6)$1.5 
Effect of noncontrolling interest, net of tax 0.9 
Net income (loss) attributable to Class A Common Stock$(4.6)$2.4 
Weighted average shares (denominator):
Weighted average number of shares - basic8,581,642 8,617,781 
Effect of share-based awards 65,749 
Effect of noncontrolling interest, net of tax 6,866,154 
Weighted average number of shares - diluted8,581,642 15,549,684 
Basic income (loss) per share$(0.54)$0.17 
Diluted income (loss) per share$(0.54)$0.15 
During the three months ended March 31, 2021, the Company excluded approximately 0.9 million of equity-based awards and 6.9 million shares of Common Stock issuable upon conversion of the Company’s Class B Common Stock in calculating diluted loss per share. During the three months ended March 31, 2020, the Company excluded 0.7 million of equity-based awards. These items were excluded from the calculation of earnings (loss) per share, for the respective periods, as the effect was anti-dilutive.
Note 12 — 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.
During the year ended December 31, 2018, the Company provided notice to ESCO that the Company sought to be indemnified for breach of contract. The Company exercised the right to stop payments of the remaining principal balance of $5.8 million on the Seller's Notes and any unpaid interest, pending resolution of certain indemnification claims. During the three months ended March 31, 2020, the Company paid an aggregate of $6.2 million to ESCO, of which $3.8 million was paid to settle the Seller’s Note, and any unpaid interest, and $2.4 million was paid to repurchase shares of the Company’s Class A Common Stock. Please see “Note 7 — Debt” and “Note 8 — Equity” for further details of the debt and equity settlements.
Note 13 — Segment Reporting
The Company’s operations are located in the United States and organized into three reportable segments: High Specification Rigs, Completion and Other Services and Processing Solutions. 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 rig utilization. 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.  The Company’s high-spec rigs facilitate operations throughout the lifecycle of a well, including (i) completion, (ii) workover, (iii) well maintenance and (iv) decommissioning. The Company provides these
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advanced well services to E&P companies, particularly to those operating in unconventional oil and natural gas reservoirs and requiring technically and operationally advanced services. The Company’s high-spec rigs are designed to support growing U.S. horizontal well demands. In addition to the core well service rig operations, the Company offers a suite of complementary services.
Completion and Other Services.  The Completion and Other Services segment provides wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with the high-spec rig services to enhance the production of a well.
Processing Solutions.  The Company provides a range of proprietary, modular equipment for the processing of rich natural gas streams at the wellhead or central gathering points in basins where drilling and completion activity has outpaced the development of permanent processing infrastructure.
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, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 is as follows (in millions):
High Specification RigsCompletion and Other ServicesProcessing SolutionsOtherTotal
Three Months Ended March 31, 2021
Revenues$21.7 $15.5 $1.1 $ $38.3 
Cost of services19.0 14.6 0.5  34.1 
Depreciation and amortization4.8 2.2 0.6 0.4 8.0 
Operating income (loss)(2.1)(1.3) (3.9)(7.3)
Interest expense, net   0.6 0.6 
Net income (loss)$(2.1)$(1.3)$ $(4.9)$(8.3)
Capital expenditures$1.0 $0.2 $ $ $1.2 
As of March 31, 2021
Property and equipment, net$111.8 $28.8 $37.1 $5.1 $182.8 
Total assets$152.1 $39.2 $37.1 $6.9 $235.3 
High Specification RigsCompletion and Other ServicesProcessing SolutionsOtherTotal
Three Months Ended March 31, 2020
Revenues$34.9 $43.3 $2.8 $ $81.0 
Cost of services29.9 31.7 1.5  63.1 
Depreciation and amortization5.3 2.7 0.6 0.3 8.9 
Operating income (loss)(0.3)8.9 0.7 (5.3)4.0 
Interest expense, net   1.1 1.1 
Net income (loss)$(0.3)$8.9 $0.7 $(6.5)$2.8 
Capital expenditures$4.6 $1.2 $0.2 $ $6.0 
As of December 31, 2020
Property and equipment, net$115.8 $30.8 $37.7 $5.1 $189.4 
Total assets$154.3 $41.1 $38.4 $6.8 $240.6 

Note 14 — Subsequent Events
On April 9, 2021, the Company, through certain of its subsidiaries, entered into a sale-leaseback agreement for operational facilities in Colorado. The sales price of the facility was $13.0 million, and the cash proceeds from the transaction have provided the Company with additional liquidity. The lease has a 15 year term with a two percent annual escalation in rental payments.
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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, 2019 (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.
Overview
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.
Completion and Other Services. Provides wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with our high-spec rig services to enhance the production of a well.
Processing Solutions. Provides proprietary, modular equipment for the processing of natural gas.
For additional financial information about our segments, please see “Item 1. Financial Information — Note 13 — Segment Reporting.”
Recent Events and Outlook
The outbreak of the novel coronavirus (“COVID-19”) in the first quarter of 2020 and its continued spread across the globe has resulted, and is likely to continue to result, in significant economic disruption and has, and will likely continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas. Federal, state and local governments mobilized to implement containment mechanisms and minimize impacts to their populations and economies. Various containment measures, which included the quarantining of cities, regions and countries, while aiding in the prevention of further outbreak, have resulted in a severe decline in general economic activity and a resulting decrease in energy demand. In addition, the global economy has experienced a significant disruption to global supply chains. The risks associated with the COVID-19 pandemic have impacted our workforce and the way we meet our business objectives. The extent of the COVID-19 outbreak on the Company’s 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 the Company’s operations began to take affect at the close of the first quarter ended March 31, 2020 and has continued through the first quarter ended March 31, 2021; however the full extent to which the COVID-19 outbreak may affect the Company’s financial conditions, results of operations or liquidity subsequent to the issuance of these financial statements is uncertain.
COVID-19 and numerous public and political responses thereto have contributed to equity market volatility and potentially the risk of a global recession. While commodity prices, as well as our stock price, have improved with the rollout of COVID-19 vaccines, we expect this global equity market volatility to continue at least until the outbreak of COVID-19 stabilizes, if not longer. Additionally, increased activity during 2021 can be attributed to stay-at-home orders and other restrictions being lifted in certain geographical areas, however any future containment measures could curtail such growth. The response to the COVID-19 outbreak (such as stay-at-home orders, closures of restaurants and banning of group gatherings) and slowing of the global economy has contributed to increased unemployment rates.
The severe drop in economic activity, travel restrictions and other restrictions due to COVID-19 have had a significant negative impact on the demand for oil and gas. In addition to the impact of the COVID-19 outbreak, in March 2020, OPEC, Russia and certain other oil producing states, commonly referred to as “OPEC Plus,” failed to agree on a plan to cut production of oil and natural gas. Subsequently, Saudi Arabia announced plans to increase production to record levels and reduce the prices
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at which they sell oil and, in turn, Russia responded with threats to also increase production. Collectively, these events created an unprecedented global oil and natural gas supply and demand imbalance, reduced global oil and natural gas storage capacity, caused oil and natural gas prices to decline significantly and resulted in continued volatility in oil, natural gas and NGLs prices through the year ended December 31, 2020. On April 12, 2020, OPEC Plus agreed to cut oil production by 9.7 million barrels per day (“MBbls/d”) in May and June 2020; however, on July 15, 2020 OPEC Plus agreed to increase production by 1.6 MBbls/d starting in August 2020. On December 3, 2020, OPEC Plus agreed to further increase production by an additional 1.0 MBbls/d in January 2021, resulting in total production cuts of 7.1 MBbls/d by the end of February 2021. Currently, OPEC Plus estimates that global oil demand will increase by 5.6 MBbls/d. With the combined effects of the increased production levels earlier in 2020, the recent increase in production and the reduction in demand caused by COVID-19, the global oil and natural gas supply and demand imbalance persists and continues to have a significant adverse effect on the oil and gas industry.
Due to the significantly reduced demand for oil and natural gas as a result of the COVID-19 pandemic and the current oversupply of oil and natural gas in the market, available storage and capacity for our customers’ production may be limited or completely unavailable in the future, which may further negatively impact the price of oil.
We cannot predict whether or when the global supply and demand imbalance will be resolved or whether or when oil and natural gas production and economic activities will return to normalized levels. In the absence of additional reductions to global production, oil, natural gas and NGLs prices could remain at current levels, or decline further, for an extended period of time.
Factors deriving from the COVID-19 response, as well as the oil oversupply, that have and may continue to negatively impact sales, liquidity and gross margins in the future include, but are not limited to: limitations on the ability of our suppliers to provide materials or equipment, limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home; reduction of capital expenditures and discretionary spend; limitations on the ability of our customers to conduct business; and limitations on the ability of our customers to pay us on a timely basis. If prolonged, such factors may also negatively affect the carrying values of our property and equipment and intangible assets. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers and stakeholders.
The U.S. government has implemented a number of programs in the 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 $1.9 million as of March 31, 2021 under the CARES Act.
How We Evaluate Our Operations
Management uses a variety of metrics to analyze our operating results and profitability, which include operating revenues, cost of conducting our operations, operating income (loss) and adjusted EBITDA, among others. Within our High Specification Rig segment, management uses additional metrics to analyze our activity levels and profitability, including, rig hours and rig utilization.
How We Generate Revenues
We currently generate revenues through the provision of a variety of oilfield services. These services are performed under a variety of contract structures, including a long term take-or-pay contract and various master service agreements, as supplemented by statements of work, pricing agreements and specific quotes. A portion of our master services agreements include provisions that establish pricing arrangements for a period of up to one year in length. However, the majority of those agreements provide for pricing adjustments based on market conditions. The majority of our services are priced based on prevailing market conditions and changing input costs at the time the services are provided, giving consideration to the specific requirements of the customer.
We analyze our revenues by comparing actual revenues to our internal projections for a given period and to prior periods to assess our performance. We believe that revenues are a meaningful indicator of the demand and pricing for our services.
Rig Hours
Within our High Specification Rig segment, we analyze rig hours as an important indicator of our activity levels and profitability. Rig hours represent the aggregate number of hours that our well service rigs actively worked during the periods presented. We typically bill customers for our well services on an hourly basis during the period that a well service rig is actively working, making rig hours a useful metric for evaluating our profitability.



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Rig Utilization
Within our High Specification Rig segment, we analyze rig utilization as a further important indicator of our activity levels and profitability. We measure rig utilization by reference to average monthly hours per rig, which is calculated by dividing (a) the approximate, aggregate operating well service rig hours for the periods presented by (b) the aggregate number of high-spec rigs in our fleet during such period, as aggregated on a monthly basis utilizing a mid-month convention whereby a high-spec rig added to our fleet during a month, meaning that we have taken delivery of such high-spec rig and it is ready for service, assumed to be in our fleet for one half of such month. We believe that rig utilization as measured by average monthly hours per high-spec rig is a meaningful indicator of the operational efficiency of our core revenue-producing assets, market demand for our well services and our ability to profitably capitalize on such demand. Our evaluation of our rig utilization as measured by average monthly hours per rig may not be comparable to that of our competitors.
The primary factors that have historically impacted, and will likely continue to impact, our actual aggregate well service rig hours for any specified period are: (i) customer demand, which is influenced by factors such as commodity prices, the complexity of well completion operations and technological advances in our industry, and (ii) our ability to meet such demand, which is influenced by changes in our fleet size and resulting rig availability, as well as weather, employee availability and related factors. The primary factors that have historically impacted, and will likely continue to impact, the aggregate number of high-spec rigs in our fleet during any specified period are the extent and timing of changes in the size of our well service rig fleet to meet short-term and expected long-term demand, and our ability to successfully maintain a fleet capable of ensuring sufficient, but not excessive, rig availability to meet such demand.
Costs of Conducting Our Business
The principal expenses involved in conducting our business are personnel, repairs and maintenance costs as well as other direct material costs, general and administrative, depreciation and amortization and interest expense. We manage the level of our expenses, except depreciation and amortization and interest expense, based on several factors, including industry conditions and expected demand for our services. In addition, a significant portion of the costs we incur in our business is variable based on the quantities of specific services provided and the requirements of such services.
Direct cost of services and general and administrative expenses include the following major cost categories: (i) personnel costs; and (ii) equipment costs, including repair and maintenance.
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 crews and is partly variable based on the requirements of specific customers and operations. A key component of personnel costs relate to the ongoing training of our employees, which improves safety rates and reduces attrition. We also incur costs to employ personnel to support our services and perform maintenance on our assets. Costs for these employees are not directly tied to our level of business activity.
Operating Income (Loss)
We analyze our operating income (loss), which we define as revenues less cost of services, general and administrative expenses, depreciation and amortization, impairment and other operating expenses, to measure our financial performance. We believe operating income (loss) is a meaningful metric because it provides insight on profitability and true operating performance based on the historical cost basis of our assets. We also compare operating income (loss) to our internal projections for a given period and to prior periods.
Adjusted EBITDA
We view Adjusted EBITDA, which is a financial measure not determined in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), as an important indicator of performance. We define Adjusted EBITDA as net income (loss) before net interest expense, income tax provision or benefit, depreciation and amortization, equity-based compensation, acquisition-related and severance costs, gain or loss on disposal of assets and other non-cash and certain items that we do not view as indicative of our ongoing performance. See “Results of Operations—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 U.S. GAAP.
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