NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Organization
Ranger Energy Services, Inc. (“Ranger” or the “Company”) was incorporated as a Delaware corporation in February 2017. Ranger is a holding company, the sole material assets of which 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 Services and Torrent Services, the subsidiaries through which it operates its assets. Ranger LLC is the sole managing member of Ranger Energy Services, LLC (“Ranger Services”) and Torrent Energy Services, LLC (“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.
Reorganization
On August 10, 2017, Ranger Services, entered into a Master Reorganization Agreement with, among others, Ranger LLC, Ranger Energy Holdings LLC, Ranger Energy Holdings II, LLC, Torrent Holdings and Torrent Energy Holdings II, LLC. In connection with the Master Reorganization Agreement, an aggregate of
$3.0 million
will be paid by the Company to CSL Energy Holdings I, LLC, a Delaware limited liability company and CSL Energy Holdings II, LLC, a Delaware limited liability company, on or prior to the
18
-month anniversary of the Company’s initial public offering (the “Offering”) in, at the Company’s option, cash, shares of Class A Common Stock (with such shares to be valued based on the greater of the price of the Class A Common Stock in the Offering and a
30
-day weighted average price) or a combination thereof (included within Other current liabilities on the accompanying condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018). The Company is currently evaluating the payment options.
Business
The Company is one of the largest providers of high specification (“high‑spec”) well service rigs and associated services in the United States, with a focus on technically demanding unconventional horizontal well completion and production operations. We believe that our fleet of
141
well service rigs is among the newest and most advanced in the industry and, based on our historical rig utilization and feedback from our customers, we believe that we are an operator of choice for U.S. onshore exploration and production (“E&P”) companies that require completion and production services at increasing lateral lengths. Our high‑specification well service rigs facilitate operations throughout the lifecycle of a well, including (i) completion services, such as milling out composite plugs after the hydraulic fracturing process and the installation of downhole production equipment; (ii) workover, including retrieval and replacement of existing production tubing; (iii) well maintenance, including replacement of downhole artificial lift components; and (iv) decommissioning, such as plugging and abandonment operations. The Company also provides Completion and Other Services, which provides services necessary to bring and maintain a well on production and primarily includes (i) wireline perforating and pumpdown services and (ii) snubbing services often utilized in conjunction with our high-spec rigs to convey equipment in and out of a well during completion and workover activities. The Company provides rental equipment, including well control packages, hydraulic catwalks and other equipment that are often deployed with our well service rigs. In addition, the Company owns and operates a fleet of proprietary, modular natural gas processing equipment that processes rich natural gas streams at the wellhead or central gathering points. The Company has operations in most of the active oil and natural gas basins in the United States, including the Permian Basin, the Denver‑Julesburg Basin, the Bakken Shale, the Eagle Ford Shale, the Haynesville Shale, the Gulf Coast and the South Central Oklahoma Oil Province and Sooner Trend Anadarko Basin Canadian and Kingfisher counties plays.
Note 2 — Summary of Significant Accounting Policies
Basis
of Presentation
The consolidated balance sheet as of
December 31, 2018
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 (“US 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, 2018
and
2017
, included in the Annual Report filed on Form 10-K for the years ended
December 31, 2018
and
2017
(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, 2019
, except as discussed in
Note 7 — Leases
and below.
Equity Based Compensation
During the
three months ended March 31, 2019
and 2018 there were
495,750
and
24,000
restricted shares issued, respectively. The aggregate value of awards granted during
three months ended March 31, 2019
and 2018 was
$3.9 million
and
$0.2 million
, respectively. As of
March 31, 2019
, there was an aggregate
$6.4 million
of unrecognized expense related to restricted shares issued.
During the
three months ended March 31, 2019
, the Company granted
105,920
target shares of market based performance restricted stock units at a relative and absolute grant date fair value of approximately
$11.96
per share and
$9.50
per share, respectively, to certain employees. The market based performance restricted stock units cliff vest on March 21, 2022. As defined in the LTIP, the performance criteria applicable to the performance awards is measured at a relative and absolute shareholder return, which measures the Company’s total shareholder return as compared to the total shareholder return of the defined peer group. As of
March 31, 2019
, there was approximately
$1.4 million
of unrecognized compensation cost related to shares of market based performance restricted stock units which is expected to be recognized over a weighted average period of
2.4 years
.
Use of Estimates
The preparation of financial statements in conformity with US 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 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:
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•
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Depreciation and amortization of property, plant and equipment and intangible assets;
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•
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Impairment of property, plant and equipment, goodwill and intangible assets;
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•
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Allowance for doubtful accounts;
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•
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Fair value of assets acquired and liabilities assumed in an acquisition; and
|
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•
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Equity‑based compensation.
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Emerging Growth Company status
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (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 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.
New Accounting Pronouncements
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016‑02,
Leases
, amending the current accounting for leases. Under the new provisions, all lessees will report a right‑of‑use asset and a liability for the obligation to make payments for all leases with the exception of those leases with a term of 12 months or less. All other leases will fall into one of two categories: (i) a financing lease or (ii) an operating lease. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases.
Effective January 1, 2019, the Company has adopted ASU 2016-02 and elected the following practical expedients and accounting policy elections for recognition, measurement and presentation:
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•
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The optional transition method, therefore will not adjust comparative period financial information or make the new required lease disclosures for periods prior to the effective date;
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•
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the package of practical expedients to not reassess prior conclusions related to (i) contracts containing leases, (ii) lease classification and (iii) initial direct costs;
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•
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to make the accounting policy election for short-term leases, or leases with terms of 12 months or less, therefore the lease payments will be recorded as an expense on a straight line basis over the lease term; and
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•
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to combine lease and non-lease components.
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The Company did not apply the practical expedient to utilize hind-sight in applying the standard. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease, discounted at our annual incremental borrowing rate (“IBR”). ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the ROU asset and lease liabilities and are recognized in the period in which the obligation for those payments are incurred. For certain leases, where variable lease payments are incurred and relate primarily to common area maintenance, in substance fixed payments are included in the ROU asset and lease liability. For those leases that do not provide an implicit rate, we use our IBR based on the information available at the lease commencement date in determining the present value of lease payments. ROU assets also include any lease payments made and exclude lease incentives. Lease terms do not include options to extend or terminate the lease, as management does not consider them reasonably certain to exercise. The Company has a related party lease, which is included within the ROU asset and liability. Please see Note 14 — Related Party Transactions of the Annual Report for further discussion of the Company’s related parties.
As of January 1, 2019, the Company recognized an operating lease right-of-use asset and corresponding liability of
$8.3 million
on our condensed consolidated Balance Sheet. See
Note 7 — Leases
, for further details of the Company’s operating and financing leases as of
March 31, 2019
.
With the exception of the standard 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 — Acquisitions
MVCI Acquisition
On January 31, 2018, the Company closed on the acquisition of MVCI Energy Services (“MVCI Acquisition”) for a total consideration of
$4.0 million
in cash. The MVCI Acquisition assets were primarily engaged in well testing services for its customers. The MVCI Acquisition is being accounted for as a business combination. The Company evaluated its purchase allocation and has reported
$4.0 million
on its consolidated balance sheets as property, plant and equipment. The pro forma results of operations for the MVCI Acquisition is not presented because the pro forma effects, individually and in the aggregate, are not material to the Company’s consolidated results of operations.
Note 4 — Property, Plant and Equipment, Net
Property, plant and equipment include the following (in millions):
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Estimated Useful Life (years)
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March 31, 2019
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|
December 31, 2018
|
Machinery and equipment
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5 - 30
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|
$
|
41.7
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|
|
$
|
42.0
|
|
Vehicles
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|
3 - 5
|
|
18.4
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|
|
17.9
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|
Mechanical refrigeration units
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30
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|
21.7
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|
20.9
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Natural gas liquid storage tanks
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15
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5.9
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|
5.9
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|
Workover rigs
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5 - 20
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|
177.7
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|
|
175.7
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|
Other property, plant and equipment
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3 - 30
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|
14.5
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|
|
12.7
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Property, plant and equipment
|
|
|
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279.9
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|
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275.1
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|
Less: accumulated depreciation
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(60.6
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)
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(52.5
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)
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Construction in progress
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11.4
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|
7.2
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Property, plant and equipment, net
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$
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230.7
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|
|
$
|
229.8
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Depreciation expense was
$8.3 million
and
$5.9 million
for the
three months ended March 31,
2019
and
2018
, respectively.
Note 5 — Goodwill and Intangible Assets
During the year ended
December 31, 2018
, the Company noted a sustained decrease in the stock price, which was an indication that the fair value of our goodwill could have fallen below its carrying amount. As a result, the Company performed a quantitative impairment test and determined the goodwill was impaired. The Company estimated the implied fair value of the goodwill using a variety of valuation methods, including the income and market approaches. During the year ended
December 31, 2018
, the Company recognized an impairment loss of
$9.0 million
associated with the remaining balance of our goodwill. The estimate of fair value required the use of significant unobservable inputs, representative of a
Level 3
fair value measurement.
Definite lived intangible assets are comprised of the following (in millions):
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Estimated Useful Life (years)
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March 31, 2019
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December 31, 2018
|
Tradenames
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3
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|
$
|
0.1
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|
|
$
|
0.1
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Customer relationships
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10-18
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|
11.4
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|
|
11.4
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Less: accumulated amortization
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(1.6
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)
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|
(1.5
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)
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Intangible assets, net
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$
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9.9
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|
|
$
|
10.0
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Amortization expense was
$0.1 million
and
$0.2 million
for the
three months ended March 31,
2019
and
2018
, respectively. Amortization expense for the future periods is expected to be as follows (in millions):
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For the period ending March 31,
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Amount
|
2020
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$
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0.7
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|
2021
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|
0.7
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|
2022
|
|
0.7
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|
2023
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|
0.8
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|
2024
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|
0.8
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Thereafter
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6.2
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$
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9.9
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Note 6 — Accrued Expenses
Accrued expenses include the following (in millions):
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March 31, 2019
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|
December 31, 2018
|
Accrued payables
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$
|
6.9
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$
|
5.6
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Accrued payroll
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|
10.1
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6.2
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Accrued taxes
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|
2.2
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|
2.9
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Accrued insurance
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2.5
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|
3.8
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Accrued expenses
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$
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21.7
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$
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18.5
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Note 7 — Leases
Operating Leases
The Company has operating leases, primarily for real estate and equipment, with terms that vary from less than
12 months
to
eight years
. The operating leases are included in Operating lease right-of-use assets, Other current liabilities and Operating lease right-of-use obligations in our Condensed Consolidated Balance Sheet.
Lease costs and other information related to operating leases for the three months ended March 31, 2019, is as follows (in millions):
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March 31, 2019
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Short-term lease costs
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$
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2.2
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Operating lease cost
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$
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0.7
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Operating cash flows from operating leases
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$
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(0.8
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)
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Weighted average remaining lease term
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5.5 years
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Weighted average discount rate
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9.40
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%
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Aggregate future minimum lease payments under operating leases are as follows (in millions):
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For the period ending March 31,
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Total
|
2020
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$
|
3.0
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2021
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2.0
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2022
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0.8
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2023
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|
0.7
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2024
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0.7
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Thereafter
|
|
2.8
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Total future minimum lease payments
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10.0
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Less: amount representing interest
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(2.4
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)
|
Present value of future minimum lease payments
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7.6
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Less: current portion of operating lease obligations
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(2.4
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)
|
Long-term portion of operating lease obligations
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$
|
5.2
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Aggregate future minimum rental payments as of December 31, 2018, under ASC 840,
Leases
, required under operating leases thereof, were as follows (in millions):
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For the year ending December 31,
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Total
|
2019
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|
$
|
2.9
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|
2020
|
|
2.3
|
|
2021
|
|
0.9
|
|
2022
|
|
0.7
|
|
2023
|
|
0.7
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Thereafter
|
|
3.0
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Total future minimum lease payments
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$
|
10.5
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Finance Leases
The Company leases certain assets, primarily automobiles, under finance leases which are generally
three
to
five years
. The assets and liabilities under finance leases are recorded at the lower of 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 and Finance lease obligations, long-term in our Condensed Consolidated Balance Sheet.
Lease costs and other information related to finance leases for the three months ended March 31, 2019, is as follows (in millions):
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|
March 31, 2019
|
Amortization of ROU asset
|
|
$
|
1.3
|
|
Interest on lease liabilities
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|
$
|
0.2
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Financing cash flows from finance leases
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$
|
(1.1
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)
|
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Weighted average remaining lease term
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2.0 years
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|
Weighted average discount rate
|
|
4.6
|
%
|
Aggregate future minimum lease payments under finance leases are as follows (in millions):
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For the period ending March 31,
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Total
|
2020
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|
$
|
3.9
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|
2021
|
|
4.8
|
|
2022
|
|
2.3
|
|
2023
|
|
0.3
|
|
Thereafter
|
|
—
|
|
Total future minimum lease payments
|
|
11.3
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|
Less: amount representing interest
|
|
(0.9
|
)
|
Present value of future minimum lease payments
|
|
10.4
|
|
Less: current portion of finance lease obligations
|
|
(4.6
|
)
|
Long-term portion of finance lease obligations
|
|
$
|
5.8
|
|
Aggregate future minimum rental payments as of December 31, 2018, under ASC 840,
Leases
, required under finance leases thereof, were as follows (in millions):
|
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|
|
|
|
For the year ending December 31,
|
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Total
|
2019
|
|
$
|
5.0
|
|
2020
|
|
4.6
|
|
2021
|
|
2.1
|
|
2022
|
|
0.2
|
|
2023
|
|
0.1
|
|
Thereafter
|
|
—
|
|
Total future minimum lease payments
|
|
12.0
|
|
Less: amount representing interest
|
|
(1.0
|
)
|
Present value of future minimum lease payments
|
|
11.0
|
|
Less: current portion of capital lease obligations
|
|
(4.4
|
)
|
Total capital lease obligations, less current portion
|
|
$
|
6.6
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|
Note 8 — Debt
The aggregate carrying amounts, net of issuance costs, of the Company’s debt consists of the following (in millions):
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|
March 31, 2019
|
|
December 31, 2018
|
ESCO Note Payable due February 2019
|
|
$
|
5.8
|
|
|
$
|
5.8
|
|
Encina Master Financing Agreement due June 2020
|
|
34.4
|
|
|
36.8
|
|
Wells Fargo Credit Facility due August 2022
|
|
25.0
|
|
|
17.9
|
|
Total Debt
|
|
65.2
|
|
|
60.5
|
|
Current portion of long-term debt
|
|
(15.8
|
)
|
|
(15.8
|
)
|
Long term-debt
|
|
$
|
49.4
|
|
|
$
|
44.7
|
|
ESCO Notes Payable
In connection with the Company’s initial public offering (the “Offering”) and the 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 include a note for
$1.2 million
, which was paid in August 2018 and a note for
$5.8 million
due in February 2019. Both of these notes bear interest at
5.0%
payable quarterly until their respective maturity dates.
During the year ended December 31, 2018, the Company provided notice to ESCO Leasing, LLC that the Company sought to be indemnified for breach of our contract. The Company exercised its 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.
Credit Facility
On
August 16, 2017
, in connection with the Offering, Ranger entered into a
$50.0 million
senior 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 value of the Company’s eligible accounts receivable less certain reserves.
The Credit Facility permits extensions of credit up to the lesser of
$50.0 million
and a borrowing base that is determined by calculating the amount equal to the sum of (i)
85%
of the Eligible Accounts (as defined in the Credit Facility), less the amount, if any, of the Dilution Reserve (as defined in the Credit Facility), minus (ii) the aggregate amount of Reserves (as defined in the Credit Facility), if any, established by the Administrative Agent from time to time pursuant to the Credit Facility. The borrowing base is calculated on a monthly basis pursuant to a borrowing base certificate delivered by the Company to the Administrative Agent.
Borrowings under the Credit Facility bear interest, at the Company’s election, at either the (a) one-, two-, three- or six-month LIBOR or (b) the greatest of (i) the federal funds rate plus ½%, (ii) the one-month LIBOR plus
1%
and (iii) the Administrative Agent’s prime rate (the “Base Rate”), in each case plus an applicable margin, and interest shall be payable monthly in arrears. The applicable margin for LIBOR loans ranges from
1.50%
to
2.00%
and the applicable margin for Base Rate loans ranges from
0.50%
to
1.00%
, in each case, depending on the Company’s average excess availability under the Credit Facility. The applicable margin for LIBOR loans is
1.75%
and the applicable margin for Base Rate loans are
0.75%
as of
March 31, 2019
. During the continuance of a bankruptcy event of default, automatically and during the continuance of any other default, upon the Administrative Agent’s or the required lenders’ election, all outstanding amounts under the Credit Facility bears interest at
2.00%
plus the otherwise applicable interest rate. The Credit Facility is scheduled to mature on August 16, 2022 with a weighted average interest rate of
4.5%
as of March 31, 2019.
In addition, the Credit Facility restricts the Company’s ability to make distributions on, or redeem or repurchase, its equity interests, except for certain distributions, including distributions of cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under the Credit Facility and either (a) excess availability at all times during the preceding
90
consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of
(1)
22.5%
of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2)
$10.0 million
or (b) if the fixed charge coverage ratio is at least
1.0
x on a pro forma basis, excess availability at all times during the preceding
90
consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of
(1)
17.5%
of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2)
$7.0 million
. If the foregoing threshold under clause (b) is met, the Company may not make such distributions (but may make certain other distributions, including under clause (a) above) prior to the earlier of the date that is (a)
12 months
from closing or (b) the date that the Company’s fixed charge coverage ratio is at least
1.0
x for
two
consecutive quarters. The Credit Facility generally permits the Company to make distributions required under the Tax Receivable Agreement (‘‘TRA’’), but a ‘‘Change of Control’’ under the TRA constitutes an event of default under the Credit Facility, and the Credit Facility does not permit the Company to make payments under the TRA upon acceleration of its obligations thereunder unless no event of default exists or would result therefrom and the Company has been in compliance with the fixed charge coverage ratio for the most recent 12-month period on a pro forma basis. The Credit Facility also requires the Company to maintain a fixed charge coverage ratio of at least
1.0
x if the Company’s liquidity is less than
$10.0 million
until the Company’s liquidity is at least
$10.0 million
for
30
consecutive days. The Company is not to be subject to a fixed charge coverage ratio if it has no drawings under the Credit Facility and has at least
$20.0 million
of qualified cash.
The Credit Facility contains events of default customary for facilities of this nature, including, but not limited, to:
|
|
•
|
events of default resulting from the Company’s failure or the failure of any guarantors to comply with covenants and financial ratios;
|
|
|
•
|
the occurrence of a change of control;
|
|
|
•
|
the institution of insolvency or similar proceedings against the Company or any guarantor; and
|
|
|
•
|
the occurrence of a default under any other material indebtedness the Company or any guarantor may have.
|
Upon the occurrence and during the continuation of an event of default, subject to the terms and conditions of the Credit Facility, the lenders are able to declare any outstanding principal of the Credit Facility debt, together with accrued and unpaid interest, to be immediately due and payable and exercise other remedies.
As of
March 31, 2019
, the Company has borrowed
$25.6 million
under the Credit Facility. The Company has a borrowing capacity of approximately
$43.3 million
under the Credit Facility, with approximately
$17.7 million
available as of
March 31, 2019
. The Company was in compliance with the Credit Facility covenants as of
March 31, 2019
.
The Company capitalized fees of
$0.7 million
associated with the Credit Facility, which are included in the unaudited interim condensed consolidated balance sheets as a discount to the Credit Facility, and will be amortized through maturity. Unamortized debt issuance costs as of
March 31, 2019
approximated
$0.6 million
.
Encina Master Financing and Security Agreement (
“
Financing Agreement
”
)
On June 22, 2018, the Company entered into a Master Financing and Security 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, under the Financing Agreement. We utilized the additional net proceeds to acquire certain capital equipment. The Financing Agreement is secured by a lien on certain high specification rig assets. At
March 31, 2019
, the aggregate principal balance outstanding was
$35.1 million
under the Financing Agreement with a weighted average interest rate of
10.4%
.
Borrowings under the Financing Agreement bear interest at a rate per annum equal to the sum of
8.0%
plus the London Interbank Offered Rate (“LIBOR”), which was
2.5%
as of
March 31, 2019
. The Financing Agreement requires that the Company maintain leverage ratios of
2.50
to 1.00 as of
March 31, 2019
and for periods thereafter. The Company was in compliance with the covenants under the Financing Agreement as of
March 31, 2019
.
The Company capitalized fees of
$0.9 million
associated with the Financing Agreement, which are included on the unaudited interim condensed consolidated balance sheets as a discount to the long term debt, and will be amortized through maturity. Unamortized debt issuance costs as of
March 31, 2019
approximated
$0.7 million
.
Scheduled Maturities
As of
March 31, 2019
, aggregate principal repayments of total debt for the next five years are as follows (in millions):
|
|
|
|
|
|
For the period ending March 31,
|
|
Total
|
2020
|
|
$
|
15.8
|
|
2021
|
|
10.0
|
|
2022
|
|
33.3
|
|
2023
|
|
7.4
|
|
Total
|
|
$
|
66.5
|
|
Note 9 — Risk Concentrations
Customer Concentrations
For the
three months ended March 31,
2019
,
three
customers, EOG Resources, Concho Resources, Inc. and Sable Permian Resources Land, LLC, accounted for
16%
,
12%
, and
12%
of the Company’s total revenues. At
March 31, 2019
, approximately
49%
of the accounts receivable balance was due from these customers.
For the
three months ended March 31,
2018
,
two
customers, EOG Resources and PDC Energy, accounted for approximately
21%
and
7%
, of the Company’s total revenues, respectively. At
March 31, 2018
, approximately
23%
of the accounts receivable balance was due from these customers.
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,
2019
and
2018
was
7.1%
and
7.7%
, 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 Offering and subsequent reorganization, the Company recorded a deferred tax asset; however, a full valuation allowance has been recorded to reduce the Company’s net deferred tax assets to an amount that is more likely than not to be realized and 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. The Company currently believes that it is reasonably possible to achieve a three-year cumulative level of profitability within the next 12 months, and as early as the second quarter of 2019, which would enhance the ability to conclude that is it more likely than not that the deferred tax assets would be realized and support a release of a portion or substantially all of the valuation allowance. A release of the valuation allowance would result in the recognition of an increase in deferred tax assets and an income tax benefit in the period in which the release occurs, although the exact timing and amount of the release is subject to change based on numerous factors, including projections of future taxable income, which continues to be assessed based on available information each reporting period.
Total income tax expense for the
three months ended March 31,
2019
differed from amounts computed by applying the U.S. federal statutory tax rates to pre-tax income primarily due to the release of the valuation allowance related to current period
pre-tax book income and the impact of permanent differences between book and taxable income attributable to non-controlling 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 non-controlling interest is subject to tax when reported as a component of the non-controlling interest’s taxable income.
The Company is subject to the following material taxing jurisdictions: the United States and Texas. As of March 31, 2019, 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 2016 and 2017.
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, 2019, the Company had not established any reserves for, nor recorded any unrecognized benefits related to, uncertain tax positions.
Note 11 — Earnings (Loss) per Share
Earnings (loss) per share is based on the amount of net income or loss allocated to the shareholders and the weighted average number of shares outstanding during the period for each class of Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
Income (loss) (numerator):
|
|
|
|
|
Basic:
|
|
|
|
|
Net income (loss) attributable to Ranger Energy Services, Inc.
|
|
$
|
2.0
|
|
|
$
|
(5.7
|
)
|
Less: Undistributed earnings allocable to Class B Common Stock
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to Class A Common Stock
|
|
$
|
2.0
|
|
|
$
|
(5.7
|
)
|
|
|
|
|
|
Diluted:
|
|
|
|
|
Net income (loss) attributable to Ranger Energy Services, Inc.
|
|
$
|
2.0
|
|
|
$
|
(5.7
|
)
|
Less: Undistributed earnings allocable to Class B Common Stock
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to Class A Common Stock
|
|
$
|
2.0
|
|
|
$
|
(5.7
|
)
|
|
|
|
|
|
Weighted average shares (denominator):
|
|
|
|
|
Weighted average number of shares - basic
|
|
8,448,719
|
|
|
8,423,445
|
|
Weighted average number of shares - diluted
|
|
9,730,710
|
|
|
8,423,445
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$
|
0.24
|
|
|
$
|
(0.68
|
)
|
Diluted income (loss) per share
|
|
$
|
0.21
|
|
|
$
|
(0.68
|
)
|
As of March 31, 2019 and 2018, the Company excluded
6.9 million
shares of Common Stock issuable upon conversion of the Company’s Class B Common Stock in calculating diluted loss per share, as the effect was anti-dilutive.
Note 12 — Commitment 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 Leasing, LLC that the Company sought to be indemnified for breach of contract. We 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.
Note 13 — Segment Reporting
Historically, the Company reported
two
segments, with corporate general and administrative expense categorized as other. During the fourth quarter of 2018, the Company bifurcated the legacy Well Services segment into High Specification Rigs and Completion and Other Services due to the modifications made to its internal reporting and responsibilities of those reporting to the Chief Operating Decision Maker (“CODM”). As a result, the financial information being provided to the CODM has been updated to align with our new internal organization, which resulted in a new reportable segment discussed further below.
The Company’s operations are all located in the United States and organized into
three
reportable segments: High Specification Rigs, Completion and Other Services and Processing Solutions. Our reportable segments comprise the structure used by our CODM to make key operating decisions and assess performance during the years presented in the accompanying condensed consolidated financial statements. Our CODM evaluates the segments’ operating performance based on multiple measures including Operating income (loss), Adjusted EBITDA, rig hours and rig utilization. The tables below present the operating income (loss) measurement, as the Company believes this is most consistent with the principals used in measuring the condensed consolidated financial statements.
We have made certain reclassifications to our prior period operating revenue, cost of sales and general and administrative amounts due to the change in reportable segments whereby our High Specification Rig and Completion and Other Services segments were bifurcated from our legacy Well Services segment as a result of our fourth quarter 2018 operating segment changes. None of these reclassifications have an impact on our condensed consolidated operations results, cash flows or financial position.
The following is a description of each operating segment:
High Specification Rigs.
The Company’s High Specification Rigs facilitate operations throughout the lifecycle of a well, including (i) completion, (ii) workover, (iii) well maintenance and (iv) decommissioning. The Company provides these advanced well services to exploration & production (“E&P”) companies, particularly to those operating in unconventional oil and natural gas reservoirs and requiring technically and operationally advanced services. Our high specification rigs are designed to support growing U.S. horizontal well demands.
Completion and Other Services.
Our Completion and Other Services segment provides services necessary to bring and maintain a well on production and consists primarily of our wireline and snubbing lines of business along with other, non-rig well services, such as fluid management and well services-related equipment rentals.
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, and includes mostly corporate general and administrative expenses as well as depreciation of office furniture and fixtures and other corporate assets.
Segment information as of
March 31, 2019
and
December 31, 2018
and for the
three months ended March 31, 2019
and
2018
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
|
|
High Specification Rigs
|
|
Completion and Other Services
|
|
Processing Solutions
|
|
Other
|
|
Total
|
Revenues
|
|
$
|
31.7
|
|
|
$
|
51.6
|
|
|
$
|
5.0
|
|
|
$
|
—
|
|
|
$
|
88.3
|
|
Cost of services
|
|
27.4
|
|
|
37.9
|
|
|
2.2
|
|
|
—
|
|
|
67.5
|
|
Depreciation and amortization
|
|
4.8
|
|
|
2.8
|
|
|
0.5
|
|
|
0.3
|
|
|
8.4
|
|
Impairment of goodwill
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating income (loss)
|
|
(0.5
|
)
|
|
10.9
|
|
|
2.3
|
|
|
(7.5
|
)
|
|
5.2
|
|
Interest Expense, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
|
(1.3
|
)
|
Net Income (loss)
|
|
(0.5
|
)
|
|
10.9
|
|
|
2.3
|
|
|
(9.1
|
)
|
|
3.6
|
|
Capital expenditures
|
|
$
|
2.8
|
|
|
$
|
1.8
|
|
|
$
|
4.1
|
|
|
$
|
0.5
|
|
|
$
|
9.2
|
|
|
|
As of March 31, 2019
|
Property, plant and equipment
|
|
$
|
138.9
|
|
|
$
|
47.1
|
|
|
$
|
38.0
|
|
|
$
|
6.7
|
|
|
$
|
230.7
|
|
Total assets
|
|
$
|
199.3
|
|
|
$
|
67.6
|
|
|
$
|
42.5
|
|
|
$
|
14.2
|
|
|
$
|
323.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
High Specification Rigs
|
|
Completion and Other Services
|
|
Processing Solutions
|
|
Other
|
|
Total
|
Revenues
|
|
$
|
36.3
|
|
|
$
|
23.4
|
|
|
$
|
2.9
|
|
|
$
|
—
|
|
|
$
|
62.6
|
|
Cost of services
|
|
31.5
|
|
|
18.4
|
|
|
1.4
|
|
|
—
|
|
|
51.3
|
|
Depreciation and amortization
|
|
3.9
|
|
|
1.7
|
|
|
0.3
|
|
|
0.2
|
|
|
6.1
|
|
Impairment of goodwill
|
|
9.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.0
|
|
Operating income (loss)
|
|
(8.1
|
)
|
|
3.3
|
|
|
1.2
|
|
|
(7.2
|
)
|
|
(10.8
|
)
|
Interest expense, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
|
(0.4
|
)
|
Net income (loss)
|
|
(8.1
|
)
|
|
3.3
|
|
|
1.2
|
|
|
(6.7
|
)
|
|
(10.3
|
)
|
Capital expenditures
|
|
$
|
6.2
|
|
|
$
|
1.4
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
9.8
|
|
|
|
As of December 31, 2018
|
Property, plant and equipment
|
|
$
|
159.2
|
|
|
$
|
35.0
|
|
|
$
|
34.3
|
|
|
$
|
1.3
|
|
|
$
|
229.8
|
|
Total assets
|
|
$
|
214.1
|
|
|
$
|
47.0
|
|
|
$
|
40.1
|
|
|
$
|
1.3
|
|
|
$
|
302.5
|
|