Ranger Energy Services, Inc. 10-Q

Item 1. Financial Statements RANGER ENERGY SERVICES, INC. UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share amounts) September 30, 2020 December 31, 2019 Assets Cash and cash equivalents $ 3.4 $ 6.9 Accounts receivable, net 21.0 41.5 Contract assets 0.9 1.2 Inventory 1.7 3.8 Prepaid expenses 1.9 5.3 Total current assets 28.9 58.7 Property and equipment, net 197.9 218.9 Intangible assets, net 8.7 9.3 Operating leases, right-of-use assets 5.2 6.5 Other assets 0.7 0.1 Total assets $ 241.4 $ 293.5 Liabilities and Stockholders' Equity Accounts payable $ 8.2 $ 13.8 Accrued expenses 8.5 18.4 Finance lease obligations, current portion 3.0 5.1 Long-term debt, current portion 10.0 15.8 Other current liabilities 1.0 2.0 Total current liabilities 30.7 55.1 Operating leases, right-of-use obligations 4.2 4.5 Finance lease obligations 1.7 3.6 Long-term debt, net 12.4 26.6 Other long-term liabilities 1.8 0.7 Total liabilities 50.8 90.5 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 September 30, 2020 and December 31, 2019 — — Class A Common Stock, $ 0.01 par value, 100,000,000 shares authorized; 9,080,589 shares issued and 8,528,762 shares outstanding as of September 30, 2020; 8,839,788 shares issued and 8,725,851 shares outstanding as of December 31, 2019 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 September 30, 2020 and December 31, 2019 0.1 0.1 Less: Class A Common Stock held in treasury, at cost; 551,827 treasury shares as of September 30, 2020; 113,937 treasury shares as of December 31, 2019 ( 3.8 ) ( 0.7 ) Accumulated deficit ( 14.7 ) ( 8.1 ) Additional paid-in capital 122.0 121.8 Total controlling stockholders' equity 103.7 113.2 Noncontrolling interest 86.9 89.8 Total stockholders' equity 190.6 203.0 Total liabilities and stockholders' equity $ 241.4 $ 293.5 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenues High specification rigs $ 14.5 $ 32.5 $ 60.8 $ 97.3 Completion and other services 18.9 45.3 79.9 143.2 Processing solutions 1.2 6.3 5.6 16.2 Total revenues 34.6 84.1 146.3 256.7 Operating expenses Cost of services (exclusive of depreciation and amortization): High specification rigs 12.3 29.3 52.3 85.4 Completion and other services 14.0 34.6 59.0 107.5 Processing solutions 0.3 2.8 2.2 6.9 Total cost of services 26.6 66.7 113.5 199.8 General and administrative 4.6 6.7 15.1 20.2 Depreciation and amortization 8.4 9.1 26.8 25.9 Total operating expenses 39.6 82.5 155.4 245.9 Operating income (loss) ( 5.0 ) 1.6 ( 9.1 ) 10.8 Other expenses Interest expense, net 0.8 1.4 2.7 4.6 Total other expenses 0.8 1.4 2.7 4.6 Income (loss) before income tax expense ( 5.8 ) 0.2 ( 11.8 ) 6.2 Tax expense (benefit) ( 0.1 ) 1.1 — 1.7 Net income (loss) ( 5.7 ) ( 0.9 ) ( 11.8 ) 4.5 Less: Net income (loss) attributable to noncontrolling interests ( 2.5 ) ( 0.4 ) ( 5.2 ) 2.0 Net income (loss) attributable to Ranger Energy Services, Inc. $ ( 3.2 ) $ ( 0.5 ) $ ( 6.6 ) $ 2.5 Earnings (loss) per common share Basic $ ( 0.38 ) $ ( 0.06 ) $ ( 0.77 ) $ 0.29 Diluted $ ( 0.38 ) $ ( 0.06 ) $ ( 0.77 ) $ 0.25 Weighted average common shares outstanding Basic 8,506,781 8,769,389 8,532,788 8,591,128 Diluted 8,506,781 8,769,389 8,532,788 15,457,282 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 2020 2019 2020 2019 Quantity Amount Quantity Amount Shares, Class A Common Stock Balance, beginning of period 9,031,495 8,717,026 $ 0.1 $ 0.1 8,839,788 8,448,527 $ 0.1 $ 0.1 Issuance of shares under share-based compensation plans 51,975 113,159 — — 322,110 214,780 — — Shares withheld for taxes on equity transactions ( 2,881 ) ( 1,183 ) — — ( 81,309 ) ( 41,202 ) — — Issuance of Class A Common Stock to related party — — — — — 206,897 — — Balance, end of period 9,080,589 8,829,002 $ 0.1 $ 0.1 9,080,589 8,829,002 $ 0.1 $ 0.1 Shares, Class B Common Stock Balance, beginning of period 6,866,154 6,866,154 $ 0.1 $ 0.1 6,866,154 6,866,154 $ 0.1 $ 0.1 Balance, end of period 6,866,154 6,866,154 $ 0.1 $ 0.1 6,866,154 6,866,154 $ 0.1 $ 0.1 Treasury Stock Balance, beginning of period ( 551,827 ) — $ ( 3.8 ) $ — ( 113,937 ) — $ ( 0.7 ) $ — Repurchase of Class A Common Stock — ( 47,474 ) — ( 0.3 ) ( 437,890 ) ( 47,474 ) ( 3.1 ) ( 0.3 ) Balance, end of period ( 551,827 ) ( 47,474 ) $ ( 3.8 ) $ ( 0.3 ) ( 551,827 ) ( 47,474 ) $ ( 3.8 ) $ ( 0.3 ) Accumulated deficit Balance, beginning of period $ ( 11.5 ) $ ( 6.9 ) $ ( 8.1 ) $ ( 9.9 ) Net income (loss) attributable to controlling interest ( 3.2 ) ( 0.5 ) ( 6.6 ) 2.5 Balance, end of period $ ( 14.7 ) $ ( 7.4 ) $ ( 14.7 ) $ ( 7.4 ) Additional paid-in capital Balance, beginning of period $ 121.0 $ 119.9 $ 121.8 $ 111.6 Equity based compensation amortization 1.1 0.8 2.7 2.2 Shares withheld for taxes on equity transactions — 0.1 ( 0.3 ) ( 0.3 ) Issuance of Class A Common Stock to related party — — — 3.0 Benefit from reversal of valuation allowance — 0.6 — 1.2 Impact of transactions affecting noncontrolling interest ( 0.1 ) 0.1 ( 2.2 ) 3.8 Balance, end of period $ 122.0 $ 121.5 $ 122.0 $ 121.5 Total controlling interest shareholders’ equity Balance, beginning of period $ 105.9 $ 113.2 $ 113.2 $ 101.9 Net income (loss) attributable to controlling interest ( 3.2 ) ( 0.5 ) ( 6.6 ) 2.5 Equity based compensation amortization 1.1 0.8 2.7 2.2 Shares withheld for taxes on equity transactions — 0.1 ( 0.3 ) ( 0.3 ) Issuance of Class A Common Stock to related party — — — 3.0 Benefit from reversal of valuation allowance — 0.6 — 1.2 Repurchase of Class A Common Stock — ( 0.3 ) ( 3.1 ) ( 0.3 ) Impact of transactions affecting noncontrolling interest ( 0.1 ) 0.1 ( 2.2 ) 3.8 Balance, end of period $ 103.7 $ 114.0 $ 103.7 $ 114.0 Noncontrolling interest Balance, beginning of period $ 89.3 $ 88.9 $ 89.8 $ 90.1 Net income (loss) attributable to noncontrolling interest ( 2.5 ) ( 0.4 ) ( 5.2 ) 2.0 Equity based compensation amortization — 0.1 0.1 0.2 Impact of transactions affecting noncontrolling interest 0.1 ( 0.1 ) 2.2 ( 3.8 ) Balance, end of period $ 86.9 $ 88.5 $ 86.9 $ 88.5 Total Stockholders' Equity Balance, beginning of period $ 195.2 $ 202.1 $ 203.0 $ 192.0 Net income (loss) ( 5.7 ) ( 0.9 ) ( 11.8 ) 4.5 Equity based compensation amortization 1.1 0.9 2.8 2.4 Shares withheld for taxes on equity transactions — 0.1 ( 0.3 ) ( 0.3 ) Issuance of Class A Common Stock to related party — — — 3.0 Benefit from reversal of valuation allowance — 0.6 — 1.2 Repurchase of Class A Common Stock — ( 0.3 ) ( 3.1 ) ( 0.3 ) Balance, end of period $ 190.6 $ 202.5 $ 190.6 $ 202.5 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) Nine Months Ended September 30, 2020 2019 Cash Flows from Operating Activities Net income (loss) $ ( 11.8 ) $ 4.5 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 26.8 25.9 Equity based compensation 2.8 2.4 Gain on debt retirement ( 2.1 ) — Other costs, net 3.0 1.8 Changes in operating assets and liabilities Accounts receivable 20.4 ( 3.5 ) Contract assets 0.3 ( 1.1 ) Inventory 0.9 2.4 Prepaid expenses 3.4 0.2 Other assets ( 0.6 ) 0.9 Accounts payable ( 5.6 ) ( 6.0 ) Accrued expenses ( 9.9 ) 8.0 Operating lease, right-of-use obligations ( 1.4 ) — Other long-term liabilities 1.1 0.8 Net cash provided by operating activities 27.3 36.3 Cash Flows from Investing Activities Purchase of property and equipment ( 6.4 ) ( 19.6 ) Proceeds from disposal of property and equipment 0.8 0.6 Net cash used in investing activities ( 5.6 ) ( 19.0 ) Cash Flows from Financing Activities Borrowings under Credit Facility 35.9 25.5 Principal payments on Credit Facility ( 42.9 ) ( 26.0 ) Principal payments on Encina Master Financing Agreement ( 7.5 ) ( 7.3 ) Principal payments on ESCO Note Payable ( 3.6 ) — Principal payments on financing lease obligations ( 3.7 ) ( 3.5 ) Repurchase of Class A Common Stock ( 3.1 ) ( 0.3 ) Shares withheld on equity transactions ( 0.3 ) ( 0.3 ) Net cash used in financing activities ( 25.2 ) ( 11.9 ) Decrease in Cash and Cash equivalents ( 3.5 ) 5.4 Cash and Cash Equivalents, Beginning of Period 6.9 2.6 Cash and Cash Equivalents, End of Period $ 3.4 $ 8.0 Supplemental Cash Flow Information Interest paid $ 2.3 $ 3.5 Supplemental Disclosure of Non-cash Investing and Financing Activities Capital expenditures $ 0.1 $ ( 2.3 ) Additions to fixed assets through financing leases $ ( 1.0 ) $ ( 2.0 ) Early termination of financing leases $ 1.3 $ — Initial operating lease right-of-use asset additions $ — $ ( 8.3 ) Issuance of Class A Common Stock to related party $ — $ 3.0 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”) in the first quarter of 2020 and its continued spread across the globe in the second and third quarters of 2020 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 includes 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. At the time of this filing, cases of COVID-19 in the U.S. remain high, including in Texas, where we conduct significant operations. 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 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 NGLs prices into the third quarter of 2020. On April 12, 2020, OPEC Plus agreed to cut oil production by 9.7 million barrels per day in May and June 7 2020; however, on July 15, 2020, OPEC Plus agreed to increase production by 1.6 million barrels per day starting in August 2020. 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. OPEC Plus is scheduled to meet again in the fourth quarter of 2020 and it is possible OPEC Plus may decide to further production increases. 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 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 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, 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 consolidated financial statements. 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, 2019 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, 2019 and 2018, included in the Annual Report filed on Form 10-K for the year ended December 31, 2019 (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 nine months ended September 30, 2020. 8 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; • 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. 9 Note 3 — Property and Equipment, Net Property and equipment, net include the following (in millions): Estimated Useful Life (years) September 30, 2020 December 31, 2019 High specification rigs 20 $ 127.2 $ 127.2 High specification rigs machinery and equipment 5 - 10 41.8 38.3 Completion and other services machinery and equipment 5 - 10 55.9 55.8 Processing solutions machinery and equipment 3 - 30 45.9 40.8 Vehicles 3 - 15 21.5 25.9 Other property and equipment 5 - 25 10.6 10.1 Property and equipment 302.9 298.1 Less: accumulated depreciation ( 106.9 ) ( 85.5 ) Construction in progress 1.9 6.3 Property and equipment, net $ 197.9 $ 218.9 Depreciation expense was $ 8.2 million and $ 8.9 million for the three months ended September 30, 2020 and 2019, respectively, and $ 26.2 million and $ 25.4 million for the nine months ended September 30, 2020 and 2019, respectively. Note 4 — Intangible Assets Definite lived intangible assets are comprised of the following (in millions): Estimated Useful Life (years) September 30, 2020 December 31, 2019 Customer relationships 10 - 18 $ 11.4 $ 11.4 Less: accumulated amortization ( 2.7 ) ( 2.1 ) Intangible assets, net $ 8.7 $ 9.3 Amortization expense was $ 0.2 million and $ 0.2 million for the three months ended September 30, 2020 and 2019, respectively and $ 0.6 million and $ 0.5 million for the nine months ended September 30, 2020 and 2019, respectively. Amortization expense for the future periods is expected to be as follows (in millions): For the twelve months ending September 30, Amount 2021 $ 0.7 2022 0.7 2023 0.7 2024 0.7 2025 0.8 Thereafter 5.1 Total $ 8.7 Note 5 — Accrued Expenses Accrued expenses include the following (in millions): September 30, 2020 December 31, 2019 Accrued payables $ 3.2 $ 8.3 Accrued compensation 3.7 6.3 Accrued taxes 1.4 1.8 Accrued insurance 0.2 2.0 Accrued expenses $ 8.5 $ 18.4 10 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 and nine months ended September 30, 2020 and 2019, are as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Short-term lease costs $ 0.3 $ 1.1 $ 1.7 $ 4.4 Operating lease cost $ 0.7 $ 0.9 $ 2.1 $ 2.2 Operating cash outflows from operating leases $ 0.7 $ 0.8 $ 2.1 $ 2.2 Weighted average remaining lease term 6.0 years 5.8 years Weighted average discount rate 9.3 % 9.3 % Aggregate future minimum lease payments under operating leases are as follows (in millions): For the twelve months ending September 30, Total 2021 $ 1.5 2022 1.1 2023 0.9 2024 0.9 2025 0.9 Thereafter 1.7 Total future minimum lease payments 7.0 Less: amount representing interest ( 1.8 ) Present value of future minimum lease payments 5.2 Less: current portion of operating lease obligations ( 1.0 ) Long-term portion of operating lease obligations $ 4.2 Finance Leases The Company leases certain assets, primarily automobiles, under finance leases with terms that are generally three to four 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. Lease costs and other information related to finance leases for the three and nine months ended September 30, 2020 and 2019, are as follows (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Amortization of finance leases $ 1.0 $ 1.3 $ 3.8 $ 3.8 Interest on lease liabilities $ 0.1 $ 0.2 $ 0.4 $ 0.6 Financing cash outflows from finance leases $ 1.1 $ 1.3 $ 3.7 $ 3.5 Weighted average remaining lease term 1.4 years 1.6 years Weighted average discount rate 3.9 % 4.4 % 11 Aggregate future minimum lease payments under finance leases are as follows (in millions): For the twelve months ending September 30, Total 2021 $ 3.3 2022 1.2 2023 0.5 2024 0.1 Total future minimum lease payments 5.1 Less: amount representing interest ( 0.4 ) Present value of future minimum lease payments 4.7 Less: current portion of finance lease obligations ( 3.0 ) Long-term portion of finance lease obligations $ 1.7 Note 7 — Debt The aggregate carrying amounts, net of issuance costs, of the Company’s debt consists of the following (in millions): September 30, 2020 December 31, 2019 ESCO Notes Payable $ — $ 5.8 Credit Facility 2.7 9.5 Encina Master Financing Agreement 19.7 27.1 Total Debt 22.4 42.4 Current portion of long-term debt ( 10.0 ) ( 15.8 ) Long term-debt, net $ 12.4 $ 26.6 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 $ 1.2 million, which was paid in August 2018 and a note for $ 5.8 million, which was settled during the nine months ended September 30, 2020. Both of these notes bore interest at 5.0 %, payable quarterly until their respective maturity dates. 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 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. Interest on the outstanding principal balance was accrued through the maturity date of the Note Payable. During the nine months ended September 30, 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. Please see Note 12 — Commitments and Contingencies for further details. Credit Facility On August 16, 2017, Ranger Services, entered into a $ 50.0 million senior unsecured 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. Such calculation is submitted, in the form of a borrowing base certificate, to the Administrative Agent within ten business days of the preceding month end. The Credit Facility includes cash dominion provisions that permits the Administrative Agent to sweep cash daily from the Company’s bank accounts into an account of the Administrative Agent to repay the Company’s obligations under the Credit Facility. Such dominion is triggered when excess availability is less than the greater of $ 6.25 million and 12.5 % of the lesser of (x) the maximum revolver amount and (y) the borrowing base as of such date of determination. When the Company is subject to dominion, for 30 consecutive days it is required to either (a) maintain excess availability in excess of the greater of $ 6.25 million and 12.5 % of the lesser of (x) the maximum revolver amount and (y) the borrowing base as of such date of determination and no event of default has occurred and is continuing or (b) have no revolver drawings and available cash of at least $ 20.0 million for dominion to revert back to the Company. During the three months ended March 31, 2020, the Company borrowed against the Credit Facility causing dominion to revert to the Administrative Agent, however after the 30 consecutive day period, as defined above, dominion reverted back to the Company in April 2020. The borrowings under the Credit Facility, and related issuance costs, were included in long-term debt, net in the Condensed Consolidated Balance Sheets as of September 30, 2020, as the Company was not subject to dominion. The Credit Facility is scheduled to mature on August 16, 2022. 12 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 margin for the LIBOR loan was 1.75 % and the applicable margin for Base Rate loans was 0.75 % as of September 30, 2020. The weighted average interest rate for the borrowings under the Credit Facility was 3.2 % for the nine months ended September 30, 2020. Under the Credit Facility, the total loan capacity was $ 13.4 million, which was based on a borrowing base certificate in effect as of September 30, 2020. The Company had outstanding borrowings of $ 3.0 million under the Credit Facility, leaving a residual $ 10.4 million available for borrowings as of September 30, 2020. The Company was in compliance with the Credit Facility covenants as of September 30, 2020. 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 be amortized through maturity and are included in Interest Expense, net on the Condensed Consolidated Statement of Operations. Unamortized debt issuance costs as of September 30, 2020 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 September 30, 2020, the aggregate principal balance outstanding under the Financing Agreement was $ 20.2 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 September 30, 2020. 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 September 30, 2020. 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 be amortized through maturity and are included in Interest Expense, net in the Condensed Consolidated Statements of Operations. Unamortized debt issuance costs as of September 30, 2020 was $ 0.5 million. Debt Obligations and Scheduled Maturities As of September 30, 2020, aggregate future principal payments of total debt are as follows (in millions): For the twelve months ending September 30, Total 2021 $ 10.0 2022 12.1 2023 1.1 Total $ 23.2 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”) and performance-based restricted stock units (“performance stock units”) under the 2017 Plan. Restricted Stock Awards During the nine months ended September 30, 2020 and 2019, the Company granted 649,039 and 580,091 restricted shares, respectively, and the aggregate value of the restricted shares granted was $ 2.5 million and $ 4.4 million, respectively. As of September 30, 2020, there was an aggregate $ 4.1 million of unrecognized expense related to restricted shares issued which are expected to be recognized over a weighted average period of 1.8 years. 13 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. During the nine months ended September 30, 2020, the Company granted 121,262 target shares of market based performance stock units at a relative and absolute grant date fair value of approximately $ 6.33 per share and $ 3.62 per share, respectively, which are expected to vest on April 3, 2023. During the nine months ended September 30, 2019, the Company granted 105,920 target shares of market based performance stock units at a relative and absolute grant date fair value of approximately $ 11.96 per share and $ 9.50 per share, respectively, which are expected to vest on March 21, 2022. As of September 30, 2020, there was an aggregate $ 1.1 million of unrecognized compensation cost related to performance stock units which are expected to be recognized over a weighted average period of 1.6 years. Share Repurchases During the nine months ended September 30, 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 nine months ended September 30, 2020 and 2019, the Company repurchased 93,063 and 47,474 shares of the Company’s Class A Common Stock for an aggregate $ 0.7 million and $ 0.3 million, respectively. Share Issuance to Related Party In connection with the IPO, we entered into a master reorganization agreement (the “Master Reorganization Agreement”) under which the parties thereto effected a series of restructuring transactions. Under the Master Master Reorganization Agreement, an aggregate $ 3.0 million liability was settled by the Company and CSL Energy Holdings I, LLC during the nine months ended September 30, 2019. At the Company’s discretion, the liability was settled through the issuance of 206,897 Class A Common Stock. Note 9 — Risk Concentrations Customer Concentrations For the three months ended September 30, 2020, two customers, EOG Resources and Concho Resources, Inc., accounted for 24 % and 16 %, respectively, of the Company’s consolidated revenues. For the nine months ended September 30, 2020, the same two customers accounted for 20 % and 18 % of the Company’s consolidated revenues, respectively. As of September 30, 2020, approximately 27 % of the net accounts receivable balance was due from these customers. For the three months ended September 30, 2019, two customers, EOG Resources and Concho Resources, Inc., accounted for 19 % and 14 %, respectively, of the Company’s consolidated revenues. For the nine months ended September 30, 2019, the same two customers accounted for 17 % and 13 %, respectively, of the Company’s consolidated revenues. As of September 30, 2019, approximately 25 % 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 nine months ended September 30, 2020 and 2019 was ( 0.8 )% and 24.2 %, 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 and nine months ended September 30, 2020 and 2019 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 14 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 September 30, 2020, 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 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 September 30, 2020, 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 and nine months ended September 30, 2020, 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 $ 1.2 million as of September 30, 2020. The Company will continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others. 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Income (loss) (numerator): Basic: Net income (loss) attributable to Ranger Energy Services, Inc. $ ( 3.2 ) $ ( 0.5 ) $ ( 6.6 ) $ 2.5 Net income (loss) attributable to Class A Common Stock $ ( 3.2 ) $ ( 0.5 ) $ ( 6.6 ) $ 2.5 Diluted: Net income (loss) attributable to Ranger Energy Services, Inc. $ ( 3.2 ) $ ( 0.5 ) $ ( 6.6 ) $ 2.5 Effect of noncontrolling interest, net of tax — — — 1.3 Net income (loss) attributable to Class A Common Stock $ ( 3.2 ) $ ( 0.5 ) $ ( 6.6 ) $ 3.8 Weighted average shares (denominator): Weighted average number of shares - basic 8,506,781 8,769,389 8,532,788 8,591,128 Effect of share-based awards — — — — Effect of noncontrolling interest, net of tax — — — 6,866,154 Weighted average number of shares - diluted 8,506,781 8,769,389 8,532,788 15,457,282 Basic income (loss) per share $ ( 0.38 ) $ ( 0.06 ) $ ( 0.77 ) $ 0.29 Diluted income (loss) per share $ ( 0.38 ) $ ( 0.06 ) $ ( 0.77 ) $ 0.25 During the three and nine months ended September 30, 2020, the Company excluded approximately 1.3 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 September 30, 2019, the Company excluded 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 nine months ended September 30, 2019, the Company excluded 0.9 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. 15 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 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. During the nine months ended September 30, 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 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. 16 Segment information as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019 is as follows (in millions): High Specification Rigs Completion and Other Services Processing Solutions Other Total Three Months Ended September 30, 2020 Revenues $ 14.5 $ 18.9 $ 1.2 $ — $ 34.6 Cost of services 12.3 14.0 0.3 — 26.6 Depreciation and amortization 4.6 2.7 0.7 0.4 8.4 Operating income (loss) ( 2.4 ) 2.2 0.2 ( 5.0 ) ( 5.0 ) Interest expense, net — — — 0.8 0.8 Net income (loss) ( 2.4 ) 2.2 0.2 ( 5.7 ) ( 5.7 ) Capital expenditures $ 0.2 $ 0.3 $ 0.1 $ — $ 0.6 Nine Months Ended September 30, 2020 Revenues $ 60.8 $ 79.9 $ 5.6 $ — $ 146.3 Cost of services 52.3 59.0 2.2 — 113.5 Depreciation and amortization 15.1 8.0 2.6 1.1 26.8 Operating income (loss) ( 6.6 ) 12.9 0.8 ( 16.2 ) ( 9.1 ) Interest expense, net — — — 2.7 2.7 Net income (loss) ( 6.6 ) 12.9 0.8 ( 18.9 ) ( 11.8 ) Capital expenditures $ 4.5 $ 2.0 $ 0.5 $ 0.3 $ 7.3 As of September 30, 2020 Property and equipment, net $ 120.9 $ 33.3 $ 38.4 $ 5.3 $ 197.9 Total assets $ 153.5 $ 42.3 $ 38.9 $ 6.7 $ 241.4 High Specification Rigs Completion and Other Services Processing Solutions Other Total Three Months Ended September 30, 2019 Revenues $ 32.5 $ 45.3 $ 6.3 $ — $ 84.1 Cost of services 29.3 34.6 2.8 — 66.7 Depreciation and amortization 5.3 2.9 0.6 0.3 9.1 Operating income (loss) ( 2.1 ) 7.8 2.9 ( 7.0 ) 1.6 Interest expense, net — — — 1.4 1.4 Net income (loss) ( 2.1 ) 7.8 2.9 ( 9.5 ) ( 0.9 ) Capital expenditures $ 3.2 $ 0.5 $ 1.2 $ — $ 4.9 Nine Months Ended September 30, 2019 Revenues $ 97.3 $ 143.2 $ 16.2 $ — $ 256.7 Cost of services 85.4 107.5 6.9 — 199.8 Depreciation and amortization 14.9 8.6 1.6 0.8 25.9 Operating income (loss) ( 3.0 ) 27.1 7.7 ( 21.0 ) 10.8 Interest expense, net — — — 4.6 4.6 Net income (loss) ( 3.0 ) 27.1 7.7 ( 27.3 ) 4.5 Capital expenditures $ 7.2 $ 4.1 $ 7.7 $ 0.5 $ 19.5 As of December 31, 2019 Property and equipment, net $ 132.2 $ 40.8 $ 40.5 $ 5.4 $ 218.9 Total assets $ 186.1 $ 57.4 $ 42.6 $ 7.4 $ 293.5 17