Ranger Energy Services, Inc. 10-K

Item 8. Financial Statements and Supplementary Data RANGER ENERGY SERVICES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 49 CONSOLIDATED BALANCE SHEETS 50 CONSOLIDATED STATEMENTS OF OPERATIONS 51 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY 52 CONSOLIDATED STATEMENTS OF CASH FLOWS 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1—Organization and Business Operations 54 Note 2—Summary of Significant Accounting Policies 55 Note 3—Property and Equipment 59 Note 4—Intangible Assets 60 Note 5—Accrued Expenses 60 Note 6—Leases 60 Note 7—Debt 62 Note 8—Equity 63 Note 9—Risk Concentrations 65 Note 10—Income Taxes 65 Note 11—Earnings (Loss) per Share 67 Note 12—Commitments and Contingencies 67 Note 13—Related Party Transactions 67 Note 14—Segment Reporting 70 48 Report of Independent Registered Public Accounting Firm To the Board of Directors and the Shareholders of Ranger Energy Services, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Ranger Energy Services, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal controls over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company’s auditor since 2016. Houston, Texas February 26, 2021 49 RANGER ENERGY SERVICES, INC. CONSOLIDATED BALANCE SHEETS (in millions, except share and per share amounts) December 31, 2020 2019 Assets Cash and cash equivalents $ 2.8 $ 6.9 Accounts receivable, net 25.9 41.5 Contract assets 1.1 1.2 Inventory 2.3 3.8 Prepaid expenses 3.6 5.3 Total current assets 35.7 58.7 Property and equipment, net 189.4 218.9 Intangible assets, net 8.5 9.3 Operating leases, right-of-use assets 5.8 6.5 Other assets 1.2 0.1 Total assets $ 240.6 $ 293.5 Liabilities and Stockholders' Equity Accounts payable $ 10.5 $ 13.8 Accrued expenses 9.3 18.4 Finance lease obligations, current portion 2.5 5.1 Long-term debt, current portion 10.0 15.8 Other current liabilities 0.7 2.0 Total current liabilities 33.0 55.1 Operating leases, right-of-use obligations 5.2 4.5 Finance lease obligations 1.3 3.6 Long-term debt, net 14.5 26.6 Other long-term liabilities 1.8 0.7 Total liabilities $ 55.8 $ 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 December 31, 2020 and 2019 — — Class A Common Stock, $ 0.01 par value, 100,000,000 shares authorized; 9,093,743 shares issued and 8,541,915 shares outstanding as of December 31, 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 December 31, 2020 and 2019 0.1 0.1 Less: Class A Common Stock held in treasury at cost; 551,828 treasury shares and 113,937 treasury shares as of December 31, 2020 and 2019, respectively ( 3.8 ) ( 0.7 ) Accumulated deficit ( 18.4 ) ( 8.1 ) Additional paid-in capital 123.9 121.8 Total controlling stockholders' equity 101.9 113.2 Noncontrolling interest 82.9 89.8 Total stockholders' equity 184.8 203.0 Total liabilities and stockholders' equity $ 240.6 $ 293.5 The accompanying notes are an integral part of these consolidated financial statements. 50 RANGER ENERGY SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except share and per share amounts) Years Ended December 31, 2020 2019 Revenues High specification rigs $ 82.5 $ 132.1 Completion and other services 98.5 184.3 Processing solutions 6.8 20.5 Total revenues 187.8 336.9 Operating expenses Cost of services (exclusive of depreciation and amortization): High specification rigs 71.5 114.8 Completion and other services 73.7 139.0 Processing solutions 2.7 9.2 Total cost of services 147.9 263.0 General and administrative 22.1 26.7 Depreciation and amortization 35.0 34.8 Gain on debt retirement ( 2.1 ) — Total operating expenses 202.9 324.5 Operating income (loss) ( 15.1 ) 12.4 Other expenses Interest expense, net 3.4 5.8 Total other expenses 3.4 5.8 Income (loss) before income tax expense ( 18.5 ) 6.6 Income tax expense — 2.2 Net income (loss) ( 18.5 ) 4.4 Less: Net income (loss) attributable to non-controlling interests ( 8.2 ) 2.6 Net income (loss) attributable to Ranger Energy Services, Inc. $ ( 10.3 ) $ 1.8 Earnings (loss) per common share Basic $ ( 1.21 ) $ 0.21 Diluted $ ( 1.21 ) $ 0.21 Weighted average common shares outstanding Basic 8,532,923 8,634,013 Diluted 8,532,923 8,634,013 The accompanying notes are an integral part of these consolidated financial statements. 51 RANGER ENERGY SERVICES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (in millions, except shares) Years Ended December 31, 2020 2019 2020 2019 Quantity Amount Shares, Class A Common Stock Balance, beginning of period 8,839,788 8,448,527 $ 0.1 $ 0.1 Issuance of shares under share-based compensation plans 340,110 229,446 — — Shares withheld for taxes on equity transactions ( 86,155 ) ( 45,082 ) — — Issuance of Class A Common Stock to related party — 206,897 — — Balance, end of period 9,093,743 8,839,788 $ 0.1 $ 0.1 Shares, Class B Common Stock Balance, beginning of period 6,866,154 6,866,154 $ 0.1 $ 0.1 Balance, end of period 6,866,154 6,866,154 $ 0.1 $ 0.1 Treasury Stock Balance, beginning of period ( 113,937 ) — $ ( 0.7 ) $ — Repurchase of Class A Common Stock ( 437,891 ) ( 113,937 ) ( 3.1 ) ( 0.7 ) Balance, end of period ( 551,828 ) ( 113,937 ) $ ( 3.8 ) $ ( 0.7 ) Accumulated deficit Balance, beginning of period $ ( 8.1 ) $ ( 9.9 ) Net income (loss) attributable to controlling interest ( 10.3 ) 1.8 Balance, end of period $ ( 18.4 ) $ ( 8.1 ) Additional paid-in capital Balance, beginning of period $ 121.8 $ 111.6 Equity based compensation 3.6 3.1 Shares withheld for taxes on equity transactions ( 0.3 ) ( 0.4 ) Issuance of Class A Common Stock to related party — 3.0 Benefit from reversal of valuation allowance — 1.4 Impact of transactions affecting non-controlling interest ( 1.2 ) 3.1 Balance, end of period $ 123.9 $ 121.8 Total controlling interest stockholders’ equity Balance, beginning of period $ 113.2 $ 101.9 Net income (loss) attributable to controlling interest ( 10.3 ) 1.8 Equity based compensation 3.6 3.1 Shares withheld for taxes on equity transactions ( 0.3 ) ( 0.4 ) Issuance of Class A Common Stock to related party — 3.0 Benefit from reversal of valuation allowance — 1.4 Impact of transactions affecting non-controlling interest ( 1.2 ) 3.1 Repurchase of Class A Common Stock ( 3.1 ) ( 0.7 ) Balance, end of period $ 101.9 $ 113.2 Non-controlling interest Balance, beginning of period $ 89.8 $ 90.1 Net income (loss) attributable to non-controlling interest ( 8.2 ) 2.6 Equity based compensation 0.1 0.2 Impact of transactions affecting non-controlling interest 1.2 ( 3.1 ) Balance, end of period $ 82.9 $ 89.8 Total Stockholders’ Equity Balance, beginning of period $ 203.0 $ 192.0 Net income (loss) ( 18.5 ) 4.4 Equity based compensation 3.7 3.3 Shares withheld for taxes on equity transactions ( 0.3 ) ( 0.4 ) Issuance of Class A Common Stock to related party — 3.0 Benefit from reversal of valuation allowance — 1.4 Repurchase of Class A Common Stock ( 3.1 ) ( 0.7 ) Balance, end of period $ 184.8 $ 203.0 The accompanying notes are an integral part of these consolidated financial statements. 52 RANGER ENERGY SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Years Ended December 31, 2020 2019 Cash Flows from Operating Activities Net income (loss) $ ( 18.5 ) $ 4.4 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 35.0 34.8 Equity based compensation 3.7 3.3 Gain on debt retirement ( 2.1 ) — Other costs, net 2.6 0.9 Changes in operating assets and liabilities Accounts receivable 15.6 5.2 Contract assets 0.1 1.9 Inventory 0.4 1.1 Prepaid expenses 1.7 ( 0.2 ) Other assets ( 1.1 ) 0.8 Accounts payable ( 3.3 ) ( 1.1 ) Accrued expenses ( 9.1 ) 0.5 Operating lease, right-of-use obligations ( 0.6 ) — Other long-term liabilities 1.1 0.3 Net cash provided by operating activities 25.5 51.9 Cash Flows from Investing Activities Purchase of property and equipment ( 7.2 ) ( 24.2 ) Proceeds from disposal of property and equipment 1.8 0.8 Net cash used in investing activities ( 5.4 ) ( 23.4 ) Cash Flows from Financing Activities Borrowings under Credit Facility 44.6 26.7 Principal payments on Credit Facility ( 47.1 ) ( 35.2 ) Principal payments on Encina Master Financing Agreement ( 10.0 ) ( 9.8 ) Principal payments on ESCO Note Payable ( 3.6 ) — Principal payments on financing lease obligations ( 4.7 ) ( 4.8 ) Repurchase of Class A Common Stock ( 3.1 ) ( 0.7 ) Shares withheld on equity transactions ( 0.3 ) ( 0.4 ) Net cash used in financing activities ( 24.2 ) ( 24.2 ) Increase (decrease) in Cash and Cash equivalents ( 4.1 ) 4.3 Cash and Cash Equivalents, Beginning of Year 6.9 2.6 Cash and Cash Equivalents, End of Year $ 2.8 $ 6.9 Supplemental Cash Flow Information Interest paid $ 2.9 $ 4.5 Supplemental Disclosure of Non-cash Investing and Financing Activities Capital expenditures $ 0.1 $ ( 2.9 ) Additions to fixed assets through financing leases $ ( 1.0 ) $ 2.4 Early termination of financing leases $ 1.3 $ — Initial operating leases, 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 consolidated financial statements. 53 RANGER ENERGY SERVICES, INC. NOTES TO 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. We provide an extensive range of well site services to leading U.S. exploration and production (“E&P”) companies that are fundamental to establishing and enhancing the flow of oil and natural gas throughout the productive life of a well. Our service offerings consist of well completion support, workover, well maintenance, wireline, fluid management, other complementary services, as well as installation, commissioning and operating of modular equipment, which are conducted in three reportable segments, as follows: • High Specification Rigs . Provides high-spec well service rigs and complementary equipment and services to facilitate operations throughout the lifecycle of a well. • Completion and Other Services . Provides wireline completion services necessary to bring a well on production and other ancillary services often utilized in conjunction with our high-spec rig services to enhance the production of a well. • Processing Solutions . Provides proprietary, modular equipment for the processing of natural gas. We operate 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, 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 Energy Services, LLC (“Ranger Services”) and Torrent Energy Services, LLC (“Torrent Services”), the subsidiaries through which it operates its assets. Ranger LLC is the sole managing member of Ranger Services and Torrent Services, and is responsible for all operational, management and administrative decisions relating to Ranger Services and Torrent Services’ business and consolidates the financial results of Ranger Services and Torrent Services and their subsidiaries. Recent Events The outbreak of the novel coronavirus (“COVID-19”) has spread across the globe and has been declared a public health emergency by the World Health Organization and a National Emergency by the President of the United States. The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has, and is likely to continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas. Federal, state and local governments mobilized to implement containment mechanisms to minimize impacts to their populations and economies. Various containment measures, which include the quarantining of cities, regions and countries, while aiding in the prevention of further outbreak, have resulted in a severe drop in general economic activity and a resulting decrease in energy demand. In addition, the global economy has experienced a significant disruption to global supply chains. The extent of the COVID-19 outbreak on the Company’s operational and financial performance will continue to depend on certain developments, including the duration and spread of the outbreak and its continued impact on customer activity and third-party providers. The direct impact to the Company’s operations began to take effect at the close of the first quarter ended March 31, 2020, and continued through the issuance of these 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 consolidated financial statements is uncertain. The severe drop in economic activity, travel restrictions and other restrictions due to COVID-19 have had a significant negative impact on the demand for oil and gas. In addition to the impact of the COVID-19 outbreak, in March 2020, 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 through the year ended December 31, 2020. With the combined effects of the increased production levels 54 earlier in 2020, the recent increase in production and the reduction in demand caused by COVID-19, the global oil and natural gas supply and demand imbalance persists and continues to have a significant adverse effect on the oil and gas industry. Due to the significantly reduced demand for oil and natural gas as a result of the COVID-19 pandemic and the current oversupply of oil and natural gas in the market, available storage and capacity for the Company’s customers’ production may be limited or completely unavailable in the future, which may further negatively impact the price of oil. The Company cannot predict whether, or when, the global supply and demand imbalance will be resolved or whether, or when, oil and natural gas production and economic activities will return to normalized levels. In the absence of additional reductions to global production, oil, natural gas and NGLs prices could remain at current levels, or decline further, for an extended period of time. Factors deriving from the COVID-19 response, as well as the oil oversupply, that have or may negatively impact sales, liquidity and gross margins in the future include, but are not limited to: limitations on the ability of the Company’s customers to conduct business, which would result in a decrease in demand for services and lower utilization of the Company’s assets; limitations on the ability of suppliers to provide materials or equipment, limitations on the ability of the Company’s employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home; reduction of capital expenditures and discretionary spend; and limitations on the ability of customers to pay us on a timely basis. If prolonged, such factors may also negatively affect the carrying values of the Company’s property and equipment and intangible assets. At the close of the first quarter, 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 accompanying audited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all material adjustments, which are of a normal and recurring nature, necessary for the fair presentation of the financial results for all periods presented have been reflected. All intercompany balances and transactions have been eliminated. Investments in which the Company exercises control are consolidated and the noncontrolling interests of such investments, which are not attributable directly or indirectly to the Company, are presented as a separate component of net income or loss and equity in the accompanying consolidated financial statements. The Company has ownership interests in Ranger LLC, which is consolidated within the Company’s consolidated financial statements but is not wholly owned by the Company. Changes in the Company’s ownership interest in Ranger LLC, while it retains its controlling interest, are accounted for as equity transactions. Use of Estimates The preparation of consolidated 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 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. 55 Significant Accounting Policies Cash and Cash Equivalents All highly liquid investments with an original maturity of three months or less are considered cash equivalents. The Company maintains its cash accounts in financial institutions that are insured by the Federal Deposit Insurance Corporation. From time to time cash balances may exceed the insured amounts, however, the Company has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risks. Accounts Receivable, net Accounts receivable, net are stated at the amount management expects to collect from outstanding balances. Before extending credit, the Company reviews a customer’s credit history and generally does not require collateral from its customers. The allowance for doubtful accounts is established as losses are estimated and are recorded through a provision for bad debts. Losses are charged against the allowance when management believes the uncollectibility of a receivable is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for doubtful accounts is evaluated on a regular basis by management and based on past experience and other factors, which, in management’s judgment, deserve current recognition in estimating possible bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable and current economic conditions. The allowance for doubtful accounts was $ 1.6 million for both of the years ended December 31, 2020 and 2019. Bad debt expense recorded for the years ended December 31, 2020 and 2019 was $ 0.1 million and $ 1.3 million, respectively. Balance at Beginning of Year Charged to Operations Written Off Balance at End of Year Allowance for Doubtful Accounts Receivable 2020 $ 1.6 $ 0.1 $ ( 0.1 ) $ 1.6 2019 $ 0.5 $ 1.3 $ ( 0.2 ) $ 1.6 Inventories Inventories are carried at the lower of cost or net realizable value and primary consists of supplies held for the Completion and Other Services segment. Leases Right-of-use (“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 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 is 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 an IBR based on the estimated rate of interest for a fully collateralized, fully amortizing loan over a similar term of the lease payments at commencement date. 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 at this time. Leases with terms of 12 months or less are considered short-term leases and therefore payments are recorded as an expense on a straight line basis over the lease term. Any lease and non-components are combined. Operating Leases The Company enters into operating leases, primarily for real estate, with terms that vary from less than 12 months to seven years , where certain of the leases contain escalation clauses. The operating leases are included in Operating lease right-of-use assets, Other current liabilities and Operating lease right-of-use obligations in the Consolidated Balance Sheets. Lease costs associated with our yards and field offices are included in Cost of Services and our executive offices are included in General and Administrative expenses in the Consolidated Statements of Operations. Finance Leases The Company enters into lease arrangements for certain equipment, which are considered finance leases and generally have a term of 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 portion and Finance lease obligations in our Consolidated Balance Sheets. 56 Property and Equipment, net Property and equipment is stated at cost or estimated fair market value at the acquisition date less accumulated depreciation. Depreciation is charged to expense on the straight‑line basis over the estimated useful life of each asset. Expenditures for major renewals and betterments are capitalized while expenditures for maintenance and repairs are charged to expenses as incurred. Depreciation does not begin until property and equipment is placed in service. Once placed in service, depreciation on property and equipment continues while being repaired, refurbished or between periods of deployment. Long‑Lived Asset Impairment The Company evaluates the recoverability of the carrying value of long‑lived assets, including property and equipment and intangible assets, whenever events or circumstances indicate the carrying amount may not be recoverable. If a long‑lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long‑lived asset exceeds its fair value. During the first and second quarter of 2020, the Company noted a sustained decline in stock price due to the reduced demand and oversupply of oil and natural gas, which was an indication that the fair value of the Company’s long-lived assets could have fallen below their carrying values. As a result, an impairment analysis was performed and it was determined that no impairment existed. Intangible Assets Identified intangible assets with determinable lives consist of customer relationships. Customer relationships are straight-line amortized over their estimated useful lives. Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. In valuing certain assets and liabilities, the inputs used to measure fair value may fall into different levels of the fair value hierarchy, which are summarized as follows: Level 1—Quoted prices in active markets for identical assets and liabilities. Level 2—Other significant observable inputs. Level 3—Significant unobservable inputs. The Company’s financial instruments consist of cash and cash equivalents, trade receivables and trade payables, where the carrying amount approximates fair value due to the short‑term nature of each instrument. The fair value of long‑term debt approximates its carrying value based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities. The Company did not have any assets or liabilities that were measured at fair value on a recurring basis at December 31, 2020 and 2019. Revenue Recognition In determining the appropriate amount of revenue to be recognized as the Company fulfills the obligations under its contracts with customers, the following steps must be performed at contract inception: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as the Company satisfies each performance obligation. The services of each segment are based on mutually agreed upon pricing with the customer prior to the services being performed and, given the nature of the services, do not include any warranty or right of return. Pricing for services are offered at hourly or daily rates, where the rates are, in part, determined by when services are performed and the nature of the specific job, with consideration for the extent of equipment, labor and consumables needed. Accordingly, the agreed upon pricing is considered to be variable consideration. Pricing for equipment rentals is based on fixed monthly service fees. We satisfy our performance obligation over time as the services are performed. The Company believes the output method is a reasonable measure of progress for the satisfaction of our performance obligations, which are satisfied over time, as it provides a faithful depiction of (i) our performance toward complete satisfaction of the performance obligation under the contract and (ii) the value transferred to the customer of the services performed under the contract. The Company elected the “right to invoice” practical expedient for recognizing revenue. The Company invoices customers upon completion of the 57 specified services and collection generally occurs within the payment terms agreed with customers. Accordingly, there is no financing component to our arrangements with customers. All revenue transactions are presented on a net of sales tax in the Consolidated Statement of Operations. Contract Balances Contract assets representing the Company’s rights to consideration for work completed but not billed amounted to $ 1.1 million and $ 1.2 million as of December 31, 2020 and 2019, respectively. Substantially all of the contract assets as of December 31, 2020 and 2019 were invoiced during the subsequent periods. The Company does not have any contract liabilities included in the Consolidated Balance Sheets as of December 31, 2020 and 2019. Income Taxes The Company provides for income tax expense based on the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded based upon differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of a valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. Under US GAAP, the valuation allowance is recorded to reduce the Company’s 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 ultimate realization of the deferred tax assets depends on the generation of sufficient taxable income. Deferred tax expense or benefit is the result of changes in deferred tax assets and liabilities and associated valuation allowances during the period. The impact of an uncertain tax position taken or expected to be taken on an income tax return is recognized in the financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority. The income tax provision reflects the full benefit of all positions that have been taken in the Company's income tax returns, except to the extent that such positions are uncertain and fall below the recognition requirements. In the event that the Company determines that a tax position meets the uncertainty criteria, an additional liability or benefit will result. The amount of unrecognized tax benefit requires management to make significant assumptions about the expected outcomes of certain tax positions included in filed or yet to be filed tax returns. As of December 31, 2020 and 2019, the Company did not have any uncertain tax positions. The Company is subject to income taxes in the United States and in numerous state tax jurisdictions. The Company’s tax filings for 2019, 2018 and 2017 are subject to audit by the federal and state taxing authorities in most jurisdictions where we conduct business. None of the Company’s federal or state tax returns are currently under examination. These audits may result in assessments of additional taxes that are resolved with the authorities or through the courts. The Company records income tax related interest and penalties, if applicable, as a component of tax expense. However, there were no such amounts recognized in the consolidated statements of operations in 2020 and 2019. Equity-Based Compensation The Consolidated Financial Statements reflect various equity-based compensation awards granted by Ranger. These awards include restricted stock awards and performance stock units. The Company recognizes compensation expense related to equity-based awards based on the estimated fair value of the awards on the date of grant. The fair value of the equity-based awards on the grant date is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. The fair value of the restricted stock awards are estimated using the market price of the Company’s shares on the grant date. The fair value of the performance stock units are estimated using an option pricing model that includes certain assumptions, such as volatility, dividend yield and the risk free interest rate. Changes in these assumptions could change the fair value of our unit based awards and associated compensation expense in our Consolidated Statements of Operations. Forfeitures of all equity-based compensation are recognized as they occur. 58 Emerging Growth Company and Smaller Reporting 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 our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of its most recently completed second fiscal quarter, or (2) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable to public companies. The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act. Smaller reporting company means an issuer that is not an investment company, an asset-back issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that (i) has a market value of common stock held by non-affiliates of less than $250 million; or (i) has annual revenues of less than $100 million and either no common stock held by non-affiliates or a market value of common stock held by non-affiliates of less than $700 million. Smaller reporting company status is determined on an annual basis. Recent Accounting Pronouncements Recently issued accounting standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 consolidated financial statements. Note 3 — Property and Equipment, Net Property and equipment include the following (in millions): Estimated Useful Life December 31, (Years) 2020 2019 High specification rigs 20 $ 127.2 $ 127.2 High specification rigs machinery and equipment 5 - 10 39.7 38.3 Completions and other services machinery and equipment 5 - 10 56.5 55.8 Process solutions machinery and equipment 3 - 30 45.9 40.8 Vehicles 3 - 15 20.4 25.9 Other property and equipment 5 - 25 10.9 10.1 Property and equipment 300.6 298.1 Less: accumulated depreciation ( 113.0 ) ( 85.5 ) Construction in progress 1.8 6.3 Property and equipment, net $ 189.4 $ 218.9 Depreciation expense was $ 34.2 million and $ 34.1 million for the years ended December 31, 2020 and 2019, respectively. 59 Note 4 — Intangible Assets Definite lived intangible assets are comprised of the following (in millions): Estimated Useful Life December 31, (Years) 2020 2019 Customer relationships 10 - 18 $ 11.4 $ 11.4 Less: accumulated amortization ( 2.9 ) ( 2.1 ) Intangible assets, net $ 8.5 $ 9.3 Amortization expense was $ 0.8 million and $ 0.7 million for the years ended December 31, 2020 and 2019, respectively. Amortization expense for the future periods is expected to be as follows (in millions): For the years ending December 31, Amount 2021 $ 0.7 2022 0.7 2023 0.7 2024 0.7 2025 0.8 Thereafter 4.9 Total $ 8.5 Note 5 — Accrued Expenses Accrued expenses are comprised of the following (in millions): December 31, 2020 2019 Accrued payables $ 2.7 $ 8.3 Accrued compensation 4.5 6.3 Accrued taxes 1.0 1.8 Accrued insurance 1.1 2.0 Accrued expenses $ 9.3 $ 18.4 Note 6 — Leases Operating Leases Lease costs and other information related to operating leases are as follows (in millions): Years Ended December 31, 2020 2019 Short-term lease costs $ 1.9 $ 5.4 Operating lease cost $ 2.6 $ 3.0 Operating cash outflows from operating leases $ 2.6 $ 2.9 Weighted average remaining lease term 6.1 years 5.8 years Weighted average discount rate 8.5 % 9.3 % 60 As of December 31, 2020, aggregate future minimum lease payments under operating leases was (in millions): For the years ending December 31, Total 2021 $ 1.2 2022 1.3 2023 1.2 2024 1.2 2025 1.2 Thereafter 1.7 Total future minimum lease payments 7.8 Less: amount representing interest ( 1.9 ) Present value of future minimum lease payments 5.9 Less: current portion of operating lease obligations ( 0.7 ) Long-term portion of finance lease obligations $ 5.2 Finance Leases Lease costs and other information related to finance leases are as follows (in millions): Years Ended December 31, 2020 2019 Amortization of finance leases $ 4.7 $ 5.2 Interest on lease liabilities $ 0.4 $ 0.8 Financing cash outflows from finance leases $ 4.7 $ 4.8 Weighted average remaining lease term 1.2 years 1.4 years Weighted average discount rate 3.9 % 4.3 % As of December 31, 2020, aggregate future minimum lease payments under finance leases was (in millions): For the years ending December 31, 2020 2021 $ 2.7 2022 1.0 2023 0.4 2024 — 2025 — Thereafter — Total future minimum lease payments 4.1 Less: amount representing interest ( 0.3 ) Present value of future minimum lease payments 3.8 Less: current portion of finance lease obligations ( 2.5 ) Long-term portion of finance lease obligations $ 1.3 On February 22, 2021, the Company entered into an agreement to sell and leaseback certain of our vehicles for cash consideration of $ 3.5 million. 61 Note 7 — Debt The aggregate carrying amounts, net of issuance costs, of the Company’s debt consists of the following (in millions): December 31, 2020 2019 ESCO Notes Payable $ — $ 5.8 Wells Fargo Credit Facility 7.2 9.5 Encina Master Financing Agreement 17.3 27.1 Total Debt 24.5 42.4 Current portion of long-term debt ( 10.0 ) ( 15.8 ) Long term-debt, net $ 14.5 $ 26.6 ESCO Notes Payable In connection with the initial public offering (the “Offering”) 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 due in February 2019. The 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 year ended December 31, 2020, the Company settled the indemnification claims, 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. Please see ‘Note 12 — Commitments and Contingencies’ for further details. Credit Facility On August 16, 2017, Ranger, LLC 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 Company’s eligible accounts receivable serves as collateral for the borrowings under the Credit Facility. The applicable margin for 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 2.2 % and the Base Rate loan interest rate was 4.3 % as of December 31, 2020. The weighted average interest rate for the borrowings under the Credit Facility was 3.2 % for the year ended December 31, 2020. Under the Credit Facility, the total loan capacity was $ 20.7 million, which was based on a borrowing base certificate in effect as of December 31, 2020. The Company had outstanding borrowings of $ 7.5 million under the Credit Facility, leaving a residual $ 13.2 million available for borrowing as of December 31, 2020. The Company was in compliance with the Credit Facility covenants as of December 31, 2020. There were capitalized fees of $ 0.7 million associated with the Credit Facility, which are included on the 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 on the Consolidated Statements of Operations. Unamortized debt issuance costs as of December 31, 2020 was $ 0.3 million. 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. Such calculation is submitted, in the form of a borrowing base certificate, to the Administrative Agent within ten business days of each preceding month end. The Credit Facility includes cash dominion provisions that permit 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 first quarter of 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, 62 dominion reverted back to the Company in the second quarter of 2020. The borrowings under the Credit Facility, and related issuance costs, were included in Long-term debt, net in the Consolidated Balance Sheets as of December 31, 2020, as the Company was not subject to dominion and the scheduled maturity date is August 16, 2022. Encina Master Financing and Security Agreement (“Financing Agreement”) On June 22, 2018, the Company entered into a 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 specification rig assets. As of December 31, 2020, the aggregate principal balance outstanding under the Financing Agreement was $ 17.7 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 the London Interbank Offered Rate (“LIBOR”), subject to a floor of 1.5 %. As of December 31, 2020, LIBOR was 1.5 %. Under the terms of the Financing Agreement, the Company is required to maintain a leverage ratio of 2.50 to 1.00. The Company was in compliance with the covenants under the Financing Agreement as of December 31, 2020. The Company capitalized fees of $ 0.9 million associated with the Financing Agreement, which are included on the Consolidated Balance Sheets as a discount to the Long-term Debt, net. Such fees will be amortized through maturity and are included in Interest Expense, net on the Consolidated Statements of Operations. Unamortized debt issuance costs as of December 31, 2020 was $ 0.4 million. Scheduled Debt Maturities As of December 31, 2020, aggregate principal repayments of total debt for the next five years are as follows (in millions): For the years ending December 31, Total 2021 $ 10.0 2022 15.0 2023 0.2 Total $ 25.2 Note 8 — Equity Equity Based Compensation Overview The Company has a Long-Term Incentive Plan (“LTIP”) for executives, employees, consultants and non-employee directors, under which awards can be granted in the form of stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units, performance awards, dividend equivalents, other stock-based awards, cash awards and substitute awards. Subject to adjustment in accordance with the terms of the LTIP, 2,850,000 shares of Class A Common Stock have been reserved for issuance pursuant to awards under the LTIP. Class A Common Stock withheld to satisfy exercise prices or tax withholding obligations will be available for delivery pursuant to other awards. The LTIP will be administered by the Board or an alternative committee appointed by the Board. RSAs The Company has granted RSAs, which generally vest in three equal annual installments beginning on the first anniversary date of the grant. The aggregate fair value of RSAs granted during the years ended December 31, 2020 and 2019 was $ 2.5 million and $ 4.5 million, respectively. As of December 31, 2020, there was an aggregate of $ 3.3 million of unrecognized expense related to RSAs issued, which are expected to be recognized over a weighted average period of 1.5 years. 63 The following table summarizes the unvested activity for RSAs during the years ended December 31, 2020 and 2019: Shares Weighted Average Grant Date Fair Value Weighted Average Remaining Vesting Period Unvested at January 1, 2019 481,710 Granted 590,091 $ 7.59 2.1 years Forfeited ( 80,767 ) Vested ( 229,446 ) Unvested at December 31, 2019 761,588 $ 7.84 1.8 years Granted 649,039 $ 3.84 1.8 years Forfeited ( 59,790 ) Vested ( 340,110 ) Unvested at December 31, 2020 1,010,727 $ 5.30 1.5 years Performance Stock Units (“PSUs”) The Company has granted performance awards to certain key employees, in the form of PSUs, which are earned based on the achievement of certain market factors and performance targets at the discretion of the board of directors. The PSUs are subject to a three year measurement period during which the number of Class A Common Stock to be issued in settlement of the PSUs remains uncertain until the end of the measurement period and will generally cliff vest based on the level of achievement with respect to the applicable performance criteria. Subsequent to such measurement period, the vesting of PSUs is subject to certification by the board of directors. As defined in the respective PSU agreements, the performance criteria applicable to these awards is relative and absolute total shareholder return (“TSR”). Achievement with respect to the relative TSR criteria is determined by the Company’s TSR compared to the TSR of the defined peer group during the measurement period. Achievement with respect to the absolute TSR criteria is based on a measurement of the Company’s stock price growth during the measurement period. The PSUs that were granted during the years ended December 31, 2020 and 2019 will cliff vest, subject to the achievement of applicable performance criteria and certification by the board of directors, on April 23, 2023 and March 21, 2022, respectively. As of December 31, 2020, there was an aggregate of $ 0.9 million of unrecognized compensation cost related to PSUs. The following table summarizes the unvested activity for PSUs during the years ended December 31, 2020 and 2019: Relative Absolute Shares Weighted Average Grant Date Fair Value Weighted Average Remaining Vesting Period Shares Weighted Average Grant Date Fair Value Weighted Average Remaining Vesting Period Unvested as of January 1, 2019 35,482 35,482 Granted 52,960 $ 11.96 52,960 $ 9.50 Unvested as of December 31, 2019 88,442 88,442 Granted 60,631 $ 6.33 2.3 years 60,631 $ 3.62 2.3 years Unvested as of December 31, 2020 149,073 1.4 years 149,073 1.4 years Purchases of Equity Securities During the year ended December 31, 2020, the Company repurchased 344,828 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 take 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 years ended December 31, 2020 and 2019, the Company repurchased 93,063 shares and 113,937 shares, respectively, of Class A Common Stock for an aggregate $ 0.7 million for both periods, in the open market. 64 The following table summarizes the activity of treasury stock for the years ended December 31, 2020 and 2019: Treasury Stock Quantity Amount Balance at January 1, 2019 — $ — Repurchase of Class A Common Stock ( 113,937 ) ( 0.7 ) Balance at December 31, 2019 ( 113,937 ) ( 0.7 ) Repurchase of Class A Common Stock ( 437,891 ) ( 3.1 ) Balance at December 31, 2020 ( 551,828 ) $ ( 3.8 ) Share Issuance to Related Party In connection with the Offering, the Company entered into a master reorganization agreement in 2017, under which the parties thereto effected a series of restructuring transactions. Under the master reorganization agreement, an aggregate of $ 3.0 million liability was settled by the Company and CSL Energy Holdings I, LLC during the year ended December 31, 2019. At the Company’s discretion the liability was settled with the issuance of 206,898 Class A Common Stock. Note 9 — Risk Concentrations Customer Concentrations For the year ended December 31, 2020, two customers, EOG Resources (“EOG”) and Concho Resources, Inc. (“Concho”), accounted for approximately 21 % and 17 %, respectively, of the Company’s consolidated revenues. As of December 31, 2020, approximately 11 % and 10 %, respectively, of the consolidated accounts receivable balance was due from these customers. For the year ended December 31, 2019, two customers, EOG and Concho, accounted for approximately 17 % and 14 %, respectively, of the Company’s consolidated revenues. As of December 31, 2019, approximately 12 % and 8 % respectively, of the consolidated accounts receivable balance was due from these customers. Note 10 — Income Taxes Ranger, LLC is treated as a partnership for U.S. federal income tax purposes and is subject to Texas Margin Tax, however not subject to federal or state income taxation. As a member in Ranger, LLC, the Company is subject to U.S. taxation on its allocable share of U.S. taxable income and the non-controlling interest members will pay taxes with respect to their allocable share of U.S. taxable income. 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 years ended December 31, 2020 and 2019 was 21 %. Total income tax expense for the year ended December 31, 2020 and 2019 differed from amounts computed by applying the U.S. federal statutory tax rate of 21 % primarily due to non-deductible expenses, other state taxes, in addition to the adjustment for non-controlling interest that is not subject to federal tax. 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. Years Ended December 31, 2020 2019 Current provision (benefit) Federal $ — $ — State ( 0.2 ) 0.4 Total current provision (benefit) ( 0.2 ) 0.4 Deferred provision (benefit) Federal 0.2 1.4 State — 0.4 Total deferred expense (benefit) 0.2 1.8 Income tax expense (benefit) $ — $ 2.2 65 A reconciliation of the expected income tax expense on income (loss) before income taxes using the statutory federal income tax rate of 21 % for 2020 and 2019 to income tax expense follows (in millions): December 31, 2020 2019 Income (loss) before income taxes $ ( 18.5 ) $ 6.6 Statutory rate 21 % 21 % Income tax expense (benefit) computed at statutory rate $ ( 3.9 ) $ 1.4 Reconciling items State income taxes, net of federal tax benefit ( 0.1 ) 0.9 Nontaxable (loss) income allocated to non-controlling interest 1.7 ( 0.6 ) Valuation allowance 2.1 — Non-deductible expenses and other 0.2 0.5 Income tax expense (benefit) $ — $ 2.2 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 tax effects of the cumulative temporary differences resulting in the net deferred income tax liability, which are shown in Other Long-Term Liabilities on the consolidated balance sheet, are as follows (in millions): December 31, 2020 2019 Deferred income tax assets Net operating loss carryforward $ 16.4 $ 16.4 Valuation allowance ( 5.3 ) ( 3.5 ) Net deferred income tax asset $ 11.1 $ 12.9 Deferred income tax liabilities Investment in partnership $ ( 11.1 ) $ ( 12.9 ) Property and equipment ( 0.5 ) ( 0.5 ) Deferred income tax liability ( 11.6 ) ( 13.4 ) Net deferred income tax liability $ ( 0.5 ) $ ( 0.5 ) As of December 31, 2020, the Company has net operating loss carryforwards of approximately $ 71.5 million, consisting of $ 9.8 million of section 382 limited losses expiring beginning in 2034, an estimated $ 20.6 million of non-section 382 limited losses expiring beginning in 2037 and $ 41.1 million of non-section 382 limited losses which carryforward indefinitely. 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. As of December 31, 2020, the Company had deferred payroll tax payments of $ 1.9 million, however there were no other material tax impacts to the consolidated financial statements as it related to COVID-19 measures. 66 Note 11 — Earnings (Loss) per Share Earnings (loss) per share is based on the amount of income (loss) allocated to the shareholders and the weighted average number of shares outstanding during the period for each class of common stock. Diluted earnings (loss) per share is computed giving effect to all potentially dilutive shares. The following table presents the Company’s calculation of basic and diluted earnings or loss per share for the years ended December 31, 2020 and 2019 (in millions, except share and per share data): Years Ended December 31, 2020 2019 Income (loss) (numerator): Basic: Net income (loss) attributable to Ranger Energy Services, Inc. $ ( 10.3 ) $ 1.8 Net income (loss) attributable to Class A Common Stock $ ( 10.3 ) $ 1.8 Diluted: Net income (loss) attributable to Ranger Energy Services, Inc. $ ( 10.3 ) $ 1.8 Net income (loss) attributable to Class A Common Stock $ ( 10.3 ) $ 1.8 Weighted average shares (denominator): Weighted average number of shares - basic 8,532,923 8,634,013 Weighted average number of shares - diluted 8,532,923 8,634,013 Basic earnings (loss) per share $ ( 1.21 ) $ 0.21 Diluted earnings (loss) per share $ ( 1.21 ) $ 0.21 During the years ended December 31, 2020 and 2019, the Company excluded 6.9 million shares of Class A Common Stock issuable upon conversion of the Company’s Class B Common Stock for both periods and 1.3 million and 1.2 million, respectively, equity-based awards in calculating diluted earnings or loss per share, as the effect was anti-dilutive. Note 12 — Commitments and Contingencies Legal Matters From time to time, the Company is involved in various legal matters arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its 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 is seeking 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 year ended December 31, 2020, the Company paid an aggregate of $ 6.2 million to ESCO, of which $ 3.8 million was paid to settle the Seller’s Note, and any unpaid interest, and $ 2.4 million was paid to repurchase shares of the Company’s Class A Common Stock. See “Note 7 — Debt” and “Note 8 — Equity” for further details of the debt and equity settlements. Note 13 — Related Party Transactions Stockholders’ Agreement In connection with the Offering, Ranger entered into a stockholders’ agreement (the “Stockholders’ Agreement”) with the Legacy Owners and the Bridge Loan Lenders (defined below). Among other things, the Stockholders’ Agreement provides CSL and Bayou Wells Holdings Company, LLC (“Bayou Holdings”) with the right to designate nominees to Ranger’s board of directors (each, as applicable, a “CSL Director” or “Bayou Director”) as follows: • for so long as CSL beneficially owns at least 50 % of Ranger’s common stock, at least three members of the Board of Directors shall be CSL Directors and at least two members of the Board of Directors shall be Bayou Directors (which may include Richard Agee, Brett Agee or any other person that may be designated by Bayou Holdings in accordance with the terms of the stockholders’ agreement); • for so long as CSL beneficially owns less than 50 % but at least 30 % of Ranger’s common stock, at least three members of the Board of Directors shall be CSL Directors; 67 • for so long as CSL beneficially owns less than 30 % but at least 20 % of Ranger’s common stock, at least two members of the Board of Directors shall be CSL Directors; • for so long as CSL beneficially owns less than 20 % but at least 10 % of Ranger’s common stock, at least one member of the Board of Directors shall be a CSL Director; and • once CSL beneficially owns less than 10 % of Ranger’s common stock, CSL will not have any Board designation rights. In the event the size of Ranger’s Board of Directors is increased or decreased at any time to other than eight directors, CSL’s nomination rights will be proportionately increased or decreased, respectively, rounded up to the nearest whole number. Redemption Rights Under the Ranger LLC Agreement, holders of Ranger Units other than the Company (the “Ranger Unit Holders”) will, subject to certain limitations, have the right, pursuant to the Redemption Right (as defined in the Ranger LLC Agreement), to cause Ranger LLC to acquire all or a portion of their Ranger Units (along with a corresponding number of shares of Ranger’s Class B Common Stock) for, at Ranger LLC's election, (i) shares of the Company’s Class A Common Stock at a redemption ratio of one share of Class A Common Stock for each Ranger Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends, reclassification and other similar transactions, or (ii) cash in an amount equal to the Cash Election Value (defined below) of such Class A Common Stock. Ranger LLC will determine whether to issue shares of Class A Common Stock or cash in an amount equal to the Cash Election Value based on facts in existence at the time of the decision, which the Company expects would include the trading prices for the Class A Common Stock at the time relative to the cash purchase price for the Ranger Units, the availability of other sources of liquidity (such as an issuance of preferred stock) to acquire the Ranger Units and alternative uses for such cash. Alternatively, upon the exercise of the Redemption Right, the Company (instead of Ranger LLC) will have the right, pursuant to the Call Right (as defined in the Ranger LLC Agreement), to, for administrative convenience, acquire each tendered Ranger Unit directly from such Ranger Unit Holder for, at the Company’s election, (x) one share of Class A Common Stock or (y) cash in an amount equal to the value of a share of Class A Common Stock, based on a volume-weighted average price. In addition, upon a change of control of the Company, the Company has the right to require each Ranger Unit Holder (other than the Company) to exercise its Redemption Right with respect to some or all of such unitholder’s Ranger Units. As the Ranger Unit Holders redeem their Ranger Units, the Company’s membership interest in Ranger LLC will be correspondingly increased, the number of shares of Class A Common Stock outstanding will be increased, and the number of shares of Class B Common Stock outstanding will be reduced. The Company’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of Ranger Units pursuant to an exercise of the Redemption Right or the Call Right is expected to result in adjustments to the tax basis of the tangible and intangible assets of Ranger LLC, and such adjustments will be allocated to the Company. These adjustments would not have been available to the Company absent the acquisition or deemed acquisition of Ranger Units and are expected to reduce the amount of cash tax that the Company would otherwise be required to pay in the future. “Cash Election Value” means, with respect to the shares of Class A Common Stock to be delivered to the redeeming Ranger Unit Holder by us pursuant to our Call Right, the amount that would be received if the number of shares of Class A Common Stock to which the redeeming Ranger Unit Holder would otherwise be entitled were sold at a per share price equal to the trailing 10 -day volume weighted average price of a share of Class A Common Stock on such redemption, net of actual or deemed offering expenses. Payments The Company incurred $ 0.7 million and $ 0.9 million in expenses to CSL and other board members for the years ended December 31, 2020 and 2019, respectively, primarily related to office rent, where such lease terminated during the fourth quarter of 2020. As of December 31, 2020 amounts due to or from CSL and other board members was negligible. In connection with the IPO, the Company entered into a master reorganization agreement in 2017, under which the parties thereto effected a series of restructuring transactions. Under the master reorganization agreement, an aggregate of $ 3.0 million liability was settled by the Company and CSL Energy Holdings I, LLC during the year ended December 31, 2019. At the Company’s discretion the liability was settled with the issuance of 206,898 Class A Common Stock. Tax Receivable Agreement On August 16, 2017, in connection with the Offering, the Company entered into a Tax Receivable Agreement (the “TRA”) with certain of the existing Ranger Unit holders and their permitted transferees (each such person, a “TRA Holder” and together, the “TRA Holders”). The TRA generally provides for the payment by the Company of 85 % of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that the Company actually realizes (computed 68 using simplifying assumptions to address the impact of state and local taxes) or is deemed to realize in certain circumstances in periods after the Offering as a result of (i) certain increases in tax basis that occur as a result of the Company’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s Ranger Units in connection with the Offering or pursuant to the exercise of the Redemption Right or the Call Right (each as defined in the Amended and Restated Limited Liability Company Agreement of Ranger LLC) and (ii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRA. The Company will retain the benefit of the remaining 15 % of these cash savings. The term of the TRA commenced on August 16, 2017 and will continue until all tax benefits that are subject to the TRA (or the TRA is terminated due to other circumstances, including the Company’s breach of a material obligation thereunder or certain mergers, assets sales, other forms of business combination or other changes of control) have been utilized or expired, unless the Company exercises its right to terminate the TRA. The payments under the TRA will not be conditioned upon a TRA Holder having a continued ownership interest in either Ranger LLC or the Company. If the Company elects to terminate the TRA early or the TRA is terminated due to other circumstances (including the Company’s breach of a material obligation thereunder or certain mergers, asset sales other forms of business combinations or other changes of control), its obligations under the TRA would accelerate and it would be required to make an immediate payment equal to the present value of the anticipated future tax payments to be made by the Company under the TRA (determined by applying a discount rate of one-year LIBOR plus 150 basis points and based upon certain assumptions and deemed events set forth in the TRA). In addition, payments due under the TRA will be similarly accelerated following certain mergers or other changes of control. Registration Rights Agreement On August 16, 2017, in connection with the closing of the Offering, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with certain stockholders (the “Holders”). Pursuant to, and subject to the limitations set forth in, the Registration Rights Agreement, at any time after the 180 -day lock-up period, the Holders have the right to require the Company by written notice to prepare and file a registration statement registering the offer and sale of a number of their shares of Class A Common Stock. Reasonably in advance of the filing of any such registration statement, the Company is required to provide notice of the request to all other Holders who may participate in the registration. The Company is required to use all commercially reasonable efforts to maintain the effectiveness of any such registration statement until all shares covered by such registration statement have been sold. Subject to certain exceptions, the Company is not obligated to effect such a registration within ninety 90 days after the closing of any underwritten offering of shares of Class A Common Stock requested by the Holders pursuant to the Registration Rights Agreements. The Company is also not obligated to effect any registration where such registration has been requested by the holders of Registrable Securities (as defined in the Registration Rights Agreement) which represent less than $ 25 million, based on the five-day volume weighted average trading price of the Class A Common Stock on the New York Stock Exchange. In addition, pursuant to the Registration Rights Agreement, the Holders have the right to require the Company, subject to certain limitations set forth therein, to effect a distribution of any or all of their shares of Class A Common Stock by means of an underwritten offering. Further, subject to certain exceptions, if at any time the Company proposes to register an offering of its equity securities or conduct an underwritten offering, whether or not for its account, then the Company must notify the Holders of such proposal at least three business days before the anticipated filing date or commencement of the underwritten offering, as applicable, to allow them to include a specified number of their shares in that registration statement or underwritten offering, as applicable. These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration or offering and the Company’s right to delay or withdraw a registration statement under certain circumstances. The Company will generally pay all registration expenses in connection with its obligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective. The obligations to register shares under the Registration Rights Agreement will terminate as to any Holder when the Registrable Securities held by such Holder are no longer subject to any restrictions on trading under the provisions of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), including any volume or manner of sale restrictions. Registrable Securities means all shares of Class A Common Stock owned at any particular point in time by a Holder other than shares (i) sold pursuant to an effective registration statement under the Securities Act, (ii) sold in a transaction pursuant to Rule 144 under the Securities Act, (iii) that have ceased to be outstanding or (iv) that are eligible for resale without restriction and without the need for current public information pursuant to any section of Rule 144 under the Securities Act. 69 Note 14 — Segment Reporting The Company’s operations are located in the United States and organized into three reporting 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 consolidated financial statements. The reportable segments have been categorized based on services provided in each line of business. The CODM evaluates the segments’ operating performance based on multiple measures including 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 financial statements. The following is a description of the segments: 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. The Company’s high specification 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, including fluid management and well service-related equipment rentals. 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 consisting primarily of the Company’s wireline and snubbing lines of business along with other, non-rig well services to enhance the production of a well. Processing Solutions . The Company provides a range of proprietary, modular equipment for the processing of rich natural gas streams at the wellhead or central gathering points in basins where drilling and completion activity has outpaced the development of permanent processing infrastructure. Other. The Company incurs costs, indicated as Other, that are not allocable to any of the operating segments or lines of business and include corporate general and administrative expenses as well as depreciation of office furniture and fixtures and other corporate assets. Segment information for the years ended December 31, 2020 and 2019 is as follows (in millions): Year Ended December 31, 2020 High Specification Rigs Completion and Other Services Processing Solutions Other Total Revenues $ 82.5 $ 98.5 $ 6.8 $ — $ 187.8 Cost of services 71.5 73.7 2.7 — 147.9 General and administrative — — — 22.1 22.1 Depreciation and amortization 20.2 10.2 3.2 1.4 35.0 Gain on debt retirement — — — ( 2.1 ) ( 2.1 ) Operating income (loss) ( 9.2 ) 14.6 0.9 ( 21.4 ) ( 15.1 ) Interest expense, net — — — 3.4 3.4 Income tax expense — — — — — Net income (loss) $ ( 9.2 ) $ 14.6 $ 0.9 $ ( 24.8 ) $ ( 18.5 ) Capital expenditures $ 5.0 $ 2.0 $ 0.5 $ 0.3 $ 7.8 As of December 31, 2020 Property and equipment, net $ 115.8 $ 30.8 $ 37.7 $ 5.1 $ 189.4 Total assets $ 154.3 $ 41.1 $ 38.4 $ 6.8 $ 240.6 70 Year Ended December 31, 2019 High Specification Rigs Completion and Other Services Processing Solutions Other Total Revenues $ 132.1 $ 184.3 $ 20.5 $ — $ 336.9 Cost of services 114.8 139.0 9.2 — 263.0 General and administrative — — — 26.7 26.7 Depreciation and amortization 20.1 11.4 2.2 1.1 34.8 Gain on debt retirement — — — — — Operating income (loss) ( 2.8 ) 33.9 9.1 ( 27.8 ) 12.4 Interest expense, net — — — 5.8 5.8 Income tax expense — — — 2.2 2.2 Net income (loss) $ ( 2.8 ) $ 33.9 $ 9.1 $ ( 35.8 ) $ 4.4 Capital expenditures $ 11.1 $ 4.1 $ 7.8 $ 0.5 $ 23.5 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 71 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable.