What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-10-23 · 95 added, 223 removed, 266 unchanged (54% of the section changed)

8 unchanged sentences

We assume no obligation to update any of these forward-looking statements.

Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Ranger,” “we,” “us,” or “our” relate to Ranger Energy Services, Inc.

(“Ranger, Inc.”) and its consolidated subsidiaries.

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:

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Recent Events and Outlook

The outbreak of the novel coronavirus (“COVID-19”) in the first quarter of 2020 and its continued spread across the globe in the second and third quarters of 2020 has resulted, and is likely to continue to result, in significant economic disruption and has, and will likely continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas.

The outbreak of the novel coronavirus (“COVID-19”) in the first quarter of 2020 and its continued spread across the globe has resulted, and is likely to continue to result, in significant economic disruption and has, and will likely continue to, adversely affect the operations of the Company’s business, as the significantly reduced global and national economic activity has resulted in reduced demand for oil and natural gas.

Federal, state and local governments mobilized to implement containment mechanisms and minimize impacts to their populations and economies.

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The extent of the COVID-19 outbreak on the Company’s operational and financial performance will significantly depend on certain developments, including the duration and spread of the outbreak and its continued impact on customer activity and third-party providers.

The direct impact to the Company’s operations began to take affect at the close of the first quarter ended March 31, 2020 and continued through the close of the third quarter ended September 30, 2020;

The direct impact to the Company’s operations began to take affect at the close of the first quarter ended March 31, 2020 and has continued through the first quarter ended March 31, 2021;

however the full extent to which the COVID-19 outbreak may affect the Company’s financial conditions, results of operations or liquidity subsequent to the issuance of these financial statements is uncertain.

At the time of this filing, cases of COVID-19 in the U.S.

were remain high, including in Texas, where we conduct significant operations.

COVID-19 and numerous public and political responses thereto have contributed to equity market volatility and potentially the risk of a global recession.

We expect this global equity market volatility experienced during 2020 to continue at least until the outbreak of COVID-19 stabilizes, if not longer.

While commodity prices, as well as our stock price, have improved with the rollout of COVID-19 vaccines, we expect this global equity market volatility to continue at least until the outbreak of COVID-19 stabilizes, if not longer.

Additionally, increased activity during 2021 can be attributed to stay-at-home orders and other restrictions being lifted in certain geographical areas, however any future containment measures could curtail such growth.

The response to the COVID-19 outbreak (such as stay-at-home orders, closures of restaurants and banning of group gatherings) and slowing of the global economy has contributed to increased unemployment rates.

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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 and natural gas 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 2020;

however, on July 15, 2020 OPEC Plus agreed to increase production by 1.6 million barrels per day starting in August 2020.

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 and natural gas prices to decline significantly and resulted in continued volatility in oil, natural gas and NGLs prices through the year ended December 31, 2020.

On April 12, 2020, OPEC Plus agreed to cut oil production by 9.7 million barrels per day (“MBbls/d”) in May and June 2020;

however, on July 15, 2020 OPEC Plus agreed to increase production by 1.6 MBbls/d starting in August 2020.

On December 3, 2020, OPEC Plus agreed to further increase production by an additional 1.0 MBbls/d in January 2021, resulting in total production cuts of 7.1 MBbls/d by the end of February 2021.

Currently, OPEC Plus estimates that global oil demand will increase by 5.6 MBbls/d.

With the combined effects of the increased production levels earlier in 2020, the recent increase in production and the reduction in demand caused by COVID-19, the global oil and natural gas supply and demand imbalance persists and continues to have a significant adverse effect on the oil and gas industry.

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 our customers’ production may be limited or completely unavailable in the future, which may further negatively impact the price of oil.

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If prolonged, such factors may also negatively affect the carrying values of our property and equipment and intangible assets.

As of the date of this report, the Company successfully implemented cost reductions throughout the organization, including a reduction in workforce of approximately 50% and salary reductions across the Company’s organizational structure, which has reduced payroll expense by more than 60% since the beginning of 2020.

Additionally, we have made various other operational, travel and organizational expense reductions and will continue to manage costs to preserve liquidity through this downturn.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers and stakeholders.

Currently, we expect to have sufficient liquidity to operate our business and remain in compliance with the financial covenants under our Credit Facility agreement for at least the next 12 months from the date of issuance of these financial statements.

government has implemented a number of programs in the wake of the impacts of COVID-19, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the largest relief package in U.S.

history, and the Main Street Lending Program established by the Federal Reserve.

Although we qualified for limited aid under the CARES Act related to the deferment of certain employer taxes, the Company is currently evaluating whether it can meet the conditions of and benefit from the Main Street Lending Program.

We qualified for limited aid under the CARES Act and have deferred payroll tax payments of $1.9 million as of March 31, 2021 under the CARES Act.

How We Evaluate Our Operations

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Costs for these employees are not directly tied to our level of business activity.

During the nine months ended September 30, 2020, the Company significantly reduced the workforce due to the impacts of the COVID-19 and geopolitical events that have recently taken place.

Additionally, we implemented salary reductions across our organizational structure.

The combined impact of the workforce reduction and salary reductions has resulted in payroll expense decreasing by more than 60% since the beginning of 2020.

We will continue to actively manage costs and take further actions as necessary.

See “—Recent Events and Outlook” above.

Operating Income (Loss)

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Results of Operations

Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020

The following is an analysis of our operating results.

See “—How We Evaluate Our Operations” for definitions of rig hours, rig utilization and other analogous information.

Three Months Ended September 30, Change

The significant declines in operational activity, across all segments, as well as corporate-related expenses are related to the deterioration of crude oil pricing and significantly reduced demand for our services since March 2020, primarily due to the effects of COVID-19, as described in “—Recent Events and Outlook.”

Three Months Ended March 31, Change

2021 2020 $ %

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Income (loss) before income tax expense (7.9) 2.9 (10.8) (372) %

Tax expense (benefit) (0.1) 1.1 (1.2) (109) %

Tax expense 0.4 0.1 0.3 300 %

Net income (loss) $ (8.3) $ 2.8 $ (11.1) (396) %

Revenues for the three months ended September 30, 2020 decreased $49.5 million, or 59%, to $34.6 million from $84.1 million for the three months ended September 30, 2019.

The decrease in revenues, across all reporting segments, is due to the deterioration of crude oil pricing and significantly reduced demand for our services during the three months ended September 30, 2020, as described in “—Recent Events and Outlook” above.

Revenues for the three months ended March 31, 2021 decreased $42.7 million, or 53%, to $38.3 million from $81.0 million for the three months ended March 31, 2020.

The change in revenues by segment was as follows:

High Specification Rigs.

High Specification Rig revenues for the three months ended September 30, 2020 decreased $18.0 million, or 55%, to $14.5 million from $32.5 million for the three months ended September 30, 2019.

The decrease in rig services revenue included a 52% decrease in total rig hours to 30,200 for the three months ended September 30, 2020 from 62,400 for the three months ended September 30, 2019.

High Specification Rig revenues for the three months ended March 31, 2021 decreased $13.2 million, or 38%, to $21.7 million from $34.9 million for the three months ended March 31, 2020.

The decrease in rig services revenue included a 31% decrease in total rig hours to 43,200 for the three months ended March 31, 2021 from 62,400 for the three months ended March 31, 2020.

The decreased rig hours attributed to a 29% reduction in rig utilization.

The average revenue per rig hour decreased seven percent to $480 from $519 for the three months ended September 30, 2019.

The average revenue per rig hour decreased 12% to $493 from $558 for the three months ended March 31, 2020.

Completion and Other Services.

Completion and Other Services revenues for the three months ended September 30, 2020 decreased $26.4 million, or 58%, to $18.9 million from $45.3 million for the three months ended September 30, 2019.

Completion and Other Services revenues for the three months ended March 31, 2021 decreased $27.8 million, or 64%, to $15.5 million from $43.3 million for the three months ended March 31, 2020.

The decrease was primarily attributable to our wireline business, which accounted for approximately $23.2 million, or 84%, of the segment revenue decrease.

The decrease in wireline services revenue included a 40% decrease in active wireline units to six units as of September 30, 2020 from ten units as of September 30, 2019.

The decrease in wireline services revenue included a 45% decrease in average active wireline units to six units for the three months ended March 31, 2021 from eleven units for the three months ended March 31, 2020.

All other service lines also had comparable revenue reductions.

Processing Solutions.

Processing Solutions revenues for the three months ended September 30, 2020 decreased $5.1 million, or 81%, to $1.2 million from $6.3 million for the three months ended September 30, 2019.

Processing Solutions revenues for the three months ended March 31, 2021 decreased $1.7 million, or 61%, to $1.1 million from $2.8 million for the three months ended March 31, 2020.

The decrease was primarily attributable to a decline in mobilization and maintenance revenue related to our Mechanical Refrigeration Units (“MRU”), which was attributable to a decline in MRU utilization.

Our MRU utilization decreased to nine percent as of September 30, 2020, from 52% as of September 30, 2019, which accounted for approximately $1.5 million, or 33%, of the revenue decline.

The MRU utilization decrease was due to certain of our customer contracts that terminated during 2020, as scheduled, without renewal.

Cost of services (excluding depreciation and amortization shown separately).

Cost of services for the three months ended September 30, 2020 decreased $40.1 million, or 60%, to $26.6 million from $66.7 million for the three months ended September 30, 2019.

As a percentage of revenue, cost of services was 77% and 79% for the three months ended September 30, 2020 and 2019, respectively.

The decline in cost of services, across all segments, corresponds with the decreased demand for our services, as described in “—Recent Events and Outlook,” above and is primarily attributable to a reduction in variable employee costs related to the reduction in our workforce.

Our average MRU utilization for the three months ended March 31, 2021 and 2020, was nine percent and 17%, respectively.

The MRU utilization decrease was due to certain of our customer contracts that terminated during the first quarter of 2020, as scheduled, without renewal.

Cost of services (excluding depreciation and amortization).

Cost of services for the three months ended March 31, 2021 decreased $29.0 million, or 46%, to $34.1 million from $63.1 million for the three months ended March 31, 2020.

As a percentage of revenue, cost of services was 89% and 78% for the three months ended March 31, 2021 and 2020, respectively.

The change in cost of services by segment was as follows:

High Specification Rigs.

High Specification Rig cost of services for the three months ended September 30, 2020 decreased $17.0 million, or 58% to $12.3 million from $29.3 million for the three months ended September 30, 2019.

High Specification Rig cost of services for the three months ended March 31, 2021 decreased $10.9 million, or 36% to $19.0 million from $29.9 million for the three months ended March 31, 2020.

The decrease was primarily attributable to a reduction in variable expenses, notably employee costs and repair and maintenance costs.

Additionally, the reduction corresponds with the decrease in rig hours and revenues.

Completion and Other Services.

Completion and Other Services cost of services for the three months ended September 30, 2020 decreased $20.6 million, or 60%, to $14.0 million from $34.6 million for the three months ended September 30, 2019.

Completion and Other Services cost of services for the three months ended March 31, 2021 decreased $17.1 million, or 54%, to $14.6 million from $31.7 million for the three months ended March 31, 2020.

The decrease was primarily attributable to a reduction in the wireline business, which accounted for approximately $14.2 million, or 83%, of the segment cost of sales decrease.

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Processing Solutions.

Processing Solutions cost of services for the three months ended September 30, 2020 decreased $2.5 million, or 89%, to $0.3 million from $2.8 million for the three months ended September 30, 2019.

Processing Solutions cost of services for the three months ended March 31, 2021 decreased $1.0 million, or 67%, to $0.5 million from $1.5 million for the three months ended March 31, 2020.

The decrease was primarily attributable to a reduction in employee costs and costs associated with ancillary equipment rentals, corresponding with a decrease in revenue.

General & Administrative.

General and administrative expenses decreased $2.1 million, or 31%, to $4.6 million for the three months ended September 30, 2020 compared to $6.7 million for the three months ended September 30, 2019.

The decrease is attributable to lower employee costs, which is related to our reduction in workforce, and lower professional fees during the three months ended September 30, 2020.

General and administrative expenses for the three months ended March 31, 2021 decreased $1.5 million, or 30%, to $3.5 million from $5.0 million.

During the three months ended March 31, 2020, general and administrative expenses included a gain on debt retirement of $2.1 million related to the settlement of the ESCO Seller’s Notes.

The decrease during the three months ended March 31, 2021 is attributable to lower employee costs, which is related to our reduction in workforce in 2020, and lower professional fees.

Depreciation and Amortization.

Depreciation and amortization for the three months ended September 30, 2020 decreased $0.7 million, or 8%, to $8.4 million from $9.1 million for the three months ended September 30, 2019.

The decrease is attributable to depreciation expense for fixed assets placed into service during the trailing 12 months, partially offset by asset retirements.

Depreciation and amortization for the three months ended March 31, 2021 decreased $0.9 million, or 10%, to $8.0 million from $8.9 million for the three months ended March 31, 2020.

The decrease is attributable to depreciation expense for fixed assets that were retired and disposed of during the trailing 12 months.

Interest Expense, net.

Interest expense, net for the three months ended September 30, 2020 decreased $0.6 million, or 43%, to $0.8 million from $1.4 million for the three months ended September 30, 2019.

Interest expense, net for the three months ended March 31, 2021 decreased $0.5 million, or 45%, to $0.6 million from $1.1 million for the three months ended March 31, 2020.

The decrease to net interest expense was attributable to the reduction of the principal balances on our Encina Master Financing Agreement and Credit Facility, coupled with a decrease in London Interbank Offering Rate (“LIBOR”).

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

The following is an analysis of our operating results.

See “—How We Evaluate Our Operations” for definitions of rig hours, rig utilization and other analogous information.

Nine Months Ended September 30, Change

2020 2019 $ %

High specification rigs $ 60.8 $ 97.3 $ (36.5) (38) %

Completion and other services 79.9 143.2 (63.3) (44) %

Processing solutions 5.6 16.2 (10.6) (65) %

Total revenues 146.3 256.7 (110.4) (43) %

Operating expenses

Cost of services (exclusive of depreciation and amortization):

High specification rigs 52.3 85.4 (33.1) (39) %

Completion and other services 59.0 107.5 (48.5) (45) %

Processing solutions 2.2 6.9 (4.7) (68) %

Total cost of services 113.5 199.8 (86.3) (43) %

General and administrative 15.1 20.2 (5.1) (25) %

Depreciation and amortization 26.8 25.9 0.9 3 %

Total operating expenses 155.4 245.9 (90.5) (37) %

Operating income (loss) (9.1) 10.8 (19.9) (184) %

Other expenses

Interest expense, net 2.7 4.6 (1.9) (41) %

Total other expenses 2.7 4.6 (1.9) (41) %

Income (loss) before income tax expense (11.8) 6.2 (18.0) (290) %

Tax expense (benefit) — 1.7 (1.7) (100) %

Net income (loss) $ (11.8) $ 4.5 $ (16.3) (362) %

Revenues for the nine months ended September 30, 2020 decreased $110.4 million, or 43%, to $146.3 million from $256.7 million for the nine months ended September 30, 2019.

The decrease in revenues, across all reporting segments, is due to the deterioration of crude oil pricing and significantly reduced demand for our services during the nine months ended September 30, 2020, as described in “—Recent Events and Outlook” above.

The change in revenues by segment was as follows:

High Specification Rigs.

High Specification Rig revenues for the nine months ended September 30, 2020 decreased $36.5 million, or 38%, to $60.8 million from $97.3 million for the nine months ended September 30, 2019.

The decrease in rig services revenue included a 36% decrease in total rig hours to 117,200 for the nine months ended September 30, 2020 from 184,700 for the nine months ended September 30, 2019.

The decreased rig hours drove a 36% decrease in rig utilization.

Our average revenue per rig hour decreased one percent to $518 from $524 for the nine months ended September 30, 2019.

Completion and Other Services.

Completion and Other Services revenues for the nine months ended September 30, 2020 decreased $63.3 million, or 44%, to $79.9 million from $143.2 million for the nine months ended September 30, 2019.

The decrease is primarily attributable to our wireline business, which accounted for $40.0 million, or 63%, of the revenue decrease.

The decrease in wireline revenue included a 40% reduction in active wireline units to six units as of September 30, 2020 from ten units as of September 30, 2019.

All other service lines also had revenue reductions.

Processing Solutions.

Processing Solutions revenues for the nine months ended September 30, 2020 decreased $10.6 million, or 65%, to $5.6 million from $16.2 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a reduction in MRU utilization to nine percent as of September 30, 2020, from 52% as of September 30, 2019, which accounted for approximately $4.3 million, or 77%, of the revenue decline.

The MRU utilization decrease was due to certain of our customer contracts that terminated during 2020, as scheduled, without renewal.

Cost of services (excluding depreciation and amortization shown separately).

Cost of services for the nine months ended September 30, 2020 decreased $86.3 million, or 43%, to $113.5 million from $199.8 million for the nine months ended September 30, 2019.

As a percentage of revenue, cost of services was approximately 78% for both the nine months ended September 30, 2020 and 2019.

The decline in cost of services, across all segments, corresponds with the decreased demand for our services, as described “—Recent Events and Outlook,” above and is primarily attributable to a reduction in employee costs, as a result of a significant reduction in work force.

The change in cost of services by segment was as follows:

High Specification Rigs.

High Specification Rig cost of services for the nine months ended September 30, 2020 decreased $33.1 million, or 39%, to $52.3 million from $85.4 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a reduction in variable expenses, notably employee costs and repair and maintenance costs, corresponding with a decrease in total rig hours and utilization rates.

Completion and Other Services.

Completion and Other Services cost of services for the nine months ended September 30, 2020 decreased $48.5 million, or 45%, to $59.0 million from $107.5 million for the nine months ended September 30, 2019.

The segment decrease was primarily attributable to a reduction in our wireline business, which accounted for $30.0 million, or 61% of the segment decrease.

The decrease was primarily attributable to a reduction in variable expenses related to employee costs and direct material costs across all service lines.

Processing Solutions.

Processing Solutions cost of services for the nine months ended September 30, 2020 decreased $4.7 million, or 68%, to $2.2 million from $6.9 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a reduction in labor costs and costs associated with ancillary equipment rentals, corresponding with a decrease in revenue.

General & Administrative.

General and administrative expenses for the nine months ended September 30, 2020 decreased $5.1 million, or 25%, to $15.1 million from $20.2 million for the nine months ended September 30, 2019.

The decrease is attributable to the gain on debt retirement of $2.1 million related to the settlement of the ESCO Seller’s Notes during the nine months ended September 30, 2020, as well as lower employee costs and lower professional fees.

Depreciation and Amortization.

Depreciation and amortization for the nine months ended September 30, 2020 decreased $0.9 million, or 3%, to $26.8 million from $25.9 million for the nine months ended September 30, 2019.

The decrease is attributable to depreciation expense for fixed assets placed into service during the trailing 12 months, partially offset by asset retirements.

Interest Expense, net.

Interest expense, net for the nine months ended September 30, 2020 decreased $1.9 million, or 41%, to $2.7 million from $4.6 million for the nine months ended September 30, 2019.

The decrease to net interest expense was attributable to the reduction of the principal balances on our Encina Master Financing Agreement and Credit Facility, coupled with a decrease in LIBOR.

Note Regarding Non-GAAP Financial Measure

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The following table presents reconciliations of net income (loss) to Adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S.

Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020

The following is an analysis of our Adjusted EBITDA.

Financial Information—Note 13—Segment Reporting” and “—Results of Operations” for further details.

Three Months Ended September 30, 2020

High Specification Rigs Completion and Other Services Processing Solutions Other Total

(in millions)

Net income (loss) $ (2.4) $ 2.2 $ 0.2 $ (5.7) $ (5.7)

Interest expense, net — — — 0.8 0.8

Tax expense (benefit) — — — (0.1) (0.1)

Depreciation and amortization 4.6 2.7 0.7 0.4 8.4

Equity based compensation — — — 1.1 1.1

Severance and reorganization costs — — — (0.4) (0.4)

Loss on disposal of property and equipment 0.2 0.1 — — 0.3

Adjusted EBITDA $ 2.4 $ 5.0 $ 0.9 $ (3.9) $ 4.4

Three Months Ended September 30, 2019

High Specification Rigs Completion and Other Services Processing Solutions Other Total

(in millions)

Net income (loss) $ (2.1) $ 7.8 $ 2.9 $ (9.5) $ (0.9)

Interest expense, net — — — 1.4 1.4

Tax expense (benefit) — — — 1.1 1.1

Depreciation and amortization 5.3 2.9 0.6 0.3 9.1

Equity based compensation — — — 0.9 0.9

Severance and reorganization costs 0.1 — — — 0.1

Loss on disposal of property and equipment — — — 0.5 0.5

Adjusted EBITDA $ 3.3 $ 10.7 $ 3.5 $ (5.3) $ 12.2

Three Months Ended March 31, 2021

High Specification Rigs Completion and Other Services Processing Solutions Other Total

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Interest expense, net — — — 0.6 0.6

Tax expense (benefit) — — — (1.2) (1.2)

Income Tax expense — — — 0.4 0.4

Depreciation and amortization 4.8 2.2 0.6 0.4 8.0

Equity based compensation — — — 0.9 0.9

Gain on retirement of debt — — — — —

Gain on disposal of property and equipment — — — (0.4) (0.4)

Severance and reorganization costs — — — (1.4) (1.4)

Loss on disposal of property and equipment 0.2 0.1 — (0.5) (0.2)

Adjusted EBITDA $ 2.7 $ 0.9 $ 0.6 $ (4.4) $ (0.2)

Adjusted EBITDA for the three months ended September 30, 2020 decreased $7.8 million to $4.4 million from $12.2 million for the three months ended September 30, 2019.

The change by segment was as follows:

High Specification Rigs .

High Specification Rigs Adjusted EBITDA for the three months ended September 30, 2020 decreased $0.9 million to $2.4 million from $3.3 million for the three months ended September 30, 2019, due to decreased revenues of $18.0 million, partially offset by a corresponding decrease in cost of services of $17.0 million.

Completion and Other Services.

Completion and Other Services Adjusted EBITDA for the three months ended September 30, 2020 decreased $5.7 million to $5.0 million from $10.7 million for the three months ended September 30, 2019, due to a decrease in revenues of $26.4 million, partially offset by a corresponding decrease in cost of services of $20.6 million.

Processing Solutions .

Processing Solutions Adjusted EBITDA for the three months ended September 30, 2020 decreased $2.6 million to $0.9 million from $3.5 million for the three months ended September 30, 2019, due to a decrease in revenue of $5.1 million, partially offset by a corresponding decrease in cost of services of $2.5 million.

Other Adjusted EBITDA for the three months ended September 30, 2020 increased $1.4 million to a loss of $3.9 million from a loss of $5.3 million for the three months ended September 30, 2019.

The balances included in Other reflect other general and administrative costs, which are not directly attributable to High Specification Rigs, Completion and Other Services or Processing Solutions.

The increase was primarily due to a reduction in the Company’s general and administrative costs.

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2019

The following is an analysis of our Adjusted EBITDA.

Financial Information—Note 13—Segment Reporting” and “—Results of Operations” for further details.

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2020

High Specification Rigs Completion and Other Services Processing Solutions Other Total

2 unchanged sentences

Interest expense, net — — — 1.1 1.1

Tax expense (benefit) — — — — —

Income Tax expense — — — 0.1 0.1

Depreciation and amortization 5.3 2.7 0.6 0.3 8.9

Equity based compensation — — — 0.8 0.8

Severance and reorganization costs 0.4 0.2 — — 0.6

Gain on retirement of debt — — — (2.1) (2.1)

Loss on disposal of property and equipment 0.2 0.1 — (0.3) —

Adjusted EBITDA $ 9.1 $ 21.2 $ 3.4 $ (14.7) $ 19.0

Nine Months Ended September 30, 2019

High Specification Rigs Completion and Other Services Processing Solutions Other Total

(in millions)

Net income (loss) $ (3.0) $ 27.1 $ 7.7 $ (27.3) $ 4.5

Interest expense, net — — — 4.6 4.6

Tax expense (benefit) — — — 1.7 1.7

Depreciation and amortization 14.9 8.6 1.6 0.8 25.9

Equity based compensation — — — 2.4 2.4

Gain on disposal of property and equipment — — — (0.2) (0.2)

Severance and reorganization costs — — — — —

Gain on retirement of debt — — — — —

Loss on disposal of property and equipment — — — 0.2 0.2

Adjusted EBITDA $ 5.0 $ 11.6 $ 1.3 $ (6.5) $ 11.4

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Interest expense, net — — — (0.5) (0.5)

Tax expense — — — (1.7) (1.7)

Income Tax expense — — — 0.3 0.3

Depreciation and amortization (0.5) (0.5) — 0.1 (0.9)

Equity based compensation — — — 0.1 0.1

Severance and reorganization costs 0.3 0.2 — — 0.5

Gain on retirement of debt — — — 2.1 2.1

Loss on disposal of property and equipment 0.2 0.1 — (0.5) (0.2)

Gain on disposal of property and equipment — — — (0.2) (0.2)

Severance and reorganization costs — — — (1.4) —

Adjusted EBITDA $ (2.3) $ (10.7) $ (0.7) $ 2.1 $ (11.6)

Adjusted EBITDA for the nine months ended September 30, 2020 decreased $20.4 million to $19.0 million from $39.4 million for the nine months ended September 30, 2019.

Adjusted EBITDA for the three months ended March 31, 2021 decreased $11.6 million to a loss of $0.2 million from $11.4 million for the three months ended March 31, 2020.

The change by segment was as follows:

High Specification Rigs .

High Specification Rigs Adjusted EBITDA for the nine months ended September 30, 2020 decreased $2.9 million to $9.1 million from $12.0 million for the nine months ended September 30, 2019, due to decreased revenues of $36.5 million, partially offset by a corresponding decrease in cost of services of $33.1 million.

High Specification Rigs Adjusted EBITDA for the three months ended March 31, 2021 decreased $2.3 million to $2.7 million from $5.0 million for the three months ended March 31, 2020, due to decreased revenues of $13.2 million, partially offset by a corresponding decrease in cost of services of $10.9 million.

Completion and Other Services.

Completion and Other Services Adjusted EBITDA for the nine months ended September 30, 2020 decreased $14.5 million to $21.2 million from $35.7 million for the nine months ended September 30, 2019, due to decreased revenues of $63.3 million, partially offset by a corresponding decrease in cost of services of $48.5 million.

Completion and Other Services Adjusted EBITDA for the three months ended March 31, 2021 decreased $10.7 million to $0.9 million from $11.6 million for the three months ended March 31, 2020, due to decreased revenues of $27.8 million, partially offset by a corresponding decrease in cost of services of $17.1 million.

Processing Solutions .

Processing Solutions Adjusted EBITDA for the nine months ended September 30, 2020 decreased $5.9 million to $3.4 million from $9.3 million for the nine months ended September 30, 2019, due to decreased revenues of $10.6 million, partially offset by a corresponding decrease in cost of services of $4.7 million.

Other Adjusted EBITDA for the nine months ended September 30, 2020 increased $2.9 million to a loss of $14.7 million from a loss of $17.6 million for the nine months ended September 30, 2019.

Processing Solutions Adjusted EBITDA for the three months ended March 31, 2021 decreased $0.7 million to $0.6 million from $1.3 million for the three months ended March 31, 2020, due to decreased revenues of $1.7 million, partially offset by a corresponding decrease in cost of services of $1.0 million.

Other Adjusted EBITDA for the three months ended March 31, 2021 decreased $2.1 million to a loss of $4.4 million from a loss of $6.5 million for the three months ended March 31, 2020.

The balances included in Other reflect other general and administrative costs, which are not directly attributable to High Specification Rigs, Completion and Other Services or Processing Solutions.

The decrease was primarily due to a reduction in the Company’s general and administrative costs.

The increase was primarily due to a reduction in the Company’s general and administrative costs.

Liquidity and Capital Resources

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Our primary sources of liquidity are cash generated from operations and borrowings under our Credit Facility.

The borrowing base under our Credit Facility is calculated monthly on a percentage of our eligible accounts receivable less certain reserves.

As of September 30, 2020, our borrowing base was reduced to $13.4 million compared to $30.5 million as of December 31, 2019, as a result of decreased accounts receivable during the period.

As of March 31, 2021, we had total liquidity of $12.7 million, consisting of $1.5 million of cash on hand and availability under our Revolving Credit Facility of $11.2 million.

As of March 31, 2021, our borrowing base under the Credit Facility was reduced to $19.8 million compared to $31.5 million and $20.7 million as of March 31, 2020 and December 31, 2020, respectively, as a result of decreased operational activity and accounts receivable.

We strive to maintain financial flexibility and proactively monitor potential capital sources to meet our investment and target liquidity requirements and to permit us to manage the cyclicality associated with our business.

As of September 30, 2020, we had cash on hand of $3.4 million, operating cash flows of $27.3 million and availability under our Credit Facility of $10.4 million.

As of October 21, 2020, our cash on hand and available borrowings under our Credit Facility approximated $14.0 million.

We currently expect to have sufficient funds to meet the Company’s liquidity requirements and to stay within our covenants of our debt agreements for at least the next 12 months from the date of issuance of these financial statements.

See additional information under “— Our Debt Obligations.”

We currently expect to have sufficient funds to meet the Company’s liquidity requirements and comply with our covenants of our debt agreements for at least the next 12 months from the date of issuance of these financial statements.

For further details, see “— Our Debt Agreements.”

The following table presents our cash flows for the periods indicated:

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2021 2020 $ %

(in millions)

Net cash provided by operating activities $ 27.3 $ 36.3 $ (9.0) (25) %

Net cash (used in) provided by operating activities $ (1.9) $ 8.5 $ (10.4) (122) %

Net cash used in investing activities — (4.6) 4.6 100 %

Net cash used in financing activities (25.2) (11.9) (13.3) 112 %

Net cash provided by financing activities 0.6 0.6 — — %

Net change in cash $ (1.3) $ 4.5 $ (5.8) (129) %

Operating Activities

Net cash provided by operating activities decreased $9.0 million to cash provided of $27.3 million for the nine months ended September 30, 2020 compared to cash provided of $36.3 million for the nine months ended September 30, 2019.

The change in cash flows provided by operating activities is primarily attributable to cash collections related to accounts receivable, partially offset by cash payments related to our accounts payable and accrued expenses.

The Company increased cash generated from working capital for the nine months ended September 30, 2020 by $8.4 million, or 100%, to cash generated from working capital of $8.4 million compared to the nine months ended September 30, 2019.

Net cash used in operating activities increased $10.4 million to cash used of $1.9 million for three months ended March 31, 2021 compared to cash provided of $8.5 million for the three months ended March 31, 2020.

The change in cash flows from operating activities is primarily attributable to a decrease in gross margins and operating income for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The use of working capital cash increased $0.3 million, or 15%, to a use of $2.3 million for the three months ended March 31, 2021, compared to a use of $2.0 million for the three months ended March 31, 2020.

Investing Activities

Net cash used in investing activities decreased $13.4 million to a use of cash of $5.6 million for the nine months ended September 30, 2020 compared to a use of cash of $19.0 million for the nine months ended September 30, 2019.

The change in

cash flows used in investing activities is attributable to a significant reduction in capital expenditures during the current year in response to the economic events that have taken place in the industry, coupled with an increased level of fixed assets acquired during the nine months ended September 30, 2019, relative to the corresponding period of the current year.

Net cash used in investing activities decreased $4.6 million from a use of cash of $4.6 million for the three months ended March 31, 2020.

The change in cash flows from investing activities is attributable to a significant reduction in capital expenditures during the trailing twelve months due to the economic events that have taken place in the industry.

Financing Activities

Net cash flows used in financing activities increased $13.3 million to a use of cash of $25.2 million for the nine months ended September 30, 2020 compared to a use of cash of $11.9 million for the nine months ended September 30, 2019.

The change in cash flows from financing activities is primarily attributable to repayments on the principal balance of our Credit Facility and Encina Master Financing Agreement, settlement of the ESCO Note Payable and repurchases of our Class A Common Stock during the nine months ended September 30, 2020.

Net cash provided by financing activities remained flat at $0.6 million for both the three months ended March 31, 2021 and 2020.

During the three months ended March 31, 2020, we had increased borrowings under the Credit Facility that were partially offset by the settlement of the ESCO Seller’s Notes and repurchases of Class A Common Stock.

During the three months ended March 31, 2021, we entered into a sale-leaseback transaction with certain of our fixed assets, coupled with net borrowings under the Credit Facility.

Supplemental Disclosures

We added fixed assets of $0.1 million that were non-cash additions and added $1.0 million of fixed assets through financing leases during the nine months ended September 30, 2020.

In addition, we early terminated certain of our vehicle financing leases, thereby reducing our current and long-term obligations by $1.3 million.

We added fixed assets of $0.2 million that were non-cash additions.

Additionally, we entered into installment agreements, thereby increasing our current and long-term obligations by $0.6 million that were also non-cash additions.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, was a deficit of $1.8 million as of September 30, 2020 compared to a surplus of $3.6 million as of December 31, 2019.

Our working capital, which we define as total current assets less total current liabilities, was $2.1 million as of March 31, 2021 compared to $2.7 million as of December 31, 2020.

The reduction in the Company’s operational activity, due to the current macroeconomic environment, is the primary reason for this decrease in working capital.

In April 2020, we eliminated all planned growth capital expenditures for the remainder of 2020.

While our maintenance capital expenditures have historically been low due to the quality of our asset base, we expect minimal capital expenditures for the remainder of 2020.

Our Debt Agreements

ESCO Notes Payable

In August 2017, we issued $7.0 million of Seller’s Notes as partial consideration for the acquisition of ESCO Leasing, LLC (“ESCO”).

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 notes bore interest at 5.0% payable quarterly until their respective maturity dates.

During the year ended December 31, 2018, we provided notice to ESCO that we are seeking to be indemnified for breach of contract.

We exercised our 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, and recognized a gain on the retirement of the note of $2.1 million.

Credit Facility

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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 our 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 were 0.75% as of September 30, 2020.

The weighted average interest rate for the borrowings under the Credit Facility was 3.2% during the nine months ended September 30, 2020.

Effective October 1, 2020, the applicable margins for the LIBOR loans and Base Rate loans increased to 2.0% and 1.0%, respectively, which increases are due to the reduction of our average excess availability.

The applicable margins for each of the loans are re-determined as of the first day of each calendar quarter.

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.

As of October 21, 2020, the Company had borrowings of $3.0 million under the Credit Facility and had available borrowings of $12.1 million.

We were in compliance with the Credit Facility covenants as of September 30, 2020.

The Credit Facility is subject to a borrowing base that is calculated based upon a percentage of the value of the Company’s eligible accounts receivable less certain reserves.

The Credit Facility 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.

The Credit Facility is scheduled to mature on August 16, 2022.

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 applicable margins for the LIBOR and Base Rate loans were 2.1% and 4.3%, respectively, as of March 31, 2021.

The weighted average interest rate for the borrowings under the Credit Facility was 2.5% during the three months ended March 31, 2021.

Under the Credit Facility, the total loan capacity is $19.8 million, which was based on a borrowing base certificate in effect as of March 31, 2021.

The Company had outstanding borrowings of $8.6 million under the Credit Facility, leaving a residual $11.2 million available for borrowings as of March 31, 2021.

The Company was in compliance with the Credit Facility covenants as of March 31, 2021.

As of May 5, 2021, the Company did not have any borrowings under the Credit Facility and had a borrowing base of $20.4 million.

Covenants and Other Restrictions

In addition, the Credit Facility restricts our ability to make distributions on, or redeem or repurchase, our equity interests, except for certain distributions, including distributions of cash so long as, both at the time of the distribution and after giving effect to the distribution, no default exists under the Credit Facility and either (a) excess availability at all times during the preceding 90 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 22.5% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $10.0 million or (b) if our fixed charge coverage ratio is at least 1.0x on a pro forma basis, excess availability at all times during the preceding 90 consecutive days, on a pro forma basis and after giving effect to such distribution, is not less than the greater of (1) 17.5% of the lesser of (A) the maximum revolver amount and (B) the then-effective borrowing base and (2) $7.0 million.

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Subsequent to the first financing, we borrowed an additional $17.8 million, net of expenses and in two tranches, under the Financing Agreement.

As of September 30, 2020, the aggregate principal balance outstanding was $20.2 million under the Financing Agreement.

As of March 31, 2021, the aggregate principal balance outstanding under the Financing Agreement was $15.2 million.

The total borrowings under the Financing Agreement were borrowed in three tranches, where the amounts outstanding are payable ratably over 48 months from the time of each borrowing.

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The Financing Agreement is secured by a lien on certain of our high specification rig assets.

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.

Borrowings under the Financing Agreement bear interest at a rate per annum equal to the sum of 8.0% plus LIBOR, which was 1.5% as of March 31, 2021.

In no event will LIBOR fall below 1.5%.

The Financing Agreement requires that the Company maintain leverage ratios 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 was in compliance with the covenants under the Financing Agreement as of March 31, 2021.

Other Installment Purchases

During the three months ended March 31, 2021, the Company entered into various Installment and Security Agreements (collectively, the “Installment Agreements”) in connection with the purchase of certain ancillary equipment, where such assets are being held as collateral.

As of March 31, 2021, the aggregate principal balance outstanding under the Installment Agreements was $0.8 million and each balance is payable ratably over 36 months from the time of each purchase.

The monthly installment payments contain an imputed interest rate that are consistent with the Company’s incremental borrowing rate and is not significant to the Company.

Sale-Leaseback Transaction

In April 2021, the Company entered into a sale-leaseback agreement for operational facilities in Colorado.

The sales price of the facility was $13.0 million and the cash proceeds from the transaction have provided the Company with additional liquidity.

The lease has a 15 year term with a two percent annual escalation in rental payments.

With respect to obligations we expect to incur under our TRA (except in cases where we elect to terminate the TRA early, the TRA is terminated early due to certain mergers, asset sales, other forms of business combination or other changes of control or we have available cash but fail to make payments when due), generally we may elect to defer payments due under the TRA if we do not have available cash to satisfy our payment obligations under the TRA or if our contractual obligations limit our ability to make these payments.

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We have irrevocably opted out of the extended transition period and, as a result, we 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 (the “Exchnage Act”).

The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (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 has (i) market value of common stock held by non-affiliates of less than $250 million;

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• our ability to finance equipment, working capital and capital expenditures;

• competition and government regulations;

• competition and government regulations, including new and proposed legislation by the Biden Administration aimed at reducing the impact of climate change;

• our ability to obtain permits and governmental approvals;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis