Ranger Energy Services, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the historical financial statements and related notes included in Part I, Item 1. Financial Statements of this Quarterly Report on Form 10-Q (the “Quarterly Report”). This discussion contains “forward-looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil and natural gas, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this report. Please read the Cautionary Note Regarding Forward-Looking Statements. Also, please read the risk factors and other cautionary statements described under “Risk Factors” in this Quarterly Report and in our Annual Report filed on Form 10-K for the year ended December 31, 2022 (our “Annual Report”). We assume no obligation to update any of these forward-looking statements. Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Ranger,” “we,” “us,” or “our” relate to Ranger Energy Services, Inc. (“Ranger, Inc.”) and its consolidated subsidiaries. How We Evaluate Our Operations Our service offerings consist of well completion support, workover, well maintenance, wireline, fluid management, other complementary services, as well as well installation, commissioning and operating of modular equipment, which are conducted in three reportable segments, as follows: • High Specification Rigs . Provides high-specification well service rigs to facilitate operations throughout the lifecycle of a well. • Wireline Services . Provides services necessary to bring and maintain a well on production and consists of our completion, production and pump down service lines. • Processing Solutions and Ancillary Services . Provides complimentary services often utilized in conjunction with our High Specification Rigs and Wireline Services segments. These services primarily include equipment rentals, coil tubing, plug and abandonment, snubbing, and processing solutions. • Other. Other represents costs not allocable to the reporting segments and includes corporate general and administrative expense and depreciation of corporate furniture and fixtures, amortization, impairments, debt retirements and other items similar in nature. For additional financial information about our segments, please see “Item 1. Financial Information — Note 16 — Subsequent Events.” Business Outlook We continue to expect business opportunities and financial results to show mild increases as the global economy continues to slowly stabilize and improve. The International Energy Agency stated that global oil demand is set to rise by 1.9 million barrels per day in 2023 where the U.S. ranks as the world’s leading source of supply growth. Commodity pricing reached over $130 per barrel with a low of $70 per barrel during 2022 and is expected to remain at approximately $80 to $85 per barrel during 2023 as global oil inventories increase. However, this increased demand could prove to be a challenge as OPEC+ announced additional reductions of approximately 1.2 million barrels per day. Additionally, we believe the geopolitical events will continue to have an impact on the macroeconomic backdrop of our industry, specifically surrounding China as COVID-19 restrictions are lifted and uncertainty regarding Russia’s oil supply while under sanctions. In February 2022, Russia invaded neighboring Ukraine. The conflict has caused turmoil in global markets, resulting in higher oil prices, and injected even more uncertainty into a worldwide economy recovering from the effects of COVID-19. Given the evolving conflict, there are many unknown factors and events that could materially impact our operations. These events have and continue to impact commodity prices, which could have a material effect on our earnings, cash flows, and financial condition. In the short-term, commodity price fluctuations are highly uncertain. Actual price outcomes will be dependent on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market. In addition, the degree to which other oil producers respond to current oil prices, as well as the effects macroeconomic developments might have on global oil demand, will be important for oil price formation in the coming months. 18 Financial Metrics How We Generate Revenue Rig hours and stage counts, as it relates to our High Specification Rigs and Wireline Services segments, respectively, are important indicators of our activity levels and profitability. The stage count metric has become increasingly important with the update in our external reporting segments. Rig hours represent the aggregate number of hours that our well service rigs actively worked, whereas stage counts represent the number of completed stages during the periods presented. Generally, during the period our services are being provided, our customers are billed on an hourly basis for our high-spec rig services or, as it relates to our wireline services, they are billed upon the earlier of the completion of the well or on a monthly basis. The rates for which the customer is billed is generally predetermined based upon a contractual agreement. Costs of Conducting Our Business The principal costs associated with conducting our business are personnel, repairs and maintenance, general and administrative, and depreciation expense. Cost of Services. Our primary costs associated with our cost of services are related to personnel expenses, repairs and maintenance of our fixed assets and, as it relates to our Wireline Services segment, perforating and gun costs. A significant portion of these expenses are variable, and therefore typically managed based on industry conditions and demand for our services. Further, there is generally a correlation between our revenue generated and personnel and repairs and maintenance costs, which are dependent upon the operational activity. Personnel costs associated with our operational employees represent a significant cost of our business. A substantial portion of our labor costs is attributable to our field crews and is partly variable based on the requirements of specific customers. A key component of personnel costs relates to the ongoing training of our employees, which improves safety rates and reduces attrition. General & Administrative. As described above, general and administrative expenses are corporate in nature and are included within Other. These costs are not attributable to any of our lines of businesses nor reporting segments. Operating Income or Loss We analyze our operating income or loss by segment, which we have defined as revenue less cost of services and depreciation expense. We believe this is a key financial metric as it provides insight on profitability and operational performance based on the historical cost basis of our assets. Adjusted EBITDA We view Adjusted EBITDA, which is a non‑GAAP financial measure, as an important indicator of performance. We define Adjusted EBITDA as net income or loss before net interest expense, income tax expense (benefit), depreciation and amortization, equity‑based compensation, acquisition‑related and severance costs, gain or loss on disposal of assets, legal fees and settlements, and other non‑cash and certain other items that we do not view as indicative of our ongoing performance. See “—Results of Operations” and “—Note Regarding Non‑GAAP Financial Measure” for more information and reconciliations of net income (loss) to Adjusted EBITDA, the most directly comparable financial measure calculated and presented in accordance with GAAP. 19 Results of Operations Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022 The following is an analysis of our operating results. See “—How We Evaluate Our Operations” for definitions of rig hours, stage counts and other analogous information, as well as key operating metrics. Three Months Ended March 31, Variance 2023 2022 $ % Revenue High specification rigs $ 77.5 $ 64.9 $ 12.6 19 % Wireline services 49.9 38.6 11.3 29 % Processing solutions and ancillary services 30.1 20.1 10.0 50 % Total revenue 157.5 123.6 33.9 27 % Operating expenses Cost of services (exclusive of depreciation and amortization): High specification rigs 60.1 50.8 9.3 18 % Wireline services 45.7 40.4 5.3 13 % Processing solutions and ancillary services 25.1 16.8 8.3 49 % Total cost of services 130.9 108.0 22.9 21 % General and administrative 8.4 10.2 (1.8) (18) % Depreciation and amortization 10.0 11.6 (1.6) (14) % Gain on sale of assets (1.0) (1.0) — — % Total operating expenses 148.3 128.8 19.5 15 % Operating income (loss) 9.2 (5.2) 14.4 277 % Other expenses Interest expense, net 1.2 2.1 (0.9) (43) % Total other expenses 1.2 2.1 (0.9) (43) % Income (loss) before income tax benefit 8.0 (7.3) 15.3 210 % Income tax expense (benefit) 1.8 (1.6) 3.4 213 % Net income (loss) $ 6.2 $ (5.7) $ 11.9 209 % Revenue. Revenue for the three months ended March 31, 2023 increased $33.9 million, or 27%, to $157.5 million from $123.6 million for the three months ended March 31, 2022. The change in revenue by segment was as follows: High Specification Rigs. High Specification Rig revenue for the three months ended March 31, 2023 increased $12.6 million, or 19%, to $77.5 million from $64.9 million for the three months ended March 31, 2022. The revenue increase is attributable to improved efficiencies, as the average revenue per rig hour increased 19% to $689 for the three months ended March 31, 2023 from $577 for the three months ended March 31, 2022. Total rig hours held consistent at 112,500 for both the three months ended March 31, 2023 and three months ended March 31, 2022. Wireline Services. Wireline Services revenue for the three months ended March 31, 2023 increased $11.3 million, or 29%, to $49.9 million from $38.6 million for the three months ended March 31, 2022. The increased wireline services revenue was primarily attributable to completion services of $3.1 million related to increased pricing and the addition of standby charges, offset by a 14% decrease in completed stage counts to 6,400 for the three months ended March 31, 2023 from 7,400 for the three months ended March 31, 2022. Additional increased wireline services revenue was attributable to pump down services and production services of $5.4 million and $2.9 million, respectively. Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services revenue for the three months ended March 31, 2023 increased $10.0 million, or 50%, to $30.1 million from $20.1 million for the three months ended March 31, 2022. The increase in processing solutions and ancillary services is primarily attributable to our coil tubing, plugging and abandonment services and equipment rentals, which amounted to $5.2 million, $2.0 million and $2.0 million, respectively. Cost of services (exclusive of depreciation and amortization). Cost of services for the three months ended March 31, 2023 increased $22.9 million, or 21%, to $130.9 million from $108.0 million for the three months ended March 31, 2022. As 20 a percentage of revenue, cost of services was 83% and 87% for the three months ended March 31, 2023 and 2022, 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 March 31, 2023 increased $9.3 million, or 18% to $60.1 million from $50.8 million for the three months ended March 31, 2022. The increase was primarily attributable to an increase in variable expenses, notably employee related labor, travel, and maintenance costs, which amounted to $5.9 million, $1.4 million, and $1.1 million, respectively, coupled with a $0.4 million increase in expense related to general operating expenses. Additionally, the increase corresponds with the increase in average revenue per rig hour. Wireline Services. Wireline Services cost of services for the three months ended March 31, 2023 increased $5.3 million, or 13%, to $45.7 million from $40.4 million for the three months ended March 31, 2022. Wireline Services cost of services as a percentage of revenue decreased from 105% for the three months ended March 31, 2022 to 92% for the three months ended March 31, 2023 due to the increase in revenue attributed to increased utilization of assets. The increase was primarily attributable to increased employee costs of $2.7 million and increased maintenance costs of approximately $1.2 million. Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services cost of services for the three months ended March 31, 2023 increased $8.3 million, or 49%, to $25.1 million from $16.8 million for the three months ended March 31, 2022. The increase was primarily attributable to increased employee costs with the upturn in operational activity, which amounted to approximately $3.1 million. Additionally, cost of service expense increased by $2.4 million primarily related to increased activity in our coil tubing and plugging and abandonment services. General & Administrative. General and administrative expenses for the three months ended March 31, 2023 decreased $1.8 million, or 18%, to $8.4 million from $10.2 million. The decrease in general and administrative expenses is primarily due to decreased accounting, legal and professional expenses, partially offset by increased employee costs during three months ended March 31, 2023. Depreciation and Amortization. Depreciation and amortization for the three months ended March 31, 2023 decreased $1.6 million, or 14%, to $10.0 million from $11.6 million for the three months ended March 31, 2022. The decrease was attributable to assets disposed of during 2022. Interest Expense, net. Interest expense, net for the three months ended March 31, 2023 decreased $0.9 million, or 43%, to $1.2 million from $2.1 million for the three months ended March 31, 2022. The decrease to net interest expense was attributable to the decreased principal balance on our Revolving Credit Facility, M&E Term Loan Facility, and payoff of Term Loan B Facility. Income Tax Expense (Benefit). Income tax expense for the three months ended March 31, 2023increased $3.4 million, or 213%, to a tax expense of $1.8 million from a tax benefit of $1.6 million for the three months ended March 31, 2022. The increase in tax expense was attributable to the increase in income over two consecutive quarters. Note Regarding Non-GAAP Financial Measure Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. We define Adjusted EBITDA as net income or loss before net interest expense, income tax expense (benefit), depreciation and amortization, equity-based compensation, gain or loss on disposal of assets, legal fees and settlements, and other non-cash or certain other items that we do not view as indicative of our ongoing performance. We believe Adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) determined in accordance with U.S. GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from Adjusted EBITDA. Our computations of Adjusted EBITDA may not be identical to other similarly titled measures of other companies. 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. GAAP. 21 Three Months Ended March 31, 2023 compared to Three Months Ended March 31, 2022 The following is an analysis of our Adjusted EBITDA. See “Item 1. Financial Information—Note 15—Segment Reporting” and “—Results of Operations” for further details (in millions). High Specification Rigs Wireline Services Processing Solutions and Ancillary Services Other Total Three Months Ended March 31, 2023 Net income (loss) $ 11.9 $ 1.8 $ 3.4 $ (10.9) $ 6.2 Interest expense, net — — — 1.2 1.2 Income tax expense — — — 1.8 1.8 Depreciation and amortization 5.5 2.4 1.6 0.5 10.0 EBITDA 17.4 4.2 5.0 (7.4) 19.2 Equity based compensation — — — 1.1 1.1 Gain on disposal of property and equipment — — — (1.0) (1.0) Severance and reorganization costs — — — 0.2 0.2 Acquisition related costs — — — 0.6 0.6 Adjusted EBITDA $ 17.4 $ 4.2 $ 5.0 $ (6.5) $ 20.1 High Specification Rigs Wireline Services Processing Solutions and Ancillary Services Other Total Three Months Ended March 31, 2022 Net income (loss) $ 7.7 $ (4.5) $ 1.3 $ (10.2) $ (5.7) Interest expense, net — — — 2.1 2.1 Income tax benefit — — — (1.6) (1.6) Depreciation and amortization 6.4 2.7 2.0 0.5 11.6 EBITDA 14.1 (1.8) 3.3 (9.2) 6.4 Equity based compensation — — — 0.8 0.8 Gain on disposal of property and equipment — — — (1.0) (1.0) Severance and reorganization costs — — — — — Acquisition related costs — — — 3.2 3.2 Legal fees and settlements — — — 0.2 0.2 Adjusted EBITDA $ 14.1 $ (1.8) $ 3.3 $ (6.0) $ 9.6 High Specification Rigs Wireline Services Processing Solutions and Ancillary Services Other Total Variance ($) Net income (loss) $ 4.2 $ 6.3 $ 2.1 $ (0.7) $ 11.9 Interest expense, net — — — (0.9) (0.9) Income tax expense (benefit) — — — 3.4 3.4 Depreciation and amortization (0.9) (0.3) (0.4) — (1.6) Impairment of fixed assets — — — — — EBITDA 3.3 6.0 1.7 1.8 12.8 Equity based compensation — — — 0.3 0.3 Gain on disposal of property and equipment — — — — — Severance and reorganization costs — — — 0.2 0.2 Acquisition related costs — — — (2.6) (2.6) Legal fees and settlements — — — (0.2) (0.2) Adjusted EBITDA $ 3.3 $ 6.0 $ 1.7 $ (0.5) $ 10.5 22 Adjusted EBITDA for the three months ended March 31, 2023 increased $10.5 million to $20.1 million from $9.6 million for the three months ended March 31, 2022. The change by segment was as follows: High Specification Rigs . High Specification Rigs Adjusted EBITDA for the three months ended March 31, 2023 increased $3.3 million to $17.4 million from $14.1 million for the three months ended March 31, 2022, due to increased revenue of $12.6 million, partially offset by a corresponding increase in cost of services of $9.3 million. Wireline Services. Wireline Services Adjusted EBITDA for the three months ended March 31, 2023 increased $6.0 million to $4.2 million from a loss of $1.8 million for the three months ended March 31, 2022, due to increased revenue of $11.3 million, partially offset by a corresponding increase in cost of services of $5.3 million. Processing Solutions and Ancillary Services . Processing Solutions and Ancillary Services Adjusted EBITDA for the three months ended March 31, 2023 increased $1.7 million to $5.0 million from $3.3 million for the three months ended March 31, 2022, due to increased revenue of $10.0 million, offset by a corresponding increase in cost of services of $8.3 million. Other . Other Adjusted EBITDA for the three months ended March 31, 2023 decreased $0.5 million to a loss of $6.5 million from a loss of $6.0 million for the three months ended March 31, 2022. The balances included in Other reflect other general and administrative costs, which are not directly attributable to High Specification Rigs, Wireline Services or Processing Solutions and Ancillary Services. Liquidity and Capital Resources Overview We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions. Our primary sources of liquidity have historically been cash generated from operations and borrowings under our EBC Credit Facility. As of March 31, 2023, we had total liquidity of $68.4 million, consisting of $14.4 million of cash on hand and availability under our Revolving Credit Facility of $54.0 million. As of March 31, 2023, our borrowing base under the Revolving Credit Facility was $55.6 million compared to $51.2 million and $60.3 million as of March 31, 2022 and December 31, 2022, respectively. We strive to maintain financial flexibility and proactively monitor potential capital sources to meet our investment and target liquidity requirements that permit us to manage the cyclicality associated with our business. We currently expect to have sufficient funds to meet the Company’s short and long term liquidity requirements and comply with our covenants of our debt agreements. For further details, see “— Our Debt Agreements.” Cash Flows The following table presents our cash flows for the periods indicated: Three Months Ended March 31, Change 2023 2022 $ % (in millions) Net cash provided by (used in) operating activities $ 17.4 $ (12.1) $ 29.5 244 % Net cash provided by (used in) investing activities (1.1) 5.0 (6.1) (122) % Net cash provided by (used in) financing activities (5.6) 10.3 (15.9) (154) % Net change in cash $ 10.7 $ 3.2 $ 7.5 234 % Operating Activities Net cash from operating activities increased $29.5 million to cash provided of $17.4 million for three months ended March 31, 2023 compared to cash used of $12.1 million for the three months ended March 31, 2022. The change in cash flows from operating activities is primarily attributable to an increase in gross margins and operating income for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The use of working capital cash increased $25.1 million to $16.5 million for the three months ended March 31, 2023, compared to cash used of $8.6 million for the three months ended March 31, 2022. Investing Activities Net cash from investing activities decreased $6.1 million to cash used of $1.1 million for three months ended March 31, 2023 compared to cash provided of $5.0 million for the three months ended March 31, 2022. The change in cash flows from investing activities is attributable to fixed asset additions that took place during the three months ended March 31, 2023, coupled with the asset disposals, related to assets acquired from Basic, that took place during the three months ended March 31, 2022. 23 Financing Activities Net cash from financing activities decreased $15.9 million from cash provided of $10.3 million for the three months ended March 31, 2022 compared to cash used of $5.6 million for the three months ended March 31, 2023. The change in cash flows from financing activities is primarily attributable to cash from asset sales and operations being utilized to pay down debt. Supplemental Disclosures During the three months ended March 31, 2023, the Company added fixed assets of $1.5 million primarily related to finance leased assets across all operating segments. Working Capital Our working capital, which we define as total current assets less total current liabilities, was $73.1 million as of March 31, 2023, compared to $65.6 million as of December 31, 2022. The increase in working capital can be attributed to a higher cash balance and contract assets, as well as a decrease in accrued expenses. Eclipse Loan and Security Agreement On September 27, 2021, the Company entered into a Loan and Security Agreement with Eclipse Business Capital LLC (“EBC”) and Eclipse Business Capital SPV, LLC, as administrative agent, providing the Company with a senior secured credit facility in an aggregate principal amount of $77.5 million (the “EBC Credit Facility”), consisting of (i) a revolving credit facility in an aggregate principal amount of up to $50.0 million (the “Revolving Credit Facility”), (ii) a machinery and equipment term loan facility in an aggregate principal amount of up to $12.5 million (the “M&E Term Loan Facility”) and (iii) a term loan B facility in an aggregate principal amount of up to $15.0 million (the “Term Loan B Facility”). Debt under the Eclipse Loan and Security Agreement is secured by a lien on substantially all of the Company’s assets. The Company was in compliance with the Eclipse Loan and Security Agreement covenants as of March 31, 2023. On January 7, 2022, the Company entered into the First Amendment to Loan and Security Agreement with EBC and Eclipse Business Capital SPV, LLC, which increased the Maximum Revolving Facility Amount (as defined in the Amended Loan Agreement) to $65.0 million, among other things. On September 23, 2022, the Company entered into the Amended Loan Agreement with EBC and Eclipse Business Capital SPV, LLC, which, among other things, designated the change in reference rate from LIBOR to SOFR, and designated a Letter of Credit in the amount of $1.6 million to be utilized for working capital and general corporate purposes, as needed. Revolving Credit Facility The Revolving Credit Facility was drawn in part on September 27, 2021, to repay the indebtedness under the existing Credit Facility, which was terminated in connection with such repayment, and to pay for the fees, costs and expenses incurred in connection with the EBC Credit Facility. The undrawn portion of the Revolving Credit Facility is available to fund working capital and other general corporate expenses and for other-permitted uses, including the financing of permitted investments and restricted payments. The Revolving Credit Facility is subject to a borrowing base that is calculated based upon a percentage of the Company’s eligible accounts receivable less certain reserves. The Company’s eligible accounts receivable serve as collateral for the borrowings under the Revolving Credit Facility, which is scheduled to mature in September 2025. The Revolving Credit Facility includes a subjective acceleration clause and cash dominion provisions that permits the administrative agent to sweep cash daily from certain bank accounts into an account of the administrative agent to repay the Company’s obligations under the Revolving Credit Facility. The borrowings of the Revolving Credit Facility, therefore, will be classified as Long-term debt, current portion on the Condensed Consolidated Balance Sheet. Under the Revolving Credit Facility, the total loan capacity was $55.6 million, which was based on a borrowing base certificate in effect as of March 31, 2023. The Company did not have any borrowings under the Revolving Credit Facility and a $1.6 million Letter of Credit, leaving a residual $54.0 million available for borrowings as of March 31, 2023. Borrowings under the Revolving Credit Facility bear interest at a rate per annum ranging from 4.5% to 5% in excess of the SOFR Rate and 3.5% to 4% in excess of the Base Rate, dependent on the fixed cost coverage ratio, through July 1, 2022. The weighted average interest rate for the loan was approximately 8.9% for the three months ended March 31, 2023. M&E Term Loan Facility Under the M&E Term Loan Facility, the Company had outstanding borrowings of $9.8 million where the monthly principal installments of $0.2 million commenced on March 1, 2022. Borrowings under the M&E Term Loan Facility bear interest at a rate per annum equal to 8% in excess of the SOFR Rate and 7% in excess of the Base Rate. The weighted average interest rate for the M&E Term Loan was 12.6% for the three months ended March 31, 2023. The M&E Term Loan Facility is secured by a lien on certain high-spec rig assets and is scheduled to mature in September 2025. Any principal amounts repaid may not be reborrowed. 24 Term Loan B On October 1, 2021, the Term Loan B was finalized in connection with the closing of the Basic Acquisition. Borrowings under Term Loan B bear interest at a rate per annum equal to 13% in excess of the SOFR Rate and 11% in excess of the Base Rate. Term Loan B is scheduled to mature in September 2022. The weighted average interest rate for Term Loan B was 12.4% through the maturity date of August 16, 2022. On August 16, 2022, the outstanding balance of Term Loan B was $0.3 million, which was paid utilizing funds from the Revolving Credit Facility. Secured Promissory Note In connection with the PerfX Acquisition, on July 8, 2021, Bravo Wireline, LLC, a wholly owned subsidiary of Ranger, entered into a security agreement with Chief Investments, LLC, as administrative agent, for the financing of certain assets acquired. Certain of the assets acquired serve as collateral under the Secured Promissory Note. As of March 31, 2023, the aggregate principal balance outstanding was $5.6 million. Borrowings under the Secured Promissory Note bear interest at a rate of 8.5% per annum and is scheduled to mature in January 2024. Other Installment Purchases During the year ended December 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, 2023, the aggregate principal balance outstanding under the Installment Agreements was $0.4 million and 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. Capital Returns Program On March 1, 2023, the Board of Directors announced a $35.0 million share repurchase program that can be utilized for up to 36 months. Additionally, the Board of Directors has approved a quarterly dividend of $0.05 per share, which will be initiated once the Company achieves its goal of being net debt zero. The Company believes that a share repurchase and dividend framework provides the best overall value creation potential for investors and intends to return at least 25% of annual cash flows to investors going forward. Critical Accounting Policies and Estimates Our significant accounting policies are discussed in our Annual Report and have not materially changed since December 31, 2022. Off-Balance Sheet Arrangements We currently have no material off-balance sheet arrangements.