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Item 7. Management’s Discussion and Analysis

2024-03-05 compared with 2023-03-13 · 159 added, 212 removed, 209 unchanged (64% of the section changed)

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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.

read Cautionary Statement Regarding Forward‑Looking Statements.

Also, please read the risk factors and other cautionary statements described under “Part I, Item 1A.-Risk Factors.” We assume no obligation to update any of these forward‑looking statements, except as required by applicable law.

These statements include certain risks and uncertainties.

Please read “Cautionary Statement Regarding Forward‑Looking Statements” and he risk factors described under “Part I, Item 1A.-Risk Factors” for more details.

2023 Business Update

Business Outlook

We are a provider of onshore high specification 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, maintaining and enhancing the flow of oil and natural gas throughout the productive life of a well.

Additionally, we serve to assist our customers in decommissioning wells at the end of their economic life.

A comprehensive discussion of each of our reporting segments is included below in the section titled How We Evaluate Our Operations.

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.

As the Company looks forward in 2024, we expect business opportunities to remain steady as both the U.S.

and global economy continues to show resilience and we further expect our financial results to show slight improvement year over year.

The International Energy Agency stated that global oil demand is expected to increase by a moderate 1.2 million barrels per day in 2024 as compared to growth of 2.3 million barrels during 2023.

Prevailing views anticipate that North and South America production increases will meet this increase in demand keeping the market in balance.

With supply and demand to remain in balance, commodity price stability is expected to continue and is expected to be approximately $82 per barrel during 2024.

Acquisitions and Integrations

During the years ended December 31, 2022 and 2021, the Company integrated the businesses, operations and assets acquired from each of the acquisitions, described below, into current business processes.

Through the integration, Ranger continued to refine business strategies and processes to focus on the performance of the Company.

Please see “—Results of Operations” below and “Part II—Item 8—Note 3 — Business Combinations” for further information on each of the acquisitions.

On September 15, 2021, Ranger Energy Acquisition, LLC, entered into an Asset Purchase Agreement for certain assets of Basic and certain of its subsidiaries, which closed on October 1, 2021.

During 2021, 2022 and 2023, the Company has placed significant focus on acquiring and integrating assets and associated operations, described below, into current business processes.

Through these acquisitions and their subsequent integrations, Ranger has continued to refine its business strategies and processes to focus on the performance of the Company and anticipates that acquisitions will continue to play a key role in the business going forward.

The largest of its recent acquisitions took place during the fall of 2021 when Ranger Energy Acquisition, LLC, entered into an Asset Purchase Agreement for certain assets of Basic and certain of its subsidiaries.

As consideration for the assets acquired, the Company paid $36.7 million in cash, where such cash was generated through the issuance of Series A Preferred Stock.

Ranger Energy Acquisitions, LLC (“Ranger Acquisitions”) purchased assets associated with Basic’s well servicing, fishing and rental, coiled tubing operations, and rolling stock assets required to support the operating assets being purchased and real property locations inclusive of, but not limited to, real property owned in New Mexico, North Dakota, Oklahoma and Texas.

The operating results of Basic are included within the High Specification Rigs and Processing Solutions and Ancillary Services segments.

On July 8, 2021, the Company acquired the assets of PerfX, a provider of wireline services that operate in Williston, North Dakota and Midland, Texas.

Following the acquisition of PerfX, the Company significantly expanded its scale and scope of the existing wireline business.

The aggregate consideration was $20.1 million, which included 1.1 million shares of Class A Common Stock and a Secured Promissory Note of $11.4 million.

The financial results of PerfX are included in the Wireline Services reporting segment.

On May 14, 2021, the Company acquired all of the outstanding stock of Patriot, a provider of wireline evaluation and intervention services that operate in the Permian, Denver-Julesburg and Powder River Basins and Bakken Shale.

As consideration for the Patriot Acquisition, the Company paid an aggregate of $11.0 million, which included 1.3 million shares of Class A Common Stock and cash payments of $3.3 million, net of cash acquired.

The financial results of Patriot are included in the Wireline Services reporting segment.

During the year ended December 31, 2022 and through the issuance of these financial statements, significant progress has been made to combat COVID-19 and its multiple variants.

The extent of and future impacts of COVID-19 on the Company’s operational and financial performance will significantly depend on further developments, including the severity, duration, spread of the disease and continued impact on our personnel, customer activity and third-party providers.

government implemented a number of programs in the early 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.

We qualified for limited aid under the CARES Act and have deferred payroll tax payments of $0.9 million as of December 31, 2022 under the CARES Act.

The deferred payroll tax payment was paid in January 2023.

Purchased assets included well servicing rigs, fishing and rental assets, coiled tubing units, and rolling stock assets required to support the operating assets as well as certain real property.

Separately, during 2021, the Company made two additional acquisitions of wireline service providers that operated through Permian, Denver-Julesburg and Powder River Basins and Bakken Shale basins.

These acquisitions significantly expanded the scale and scope of the existing wireline business.

During 2023, the Company complemented the earlier acquisitions with the purchase of certain pumping assets and associated equipment to continue to bolster its wireline segment capabilities and remains active in the pursuit of accretive opportunities during 2024.

Internal Controls and Procedures

We and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting as of December 31, 2022.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on its assessment, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022 due to material weaknesses in our control environment whereby the Company did not maintain (1) adequate controls over segregation of duties related to the review of manual journal entries and account reconciliations.

Specifically, certain personnel had the ability to both (a) create and post journal entries within our general ledger system, and (b) review account reconciliations;

(2) adequate information technology general controls related to administrative user access to the Company’s information systems that are relevant to the preparation of financial statements to ensure appropriate segregation of duties and to adequately restrict access to financial applications and data;

and (3) the material weakness previously reported in 2021 Annual Report pertaining to ineffective controls over the accounting for complex transactions continued to exist as of

December 31, 2022.

The Company’s management has (1) implemented a remediation plan to update its design and implementation of controls to remediate these deficiencies and enhance the Company’s internal control environment.

The material weaknesses did not result in any adjustments to the Consolidated Financial Statements;

(2) initiated a remediation plan to improve information technology general controls related to administrative user access by restricting privileged access, implementing change monitoring controls and improving segregation of duties within information technology environments based on roles and responsibilities;

and (3) been enhancing processes and designing and implementing additional internal controls to properly account for complex transactions.

Additionally, the Company has hired additional accounting personnel and implementing training of new and existing personnel on proper execution of designed control procedures.

We can give no assurance that these actions will remediate these deficiencies in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future.

Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements and cause us to fail to meet our reporting obligations.

We are required to comply with the SEC's rules implementing Section 302 of Sarbanes-Oxley, which requires our management to certify financial and other information in our quarterly and Annual Reports.

We are required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 beginning with this Annual Report due to our ceasing to be an "emerging growth company" within the meaning of Section 2(a)(19) of the Securities Act.

Business Outlook

We are 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.

See discussion below for a description of our reporting segments.

Looking forward to 2023, we 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 $85 per barrel during 2023 as global oil inventories increase.

However, 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.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the guidelines established in the Internal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on its assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2023.

For further information, please see “Part II, Item 9A.

Controls and Procedures.”

How We Evaluate Our Operations

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The reportable segments have been categorized based on the nature of services provided within each line of business.

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:

Our service offerings consist of well completion support, workover, well maintenance, wireline, 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 to facilitate operations throughout the life cycle of a well.

Provides high specification well service rigs to facilitate operations throughout the life cycle of a well.

• Wireline Services.

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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 regarding our segments, please see “Part II—Item 8—Note 17 — Segment Reporting.”

Financial Metrics

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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.

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 for the completion service line within our Wireline Services segment.

Generally, during the period our services are being provided, our customers are billed on an hourly basis for our high specification rig services or, as it relates to our wireline services, they are billed on an hourly basis for our high specification rigs services.

As it relates to our wireline services, services are billed upon the completion of the well, on a monthly basis, or on a per job basis.

The rates for which the customer is billed is generally predetermined based upon a contractual agreement.

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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.

Our primary costs associated with our cost of services are related to personnel expenses, repairs and maintenance of our fixed assets and, additionally, 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.

Personnel costs associated with our operational employees represent the most 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.

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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.

General and administrative expenses are corporate in nature and are included within Other.

These costs include the majority of centrally-located company management and administrative personnel and are not attributable to any of our lines of businesses nor reporting segments.

Operating Income or Loss

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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.

We define Adjusted EBITDA as net income or loss before net interest expense, income tax expense, depreciation and amortization, equity‑based compensation, acquisition‑related and severance costs, gain or loss on disposal of assets, significant and unusual legal fees and settlements, and other non‑cash and certain other items that we do not view as indicative of our ongoing performance.

Results of Operations

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The following is an analysis of our operating results.

See “—How We Evaluate Our Operations” for further details explaining how operating results are measured and key performance indicators used.

The significant increases in operational activity, across all segments, as well as corporate-related expenses, are related to the business combinations that took place, coupled with increased crude oil pricing and demand for our services, as described in “—Recent Events and Outlook.”

See “—How We Evaluate Our Operations” for definitions of rig hours, stage counts and other analogous information, as well as key operating metrics.

Year Ended December 31, Variance

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Total operating expenses 599.7 588.8 10.9 2 %

Operating income (loss) 19.7 (40.5) 60.2 149 %

Other income and expenses

Operating income 36.9 19.7 17.2 (87) %

Other (income) expenses

Interest expense, net 3.5 7.3 (3.8) (52) %

Loss on debt retirement 2.4 — 2.4 (100) %

Gain on bargain purchase, net of tax — (3.6) 3.6 (100) %

Total other income and expenses 3.7 (32.2) 35.9 (111) %

Income (loss) before income tax expense (benefit) 16.0 (8.3) 24.3 293 %

Income tax expense (benefit) 0.9 (6.2) 7.1 115 %

Net income (loss) $ 15.1 $ (2.1) $ 17.2 819 %

Total other (income) expenses 5.9 3.7 2.2 59 %

Income before income tax expense 31.0 16.0 15.0 94 %

Income tax expense 7.2 0.9 6.3 700 %

Net income $ 23.8 $ 15.1 $ 8.7 58 %

Revenue increased $28.1 million, or 5%, to $636.6 million for the year ended December 31, 2023 from $608.5 million for the year ended December 31, 2022.

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High Specification Rig revenue increased $20.1 million, or 7%, to $313.3 million for the year ended December 31, 2023 from $293.2 million for the year ended December 31, 2022.

The increased rig services revenue included an 82% increase in total rig hours to 469,000 for the year ended December 31, 2022 from 257,900 for the year ended December 31, 2021.

The average revenue per rig hour increased 15% to $625 compared to $543 for the year ended December 31, 2021.

Of the total segment revenue increase, $119.4 million is attributable to the assets acquired in the Basic Acquisition.

The increased rig services revenue included an average per rig hour increase of 12% to $703 compared to $625 for the year ended December 31, 2022.

Total rig hours decreased 5% to 446,000 for the year ended December 31, 2023 from 469,000 for the year ended December 31, 2022.

Wireline Services.

Wireline Services revenue increased $2.1 million, or 1%, to $199.1 million for the year ended December 31, 2023 from $197.0 million for the year ended December 31, 2022.

The increased wireline services revenue was primarily attributable to completion services which accounted for $44.3 million of the segment revenue increase and included a 15% increase in completed stage count to 31,400 for the year ended December 31, 2022 from 27,200 for the year ended December 31, 2021.

Additionally, the increase was attributable to the production and pump down services which accounted for $25.2 million and $9.6 million of the segment increase, respectively.

The increase in wireline services revenue included a 79% increase in average active wireline units to 41 units from 23 units for the year ended December 31, 2021.

Of the segment revenue increase, $63.8 million and $34.9 million is attributable to the assets acquired in the PerfX and Patriot Acquisitions, respectively.

The increased wireline services revenue was primarily attributable to the pump down and production services which accounted for $5.6 million and $5.4 million of the segment increase, respectively.

The increase in revenue in production and pump down service lines was offset by a decrease in completion services which accounted for $8.9 million of the segment revenue decrease and included an 18% decrease in completed stage count to 25,600 for the year ended December 31, 2023 from 31,400 for the year ended December 31, 2022.

This decrease in completion services was due to the Company's decision to close the completions service line in the South and shift activity from completions work to production.

Processing Solutions and Ancillary Services.

Processing Solutions and Ancillary Services revenue increased $5.9 million, or 5%, to $124.2 million for the year ended December 31, 2023 from $118.3 million for the year ended December 31, 2022.

The increase in processing solutions and ancillary services revenue is primarily attributable to our coil tubing, rentals and plugging and abandonment services which accounted for $32.9 million, $28.5 million and $21.2 million of the segment increase, respectively.

Of the total segment revenue increase, $53.9 million is attributable to the Basic Acquisition.

Cost of services.

The increase in processing solutions and ancillary services revenue is primarily attributable to our plugging and

abandonment, coil tubing and logistics services which accounted for $7.0 million, $4.1 million, and $1.3 million of the segment increase, respectively.

This was offset by a decrease in our rentals and snubbing services which accounted for $4.6 million and $2.3 million of the segment decrease, respectively.

Cost of services (exclusive of depreciation and amortization).

Cost of services (exclusive of depreciation and amortization) increased $27.8 million, or 6%, to $531.7 million for the year ended December 31, 2023 from $503.9 million for the year ended December 31, 2022.

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High Specification Rig cost of services increased $16.5 million, or 7%, to $249.2 million for the year ended December 31, 2023 from $232.7 million for the year ended December 31, 2022.

The increase was primarily attributable to an increase in variable expenses, notably employee-related labor costs, fuel and repair and maintenance costs of $69.0 million, $10.9 million and $10.4 million, respectively.

Additionally, the increased costs correspond with the increase in rig hours and revenue.

Of the segment cost of services increase, $94.6 million is attributable to the Basic Acquisition.

The increase was primarily attributable to an increase in variable expenses, notably employee-related labor costs, travel costs, and repair and maintenance costs of $10.6 million, $3.7 million and $2.4 million, respectively.

As a percentage of revenue, cost of services increased 1% from the prior year, mostly due to an increase in medical costs of $1.9 million.

The increased costs largely correspond with the increase in revenues as inflationary pressures on costs continued during the year.

Wireline Services.

Wireline Services cost of services increased $2.3 million, or 1%, to $180.7 million for the year ended December 31, 2023 from $178.4 million for the year ended December 31, 2022.

The increase was primarily attributable to the completion and production service lines which accounted for $41.0 million and $16.0 million of the segment increase.

Across all service lines, the increase was attributable to increased variable expenses, notably employee-related labor costs of $28.1 million.

Of the total segment cost of services increase, $87.4 million and $29.1 million is attributable to the assets acquired in the PerfX and Patriot Acquisitions, respectively.

The increase was primarily attributable to the production and pump down service lines which accounted for $7.0 million and $5.3 million of the segment increase, respectively.

Costs in these service lines were affected by increasing operational activity, inflationary pressures and investments in growing in select basins.

These cost increases were offset by a decrease in completion services costs of $10.2 million as the Company reorganized this service line during the year to focus on more profitable service lines.

The Company incurred $1.7 million in related severance and reorganization costs and an $0.8 million increase in medical costs.

As a percentage of revenue, cost of services remained flat from the prior year.

Across service lines, employee-related labor costs increased most significantly by $1.1 million.

Processing Solutions and Ancillary Services.

Processing Solutions and Ancillary Services cost of services increased $9.0 million, or 10%, to $101.8 million for the year ended December 31, 2023 from $92.8 million for the year ended December 31, 2022.

The increase in processing solutions and ancillary services is primarily attributable to our coil tubing, rentals and plugging and abandonment services which accounted for $25.6 million, $18.2 million and $18.4 million of the segment increase, respectively, and aligns with the increased revenue.

Of the total segment cost of services increase, $46.1 million is attributable to the Basic Acquisition.

The increase in processing solutions and ancillary services is primarily attributable to our plugging and abandonment, coil tubing and logistics services which accounted for $7.7 million, $3.9 million and $0.9 million of the segment increase, respectively.

Cost increases in this segment were driven by increasing operational activity, inflationary pressures and growth initiatives.

General and Administrative.

General and administrative expenses increased $5.3 million, or 15%, to $39.9 million for the year ended December 31, 2022 from $34.6 million for the year ended December 31, 2021.

The increase in general and administrative expenses is primarily due to corporate employee costs added subsequent to the Basic Acquisition, coupled with legal and professional fees incurred during the latter half of the year ended December 31, 2022.

General and administrative expenses decreased $10.4 million, or 26%, to $29.5 million for the year ended December 31, 2023 from $39.9 million for the year ended December 31, 2022.

The decrease in general and administrative expenses is primarily due to decreases in acquisition and integration related costs in legal, accounting, and professional fees and other integration related matters of $5.3 million.

This is slightly offset by an increase in compensation expense due to the build out of internal capabilities.

Depreciation and Amortization.

Depreciation and amortization increased $7.6 million, or 21%, to $44.4 million for the year ended December 31, 2022 from $36.8 million for the year ended December 31, 2021.

The increase was attributable to assets acquired through the business combinations during the latter half of the year ended December 31, 2021.

This was partially offset by depreciation expense related to fixed assets disposed of during the year ended December 31, 2022.

Depreciation and amortization decreased $4.5 million, or 10%, to $39.9 million for the year ended December 31, 2023 from $44.4 million for the year ended December 31, 2022.

The decrease was largely attributable to fixed assets disposed of during the year ended December 31, 2023.

Impairment of Fixed Assets.

Impairment of fixed assets for the year ended December 31, 2023 decreased $0.9 million, or 69%, to $0.4 million from $1.3 million for the year ended December 31, 2022.

The decrease was attributable impairment recognized on a property during the year ended December 31, 2022, which was greater than the impairments recognized during the year ended December 31, 2023.

Interest Expense, net.

Net interest expense increased $2.3 million, or 46%, to $7.3 million for the year ended December 31, 2022 from $5.0 million for the year ended December 31, 2021.

The increase to net interest expense was attributable to higher interest rates on each tranche of the Eclipse Loan and Security Agreement that closed on September 27, 2021, partially offset by the decreased principal balances on the debt instruments.

Income tax expense (benefit).

Income tax expense increased $7.1 million, or 115%, to an expense of $0.9 million for the year ended December 31, 2022 from a tax benefit of $6.2 million for the year ended December 31, 2021.

Net interest expense decreased $3.8 million, or 52%, to $3.5 million for the year ended December 31, 2023 from $7.3 million for the year ended December 31, 2022.

The decrease in net interest expense was attributable the decreased principal balances on the debt instruments offset by increases in interest rates across certain instruments.

Income Tax Expense.

Income tax expense increased $6.3 million, or 700%, to $7.2 million for the year ended December 31, 2023 from $0.9 million for the year ended December 31, 2022.

The increase in income tax expense was attributable to the increased operational activity during the year ended December 31, 2023.

Net income for the year ended December 31, 2023 increased $8.7 million, or 58%, to $23.8 million from $15.1 million for the year ended December 31, 2022.

Net income for the year ended December 31, 2022 was impacted by expenses related to the Basic Acquisition and lower operating activity and profitability.

Note Regarding Non‑GAAP Financial Measure

Adjusted EBITDA is not a financial measure determined in accordance with generally accepted accounting principles in the United States (“US 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 and certain other items that we do not view as indicative of our ongoing performance.

Adjusted EBITDA is not a financial measure determined in accordance with generally accepted accounting principles in the United States (“U.S.

We define Adjusted EBITDA as net income or loss before net interest expense, income tax expense, depreciation and amortization, equity‑based compensation, gain on disposal of assets, significant and unusual legal fees and settlements legal fees and settlements, and other non-cash and 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 or loss in arriving at Adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods, 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 or loss determined in accordance with US GAAP.

We exclude the items listed above from net income 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 determined in accordance with U.S.

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.

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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 US GAAP.

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

The Year Ended December 31, 2023 compared to The Year Ended December 31, 2022

Year Ended December 31, 2022

The following is an analysis of our Adjusted EBITDA.

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

(in millions)

Year Ended December 31, 2023

Net income (loss) $ 44.0 $ 7.1 $ 15.5 $ (42.8) $ 23.8

Interest expense, net — — — 3.5 3.5

Tax expense (benefit) — — — 0.9 0.9

Tax expense — — — 7.2 7.2

Depreciation and amortization 20.1 11.3 6.9 1.6 39.9

EBITDA 64.1 18.4 22.4 (30.5) 74.4

Equity based compensation — — — 4.8 4.8

Loss on retirement of debt — — — 2.4 2.4

Gain on disposal of property and equipment — — — (1.8) (1.8)

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Acquisition related costs — — — 2.1 2.1

Legal fees and settlements — — — 1.5 1.5

Impairment of fixed assets — — — — — 0.4 0.4

Gain on bargain purchase, net of tax — — — (3.6) (3.6)

TRA termination expense — — — — —

Allowance for AR write-off — — — — —

Adjusted EBITDA $ 64.1 $ 20.1 $ 22.4 $ (22.2) $ 84.4

Year Ended December 31, 2021

High Specification Rigs Wireline Services Processing Solutions and Ancillary Services Other Total

(in millions)

Year Ended December 31, 2022

Net income (loss) $ 34.3 $ 7.6 $ 20.2 $ (47.0) $ 15.1

Interest expense, net — — — 7.3 7.3

Tax expense (benefit) — — — (6.2) (6.2)

Tax expense — — — 0.9 0.9

Depreciation and amortization 26.2 11.0 5.3 1.9 44.4

EBITDA 60.5 18.6 25.5 (36.9) 67.7

Equity based compensation — — — 3.8 3.8

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Gain on bargain purchase, net of tax — — — (3.6) (3.6)

TRA termination expense — — — 3.8 3.8

Allowance for AR write-off — — — 1.5 1.5

Adjusted EBITDA $ 60.5 $ 18.6 $ 25.5 $ (25.1) $ 79.5

High Specification Rigs Wireline Services Processing Solutions and Ancillary Services Other Total

(in millions)

Net income (loss) $ 9.7 $ (0.5) $ (4.7) $ 4.2 $ 8.7

Interest expense, net — — — (3.8) (3.8)

Tax expense (benefit) — — — 7.1 7.1

Tax expense — — — 6.3 6.3

Depreciation and amortization (6.1) 0.3 1.6 (0.3) (4.5)

EBITDA 3.6 (0.2) (3.1) 6.4 6.7

Equity based compensation — — — 1.0 1.0

Loss on retirement of debt — — — 2.4 2.4

Gain on disposal of property and equipment — — — (1.1) (1.1)

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Gain on bargain purchase, net of tax — — — 3.6 3.6

TRA termination expense — — — (3.8) (3.8)

Allowance for AR write-off — — — (1.5) (1.5)

Adjusted EBITDA $ 3.6 $ 1.5 $ (3.1) $ 2.9 $ 4.9

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High Specification Rigs.

High Specification Rigs Adjusted EBITDA increased $39.2 million to $60.5 million from $21.3 million primarily due to an increase in revenue of $153.1 million partially offset by a corresponding increase in cost of services of $113.9 million.

High Specification Rigs Adjusted EBITDA increased $3.6 million to $64.1 million from $60.5 million primarily due to an increase in revenue of $20.1 million partially offset by an increase in cost of services of $16.5 million.

Wireline Services.

Wireline Services Adjusted EBITDA increased $16.3 million to $18.6 million from $2.3 million due to an increase in revenue of $79.1 million partially offset by a corresponding increase in cost of services of $62.8 million.

Wireline Services Adjusted EBITDA increased $1.5 million to $20.1 million from $18.6 million due to a strategic decision to close the completions service line in the South U.S.

and, as a result of this closure, $1.7 million was added back to Adjusted EBITDA for associated closure costs.

Processing Solutions and Ancillary Services.

Processing Solutions and Ancillary Services Adjusted EBITDA increased $19.3 million to $25.5 million from $6.2 million due to an increase in revenue of $83.2 million partially offset by a corresponding increase in cost of services of $63.9 million.

Other Adjusted EBITDA decreased $8.1 million for the year ended December 31, 2022 to a loss of $25.1 million from a loss of $17.0 million due to increased general and administrative expenses, which was related to increased employee costs and professional fees.

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.

Processing Solutions and Ancillary Services Adjusted EBITDA decreased $3.1 million to $22.4 million from $25.5 million due to an increase in cost of services of $9.0 million, driven by increasing operational activity, partially offset by an increase in revenue of $5.9 million.

Other Adjusted EBITDA improved $2.9 million for the year ended December 31, 2023 to a loss of $22.2 million from a loss of $25.1 million due to decreased general and administrative expenses, which was related to elevated acquisition and integration costs in legal, accounting and professional fees in the latter half of the prior year.

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

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet, 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 December 31, 2022, we had total liquidity of $61.0 million, consisting of $3.7 million of cash on hand and availability under our Revolving Credit Facility of $57.3 million.

As of December 31, 2022, our borrowing base under the Revolving Credit Facility was $60.3 million compared to $45.0 million as of December 31, 2021, as a result of increased 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.

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 credit facilities.

As of December 31, 2023, we had total liquidity of $85.1 million, consisting of $15.7 million of cash on hand and availability under our Wells Fargo Revolving Credit Facility of $69.4 million.

Under the Wells Fargo Revolving Credit Facility, the total loan capacity was $72.6 million, net of zero borrowings and $3.2 million in Letters of Credit open under the facility.

This compares to the Company’s available borrowings under the Eclipse Business Capital LLC (“EBC”) Revolving Credit Facility of $57.3 million as of December 31, 2022, with the increased liquidity related to reduced debt, new debt instruments and increased operating activity.

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 Obligations.”

For further details, see “— Debt Agreements.”

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

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(in millions)

Net cash provided by (used in) operating activities $ 44.5 $ (39.4) $ 83.9 213 %

Net cash provided by operating activities $ 90.8 $ 44.5 $ 46.3 104 %

Net cash provided by (used in) investing activities (29.7) 11.3 (41.0) (363) %

Net cash provided by (used in) financing activities (52.7) 73.6 (126.3) (172) %

Net cash used in financing activities (49.1) (52.7) 3.6 7 %

Net change in cash $ 12.0 $ 3.1 $ 8.9 287 %

Operating Activities

Net cash flows from operating activities increased $83.9 million to cash generated of $44.5 million for the year ended December 31, 2022 compared to cash used of $39.4 million for the year ended December 31, 2021.

Net cash flows from operating activities increased $46.3 million to $90.8 million for the year ended December 31, 2023 compared to $44.5 million for the year ended December 31, 2022.

The change in cash flows provided by operating activities is attributable to increased operational activity and efficiencies.

Cash used from working capital decreased to $19.1 million for the year ended December 31, 2022 from cash used of $38.6 million for the year ended December 31, 2021 which was due to increased cash receipts on outstanding accounts receivable.

Cash provided by working capital increased to $12.9 million for the year ended December 31, 2023 from cash used of $19.1 million for the year ended December 31, 2022 which was largely due to increased cash receipts on outstanding accounts receivable.

Investing Activities

Net cash flows from investing activities increased $47.7 million to cash generated of $11.3 million for the year ended December 31, 2022 compared to cash used of $36.4 million for the year ended December 31, 2021.

The change in cash flows generated by investing activities is attributable to the cash outlay for the Basic Acquisition that took place during the year ended December 31, 2021, partially offset by significant asset sales during the year ended December 31, 2022.

Net cash flows from investing activities decreased $41.0 million to cash used of $29.7 million for the year ended December 31, 2023 compared to cash generated of $11.3 million for the year ended December 31, 2022.

When comparing the year ended December 31, 2023 to the year ended December 31, 2022, the change in cash flows used by investing activities can be attributed to significant asset sales during the former period, whereas the latter period involved cash outlay for purchases including the acquisition of certain pumping assets for consideration of $7.3 million as well as certain capital upgrades to place those assets into service estimated at $2 million once complete.

Financing Activities

Net cash flows from financing activities decreased $126.3 million, or 172%, to cash used of $52.7 million for the year ended December 31, 2022 compared to cash provided of $73.6 million for the year ended December 31, 2021.

The change in cash flow is attributable to the utilization of cash generated from operations and asset sales to pay debt outstanding.

During the year ended December 31, 2022 the Company paid $25.6 million, net to the Credit Facility and paid $12.4 million to retire Term Loan B.

Net cash flows used in financing activities decreased $3.6 million, or 7%, to cash used of $49.1 million for the year ended December 31, 2023 compared $52.7 million for the year ended December 31, 2022.

The change in cash flow is attributable to the utilization of cash generated from operations to pay debt outstanding and initiate a share repurchase program.

During the year ended December 31, 2023 the Company paid $2.5 million, net to the Credit Facility, $10.4 million to retire Term Loan A, $19.3 million, net of tax to repurchase Class A Common Stock, and $2.4 million in cash dividends to Class A Common Stock stockholders.

Supplemental Cash Flow Disclosures

During the year ended December 31, 2022, the Company added fixed assets of $5.5 million which were finance leased arrangements across all operating segments.

During the year ended December 31, 2023, the Company added fixed assets of $10.0 million and $1.1 million primarily related to finance leased assets and asset trades, respectively, across all operating segments.

Additionally, the Company paid approximately $1.4 million in interest related to debt and finance leased assets.

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Our working capital, which we define as total current assets less total current liabilities, was $66.4 million and $65.6 million as of December 31, 2023 and 2022, respectively.

The increased accounts receivable and contract assets and assets considered to be held for sale, coupled with efforts to pay down debt, led to the working capital increase.

Our Debt Agreements

Increasing cash balances coupled with efforts to pay down debt, contributed most significantly to the working capital increase year over year.

Debt Agreements

Wells Fargo Bank, N.A.

Credit Agreement

On May 31, 2023, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A., providing the Company with a secured credit facility (“Wells Fargo Revolving Credit Facility”) in an aggregate principal amount of up to $75.0 million.

Debt under the Credit Agreement is secured by a lien on substantially all of the Company’s assets.

The Company was in compliance with the Credit Agreement covenant by maintaining a fixed charge coverage ratio of greater than 1.0 as of December 31, 2023.

In addition, on September 25, 2023, the Company entered into an agreement with Wells Fargo Bank, N.A.

which designated an additional Letter of Credit in the amount of $1.6 million as part of incremental collateral requirements for the Company’s 2023 insurance renewal.

This line of credit falls under the Wells Fargo Revolving Credit Facility aggregate principal amount and matures on September 25, 2024.

The interest rate for this Letter of Credit was approximately 1.8% for the month ended December 31, 2023.

The Wells Fargo Revolving Credit Facility was drawn in part on May 31, 2023, to repay the Revolving Credit Facility, M&E Term Loan Facility, and the Secured Promissory Note.

The undrawn portion of the Wells Fargo 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, such as dividends and share repurchases.

The Wells Fargo 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 Wells Fargo Revolving Credit Facility, which is scheduled to mature on May 31, 2028.

The Wells Fargo Revolving Credit Facility includes an acceleration clause and cash dominion provisions under certain circumstances 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 Wells Fargo Revolving Credit Facility.

The borrowings of the Wells Fargo Revolving Credit Facility, therefore, will be classified as Long-term debt, current portion on the Condensed Consolidated Balance Sheet.

Under the Wells Fargo Revolving Credit Facility, the total loan capacity is $72.6 million, which is based on a borrowing base certificate in effect as of December 31, 2023.

The Company did not have any borrowings under the Wells Fargo Revolving Credit Facility.

The Company does have a $3.2 million in Letters of Credit open under the facility, leaving a residual $69.4 million available for borrowings as of December 31, 2023.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum ranging from 1.75% to 2.25% in excess of SOFR and 0.75% to 1.25% in excess of the Base Rate, dependent on the average excess availability.

The weighted average interest rate for the loan was approximately 7.0% for the year ended December 31, 2023.

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”).

The Company was in compliance with the Eclipse Loan and Security Agreement covenants as of December 31, 2022.

On January 7, 2022, the Company entered into the First Amendment to Loan and Security Agreement with EBC and Eclipse Business Capital SPV, LLC (collectively, the “EBC Lenders”), which increased the Maximum Revolving Credit Facility Amount (as defined in the Amended Loan Agreement (as defined below)) to $65 million, among other things.

On September 23, 2022, the Company entered into the Fourth Amendment to Loan and Security Agreement with the EBC Lenders, which, among other things, designated the change in reference rates 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 serves as collateral for the borrowings under the Revolving Credit Facility and 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, are classified as current maturities of long-term debt on the Consolidated Balance Sheet.

Under the Revolving Credit Facility, the maximum borrowing capacity was $60.3 million, which was based on a borrowing base certificate in effect as of December 31, 2022.

The Company had outstanding borrowings of $1.4 million under the Revolving Credit Facility and a $1.6 million Letter of Credit, leaving a residual $57.3 million available for borrowings as of December 31, 2022.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum ranging from 4.5% to 5.0% in excess of SOFR and 3.5% to 4.0% in excess of the Base Rate, dependent on the fixed cost coverage ratio, through January 1, 2023.

The weighted average applicable margin for the loan was 6.6% for the year ended December 31, 2022.

The weighted average applicable margin for the loan was 9.0% for the period ended February 28, 2023.

M&E Term Loan Facility

Under the M&E Term Loan Facility, the Company had outstanding borrowings of $10.4 million where the monthly 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 SOFR and 7% in excess of the Base Rate.

The weighted average interest rate for the loan was 9.9% for the year ended December 31, 2022.

The weighted average applicable margin for the loan was 12.6% for the period ended February 28, 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.

Principal amounts repaid are not available to be reborrowed.

On October 1, 2021, Term Loan B was finalized in connection with the closing of the Basic Acquisition.

Borrowings under Term Loan B bore interest at a rate per annum equal to 12% in excess of the LIBOR Rate and 11% in excess of the Base Rate.

The weighted average interest rate for Term Loan B was 13.0% through the maturity date of August 16, 2022.

On August 16, 2022, the remaining balance of the loan was $0.3 million, which was paid utilizing funds from the Revolving Credit Facility.

At the time, the Company had capitalized fees associated with Term Loan B of $0.1 million, which was charged to interest expense on the Consolidated Statement of Operations.

On May 31, 2023, the Company extinguished the Eclipse Revolving Credit Facility and Eclipse M&E Term Loan Facility, paying the remaining principal amount of $10.4 million associated with the Eclipse M&E Term Loan Facility for the five months ended May 31, 2023.

Of this amount, $8.4 million was outstanding at the time of debt extinguishment, and repaid utilizing funds from the Wells Fargo Revolving Credit Facility.

The Company recognized a loss on the retirement of debt of $2.4 million in connection with the initiation of the Wells Fargo Revolving Credit Facility.

For the nine months ended September 30, 2022, the Company made principal payments totaling $12.4 million towards the Eclipse Term Loan B Facility, which was fully repaid on August 16, 2022, and $1.5 million towards the Eclipse M&E Term Loan Facility.

Secured Promissory Note

In connection with the PerfX Acquisition, on July 8, 2021, Bravo Wireline, LLC, a wholly owned subsidiary of Ranger Services, 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 December 31, 2022, the aggregate principal balance outstanding was $6.1 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.

On July 8, 2021, the Company acquired the assets of PerfX Wireline Services (“PerfX”), a provider of wireline services that operated in Williston, North Dakota and Midland, Texas.

In connection with the PerfX acquisition, 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.

Borrowings under the Secured Promissory Note bear interest at a rate of 8.5% per annum and was scheduled to mature in January 2024.

For the five months ended May 31, 2023, the Company made principal payments to the Secured Promissory Note totaling $6.2 million, of which $5.4 million was related to the debt extinguishment and was repaid utilizing funds from the Wells Fargo Revolving Credit Facility.

Other Installment Purchases

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As of December 31, 2023, the aggregate principal balance outstanding under the Installment Agreements was $0.1 million and is payable ratably over 36 months from the time of each purchase.

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

Future Cash Obligations

Our operating cash requirements, scheduled debt and finance lease repayments and interest payments for the fiscal year 2023 are expected to be funded through current cash and cash to be provided from operating activities.

We will obtain additional funding from our Revolving Credit Facility on an as needed basis.

The table below presents our current significant cash requirements over the next five years.

Total 2023 2024 2025 2026 2027

(in millions)

Debt obligations (1)

$ 20.1 $ 7.5 $ 6.7 $ 5.9 $ — $ —

Finance lease obligations (1)

12.9 5.2 3.2 2.2 1.2 1.1

Operating lease obligations (2)

15.1 4.0 3.2 3.2 2.8 1.9

Total $ 48.1 $ 16.7 $ 13.1 $ 11.3 $ 4.0 $ 3.0

_________________________

(1) Debt and finance lease obligations include estimated interest to be paid in future periods.

(2) In addition to our right-of-use asset obligation, the operating leases include our obligations from contracts with terms of less than 12 months.

For the year ended December 31, 2023, the Company paid down the Installment Agreements by $0.4 million.

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 authorized a $35 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.

On March 7, 2023, the Company announced a share repurchase program authorizing the Company to purchase up to $35 million of Class A Common Stock that can be utilized for up to 36 months.

Additionally, the Board of Directors announced an intention to initiate a quarterly dividend of $0.05 per share.

The Board of Directors approved the initiation of the quarterly dividend, the first of which became payable on September 8, 2023 to all stockholders of record as of August 18, 2023.

Additionally, the Board of Directors declared a second quarterly cash dividend of $0.05 per share payable December 1, 2023 to all stockholders of record as of November 13, 2023.

The Company believes that a share repurchase and dividend framework provides the best overall value creation potential for investors.

On March 4, 2024, the Company announced that its Board of Directors approved for a new share repurchase program authorization not to exceed $50.0 million in aggregate value that can be utilized for up to 36 months.

Critical Accounting Estimates and Policies

Our financial statements are prepared in accordance with US GAAP.

Our financial statements are prepared in accordance with U.S.

In connection with preparing our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expense and the related disclosures.

We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time we prepare our Consolidated Financial Statements.

On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our Consolidated Financial Statements are presented fairly and in accordance with US GAAP.

However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates.

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Key assumptions used to determine the undiscounted future cash flows include estimates of future fleet utilization and demands based on our assumptions around future commodity prices and capital expenditures of our customers.

Revenue Recognition

Policy description

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.

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 has elected the right to invoice practical expedient for recognizing revenue.

The Company invoices customers upon completion of the specified services and collection generally occurs within the payment terms agreed with customers.

Accordingly, there is no financing component to our arrangements with customers.

Judgments and assumptions

Recording revenue involves the use of estimates and management judgment.

We must make a determination at the time our services are provided whether the customer has the ability to make payments to us.

While we do utilize past payment history, and, to the extent available for new customers, public credit information in making our assessment, the determination of whether collection of the consideration is probable is ultimately a judgment decision that must be made by management.

Policy description

The Company provides for income tax expense based on the liability method of accounting for income taxes.

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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.

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.

Equity‑Based Compensation

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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-K

Item 7. Management’s Discussion and Analysis