Ranger Energy Services, Inc. (RNGR) FY 2021 MD&A

Item 7. 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 elsewhere in this Annual 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 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.

Recent Events and Outlook

Business Combinations

Basic Energy Services, Inc. (“Basic”) Acquisition

On September 15, 2021, Ranger Energy Acquisition, LLC, entered into an Asset Purchase Agreement for certain assets of Basic, closing on October 1, 2021. The Company 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 located in New Mexico, Oklahoma and Texas, among others. The material financial and operating results of Basic are included within the High Specification Rigs segment, and other immaterial results are included within the

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Processing Solutions and Ancillary Services segment. Please see “—Results of Operations” below and “Part II—Item 8.—Note 3 — Business Combinations” for further information.

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.

PerfX Wireline Services (“PerfX”) Acquisition

On July 8, 2021, the Company completed the acquisition 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 into production-related services through this acquisition. The financial results of PerfX are included in the Wireline Services reporting segment.

The aggregate consideration was $20.1 million, which included 1,000,000 shares of Class A Common Stock and a Secured Promissory Note of $11.4 million. The Class A Common Stock issuance includes 100,000 shares that will be issued by the Company on the 12-month anniversary of the acquisition date.

The PerfX purchase price includes a warrant to acquire a 30% ownership in the XConnect Business (“XConnect”), which expires on July 8, 2031. XConnect is the manufacturer of a perforating gun system developed by the PerfX sellers alongside the PerfX wireline service business. The warrant requires the Company to maintain a specific minimum level of purchases of XConnect’s manufactured products. Should the Company fail to maintain the specified minimum level of purchases, a forfeiture event would occur. The Company may elect to cure the forfeiture event through a cash payment to XConnect. If the Company elects to not cure the forfeiture event, the ownership percentage would reduce to 15%. Upon the occurrence of a second uncured forfeiture event, the warrant is deemed to be cancelled.

Patriot Well Solutions (“Patriot”) Acquisition

On May 14, 2021, the Company completed the acquisition of Patriot, a provider of wireline evaluation and intervention services that operate in the Permian, Denver-Julesburg and Powder River Basins and Bakken Shale. The financial results of Patriot are included in the Wireline Services reporting segment.

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.

Coronavirus (“COVID-19”)

During the year ended December 31, 2021 and through the issuance of these financial statements, significant progress has been made to combat COVID-19 and its multiple variants, however, it remains a global challenge and continues to have an impact on our financial results. The extent of the COVID-19 outbreak on the Company’s operational and financial performance will significantly depend on further developments, including the duration and spread of the outbreak and continued impact on our personnel, customer activity and third-party providers.

While commodity prices, as well as our stock price and operational activity, have improved during the year ended December 31, 2021, we expect this global market volatility to continue at least until the outbreak of COVID-19, including any new variants, stabilizes, if not longer.

The U.S. 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 $1.1 million as of December 31, 2021 under the CARES Act, which will become due on December 31, 2022.

Internal Controls and Procedures

We and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting as of December 31, 2021. 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. The Company is working to remediate the material weakness in internal control over financial reporting and is taking steps to improve the internal control environment. Specifically, the Company is enhancing processes, and designing and implementing additional internal controls to properly account for complex transactions. Additionally, the Company is hiring additional accounting personnel and implementing training of new and existing personnel on proper execution of designed control procedures.

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We can give no assurance that these actions will remediate this deficiency 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 will not be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 until our first Annual Report subsequent to our ceasing to be an "emerging growth company" within the meaning of Section 2(a)(19) of the Securities Act.

How We Evaluate Our Operations

We provide services within the United States that are organized into three reporting segments, which include: High Specification Rigs, Wireline Services, and Processing Solutions and Ancillary Services, which are described below. The reportable segments have been categorized based on the nature of services provided in each line of business.

The reportable segments comprise the structure used by the Chief Operating Decision Maker (“CODM”) to make key operational decisions and assess performance. The CODM evaluates operating performance based on multiple measures for each reportable segment. As a result of three business combinations, coupled with executive management changes, primarily the hiring of a new chief executive officer, in September 2021, the Company reevaluated its segment reporting. Based on that review, the Company updated the reportable segments according to how the CODM reviews the financial results during the fourth quarter.

The key financial metrics the CODM reviews for each reportable segment include: (i) Revenue, (ii) Cost of Services & Depreciation, (iii) Operating Income or Loss and (iv) Adjusted EBITDA, all of which are described further below.

As a result of three business combinations, coupled with executive management changes, the Company re-evaluated the

reportable segments accordingly. During the fourth quarter of 2021, the Company bifurcated the legacy Completion and Other Services segment into Wireline Services and Ancillary Services, where the historical Processing Solutions segment has been consolidated into the Ancillary Services segment. Prior periods have been revised to conform to the current presentation.

Following such re-evaluation, our reporting segments include:

•High Specification Rigs. Provides high-spec well service rigs to facilitate operations throughout the life cycle of a well.

•Wireline Services. Provides services necessary to bring and maintain a well on production and consists of our completion and production businesses.

•Processing Solutions and Ancillary Services. Provides complimentary services often utilized in conjunction with our High Specification Rigs and Wireline Services segments. The services primarily include logistics, equipment rentals, plug and abandonment and processing solutions.

•Other. Our Other segment 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.

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 such rig hours and completed wells at which the customer is billed is generally predetermined based upon a contractual agreement.

Costs of Conducting Our Business

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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 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 revenues 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 the Other segment. 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 revenues 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 provision or benefit, depreciation and amortization, equity‑based compensation, acquisition‑related and severance costs, impairment of goodwill 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.

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Results of Operations

The Year Ended December 31, 2021 compared to the Year Ended December 31, 2020

The following is an analysis of our operating results. See “—How We Evaluate Our Operations” for how we measure our operating results and key performance indicators. 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 during the year ended December 31, 2021, as described in “—Recent Events and Outlook.” During the fourth quarter 2021, the Company re-evaluated its reporting segments and bifurcated the legacy Completions and Other Services segment into Wireline Services, Processing Solutions and Ancillary Services. As such, prior period amounts were recast to conform with the new segment reporting presentation. The information presented below is in millions.

Revenues. Revenues increased $105.3 million, or 56%, to $293.1 million for the year ended December 31, 2021 from $187.8 million for the year ended December 31, 2020. The change in revenues by segment was as follows:

High Specification Rigs. High Specification Rig revenues increased $57.6 million, or 70%, to $140.1 million for the year ended December 31, 2021 from $82.5 million for the year ended December 31, 2020. The increased rig services revenue included a 61% increase in total rig hours to 257,900 for the year ended December 31, 2021 from 160,300 for the year ended December 31, 2020. The average revenue per rig hour increased 6% to $543 compared to $514 for the year ended December 31, 2020. Of the total segment revenue increase, $29.5 million is attributable to the assets acquired in the Basic Acquisition. The increase in revenue, rig hours and average revenue per rig hour is also related to increased crude oil pricing and industry activity.

Wireline Services. Wireline Services revenues increased $38.9 million, or 49%, to $117.9 million for the year ended December 31, 2021 from $79.0 million for the year ended December 31, 2020. The increased wireline services revenue was primarily attributable to completion services which included a 96% increase in completed stage count to 27,200 for the year

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ended December 31, 2021 from 13,900 for the year ended December 31, 2020. The increase in wireline services revenue included a 229% increase in average active wireline units to 23 units from seven units for the year ended December 31, 2020. Of the segment revenue increase, $55.5 million and $11.6 million is attributable to the assets acquired in the PerfX and Patriot Acquisitions, respectively.

Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services revenues increased $8.8 million, or 33%, to $35.1 million for the year ended December 31, 2021 from $26.3 million for the year ended December 31, 2020. Of the total segment revenue increase, $8.5 million is attributable to the Basic Acquisition.

The increase in processing solutions and ancillary services is primarily attributable to a $5.5 million increase in both of our equipment rentals and plugging and abandonment services to $7.4 million and $7.3 million, respectively.

Cost of services. Cost of services (exclusive of depreciation and amortization) increased $115.4 million, or 78%, to $263.3 million for the year ended December 31, 2021 from $147.9 million for the year ended December 31, 2020. As a percentage of revenue, cost of services was approximately 89% and 78% for the years ended December 31, 2021 and 2020. The change in cost of services by segment was as follows:

High Specification Rigs. High Specification Rig cost of services increased $47.3 million, or 66%, to $118.8 million for the year ended December 31, 2021 from $71.5 million for the year ended December 31, 2020. The increase was primarily attributable to an increase in variable expenses, notably employee costs and repair and maintenance costs, which amounted to $29.0 million and $4.3 million, respectively. Additionally, the increase corresponds with the increase in rig hours and revenues. Of the segment cost of services increase, $22.3 million is attributable to the Basic Acquisition.

Wireline Services. Wireline Services cost of services increased $58.6 million, or 103%, to $115.6 million for the year ended December 31, 2021 from $57.0 million for the year ended December 31, 2020. The increase was primarily attributable to increased employee costs due to the acquisitions of PerfX and Patriot, and, to a lesser extent, maintenance costs. Of the total segment cost of services increase, $29.1 million and $5.5 million is attributable to the assets acquired in the PerfX and Patriot Acquisitions, respectively, whereas the increased maintenance costs amounted to $5.9 million.

Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services cost of services increased $9.5 million, or 49%, to $28.9 million for the year ended December 31, 2021 from $19.4 million for the year ended December 31, 2020. The increase was primarily attributable to increased variable employee costs with the upturn of operational activity, which amounted to $5.0 million. Of the segment cost of services increase, $7.6 million is attributable to the Basic Acquisition.

General and administrative. General and administrative expenses increased $11.4 million, or 52%, to $33.5 million for the year ended December 31, 2021 from $22.1 million for the year ended December 31, 2020. The increase in general and administrative expenses is primarily due to corporate employee costs and increased professional fees during the year ended December 31, 2021. The increased professional fees included $8.6 million of costs associated with the acquisitions of Patriot, PerfX and Basic and $3.8 million related to the termination of the tax receivable agreement during the year ended December 31, 2021.

Depreciation and amortization. Depreciation and amortization increased $1.8 million, or 5%, to $36.8 million for the year ended December 31, 2021 from $35.0 million for the year ended December 31, 2020. The increase was attributable to assets acquired through the business combinations during the year ended December 31, 2021. This was partially offset by depreciation expense related to fixed assets disposed of during the last half of the year ended December 31, 2020.

Gain (loss) on debt retirement. Gain on debt retirement decreased $2.3 million, or 110%, to a loss of 0.2 million for the year ended December 31, 2021, which is attributable to the settlement of the ESCO Seller’s Notes during the year ended December 31, 2021.

Gain on bargain purchase. Gain on bargain purchase increased $37.2 million, or 100%, to a gain of $37.2 million for the year ended December 31, 2021, which is attributable to the Basic Acquisition during the year ended December 31, 2021.

Interest expense, net. Net interest expense increased $1.4 million, or 41%, to $4.8 million for the year ended December 31, 2021 from $3.4 million for the year ended December 31, 2020. The increase to net interest expense was attributable to increased principal balances on our Revolving Credit Facility (as defined below), coupled with higher interest rates on each tranche of the Loan and Security Agreement that closed on September 27, 2021.

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

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tax expense, depreciation and amortization, equity‑based compensation, gain or loss on retirement of debt, gain or loss on disposal of property and equipment, severance and reorganization costs, acquisition-related costs, legal fees and settlements, TRA termination expense, allowance for AR write-offs, and gain on bargain purchase.

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. 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 or loss, our most directly comparable financial measure calculated and presented in accordance with US GAAP, to Adjusted EBITDA.

The Year Ended December 31, 2021 compared to The Year Ended December 31, 2020

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Adjusted EBITDA for the year ended December 31, 2021 decreased $9.4 million to $12.8 million from $22.2 million for the year ended December 31, 2020. The change by segment was as follows:

High Specification Rigs. High Specification Rigs Adjusted EBITDA increased $9.3 million to $21.3 million from $12.0 million primarily due to an increase in revenues of $57.6 million partially offset by a corresponding increase in cost of services of 47.3 million.

Wireline Services. Wireline Services Adjusted EBITDA decreased $19.7 million to $2.3 million from $22.0 million due to an increase in revenues of $38.9 million partially offset by a corresponding increase in cost of services of $58.6 million.

Processing Solutions and Ancillary Services. Processing Solutions and Ancillary Services Adjusted EBITDA decreased $0.7 million to $6.2 million from $6.9 million due to an increase in revenue of $8.8 million partially offset by a corresponding increase in cost of services of $9.5 million.

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Other.  Other Adjusted EBITDA increased for the year ended December 31, 2021 to a loss of $17.0 million from a loss $18.7 million due to increased general and administrative expenses, which was related to increased employee costs and professional fees. The balances included in Other reflect the general and administrative costs, interest expense, net and tax expense or benefit not directly attributable to any of our Segments.

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. Historically, our primary sources of liquidity have been cash generated from operations and borrowings under our Credit Facility. During the year ended December 31, 2021, we refinanced all of our outstanding debt and as of December 31, 2021, we had total liquidity of $18.6 million, consisting of $0.6 million of cash on hand and availability under our Revolving Credit Facility of $18.0 million.

As of December 31, 2021, our borrowing base, under the Credit Facility, increased to $45.0 million, compared to $20.7 million as of December 31, 2020, as a result of increased operational activity, and accounts receivable, during the period. 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 currently expect to have sufficient funds to meet the Company’s liquidity requirements and comply with our covenants of our debt agreements for at least the next 12 months from the date of issuance of these financial statements. For further details, see “—Our Debt Obligations.”

Cash Flows

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

Operating Activities

Net cash flows from operating activities decreased $64.9 million to cash used of $39.4 million for the year ended December 31, 2021 compared to cash generated of $25.5 million for the year ended December 31, 2020. The change in cash flows provided by operating activities is attributable to the bargain purchase of $37.2 million related to the Basic Acquisition. Also included were cash payments related to accounts payable and accrued expenses, partially offset by cash receipts related to our accounts receivable. Cash used from working capital decreased to $38.6 million for the year ended December 31, 2021 from cash generated of $4.0 million for the year ended December 31, 2020.

the bargain purchase related to the Basic Acquisition accounted for $37.2 million of the decline.

Investing Activities

Net cash used in investing activities increased $31.0 million to a use of $36.4 million for the year ended December 31, 2021 compared to $5.4 million for the year ended December 31, 2020. The change in cash flows used in investing activities is attributable to the cash used for the acquisition of Basic and Patriot assets. To a lesser extent, during the year ended December 31, 2020, there was a significant reduction to capital expenditures in response to the severe economic events that had taken place.

Financing Activities

Net cash flows from financing activities increased $97.8 million, or 404%, to cash provided of $73.6 million for the year ended December 31, 2021 compared to cash used of $24.2 million for the year ended December 31, 2020. The change in cash flow is attributable to $42 million of capital raised for the issuance of the Series A Preferred Stock, which was used to finance the purchase of the Basic assets. Additionally, with the refinancing of our debt, there were net increased borrowings under our Credit Facilities of $19.5 million and additional net borrowings of $22.4 million under Term Loans. The Company

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received $15.6 million from sale-leaseback transactions, all of which were partially offset by recurring debt payments related to Encina of $17.7 million and finance lease obligations of $5.4 million.

Supplemental Cash Flow Disclosures

During the year ended December 31, 2021, the Company acquired Patriot and PefX by issuing $16.4 million of Class A Common Stock and $11.4 million Secured Promissory Note. Additionally, the Company entered into installment agreements, thereby increasing our current and long-term debt obligations by $1.5 million and added fixed assets of $1.6 million for finance leases, all of which were non-cash additions.

Working Capital

Our working capital, which we define as total current assets less total current liabilities, was $2.5 million and $2.7 million as of December 31, 2021 and 2020, respectively. The reduction in the Company’s operational activity is due to the timing of cash receipts and payments as described above.

Our Debt Agreements

Credit Facility

On August 16, 2017, Ranger, LLC entered into a $50.0 million senior secured revolving credit facility (the “Credit Facility”) by and among certain of Ranger’s subsidiaries, as borrowers, each of the lenders party thereto and Wells Fargo Bank, N.A., as administrative agent. The Credit Facility was subject to a borrowing base that was calculated based upon a percentage of the Company’s eligible accounts receivable less certain reserves.

The applicable margin for LIBOR loans ranges from 1.5% to 2.0% and the applicable margin for Base Rate loans ranges from 0.5% to 1.0%, in each case, depending on Ranger LLC’s average excess availability under the Credit Facility. The weighted average interest rate for the borrowings under the Credit Facility was 2.3% for the year ended December 31, 2021. The Credit Facility was extinguished as of September 30, 2021 in connection with the Eclipse Loan Security Agreement, which is described further below.

Encina Master Financing and Security Agreement

June 22, 2018, the Company entered into a Financing Agreement (the “Financing Agreement”) with Encina Equipment Finance SPV, LLC (the “Lender”). The Company received an aggregate of $40 million to acquire certain capital equipment. The Financing Agreement was secured by a lien on certain high-spec rig assets.

Borrowings under the Financing Agreement bear interest at a rate per annum equal to the sum of 8.0% plus LIBOR, subject to a floor of 1.5%. As of December 31, 2021, LIBOR was 1.5%. The outstanding balance of the Financing Agreement was paid in full as of September 30, 2021 in connection with the Eclipse Loan and Security Agreement. Please see below for further details.

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 capitalized fees of $2.7 million associated with the EBC Credit Facility, which are included in the Consolidated Balance Sheets as a discount to the EBC Credit Facility. Such fees will continue to be amortized through maturity and are included in Interest Expense, net on the Consolidated Statement of Operations. The Company was in compliance with the Eclipse Loan and Security Agreement covenants as of December 31, 2021.

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Revolving Credit Facility

The Revolving Credit Facility was drawn in part on September 27, 2021, to repay existing Credit Facility, 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. Therefore, the borrowings of the Revolving Credit Facility will be classified as current maturities of long-term debt indefinitely.

Under the Revolving Credit Facility, the maximum borrowing capacity was $45.0 million, which was based on a borrowing base certificate in effect as of December 31, 2021. The Company had outstanding borrowings of $27.0 million under the Revolving Credit Facility, leaving a residual $18.0 million available for borrowings as of December 31, 2021. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to 5% in excess of the LIBOR Rate and 4% in excess of the Base Rate through April 1, 2022. The weighted average applicable margin for the loan was 5.1% for the three months ended December 31, 2021.

M&E Term Loan Facility

Under the M&E Term Loan Facility, the Company had outstanding borrowings of $12.5 million where the monthly installments commence 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 LIBOR Rate and 7% in excess of the Base Rate. The weighted average interest rate for the loan was 8.1% for the three months ended December 31, 2021. The Financing Agreement is secured by a lien on certain high-spec rig assets. The M&E Term Loan Facility is scheduled to mature in September 2025. Any principal amounts repaid may not be reborrowed.

On September 27, 2021, the M&E Term Loan Facility was drawn in full to repay existing Encina Master Financing Agreement and Credit Facility.

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 12% in excess of the LIBOR Rate and 11% in excess of the Base Rate. Term Loan B is scheduled to mature in September 2022. The Financing Agreement is secured by a lien on certain Basic acquired assets. On October 1, 2021, Term Loan B was drawn in full to repay borrowings under the Revolving Credit Facility and as of December 31, 2021 the principal balance outstanding was $12.4 million. Any principal amounts repaid may not be reborrowed.

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 December 31, 2021, the aggregate principal balance outstanding was $10.4 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 three and twelve months 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 December 31, 2021, the aggregate principal balance outstanding under the Installment Agreements was $1.0 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.

ESCO Notes Payable

In connection with the initial public offering (the “Offering”) and the ESCO Leasing, LLC (“ESCO”) acquisition, both of which occurred on August 16, 2017, the Company issued $7.0 million of Seller’s Notes as partial consideration for the

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ESCO acquisition. These notes included a note for $5.8 million, which was settled in March 2020. During the year ended December 31, 2020, the Company paid $3.8 million to settle the note and any unpaid interest, in full, and recognized a gain on the retirement of debt of $2.1 million, which is included in the Consolidated Statement of Operations within General and administrative expenses.

Future Cash Obligations

Our operating cash requirements, scheduled debt and finance lease repayments and interest payments for the fiscal year 2022 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.

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(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 for contracts with terms of less than 12 months.

Critical Accounting Estimates and Policies

Our financial statements are prepared in accordance with US GAAP. 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.

Our significant accounting policies are discussed in our audited consolidated financial statements included elsewhere in this Annual Report. Management believes that the following accounting estimates are those most critical to fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

Property and Equipment

Policy description

Property and equipment is stated at cost or estimated fair market value at the acquisition date less accumulated depreciation. Depreciation is charged to expense on the straight‑line basis over the estimated useful life of each asset, with estimated useful lives reviewed by management on an annual basis. Expenditures for major renewals and betterments are capitalized while expenditures for maintenance and repairs are charged to expenses as incurred. Assets under finance lease obligations and leasehold improvements are amortized over the shorter of the lease term or their respective estimated useful lives. Depreciation does not begin until property and equipment is placed in service. Once placed in service, depreciation on property and equipment continues while being repaired, refurbished or between periods of deployment.

Judgments and assumptions

Accounting for our property and equipment requires us to estimate the expected useful lives of our fleet and related equipment and any related salvage value. The range of estimated useful lives is based on overall size and specifications of the fleet, expected utilization along with continuous repairs and maintenance that may or may not extend the estimated useful lives. To the extent the expenditures extends the expected useful life, these expenditures are capitalized and depreciated over the extended useful life.

Assets Acquired and Liabilities Assumed in Business Combinations

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Policy description

The Company accounts for its business combinations under the provisions of Accounting Standards Codification Topic 805-10, Business Combinations ("ASC 805-10"), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. For transactions that are business combinations, the Company evaluates the existence of goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.

Judgements and assumptions

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates and the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in the acquired assets, specific risks, industry beta and capital structure of guideline companies. The valuation of an acquired business is based on available information at the acquisition date and assumptions that are believed to be reasonable. However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date.

Long‑lived Asset Impairment

Policy description

We evaluate the recoverability of the carrying value of long‑lived assets, including property and equipment and intangible assets, whenever events or circumstances indicate the carrying amount may not be recoverable. If a long‑lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long‑lived asset exceeds its fair value.

Judgments and assumptions

Our impairment analysis requires us to apply judgment in identifying impairment indicators and estimating future undiscounted cash flows of our fleets. If actual results are not consistent with our assumptions and estimates or our assumptions and estimates change due to new information, we may be exposed to an impairment charge. 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.

During the first and second quarter of 2020, the Company noted a sustained decline in stock price due to the reduced demand and oversupply of oil and natural gas, which was an indication that the fair value of the Company’s long-lived assets could have fallen below their carrying values. As a result, an impairment analysis was performed and it was determined that no impairment existed.

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.

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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.

Income Taxes

Policy description

The Company provides for income tax expense based on the liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded based upon differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. A release of a valuation allowance would result in the recognition of an increase in deferred tax assets and an income tax benefit in the period in which the release occurs, although the exact timing and amount of the release is subject to change based on numerous factors, including our projections of future taxable income, which we continue to assess based on available information each reporting period.

Judgments and assumptions

The establishment of a valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. Under US GAAP, the valuation allowance is recorded to reduce the Company’s deferred tax assets to an amount that is more likely than not to be realized and is based upon the uncertainty of the realization of certain federal and state deferred tax assets related to net operating loss carryforwards and other tax attributes.

Equity‑Based Compensation

Policy description

We record equity‑based payments at fair value on the date of the grant, and expense the value of these awards in compensation expense over the applicable vesting periods.

Judgments and assumptions

We estimate the fair value of our performance stock units using an option pricing model that includes certain assumptions, such as volatility, dividend yield and the risk free interest rate. Changes in these assumptions could change the fair value of our unit based awards and associated compensation expense in our consolidated statements of operations.

Recent Accounting Pronouncements

For information regarding new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements, please refer to Recent Accounting Pronouncements included in “Item 8. Financial Statements and Supplementary Data—Note 2 — Summary of Significant Accounting Policies”

Emerging Growth Company and Smaller Reporting Company Status

The Company is an “emerging growth company” as defined in the JOBS Act. The Company will remain an emerging growth company until the earlier of (1) the last day of its fiscal year (a) following the fifth anniversary of the completion of the Offering, (b) in which its total annual gross revenue is at least $1.07 billion, or (c) in which the Company is deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of its most recently completed second fiscal quarter, or (2) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable to public companies. The Company has irrevocably opted out of the extended transition period and, as a result, the Company will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. The Company will lose its EGC status on December 31, 2022, as this will represent the last day of the fiscal year following the fifth anniversary of our first Form S-1, which was filed in August 2017.

The Company is also a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act. Smaller reporting company means an issuer that is not an investment company, an asset-back issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that (i) has a market value of common stock held by non-affiliates of less than

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$250 million; or (i) has annual revenues of less than $100 million and either no common stock held by non-affiliates or a market value of common stock held by non-affiliates of less than $700 million. Smaller reporting company status is determined on an annual basis.