Ranger Energy Services, Inc. (RNGR) FY 2023 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. 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.

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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 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. 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. 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

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 within each line of business.

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:

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•High Specification Rigs. Provides high specification 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, production and pump down service lines.

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

•Other. Other represents costs not allocable to the reporting segments and includes corporate general and administrative expense and depreciation of corporate furniture and fixtures, amortization, impairments, debt retirements and other items similar in nature.

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. 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.

Costs of Conducting Our Business

The principal costs associated with conducting our business are personnel, repairs and maintenance, general and administrative, and depreciation expense.

Cost of Services. Our primary costs associated with our cost of services are related to personnel expenses, repairs and maintenance of our fixed assets and, 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 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. A key component of personnel costs relates to the ongoing training of our employees, which improves safety rates and reduces attrition.

General & Administrative. 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

We analyze our operating income or loss by segment, which we have defined as revenue less cost of services and depreciation expense. We believe this is a key financial metric as it provides insight on profitability and operational performance based on the historical cost basis of our assets.

Adjusted EBITDA

We view Adjusted EBITDA, which is a non‑GAAP financial measure, as an important indicator of performance. We define Adjusted EBITDA as net income or loss before net interest expense, income tax expense, 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. 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 generally accepted accounting principles in the United States (“U.S. GAAP”).

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Results of Operations

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

The following is an analysis of our operating results. See “—How We Evaluate Our Operations” for definitions of rig hours, stage counts and other analogous information, as well as key operating metrics.

Revenue. 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. The change in revenue by segment was as follows:

High Specification Rigs. 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 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 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 plugging and

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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. As a percentage of revenue, cost of services was approximately 84% and 83% for the years ended December 31, 2023 and 2022, respectively. The change in cost of services by segment was as follows:

High Specification Rigs. High Specification Rig cost of services 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, 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 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 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 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 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 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. 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.

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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 (“U.S. GAAP”). 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 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. 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 to Adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

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

The following is an analysis of our Adjusted EBITDA. See “Item 1. Financial Information—Note 15—Segment Reporting” and “—Results of Operations” for further details (in millions).

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Adjusted EBITDA for the year ended December 31, 2023 increased $4.9 million to $84.4 million from $79.5 million for the year ended December 31, 2022. The change by segment was as follows:

High Specification Rigs. 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 $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 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.  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. The balances

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

Liquidity and Capital Resources

Overview

We require capital to fund ongoing operations, including maintenance expenditures on our existing fleet and equipment, organic growth initiatives, investments and acquisitions. Our primary sources of liquidity have historically been cash generated from operations and borrowings under our 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 “— Debt Agreements.”

Cash Flows

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

Operating Activities

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 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 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 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, 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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Working Capital

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. 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”).

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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

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

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

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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

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.

Judgments 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.

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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 U.S. 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”

Smaller Reporting Company Status

The Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act. Smaller reporting company means an issuer that is not an investment company, an asset-back issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that (i) has a market value of common stock held by non-affiliates of less than $250 million; or (i) has annual revenue 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.