Good morning and welcome to the Ranger Energy Second Quarter 2020 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Darron Anderson, Chief Executive Officer. Please go ahead..

Thank you, operator. Good morning and welcome to Ranger Energy Services second quarter 2020 earnings conference call. Joining me today is Brandon Blossman, our CFO, who will offer his comments in a moment. When we last spoke Ranger was in the midst of materially right-sizing our business to match the needs of the market.

As we sit here today I would consider the result of that effort to have been very successful. If you recall at the time of our May 1 earnings call we had already reduced our headcount by 50%, taken across the board pay cut, shut down two unutilized operating locations and initiated a number of other cost savings initiatives.

Triggering these difficult decisions early provided a tremendous benefit to us for the remainder of Q2. First of all it lessens the demand of additional downsizing as the market continues to contract. Our headcount ultimately dropped an additional 10% by mid Q2 while only needing to consolidate one additional operational location.

Second, making our internal adjustments quickly allowed us to turn our full attention back to our customers giving us the best chance to obtain all profitable work with a focus on flawless execution.

And finally despite the velocity and intensity of this downturn our management team's extraordinary and efficient efforts allowed us to deliver Q2 results that featured both positive EBITDA and positive cash flow alongside near stable sequential segment margins.

In benchmarking this performance against an extremely challenged OFS market, I can't be more proud of the job that our team has done and I'm truly appreciative of the customers that continue to choose Ranger as a partner.

Both Ranger and our customers have been challenged across the board as demonstrated by 62% drop in revenue, but the challenges do vary across basin. We've experienced activity and revenue drops in certain basins greater than 60% plus.

In these basins customer activity dropped to almost non-existent for a period of time or market pricing eroded so badly that Ranger opt to not even participate. Conversely in other markets the reduction in activity was still severe but remain closer to a 50% drop with better pricing discipline.

Regardless of the various basin dynamics overall Ranger is benefiting from our operational and financial positions upstream resulting in market share gains during a declining market. Our Q2 results are truly – [actually] reflection of our high quality operations and discipline cost management.

We maintain positive adjusted EBITDA and cash flow through each month of the quarter. Our two largest business lines, High Spec Rigs and wireline were able to hold segment level margins at pre-downturn levels; an exceptional achievement.

Brandon will walk you through the details in a moment but our ability to deliver this type of margin performance, generate cash and pay down debt by 35% in arguably one of the worst quarters that our industry has ever experienced truly demonstrates the capabilities of the Ranger platform.

While it is far too early to call a recovery underway our business has come off the trough experience in late May. I will provide some of these details as I now walk you through our segments, specifically starting with High Spec Rigs. For the quarter rig hours were down 61% and composite rig rates down 17%.

While rig hours are self-explanatory, the change in composite rig rate was predominantly driven by a higher rate four rig completion packages coming to a near end in Q2. While I would not discuss absolute figures at the trough of our rig activity during Q2, 24-hour completion work dropped to approximately [3%] of our total rig activity.

As we sit here today our overall rig activity is up approximately 40% from our trough with 24 activity returning closer to historical norms of approximately 10% of our active rigs. While these increases read and fairly large please remember I'm referencing our absolute low activity mark.

The point I'm making is our rigs are measurably going back to work and barring a macro driven reversal the worst is behind us.

One other item on the rig side, we continue to pursue our strategy of customer alignment specifically with [IoT] again our operational and financial strength is paving the way for these conversations and negotiations to take place. We hope to have more to share in coming quarters on the success of this strategy.

Moving on to our completion services and other. On our last call I stated that our Mallard wireline group ended the month of April with five dedicated wireline trucks running. That number further declined and bottomed at four in late may.

Dropping from an average of 11 trucks in Q1 to trough of four all due to completion stoppages and not pricing was a material hit. The only positive metric for Ranger in this data is the Permian frac count dropped to a low of approximately 20 spreads as published by outside sources. This equates to a 20% market share for Mallard group.

I believe this demonstrates the quality of services we historically intend to bring to our customers. Currently I'm very pleased, our dedicated active truck count is back up to six as our work continues to resume with some of the strongest Permian ENP operators.

Rounding out our completion services in other segments as would be expected our smaller other services within this segment also experienced activity and revenues declines. The declines experienced here were comparable to our rig and wireline activity changes. And finally our processing solution segment.

Given the activities clients experienced by this segment in earlier quarters, the performance of this business had already endured a large portion of its challenges and therefore held up relatively better than our other segments.

While our reported revenue was down this was materially driven by lower mobilization and demobilization charges which produced a smaller margin than our recurring rental revenue resulting in an increase in gross margin relative to last quarter. Before I turn over to Brandon I want to close with this.

The results reproduced this quarter were the products of strong operations, a great balance sheet and a culture of prudent and efficient decision making. These are things that are not created in a single quarter but over time.

So while it was a very tough quarter rangers capabilities were on full display showing that we built an organization that can withstand the most difficult markets. Brandon I will now turn over to you for the details on the numbers..

Thank you, Darron and good morning to everybody on the phone. Let's go ahead and get started with a walkthrough of all the second quarter details. First, the consolidated numbers, relative to last quarter Q2's revenues were down 62% or approximately $50 million moving from $81 million for the quarter for Q1 to $31 million for Q2.

Adjusted EBITDA was down 72% or $8.2 million moving from $11.4 million to $3.2 million in Q2. While adjusted EBITDA margins move down from 14% to 10.4%. A quick note on the bridge to adjusted EBITDA here the as adjusted result does back out $1 million of severance and restructuring charges for the quarter.

As Darron noted we believe that we are done with our resizing efforts and do not expect to incur any further severance costs in the second half of the year. And now moving down to the segment level and starting with revenue.

Quarter-over-quarter revenues saw a decrease across all segments specifically high spec rig revenue was down 67% or $23.5 million moving from $34.9 million to $11.4 million in Q2. This is the combined effect of a reduction in period rig hours and a decrease in the composite rig rates.

Revenue hours declined 61% or 37,800 hours moving from 62,400 to 24,600 hours and as Darron mentioned composite hourly rig rates declined 17% or $95 an hour from $558 an hour to an average of $463 an hour in Q2.

In the completion and other services segment revenue was down 59% or $26 million moving from $43 million to $18 million with both the wireline and other non-wireline services seeing declines.

Here within this segment wireline revenues were down 60% sequentially driven by a 53% decrease in period stage count and a 14% decrease in composite price per stage. While the drop-off in other non-wireline service lines was largely in line with regional market dynamics.

And finally at our Processing Solutions segment revenues here were down 43% or $1.2 million moving from $2.8 to $1.6 million with the majority of that decline driven by the lack of lower margin mobilization demobilization revenue. And now moving to the segment level EBITDA and margin percentages.

Overall segment level EBITDA this is before corporate G&A saw a decrease of 58% or $10.5 million moving from $18 million to $17.5 million. Again all segments contributed to this decline.

On the margin front consolidated segment margins were actually up from 22% to 24% and now to disaggregate those two numbers down into the segment level, High Spec Rigs, adjusted EBITDA was down 66% or $3.3 million moving from $5 million to $1.7 million with margins here holding flat at about 14.5%.

Completion and other services saw adjusted EBITDA down 60% or $7 million moving from $11.6 million to $4.6 million and here margins were down just slightly from 27% moving down to 26% in Q2.

Processing and solutions adjusted EBITDA decreased just 8% from $1.3 million to $1.2 million while segment margins were materially up from 48% in Q1 to 75% in Q2.

As Darron noted, the margins associated with this service revenue, the primary driver of the decline in revenue was much lower than the base businesses rental margin and as such the revenue decrease here had a materially disproportionately small impact on the absolute segment margin and drove a positive impact on the gross margin as a percentage of revenue.

Moving on to G&A expense, as adjusted G&A expense was down 23% year-over-year and down 34% sequentially moving from $6.5 million to $4.3 million in Q2, this reflecting the impact of our recent right-sizing efforts.

And finally on the net income line for Q2, we reported a net loss of $8.9 million a $11.7 million decline versus Q1's income of $2.8 million. This decrease in net income that was incremental to the adjusted EBITDA decline was driven by Q2's lack of Q1's $2 million gain on the retirement of debt and Q2's severance and restructuring expenses.

Now moving on to cash flow and the balance sheet. During Q2, $16 million of cash flow from operations was offset by less than $1 million of cash CapEx expense which drove a net sequential decline in our net debt number of $15 million.

At the end of Q2 our net debt and this is inclusive of all our vehicle leases stood at $28 million again down $15 million dollars from Q1's ending $43 million balance. At the end of our quarter our term debt balance stood at $22 million down the usual $2.5 million from Q1's balance.

Total CapEx recorded for the quarter was less than $700,000 which breaks down into $200,000 of maintenance CapEx that is maintenance CapEx across all of our business lines and $500,000 related to the final payments on two wireline trucks ordered at the very beginning of this year along with payments on a new prototype gas processing unit.

We also added $300,000 in non-cash lease obligations for the renewal of some of our IT infrastructure.

On the liquidity front, we ended the quarter with $11 million of liquidity which consisted of $6 million worth of cash and $5 million worth of capacity on our revolver that is down $11 million from Q1's $22 million of liquidity which was driven by the reduction in borrowing base as our accounts receivable balances declined through the quarter.

At our release date our revolver was undrawn and our availability stood at $10 million with a cash balance of about a million dollars. That's all for me and I'll shoot it back over to Darron for his concluding comments..

Thank you Brandon. I will wrap up with a few brief comments. Ranger in our entire industry has a steep climb ahead of us but with our business showing signs of improvement and our cost remaining highly contained, we are cautiously optimistic about the future.

The increase in activity that we've experienced thus far combined with the expectation of one to two additional wireline trucks being deployed over the next month and a handful of well service rigs scheduled returns to work in early August all point to modest improvements.

We believe our suite of services allow us to participate in the return of delayed well maintenance work as well as the completion of DUC well and improving commodity price environment.

Additionally, the depth of its downturn has placed an unbearable burden on many of our competitors which has and should continue to translate into further market share gains for Ranger. As to consolidation, historically we have taken a particularly disciplined approach to merger and acquisition opportunities and do not expect that mindset to change.

However, we do know the opportunity set today is a multiple of what it was at beginning of the year and post downturn we feel that the likelihood of executing an attractive transaction has materially increased.

While we continue to work through an extraordinary challenging period in our industry, our team has demonstrated that we are up for the challenge and we are determined to emerge even better and stronger. Operator this concludes our remarks and will now open up the call for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question will be from Daniel Burke with Johnson Rice. Please go ahead..

Yes. Good morning guys..

Good morning, Daniel..

Let's see. Darron, I mean you made a point to mention not to get too caught up with the measurement of activity, I think on the well service side up 40% from your absolute low but I'll still ask, was that a single day measure? Are you measuring a single day trough or weekly trough or a monthly trough? Just trying to measure what's going on..

No. That's going to be from weekly trough. So we have the daily metrics and we actually, I can tell you exactly we reached the trough beginning at the third week of May that lasted through about the first week of June and so it's referencing really that first week of May with our absolute trough in the next comparable to ask we say here today.

So I mean our data shows us across the organization we hit a three-week low during that time period..

Okay. All right. That's really helpful way to contextualize it and help me see the progression. I appreciate that.

There may be one on Mallard side encouraging to see that that truck count nudged back, touch higher, I was just -- just curious, can you speak to any visibility that you have today for further increase as you look into a little later into Q3?.

Yes. So we have our information from our customers and that is subject to change but my comment was we expect to see one to two additional load-outs. So if I'm saying one to two I probably feel fairly confident about that. So we do have some visibility above where we're sitting here today that we expect to occur here over the next 30 days..

Okay, great.

Maybe I missed that little piece and then maybe just the last one Darron for you or for Brandon, can you just talk about you guys are doing great job in the second quarter of generating free cash flow and with activity nudging back up here, I would assume that that does look like it will continue but talk maybe just a little bit about the comfort you have with your liquidity level at present?.

So we would love to have more liquidity. We are comfortable with it as it currently sits and certainly comfortable with it as it interfaces with our near-term forecast.

Having said that we will continue to pull levers to ensure that we have even a better cushion as we move forward and I probably don't want to get into too many details but we have at least two easy opportunities to increase that liquidity profile as we move forward leveraging one some of the assets, some of the properties that we own, some of them turn out to be quite valuable and then two I think you'll see us continue to whittle down our light duty vehicle fleet.

It's materially bigger than it needs to be as we look through the next 12 months of activity..

Okay. All right guys. Well, look again nice quarter and I'll leave it there for now..

Thanks for the questions..

The next question comes from John Daniel with Simmons Energy. Please go ahead..

Guys, [indiscernible] but hey Darron, a lot of times we talk about consolidation tend to focus on well servicing just because that's so fragmented but when you look at your wireline business that continues to do fantastic even in a completely crappy Q2.

Do you make more sense this [indiscernible] in terms of consolidation opportunities on wireline?.

John, when we talk about consolidation we're not specifically talking about rigs, not that rig is excluded from the conversation but we're definitely not talking exclusively rigs. I think we're looking at all services on the production and completion site. Wireline being specifically included in that.

So we don't have exposure to the drilling market right now. That market it's very, very depressed but there are opportunities potentially to get in that market to write an upside potentially a back half of ‘21/’22. So I think there's nothing that's off the table right now. We're going to be very, very selective.

I think we've got a suite of services that we've proven our fairly asset like, can reduce cash flow, operates with variable cost structures and we want to stick with that type of structure. So wireline definitely fits that model. We're going to focus on these higher margin bits just like we have..

Okay. Fair enough. Well, another one for me is on the labor front as you guys are starting to put rigs and equipment back to work, can you just speak to the labor issues if any? It seems like some companies have talked about and ability to find people because of the disparity and unemployment benefits.

Can you just give us your experience in the last few weeks?.

Yes. I think at first we had to make some very difficult decisions early on in our downside and as our results show we're [recruiting] and making those decisions efficiently right but we parted ways with a lot of good team members.

Unfortunate to say that with the activity increases that we've seen thus far on the wireline and the rig side we've added back approximately 50 employees. We've not had any issues of getting these employees back. Majority of them are individuals who were with us previously. So right now we're not seeing any issues there.

We don't foresee any issues that relates to wrapping back up being that it's happening at a modest level..

Okay. That's all for me. Thanks guys..

Great. Thank you for the question John..

Ladies and gentlemen this concludes our question-and-answer session. I would like to turn the conference back over to Darron Anderson for any closing remarks..

I just want to thank everyone for their participation today and I truly want to thank all of our wonderful team members who have endured a very difficult but have done an outstanding job and again I can't be more proud of you. So thank you very much..

And thank you sir. The conference has now concluded. Thank you for attending today's presentation. You may not disconnect..