Good day, and welcome to the Ranger Energy Services Second Quarter 2021 Conference Call. At this time, all participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Bill Austin, Chief Executive Officer. Please go ahead..

Patriot and more recently, PerfX, expanding our wireline fleet with newer, high-quality equipment, broaden our geographic footprint and strengthening our service offerings. We are currently in the process of integrating these companies into our existing business and are already experiencing cost synergies and early cross-selling successes.

We are looking forward to demonstrating the earnings power of this newly expanded fleet in the quarters to come, and I'll talk a little bit more of that in additional remarks.

On the M&A front, as our results begin to reflect the positive impacts of these first two acquisitions, we expect to gain further market acknowledgment that Ranger's combination of low-cost, efficient overhead, cash flow-focused operations and clean balance sheet is the right platform to preserve -- pursue further energy industry consolidation.

I'll touch on this theme again, and we'll finish my prepared comments today with an announcement on a pending corporate structure change. But in the meantime, we have a fair bit of ground to cover. As I said, there's plenty to talk about with our acquisitions, the quarter results and our outlook.

But I expect there are also questions about our CEO transition, so I'd like to address that right off the bat. On this point, most importantly, you should see no change to Ranger's overall strategy.

With the two wireline transactions now closed, we are just beginning to see the result of the last three years of strategic groundwork led by Darron, and many thanks to Darron for that. We, as a Board and management team, expect to continue to move forward along the same strategic path regardless of who is in the CEO seat.

On the CEO search specifically, the Board is working through an evaluation process and is considering both external and internal candidates. This process is moving along its planned time line, and frankly, I expect to reach a conclusion within this current quarter. Now talking about our strategy.

As to our strategy, to be clear as possible on this point, I'll take a minute to articulate the bullets that outline what we are working towards with Ranger. One, it's a focus on long-term, sustainable cash flow. This is the lens through which all capital allocation and operational decisions are made. Two, we have an efficient low-cost G&A structure.

We deploy systems, allocate people and design processes to maximize the value of each dollar of our SG&A spend.

Note with our two recent acquisitions, we are sitting at approximately a $350 million revenue run rate, which when we compare to an $18 million forecasted 2021 G&A expense, returns about 5% of revenue SG&A burden, a rate half of our peer group spends. And three, a clean balance sheet.

We acknowledge that there is a higher theoretical cost of capital with an unlevered balance sheet. But in our minds, the practical reality of distress at the bottom of the cycle far outweighs that concern. Our target leverage remains a net debt zero. Additionally, our acquisition strategy has been fixed and simple.

We are focusing on potential counterparties with top-tier assets who have a reputation for best-in-class service quality. We are looking at both bolt-ons to our existing service lines and complementary service lines that extend our current core service offerings. As we have said before, tactically, we believe in being opportunistic.

There's a right time and a wrong time in each cycle to be acquisitive. And as we have noted before, what proves to be the right timing decision in the long run is often counter to the consensus thinking at the time. Now before talking about the quarter's segment results, I'd like to spend a few minutes on our recent acquisitions.

The strategic intent underlying both of these acquisitions was to increase the scale and scope of our existing wireline business. Consistent with our acquisition strategy, both Patriot and PerfX have a reputation for best-in-class service quality, along with a top-tier asset base.

Frankly, as an added benefit, we have also inherited two teams of exceptional people with deep technical skills and innovative, nimble cultures. To provide some more background on these transactions, I'll note that we've spoken for multiple quarters about the unsustainability -- unsustainable low wireline pricing we've seen in the market.

Some competitors continue to bid work at near variable cost, even little to no margin, to support a management structure. Excellent small to midsized organization carrying proportionately high G&A cost structures have been and are still actively looking for consolidation opportunities.

Our Mallard business with its proven operating success and streamlined, efficient cost structure has risen to be a consolidation partner of choice for these organizations.

With our two recent acquisitions, we are pleased to be participating in those consolidating efforts that add technology, scale and geographical diversity to our existing efficient platform. I would also note that we've expanded our customer base dramatically from around three in the Permian Basin to 27 or greater across our spectrum.

Again, I won't repeat all the detail we shared in the wireline press release, but we do want to add some incremental thoughts. We were able to accomplish these transactions at exceptional value points. For example, we spent $1.6 million per wireline truck to organically create Mallard plug and perf wireline business.

The combined purchase price for Patriot and PerfX came in at a per truck cost of approximately $500,000 or about 30% of newbuild cost. The combined revenue of these two platforms was $260 million in 2019. It has now a current run rate of $150 million.

While we would need to see both a step change in activity levels and pricing to return to those 2019 levels of revenue, we do believe that moving back to a 20% segment level margin is very achievable through some modest price increases and cost savings as we move into next year.

In addition to the G&A expense synergies, we are anticipating revenue synergies coming from cross-selling. This is across the plug and perf and intervention work customers from a per-stage price rationalization and from the potential incremental customer adoption of the lower-cost XConnect gun system.

We did bring on some incremental debt with the second post -- with the second PerfX acquisition. I'll note this is $11.4 million balance is more than fully collateralized by the PerfX asset base, and as such, we do not see this as driving any incremental risk to the Ranger balance sheet. The integration of both these companies is moving along nicely.

Combined, we have onboarded almost 320 new largely field-level wireline employees, increasing our headcount by almost 40%, and we are well underway to combining systems and processes with the goal of creating a single, fully integrated, multibasin wireline platform.

Now with that, talking about the wireline, let's talk a little bit about the second quarter because it was a busy one. In April, we did close a $13 million sale leaseback transaction of our DJ Basin facility, which we discussed in our quarter one earnings call.

In May, we announced the Patriot acquisition and just outside quarter two in early July, we announced the acquisition of PerfX. Now let's talk a little bit about the segments.

At the segment level, our High Spec Rig business continues to see the combination of both hours and pricing increases, again, indicating that our growth is not coming at the expense of customer quality or undercutting competitor pricing.

Rather this is the continued manifestation of the groundwork we have been laying over the last three years in high-grading our customer base to those top-tier clients that are willing to pay for service quality rather than just seeking the lowest quoted rate.

Sustainable pricing that supports training, maintenance and acceptable return levels is good for the entire industry, both E&P and service providers. But back to the quarter. With the weather interruptions in the first quarter, we saw a pause in the high-spec rig growth. That pause, however, was not repeated in the quarter two.

The second quarter had us returning to the type of growth rates that we are seeing towards the end of last year. We deployed more rigs, worked more hours per rig and saw pricing gains, resulting in a 34% sequential revenue increase. Our rig rates on a per rig hour basis posted the highest number we have seen in our post-2017 IPO configuration.

While we have seen rig-only rates move higher off last year's trough, this record rate is more the result of an increased level of ancillary equipment being deployed at the well site rather than any dramatic increase in the base rig rate.

As a side note, while our full package rates are acceptable, we believe there is plenty of economic rationale for bare rig pricing to continue to move up as current market rig rate-only rates provide little return on investment for the sector. The operating -- the last metric I want to highlight is the trajectory of our high-end 24-hour rig activity.

At year-end, last year, we were running five 24-hour rigs. At the end of quarter one, we were at seven. And at the end of quarter two -- during the quarter two, we were between 13, and we are currently running 15.

At the -- on the expense side in quarter two, we again saw increased costs associated with the ongoing activity ramp, with incremental make-ready expense totaling $980,000 for the quarter. Here it's interesting to note that those increased costs occurred in April and May, while June saw no incremental make-ready expenses.

Segment margins for the first quarter came in at a reasonable 17%. However, June, with the absence of make-ready costs, printed a 23% gross margin. This is a result that we are currently running through our forecast, but one which we will strive to repeat in the current months -- or in the coming months, I should say.

Now moving on to Completion and Other Services segment. Starting with our legacy Mallard wireline business. During the quarter, our wireline business saw little change in the revenue line. We averaged six trucks, which is down slightly from quarter one 6.3 average number.

However, these trucks were a bit more productive on average, resulting in little sequential revenue change. We did see a sequential decrease in margin, largely driven by a 5% increase in per gun perforating expense.

I'll note that this gun price increase was largely an artifact of inventory accounting rather than a structural gun price change in the second quarter. Our reported results include 1.5 month of contribution from Patriot and no contribution from PerfX as that close occurred post quarter.

However, as a stand-alone business, if we were to look at both businesses, their combined revenue, that is PerfX and Patriot, were up 15%, moving from a quarter one run rate of $30 million to a quarter run rate of $34.5 million and holding at a roughly 13% gross margin.

Our other non-wireline businesses in this segment are DJ Basin focused, and as such, we've not seen much of a recovery as the other basins have seen. Here, quarter 2's revenue and margins were not materially different from that of quarter one. Moving on to the Process Solutions.

In our Process Solutions business, revenue was up just slightly for the quarter as we have seen success in recontracting our gas cooler units, moving up to a 94% utilization rate. Renewal rates are somewhat a bit lower than 2019 and on previously contracted rates.

With our mechanical refrigeration units, our MRU fleet, we continue to press into the frac business and have had a handful of units in service each month. This developing line of work is much more cyclical in nature and has been slower to grow than we had originally expected.

We saw little change quarter-over-quarter with our MRU fleet in terms of either revenue or margin. I know that's a lot, but let me turn the call over to Brandon. I do have some closing remarks, and I do, again, I want to talk about the corporate structure change.

Brandon?.

All right. Well, thank you very much, Bill, and good morning to everybody on the call. Let's go ahead and do the standard walk-through of the second quarter details and numbers. First, for the consolidated numbers. To recap, Q2's consolidated revenue was $50 million, that was up 30% or $11.7 million as compared to Q1's $38 million.

Adjusted EBITDA came in at $2 million flat. That's up $2.2 million from Q1's $200,000 loss. And also note that, again, like in the first quarter, embedded in and reducing this quarter's EBITDA is incremental make-ready expenses, as Bill noted, of $980,000. And again, that is associated with high-spec rig reactivations and make-ready and upgrades.

Now moving on to the segment details on revenue. High Spec Rig revenue was up 34% or $7.3 million, moving up from $21.7 million to $29 million in the second quarter, the result of both the increase in rig hours and an increase in composite rig rates. Specifically, revenue hours increased from 43,200 in Q1 to 50,100 hours in Q2. That's a 16% increase.

Q2's average rig count was up 5.5 rigs or 8%, moving from 65 rigs to 71 rigs. And the quarterly average composite hourly rig rate was up 19% or $94 an hour moving from $493 an hour in Q1 to, as Bill noted, a record $587 per hour in Q2. That is a high watermark, that rig rate, a high watermark for Ranger since the inception essentially of the business.

And though this is not on the back of a significant bare rig by customer rates, but rather the result of larger rig packages, as Bill mentioned, that increase in pricing was a mix shift towards, again, higher rate full ancillary packaged 24-hour rig -- 24-hour work, sorry.

And then to kind of add on to Bill's comments about the 24-hour work cadence of increases, Bill talked about the incremental rigs. I'll talk about the incremental hourly makeup of our total hours that is attributable to 24-hour rigs. So going over the last three quarters, in Q4, 24-hour work made up 26% of the total rig hours.

In Q1, that number moved down to just 19%, driven by February's weather interruptions. However, in Q1, we ended that quarter in March, having 35% of the rig hours tied to 24-hour work. And for Q2, that average moved up from 35% to a full quarter average of 39%. And that is approximately where it sits here today in July.

Now moving on to the Completion and Other Services segment. Revenue here saw an increase of 28% or $4.3 million to just under $20 million in Q2, up from $15.5 million in Q1. However, the majority of that $4 million revenue increase -- $4.3 million revenue increase came from the Patriot acquisition.

Again, Patriot was a mid-quarter acquisition, and $2.3 million of revenue came with that acquisition. The balance of that increase, quarter-over-quarter, of revenue was spread between other non-wireline services and our legacy Mallard business, with both of those business lines showing some modest increase.

And finally, at our Processing Solutions segment, revenue here were up a modest $100,000, moving from $1.1 million to $1.2 million. Now moving to segment-level EBITDA and margins. Overall, segment level adjusted EBITDA, this as always, is before corporate G&A, came in at $5.9 million.

That's an increase of $40 million -- or 40% or $1.7 million, moving up from Q1's $4.2 million print. High Spec Rigs showed strong gains, those gains partially offset by declines in the Completion and Other Services segment and the Processing Solutions segment.

On the margin front, consolidated segment margins, again, before corporate G&A, moved up from 11% in Q1 to 12% in Q2. G&A expense as adjusted was down $0.5 million from $4.4 million in Q1 to a $3.9 million print in Q2.

This sequential decrease largely in line with the historic first-of-the-year peak expenses, and that's associated typically with employment tax and other nonperiodic expenses showing up in Q1 that don't reoccur in Q2 or for the rest of the year. And now at the segment level EBITDA.

For High Spec Rigs, segment EBITDA increased 85% or $2.3 million to $5 million in Q2, up from a $2.7 million number in Q1, with margins moving up from 12% to 17%.

As with the last couple of quarters of growth, we saw material amounts of spending within the quarter related to customer-requested upgrades of those rigs and other reactivation make-ready costs. In the second quarter, as Bill noted, and I noted earlier that make-ready costs totaled $980,000.

If you'd like to add that incremental expense back to the results to get more to a steady-state-type EBITDA, that would result in a $6 million segment EBITDA and a 21% segment margin, again, levels that rank at the very top end of our historic range. At Completion and Other Services, EBITDA was down $300,000, moving from $0.9 million to $0.6 million.

Margins here were down from 6% to just 3%. As we've talked about, this is the result of continued weak completion pricing. And finally, Processing Solutions EBITDA was down $300,000 to $300,000 in Q2, moving down from that $600,000 mark in Q1. Segment margins here were down to 30%. Moving on to net income.

For Q2, we've reported a net loss of $9.1 million. That is an $800,000 incremental loss versus Q1's loss of $8.3 million. Embedded in this loss and adjusted out of our adjusted EBITDA was $900,000 of legal and other transaction fees related to our two acquisitions.

Also note that the reported loss in Q1 was partially offset by the benefit of a $1.4 million 401 forfeiture recapture, a benefit which obviously did not reoccur in the second quarter. Now moving on to balance sheet items.

Net term debt dropped $2.8 million over Q2, moving from Q1's ending balance of 300 -- 3 million -- let me try one more time, $30 million to $27 million at the end of the second quarter.

This move was largely the net effect of the $12 million of net cash proceeds from our facility sale leaseback transaction, which was partially offset by the working capital build associated with the $12 million or 31% Q-over-Q revenue increase.

As usual, we reduced our term debt another $2.5 million during the quarter, bringing the Q2 ending balance down to $12.7 million. CapEx. Maintenance CapEx was significantly higher this quarter, coming in at $800,000 versus a recent $200,000 run rate.

The majority of this is really a timing phenomenon associated with our High Spec Rig segment and, again, largely related to the ancillary equipment asset base. So most of this is timing. We've been running very low maintenance CapEx numbers, so this was a bit of a catch-up relative to that $200,000 run rate.

However, as we go forward and a little bit in this quarter, we'll note that with essentially all of our high-spec ancillary equipment running and being out in the field, we would expect this maintenance CapEx number to move up as we go forward because of the high levels of utilization of that ancillary asset equipment fleet.

On the growth CapEx side, our cash spend was $1.1 million. That was -- actually, the majority of that was for some downhole tools on the wireline intervention side, our new Patriot acquisition, and there was also some incremental pieces of ancillary equipment purchased for high-spec rigs.

Also, we added some incremental pickup trucks to our fleet, spending almost $500,000. However, this is on a noncash, leased basis. Moving on to liquidity. We ended the quarter with $16 million of liquidity. That consists of $13 million of capacity available on our revolver and $3.4 million of cash.

As noted earlier, that $3 million -- that was a $3 million uptick from Q1, ending $13 million of liquidity. With that, I'll end my comments and hand it back to Bill..

A shares and B shares, with the B shares being associated with a tax receivable agreement, or a TRA, which was put in place at our IPO. We are currently in discussions and expect to have a final agreement within days to terminate the TRA and to convert the outstanding B shares to A share common shares.

Importantly to note, this is not driven by any desire of our largest shareholders to reduce their position, but rather by our joint desire to simplify our equity structure and to better position ourselves for further consolidation.

I know I've been a little bit long-winded, but with that, I'll close my prepared remarks and hand it over to the operator for any questions.

Operator?.

[Operator Instructions] The first question comes from Jason Bandel with Evercore ISI..

Thanks for all the detailed commentary in your prepared remarks. That was really helpful. Let me start on the wireline side. Just following your two acquisitions here, you obviously have a much larger presence now in the market with 55 wireline trucks and exposure to multiple basins.

Can you talk about how you see the competitive landscape evolving for the industry and the role you hope to play? And also, can you touch on kind of the strategy here to improve margins in the business in case pricing remains at the competitive levels it's at that today?.

That's an interesting -- look, there is still a lot of competitors in the wireline business, small and a couple of large ones. As we said in the prepared remarks, many of these small operators, frankly, we believe, lived and died on the PPP. They priced things that keep them alive and trade dollars.

We think by signaling, and more than signaling that there's consolidation, and we think there'll be other players that will try to consolidate. Look, we don't want to have a presence that's -- I mean, our size is a good size now. We think we can get a good return.

We think our cost efficiencies are such that some of the smaller players will see this as a way to -- for them to press price and some of our larger players as well. And again, we're not here to throw a lifeline to everyone out there, but we think there's momentum with the activity levels and the need to bring on more people.

We think because we have such -- we brought on so many people and all high quality, we think that alone will help us on the price front. And from the cost front, our SG&A number, when we bring these over look, look, we have systems here that are not the big Oracle and all these high-priced ERPs.

We have very simple systems that can build, they can bring on people that can help train that are -- or screen. We want to run this company in the public world, frankly, like a mom-and-pop company. That's what we can handle, and that's what the business demands. We think that effort both in the wireline and the high-spec rig will give us some returns.

Look, we don't think the wireline pricing or for that matter, high-spec rig pricing, is going to get back to generate newbuild activity. In fact, we certainly wouldn't count on that. But we do think it can give us much more and adequate returns on our base of equipment right now.

So that's not exactly the precise answer that you want, but certainly, we're trying to signal. And I think the signals are out there that we've got to have a little bit more price in that particular market. And frankly, same thing is true with the high-spec rig market. Look, we've got big packages out there.

We think they're great value to our customers. We've seen the smaller rig packages are starting to get better pricing. And frankly, the bare rig pricing is showing some increases so that people can get a fair return on what the value of their existing PP&E. But again, we don't expect to go back to newbuild pricing or newbuild margins.

Brandon, I know I run-off.

Do you want to add anything to that long-winded answer?.

You make it a longer answer, but I'll hit a couple of things.

One, Jason, I mean, I think we've been pretty vocal about we think that, structurally, that the pricing in the industry does not support our smaller competitors and, therefore, they will either go away through attrition or will get pricing so that we can actually support a reasonable-sized wireline fleet here for the E&P industry.

So it would be tough for us to continue along, in our analysis, at this level of pricing. However, if it does, we will be set up to survive and outlast the competitor base, particularly the smaller competitors. So....

And we make money here now..

And we make -- yes..

It's just not enough..

We make money here. We make money here post our acquisitions because our SG&A structure is a fraction of what a smaller-sized company -- wireline company would be. And you said 55 trucks. That's our incremental count. So we have a total of 68 trucks right now available to work out in the field. So the problem -- there's only four variables here.

One is the management structure, the SG&A costs associated that gets spread out over a certain-sized fleet. It is labor costs. It is gun costs and then offset by pricing. So we've done two of those things. We've given ourselves an option for a lower-priced gun system. If we need to pull that trigger, we will pull it in earnest.

Hopefully, we don't need to build that gun system immediately over all of our fleet, but that certainly is a possibility. We solve for the management structure SG&A costs. Labor will be an artifact of pricing.

We can't -- right now, there's not been a -- certainly, not a full recovery of labor costs relative to Q1 2020 for the wireline business because pricing is so far down. So labor costs will be a variable that will be tied straight to pricing. And then all that's left is to put [pricing]..

And I would add. We're going to keep going here. You opened up what we talk about here almost every day. But we've already seen trucks and personnel -- because we have exposure to different basins and different types of work, we've moved some of our equipment, our trucks, our people.

Before with Mallard, great performance on Mallard, but it was too narrow. We were in the Permian. We had too few customers. As I said in our remarks, we have many more customers. We have opportunities to move people. We've had some cross-selling successes. Of course, we'd like to keep our utilization up. We'd like to have -- but that's not the mandate.

But the ability to move people and trucks and equipment around the basins, I think, is going to give us a much needed advantage here.

Is that long enough for you, Jason?.

I got more. I appreciate all the detail, Bill and Brandon. Let me ask it then a little bit differently, too. I know you guys spent time this quarter and last quarter talking about signs that you're seeing here that pricing is bottoming.

In the cases where you've seen select pricing improvements in the -- mid-single-digit improvement with select customers, what drove that? Was it the work that you were doing with the basin that we're in? What kind of drove that improvement?.

Jason, are you asking about wireline or just overall?.

About wireline, yes..

What drove pricing improvement in the last few weeks, months? Is that....

Yes. Examples, you said select customer that had a small pricing improvement.

What drove that?.

Well first, you got to....

Try asking for price..

First, you got to ask. But the other thing -- and I think this is true in the rigs side. We can attract -- look, getting people and attracting them and with the activity levels across the region, we think we can attract people. We're a stable company. We've got a good balance sheet.

And believe it or not, the people in the field like to know that they're going to get a paycheck every other Friday or whatever. And we think we've got an attractive place to work. And when you can gather good people -- in fact, with the wireline, we got a lot of really great people that are mobile.

We think that justifies some price, and that's what we're asking for..

And you've heard this a couple of times, I think, on this quarter's calls across the industry. But we are struggling a little bit on the wireline side in terms of pricing increases we ask. But for the dedicated fleets, there is a lag between the agreement on a price increase and when it actually gets implemented per the contractual terms..

We're working on it..

[Operator Instructions] Our next question comes from Daniel Burke with Johnson Rice..

Let's see. I guess, encouraging to see what's going on in the rig business for you guys. I guess, a high-quality problem I wanted to -- not even a problem. But wanted to ask about the rig packages are pretty high returns, sold out.

What kind of capital commitments do you think you can make over the forward 12 months or so to bolster your capacity there?.

I'm happy to answer that. So the honest answer is, we don't know yet. So we are actually -- this was a problem that came up fairly quickly. I don't think that -- well, I know that we didn't model this level of 24-hour activity three months ago.

So the fact that we're sold out on our high-spec full wrap packages is a little bit of a surprise to us, honestly. So we don't have a fully vetted answer to that. And the two variables that we're considering, we can put out incremental rigs with....

In modest numbers..

Skinnier, yes, skinnier packages and....

And do quite well on that based on what's out there..

Yes, absolutely. And has -- still have very attractive -- well, not very attractive, but reasonable returns on those packages. Now that would bring down our lower composite per-hour rig rate so -- and ultimately, reduce our gross margins in a market where labor is still a constraint or continues to be a constraint.

That's a pretty -- that's not a home run or an easy decision to make. So to answer your question specifically, to the degree that we choose to add incremental, full wrap, high-spec packages, that investment -- and I'm going to look to Mr. Hooker here in the room here.

I'm going to say, an incremental $500,000 per rig copy is kind of the ballpark that we would be looking at. I'm getting a nod, so that sounds right. Now having said that, if we choose that path to put out incremental full wrap, high-spec packages, we will likely be going to auctions and looking for near-new equipment at low prices.

And that will be the first -- our preferred path rather than going to manufacturers and looking for brand new equipment. As I'm sure everybody is well aware, there's plenty of pretty nice and some not so nice, but pretty nice equipment out there at the auction houses looking for a new home..

And we are doing some of that. And your question has excited our -- the head of our High Spec Rigs over here, who's salivating to putting more purchase orders. So we will do some of that, but in the meantime, we still got some room. Before we do that, we've got some room with the modest-sized packages.

And heck, if the bare rig pricing goes where we think it's going to go, we can do some of that, too..

Got it. Okay. That makes sense. I guess the other one -- and sorry, Bill, this might be one for Brandon. But I just wanted to make sure I'm feathering together the acquisitions with the existing kind of completion business appropriately here as you integrate.

I heard you mention kind of 13 percentage margins on the -- gross margins on the acquired companies, I think, in Q2. And I mean, is that comfortable? I mean look at Completion and Other Services in Q2 at Ranger, you were in the low single digits.

Is that an apples-for-apples compare? I'm just trying to make sure I've got it right to understand what kind of margins we could flow through or you could flow through in sort of the near term here without really building in an expectation of price changing versus what's been out there in the market of late..

Yes. No, it's a very fair question. And it is a little bit of apples and oranges. The 13% gross margin is a field-level number that doesn't include any of the overhead for those two acquired businesses.

And the -- obviously, the Mallard business, that EBITDA -- segment EBITDA margin does include kind of the regional, field-level overhead administrative costs. So it is apples to oranges in terms of our reported Completion and Other Services businesses and the gross margins at the acquisitions.

However, you could probably make your own assumptions about what we need to take in terms of overhead for those two new acquired businesses and roll that into the model. So I think that the 13% gross margin is probably more indicative of what those businesses would have contributed had they been part of Ranger in Q1 and Q2.

Ideally, we'll be able to show you results in Q3 and Q4 that help support that view..

And some of that speak is, we're not bringing much SG&A over so....

He's subtle here..

His subtlety is even lost on me. So we're not bringing a lot of SG&A. So....

Look, guys, I appreciate those comments. And I should say congrats on closing those deals. Those are certainly meaningful for the Company..

The next question comes from [William Kim] with [CDS Asset Management]..

Congrats on the deal closes in the past couple of quarters here. My question's more related to those acquisitions actually.

So is it fair to say that those acquisitions are viewed more as a deleveraging transaction, given that they were mostly paid for by stock?.

Well, I wouldn't say deleverage. Look, our leverage is something that's very modest. We took on like $11 million worth of debt. So it's not exactly deleveraging, but it really broadens our base. So we've got two very strong legs to stand on here.

And we've got a burgeoning business in the Process Solution that we hope is going to get back to its historic performance. But when you look at wireline and rigs now, we've got two robust segments. And frankly, with our old wireline business, it was too narrow and make good money in certain segments.

But we just weren't broad enough to move things around and to have the flexibility that we have. So -- but I wouldn't refer to it as a deleveraging, Will. It's going to add a lot more to EBITDA, and so that will -- I guess, if you look at it from an EBITDA standpoint, we should have lower EBITDA leverage. But....

Yes. I would say, it's a push in terms of leverage as we sit here today. I'll note to Bill's point that as we move forward, the wireline business is particularly maintenance CapEx-light and, therefore, a lot of that, if not almost all of that EBITDA drops down to the cash flow line.

And therefore, over time, it will be, we think, very aggressively deleveraging in terms of the ability to deliver cash flow back into the organization..

Look, that's -- yes, that's right. ..

Yes, that makes sense. And as far as the pro forma capital structure for these transactions, I wanted to make sure I'm looking at this correctly.

Could you provide what your share count would be pro forma for the transaction, inclusive of the A and B shares? And what the pro forma debt looks like?.

Yes. So the A and B -- so the total share count is just under 18 million currently. I think it's 7.89 million -- 17.89 million shares. And then the pro forma debt is going to be -- versus what we exited Q2 at will be an incremental $11.4 million..

And there'll be some incremental share count when we terminate this TRA and convert the Bs to As. But it's pretty small. It'll push us over 18 million..

Okay. Okay.

And is that from options being exercised? Or what would be the cause of that?.

Yes. Basically, when -- as we are negotiating the early termination of the TRA, we've got basically a handshake. We need to execute on it, but we would be issuing some shares for that. I haven't disclosed how much, but it's a, how do I say, it's a relatively modest number..

Okay. And I want to make sure, Bill, I heard you correctly. Earlier, you are seeing a current run rate of $350 million of revenue annualized.

Is that right?.

That's correct..

So if we would look at that as a combined business with the recent acquisitions and kind of flow through to a free cash flow number, you mentioned in your press release with the acquisitions a target margin of 20%.

Is that something that's still in mind? Because I just wanted to make sure, based on the previous questioning and that statement, that they seemed a little bit different there..

I don't know if I said -- certainly, from the high-spec rig, I said target. I don't know if I said target. We're exiting the second quarter actually at a higher margin than that for the high-spec rig. And I think what you should do is feather in over the next several quarters, some margin enhancements across both segments.

It's not all going to happen in the third quarter, but I expect rigs will be darn good in the third quarter. The wireline will start feathering in, in the third and fourth quarter..

Got it. I guess a final question for you. On the XConnect gun system, so you have a warrant structure to own 30% of the business.

How do you guys look at that business? And what do you think that's worth? Who is the other owner in that business?.

The owner of the XConnect gun manufacturing business is also the seller of the PerfX business. It's kind of obvious for it to be explicit about that. And that business supplies the majority of the guns for the acquired PerfX business. That is likely how that will continue going forward.

And we have an option to increase kind of our market share or consumption of those guns based on customer acceptance as we move forward. So we see that as -- it's not a joint venture, but we certainly have -- are fully aligned in terms of looking for success from them in terms of their manufacturing process and the market acceptance of their guns.

And they are looking to us as a very meaningful source of sell-through..

But basically, we have access to three guns.

How are we doing, operator?.

Yes. I think we're done with all questions. I would like to turn the conference back over to Bill Austin for any closing remarks..

I think I've said enough on this call. I want to thank you all for participating. I look forward to putting somebody else in this chair for the next call, but I'm actually having some fun. We're doing all sorts of good things at this company. And my wife will shoot me for saying that, but I'm actually having a little bit of fun here. All right.

Talk to you soon. Thanks. Bye..

Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..