Good morning, and welcome to the Ranger Energy Third Quarter 2021 Conference Call. 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 Stuart Bodden, Chief Executive Officer. Please go ahead..

Thank you, operator. Good morning, everyone. I hope everyone is well. And welcome to Ranger’s Q3 2021 Analysts Call. As operator said, this is Stuart Bodden, President and CEO of Ranger Energy Services. And I'm joined by Brandon Blossman, Ranger’s Chief Financial Officer.

Before we dive into the numbers, I think it's important to reflect on what the Ranger organization has accomplished over the last 12 months. During the first half of the year, we rebuilt our legacy business from the 2020 trough, rehiring and adding nearly 600 employees.

More recently, through the acquisitions of Patriot, PerfX and the basic assets, we have tripled the size and revenue potential of the company, building meaningful scale in our rigs and wireline businesses. The two wireline acquisitions increased our unit count more than five times from 13 to 68 wireline units.

We more than doubled the scale of our High Spec Rig business along with the addition of incremental service lines and a significant number of ancillary assets. We also greatly simplified our capital structure.

We refinanced our entire balance sheet, eliminated a potentially burdensome tax receivables agreement and pave the way to collapsing our equity structure into a single class of stock. We also diversified our investor base. In short, Ranger is a very different company today than it was at the beginning of the year.

We're pleased with the progress today, there's still a lot of work to do, particularly with regards to margin improvement and generating sustainable cash flow. Given the strong macro environment and given the early indications from our acquisitions, we are optimistic about our ability to improve margins and generate cash.

I'm going to briefly review company-wide performance in Q3 and then talk about our future outlook. Then Brandon will review Q3 segment level financial performance, and outline in more detail the changes we made to the capital structure. I will then come back and talk about the basic acquisition in more detail and wrap up our prepared remarks.

For Q3, company-wide performance, revenue increased sequentially $32 million from $50 million in Q2 to $82 million in Q3, driven primarily by the Patriot and PerfX acquisitions.

Please remember, revenue associated with the basic asset acquisition is not reflected in the Q3 numbers, but will be fully reflected in Q4, since we took control of the basic assets on October 1. Adjusted EBITDA increased from $2 million in Q2 to $3.3 million in Q3.

Company-wide EBITDA margins remained at 4%, which is effectively the same as the EBITDA margin in Q2. On the rig side, we have enjoyed some pricing improvements in Q3. However, there has been little net benefits the bottom line is of increased labor costs and supply costs.

On the wireline side, pricing remains the biggest obstacle to improve performance. We are seeing positive benefits from the integration of our recent acquisitions, including cross-selling opportunities, cost benefits from consolidating yards, along with some crew sharing. Similar to rigs, these gains have been largely offset by increased labor costs.

As we look forward, based on October, including the basic assets, our annualized revenue run rate is now between $450 million and $500 million. That is roughly split 60% for High Spec Rigs and 40% for completions and other services. Torrent revenue continues to be modest.

Based on expected price increases and potential activity increases, we are looking to be on the top end of that range for 2022 or to surpass it. Our target is to achieve 15% EBIT; EBITDA margins are greater at the company level, which translates to segment EBITDA on margins of 20% to 25%.

Clearly, we have work to do since our EBITDA margins for the high spec rig business were 16% in Q3, and they were approximately 5% for completions and other services in Q3. In addition to expected increases in demand and tightening of the market, there are several initiatives already underway to improve margins.

First, we are continuing to work on net price improvements across all service lines, and we are engaged in pricing discussions with the majority of our customers. These conversations are generally going very well and most of our customers understand that prices need to increase to promote a healthy service sector.

Further, several of our largest customers are asking for additional rigs, and we expect the market will continue to tighten in the coming months. Second, we're changing our sales organization to better leverage our sales team and promote cross selling across service lines, particularly amongst larger customers.

Third, we expect margins will improve, as we continue to realize cost synergies from yard consolidations as we fully integrate our most recent acquisitions. We expect your yard consolidations will continue through the end of Q1 of 2022.

Finally, we've made several key management changes in our wireline segment, which we think will have a positive impact on future performance in our completions and other segments -- other services segment. I'll now turn it over to Brandon to discuss Q3 segment level performance and our capital structure.

And I'll come back and talk about the basic acquisition and wrap it up..

Right. Thank you, very much, Stuart. For this quarter, I'm going to change it up a little bit relative to what we've done historically for my comments. I'm going to go straight to the segment financials, skipping some of the high level corporate numbers that Stuart mentioned and that you can easily read in the press release.

I'll spend a little bit more time on those segments, specifically on the KPIs for our two most significant businesses. Try to give you a little bit more detail on those two lines in terms of operating metrics, and then move on with some comments and details on the balance sheet before handing it back to Stuart.

So first, for the high spec rig segments. Here revenues increased 3% or $1 million dollars moving sequentially from $29 million to $30 million. The revenues were up. Segment margins decrease to touch moving down from 17% in Q2 to 16% in this quarter. That resulted in a slight drop in EBITDA from $5 million to $4.8 million in Q3.

First, on the revenue side driving that 3% revenue increase was an increase of 3% or $18 an hour, and the hourly average rig rates moving from 5.66 in Q2 to 5.84 in Q3. And a sidebar, I'll note that our reported Q2 hourly rig number or rig hours was higher today than as we reported in Q2.

That was some of the prior period adjustments that we did in Q3 bringing those hours that we reported for Q2 up, and of course the offset is bringing the reported rig rate down. So you'll note that as you compare the Q3 release to the Q2 release. Again, however, on the adjusted numbers, hourly rates are up $18 an hour.

That increase in rig rate coincided with about a 3% increase in average hours worked per rig, per day, that reflects a small relative increase in the number of 24 hour rigs working during the quarter. So an increase in 24 hour work Q3 over Q2 so that was modest.

Partially offsetting that rate increase was a reduction in rig revenue hours, which saw hours decreasing just slightly 1% from 51,900 hours in Q2 to 51,200 hours in Q3. As we talked about in last two or three calls, this reflects the work that the High Spec Rig team is doing in terms of balancing rates and number of hours worked.

So, I think that actually is a fairly successful outcome in terms of that balance. On the expense side of the High Spec Rig segment and driving that downtick that we saw in margin, we did see quite a bit of wage inflation in the quarter with direct field level labor costs up 11% on a per unit basis, that's on a per rig hour basis.

However, I will note that there were anomalies in Q3 with some unexpected customer schedule changes late in the quarter, temporarily idling a couple crews in the north.

Those particular issues are now passed and month-over-month numbers on wages, labor on a per unit basis in October like to be showing some -- still some inflation but at a much more modest level on that 11% that we saw on a quarter-over-quarter basis.

Partially offsetting that increased per unit expense on labor was a return of the repair and maintenance cost, back down to more historic levels. This is post that inflation that we saw in Q1 and Q2 as we moved incremental rigs into the market, preparing those for higher spec customers than they had been working for in the past.

As we move on to Wireline. I think probably, this is a good point to talk about segment reporting. So, as you know historically, we've talked about Wireline as part of the completion and other segment. Once upon a time our Wireline business was quite a bit smaller than it is today.

As we move forward, you should expect us to revamp our reporting segments. And what I would expect to see here is that, we will have higher spec rates as a standalone reporting segments Wireline as a standalone reporting segment and then our other businesses line -- business lines grouped into a single segment.

So still three segments, but we'll stand Wireline on its own and we'll be able to talk about that business line in more detail as we report it as a single segment. I would say that we will -- we will try to get that change done by Q4 reporting and if it doesn't show up in Q4 reporting, it will be a 2022 Q1 event. But again, look for that.

Having said that, I will try to give you some incremental details on the Wireline business in preparation for it as a standalone segment. So backing up, at the segment level completions and other services revenue increased 160% or $31 million moving from Q2 $20 million to Q3 $51 million.

Other non-Wireline services within that segment, the revenue was up 31%, but that represented just a $1 million of that $31 million increase. The vast majority of the sequential increase in segment revenue was of course due to our Wireline acquisition, which move Wireline only revenue up nearly 3x or $30 million.

Moving the wireline revenue up from $16 million to $46 million. As a reminder, we did close the Patriot acquisition, the wireline acquisition as largely biased towards production work mid quarter Q2 and the completion work focused PerfX near the beginning of Q3.

So that means that the numbers we're talking about on a Q3 basis, the incremental contribution for Patriot will be incremental half quarter, and Patriots contribution will be almost the entire quarter of Q3 with nothing showing up Q2. So With that in mind, let's go to the KPIs.

And here we’re focus just on the perforating completing -- completion side of the wireline business, leaving aside for now the production side of our new larger wireline business. So for completions, of the 46 wireline trucks, which are currently available to the completion market, we had an average of 20 trucks working during the quarter.

That's a 230% increase over Q2s 6 unit count. On a stage completed, per truck, per day basis, those trained trucks that were working saw an 11% uptick and efficiency moving from 5.6 stages completed per truck day to 6.1 stages completed per truck day.

That combination of additional trucks completing more stages per day resulted in 275% increase in stages per quarter. Moving to two stage count of 3,000 to 11,400 stages completed during Q3. Pricing on a per stage basis was down quarter over quarter 10%.

That's the result of the lower perfect pricing, blending into the overall composite pricing for the business. Now moving to expenses and margin. Again, this is just on the completion side of our wireline business. So despite that 10% drop in composite stage pricing, overall margins for the completion work in the wireline business help flat at 5%.

That was the result of a similar drop 10% drop in total expenses, again on a per unit basis. That 10% drop in total expenses was made up of a reduction in composite gun costs as we rolled out the use of the XConnect gun system in at least for the business -- for the trucks that historically used it in the legacy PerfX fleet.

This reduction in composite gun costs was partially offset by a modest increase in direct labor expense. So that's -- that's it for the wireline business. Moving on to the balance sheet. Here, there are several moving pieces that do bear a bit of an explanation as we move quarter-over-quarter.

First, material -- there was a material increase in net debt. Net debt was up $30 million, quarter-over-quarter. Like to break that down into some smaller, more bite sized pieces. First, a $11 million of that $30 million net debt increase is related to the PerfX acquisition.

Remember, we took on $11.4 million of debt in conjunction with the PerfX acquisition, that debt was secured by a handful of growing stock that came over with that PerfX acquisition.

Disclosed previously, but that is a third of that total $30 million increase -- the balance, just under $20 million of that quarter-over-quarter increase in net debt reflects incremental draw on a revolver.

Then incremental draw was primarily driven by our two wireline acquisitions working capital needs, remember, we did not bring over working capital, either of those businesses, along with some transaction and other related one-time expenses. A couple of other balance sheet nuances, the highlights.

One, the restricted cash line item shows a $42 million balance, that's a new line item for us, and a big, fairly big balance. That $42 million was cash raised to fund the basic acquisition with the cash coming in just before the end of the quarter, and going out to pay for the basic acquisition on October 1st, just after the end of the quarter.

That $42 million balances fully offset further down the balance sheet on the current -- other current liability lines. So that's a wash, but it does show up and is, again a new line item that will of course go away in the fourth quarter.

You also note that our revolver balance is now shown on the current debt line rather than in long-term debt as it has been shown historically. So this is just a technical artifact of the new revolver credit agreement, and is definitely not reflective of the full year term of that credit agreement.

Now moving on to liquidity, we ended Q3 with $11 million of liquidity that was down from Q2s ending balance of $16 million. Importantly, I'll note that that liquidity number today stands at $28 million, so quite a bit of an increase. That is largely due to how we structured the basic acquisition.

So as a reminder, we did structure that acquisition to be liquidity enhancing. Point one, our $24 million equity raise was around $5 million in excess of our purchase price, and that was specifically to ensure that all transaction related fees would be easily covered, leaving no net liquidity impact on close in terms of cash flows.

Also, our refinancing done before the close of Q3, which included the revolver that we talked about also included a new incremental term loan B, which we have discussed before. At the close of the financing, that term loan B was undrawn. But at the close of the basic transaction, we did draw that term loan B to its $15 million face value.

That's a few million dollars injects directly incremental liquidity onto our balance sheet, and given that the pay down of that $15 million is tied to the asset sales that we have started and will continue through the next 12 months. That cash benefit is expected to be a permanent addition to our balance sheet.

And then finally, my last comment here will be on cash CapEx.

We spent $2 million on growth capital this quarter and just $200,000 on capitalized maintenance, of that $2 million of growth capital, 700 of the largest chunk by far was done on a couple of larger ancillary pumps to go out to talk to your customers with our high spec rigs, with the balance of that amount spread out over several small items in both the wireline and the rig side of the business.

And I think that concludes my comments, and I will hand it back over to Stuart..

Great. Thanks, Brandon. To come back to the basic asset acquisition, there's actually quite a bit to talk about, we are very pleased with the progress to-date on the integration of Basic into Ranger, and I would be remiss if I did not thank everyone in the organization for their hard work and dedication to making the integration successful.

It's been a heavy lift and what the team has accomplished in the last month is truly incredible. Regarding active rigs, we operated a total of 180 rigs in October, 67 legacy Ranger rigs and 113 legacy Basic rigs, this easily makes Ranger the largest operator of active well servicing rigs today.

180 rigs is admittedly more than we had originally intended to run, but we have strategically kept them running for several reasons. First, we want to keep crews. We're seeing an increase in demand for rigs and manpower and crews are turning into the critical bottleneck to putting additional rigs out.

Second, even though Basic's average hourly rate is lower than Rangers, customers are showing a willingness to accept higher pricing. Therefore, we believe we can earn attractive margins across all of these rigs.

It is worth noting that Ranger and Basic had different go to market strategies, with Basic often providing lower spec packages relative to Rangers higher spec packages. That said, we believe both types of packages can generate attractive returns. So we will keep both types of packages running.

I bring this up so that you aren't surprised if average hourly rates for rigs are lower across the combined fleet next quarter. Again, we are actively pushing price. But there is more lower spec work in the Basic fleet, which will impact the company wide averages next quarter for hourly rates.

We also as have noted, think there's additional upside to the Basic acquisition. As we noted in an earlier call, we also purchased coiled tubing and nitrogen trucking assets in Colorado, a P&A business in Wyoming and our rentals and fishing tool business as part of the Basic asset purchase.

We are currently evaluating the earnings potential of these businesses and will in the coming months, lay out our longer-term strategic intent as it relates to each of these businesses.

Regarding asset sales, most of our time has been spent evaluating the condition and capabilities of the specific assets that we purchased which are located in over 50 different yards.

However, we have already sold one physical property for $675,000 million and we expect a number of light duty vehicle sales and engine and transmission core sales to be concluded before the end of the year.

We will also begin selling physical properties as we clean out and consolidate yards, which as I noted, we expect to continue through the end of Q1 2022. In sum, we believe we're on track for asset sales, and we continue to believe that we will realize at least $15 million of asset sales.

Regarding rig demolition, we began demolishing rigs earlier this week. An initial scrap list of approximately 100 rigs has already been identified, and we expect approximately 75 rigs to be cut up before the end of the year.

Of course, there will be many additional rigs beyond this initial 100 to be scrapped, so we will be taking rigs out of the market well into next year. To wrap up, I like to reiterate that we are very excited about our recent acquisitions. We strengthen our market position in both our rigs and our wireline businesses.

We are seeing an increase in demand and we are excited about the macro-outlook and the future need for our services. We believe there's more embedded opportunity within the Basic assets than originally contemplated.

In addition to the greater number of rigs running, we purchased several other business lines and a lot of ancillary equipment that we're evaluating, and we are more as I noted, running more rigs than originally anticipated. We still have a lot of work to do, we feel we're off to a great start.

We're confident on our ability to be the prudent consolidator in this space. Finally, with regards to future acquisitions, we will continue to be very disciplined in our approach. Given our new scale, we will only pursue acquisitions with compelling economics and a strong strategic fit.

Phrase another way, we will be acquisitive, but only at attractive valuations. Thank you for your time. This concludes our prepared remarks. And we’ll now open it up for questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ian Macpherson of Piper Sandler. Please go ahead..

Thanks..

Good morning, Ian..

Good morning, Stuart and Brandon.

How are you?.

Good.

How are you Ian?.

Good. Thanks. I appreciate all of the detail in the opening remarks.

On your go-forward consolidation strategy, are you leaning more in one direction or the other between service rigs and wireline, or do you see both of them as areas for further growth?.

I'll start and I’ll let Brendan add on. So I think the short answer is that we see opportunities in both segments. I think there are more near term opportunities that I think the market is aware of on the rig side, which are being evaluated. But I think, again, I think we see opportunities in both segments..

I agree completely. And I'll just my addition will be that we have and likely will continue to be incredibly opportunistic here. I think that the basic deal reflects that willingness to go after something that looks like it's going to be an exceptionally good deal, and to be cool on things that may get pushed in terms of valuation.

So I think, point one, it's great to have a strategy, but it's also great to be willing to modify that strategy based on the facts that are presented to you at any point in time. So I think we'll be biased towards creating the most value wherever that fits.

And it may be rigs, it may be wireline, it may be building up one of these new business lines that we acquired with the basic transaction. So we have a bigger portfolio of business lines, and probably more strategic options, and we had three months ago. And so you may see us do something even surprising.

Not that we have any plans to, but I think we can -- we're open to a variety of possibilities..

Got it. Thank you both. And then Stuart, if I heard correctly, you said your run rate annual revenue capacities 400 to 500.

Now you hope to hit or eclipse that high end for 2022 with 16% margins, did I get those notes correct?.

Yes. So right now our run rate is between 450 million and 500 million. I would say, our target to be clear, that's an October run rate..

Yes. That's an October run rate. So as we think about annualized as we think about into 2022, as you said Ian, we would expect to be on the top end of that range or to surpass it, because of price increases and activity increases. We do have a target for 15% EBITDA margins, as you alluded to at the company level.

I think our intent is to get to that run rate by the second half of the year. I think it will take a quarter or two to get there, just based on the integration that needs to be done going forward.

Which side of the business needs more price improvement to hit that goal, or would you say, it's equally weighted in terms of where you are where you need to be by the middle of next year to get margin?.

Yeah. I'd say, it's on the wireline side. If you kind of think about how pricing is developed, rig pricing crashed earlier, and then started to climb back. Whereas wireline had a slower decline on pricing that hasn't really come back. And I think you're seeing that when you kind of look at other people that have announced earnings this quarter.

So I think there's really kind of more opportunity, and there needs to be better pricing, it's more of an acute problem on the wireline side. What I would also say is, if you look at the rig side, I would change my comments a little bit for the basic side. Some of the basic pricing is well below what our margin requirements are.

And we are very actively pushing that up. So I think you will see in the coming, kind of quarters on the rig side, and increase, particularly on the basic side..

Okay. That's helpful. Thanks.

And then lastly, how are you thinking about maintenance CapEx today, and if you get to call it 75 million annualized run rate of EBITDA second half next year, what kind of free cash flow conversion out of that EBITDA could you – could you hope to get?.

So we, as we forecast out for 2022, we are trying to hold the line at that $2.5 million of maintenance CapEx per quarter, so $10 million per year. All indications are that we should be able to hit that so far.

Having said that, there's still very basic rigs that we need to understand, whether or not they will be in the market and what the required kind of catch up maintenance on those will be. So that's the variable as you know, we took down 500 an incremental rigs. We have not visited every single one of that 500. So we've made a lot of progress.

And as Stuart pointed out, we have 100 of that 500 earmarked for that parting out and reward cutting up in destruction. But that's silly is a good handful of rigs that we'll have to figure out what will happen. Part of that, will be determined by the macro backdrop and how much demand there is.

So its tough to answer, but I think, $10 billion a year on maintenance CapEx is going to be our target. And the macro will determine whether or not we hit that, but it'll be good news if got that..

Yeah. And I would add to that, I mean, the macro is important, and I think probably everyone is at a place, where if we put in a significant number of new rigs out that will require some maintenance contracts to get them put into service..

Okay. Awesome. Thanks. So you guys are undertaking a lot of Yeoman's work here with this consolidated you pointed out. So well done and good luck and look forward to catching up next time..

All right. Great. Thanks, Ian..

Thank you, Ian..

The next question comes from Jason Bandel from Evercore ISI. Please go ahead..

Yeah. Good morning, Stuart. Good morning, Brandon..

Good morning, Jason..

Good morning..

First question, can you guys talk more about the trends, you're seeing the high spec rig market, and some reputations for the market itself in 2022? Do you think labor continues to remain tight? And as you scale help with that and also, how do you guys continue to approach the balance between rates and regards and that balance there?.

Thanks for the question. I'll start. So I think the first question is about how do we see the market developing. I’d say, I think we see the market – we see demand continuing to increase and I think we do think that – that labor will remain constrained, I think, OSHA's COVID-19 emergency temporary standard may also impact that to the negative.

So I think all of that together will kind of lead or we're expecting it to lead to a tightening of the market, which obviously is attractive for pricing going forward. So I think that's the first thing that I would say on that.

I think as that as a backdrop, based on the conversations we're having with customers, I think, you’re kind of asking, how do you balance rig hours and rates.

Frankly, in a conversation with customers, part of it is, hey, if you don't let us get pricing to where it earns us a reasonable rate of return, we will take that rig and we'll give it to our higher paying customer. So that's exactly what is sort of happening as we think about it.

And it kind of goes back, Jason, to why we're saying we want to keep these rigs running and cruise, because we don't want to lose the cruise. So now we have different conversations with our customers that will allow us to high-grade customers as we go forward so --.

Got it. And just on -- and then actually, along the lines of the high-grading use, you talked about there and you guys did a lot of work, even before the downturn in high-grading your traditional customer base and shifting more to top tier clients.

How different was basic customer base compared to your own? And if you really continue that strategy going forward by trying to put their rigs more with your high-graded customer base?.

Yes. I mean, it's interesting, if you actually look at our customer base, I mean, they obviously have in some regions, I would say, probably -- don't have quite as attractive as a customer base. That said, their customer base is not bad, it's their pricing.

So, if you kind of look at it, and I think it's important to remember, with C&J, remember, basic part C&J and C&J had a pretty robust customer list. So I really think it's probably less about changing customers out as much as it is about getting better pricing with those customers..

And, Jason, I'll just add that, basic looked from our vantage point to be trying to be everything to every customer. So there's the full range of full high spec packages on one side.

I'll note that on a relative basis, much lower early incentives versus our fleet, as you would expect, all the way to bare rigs with four-man crews getting barely more than labor variable costs. And so, there's -- and there's everything in between. So to Stuart’s point, they had a very robust -- they have a very robust customer list.

There was strong overlap with us. But they were, I think, pretty apparently pursuing a strategy of getting as many rigs out into the market as possible and focusing solely on revenue. And I think to the detriment of margin. Overall, it’s better than we expected. But that doesn't mean there's not a whole lot of work to do there still..

And then, as you guys look across the customer base and expectations into next year of higher activity levels, is that really broad base? Are you seeing an increase in activity and demand entirely across the universe, or is there a certain part of that customer base at driving that?.

Yes. I guess, I'll start. I do think there's a regional answer to that. And I think the greatest increases we're seeing are in the Permian. So certainly, in Permian, and then I would say, inside of the mix of kind of daylight work to 24 hour work, I think we are seeing an increase demand for 24 hour work. That said, daylight work is pretty robust.

It's some of the cheapest barrels that E&P operators have to add. And then in terms of where that incremental demand falls on the customer from large cap IOC, all the way down to the mid cap and smaller unit fee..

Yes. I mean, I would say on that, that we're actually seeing increases demand at the large caps right now. I mean, if you think about the last year, a lot of the demand increases have been from smaller players, as the bigger players really were remained very disciplined.

I'm not saying we're seeing that trend reverse, but I think we are seeing more demand from the bigger players..

And then last quick one for me, just housekeeping question for Brandon. Can you give us some guidance around Q4 G&A and share count? Thanks..

Yeah. So share count will be just under $25 million, when all set is done, it is $24.8 or exactly at $24.78, I believe is where we'll end up on share count. And then, G&A, there are a few changes in G&A in terms of bringing on quite a bit of more activity.

However, I think that that, that I would say that $16 to $17 million a year run rate that we haven't seen, should not change materially as we move into 2022..

And I just add on the G&A I mean and I think it's probably worth highlighting on the yard consolidations. And this is really at the segment level, but there is a lot of G&A tied-up in the large number of yards, the basic range. So remember, when we took over the basic assets, we in essence, took over 28 different properties.

We think that those will basically be a net addition of $10 not $28. So there's, a lot of yards and that includes utilities, internet. People, it's kind of everything. So I think as we work our way through that in Q4 and Q1, you'll see the signal level G&A went down..

Sounds good. Thanks for taking my questions. I'll turn it back..

Thank you, Jason..

The next question comes from John Daniel of Daniel Energy Partners. Please go ahead..

Hey Guys, just one for me. Stuart, as you guys talk to customers.

You've just now taken the basic assets to access has got, Forbes and superior pioneers about to do something? Do they get what's happening, in terms of the market backdrop? And when did they really sort of see the light and say, it's time to sort of allow you guys to generate an appropriate return on your investment?.

Yeah, I think it's happening in real time, John, from the conversations. I mean, I'll give you just like one anecdote. We had one customer give me two access. One customer was a smaller customer, that we went and said that these needs to be the new rig race for us to continue, working beyond what we had committed to. They were pretty upset.

Give some pretty colorful language. And we said, we're going to okay, well, we will finish up our jobs that we committed to. And we'll walk away, half an hour, they call back and agreed to it, right? So clearly, our view is that they got on the phone called around and realized that there wasn't anything available.

And another one with a much bigger customer said that, they wanted to add additional rigs. They were trying to use that as a bargaining chip for basically a volume discount. We very quickly said we'll talk about additional rigs only, until we get our first pricing, basically the first wave of price increases.

It's been a multiple conversation event, but I think you're getting there. So, long way of saying, John, I do think that they are starting to get it..

Okay. And when you see this, what I'm going to call positive traction, right. And you have an ability to look at further consolidation or just acquisition opportunities.

It would seem to lend itself well that you focus on those two areas of core competency where you have scaling or growing and as opposed to maybe trying to consolidate something else to have that third wheel. Just your thoughts there and then I'll just try to dig in now..

Sorry, John.

Can you just rephrase that real quick?.

Well, what I'm saying is, I know that it sounded like a response to one question maybe in the prepared comments that you might look at other acquisition opportunities sort of outside the scope of wireline in the rig business.

And I would contend that when you look at the positive traction, you're going to get – continue to get on the rig side, you should stick with those two core competencies as opposed to trying to grow a third, third business line. Just your thoughts on that..

Yes, I mean, and I guess, I would pretty go back to the, you know, like, I think we've proven that – on the acquisition side will be incredibly disciplined. I mean, I think there is a risk in the macro environment as it's happening right now. That we may see some of the things that are going are that are out in the market right now.

Go for pricing that we may, that we probably wouldn't chase up, right. And I think that that is likely, it wouldn't surprise me if that's – if that's what happens. Again, we're going to be kind of looking at everything. And we think we are a logical consolidator.

I think you're alluding to something else, it's important is if you kind of you know, on the management team, we've tripled the size of the company last year, right? 2022 is all it is all about execution, right? I mean, it's got to be about execution, margin improvement, cash flow. We can't put any of that at risk.

We kind of recognize that that's, it's critical for us to do that..

I like what you guys have done. And I know you're busy business integration. So good luck with that..

Thanks,.

The next question comes from Daniel Burke of Johnson Rice. Please go ahead..

Good morning, guys..

Good morning, Daniel..

Good morning..

Let's see. Ian touched on the completion side of the business, but wanted to revisit that briefly.

I mean, I'd imagine when we look at a Q3, we're seeing some frictions related to onboarding PerfX and the like, but just curious without benefit of that pricing, which will come, where can you all – where can the margins for the Completion and Other Services business go, or where can you get them on your own? Just wanted to understand what net pricing has to yield versus what you can do internally?.

Right..

Yeah, I can hit that. So the levers that we have in the wireline business today are gun prices and labor costs. Labor costs, not on an absolute per person, field labor basis, but on a number of crews per job. So historically, Mallard had one fewer person per crew than PerfX did. That's a cultural shift for the PerfX folks.

And it's underway, but it's certainly not anywhere near fully done. So we have some downward costs of flex on that side of it. And then gun costs. I think we pretty neatly cover the spectrum with our related party XConnect guns, and then there is historic use of the Dyna guns at Mallard. They have different attributes.

But certainly they're coming at very different cost points. And that's another lever that we can play with. Now that the gun usage is definitely something that happens in conjunction with customer consultations in a big way, so that is also as you imagine ongoing.

To answer your question succinctly, we print a 5% margin at that business now with the – the two levers I talked about, I think something in the 15% to 20% would be achievable, without a dramatic change or without any change in pricing. But that's probably aspirational right now. We really do need to get pricing up. And it's not just for us.

I mean, I think we have one of the most if not the most optimized plug and perf wireline businesses out there relative to the peer group. Pricing needs to go for -- some of our peers who make a cash on cash not returned, but just for survivability..

Yes..

Factor there..

Yes. That was helpful. Thank you. Thank you for that, Brandon. I guess, as a final follow up here. Maybe premature a little early to ask this. But in terms of the financial projections you'd shared for basic, I guess a month ago.

Any updated thoughts or learnings or is that still I assume appropriate?.

Yes, I would say right now, I think we would say that it is appropriate. And we're cautiously optimistic that there's no upside to that. And again, I kind of go back to, there are more active rigs running than we originally anticipated. You know, we had internally model of between 80 and 85, basic rigs running.

We obviously have a lot more than that running. But we think we can do that, you know, profitably. So we think there's upside there. And then we also think there's upside and the additional service lines that we purchased. So you know, I would say those numbers still hold that we're getting more optimistic to the upside..

Great. Okay. I appreciate the comments, guys. Thanks for the time..

The next question comes from Derek Podhaizer of Barclays. Please go ahead with your question..

Hey, good morning, guys..

Good morning..

Brandon Blossman:.

.:.

One of the things on the high spec grades I want to talk about your outlook for the completion rate packages. I know part of the basic acquisition strategy around that was to increase those types of packages that you roll out. And I believe you were pretty much at full capacity on the Ranger side, you've got more of the ancillary equipment.

You got more of the basic rigs that are completion packs. So maybe just talk to us about where you see the increase of completion rig hours through the end of this year and primarily into next year..

So the top-line, the top-line is as you noted, we did pick up a lot of ancillary equipment. And we are seeing, we do think that as you go into 2022, you'll see an increase in demand for 24 hour completion work that tends to be higher spec work. So we do think that's happening. I'm a little hesitant to sort of give you numbers, and they explain why.

For Q4, I think there's some mixed messaging for Q4 on the completion side, as people sort of exhaust budgets from 2021. They are in budgeting season. I do think that 2022 is going to be quite robust. But I think for Q2 may look similar to what we're seeing right now..

Okay, got it. And then any color you can give on 2022. Like how many more rigs could be added at our completion, just thinking about the real leverage you can have on the on the rig base side..

We're looking..;..

We're looking at each one of you….

You know, it depends, obviously, on the macro backdrop of the good news, as you alluded to is that we will have more flexibility in terms of moving rates into the 24 hour market, we won't be constrained on random pieces of ancillary equipment because of the basic acquisition.

But we have not given any firm indications from our ENT customers about what their 22 program will look like. So would be probably stepping over ourselves if we tried to give you any guidance on that..

Okay, now. Fair enough. I want to switch over to wireline.

I know this is such that a couple of questions ago, but the PerfX on usage, obviously, Dino [ph] came out with announcing a pricing increase, and you now have the XConnect guns, can you maybe -- I know there's a lot of customer education you go through, could you talk about when you expect those first X guns to go on the Mallard units.

How far -- I know the process just started, but is that a 2022 event? How closely you're there? Just thinking about how that could be a real leverage on helping the cost side of the equation to move those margins up?.

Yes, so I guess a couple of things. So, the first thing Derek is it's not quite as simple as it seems, from a gun cost perspective, because they actually do require slightly different manpower to prepare the guns and load the guns. So, it is a slightly more complicated calculus than just simply going costs.

That said, we do have on the Mallard side some customers that are specifically asking for certain types of guns, which we need to honor but I do think that as we move into 2022, we're going to try to minimize gun cost and leverage the PerfX or the XConnect system to a greater degree..

Okay.

And then just my last question, can you touch back on the divestiture, I think you mentioned a figure, I didn't know if that was for fourth quarter this year or 2022? Just think about how you have all that extra equipment and what that can be as far as a nice cash windfall for you guys?.

Yes, so right now, we -- I think we've been consistent our guidance saying that at least $15 million in asset sales over the next 12 months. Again, I think we are consistent with we're maintaining that. One of the reasons that maybe to help kind of understand what would what would send it more to 15 and what would send it more to the other side.

We've talked about some of the ancillary service lines that we've picked up and that we're evaluating the strategic intent and what kind of returns those assets can generate. If some of those business lines we do exit that will actually drive up asset sales beyond the 15.

So, to kind of think about that part of the tradeoff we're making is sort of how do you want to sort of generate more asset sales or build kind of attractive returns, that's part of the calculus we're working through..

Got it. Okay. Appreciate the color, guys. Thanks..

All right. Thanks Derek..

The next question comes from John [indiscernible]. Please go ahead..

Hey, guys, thanks for taking my question. The last two questions kind of covered what I was thinking, which was really trying to connect the October run rate of 450 to 500 with kind of the outlook next year, with the bridge in the middle being pricings going up, hours are going up, we might start new businesses.

And figuring out kind of what that -- it would seem like there would be a large opportunity for growth between an October run rate number and kind of, second half 2022. Obviously, you haven't made the decision on the ancillary business lines, as you just explained and there's a big question mark in the macro backdrop.

But what you're seeing now kind of in some kind of range, I am at least thinking about this, right, that there is a reasonably substantial, call it 10% to 20% -- 5% to 20% growth opportunity with your existing businesses relative to the October run rate, with kind of what you're looking at..

Yeah. I'll take. Thanks for the question, John. Appreciate it. Look, I think that's right. And I think if you even just -- if you kind of start to marry what we're saying and you say, like, we're on the rig side, where the 16% margin, we need to be 20% to 25%, let's just say, we took 10% price increase to get their net price increase. Well, there you are.

You're already at -- well, north of 500, maybe even 550, right, in revenue. So, I think that's right. I think if you're sensing any sort of hesitation, the labor market is incredibly tight right now, right? And so it is -- it's a situation we’re adding new crews really is a challenge. I think it's a challenge for everyone right now.

So, I think part of what that means we were talking about earlier, John, is that, it's going to be a kind of mix of crews, existing rigs, or existing crews and into higher margin customer tries to see a migration.

I think, unless the labor market changes, it's going to be difficult to add a lot of new rigs or wireline units -- a bit more wireline units out. Does that….

And just one last question on these kind of ancillary businesses that could either be asset sales or business lines.

What are -- can you give us some idea of -- kind of orders of magnitude that we're talking about in terms of revenues? And I assume they kind of have to hit your kind of corporate margin targets? But are we talking about 10 million, $50 million, $100 million? What are what are we looking at in terms of how big you think this business is could be? And then to the extent you exit, what could they be in terms of asset sales?.

Yeah, again, thanks for the question. John, I would say on an annualized basis, from a revenue perspective, we're thinking that probably in the $25 million, maybe $25 million to $30 million, so between $2 million and $3 million monthly revenue..

At roughly corporate margins?.

Correct. Yeah. And if we don't get corporate margins or see a clear pathway to that, then don't be surprised if they show up as asset sales, right..

Super. Guys, thanks a lot, and good luck. You got a lot of work. Yeah, bruschetta. Thanks, John..

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bodden for closing remarks..

Again, thanks everyone for joining us. I’m not sure we have a lot to add from what we talked about. There is a lot of work going on. Hopefully, you sent our optimism about what we're doing and what we've accomplished today. So again, thank you everyone, and I look forward to talking to you next quarter..

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