Good morning and welcome to the Ranger Energy First Quarter 2023 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 Shelley Weimer, Vice President and Financial Reporting. Please go ahead..

Thank you, operator. And welcome to the Ranger Energy Services first quarter 2023 results conference call. Before the market opened today, Ranger issued a press release summarizing operating and financial results for the three months ended March 31, 2023.

This press release together with the accompanying presentation material are available in the investor relations section of our website at www.rangerenergy.com. Today’s discussion may contain forward-looking statements about future business and financial expectations.

Actual results may differ significantly from those projected in today’s forward-looking statements, due to various risks and uncertainties, including the risks described in our periodic report filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements.

Further, please note that non-GAAP financial measures maybe disclosed during this call. A full reconciliation of GAAP to non-GAAP measures are available in our latest quarterly earnings release and conference call presentation. With that, I would like to now turn over the conference call over to Stuart Bodden, Ranger’s CEO, for his prepared remarks..

Thank you, Shelley. Good morning, everyone. Ranger's performance during the first quarter continued to reinforce the resiliency and attractiveness of our business model.

As a result of the hard work done in 2022 to integrate the basic asset purchase and the Patriot and PerfX’s acquisitions, our year-over-year results demonstrates the leverage and growth potential of the business. Despite challenges in the natural gas markets, we achieved significant year-over-year growth across each of our business segments.

And I would like to share with you some of the highlights in this quarter as compared to the first quarter of 2022. Total company revenue increased 27% to 157.5 million with growth rates between segments ranging from nearly 20% to 50%, as compared to the first quarter of 2022.

High Specification Rigs revenue grew 19% year-over-year with continued strong activity in all markets and significant pricing gains.

Not to be outdone, our wireline services division grew revenue by 29% year-over-year with increasing activity levels in our production business where we have a focused growth effort and incremental pricing improvements across completions productions and pump down service lines.

Finally, Ranger's processing and ancillary service segment increased revenue by 50% year-over-year. The operating leverage and synergies from our integration efforts were also well demonstrated with cost of services improving 400 basis points to 83% of revenue as compared to 87% in the prior year period.

We achieved a 109% increase in adjusted EBITDA in a 500 basis point expansion and margin from 8% to 13 %. The Ranger team is proud of the traction we have found with the combined businesses and feel these results continue to reinforce our strong position in the marketplace and our ability to continue growing.

Our business also continues to generate substantial free cash flow with $12 million reported in the first quarter of this year, further demonstrating the value of our strategy, and the modest capital investments required to maintain our industry leading fleet.

We believe our 60% free cash flow conversion rate distinguishes Ranger amongst oilfield service providers and gives us a strategic advantage going forward.

[Indiscernible], 4:39 the cash flows generated over the last 12 months enabled us to rapidly reduce our adjusted net debt balance from $80 million this time last year to less than $10 million of adjusted net debt at quarter-end, very close to our stated goal of being net debt 0.

Why are we so focused on debt reduction? Because we believe that balance sheet strength, particularly in the sector known for cyclicality, it's critical to building a business that consistently performs for the benefit of shareholders.

It gives us flexibility to adapt changing market conditions, strategically seize opportunities as they present themselves, and provide a programmatic return of capital to our shareholders.

Consistent free cash flow and a fortify balance sheet has increased our confidence in the underlying strength of our business and provided us the opportunity to focus on maximizing total shareholder returns.

As announced last quarter, the Ranger Board has committed to returning at least 25% of our annual cash flows to investors through a combination of share repurchases and a 5% per share of quarterly dividend that will commence upon achieving our net debt 0 target.

When it comes to capital allocation and shareholder returns, both the Board and management are taking a disciplined approach to evaluating the best available options to maximize shareholder returns. As such, late in the first quarter, we began repurchasing shares of our common stock on the open market.

Given the value of our shares, we believe the repurchase offers the greatest return on capital available to us at this time. We continue to actively evaluate our capital deployment options, including potential acquisitions and will remain diligent in prioritizing shareholder returns as we proceed.

Before I turn the call over to Melissa, let me share my thoughts related to the macro environment and the expected impacts to our segments, as well as the way we are responding.

While commodity price volatility in the first quarter, particularly in natural gas has presented a challenge, it has not dampened our view that the supply demand fundamentals for oil and gas and our services remain constructive.

All natural gas prices are depressed relative to one year ago, remember that significant LNG export capacity is expected to come online by 2025, increasing demand and relieving bottlenecks that have dampened prices.

As a result of the falling gas prices in the first quarter, Ranger has seen activity changes and felt the impact of these declines in [natural gas license] [ph]. Although there are nuances to be appreciated between our segments.

In our Wealth Services segment, although some rigs were idle during the quarter, there was more than enough demand for our rigs from other customers or in other basins, which virtually offset all negative effects, say for nominal logistics costs.

We relocated some assets and crews from the Haynesville to the Permian and were able to hold pricing and asset utilization steady. A huge credit to our operational teams who [indiscernible] 7:39 this quarter to hold utilization through these changes and we are very pleased with the results thus far.

And feel our growth prospects for the year remain very encouraging. In our Wireline segment, our Northern wireline region, which represents the bulk of our wireline business, continues to outperform expectations and we feel confident in its upward trajectory as we move into the warmer summer months.

However, despite no meaningful exposure to [gas basins] [ph], our wireline operations in the Permian has felt the collateral effects of the market pullback as assets have been shifted into the basin by some of our competitors disrupting the supply demand balance.

We have also seen pricing softness creep in recently with pricing concessions being offered by others, despite price having not yet recovered to pre-COVID levels. We have been transparent about our work to transform our operations in this region and we remain focused and committed to that transformation as evidenced by our year-over-year improvement.

Although certain of our segments may experience more muted growth this year, we do believe that oil and gas prices are set for a multi-year up cycle and are confident that the services we provide will continue to be in high demand.

We are unique to many of our peers that have more drilling or completion only service lines, which predominantly rely on operators' CapEx budget whereas Ranger's exposure is more weighted to customers operating expense budgets through our production services. Let me summarize by saying we are very confident in the fundamentals of our business.

We continue to believe that Ranger's position to thrive in an upcycle environment and thanks to its balance sheet strength and business line diversity is uniquely situated to weather slowdowns when they occur.

Fundamentally, we are focused on capital efficiency and capitalizing on our considerable operating leverage to drive returns through cycles and maximize returns to shareholders.

Given our in line first quarter performance and visibility into the remainder of the year, we continue to expect revenue growth of approximately 15% landing between 685 million and 715 million for the year. And growth of adjusted EBITDA by over 30% at the mid-point to between 95 million and 105 million.

Importantly, as mentioned earlier and as demonstrated in the first quarter, we expect to convert approximately 60% of that adjusted EBITDA to free cash flow, providing the company with the ability to carry out a robust shareholder return program and grow the company through strategic acquisitions.

I will wrap up by thanking the incredible team of Ranger for their dedication and commitment to excellence. We are a services business with a high performance culture and we depend on our employees to a uphold the mission and values of our organization each and every day to be successful.

I'm proud of the work they do and our results are a direct reflection of their efforts. I will now turn the call to Melissa..

Thank you Stuart, and good morning, everyone. I am pleased to report that for the first quarter of 2023, our revenue increased by 27% to $157.5 million, compared to $123.6 million in the first quarter of 2022. The increase in revenue was driven by activity and pricing improvements across all three of our business segments.

Quarter-over-quarter revenue was relatively flat as we continue to deal with winter conditions in our Northern business and shifting assets in the South, due to [refill pressure] [ph] on gas prices. As Stuart mentioned, a real priority for us last year was integrating our businesses to improve margins.

In the first quarter, our gross margins were 16.9% of net sales, compared to 12.6% in the first quarter of last year. This improvement was due in large part to maximizing our operating leverage through fully integrating our businesses, reducing the number of operating facilities and increasing collaboration across regions.

Margin expansion was also facilitated by pricing improvements made in 2022. As part of our 2023 initiatives, we intend to continue streamlining operations and incrementally strengthen margins.

Net income for the quarter was $6.2 million or $0.25 per fully diluted share compared to a net loss of $5.7 million or negative $0.31 per share in the first quarter of 2022. This does not include the effect of our non-cash tax expense recorded during the first quarter that affected EPS by $0.07.

The company does not anticipate incurring material cash taxes during the current fiscal year. Adjusted EBITDA for the first quarter of 2023 was $20.1 million, more than double that of the first quarter of 2022.

First quarter adjusted EBITDA did carry additional payroll taxes and labor costs associated with incentive compensation programs during the quarter as relative to Q4 of 2022. Turning now to the financial performance of our business segments.

First, our high specification rigs segment revenue was $77.5 million for the first quarter, a 19% increase over the first quarter of 2022. We are pleased to report hourly rig rates of $689 per hour as compared to $577 per hour last year. Demonstrating that, we have been able to sustain pricing power, while providing outstanding service our customers.

As Stuart mentioned, our operations team successfully redeployed assets during the quarter and improved rig scheduling. For the quarter, operating income was up 55% year-over-year to $11.9 million, while adjusted EBITDA was up 23% to $17.4 million.

Next in our Wireline Services segment, revenue was $49.9 million in the first quarter of 2023, a 29% increase from $38.6 million in the first quarter of 2022. As a result of growing this business, operating income was $1.8 million, while adjusted EBITDA was $4.2 million, up meaningfully from the losses incurred during the first quarter of 2022.

Lastly, in our Processing and Ancillary Services segment, revenue was $30.1 million in the first quarter, up 50% from $20.1 million in the first quarter of 2022. Operating income was $3.4 million, an increase of 162% from $1.3 million in the first quarter of 2022. Adjusted EBITDA also increased to $5 million, up from $3.3 million a year ago.

Switching to G&A, we continued our year-over-year improvements reporting $8.4 million of expense as compared to $10.2 million last year as we continue to recognize less acquisition and integration costs.

G&A costs during the first quarter were affected by payroll taxes and associated labor costs, as well as additional professional fees in connection with our year-end audit that we do not expect to reoccur during the second quarter. And finally, we are proud of the strides we have made to build a best-in-class balance sheet.

As Stuart noted earlier, we paid off our credit facility during the quarter and reduced our adjusted net debt balance to $9.3 million. Our leverage levels position the company to act assertively in pursuing strategic opportunities in the future. The company spent $5.4 million of CapEx during the quarter.

And we would also call attention to the ability of Ranger to continue to monetize idle assets with proceeds of $4.3 million of asset sales during the quarter. Although we anticipate these sales to decline in the future, we remain vigilant and looking for opportunities to optimize our asset base.

Finally, and as Stuart mentioned, Ranger initiated its share repurchase program the last few days of quarter, suddenly purchases of 39,400 shares during the first quarter. With that, Stuart and I would like to thank you for your time this morning, and we will now turn the call over to the operator for Q&A.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Luke Lemoine with Piper Sandler. Please go ahead..

Hey, good morning..

Good morning, Luke..

Hey, good morning.

Stuart, you have a nice improvement, and High Specification Rigs on 1Q, even with some of the moves from the Haynesville to the Permian, but could you talk a little more about how you expect the market structure to unfold in the coming quarters?.

Thanks for the question, Luke. I think right now we are actually quite optimistic about how things are unfolding. We don't really have a lot of exposure to the gas basins. So, North Texas and Haynesville, but certainly we have some. And as we noted most of those rigs and crews have already been, kind of redeployed.

We're finding demand in the oilier basins for our services to continue to be very, very strong. So right now we're pretty optimistic going forward..

Okay, got it. Thanks, Stuart..

Next question comes from Derek Podhaizer with Barclays. Please go ahead..

Hey, good morning everyone. So, I want to get your thoughts on the Permian wireline completions market. So, we're seeing the increasing trend from pressure pumpers to integrate around the frac site, which includes wireline optimizing revenue per frac job, which could come at the expense of pure wireline pricing.

Obviously, it's been a pretty volatile segment for you guys terms of the margin.

You've mentioned Northern operations are performing well, but what are your current thoughts on your long-term position in the Permian completions market? Are you going to keep trying to consolidate the fragmented market or could this potentially actually be an exit for you guys to those who are integrating around the frac value chain?.

Thanks for the question, Derek. So, at this point, we don't have any intention to exit the position in the Permian. Obviously, we're always looking at alternatives, but we don't have any intention to exit. And I think as you said in the Permian, we are seeing pricing pressure.

There is some bundling, but a lot of the pricing pressure we're seeing is actually not from the bundled services, but it's from other players. And we have seen people bring in truck from South Texas and the Haynesville end of the Permian..

Got it, okay. That's helpful. And then just talking about the Haynesville, I guess this is more of a High Spec Rig question.

So, what are your Haynesville customers telling me about activity levels for the rest of the year? I know you said you redeployed your assets out of the basin, but have they indicated a timeline when they would want you to return to the basin, just any color around timing as far as activity would be helpful?.

And thanks for that, Derek. I just want to clarify, we have not exited the Haynesville basin. There have been some assets that we deployed when customers laid down those rigs. But we have another customer that's – we're about to go put a 24- hour drill out rig out in the next two weeks. So, we are still active in the basin.

Most of what our customers are saying is, after kind of some of the initial softness, we're not we're not seeing kind of big movements one way or the other at this point is what I would say. And then I think I would also just say and this is really across all basins Derek. We are seeing a trend that as the E&Ps consolidate.

They're starting to consolidate their vendor lists. And so we're at we're active in a number of conversations with particularly larger players and this is across service lines who are trying to streamline their vendor lists and really focus on players with outstanding service quality and we think that really plays to our strengths..

All right, great. Appreciate the color. I'll turn it back..

Yes. Thanks, Derek..

Next question comes from Don Crist with Johnson Rice. Please go ahead..

Good morning guys.

How are you all today?.

Good.

How are you Don?.

Doing well. Obviously, we've been focused on the rig count and a lot of, kind of new drill-outs for you all. But given your exposure to the workover, community, and with oil kind of moving up to that mid-70s level, although it's down a little bit today, can you talk about the demand for work over rigs in particular on the, kind of work over side.

It seems like you saw a pretty good pickup in pricing traction there in the first quarter. Just your thoughts around that..

Yes. Thanks for the questions Don. I would say particularly on the workover and the production related work, we're really not seeing any, kind of slowdown at all. We did see some slowdown again specifically in some of the [gas year basins] [ph].

But I would say with oil prices holding steady and then, kind of increasing recently, on the well servicing side, the production side, particularly the Permian and the Bakken has been – demand has been very, very strong..

Okay. And just one further one from me. I know in the past you've talked about being a natural consolidator and there being a little bit of pickup in M&A talks anyway.

Has that bid ask spread come in any given the perceived weakness in service demand over the past call it 3 to 4 months?.

I'll let Melissa kind of weigh in as well. But I think we feel like it is starting to close. I think that we obviously don't have a deal to announce, but I do feel like conversations are just becoming a lot more realistic about where kind of the market is trading. So, I do think it's starting to close..

Yes. I would – I think Stuart said it well. I think the conversations have picked up certainly in number of frequency, number of outreaches. I think there still maybe some underlying differentials, if you will, but the conversations are progressing to a more meaningful level.

And I people are starting to become more realistic as, sort of the space matures and frankly we've had a little bit of uncertainty creep in recently..

Okay. And if I could sneak in just one more, it looks like you're on track to be net debt free call it by the end of the second quarter or so.

Am I correct in thinking that the dividend that y'all announced last quarter could come into play in the third quarter? Is that kind of the right way of thinking about it?.

Yes. I think that's the right way to think about it. I think it's – the capital allocation between the repurchase program and the dividend, as we kind of navigate working capital and the ramp here over the next quarter a little bit of puts and takes, but I think that that's very realistic in our side..

Yes..

Okay. I appreciate the color. Thanks a lot..

Thank you, Don..

Next question comes from John Daniel with Daniel Partners. Please go ahead..

Hey, thank you. Just a first and operational question for you all. As you look back the last several quarters, there have been a bunch of E&P companies increasingly chatting about refracs and the opportunities for them.

This is probably a dumb question, but can you remind me what your opportunity set is with refracs and what you – what maybe you've done thus far? Just some color would be helpful..

So, I don't think that – well, I’m going to refrac – for us would be pretty similar to the exposure that we have both in our current [indiscernible] services and wireline operations. I think we are seeing. I think we are seeing as you said, kind of increasing demand for refracs and so we're certainly active in those conversations..

Would it just be the same as any completion, just a normal drill out and stuff like that or is there anything – I was curious if there's anything different or if there's another subset of demand that you see coming from that?.

There's nothing different than what we're currently offering, but I think – but we are seeing – we're increasing demand from what we offer just based on that..

Got it. Okay.

And then the question on M&A, with respect to some of the smaller call it bolt-on transactions where you all, where Ranger passes on them? Can you say with – I don't know, when that decision is made today is it valuation driven? Is it equipment quality driven? What's typically making you say no most of the time?.

Yes. So, I'd say first and foremost, at times it's valuation, right, sort of the consideration, I think that's one. Probably at this point, we've seen – we've been very open about the fact that we do have assets that we could invest in and redeploy. So, asset quality has to be pretty high for us. Otherwise, we're just buying customers, right.

So, I mean I would say that – I would say what we've looked at. I don't feel like we've seen a bunch of companies with bad assets necessarily. It's been one of the valuation side..

Yes. I mean, I might add a little bit of color there, John, to say, when it's smaller and more bolt-on or string of pearls, if you will, our - I would say our threshold is higher. It would be fair to say.

And so, I actually think that to Stuart's point, the valuations are being the issue, but it ends up being a valuation because if it's a smaller, sort of ones [indiscernible] type company, then we need to have that more – much more opportunity set.

So, it's typically a conversation that ends in, hey, we would be willing to entertain this, but cures our valuation and then you're back to the [bid ask] [ph]. And we would tell you that kind of – so it's valuation, but it's more we're not willing to pay as much for it unless it can actually move the needle more meaningfully for us.

And on a smaller basis that, sort of that criteria is higher and we're [more stringent] [ph]..

Got it. Okay. One final one for me again, sort of an operations question, but there's always been talk over the years about do we ever build an electric rig for workover? And it's always been cost and so forth.

I'm just curious in your lifetime, Stuart, do you expect to ever see an electric workover rig?.

I think in my lifetime, I think a new bill pure electric rig. So, it's like a pretty long putt. I think there have been some conversations – or we are having conversations with some players, about potentially reserving some of our rigs.

And even if they're not fully electric, potentially putting on battery packs so that they could hook into full power on location. So, I wouldn't be surprised if we see, kind of a refurb. Building from scratch feels like a long time at least from me..

Fair enough. Okay. That's all I got. Thank you..

Thank you..

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

Thank you, operator. Quickly thank you everyone for your interest in Ranger and participating in the call and hope everyone has a great week..

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