Ranger Energy Services, Inc. Class A

Good day, and welcome to the Ranger Energy first quarter 2020 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Darren Anderson, Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to Ranger Energy Services' first quarter 2020 earnings conference call. Joining me today is Brandon Blossman, our CFO, who will offer his comments in a moment. Well, a lot has changed since we last spoke, but before we focus on the changes, I'll briefly discuss what has remained constant across Q1. Record rig revenue per hour and record wireline stage count again led to consistent revenue in EBITDA performance, both approximately flat to 1419 results. Strong cash flow from operations were directed toward modest growth capex items, debt reduction, and stock buybacks, which Brandon will cover in detail momentarily. I think our results speak for themselves, and frankly, we were off to a start that tracked on top of our 2020 plans. Now, let's move to the market changes and our new path forward for 2020. While we're experiencing some relative outperformance versus peers, on an absolute basis, the reduction activity over the last several weeks has been extraordinary. The activity reductions have not only been dramatic in scale, but also swift in timing. While this downturn has outpaced all previous market declines, Our management team has weathered previous storms, and we know exactly what actions have to be taken. While we've always taken pride in operating a lean and efficient cost structure, we immediately redesigned and right-sized our business to match current activity levels. I first want to give you a clear picture of our current activity before moving on to our cost adjustments, starting with our high-spec rigs. For April, rig hours declined approximately 53% as compared to our first quarter monthly average. While forward visibility is near non-existent, we do not believe a bottom has yet been reached. Pricing has been impacted to a lesser extent, as activity clients today have been driven purely by work stoppages, not pricing debates. This being said, we do expect to see more rate pressure moving forward. Over the last several quarters, our high-spec rig group has continuously gained market share while high-grading its customer base. Although these efforts have not shielded us from this downturn, I can give you several examples of Ranger rigs being the last rig currently operating in select customer fields. And even in today's market, we're doubling down our efforts to target large integrated and independent operators with new multi-rig proposals implying the potential for market share gains, if not today, at some point in the future when activity levels return to some form of normalcy. I definitely want to point out that with any new business discussions, we are setting pricing discussions in a full cycle sustainability context. To us, it seems pointless to win additional work that has no contribution margin and simply wears out our equipment. Moving on to wireline, we average 11 trucks of utilization during Q1, effectively max utilization. We average approximately six in April and end of the month with five trucks running on a dedicated basis. While this is materially better utilization than some of our permanent wireline periods, it is still dramatic on an absolute basis. Again, visibility to future activity cannot be determined, but given the dramatic pullback in frac activity within Permian, downside exposure continues to exist. Now, our processing solutions. As discussed in our last call, our touring business saw a significant decline, and the fourth quarter driven more by business-specific issues rather than industry or structural issues. We recently implemented management changes within this business and expect to see some improvement in results, though any improvements, of course, are likely to be modest given the current macro environment. Moving on to the cost side and actions taken today. I'll give you some metrics in a moment, but qualitatively, I would say that our work on this front has been equally aggressive and swift as activity changes experienced. all with the objective of ensuring our business lines continue their positive contribution while maintaining at least neutral cash flow at the corporate level. Our headcount is currently down approximately 50% from mid-March. This reduction spans across every field location to our corporate office. With staff reductions of this magnitude, we've lost some great team members, but we've also made the necessary adjustments to maintain a talent base that will continue to provide a high level of service to our customers and one that will quickly allow us to operationally respond in an improving market environment. Additionally, we've implemented salary reductions across our entire organization. Within the first few weeks of implementing these difficult steps, our payroll expense was reduced 60%. We have consolidated two of our eight rig locations, netting down to six, and expect other costs such as repair and maintenance to be down materially on both an absolute and per unit basis. These actions, along with several other operational, travel, and organizational expense reductions to date, will result in more than $100 million of annual cost savings. On the capital spending front for 2020, all new capex has been eliminated. We will have modest final payments on asset commitments made in late 4Q19 and early 1Q20, but no further growth capex will be spent. Our maintenance capex has historically been extremely low due to the quality of our asset base. Here again, we expect an absolute mental spin for the remainder of the year. In summary, one good quarter has now been followed by service industry fighting for survival. We have and will continue to make the necessary adjustments to maintain the health of our business. Although our industry is facing unprecedented challenges, we look forward to relying upon our incredible team members, the strength of our organization, and a sound balance sheet to allow us to excel when others cannot. I will now turn the call to Brandon for more details on the quarter.

Thanks, Darren, and good morning to everyone on the call. All right, we're moving back to Q1 and going to jump right into a full walkthrough of the numbers. First, on a consolidated basis, relative to last quarter, Q1's revenues were up 1% or approximately $1 million, moving from $80 million to $81 million. Adjusted EBITDA was flat at $11.4 million, while adjusted EBITDA margins held in at just over 14%. Now moving to the segment level and starting with revenue. Quarter over quarter revenues saw an increase at our completion and other services segment, which was partially offset by declines at processing solutions, while high spec rig revenue was just up from flat. Specifically, high spec rig revenue was up $100,000 to $35 million. with an increase in rig rates being offset by a decrease in period rig hours. Notably, hourly rig rates set a new peak this quarter, moving from $534 an hour to $558 an hour, which was an increase of $24 an hour or a 4% increase. On the other hand, revenue hours went down from $64,400 to $62,400 a 2,000-hour or 3% decline. In the completion of other services segment, revenue was up 5% or $2.2 million, moving from $41 to $43 million for the quarter, with wireline showing growth and the other non-wireline services seeing some declines. Here, wireline revenues were up 10% sequentially, driven by a record 22% increase in period stage count, partially offset by a 10% reduction in rate per stage. Note that this 22% increase in stage count is on top of a previous Q4 record stage count. While the drop-off in other non-wireline service lines was primarily driven by a soft January in the DJ base and service lines. And finally, At our processing solution segment, revenues here were down $1.5 million, or 35 percent, moving from $4.3 million to $2.8 million. The driver of this decrease, similar to last quarter's decrease, was a reduction in MRU utilization with an incremental three units coming off contract and not being deployed during the quarter, moving the average unit count down from nine to six. As Darren just noted, we have made recent management changes in this segment and expect this trend to reverse over time. Now moving on to segment-level EBITDA and margins. Overall, consolidated segment-level adjusted EBITDA, this before corporate G&A, saw an increase of 5% sequentially, moving from 17 million to 17.9 million. Here at the segment level, the sequential increase in EBITDA at completion and other services was offset by declines in high-spec rigs and processing solutions. Specifically for the quarter, completion and other services saw an EBITDA increase of $2 million, which was offset by a $700,000 decline at processing solutions along with a modest $400,000 EBITDA decline at the high-spec rig segment. On the margin front, Consolidated segment margins, again, before corporate G&A, were up slightly from 21% to 22%. Disaggregating that overall 22% margin to the segment level, in completion and other services, margins were sequentially up from 23% to 27%. Here, a mixed shift towards higher margin completion work, along with a continued cost management effort, helped to push margins up. High spec rig margins saw margins decline just slightly from 15 to 14%, driven by some modest increases in early of the year tax and benefit costs. Processing solution segment margins were flat at 48%. Moving on to G&A expense. As adjusted, the G&A was down slightly year over year, but up $900,000 sequentially. That $900,000 expense uptick offsets the $900,000 EBITDA increase at the segment level, which leads to the unchanged quarter-over-quarter adjusted EBITDA result. This sequential G&A increase was driven by expected expenses associated with 2019 year-end reporting and early in the year compensation-related items. Now moving on to the net income line. For Q1, we reported net income of $2.8 million. That was a $2.9 million improvement from Q1's loss of $100,000. This improvement largely driven by a $2.1 million gain on the retirement of the $5.75 million ESCO debt, which was settled during the quarter. Now, moving on to the balance sheet and some cash flow items. During Q1, $9 million of cash flow from operations was offset by $6 million worth of cash cap back spend and $3 million worth of stock repurchases. However, net debt did decrease by more than $2 million due to the gain on the Debt retirement I just mentioned, moving net debt inclusive of vehicle leases from $46 million at the end of 2019 to $43 million at the end of Q1. Our term debt at the end of the quarter stood at $25 million, which was down the usual $2.5 million from Q4 per the quarterly amortization schedule. Moving to CapEx. Total CapEx recorded for the quarter was $5.5 million, which breaks down into $3.8 million related to high-spec rigs. As with last quarter, this spend was attributable to new assets and upgrades to rig packages in preparation for work for our new and existing integrated customers. We also incurred $1.2 million of expense for the purchase of two incremental wireline trucks and associated equipment. Maintenance CapEx came in at $500,000, and we did add $500,000 of new leased light duty vehicles to our fleet. During the quarter, we repurchased a total of $3.1 million worth of stock, which equates to about 340,000 shares. The majority of those repurchases were through a single privately negotiated transaction. And finally, to liquidity. We ended the quarter with $21 million worth of liquidity, consisting of $12 million worth of cash and $9 million of capacity on our revolver. That's down $6 million from Q4's $27 million of liquidity, and that's primarily on the back of the reduction in outstanding term debt and stock repurchases. That's it for my prepared comments, and I will move it back to Darren.