Ranger Energy Services, Inc. Class A

Good day and welcome to the Ranger Energy Services fourth quarter 2021 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 a touch tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Stuart Bowden, CEO. Please go ahead.

Thank you, operator. Good morning, everyone. This is Stuart Bowden, President and CEO of Ranger Energy Services. I'm joined today by Ranger's CFO, Brandon Blossman. Welcome to the Q4 2021 Ranger Energy Services Analyst Call. Before we begin, I would like to recognize the citizens of Ukraine. The Russian invasion of Ukraine has made it difficult to celebrate the most recent run-up in oil prices, but the Ukrainians' bravery and resilience is an inspiration to us all. Regarding Ranger, Brandon and I have been looking forward to speaking with you for some time. We're excited about the basic integration, Ranger's Q4 results, and our outlook for 2022. As you may have noted, we have changed our reporting lines to provide greater transparency into our primary service lines. We are now reporting three segments, high-spec rigs, wireline, and processing solutions and ancillary services. High-spec rigs includes production and completion-related well-servicing work. The wireline segment includes production and completion-related wireline work. Processing solutions and ancillary services includes our torrent infield gas processing business, coiled tubing, plugging and abandonment, P&A-related cementing services, and rentals and fishing tools. Like everyone, we are experiencing increased demand for our services and better pricing. However, supply chain and labor issues persist, and attracting new labor into the industry in particular remains a challenge. That said, we believe Ranger is set up for a very strong 2022. The high-spec rigs business continues to perform in line with our aggressive expectations. We are the clear market leader. Demand is increasing, and we have been successful in increasing price and leveraging the performance of our high-spec rig fleet. The wireline business has a more competitive landscape. However, both pricing and operational performance are now showing improvement. We definitely see a clear path to a very successful second half of the year, both from a demand and a pricing perspective. The legacy business lines embedded in our new processing solutions and ancillary services segment who are already material and successful businesses in their own right. The basic acquisition brought several new lines of business to this segment, and we have evaluated each of these businesses for fit. We have decided not to sell any of these businesses at this time. As on review, we now believe they are all capable of generating solid returns with growth prospects beyond what we experienced in Q4 2021. Before we dive into the Q4 results, It's important to remember that the fourth quarter represents the first quarter where we can see the impact of all of our recent acquisitions. The impact of the basic asset acquisition can be clearly seen when comparing Q4 to Q3. The third quarter represented a full quarter of our wireline acquisitions, whereas the fourth quarter represents a full quarter of the addition of the basic assets. Revenue for Q4 was $123 million with adjusted EBITDA of $9.1 million. At the segment level, High-spec rigs had revenue of more than $59 million and segment-level EBITDA of approximately or of $8.8 million, generating approximately 15% EBITDA margins. Wireline had revenue of $45 million and segment-level EBITDA of $1 million, generating 2% margins. Processing solutions and ancillary services had revenue of $19 million and $3.6 million of segment EBITDA, generating approximately 19% EBITDA margins. Corporate G&A after adjustments represented a very modest 3.5% of revenue. I'll now turn it over to Brandon to discuss Q4 in more detail.

Thank you, Stuart, and good morning to everybody on the call. Let me try to provide some incremental color to our Q4 numbers. First, I'll start at net income. So here, net income moved up quarter over quarter from a loss of $9 million in Q3 to a gain of $24 million in Q4. That's an increase of $33 million, driven essentially all by the positive impacts of the basic transaction, both on an operational and on an accounting basis. The spread between last quarters numbers and this quarter's numbers and also between the adjusted numbers for Q4 and the unadjusted numbers on both EBITDA and net income are particularly wide. So I'm going to take a little bit of time here to run through all of the adjustments that make up the delta between the net income and EBITDA as reported and as adjusted. So first on the net income, there is an adjustment of $6 million to That $6 million is a release of a tax valuation allowance that is associated with the 2021 tax year, and that is driven largely by the shift from a loss to a gain on the net income tax book, basically. Now, everything else will also be included in the EBITDA adjustments. So here we posted $9.1 million of adjusted EBITDA from Q4. And as you would expect, post a major acquisition, the adjusted numbers include meaningful adjustments related to particularly the basic acquisition. So specifically, the bridge between an unadjusted $32 million of EBITDA and our adjusted reported number of 9.1 include the following items. One, a reduction in EBITDA of $37 million. That's net of tax. on the booking of a bargain purchase for the basic transaction. Here, the minimum reasonable net book value that we recorded for the basic assets was well above our purchase price, putting us in the unusual position of needing to book again on that acquisition. Next, on the add-back side, we recorded $7 million worth of transaction costs, which were associated with the basic acquisition itself, our related equity capital raise, and the termination and refinancing of our revolver and term loan A, along with the addition of the term loan B. Also done in conjunction with the basic deal, as previously disclosed, we terminated our tax receivable agreement, which was settled with a $4 million stock issuance. This was also an add-back to EBITDA and net income. The unadjusted number also includes $1.5 million worth of bad debt expense, which we are adjusting out, which primarily relates to the still ongoing bankruptcy process of a former customer, and this is related to work completed in early 2019. And finally, we recorded $1.4 million worth of wireline perforating gun expense in Q4 on an inventory true-up which was more properly related to Q3 wireline operating expenses. The sum of all of these in and outs returns the reported $9.1 million of Q4 adjusted EBITDA. All right, so that's over with, and let's move on to the segment details. As Stuart noted, this reporting season marks the beginning of our new segment reporting structure, And as I go through the segments, I'll take a moment to share some additional notes related to that reporting structure, along with our historic KPI details that we generally provide. First, the high spec rig segment. This continues unchanged in structure from our legacy reporting. Here we capture the revenue and expenses of our service rig fleet, along with the revenues associated with any additional related equipment or onsite services, during that service delivery of the high-spec rig. What is new in this segment this quarter is, of course, the addition of the basic service rig fleet. However, do note that beyond the addition of the basic employees, the location and the service rigs from the basic deal of this segment remains fully comparable period to period. So on a quarter-over-quarter basis, so Again, this is the pre-basic versus post-basic comparison. The high-spec rig segment revenue was up sequentially 2x from $30 to nearly $60 million of revenue, while segment EBITDA margins moved down slightly from 16% to 15%. Average rigs working during the quarter moved from 67 to 167, an increase of 150 percent. Period revenue hours moved from 51,200 to 111,600, a 120 percent increase. Note that this 120 percent increase is fully attributable to the addition of the basic service rigs. The legacy ranger hours were approximately flat quarter over quarter. Offsetting, that increased in revenue hours was a drop in the composite revenue rate, which moved down 9 percent from 584 an hour to 533 an hour. Let me provide some color around that Q4 average rate. So that 533, as we entered into Q4, so the 533 was the average. As we entered into Q4, post-acquisition, the first month's average was 496, quite a bit lower But we exited the quarter, Q4, at a $561 per hour rate. I'll also note that as we move forward through the Q1, a little bit of a teaser here, we're back to at least the rates that we saw pre-basic acquisition on a composite basis. Now moving to wireline. A standalone wireline segment is new to our reporting structure. In the past, the Wireline business was co-mingled with other Ranger-branded services and reported on a composite or collected basis. We are now disaggregating Wireline as a stand-alone reporting entity. This segment, as a reminder, includes last year's Patriot and Perfex acquisitions, along with the legacy Mallard business. Here, we'll continue reporting the same set of operating metrics for the completion wireline business as we had historically. But note that this segment now includes the three largely integrated wireline services, as Stuart noted, completion work, production work, and also wireline-related pumping work. So overall, this segment, again, on a quarter-over-quarter basis, had revenue moving down slightly from $46 to $45 million, a drop of about 3%, while margins dropped from 3% to 2%. And then for the operating metrics, again, note that the operating metrics that I'll provide are like what we have provided historically and relate just to the completion side of the business. However, this still constitutes more than 80% of the segment's total revenue, So obviously very relevant to the overall segment. So again, just for completion trucks, the average working truck count moved from 20 to 18, a 10% decline, while the total completed stage count moved down from 11,400 in Q3 to 9,900 in Q4, a 13% decline. Here, Comparing Q3 to Q4, both the average working truck count and the period stage count declines were largely attributable to the weather and holiday schedule disruptions that we typically see in Q4. On the revenue side, the rate largely offset the declines in stage count and increased from $3,400 a stage to $3,800 a stage. This on a combination of both customer mix shift and individual customer price increases. And then finally, our last new recast segment. As Stuart noted, the processing solutions, the new processing solutions and ancillary services segment is the sum of our legacy torrent businesses along with several other service lines, both legacy ranger and new to us from the basic acquisition. Given that this segment includes such a wide-ranging group of business lines, we do not yet have a single set of operational metrics that stand out as useful in understanding the segment as a whole. We will continue to evolve on that front, and hopefully as perhaps some of those businesses grow in size, we'll be able to break out some operating metrics. But we have nothing to share today on the operating metrics side. And then just to wrap up, on a Q4 comparison basis, revenues in this new segment moved up from $6 million in Q3 to $19 million in Q4. That's more than three times again, like the Riggs business, largely on the addition of the basic service lines. Offsetting that slightly, margins moved down modestly from 23% to 19%. That's it for the segments. And now back to the overall company. CapEx for the quarter in total, was $2 million, with the majority of that spend associated with a multitude of small upgrades to the basic rig fleet necessary for those rigs to meet Ranger standards. At the end of 2004, net term debt stood at just over $34 million. That consists of a term loan A and a term loan B, each with an approximate balance of $12 million and our Perfex acquisition debt, which has a current balance of right around $10 million. Liquidity at year's end stood at $19 million. That was up $5 million from Q3's ending $14 million, and that $19 million was composed of $27 million of draw against a $45 million borrowing based on a revolver plus approximately $1 million of cash on hand. Mid-week this week, that number was largely unchanged and stood at approximately $18 million of liquidity. I think that's it for me and the numbers, and let me hand it back over to Stuart.