Ranger Energy Services, Inc. Class A

Good day and welcome to the Ranger Energy third quarter 2023 conference call. All participants will be in 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 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 Justin Whitley, Ranger's General Counsel. Please go ahead.

Thank you, Operator, and welcome to Ranger Energy Services' third quarter 2023 results conference call. Before the market opened today, Ranger issued a press release summarizing operating and financial results for the third and nine months ended September 30, 2023. The press release, together with accompanying presentation materials, are available in our investor relations section of our website at www.braingerenergy.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 risks described in our periodic reports 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 non-GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non-GAAP measurements is available in our latest quarterly earnings release and conference call presentation. With that, I would like to now turn the conference call over to Stuart Bowden, Ranger's CEO, and Melissa Coole, Ranger's CFO, for their prepared remarks.

Thank you, Justin, and good morning, everyone. Thank you for joining us today. I'm pleased to share our third quarter 2023 financial and operational results, results that reflect Ranger's resilience and ability to succeed despite the lower U.S. onshore drilling activity experience this year and sustained weakness in natural gas basins. I will begin with a summary of our third quarter performance by segment, followed by our thoughts for the macro setup as we head into our 2024 planning cycle. As we reflect on our business this year, we are incredibly proud of the hard work of our teams and the resilience demonstrated by our business. At a consolidated level, Ranger has seen sequentially increasing revenue, adjusted EBITDA, and adjusted EBITDA margin each quarter in 2023, despite U.S. rig count dropping by more than 15% since the end of last year. We talk frequently about our production-focused business model and our differentiation in service quality and safety performance. And this year, we saw that differentiation in action. To elaborate, we do have 30 to 40% of our revenues exposed to completion activity in some of our assets in Gadsier Basins. We saw some of those exposed assets get released during the spring and early summer. Due to the hustle of our operations teams and strong collaboration across regions, along with a strong reputation for service quality and safe operations, we were able to redeploy idled assets efficiently to keep revenue moving in the right direction in the high specification rig segment this year. We did have to contend with more white space than anticipated due to rig redeployments in the third quarter, but having the bulk of our assets allocated to production-focused work in oilier basins allowed us to limit churn and turnover to keep our baseline activity largely unaffected. Our ability to hold our revenue level and even increase them in some segments, despite the decline in overall onshore activity this year, should provide clear evidence about the flexibility and robustness of our production-focused business model and strong operational teams. Finally, in its further support of our strong operational performance, we are pleased to have signed a new customer agreement with a major integrated onshore operator this quarter that provides for significant market share of the wealth service work in their onshore U.S. asset portfolio. This agreement and commitment for work provides us with higher confidence in our 2024 plan and opportunities for further growth from an already strong base of revenue with this customer. We have talked in the past about our positioning with larger customers and vendor consolidation momentum, and it is encouraging to realize the first of what we hope will be a series of similar agreements. Stated already, but worth reiterating, is the fact that our highest quality customers are willing to get stickier in their agreements with Ranger, which is a testament to the commitment and service reliability of our teams and the industry-leading quality of our assets. Moving on to our third quarter specifics, we reported net revenue of $164.4 million, the second highest revenue quarter in Ranger's history. Looking at trends in our business, I'm pleased that, although down from our record third quarter of last year, we have been able to provide steadily increasing results across 2023. Net income on a year-to-date basis is $21.7 million, or triple that of the $7.5 million reported over the same period in 2022. Adjusted EBITDA for the quarter was $24.0 million, and adjusted EBITDA margin has increased from 12.8% at the beginning of this year to 14.6% in the third quarter. We realized higher EBITDA quarter over quarter in all segments and feel this sequential growth quarter over quarter will prove rare across North American onshore service providers. Our high-specification rig business has been a consistent source of stability and strength for us this year. We've talked a lot about Ranger's production focus and how it helps us weather energy sector volatility, and this segment's performance this year is exhibit A. Despite unexpected white space in the schedule due to several rig change-outs that created some additional labor costs, RIG HOURS HELD STEADY QUARTER OVER QUARTER WITH SLIGHT PRICING IMPROVEMENTS. MOVING ON TO OUR WIRELINE BUSINESS, THE NORTH REGION, WHICH IS OUR LARGEST CONTRIBUTOR TO THIS SEGMENT, SUBSTANTIALLY IMPROVED ITS MARGINS THIS QUARTER BY FOCUSING ON STRONG EXECUTION AND EFFICIENCY. HOWEVER, THE SOUTH REGION CONTINUES TO EXPERIENCE SIGNIFICANT COMPETITION AND PRICE DESTRUCTION IN COMPLETION SERVICES, ERODING MUCH OF THE PROGRESS WE MADE LAST YEAR. WE'RE CONTINUING TO MAKE A STRATEGIC FOCUS A STRATEGIC SHIFT TO FOCUS ON PRODUCTION AND PUMP DOWN ORIENTED WIRELINE WORK WITHIN THE SOUTH REGION WHILE CHOOSING NOT TO BID AT BREAK EVEN LEVELS OR BELOW. THIS WORK BETTER ALIGNS WITH RANGERS PRODUCTION FOCUS AND COMES WITH HIGHER MARGINS AS WELL. AND WE EXPECT THIS REALIGNMENT WILL RESULT IN STRONGER SEGMENT CONTRIBUTION AS WE MOVE INTO 2024 AND PROVIDE FOR MORE SEASONAL RESILIENCE. Relative to the fourth quarter of 2022, we've grown revenue by 10% despite the decline in U.S. drilling and completion activity, and we've also more than doubled operating income over the same period and increased adjusted EBITDA by 57%. Finally, with our ancillary services business, we have achieved modest sequential improvements largely across the board in 2023. Our P&A business has grown by double digits this year, which has been an intentional effort on our part. AND OUR COIL AND RENTALS BUSINESSES HAVE HELD STEADY DESPITE ACTIVITY DECLINES. WE HAVE SEEN SOME PRICING DECLINES BOTH WITHIN OUR COIL BUSINESS AS WELL AS OUR RENTAL BUSINESS BECAUSE OF NEW COMPETITION THAT MIGRATED FROM GAS TO YOUR BASINS THIS YEAR WHICH HAS AFFECTED OUR YEAR TO DAY MARGINS. WE'RE HARD AT WORK TO MAINTAIN GROWTH MOMENTUM IN OUR P&A BUSINESS AND ALSO RESTART GROWTH IN OUR RENTALS AND COIL BUSINESS. WE HAVE ACHIEVED STEADY ALBEIT MODERATED GROWTH THIS YEAR DESPITE SIGNIFICANTLY LOWER THAN EXPECTED CUSTOMER ACTIVITY. The activity declines on the completion side certainly threw off our original, much more ambitious growth plans for the year, and we have aggressively reacted to those activity declines by redeploying assets, pursuing operating efficiencies, and reorganizing where appropriate. The great news is that the challenges we've experienced in 2023 have made our fundamental business stronger today than it was a year ago, with higher margins and more streamlined operations. You saw in our earnings release this morning that we adjusted our full-year guidance to calibrate for year-to-date results, and although disappointed to pull back our expectations, our team has handled the market challenges this year remarkably well, and it's poised to hit the ground running in 2024. We are also still on track to convert 60% of our adjusted EBITDA to free cash flow this year, which is an important differentiator for Ranger and influences our capital return strategy. The latter part of 2022 and early part of this year was spent evaluating, developing, and ultimately rolling out a capital returns framework. The framework we announced included returning at least 25% of free cash flow to shareholders through a quarterly dividend and or share repurchases. No other small cap oilfield service company has the fundamental strength and confidence in its business to be able to offer this kind of shareholder returns program. In the third quarter, we paid off the first quarterly dividend in Ranger's history at $0.05 per share. Additionally, I'm pleased to report that year-to-date, we have repurchased approximately 781,000 shares for approximately $8.6 million, reflecting our belief that Ranger's shares traded a compelling discount to their intrinsic value. We have approximately $26 million of authorization remaining, or 14% of our current float, and intend to opportunistically deploy that capital to buy back shares should conditions be supportive, although we remain mindful of liquidity. Through the end of the third quarter, we have already exceeded our 25% annual shareholder return commitment. Looking ahead, we hold a similar view to other industry observers who believe the rig count is close to its bottom and we anticipate increased activity levels in 2024 as customer budgets reset. The tight global supply and demand balance suggest a constructive oil and gas market, and our early conversations with customers have been positive. Furthermore, the two recent major consolidation announcements in E&P indicate both a positive long-term view of North American resource development and an opportunity for the highest quality service providers to continue to gain market share. We are observing an increasingly prevalent trend among our customers to consolidate their service providers, which holds positive implications for Ranger's business, particularly as we look forward to recovery and reactivity going into 2024. In conclusion, while we have faced unexpected market headwinds this year, our ability to adapt, innovate, and focus on efficiency has allowed us to not just weather the storm, but to thrive. We remain steadfast in our commitment to create value for our shareholders. The steps we've taken, including accretive acquisitions, share repurchases, and the initiation of a quarterly dividend showcase our dedication to delivering value to our shareholders. Before I turn the call over to Melissa, I want to mention our other press release issued this morning. As part of our board succession process, WE INITIATED A SEARCH EARLIER THIS YEAR FOR TWO NEW BOARD MEMBERS, AND WE ARE HAPPY TO ANNOUNCE THAT CARLA MISHINSKI AND SEAN WOLVERTON HAVE AGREED TO JOIN THE RANGER BOARD STARTING IN THE NEW YEAR. THEY BOTH BRING A WEALTH OF INDUSTRY-RELATED EXPERIENCE AND FRESH PERSPECTIVES TO OUR BOARD THAT WE ARE EXCITED TO HAVE AVAILABLE TO US. AS PART OF THESE CHANGES, BILL AUSTIN, WHO HAS BEEN OUR CHAIRMAN, AND DICK AG, WHO MERGED HIS PRIVATE WEALTH SERVICE COMPANY INTO RANGER BEFORE THE IPO, will both be exiting their seats at the end of this year. Both have helped nurture and guide Ranger for these past several years and have been instrumental in the growth experience since 2021. Because of their leadership and guidance, Ranger has successfully completed multiple acquisitions, simplified its capital structure, achieved net debt zero, and implemented a capital returns program. We could not have done this without them, and we wish them well as they take on new endeavors. As part of this transition, Michael Carney will assume the role of chairman in 2024. Mike has been chairman of two other publicly traded companies and brings not only his deep knowledge of Ranger, having served on the board for several years, but also his wealth of knowledge from his prior experiences. It's an exciting time at Ranger. We are successfully navigating the headwinds of 2023 and positioning the company for continued growth and to benefit from E&P consolidation. With that, I'd like to turn the call over to Melissa to discuss our financial results and outlook.