Ranger Energy Services, Inc. Class A

Good day and welcome to the Ranger Energy fourth quarter 2024 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. And to withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Joe Meath, Vice President of Finance. Please go ahead, sir.

Thank you and welcome to Ranger Energy Services' fourth quarter and full year 2024 result conference call. Ranger has issued a press release summarizing operating and financial results for the three and 12 months ended December 31st, 2024. The press release and accompanying presentation materials 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 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 THAT NON-GAP FINANCIAL MEASURES MAY BE DISCLOSED DURING THIS CALL. A FULL RECONCILIATION OF GAP TO NON-GAP MEASUREMENTS ARE AVAILABLE IN OUR LATEST QUARTERLY EARNINGS RELEASE AND CONFERENCE CALL PRESENTATION. WITH THAT, I WOULD NOW LIKE TO TURN THE CONFERENCE CALL OVER TO OUR CEO, STUART BODEN, AND OUR CFO, MELISSA KUGEL, FOR THEIR PREPARED REMARKS.

THANKS, JOE. GOOD MORNING, EVERYONE. and thank you for joining us today to discuss our fourth quarter and full year 2024 results. We closed out 2024 on a strong note, delivering another quarter of outperformance that reflects our team's focus on operational execution, disciplined cost management, and smart capital allocation. We have consistently showcased the resilience of our production-focused business model, exceeding expectations, and generating stable earnings and cash flow despite ongoing lower drilling rig and frack crew counts. And today, we are putting our money where our mouth is by announcing an increase in our dividend. We are excited about several things at Ranger, the outstanding results of our high-spec rigs business, the double-digit growth in our torrent business line last year, and that business line's prospect of being fully utilized later this year. The significant growth and margin expansion in our P&A and rental business the strong momentum in our share price from the fourth quarter through significant liquidity in share volumes, and a 2025 that shows the promise of continued steady growth. And looking at the quarter, we reported revenue of $143.1 million and adjusted EBITDA of $21.9 million, achieving a margin of 15.3%, a 320 basis point improvement over the same period last year, and the best profitability on record during a fourth quarter period. This quarter marked the third consecutive quarter of year-over-year margin growth. How did we achieve these results? Ranger is different because we have built a well-serviced business that is resilient through the cycle. It has generated strong cash flows and grown despite an unstable market and multiple customer consolidations. As more wells are drilled in the U.S. basins, more well-servicing work is needed and As our customers further consolidate, they recognize the need to consolidate vendors as well and partner with strong service providers. Ever since our transformative acquisitions in 2021, we have focused on driving efficiencies throughout the portfolio. We now have industry-leading well service capabilities in the Permian Basin, South Texas, the DJ Basin in Bakken, as well as in the mid-continent region. We have built a reputation for outstanding service quality, reliability, and safety, factors that have made us the well-serviced vendor of choice for some of the largest companies in the world. Ranger has gained market share because we have good relationships with major operators, and they are increasingly looking for vendors with strong reliability and safety programs that can provide full package solutions for their well site needs. This dynamic is most apparent in our high-specification rigs business, which has been a workhorse for Ranger. It is a very resilient business because it focuses so heavily on our customer's production base. It boasts strong margins of greater than 20% and delivers through macro environment and commodity price shifts. We have continued to aggressively drive efficiencies and expand relationships with our major customers to reduce white space on our operations calendar. These efforts have resulted in an average of 20% year-over-year EBITDA growth in the past three quarters. I received consistent feedback when engaging with our blue chip customer base that Ranger's well site inspections and field visits are second to none in this space. Our rigs are properly certified and maintained, and our crews are engaged and aware of the expectations of them on both the safety and service front. Throughout our organization, we focus on servicing our customers first and foremost, and through doing so, we differentiate ourselves and become more like a partner to customers who begin to appreciate that this level of service deserves a margin in return that supports the sustainability of our business. Both inside and outside of high-specification rigs, we like to maximize profit by making smart investments in high-margin growth areas. This is evident in the selective CapEx we deploy to augment our rig business, but also in ancillary services, which contains a number of smaller businesses that have seen meaningful growth and margin expansion thanks to strong demand. While revenues were relatively flat in 2024, adjusted EBITDA increased by 19% and margins increased from 18% to over 21%. One business we have previously highlighted is Torrent, our infield gas processing business. Torrent provides modular mobile equipment to capture, condition, and process wellhead natural gas that would likely otherwise be flared into the atmosphere. Our units provide a processing solution for stranded gas to deliver pipeline-spec natural gas for a wide variety of uses, including mobile power generation, dual-fuel frac, and even cryptocurrency mining. This year, we saw significant demand from our customers for this service, which allowed us to double EBITDA, and we expect to more than double EBITDA again in 2025 and potentially achieve full utilization later this year. We are looking at further strategic investments in this service to expand our capacity to continue to maximize the potential of this service line. We have also seen progress in our plugging and abandonment business this past year. The business saw year-over-year growth in 2024, and significant margin expansion as our business saw improved utilization and greater efficiencies. We allocated additional resources into this business in late 2024 to pursue additional opportunities, and we think this will continue to grow meaningfully in the future. While we focused on expanding high margin growth areas We have also had to make strategic decisions where demand and pricing have deteriorated. We have discussed the wireline completion service line at length in the past, noting the fundamental change in its economic model as frack crew counts have declined and it has become increasingly commoditized due to lower barriers to entry. The margins have become largely uneconomic in this product line, which had previously represented a large percentage of the revenues in our wireline segment. As a consequence, we have focused on pivoting to capture more work associated with conventional wireline services. 2024 was a year of transition, and we saw wireline revenue drop by nearly half and margins fall to single digits for the year as the loss of scale in the business negatively affected the remaining product lines. We acknowledge the challenges in wireline completions, and the management team stays highly engaged in our pivot to conventional wireline, which we believe will position us to stabilize the segment and extract long-term value when possible. Now let me turn to our strategic priorities and give you an update on how we are creating long-term value for shareholders. Our priorities have been consistent over time. The maximization of free cash flow, the prioritization of shareholder returns, and growth through accretive acquisitions while defending our balance sheet strength. We maximize cash flows by benefiting from light capital intensity, particularly as it compares to drillers and frackers. Each year, we expect maintenance capex to be between 4% and 6% of revenue, which allows us to generate significant free cash flow. In 2024, we achieved free cash flow of $50.4 million, or 64% of adjusted EBITDA. When you consistently generate cash as a small company, It provides flexibility for management to make the highest return capital allocation decisions, and you see that in our shareholder returns this year. We have also prioritized returning capital to our shareholders. We made a commitment in 2023 to return at least 25% of free cash flow to shareholders, and we greatly exceeded that baseline in 2023 and 2024, returning 40% of free cash flow to shareholders through a regular dividend and opportunistic share repurchases in both years. Because of our high cash conversion rate and our pristine balance sheet, we can take advantage of opportunities, whether internal or external to the company. For much of this year, the value of our own stock was the most compelling investment we could make, and we bought aggressively, spending $15.5 million net of tax to repurchase shares and reducing outstanding shares at an average price of just $10.11 per share an investment that has returned nearly 60% at current prices. As we look at 2025 and our continued belief in our strong cash flows, management, together with our board of directors, is pleased to announce a 20% increase to the regular quarterly dividend from 5 cents per share to 6 cents per share, reflecting our confidence in the stability and strength of our business and further demonstrating our commitment to return capital to shareholders in meaningful ways. When it comes to our balance sheet, if you have been a ranger shareholder for a while, you've heard us repeat the theme of flexibility, being able to take advantage of opportunities to grow long-term value. We can be nimble, opportunistic, and smart allocators of capital because of our balance sheet strength. At year end, we had nearly $41 million in cash and zero long-term debt. We are constantly evaluating opportunities for where our next dollar of capital should be deployed or returned. which leads us to our final priority of growing through accretive acquisitions. We believe we are a natural consolidator of a fragmented industry. We have been diligent in our search for opportunities to take Ranger to the next level, but also prudent as the bid-ask spread has been too wide for comfort. We remain highly disciplined in evaluating opportunities and will only pursue acquisitions that are strategically and financially accretive. We don't see signs of capitulation in the services M&A market, but we do see it becoming more rational and believe there may be attractive opportunities to pursue in 2025 that would add scale and efficiencies to the Ranger portfolio. As we enter 2025, we are well positioned to build on our momentum, leveraging our operational strengths and financial flexibility to drive sustainable growth and shareholder value. Our commitment to discipline capital allocation remains unchanged. and we will continue to prioritize shareholder returns while investing in opportunities that drive sustainable growth. Melissa will now review our financials in 2025 outlook, and we think you'll see in the numbers why we are so confident in the strength of our business and our ability to deliver shareholder value. Melissa?