Q2 2020 Ranger Energy Services Inc Earnings Call
Good morning, and welcome to the Ranger Energy second quarter 2020 conference call. All participants will be unless you tell me about should you need assistance. Please single Kalkan specialist Christian Starkey followed by Jim.
After today's presentation, there will be an opportunity to ask questions.
You asked a question you May press Star then one the telephone keypad to withdraw your question. Please press star too.
Please note this event is being recorded.
I'll turn the conference over to steer Anderson Chief Executive Officer. Please go ahead.
Thank you operator.
Good morning, and welcome to range or any services second quarter 2020, <unk> earnings Conference call.
Joining me today, it's Brandon Blossman, our CFO, who operate a common in a moment.
And last spoke.
Right what the met.
Materially Rightsizing, our business to match the need of the market.
As we sit here today.
Because there are the result that effort to have been very successful.
If you recall at the time are made first earnings call.
<unk> reduced our head count by 50%.
Taken across the board pay cut.
Shutting down to underutilized operating locations.
And initiated a number of other cost savings initiatives.
Triggering be difficult decision early provided a tremendous benefit to us for the remainder Q2.
First of all it lessens the demand of additional downsizing.
The market continued to contract.
Our headcount ultimately dropped and additional temperate climate teaching.
While only need to fall they want additional operational location.
Second.
Making our internal just quickly allowed us to turn off well attention back to our customers.
Given that the best chance to obtain all profitable work with a focus on flawless execution.
And finally.
Despite the velocity and it tends to be Oh this downturn.
Our management team extraordinary inhibition effort allowed us to deliver Q2 results that featured both positive EBIT da and positive cash flow alongside and your they both sequential segment margins.
And benchmarking this performance I get an extremely challenged <unk> market.
I can't be more proud of the job that our team has done.
And I'm truly appreciate the customer 17 countries Ranger at the partner.
[noise], both Ranger and are kind of what happened challenged across the board as demonstrated by 62% drop in revenue.
But the challenges do vary across the basin.
We've experienced activity and revenue drop in certain base of greater than 60 plus percent.
And these based on customer activity dropped to almost nonexistent for period of time.
Our market pricing he wrote it so badly their ranger opt not to participate.
Conversely.
In other markets the reduction activity, what's still severe.
Well remain Walter Twain, 50% drop with better pricing discipline.
Regardless of the various basin dynamics over.
Overall Ranger is benefiting from an operational and financial position of strength.
Resulting in market share gain during a declining market.
Our Q2 results are truly eggs are truly a reflection of our high quality operation and disciplined cost management.
We maintained positive adjusted EBITDA and cash flow through each month.
For.
Our two largest business line high spec rigs and wire line.
Able to hold segment level margin at pre downturn levels and exceptional achievement.
Brandon will walk you through the details in a moment.
But our ability to deliver this type of margin performance generate cash.
And pay down debt by 35% and arguably one of the work orders that are industry has ever experience.
Truly demonstrates the capability of the Ranger platform.
Well I, while it's far too early to call recovery underway.
Our business have come off the trough experience and Lake Mary.
Our by some of these details if I'm not walk you through our segment.
Specifically, starting with high spec rigs.
For the quarter rig hours were down, 61% and composite rig rate down 17%.
While rig Arthur self explanatory.
The change in composite rig rate, what predominately driven by a higher rate for re completion packages coming to a near Atlanta in Q2.
Well I would not just got athletes bigger.
Habitrol of our rig activity during Q2.
24, our completion work dropped to approximately 23, so popping threep set of our total rig activity.
As we sit here today, our overall rig activity is up approximately 40% from our trough.
With 24 activity returning closer to historical norm of approximately 10% of our active rig.
While these increases read a fairly large please remember I'm referencing our absolute low activity more.
The point I'm, making is our rig our magically going back to work.
And barring a macro driven reimbursed so the worst yeah hi this.
One other item on the rig side.
We continue to pursue our strategy of cut realignment, specifically with high LTV.
Again, our operational and financial strength and paving the way for these conversations and negotiations to take place.
We hope to have more to Sherri I mean for it on the success of the strategy.
Moving on track completion services and other.
On our last call I stated that our Mallard wireline group ended the month of April with five dedicate it wireline truck right.
That number for the decline and bottom at four in late May.
Dropping from an average 11 truck and Q1, two or Tropo trough before.
All due to completion stoppages and not pricing what immaterial hit.
The only positive metric for range or in this data is.
The primary Frac Frac count dropped to a low approximately 20 spread at published by outside sources.
This equates to a 20% market share farm ballot group.
I believe this demonstrates the quality of service if we put stork, we intend to bring to our customers.
Currently I'm very pleased our dedicated active truck count it back up to six as I work continues our return with some of the strongest Permian MP operators.
Rounding out our completion services and other segment as would be expected are smaller other services within this segment also experienced activity and revenues declined.
The declines experienced here were comparable to our rig and wireline activity changes.
And finally, a process thanks solutions segment.
Given the activity declines experienced by this segment in earlier quarters.
The performance of this business had already endured a large portion of its challenges.
And therefore held up relatively better than our other segments.
While our reported revenue was down this was entirely driven by lower mobilization and demobilization charges, which produced a smaller margin and our recurring rental revenue, resulting in an increase in gross margin relative to last quarter.
Before I turn it off the brand and I want to close with it.
The results reproduce this quarter with a product of strong operation a great balance sheet, and a culture of prudent and efficient decision making.
These are things that are not create a single quarter, but overtime.
So while it was a very tough quarter Rangers capabilities ROE will display showing that we built in Oregon organization that can withstand the most difficult markets.
Brandon I will now turn over to you detailed on the numbers.
Thank you Darin and good morning to everybody on the phone.
Let's go ahead and get started with a walk through of all the second quarter details.
First the consolidated numbers relative to last quarter, Q twos revenues were down 62% or approximately $15 million moving from $81 million for the quarter to for Q1 to $31 billion for Q2.
Adjusted EBITDA was down 72% or $8.2 million moving from 11.4 million to 3.2 million in Q2.
While adjusted EBITDA margins move down from 14% to 10.4% a quick note on the bridge to adjusted EBITDA here. The as adjusted result, does backout $1 million of severance and restructuring charges for the quarter. As there are noted we believe that we're done with our recycling efforts.
And do not expect to incur any further severance costs and the second half of the year.
Now moving down to the segment level and starting with revenue quarter over quarter revenues saw a decrease across all segments, specifically high spec rig revenue was down 67% or a 2.3, sorry $23.5 million moving from $34.9 million too.
$11.4 million in Q2. This the combined effect of a reduction in period rig hours and a decrease in the composite rig rates.
Revenue hours declined, 61% or 37800 hours and moving from 62000, 424600 hours and as Darren mentioned composite hourly rig rates declined 17% or $95, an hour and $558 an hour to an average of for her.
Hundred $63 an hour in Q2.
And the completion and other services segment revenue was down 59% or $26 million moving from 43 million to $18 million with both the wireline and other non wireline services seeing declines here.
Within this segment wireline revenues were down 60% sequentially driven by a 53% decrease in period stage count and a 14% decrease in composite price per stage, while the drop off in other nod wireline service lines was largely in line with.
Regional market dynamics.
And finally at our processing solutions segment revenues here were down 43% or $1.2 million moving from $2.8 million to $1.6 million with the majority of that decline driven by the lack of lower margin mobilization and demobilization revenue.
And now moving to the segment level EBITDA and margin percentages overall segment level EBITDA. This is before corporate DNA saw a decrease of 58% or $10.5 million moving from $18 million to $17.5 million.
Again, all segments contributed to this decline.
The margin front consolidated segment margins were actually up from 20% to 24%.
And now to disaggregate those two numbers down into the segment level.
High spec rigs.
Adjusted EBITDA was down 66% or $3.3 million moving from $5 million to $1.7 million with margins here holding flat at about 14.5%.
Depletion and other services, so adjusted EBITDA down 60% or.
$7 million moving from $11.6 million to $4.6 million and hear margins were down just slightly from 27 moving down to 26% in Q2.
For processing solutions, adjusted EBITDA decreased just 8% from $1.3 million to $1.2 million, while segment margins were materially up from 48% in Q1 to 75% in Q2.
As there are noted the margins associated with the service revenue. The primary driver of the decline in revenue was much lower than the base businesses rental margin and as such the revenue decrease here had a materially disproportionately small impact on the absolute segment margin and drove a positive impact on the gross margin.
As a percentage of revenue.
Moving on to DNA expense as adjusted DNA expense was down 23% year over year and down 34% sequentially moving from $6.5 million to $4.3 million in Q2, this reflecting the impact of our recent rightsizing efforts.
And finally on the net income line for Q2, we reported a net loss of $8.9 million.
$11.7 million decline versus Q1's income of $2.8 million. This decrease in net income that was incremental to the adjusted EBITDA decline was driven by Q twos lack of Q1 $2 million gain on the retirement of debt and Q twos severance.
And restructuring expenses.
Now moving on to cash flow and the balance sheet.
During Q2 $16 million the cash flow from operations was offset by less than $1 million of cash capex expense, which drove a net sequential decline in our net debt number of $15 million at the end of Q2, our net debt and this is inclusive.
<unk> of all our vehicle leases stood at $28 million again down $15 million from Q1, ending 43 million dollar balance at the end of our quarter, our term debt balance stood at $22 million down the usual $2.5 million from Q1's balance.
Total capex recorded for the quarter was less than $700000, which breaks down into $200000 of maintenance capex that as maintenance capex across all of our business lines and $500000 related to the final payments on too narrow wireline trucks ordered at the very beginning.
This year, along with payments on a new prototype gas processing unit.
We also added $300000 in non cash lease obligations for the renewal of some of our ITD capital structure.
On the liquidity fraud, we ended the quarter with $11 million of liquidity, which consisted of $6 million worth of cash and $5 million with the capacity at our revolver that is down $11 million for from Q1's $22 million liquidity, which was driven by the reduction in borrowing base.
As our accounts receivable balances declined through the quarter.
At our release date, our revolver was undrawn and our availability.
Stood at $10 million with a cash balance of about a million dollars.
That's all for me and I'll shoot it back over to Darrin for his concluding comments.
Thank you Brad I'll wrap up with a view brief comments.
Ranger in our entire industry has a steep climb ahead of us.
But with our business showing signs of improvement in our cost remaining highly contain.
We're cautiously optimistic about the feature.
The increase in activity that we've experienced thus far combined with the expectation of one to two additional wireline trucks being deployed over the next month and a handful of well service rig schedule return to work in early August.
All point to modest improvement.
We believe our suite of services allow us to participate in the return of delayed while maintenance work.
As well as the completion of does well and improving commodity price environment.
Additionally, the depth of this downturn has played an on barrel more burden on many of our competitors, which had and should continue just translate into further market share gain for Ranger.
Active foundation.
Historically, we have taken a particularly discipline approach to merger and acquisition opportunities and do not expect that mindset to change. However, we do note the opportunity set today.
As a multiple of what it was at beginning of the year.
And post downturn, we feel that the likelihood of executing an attractive transaction has materially increase.
While we continue to work through an extraordinary challenging period in our industry.
Our team has demonstrated that we are up for the challenge and we're determined to emerge even better and stronger.
Operator, This concludes our remarks, and we'll now open up the call for questions.
Thank you we will now begin the question answer session to ask a question you May Press Star then one on your telephone keypad, if you're using the speakerphone. Please pick up your handset pressing the key.
To withdraw your question. Please press Star then to.
At this time, we will pause momentarily to assemble our roster.
Thanks.
And the first question will be from Daniel Burke with Johnson Rice. Please go ahead.
Yeah, Good morning, guys.
Dan.
Let's see.
Fair enough I mean, you were.
You made a point you mentioned not to get too caught up with the.
The measurement of activity I think on the well service side up 40% from your absolute low, but I'll still ask was that was that a single day.
Sure.
During the.
Trough, where are we trough for a monthly trough just trying to measure not actually what's going on now that that going to people weekly trough, though we have the daily metrics and we.
We actually I can tell you exactly we reached a trough of beginning at the third week of May that lasted through about the first week of June and so its resting really that first we may were at our absolute trough in the that comparable to actually feature today.
I mean, our data show that across the organization, we hit a three week, while doing that type here.
Okay. All right. That's a that's that's really helpful way to contextualize, what they told me that progression I appreciate that and maybe one on a on the mallard side encouraging to see that that truck count nudge back touch higher I was just just curious can you speak to any any visibility that you have today for further.
Chris as you look at too a little later into Q3.
Yes.
We have our information for our customers and that is subject to change, but my comment was.
We expect to see one to two additional load out so up they won the two I probably feel fairly confident about that.
We do have some visibility above where we're sitting here today that we expect occur here over the next 30 days.
Okay, Great, maybe maybe I missed that little piece, and then or maybe just the last one different for you or for brand and can you just talk about you guys do it.
Great job in the second quarter of generate free cash flow and with activity nudging back up here I would assume that.
Does look like you will continue but the talk maybe just a little bit about the comfort you have with your your liquidity level at present.
Mhm.
So we would love to have more liquidity, we are we're comfortable with it as it currently sits and certainly comfortable with it as that interfaces with our near term Ford forecast.
Having said that we will continue to pull levers to ensure that we have even a better cushion as we move forward.
That I, probably don't want to get into too many details, but we have.
At least too easy opportunities to increase that that liquidity profile as we move forward leveraging one some of the assets some of the properties that we own.
Some of them turn out to be quite valuable and then two I think you'll see us continue to whittle down our light duty vehicle fleet.
It's.
Materially hot bigger than it needs to be as we look through the next 12 months of activity.
Okay, Alright, guys will look again nice quarter and I'll leave it there for now.
Thanks for the question.
The next question comes from John Daniel with Simmons. Please go ahead.
Hi, guys.
No no sort of little more but hey, there lot of times we.
Talk about consolidation tend to focus on well servicing this because that's a fragmented but when you're looking for.
Wireline business that continues to do fantastic, even though not completely crappy conclude.
Do you make more sense.
I'm in terms of consolidation opportunities on wireline.
You know John when we talk about consolidation, we're not specifically talking about rig that their rigs is excluded from the conversation but.
We're definitely not talk exclusively rig I think we're looking at all services on the production and completion by a wire line.
I think but typically included in that though.
No we don't have exposure to the drilling market right now.
That market, it's very very depressed, but there are opportunities potentially getting that market to run about potentially back half of 21 22. So I think there's nothing that off the table right now we're going to be very very selective.
I think we've got a suite of services that we've proven are fairly asset light can produce cash flow operates with variable cost structure, and we want to stick with that type of structure right. So our wireline definitely bid that model, we're going to focus on these higher margin business like we have.
Well not only permit.
On the labor front as you guys are starting to.
No.
Put rigs and equipment back to work with Google slipped to the.
Got it.
Labor is essential sounds like some temples, let's talk about and the ability to find kupol because of the.
Bergen unemployment benefits Google glass were spent the last few weeks.
Yes, I got that I'd first say, we had to make the very difficult decisions early on in our downside again as our results show, we're putting in late and make those decisions.
Officially right.
But we parted ways with a lot of of good team members.
Unfortunate say that with the activity increases that we've seen thus far on the wireline and the rig side.
We've added back approximately 50 employees, we've not had any issues of getting these employees back majority of them are individuals who are with as previously so right now we're not any issues. There we don't foresee any issue that relate to.
Ramping back up being that is happening at a modest level okay.
So it's almost gone schools.
Great. Thank you for the for the questions John.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to tier and Anderson for any closing remarks.
I just want to thank everyone for their participation today and I truly want to thank all of our wonderful team members to endure temporary dip quarter, but have done to and now selling job and again I can't be more proud heavy so thank you very much.
Thank you Sir the conference has now concluded thank you pretending.
You may now disconnect.
[noise].