Q3 2020 Ranger Energy Services Inc Earnings Call
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Thank you operator, good morning, and welcome to ride through the third quarter 2020, <unk> earnings Conference call. Joining me today is all wafer brand a blockbuster <unk>, who will offer his comment in a moment.
Q3 has been a successful arranger with proven results across each month.
The trend that has continued into early Q4.
While the recent volatility have tested our organization.
Our team has risen to the occasion and passed with flying colors.
We have exited the downturn incrementally more efficient and focused.
Which is either a path to a ramp back up and allow and got to the Bert are well attaching to addressing our customers' growing service me.
Over the past two quarters.
But mark pitching so we've not been on cost and cash management, but be articulated ongoing increases to orbit. Thanks, vishal, the new customer development.
Any enhancement real time operation monitoring and data capturing for improved performance.
The actions taken individually made through the downturn combined.
Combined with our solid financial footing, our north now starting to pay dividends through additional market share gain.
While our year to date head count and remedy art, each still down approximately 50%.
We have seen a very substantial increase in activity all of the key to try.
Our current revenue run rate is up 55% and head count up 40% from the bottom.
It is still too early to point to a broad market recovery.
Well within our segment and let's say we are experienced.
We are experiencing positive trends.
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These improvements include month over month increases in high specification rig hours at a rate.
Unexpected increase in active wireline units along with additional contract often deep cuts were scheduled to add frac crews late <unk> or early 2021.
And it significantly growing backlog of bid opportunities, but they're not processing solutions group.
Now for a little more segment level detail, starting with high spec rigs.
For the quarter.
Sequentially rig hours were up 23%.
The rig rate up 4%.
Well bore third quarter metrics are up nicely versus Q2.
Fourth month to month trajectory with even more dramatic.
For the trailing six month, our activity law within me with the pricing love in general.
Birth is both monthly trough. Our current October regard are on a run rate to double.
With pricing up 18%.
That momentum projected in <unk> fourth quarter averaged imply a 25% to 30% increase in that regard and a greater than 5% increase in pricing versus our Q3 average.
Another positive metric we are experiencing in our rig business, it's a growing 24 hour work.
For Q3, roughly <unk> of our activity with twins grow work performing completion, refrac or major Workover operations.
That makes have continued to move up in recent weeks with October went far rig activity trends at greater than 25%.
As mentioned in my opening comments what are.
What our focus has been on a real time monitoring and data capture.
With the growth in our 20, <unk> activity and a considerably higher customer spend with this type of work, we're having early success with the implementation.
The data monitoring and collect it is being used to further drive efficiency, that's improving the performance of both our and our customers' operations.
Moving onto our completion and other stuff the segment.
We maintain a wireline truck count six dedicated unit throughout the third quarter and remain at that activity level today.
We have seen some price erosion through Q3, but I can say to offset it with increased efficiency as measured by they just completed by truck day and further cost reductions.
October run rate is tracking up 8% on stage count, but again, it's being offset by nearly 8% decline a pricing per stage.
Looking forward, we are pleased with our efforts to expand our wireline customer base, but the Permian.
We have nothing I'd like to report on this call, but we are optimistic about the near term possibility.
The balance of our completion and now the surface segment experienced quarterly decline.
With a decent portion of these service offerings being DJ basin focused their performance was simply in line with the continued weakness across the state overall activity level.
And finally, our processing solutions group.
Current results are quoted clearly not where we want them to be but this segment longer contracting process in the midst of a weak commodity price environment has definitely not reported an immediate rebound.
But our new Matts team has been busy has built one of our deep backlog of bid opportunities.
The end of the fourth quarter will yield a majority of our bad result.
We are optimistic that even a small portion of the contract we have materially changed the performance of this segment.
To wrap up well.
While the macro environment continues to challenge the sustainability of thought Oh, My best companies Rangers performance shows that our organization is clearly on a different path every.
Every month of Q3 has yielded and proving consolidated results.
Balance sheet continues to strengthen with a modest 20 main of term debt.
And our liquidity position is up approximately 40% our low point in late Q2.
I can't say enough about the work that our team has done and about the customers have chosen to partner with Ranger during this difficult market.
We're proud of the fact that I bet, it's all about putting which allows us to focus our customers form. It is strategic option I will now turn the call up for Brandon for detail on the numbers.
All right. Thank you Dan and good morning to everybody on the phone, let's do a quick walk through all the third quarter details and make sure that we don't Miss any of the numbers.
So first.
On a consolidated basis.
A reminder of the numbers relative to last quarter Q3, its revenues were up 13% or $4 million moving from 31 million to 35 million.
Consolidated adjusted EBITDA was up 36% or 1.2 billion moving up from 3.2 million to 4.4 million.
While adjusted EBITDA margins moved from 10.4% to 12.7%.
And now going down to the segment level and starting with revenue hi.
High spec rig revenue was up 26% or $3 million moving up from $11 billion to $14 billion. The combined effect of an increase in period rig hours and composite rig rates as Darren mentioned.
Here rig hours increased 23% or 5600 hours moving from 24600 to 30200 hours for the quarter.
Composite hourly rig rates increased 4% or $17 an hour moving up from $463 an hour to $480 an hour.
And the completion and other services segment revenue was up 6% or a million dollars moving up from $18 million to $19 million with our wireline business hosting the majority of those well all of those increases and those increases were partially offset by declines in other non <unk> wireline services.
Specifically wireline revenues were up 15% sequentially the mix of a 34% increase in period stage count which was.
Which was partially offset by a 13% decrease in composite pricing.
The drop off in other non wireline services as Darren mentioned was largely driven by continued weakness in the DJ Basin Park.
And finally at our processing solutions segment revenues here were down 22% or $400000 moving from 1.6 million to 1.2 billion driven by a net reduction of one and are you package along with some lower service revenues.
Now moving to the segment level EBITDA guidance segment margins.
Overall segment level EBITDA adjusted EBITDA and this is before corporate DNA saw an increase of 11% or 800000 quarter over quarter moving from 7.5 billion to 8.3 million with high spec rigs and completion and other services seeing increases which were partially offset.
By a decline in processing solutions EBITDA.
On the margin front consolidated segment margins here again before corporate DNA were flat at 24%.
And now to disaggregate some of those numbers to the segment level high spec rig it adjusts.
Adjusted EBITDA was up 41%.
$700000 up moving from 1.7 million to 2.4 billion with margins also moving up from 14.5% to 16.5%.
That's a completion and other services segment, adjusted EBITDA was up 9% or $400000 moving from 4.6 million to $5 million margins here again were up 26% to 27%.
The processing solutions segment saw adjusted EBITDA decreased 25% moving from 1.2 million 2.9 million while segment margins here were roughly flat at around 75%.
Oh, the DNA expense line DNA expense as adjusted was down year over year, or 26% and down again quarter over quarter.
For the third quarter, we saw a 9% sequential decrease.
Being a g. they expense down from $4.3 billion to $3.9 billion.
This Q3 $3.9 million a as a run rate does now fully reflect the impact of our Q2 recycling efforts on the administrative side along with some benefit from reduced per capita health care expense that was seen over the last quarter and a half or so.
Run rate should be what we expect on a go forward basis.
That income and finally.
Here for Q3, we reported a net loss of $5.7 million that isn't an improvement of $2.3 million over Q2's loss of $8.9 million. The decrease in net loss beyond the adjusted EBITDA increase was primarily driven by Q3 is return.
Turn to a more normalized depreciation level after somebody Q2 catch up depreciation along with some quarter over quarter differences and severance impacts.
And just to know before we move onto the balance sheet on adjusted EBITDA.
You'll note that the as adjusted Q3 EBITDA of $4.4 million is lower than the unadjusted number of 4.8.
This reduction is the result of the net impact of the release of an earlier period bonus accrual, which reduced adjusted EBITDA.
Which was partially offset by the one time costs associated with our earlier in the year take private response.
With that out of the way, let's move onto the balance sheet.
And cash flow so cash flow.
During Q3, we saw a $3.1 million of cash flow from operations.
That combined with $500000 of asset disposals.
And $600000 a vehicle lease returns.
Which was partially offset by $600000 of cash capex spend allowed us to reduce net debt by $3.6 million sequentially.
At the end of Q3, our net debt that's inclusive of vehicle leases stood at $24.4 million that down from Q2's, ending at 28 million dollar balance.
I'd like to note that that the Q3 results brings our year to date net debt reduction total down to a decrease of $22 million.
That's down nearly half from year end 19th ending.
46 million dollar balance.
And at the end of the quarter our.
Our term debt balance stood at just $20 million down the usual two and a half million dollars from Q2.
Moving on to Capex, the $600000 of total Capex recorded for the quarter breaks down into a bit less than $200000 of maintenance capex that was spread across all business lines. The balance 150 of relates to upgrades to rigs being prepped for new.
Higher tier work.
80000 for wireline equipment upgrades and 175000.
It should be one of our last payments on a new design prototype gas processing unit and our processing solutions business.
[noise] and finally on liquidity, we ended the quarter with $14 million of liquidity, consisting of $3.4 million, the cash and $10.4 million of net capacity on our revolver.
That is up $3 million from Q twos $11 million of liquidity.
This is driven by an increase in borrowing base as our accounts receivable balances ramp back up post the trough.
Darren I think that's all for my comments, then I'll hand, it back to you.
Thank you Brad.
I'll wrap up with the brief comments now.
While we still have a long road ahead of US we are optimistic on the feature and please have started the fourth quarter with great momentum.
For the balance of the year, we expect to see continued growth in reactivity.
Primarily driven by the increasing maintenance demand of the overall market.
Our completion related services should remain stable for the year with UBS.
With the potential for modest activity increases very early and went to 21.
Based on current customer and bowel and active contracting process.
And as I mentioned in my earlier comments, our processing solutions group has participated in considerable number of bidding programs, which could have a meaningful impact.
Participant pack to start up 2021.
In regards to our strategic initiatives.
Our vision operating model continues to prove successful as demonstrated consistent margin performance across 2020.
We will continue to drive efficiencies from our backup it to our customers Wellheads.
The continued implementation of data monitoring and captain systems will take place across like 24, our reactivity along with pilot program, beginning with Insulet completion service offering.
Our focus on top tier clients, it's yielding a growing high quality revenue stream with digital contract opportunities ahead of us.
While small in scale Weve recently been awarded a four well, we refract pilot program with a new multi national operator there.
The real opportunity here, what's the award of their 2021 Refrac program conditioned upon the commercial success of the pilot program.
Additionally, we have expanded our relationship with an existing I hope the customer into a new basin well, we've historically not historically not provided their rig services.
The current plan is to ramp from our existing one working rigs to five rigs by the end of the first quarter.
And finally, we have consistently discussed are interesting consolidation that each quarter and that continues to be a focus.
The current acquisition and merger environment remain opportunity rich.
However, we continue to take a disciplined approach that focuses on delivering clear value to our shareholders and minimal risk to our strong balance sheet.
While we do not have a transaction to announce this quarter. We continue to work diligently all this broad and expect to have something to share and the feature.
Operator. This concludes our prepared remarks, and we will now open the call for questions.
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And our first question today comes from Daniel Burke with Johnson Rice. Please go ahead.
Hey, good morning, guys.
Hi, Daniel.
Oh, let's see dared appreciate all the quantification around how activity levels have continued to come up from the trough.
October is typically seasonally a pretty good most of the year granted this year is different from from all other years, but I was wondering if you could just speak a little bit and I get the activity or the indications of interest for incremental activity, particularly how to didn't you kinda kinda 21, but can you talk about maybe the tempo of activity you'd expect within Q fours coupon advances.
Do you see any any any tail off this year.
Yeah, I think it's going to be in my opinion, probably a little bit of a different year, you know because the activity level across the second and third quarters were so low the room for a decline of it it's not really that material. This year, what we've seen at the ramp up that's been occurring particularly EM.
September and October my.
It's hard to imagine that operators will reduce that.
Reduced activity materially going into November and December.
Especially what were seeing as far as inbound in contracting opportunities for work to start a in January or even backing up in late December. So I think it will be a a unique year from what we've seen in the past that you won't get the the typical a strong seasonal decline.
I think from our standpoint, our only concern is it's just the weather how tough the weather will be a we've had some nice nice improving performance contribution coming from our northern operation, which puts a little what's acceptable to the up to the weather from the north but outside of that we think fourth quarter to be stronger.
We would typically see in continuing that momentum throughout the year.
Got it thanks, and then it didn't dare to.
Any any way to explore further maybe that the depth of interest you're seeing in and in wireline units from dollar to to accompany this incremental demand for frac fleets, you're seeing in the Permian market. I mean is there is there a case where.
As we get into 2021, you guys could be.
Back to approaching full utilization.
Yeah, I think approachable is actually still a tough bar I think what were thinking right now operator that may be running three or four frac spread that we have relationship with are looking to add a call. It a one frac spread at year end, one frac spread early 2021 with possibility to go up to two.
Those type of increases, which again going from 60 unit to adding a a fee leaps and our business is a strong business there or would have a nice benefit to us but to say getting back to full utilization right now we don't see that in the near term horizon.
Okay. That's helpful.
Let's see I'll ask one or two more here don't free.
I don't frequently query on processing, but it sounded like there was oh interesting opportunity. There I think you used the word meaningful if you could convert some of these somebody's tenders.
Could you return to a 2019 type of cash flow run rate in that business or again is that is that stretching too far.
No I think that when does have some greater upside to it again, that's based off what were what we have an acute are bidding process again, we brought on a new management team and again this is a longer contracting process relative to our upstream a wellhead type services.
So the Q. They built has been kind of overlap for my what a lot of that to come to fruition again, a latter part of Q4 to early 2021, though if they if the material backlog and again, we're not guaranteed of the win but you know I know will be successful with some of those projects and could get back to.
Got it the 2019 performance level in my opinion brand you want to add to that.
No I mean, I think that there's clearly plenty of upside in that business today. The assets are all in good repair and all continued to be relatively new. So there is you know that the path to going from where it was in 19.
Our sales yeah, the path going to where it was a 19 as it is relatively easy and it is just on the commercial side and we think that there's plenty of opportunities out there based on the backlog and in probably early conversations that are they are not in the backlog.
As a cursed commercialization.
Effort and that is the sole a hindrance to that business running back up to where it was.
Got it okay guys. Thank you for the time this morning.
Thanks for the questions Daniel Thanks.
And once again, if youd like to ask a question. Please press Star then one.
[noise], operator, I'm just working probably.
[laughter]. Yeah go ahead, but include the question and answer session I'd, just like to turn the conference back over to you Mr. Anderson for any closing remarks no go.
No great. Thank you I just want to thank everyone for joining.
Joining the call today, and I, especially want to thank our great team for a job well done and in the midst of a difficult market a best wishes that they felt everywhere we enter the holiday season close out 2020.
This concludes the call. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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