Q2 2021 Ranger Energy Services Inc Earnings Call
Okay.
Good day and welcome to the Ranger Energy services second quarter, 2020.1 conference call all participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
After today's presentation there'll be.
And the opportunity to ask questions to ask a question you made for Star then 1 on a touchtone phone to withdraw your question. Please press Star then 2.
Please note. This event is being recorded I would now like to turn the conference over to vote Austin Chief Executive Officer. Please go ahead.
Thank you operator.
Good morning, and welcome to Ranger Energy services second quarter, 2020.1 earnings conference call. This is bill Austen and I'm speaking to you. This morning, as interim CEO and chairman of the Ranger Board.
Joining me today is Brandon Boston, our CFO, who will offer.
For his comments in a moment.
As I noted and this quarter's press release strategically and operationally this quarter was a pivotal 1 for Ranger our high spec rigs segment delivered strong sequential revenue growth along with margin performance, which matched historic peaks and given that momentum.
And that built across quarter, 2 we are expecting additional revenue and margin gains for our rig business and the third and fourth quarter.
Our wireline business did see some modest revenue growth from quarter..2 however, here margin performance continues to underperform and the face of industry wide low completion pricing levels.
Strategically we executed on 2 acquisitions Patriot and more recently, perfect and expanding our wireline fleets with newer high quality equipment broaden our geographic footprint and strengthening our service offerings. We are currently and the process of integrating these companies.
And to our existing business and are already experiencing cost synergies and early cross selling successes.
We are looking forward to demonstrating the earnings power of this newly expanded fleet and the quarters to come and I'll talk a little bit more of that and and additional remarks.
On the.
The M&A front.
And as our results begin to reflect the positive impacts from these first 2 acquisitions, we expect to gain further market acknowledgement that Rangers combination of low cost efficient overhead cash flow focused operations and clean balance sheet is the right platform to.
Preserve pursue further energy.
Industry consolidation.
Touch on this theme again, and we will finish my prepared comments today with an announcement on our pending corporate structure change, but in the meantime, we have a fair bit of ground to cover.
As I said, there's plenty to talk about.
And acquisitions to quarter results and our outlook and I expect there are also questions about our CEO transition.
I'd like to address that right off the bat on this point. Most importantly, you should see no change for Rangers overall strategy with a 2 wireline transactions now closed we are just beginning to see.
The result of the last 3 years of strategic groundwork led by Darren and.
Many thanks to Darren and for that we as the board and management team expect to continue to move forward along the same strategic path, regardless of who is in the CEOC.
On the CEO search and specifically the board.
<unk> is working through and evaluation process and is considering both external and internal candidates. This process is moving along as planned timeline and frankly I expect to reach a conclusion within this current quarter.
Now talking about our strategy as to our strategy to be clear as possible.
Point I'll take a minute to articulate the bullets that outlines what we are working towards with Ranger..1 it's a focus on long term sustainable cash flow. This is the lens through which all capital allocation and operational decisions are made to we have and efficient low cost G&A structure, we deploy.
And our systems allocate people and design processes to maximize the value of each dollar of our SG&A spend.
Note with our 2 recent acquisitions, we are sitting.
At approximately a $350 million revenue run rate, which when we compare to it and $18 million for forecasted 2021.
G&A expense and <unk>.
And about a 5% of revenue SG&A burden a rate half of what our peer group Spence.
And 3 a clean balance sheet, we acknowledged that there was a higher theoretical cost of capital with an unlevered balance sheet, but in our minds the practical reality of distress.
And at the bottom of the cycle far outweighs that concern our target leverage remains a net debt zero.
Additionally, our acquisition strategy has been fixed and simple we are focusing on potential counterparties with top tier assets, we have a reputation for best in class service quality.
We're looking at both bolt ons to our existing service lines and complementary service lines that extend our current core service offerings. As we have said before tactically, we believe and being opportunistic to mystic is the right time and the wrong time and each cycle to be acquisitive and as we've noted before what proves to be the right.
<unk> decision and the long line is often counter to the consensus thinking at the time.
Now before talking about the quarters segment results I'd like to spend a few minutes on our recent acquisitions.
T J intend underlying both of these acquisitions was to increase the scale and scope.
Cope of our existing wireline business consistent with our acquisition strategy, both Patriot and perfect have a reputation for best in class service quality, along with a top tier asset base frankly.
And frankly as an added benefit we have also inherited 2 teams of exceptional people.
Timing deep technical sale skills and innovative nimble cultures.
To provide some more background on these transactions and I'll note that we've spoken for multiple quarters about the unsustainability unsustainable low wireline pricing, we've seen and the market. Some competitors continue to bid work at near variable cost.
And with little to no margin to support and management structure.
Excellent small to mid sized organization carrying proportionately high G&A cost structures have been and are still actively looking for consolidation opportunities our mallard business with its proven operating success and streamlined efficient cost structure.
As a reason to be a consolidation partner of choice for these organizations with our 2 recent acquisitions. We are pleased to be participating in those consolidated efforts that Ed technology scale and geographical diversity.
To our existing efficient platform I would also.
Structure.
That we've expanded our customer base dramatically for.
Around 3 and the Permian basin to 2007 or a greater across our our spectrum.
Again, I won't repeat all the detail, we shared and the wireline press release, but we do want to add some incremental thoughts.
Also unable to accomplish these transaction at exceptional value points. For example, we spent $1.6 million for wireline truck to organically create mallard plug and perf wireline business. The combined purchase price for Patriot and perfects came in at a per truck cost of approximately 500000 or about 30.
We were at a newbuild cost the.
And the combined revenues of these 2 platforms.
$260 million in 2019, it has now a current run rate of $150 million.
While we would need to see both the step change and activity levels and pricing to return to those 2019 levels of.
Revenue, we do believe that moving back to a 20% segment level margin is very achievable.
Through some modest price increases and cost savings as we move into next year.
In addition to the G&A expense synergies, we are anticipating revenue synergies coming from cross selling.
Percentage this is across the per.
Plug and perf and intervention where customers and.
From a per stage price rationalization and from the potential incremental customer adoption of the lower cost ex Kinect gun system.
We did bring on some incremental debt with the second post.
With the.
And perfect acquisition I'll note. This is $11.4 million balance is more than fully collateralized by the perfect asset base and as such we do not see this as driving any incremental risk.
Ranger and balance sheet.
The integration of both these companies is moving along nicely combined we have onboard.
Almost 320, new largely field level wireline employees, increasing our head count by almost 40% and we are well underway to combine and systems and processes with the goal of creating a single fully integrated multi basin and wireline platform.
Now with.
That.
Talking about the wireless let's talk a little bit about the second quarter because it was a busy 1 and in April we did close a $13 million sale leaseback transaction of our DJ Basin facility, which we discussed in our quarter 1 earnings call in May we announced the Patriot acquisition and just.
Just outside of quarter, 2 and early July we announced the acquisition of a perfect.
Now, let's talk a little bit about the.
Segments at the segment level, our high spec rig business continues to see the combination of both ours and pricing increases again, indicating that our growth is not coming.
And at the expense of customer quality our undercutting.
<unk> pricing.
And rather this is a continued manifestation of the groundwork we have been laying over the last 3 years and high grading our customer base to those top tier clients that are willing to pay for service quality rather than just seeking.
Was quoted rate sustainable pricing that supports training maintenance and acceptable return levels is good for the entire industry.
A&P and service providers.
But back for the quarter with the with the weather interruptions and the first quarter, we saw a pause and the high spec rig growth that.
Pause however, it was not repeated in the quarter to the second quarter has us returning to the type of growth rates that we're seeing towards the end of last year, we deployed more rigs work more hours per rig and so pricing gains, resulting in a 34% sequential revenue increase.
And our rig rates on a per rig hour basis posted the highest number we have seen and our post 2017 IPO configuration, while we have seen rig only rates move higher off last year's trough.
This record rate is more the result of an increased level of ancillary.
Hillary equipment being deployed at the well site, rather than any dramatic increase and debate and the base rig rate as a side note. While our full package rates are acceptable and we believe there is plenty of economic rationale for bear rig pricing to continue to move up as current market rig rate only.
Rates provide little return on investor and investment for the sector.
The operating last metric I want to highlight and that is the trajectory of our high and 24 hour rig activity at year end last year, we were running $5.24 hour rigs at the end of quarter..1 we were at 7.
And at the end of quarter 2.
During the quarter to between 13, and we're currently running 15.
On the expense side and quarter..2 we again saw increased costs associated with the ongoing activity ramp with incremental make ready expense totaling 980000.
And quarter here, it's interesting to note that those increased costs occurred in April and May while June saw no incremental make ready expenses segment margins for the first quarter came in at a reasonable 17%. However June with the absence of make ready cost printed a 20.
And 3% gross margin.
This is a result that we are.
Currently running through our forecasts, but 1 which we will strive to repeat in the current months.
During the coming months I should say.
Now moving on to completions and other service segment, starting with our legacy and.
<unk> wireline business during the quarter, our wireline business saw little change and the revenue line, we average 6 trucks, which was down slightly from quarter 106, 3 average number. However, these trucks for a bit more productive on average resulted in little sequential revenue change.
We did see a sequential decrease in margin largely driven by a 5% increase and per guns perforating.
Expense I'll note that this gun price increase was largely and the artifact of inventory accounting rather than a structural gun price change and the second quarter.
Our reported results.
<unk>, a month and a half of contribution from Patriot and no contribution from perfect is that close occurred post quarter.
However, this is a standalone business.
We were able to look at both.
Both businesses their combined revenue.
That is perfect and Patriot.
It's include 15% moving from our quarter, 1 run rate of $30 million to a quarter run rate of $34.5 million and holding at a roughly 13% gross margin.
And our other non wireline businesses and this segment, our DJ basin focused and as such we have not seen much of a recovery.
We're up.
The other basins as seen here quarter two's revenue and margins were not materially different from that of quarter 1.
Moving onto the process solutions.
And our process solution business revenue was up just slightly for the quarter and we've seen success and re contracting our gas cooler.
<unk>.
Moving up to a 94% utilization rate renewal rates are somewhat a bit lower than 2019 and.
And previously contracted rates with our mechanical refrigeration units and our Mou fleet, we continued to press into the Frac business and have had a handful of units.
Are you and service each month. This developing line of work is much more cyclical in nature and it has been slower to grow and we had originally expected we saw little change quarter over quarter with our MLR you fleet in terms of either revenue or margin.
I know thats, a lot, but let me turn the call over to Brandon.
And I do have some closing remarks, and I do again want to talk about the corporate structure change branded alright, well. Thank you very much bill and good morning to everybody on the call. Let's go ahead and do the standard walk through of the second quarter details and numbers first for the consolidated numbers to.
And in.
Q2, consolidated revenue was $50 million that was up 30% or $11.7 million as compared to Q1s and $38 million.
Adjusted EBITDA came in at $2 million flat, that's up $2.2 million from Q1s 200000.
Dollar loss.
And also note that again like in the first quarter embedded in and reducing this quarter's EBITDA.
As incremental make ready expenses as bill noted of $980000 and again that is associated with high spec rig reactivation and may credit.
To recap and upgrades.
Now moving on to the segment details on revenue high spec rig revenue was up 34% or $7.3 million moving up from $21.7 million to $29 million and the second quarter. The result of both the increase and rig.
Credit arms, and and increase in composite rig rates, specifically revenue hours increased from 43200 and Q1 to 50100 hours in Q2, that's a 16% increase.
Q2's average rig count was up 5.5 rigs or 8.
Rig assets moving from 65 rigs to 71 rigs and the quarterly average composite Ali rig rate was up 19% or $94, an hour and moving from $493 an hour and Q1, 2 as Bill noted a record $587.
Per hour and Q2.
That is.
The high watermark that rig rate a high watermark for Ranger.
Since the inception essentially of the business and now this is not on the back of a significant bear rig by customer rates, but rather the result.
<unk> of larger rig packages.
As Bill mentioned.
And that increase and pricing was a mix shift towards again higher rate full answer a package 24 hour rate.
24 hour work sorry.
And then to kind of add on to Bill's comments about the 24 hour work cadence of increases Bill talked about the incremental rigs I'll talk about the incremental hourly makeup of our total hours that is attributable to 24 hour rigs.
Going over the last 3 quarters.
And Q4.
24 hour work made up 26% of the total rig hours and Q1 that number moved down to just 19% driven by February as weather interruptions.
However in Q1, we ended that quarter and March having 35% of the rig hours.
<unk> 24 hour work and for our carrier for Q2 that average moved up from 35% to a full quarter average of 39% and that is approximately where it sits here today in July.
Now moving on to a completion and other services segment revenue here saw an increase of 28%.
<unk> or for $3 million to just under $20 million and Q2 up from $15.5 and Q1. However, the majority of that $4 million revenue increase for $3 million revenue increase came from the Patriot acquisition again Patriot was a mid quarter acquisition.
Acquisition and $2.3 million of revenue came with that acquisition the balance of that increase quarter over quarter of revenue was spread between other non wireline services and our legacy Mallard business with both of those business lines showing some modest increase.
And finally at our processing solution.
Segment revenue here here were up a modest $100000 moving from $1.1 million to 1.2 million.
Yes.
Now moving to segment level EBITDA and margins overall segment level adjusted EBITDA. This as always is before corporate G&A came in at 50.
<unk> sorry came in at $5.9 million, that's an increase of $40 million of 40% or $1.7 million moving up from Q1s for $2 million print.
High spec rigs showed strong gains those gains partially offset by declines.
And the completion and other services segment and the processing solutions segment.
On the margin front consolidated segment margins again before corporate G&A moved up from 11% and Q1 to 12% and Q2.
G&A expense as adjusted was down.
<unk> million dollars.
From $4.4 million in Q1 to a $3.9 million print in Q2.
The sequential decrease largely in line with the historic first of ERP expenses.
And thats associated typically with employment tax and other non periodic expenses.
Fences showing up in Q1.
That don't reoccur in Q2 or for the rest of the year.
And now at the segment level EBITDA for high spec rigs segment, EBITDA increased 85% or $2.3 million to $5 million and Q2 up from <unk>.
And $2.7 million number in Q1.
With margins moving up from 12% to 17%.
As with the last couple of quarters of growth, we saw material amounts of spending within the quarter related to.
Customer requested.
And upgrades of those.
And other reactivation make ready cost and the second quarter as Bill noted and I noted earlier that may credit costs totaled $980000.
If you'd like to add that incremental expense back to the results to get more to a steady state type EBITDA that would result in a 6.
Rig dollar segment, EBITDA and a 21% segment margin again levels that rank at the very top and of our historic range.
And at completion and other services EBITDA was down $300000 moving from $9 million to $6 million.
Million margins here were down from 6% to just 3% as we've talked about this the result of continued weak completion pricing.
And finally processing solutions EBITDA was down 300000 to $300000 and Q2 moving down from that.
$600000 Mark in Q1 segment margins here were down to 30%.
Moving on to net income for.
For Q2, we reported a net loss of $9.1 million that is and $800000.
Incremental loss versus Q1's loss of $8.
That $3 million embedded in this loss and adjusted out of our adjusted EBITDA was $900000 of legal and other transaction fees related to our 2 acquisitions.
Also note that the reported loss from Q1 was partially offset by the benefit of a $1.4 million.
401, and forfeiture recapture.
Benefit, which obviously did not reoccur and the second quarter.
Now moving on to balance sheet items.
Net term debt dropped to $8 million over Q2, moving from Q1 ending balance of.
300.
And $3 million, let me try 1 more time $30 million.
To $27 million and the second quarter.
And this move is largely the net effect of the $12 million of net cash proceeds from our facility sale leaseback transaction, which was partially.
And 3 set by the working capital build associated with the $12 million or 31% Q over Q revenue increase.
As usual, we reduced our term debt and other $2.5 million during the quarter, bringing the Q2 ending balance down to $12.7 million.
Yes.
Capex maintenance Capex was significantly higher this quarter coming in at 800000 versus a recent $200000 run rate.
The majority of this is really a timing phenomenon associated with our high spec rig.
Segment and again large.
Largely related to the ancillary equipment asset base.
Most of this is timing we've been running very low maintenance capex numbers. So this was a bit of a catch up relative to that $200000 run rate. However, as we go forward and a little bit and this quarter, we will note that with essentially all.
And all of our high spec ancillary equipment running and.
And being out in the field, we would expect this maintenance capex number to move up as we go forward because of the high levels of utilization of that ancillary assets equipment fleet.
On the growth Capex side, our cash spend was $1.1 million.
That was the.
Actually the majority of that was for some downhole tools on the wireline intervention side, our new Patriot acquisition and there was also some incremental pieces of ancillary equipment purchased for high spec rigs.
Also we added some incremental pickup trucks to our fleet spending almost.
$500000. However, this is on a non cash leased basis.
Moving on to liquidity, we ended the quarter with $16 million for liquidity.
And that consists of 13.1 million of cash capacity available on our revolver and $3.4 million of cash.
Cash.
As noted earlier that $3 million that was a $3 million uptick from Q1, ending $13 million of liquidity.
With that I'll end, my comments and hand, it back to bill.
Thanks Brandon.
And I do want it.
Talk a little bit more about the high spec rigs and trajectories in the quarter.
So there was an incremental positive to the high spec rig segment and their quarter 2 performance.
And so revenue and margin trajectory across the quarter for.
For quarter revenue and average margin was $29 million.
17%, respectively. The June exit run rate had revenues.
11% over the quarter to average.
And is expanding to above 20%. It's important to note here that while we are running currently approximately just 75 of our of our 136 high spec.
And <unk>.
With additional net 5 rigs deployed and quarter..2 we are essentially utilizing all of our high spec and ciliary full equipment package packages for deployment of those full packages of equipment is the primary driver of our incremental gains on rates and margins.
Moving forward.
Assuming the ongoing activity growth and market share gains, which we believe are both in the cards, we will likely be spin sending out smaller set of ancillary packages, which we have and spending some modest capex on additional full packages.
Incremental for this dynamic is the need for base bear rig pricing to move up which we are seeing.
Net net for our high spec rigs segment, we expect gains and utilization and pricing to drive revenue growth.
But not both without some modest capex spend as.
And as a final note on this.
With 2 wireline acquisitions behind us it would be reasonable to expect us to turn our attention to service rig M&A as our primary near term focus on the transaction front.
Moving onto wireline quickly with our recent acquisitions, we are seeing some early successes and cross selling.
Incremental work and we do expect revenue growth over time, our primary near term objective is driving margin expansion. The largest near term lever here is pricing completion pricing has started to move off the bottom with some mid single digit moves up with select customers, but with per stage pricing.
<unk> is just at 50% of the 2019 levels, there's much more that needs to be done as we continue to point out at current pricing levels small to medium sized standalone service providers are cash flow negative and must see higher pricing to survive.
Our acquisitions will further drive down.
And our relative overhead costs enhancing our individual competitiveness, but philosophically, we will not chase market share at the expense of price and margin, preferring to have demand drive volume.
Our activity levels, while pushing to sector appropriate pricing levels as I.
And we're looking forward to reported full quarters of our new larger wireline footprint showing modest revenue growth along with at least a partial return for the 20% margin. This sector has seen historically.
On the processing solutions side, we continue to expect our custom.
Customers ESG mandate to drive an uptick and both through traditional flare gas capture use and newer fracturing dual fuel and E fleet generation fuel supply. We continue to have a pilot program success on fuel supply projects, but have yet to sign.
I noted that elusive long term contract stay tuned here as stronger commodity pricing incremental flare gas emission regulation and the build out and adoption of dual fuel and electric Frac fleet are all <unk> for our processing solutions.
Segment.
And that.
On the M&A as I alluded to my opening comments, we continue to do work on the M&A front. We of course do not have anything to announce at the moment and I cant reasonably handicap the outcomes of what we are currently working on but I wouldn't be surprised if they.
The team has 1 or 2 more significant announcements.
<unk> share and the second half of the year.
Finally, I and corporate structure I tease this and in my opening comments, but.
To conclude my prepared comments.
I have a somewhat technical but nevertheless, exciting comment to share regarding our equity structure. As you know Ranger has 2 classes of <unk>.
And so a shares and b shares with the B shares being associated with tax receivable agreement or TRA, which was put in place at our IPO. We are currently in discussions and expect to have a final agreement within days to terminate the TRA and to convert the Outsing Bcf.
<unk> 2 a share common shares.
Accordingly to note. This is not driven by any desire of our largest shareholders to reduce their position, but rather but by our joint desire to simplify our equity structure and to better position.
Ourselves for further consolidation.
I know I have been a little bit long winded, but with that.
I'll close my prepared remarks, and hand, it over to the operator for any questions.
Operator.
We will now begin the question and learn Chris' question.
Good question you May Press Star then 1 on your Touchtone phone line.
<unk> and with Speakerphone, please pick up and has.
Okay.
Is that any Dan your question has been addressed and we would like to withdraw your question.
Okay. Thank you.
At this time, we will pause momentarily to assemble our roster.
Okay.
The first question.
Comes from Jason <unk> with Evercore ISI. Please go ahead.
Yes, Thanks, Good morning, Bill and good morning, Brandon.
Hi, Jason.
Thanks for all the detail commentary on prepared remarks, and that was really helpful.
Let me start on the wireline side.
Just following your 2 acquisitions here you, obviously have a much larger presence now and the market with 55, wireline trucks and exposure to multiple basins.
Can you talk about how you see the competitive landscape evolving for the industry and the role you hope to play.
And also can you touch on this kind of strategy here to improve margins and the business and case prices.
Pricing remains that'd be competitive levels of at that today.
That's an interesting quick look theres still a lot of competitors and the wireline business small and a couple of large ones.
And.
As we've said in the prepared remarks, many of these small operators.
Frankly, we believe lived and died on the on the PPP loans.
They they price things that.
Keep them alive and trade dollars, we think by signaling.
And more than signaling that there is consolidation and we think there'll be other players and I will try to consolidate.
Look we don't want to have.
Present and sets.
Our size is a good size now we think we can get.
A good return we think our cost efficiencies are such that.
Some of the smaller players will see this as a way to for.
For them to press.
<unk>.
Press price and some of our larger players as well and again, we're not here to to throw a lifeline to everyone out there, but we think there is.
Momentum.
With the activity levels and the need to bring on more people, we think because we have such.
We brought on so many people and all high quality, we think that alone will help us in the.
And on the price front and from the cost front.
Our SG&A number when we bring these over look we have systems here that are not.
The big.
Or a KOL and all these high price Erp's, we have very simple systems that can can can build that can bring on people that can help train that our stream we want to run this company.
In the.
And the public World frankly, like a mom and pop company, that's what we can handle and that's what the business demands we think that.
Effort, both in the wireless and the high spec rig will give us. Some returns look we don't think the wireline pricing or for that matter I spec rig pricing is going to get back.
Back to <unk>.
General and Newbuild activity in fact, we certainly wouldn't count on that but we do think and you can give us.
Much more and.
And adequate returns on our base of of equipment right now so it's not exactly.
And the precise answer that.
You want but certainly we're trying to signal and I think the signals are out there that.
We've got to have a little bit more price and.
And that particular market and.
And frankly, the same thing is true with the high spec rig market look we've got big packages out there we think there.
Great value to our customers, we see the smaller rig.
Our rig packages are starting to get better pricing and and frankly, the bare rig pricing is showing some increases so that.
People, who can get a.
A fair return on what the value of their.
Existing PPE, but again for.
We don't expect to go back to and Newbuild pricing for Newbuild margins brand and I know I've run off do you want to add anything to that.
Make it a longer answer.
I'll hit a couple of things 1 Jason and I mean, I think we've been pretty vocal.
About we think that the structurally that the pricing and the industry does not support our smaller competitors and therefore, they will either go away through attrition or we will get pricing. So that we can actually support.
Reasonable size wireline fleet here for the E&P industry. So it.
It would be tough for it to continue along and our analysis at this level of pricing. However.
Does we will be set up to survive and outlast the competitive base, particularly the smaller competitors and we make moving here now and we may yet.
And we make.
And here.
We make money here post our acquisitions, because our SG&A structure is a fraction of what a smaller size company wireline company would be and on the.
And you said 55 trucks, that's our incremental accounts. So we have a total of 68 trucks right now available to work.
Work out and the field. So the problem. There is only for variables here..1 is the management structure of the SG&A costs associated that could spread out over a certain size fleet. It is labor cost. It has gone cost and then offset by pricing. So we've done 2 of those things we've.
Money and ourselves and option for a lower price gun system, if we need to pull that trigger we will pull it and <unk>.
Ernest hopefully, we don't need to build that gun system.
Immediately over all of our fleets, but that certainly is a possibility we solve for the management structure SG&A costs.
And get labor will be a an artifact of pricing we cant right now there's not been a certainly not a full recovery of and labor cost relative to Q1.2020.
For the wireline business, because pricing and so far down so labor costs will be a variable that will be tied straight to pricing and.
And all that's left is to work.
I would and we're going to keep out here you opened up what we talk about year almost every day.
We've already seen.
Trucks and personnel, because we have exposure to different basins and different types of work we've moved some.
And equipment or trucks or people.
Before with Mallard grid performance and Mallard.
But it was too narrow and we were in the Permian, We had too few customers as I've said in her remarks, we have many more customers we have opportunities to move people and we've had some cross selling successes.
Some of our.
And of course, we'd like to keep our utilization up we'd like to have.
But thats not the not the mandate, but the ability to move people and and trucks.
Equipment.
And our around the basins I think is going to give us.
And much more.
The advantage here.
Is that long enough for you Jason.
Got more.
Yes.
And I appreciate all the detail and Brandon.
And then.
And a little bit differently too.
And then you guys spent time this quarter and last quarter talking about no signs that youre seeing here that and pricing is bottoming.
And the cases, where you're seeing.
Pricing improvements and that mid single digit improvement with select customers what drove that 1 for work that youre doing with the base and that we're in what kind of drove that improvement.
And Jason are you asking about wireline or just overall about wireline for yes.
What drove pricing improvement and the last few weeks months.
Good luck.
Examples are you set up for our customers that had a small pricing improvement what drove that.
For the.
Firstly, you guys just asking for price.
First you got to ask but.
And I think this is.
Briggs side.
And we can attract people look.
Getting people and attracting them and with the activity levels across.
The region.
And we think we can attract people.
We are a stable company.
We've got a good balance sheet and.
And believe it or not the people and the field like to know that theyre going to get a paycheck every other friday or whatever and.
And we think we've got and attractive place to work and when you can gather good people and frankly with the wireline we got a lot of really great people that.
True and there are mobile.
We think that.
And then.
Justifies some some price and.
And that's what we're asking for.
And you've heard this a couple of times I think on this quarter's calls across the.
Industry, but we are struggling a little bit on the wireless and line side in terms of pricing increases.
As we ask but for the dedicated fleets there is a lag between the agreement on a price increase and when it actually gets implemented per their contractual terms.
Got it.
And.
Understood Best of luck with that let me turn it up back from your channel.
Thanks, a lot for your time.
Thanks, Jason.
Okay and this is a reminder, if you have a question. Please press star then 1 to be joined in the queue.
Our next question comes from Daniel Burke with Johnson Rice. Please go ahead.
Hey, good morning, guys.
Hey, Dan.
And we haven't talked to you and this role, but I remember talking to you and many other rules.
Yes, yes, and no license and nice to hear your voice again.
Welcome back and.
Oil.
This is this is like the Terminator welcome back Oh My gosh.
Sure.
Well, Hey, let's see I guess.
Encouraging to see what's going on and.
The rig business for you guys.
I guess for high quality problem and wanted to and not even a problem, but wanted to ask about that.
The rig packages are pretty high return and sold out what kind of capital commitments do you think you can make it.
Forward 12 months or so.
Net.
To bolster your capacity there.
Yes.
Ill happy I am happy to answer that so.
The honest answer is we don't know yet so we are actually this was a problem.
Over the came up fairly quickly I don't think that well I know that we did model. This level of 24 hour activity 3 months ago.
So the fact that we're sold out on our high spec for wrap packages is a little bit of a surprise to us honestly. So we don't have a fully vetted answer to that.
And the 2 variables that we're considering we can put out incremental rigs with mark.
Skinnier packages and do quite well on that based on whats out there, yes, absolutely and has still have very very attractive well not very attractive, but reasonable returns on those packages.
Now that would bring down our lower composite per hour rig rate.
So and ultimately reduce our gross margins and a.
And a market where labor is still a constraint or continues to be a constraint. That's a pretty that's that's not a homerun or and easy.
Cash and to make so to answer your question specifically to the degree that we choose to add incremental full wrap high spec packages.
That investment and I'm going to look to Mr. Hooker, <unk> and the room here I'm going to say and incremental $500000 per.
<unk> rig copy is kind of the ballpark that we would be looking at I'm getting a nod so that sounds right now having said that if we choose that path to put out incremental full wrap high spec packages, we will likely be going to auctions and looking for near new equipment at low prices.
And that will be the first our preferred path rather than going to manufacturers and looking for brand new equipment.
Sure everybody is well aware theres plenty of pretty nice and some not so nice, but pretty nice equipment out there at the auction houses looking for a new home.
And we are doing.
Some of the and your question is excited.
The head of our high spec rigs over here, who is salivating to putting more purchase orders and so we will do some of that but in the meantime, we've still got some room before we do that we've got some room with the modest sized packages and.
Heck you if the bare rig pricing goes where we think it's going to go we can do some of that too.
Got it okay that makes sense I guess.
The other 1 and sorry, Bill this might be 1 for Brandon, but I just wanted to make sure I'm feathering together the acquisitions with the exists.
And kind of completion business appropriately here as you integrate I heard you mentioned kind of 13 percentage margins on the gross margins on the acquired companies I think and Q2 and I mean is that is is that comparable.
I mean, when I look at completion and other services and Q2 at Ranger you were and the low singles.
And is that a is that an apples for apples compare I'm just trying to make sure I've got it right to understand what kind of margins, we could flow through or you could flow through and sort of the near term here.
Really building and an expectation of a price.
Changing versus what's been out there and the market of late.
Yeah, no it's a.
Very fair question and and it is a little bit of apples and oranges, the 13% gross margin as a field level number that doesn't include any of the overhead for those 2 acquired businesses.
And the obviously the mallard business that EBITDA segment EBITDA margin does include kind of the the.
Single day.
Regional field level overhead and administrative costs. So it is apples to oranges in terms of our reported completion and other services businesses and.
And the the.
Gross margin that's the acquisitions however.
And probably make.
Make your own assumptions about what we need to take in terms of overhead for those 2 new acquired businesses and.
And roll that into the model. So I think that the 13% gross margin is probably more indicative of what those businesses would have contributed had they've been part of Ranger and Q1 and Q2.
Ideally, we'll be able to show your results and Q3 and Q4 that helps support that view.
Okay and.
And some of that speak as we're not bringing much SG&A over.
So I'll try and be subtle here.
Subtleties, even lost on me.
We're not bringing in.
SG&A as well so.
Okay.
Yes.
And.
Look guys I appreciate those comments and I should say congrats on closing those deals those are certainly meaningful for for the company. So thank you for the time this morning.
Okay. Thanks Daniel.
And.
Our next question comes from volume.
Asset management. Please go ahead.
Good morning, Bill and Brandon how are you good morning.
Good morning.
Congrats on the deal closes and the past couple of quarters here.
My question is more related to those.
This acquisition is actually and so.
Is it fair to say that those acquisitions are viewed more as a deleveraging transaction.
Given that there and most of the pay for buy stock.
Yeah.
Well I wouldn't I.
And I wouldn't say deleverage look.
For our Leverages, something Thats very modest and we took on like $11 million worth of debt. So.
Not exactly deleveraging, but but it really broadens our our base. So we've got 2 very strong legs.
<unk>.
For our to stand on here and we've got a burgeoning business and the process solution.
And we hope it's going to get back to it.
Historic performance.
When you look at wireline and rig rigs now we've got 2 robust segments and.
2.
Frankly, with our <unk> wireline business was too narrow and.
Yes.
Good money in certain things, but we just weren't broad enough to move.
And things around and.
And to have the flexibility that we have so.
But I wouldn't refer to it as is.
Leveraging.
It's going to add a lot more EBITDA and so that will I guess, if you look at it from an EBITDA standpoint.
And we should have lower EBITDA leverage.
Yes, I would say.
Push in terms of leverage as we sit.
Here today I'll note to Bill's point that as we move forward. The wireline business is particularly maintenance Capex light and therefore, a lot of that if not almost all of that EBITDA drops down to the cash flow line and.
And therefore over time it will be we.
We think.
Very aggressively deleveraging in terms of the ability to deliver cash flow back into the organization and looked at that way and Thats exactly yes, that's correct.
No that makes sense.
And as.
As far as the pro forma capital structure for these transactions and wanted to make sure I'm looking at this correctly.
Could you provide what your share count would be pro forma for the transaction is inclusive of the a and b shares and.
And what they are.
From a debt looks like.
Yes, so the a and b for the total share count is.
Just under 18 million currently I think its 7.89 billion 17.89 million shares.
And then the pro forma debt is going to be and.
The first is what we exited Q2 at will be an incremental $11.4.
$4 million.
Got it.
And there'll be some incremental share of channel when we.
When we terminated TRA and convert.
These days, but it's.
Pretty small.
Yeah.
Well pushes over a 1 day.
Okay, Okay, and is that from options being exercised or what would be and it causes that.
Yes.
Basically.
As we are negotiating the determined early termination of the TRA.
We've got basically a handshake we need to.
Execute on it but we would be issuing.
And some shares for that.
And I haven't disclosed how much but and so it's.
And how it is.
A relatively modest number.
Yeah.
Okay.
And I want to make sure Bill and I heard you correctly earlier.
You are seeing.
Run rate of $350 million of revenue annualized is that right.
That's correct.
Yes.
And if I look at that as a combined business with the recent acquisitions and kind of cool.
Free cash flow number.
You mentioned in your press release with the acquisitions and target margin of 20%.
That's something that's still in line because I just.
We sure based on the previous questioning.
And that statement that it seemed a little bit different there.
Yeah.
I don't know I sort of target.
Certainly from the high spec rig I said target.
And as I said, we're exiting the second quarter actually at a higher.
I wanted to them and that for the high spec rig and.
And.
I think what you should do is.
Further feather in over the next several quarters.
Margin enhancements.
Across both both segments.
Great.
It's not all going to happen and the third quarter, but.
High spec rigs will be.
And good in the third quarter.
Wireline and well start feathering in third and fourth quarter.
Got it.
Okay.
Yes. The final question for you on the <unk>.
Connect gun system.
So you have.
Warren and structured to own 30% of and business.
How do you guys look at that business and what do you think thats worth.
The other owner and that business.
The owner of the X connect gun manufacturing business is also the seller.
Seller of the perfect business.
And then kind of obvious but to be.
Explicit about that.
And that that business supplies. The majority of the guns for the acquired <unk> business that is likely how that will continue going forward and we have an option to increase.
And <unk>.
From our market share or consumption of those guns and.
And based on customer acceptance as we move forward. So we see that as its not a joint venture, but we certainly have are fully aligned in terms of looking for success from.
Then in terms of their manufacturing process and the market acceptance of their guns and they are looking to us as a very meaningful.
Source of.
The sell through.
But basically we have access to <unk>.
Yeah.
Okay.
Great.
And that's all I had thank you guys very much.
Alright. Thank you for your question.
How are we doing operator.
Yeah, I think we're done with all questions.
And I would like to turn the conference back over to blast and for <unk>.
Any closing remarks.
I think I've said enough on this call.
I wanted to thank you all for participating look forward too.
Putting somebody else and this chair.
For the next call but.
And I'm actually having some fun we're.
All sorts of good things that this company and.
My wife will shoot me for saying that but I'm actually having a little bit of fun here alright.
Talk to you soon thanks. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
We're doing well.
Okay.
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Good day.
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