Q3 2022 Ranger Energy Services Inc Earnings Call
While our rental and fishing business has grown 65% since year end and is realizing margins of 24% shown promise as well as.
As we approach year end, reflecting the companys accomplishments and where we go from here. It is clear that our acquisitions executed last year are now delivering strong returns demonstrating the value of our consolidation strategy for ranger and for the sector more broadly.
The range of our management team and board, we the consolidation remains an essential and ongoing process for the company within both existing and adjacent product lines and we continue to be actively engaged on this front, we are regularly field and bound opportunities and maintain active dialogues with potential partners to look at ways to create value together.
We hope our Investor group shares our excitement about this quarter's results our teams across all three of our business segments have worked hard and shown incredible dedication to the company and our financial results back to above it has truly been a team effort and I am proud of with that accomplished.
I'll talk more about our outlook and strategic priorities here. Shortly so I'll now turn the call over to Melissa to walk through some of the details of our financial results.
Thank you Stuart and was a great quarter, and I think really gratifying for the team here at Ranger to see the results of all of our efforts demonstrate a financially.
Our third quarter results were excellent with activity increasing in all service lines and pricing gains experienced earlier in the year showing their full quarter effect.
In reviewing the details of our financial results, our consolidated third quarter revenue grew 15% increasing from $153 $6 million in the second quarter to $177 million in Q3.
The company posted net income for the quarter of $13 6 million an improvement of $14 million over the second quarter's net loss going forward, we do anticipate generating positive net income in future periods and should be in a positive retained earnings position at the end of the year.
Adjusted EBITDA improved from $18 million in the second quarter to $33 million in Q3, a 69% increase with margins expanding 500 bips over that same period from 12% in Q2 to 17% in the third quarter.
At the segment level revenue for high specification rigs increased from $76 million in the second quarter to $79 $7 million in the third quarter due to an increase in both activity levels and the full quarter effective pricing gains rig.
Rig hours in rig rates, both increase from the prior quarter driving the 5% quarter over quarter improvements in the top line.
Segment EBITDA for high specification rigs for $17 million in the third quarter as compared to $14 2 million in the second quarter margins in this segment expanded to 21% during the third quarter from 19% in the prior quarter due to some unplanned charges during Q2 that were nonrecurring.
In the wireline segment revenues increased by 22% from $49 $5 million in the second quarter to $66 million during the third quarter.
The increase in revenue was attributable to an increase in activity levels for our completions business with stage counts increasing by over 10% from 8000 stages in the second quarter to 9200 stages during the third quarter as well as strong activity levels within our production business we.
We also gained incremental improvements in pricing during the third quarter in this segment.
Our processing and ancillary services revenue increased from $28 1 million in the second quarter to $36 $7 million in the third quarter, a 31% growth rate all until our product lines grid with the strongest growth coming from our coiled tubing business with revenue up nearly 50% from the prior quarter.
<unk> attributable to the deployment of an additional coil unit adjusted EBITDA for this segment increased by 106% quarter over quarter from $5 1 million in Q2 to $10 5 million in Q3 on.
On the G&A front cost decreased by $1 $2 million over the period from $12 2 million in the second quarter to $11 million during the third quarter.
Quarter over quarter changes in G&A, largely relate to integration costs legal settlements and severance all of which we expect to continue to decline during the fourth quarter.
Turning to the balance sheet the company reduced its debt net debt load by $13 2 million or 19% quarter over quarter and is reporting adjusted net debt of $45 $2 million at the end of the third quarter. The company was able to pay down this debt with operating cash flow of $10 7 million for the quarter and.
That sale proceeds totaling $6 5 million.
With that I'll turn it back over to Stuart to address our outlook and thoughts on the strategy.
Thanks Melissa.
I would now like to provide more detail and clarity about our thinking for the business moving into Q4, and then into 2023.
We continued to see demand in pricing resilience across all of our service lines.
Have seen isolated pockets of budget exhaustion of our customers have committed to taking those rigs back up in early 2023.
A few rigs that had been released have already been.
We redeployed to other customers many for extended work programs like setting up increased market partners for our services in early 2023.
Although we are remindful of a potential recession, our customers have indicated they intend to hold activity levels and maintain production targets during 2023, and we see steady demand throughout the year with opportunities for incremental growth.
We recently updated our full year guidance for 2022, and now anticipate revenue to be between 615 and $620 million for the full year, which exceeds prior full year guidance of $580 to $600 million full.
Full year adjusted EBITDA margins are expected to be near the top end of prior margin guidance at around 13%.
During the fourth quarter, we are expecting a typical seasonality and holiday impacts and believe the consolidated revenues could decline by mid to high single digit percentages, but that will be highly dependent on each individual customer <unk>.
Adjusted EBITDA will likely be affected by this by the seasonality as well, although the team remains highly focused and stay.
Staying near 15% EBITDA margin target through Q4.
We do believe there will be a part is great momentum during the back half of 2022 that we can build upon in 2023, and we are working with our teams right now to pin down those opportunities and develop specific budgetary targets for next year.
<unk> plans to grow utilization across all business segments and will be ready to shed more light and provide additional details when we report out our full year results. During the first quarter. The company is using the second half of 2022 into 2023 budget baseline and does believe that there are additional opportunities to grow the business levels.
Our focus through these such discussions will be to push our teams to deploy assets, where there are sufficient market demand and make incremental improvements to operating efficiencies to facilitate additional margin expansion.
Finally, the management team and board I've spent significant time this quarter thinking about next steps for the company in light of the successful integration of our 2021 acquisitions and our desire to drive shareholder value creation I would like to share some of his thoughts in 2000.
Over the quarter, we spend time looking at our strategic priorities as a company and gathering a number of investor perspectives as well there are commonalities to these discussions that are forming the foundation of our go forward thinking.
The range of our management team and board believes that the company should ensure balance sheet strength and resiliency in any economic environment and during any part of the commodity cycle and the vast majority of our investors have exited the.
The company believes that a balance sheet with our debt is absolutely vital that we should continue to pay down debt and deleverage the company.
As a smaller public companies in our sector that remains highly fragmented and competitive the companies should be an active pursuit of appropriate consolidation opportunities in the coming years.
Knowing the company and gaining additional scale in the space has been a central part of the company's strategy to generate shareholder returns over the long term.
We have and will continue to be actively engaged on this front and we believe maximizing financial flexibility and balance sheet strength provides us an advantage to these discussions.
Finally, we need to remain flexible and be focused on making sound investment decisions with the dynamic sector and market backdrop, we will continue to evaluate our shareholder return framework and the appropriate time to consider either a share buyback with dividends.
This concludes our prepared remarks, we have appreciated your time today and we will now open it up for questions.
We will now begin the question and answer session. If you have dialed in and would like to ask a question you may dial Star Nani curious your meetings. Once you are selected to answer a question dial star six.
At this time, we will pause momentarily to assemble our roster.
Yes.
The color with the phone number to 88 seven.
Please ask your question.
Yes, Hi, Stuart This is John Fick Dorn. Thanks for good morning, John how are you.
Good how are you good thank you Bruce.
<unk>.
Right numbers out today.
You know you guys have done a really excellent job running the business and I just would love. It if you guys could expand a little bit on.
What you intend to do with all the cash flow you kind of speak expense explicitly around paying down debt.
Rock solid balance sheet, yet at the same time you talk about how currently your net debt is quote well below one times EBITDA.
So I would say that is pretty much a rock solid balance sheet. All of your competitors are currently returning cash.
Cash to shareholders in some form or fashion.
And it seems like something that would both support your stock which would.
To give you a currency to use to do further acquisitions as well as kind of.
Seemingly do the right thing for shareholders, but I'd love your thoughts on it.
Great. Thanks for the thanks for the question John very much appreciated.
As we've said there's been a lot of discussion.
Between the management and the board we also through the quarters focus with really a large number of our investors to get their perspectives as well.
And I think for those conversations really a couple of things came out.
So the first thing is that.
Really a strong desire to have just to be net debt zero. So we do think as you said that our balance sheet is very strong.
But we have a very clear target to be net debt zero. So thats kind of the first priority as we go forward.
We also feel like that in our current sector. Our current segments and adjacent segments are still a lot of consolidation opportunity. We're having a lot of conversations and we just feel like we need to be flexible financially to act opportunistically, if something develops our capital return framework is going to be an ongoing discussion.
Again lots of conversation with the board and investors and we would expect that that will continue in the coming.
The months and quarters.
I just net debt zero with this level of EBITDA. Your adjusted EBITDA was 39 million for the quarter, you have net debt of $57 million.
That that target will be achieved arguably in the next four months.
You continue this run rate.
Your equity is obviously consideration for further consolidation I would imagine.
And is it not I mean, what do you intend to do how can you buy a company in an accretive fashion when your stocks trading at three times cash flow.
Without getting your stock price up right.
Yes.
Again.
Not to be a broken record, but it but it really was we again had a lot a lot of discussion.
And.
Kind of where we reach was we thought that the best thing that we could do for maximizing long term value of the company was to get to net zero be flexible on opportunities, but again, Johnny but this is going to be it on me. It is an ongoing discussion and dialogue with the board.
So I don't think this is again I think just as market conditions develop we're going to continue to reevaluate it.
Our framework.
Thank you.
Okay.
The next question will come from the color with the full number of HQ on five. Please go ahead.
Okay.
Hey, guys renewed.
The new calling system is confusing for an old person like me it's Jonathan.
Okay.
Really nice results and balanced this quarter.
Yeah, good call on the debt pay down strategy from someone who has lived through way too many cycles.
Hey, Stuart I think if I heard correctly in the prepared remarks, you talked about an expectation for stable rates going forward in 'twenty three.
As you May know there are different views on activity levels next year.
Patterson for instance, yesterday excited their internal customer serving you actually quite quite positive.
Which would call for call. It another 90 rigs from now through 'twenty three.
Let's assume they are right right and then let's call it a plus 10% move in the rig count drilling rig count.
In that scenario would you still see rates being stable or do you think there would be further upside from here.
I think in that scenario it absolutely absolutely be further upside down.
Okay.
As we speak to various LFS enterprises, there still seems to be a.
A lot of interest and further industry consolidation you noted that in your prepared comments just given I think you said you had you still continue to see inbound inquiries coming in.
It just feels like the valuation differences.
I know what Keith further deals from happening.
I don't think anyone would disagree with the industrial logic of further consolidation but.
What do you think it's going to take for the sellers to have more reasonable expectations.
And I guess, where I'm going to Stuart is that we're getting to the point, where even though EBITDA multiples might look low.
The valuations on a replacement value would start to screen high and has not been more unappealing overpaying on an asset value. So just your thoughts yes again, thanks for the question John .
We've been really thinking about it and I would say the majority of our conversations would be primarily.
Equity deals.
So rather than us going and kind of raising a bunch of that to get paid for something so that's been most most of the discussions.
And again I think in a way that's why we're being ultra conservative with the balance sheet because some of those targets do have some debt themselves that we would potentially have to absorb so.
Again.
Generally it would be the equity issues.
Okay and then.
One.
I might squeeze two more here and there so it might be tough, but I'll just throw it out there.
In terms of the M&A is that the private equity people or the incumbent management teams, who tend to be the greatest obstructionists and getting deals done.
So it can differ.
Yes.
Sure.
It is a tough one.
Yeah, I'll speak from personal experience and just say that I think that that is definitely true I do think that just given.
The duration that many of these companies have been held by TD firms I think some of the social issues appear I'm not going to say that there is it overcome but I think people are having more realistic conversations.
Okay, Great I'm going to go back to operations here, because I was really impressed by the comment on coiled tubing there the rate of improvement.
To the extent you have any granular data point yet in your in your notes there just give us if you don't mind give me your thoughts on.
How do you see it.
A range of participating in that market and opportunities now.
Yes so.
In the quarter, we put up good work large coil unit out to work.
So the fourth quarter results don't fully reflect the full utilization of that unit.
That said I think we do expect some seasonality.
At the moment.
We have been supporting that business.
Again, it's a DJ focus business I've been supporting it at this moment, we don't intend to go outside of the DJ.
Okay equipment that we have we really like the achievements leading efforts at the moment, we intend to be pretty focused on the future.
Okay, Great I really good quarter, thanks for letting me that one thanks.
Thanks, John appreciate it.
Sure.
The next call will come from the color with the phone number of.
4351 please.
Please go ahead.
Hey, good morning, Stuart Melissa <unk> from Piper Sandler.
Good morning, Steve.
Good morning.
So we're in a nice increase in your wireline stage count in <unk> and you've been highlighting the potential for improved results here I'll just flip Inc.
Billable trucks to active.
Can you talk a little bit about how this progressed during the quarter versus maybe how much efficiency improvement you saw from <unk> active trucks, along with how many trucks, maybe you could go back to work in 'twenty three.
Sure.
Couple of just comments about it right now with the results.
On average we're operating you recall low forty's on the number of wireline units that we're operating right now.
We have upper <unk>. So so obviously, we have some room to run there.
Really there's a couple of things that really drove the increase.
And margin, but we still think that we have more to do.
The north in particular, both in our production segment and our plug and perf completions segments showed both both nice revenue and margin expansion.
Pricing in Midlands, where in the Permian basin around completions in particular had really been challenged.
Through Q2 and coming into the quarter and we feel like we made some progress there.
It's not all the way, where we want it to be yet but.
But I think we are we are on pricing and plug and perf, we are still below pre COVID-19 levels.
Unlike rigs.
Fed is over so we do think there is still some opportunity there.
It really had a had a great quarter.
Okay. Thanks, so much.
The next question will come from the color with the phone number nine Q4 three.
Okay.
Please go ahead.
Okay. Thank you called me is dark pies from Barclays you like the <unk>.
A number system I feel like John Melo, John from Les Mis.
Thanks.
Good morning, Eric how are you.
I'm good I'm good.
And collect my thoughts here I just wanted to hit on the.
The budget exhaustion comment a little bit obviously, not getting that much from your peers in the pressure pumping our land drilling side and then you mentioned it might or will extend in the first quarter and you're really planning on hitting our stride as a good first quarter that surprised me a little bit as far as being up in the first quarter I would think there'd be more like a coiled spring and hit the ground running I know there'll be some weather in first quarter.
But can you just walk me through that a little bit maybe why that we should expect something different view versus some of your peers is that a mixed thing about how operators drill and complete that program just a more color on that would be helpful. Sure.
The thing I would say is.
We're we're we're seeing.
Materially or we're seeing it is in the high spec rig business.
And in <unk>.
A lot of that is just because of the amount of production exposure, we have in nursing drill out rigs that again, what a couple of our customers have said is that they wanted to they.
They were out of budget there were out of wells to complete they wanted to stop that.
And kind of mid Q4, and then pick them back up in Q1 now we've had demand it's kind of been building up behind.
And so most of those rigs have already been redeployed.
And so we're now in a situation and maybe this goes it's a coiled spring comment we're now in a situation where even though there was some budget exhaustion. Those rigs are now being put to work and we know we have to be coming on the back side in 2023. So.
It could get pretty interesting as we as we exit 2023, yes, and I'll just island, Eric I think what I heard from your question. What we're trying to convey is there is actually kind of two different phenomenon going on so to the isolated bucket budget exhaustion just to Rick's point you heard there when we talk about extending into Q1 of next year.
Year.
It's really not budget exhaustion clearance, that's really the winter effect on the back side of that so so there are sort of two different phenomenon not connected to each other that we just sort of think if theres a really hard winter that we could see a little bit of depression, continuing into Q1 next year, but we're not looking at them as really connected events, it's more the winter.
Phenomenon is one and just really isolated pockets I don't think we've seen the same and you have.
Nothing to add on Stuart's comment on the budget exhaustion.
Okay. Okay. No. That's helpful. I appreciate the color there.
So last month, you put out some.
Maybe some bookends as far as what 2023 could look like on your current asset base.
Would you refresh our memories, there I think that would be important to walk through and then if you have some preliminary thoughts.
Might increase that soft guidance that a bit more stable than what youre thinking about 2023, given Africa. Two currently have right. So.
I think youre referencing.
Our our Investor Relations tab.
On the west side.
And where we presented what we thought was potential capacity I mean, I think we were trying to be clear that that wasn't necessarily guidance.
But if you'd looked at that there was still from our current run rates there was kind of 10% to 15% additional revenue growth with our asset base that we think we could realize.
How we're kind of thinking about the budgeting process as our experiences there tends to be seasonality in Q4 and kind of the early part of Q1.
So the way we kind of think about it is to take Q3 and what we expect in Q4 and take the second half, which is why we hit kind of got it around that and Thats really sort of the baseline right. When you think about kind of revenue and margins. When you take those two quarters combined that makes sense and I think as we do is we are budgeting season, we're taking that is.
The baseline and then looking for opportunities to grow off of.
Yes, I think that the.
The growth for next year will be what is of that utilization that you saw in the Investor day.
How much of that can we reasonably expect to get online next year and I think those are just very early conversations that I. Just don't think we're ready to tell you how much of what was in that deck. We feel like we can really get up after we're doing a very much a bottoms up every district is going through and saying. These are the customer just curious if programs are interest and that takes a little.
At a time to get arms fully wrapped around to give you better guidance around what we feel very confident we can grow from the back half of this year. If we look at that as a baseline for all of next year. We just we're just not ready to really say how much.
Understood Fair enough. Thanks for all the color I appreciate it and turn it back thanks, Sir thanks.
Yes.
The next question will come from the color.
Nine Q4 three please go ahead.
Illinois, <unk> Bill came at Christiana, how are you guys.
Good morning, how are you bill.
Good good quarter, just wanted to follow up on a couple items.
I guess.
First thing is on the wireline side, it's good to see the progress there because I think theres a lot of untapped earnings potential in those assets, but.
Could you give some color on how many active wireline units were operating in Q3.
Yes on average in Q3 it was.
It's kind of 40 to 43.
Depending on the time that bit low forty's.
And now I guess.
Yes.
Yes.
No I was going to say and that does include obviously, depending on the word sometimes we would absent backup trucking that's in those numbers, but really to think about kind of 42 to 43 active trups.
Running trucks.
That's a big gap from.
We were where you were last couple of quarters from what I.
Call. It worked those numbers at amberjack dwelling, it's closer to 2014 or so.
It should be higher than that.
Yeah, why don't we kind of go ticket.
Terrific.
I'll follow up thank you.
Argue it's been pretty consistent.
So there may just be wireless across there, but we can follow back up with you.
Make sure you got the right information, but I think the trucks had been running largely in the forties.
Sure really Q2 in India.
That probably Q1 was at a more depressed level certainly.
Got it okay, great Yeah, we can follow up on the clock.
Next question.
Regarding SG&A.
I mean, its staying somewhat elevated although it's down from the previous quarter.
If you looked at the beginning of this year and late last year.
Management, you were guiding for somewhere around $16 million to $17 million correct.
R&D as a run rate now that's gone up quite a bit from here and I understand that there's been some.
Transaction related and integration related expenses, but.
I Wonder if maybe we can reset here in recent expectations as to what we can expect going forward. Once all these integration expenses that are done.
Yes, no. It's a good question Bill.
Bill I do think I don't know that I was aware of the <unk> 17 per annum guide before and that does seem pretty low what I will say is you have a phenomenon that showing up within the G&A, where a lot of that transaction and integration actually kind of goes and then comes back out so that's where all of the transaction and <unk>.
Integration.
It's sort of it's housed that then ultimately gets adjusted out for EBITDA, when we look at sort of pure G&A.
Run rate G&A, if you will we've been tracking more between 7% and $8 million and I think that probably the $8 million is around that's kind of it's ours to give you more conservative Ics, probably edging up just a little bit on the back of all the growth this year, but I think about $8 million per quarter is probably where we would be which is meaningfully higher than <unk>.
The 17, but again much lower than the 12 and 11 you can see.
Great got it.
That's helpful.
A couple of balance sheet items.
Or how exactly would you describe the contract assets on your balance sheet is there an offsetting item on the liability side or is this really just.
Rebuild revenue that doesn't have an offsetting cost kit, yes. It really is unbilled revenue. So we call it contract assets because it's her.
It took me a little bit when I first showed up I ask the team as with all of the same question.
And it really is our unbilled revenue.
Okay. Okay. Great. So then that leaves me to come our final question and a point.
And as you both know I'm kind of in the camp of can.
<unk> balance sheet, but I think at this point, there's no reason to necessarily say one way or the other is the right way I think at this point kind of if you look at your how youre on.
Working capital has evolved since the last quarter.
With the debt Paydown.
Could the contract assets, because the cost side kind of in there yet.
You kind of increased your working capital to a point now where it covers a lot of the debt.
Which is a good place to be you have a lot of ADR booked and if you do see some seasonal declines in the next couple of quarters Youre going to see some of that released back to you.
Perhaps it's a good point, maybe now to think about.
Not necessarily just paying down debt or just buying back equity because I don't think dividend the answer here and your stock price is too low for what these assets are worth, but maybe you can kind of split it up a little bit.
Pay down some debt with the cash flow and then maybe start to buy back a little bit of equity given the attractive stock price.
How do you feel about kind of looking at it a hybrid approach.
Yes.
Similar to John's questions is yes.
All of those points and again really appreciate the comments Bill we're actively discuss it with the board and management.
I think your point about.
<unk> needed to be flexible and understanding that it may be kind of horses for courses depending on the time.
Is absolutely right. So again I think we're just continuing to evaluate it. The board is very engaged on this topic, so and we recognize that the balance sheet is moving meaningfully quarter over quarter. So that means our positions could move.
I think what's important for what we'd like our investors to takeaways.
We're listening to you as long along with ever all the others and we're making sure that feedback is coming and dynamically and getting to the board level and making sure. We're having the right kind of discussion. So I appreciate I appreciate the feedback.
Okay, Great that's helpful.
I totally appreciate where you stand on paying down debt and I think that should continue.
But.
Perhaps given.
That does not move in some time.
It's not that I care, whether it's that goes in the near term, it's just that it might be in.
Return on capital that you get a 10 questions.
Yes, very misunderstood.
Alright. Thank you thanks Bill.
The next call. The next question comes from Don Crist with Johnson Rice.
Dan go ahead.
Hey, guys. How are you all of that we're good hey, Don how are you.
Hanging in that assessment Mohan thanks for all the color sorry, I'm kind of one of the last in line, but I wanted to dig in a little bit on margins, particularly on coil.
Up 10% quarter over quarter can you talk about what's driving that and.
And is that sustainable in kind of that high twenty's as we kind of move in the 'twenty three you think.
Yes, we are.
Again, thanks for the <unk>.
<unk>.
Do think that that is sustainable.
So a lot of that margin was getting a fourth unit out and really has just sort of good utilization there wasn't a lot of white space. So we didn't have the units in the yard much at all.
Which was great.
But I think as far as when we kind of look at our cost base and pricing.
We kind of is pretty sustainable.
Okay and pretty much everything else has been done the one modeling question for me and Melissa.
As far as taxes go next year do you have sufficient nols to kind of cover cash taxes as we move through the year, yes.
Okay. So we shouldnt, we shouldnt plan on any cash taxes next year, not not cash taxes now.
That may start to see a little balance sheet noise on on the tax line as we move into the net income territory, but the <unk>.
<unk> advisors have assured us we're in a pretty good position with our Nols.
I appreciate all the color great quarter guys.
Thank you.
Yes.
We have now concluded with all questions I would like to turn the conference call back Fitzgerald burden for closing remarks.
Thanks, Shelly again, thanks, everyone for joining us today.
Hopefully you got a sense of our excitement for how the business is running so just really just squeeze.
Where things stand and just really proud of the team.
I would also like to remind everyone that management intends to conduct investor meetings in New York and Chicago during the week of November 30, and we would encourage any interested party to reach out to management or scheduling availability.
Thanks, everyone not great weekend.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.