Q4 2022 Ranger Energy Services Inc Earnings Call
Speaker 1: .....
Speaker 2: Good morning and welcome to the Ranger Energy Force Quarter in four year 2022 conference call.
Speaker 2: Our participants will be in a listen-only mode. Should you need any assistance during the call? Please signal a conference specialist by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two.
Speaker 2: Please also note that this event is being recorded today.
Speaker 2: I would now like to turn the conference over to Shelley Weimer, Vice President of Reporting and Finance. Please go ahead.
Speaker 3: Thank you, operator, and welcome to the Ranger Energy Services 4th quarter year 2022 Results Conference Call. Before the market opened today, Ranger issued a press release, summarizing operating and financial results for the three and 12 months ended December 31st, 2022.
Speaker 3: This press release, together with a company presentation materials, are available in the Investor Relations section of our website at www.RangerEnergy.com. Today's discussion may contain forward-looking statements about future business and financial expectations.
Speaker 3: Actual results may differ significantly from those projected in today's forward-looking statement due to various risks and uncertainties, including the risks described in our periodic report filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statement.
Speaker 3: Further, please note that non- GAAP financial measures may be disclosed during this call. A full reconciliation of GAP to non- GAAP measures are available in our latest quarterly earnings released in conference call presentations. With that, I would now like to turn the conference call over to Stuart Bowden, Ranger's Chief Executive Officer for his prepared remarks.
Speaker 2: Thank you, Shelley. Good morning, everyone. On today's call, we will be discussing our fourth quarter and full year 2022 results, as well as our outlook for 2023.
Speaker 2: Ranger's growing portfolio of high return assets delivered exceptional results in 2022. We more than doubled top line revenue and increased adjusted EBITDA more than 500% from the previous year and went from negative free cash flow to paying down over $50 million debt, reducing our debt by 72% from its peak in March.
Speaker 2: We were clear throughout 2022 that we were committed to achieving that debt zero, and I'm proud to say that we are very much on track to achieve that goal in mid-2023.
Speaker 2: Importantly, the team's efforts have put us in a position to enter 2023 with a business that generates substantial free cash flow, allowing us to pursue opportunistic growth opportunities, and implement a meaningful capillary turn framework that includes the combination of a shared repurchase and a sustainable dividend.
Speaker 2: Specifically, our board has authorized $35 million worth of potential share by Vax, available for up to 36 months. And the board has also approved a quarterly dividend of $0.5 per share that will commence once the company achieves its net debt zero target.
Speaker 2: The range of board and management have committed to returning at least 25% of our annual cash flood is to investors and this amount will potentially increase in future years as we weigh our potential acquisition opportunities with the value of repurchasing our shares or returning further capital through dividends.
Speaker 2: Behind our strong financial performance in 2022 was tremendous execution from our operations and support teams.
Speaker 2: as they successfully and seamlessly integrated the acquisitions we made during 2021, which resulted in improved operating leverage and efficiencies.
Speaker 2: The vast majority of the credit for our performance goes to our dedicated teams, whether in the field or working in our offices, who have collaborated across segments and geographies to achieve these tremendous results.
Speaker 2: The team success was evident in the consistently improved margin performance through the first recorders of the year.
Speaker 2: And while the fourth quarter saw a step down an activity due to typical holiday and seasonal trends with an incremental hit from Winner's Storm LA hit, we still achieve record fourth quarter financial and operating results as compared to previous years.
Speaker 2: Well, let's all discuss the details of the fourth quarter financials in a few minutes, but for the year, I would like to reiterate that we more than doubled our revenue during 2022. Reporting total revenue for the year have $609 million compared to $293 million in 2021. We also more than triple gross profit, which speaks to the efficiencies gained during the year.
Speaker 2: and the determination of our operating teams to manage costs and expand margins.
Speaker 2: Furthermore, our adjusted EVA die improved by $67 million year over year to $80 million.
Speaker 2: Free cash flow conversion as a percentage of adjusted EBITDA also improved to 39% for the year, resulting in approximately $31 million of free cash flow generation, which was supplemented by the sale of non-revenue generating assets acquired through the Basic Asset Acquisition.
Speaker 2: Moving into our specific segments, we possess the largest modern fleet of high specification while servicing rigs in the industry with experienced safety focused crews.
Speaker 2: These rigs service a broad spectrum of wells, from the completion and drill out of new horizontal wells to the work over and maintenance of existing wells.
Speaker 2: Given this business as well suited to provide services to both new completions and existing producing wells, it can flex based on market conditions, allowing us to generate a above market returns through the cycle.
Speaker 2: For the year, our high-spec rig segment achieved revenue of $293 million, a 109% increase year or over the prior year. On the back of a record 469,000 operating hours, as compared to 257,900 hours in 2021.
Speaker 2: Due to industry consolidation and a supportive macro backdrop, we were able to drive meaningful pricing increases from $543 per hour in 2021 to an average of $625 per hour in 2022. The high specification rate segment traces back to Ranger's origins.
Speaker 2: and we are proud to see it achieve such growth since our IPA. We feel the segment is well positioned to continue growing in 2023 as our customers look for opportunities to create value in their supplier partnerships.
Speaker 2: We are also having active dialogues around opportunities for expanding services, improving performance monitoring and data acquisition systems, and also reducing emissions by making modifications to our fleet. In our wireline segment, we currently have a fleet of 67 wireline units in 13 high pressure worked for repetum router unit .
Speaker 2: that we use to provide services necessary to complete wells, bring new wells into production, and also maintain these wells through their production life cycle. Completed stage count during the year, increased 50% year-over-year.
Speaker 2: to $31,400 with revenue increasing 67% to $197 million in concert with the activity increase.
Speaker 2: Seasonality is particularly impactful to the wireline business.
Speaker 2: due to our large presence in the northern basins where weather hinders activity during the winter months. We have an initiative in 2023 to focus on further diversifying our footprint to create more anchor contracts and basins where the weather impacts are not as acute, creating more resiliency and ultimately more profitability.
Speaker 2: Finally, our ancillary services business increased substantially this year.
Speaker 2: Revenue for the full year of $118 million was up 237% year over year. All product lines achieved increased revenues including coil tubing, PNA, Reynolds and phishing, and torrent, our field gas processing division.
Speaker 2: Several of these anti-floyer businesses were bolstered through the basic asset acquisition and, although previously mentioned, it bears repeating that they have been hidden gems to Ranger. Our coil tubing and wrap businesses each contributed $8 million of EBIT dot to Ranger during 2022. And we look forward to seeing the foyer impact of these businesses.
Speaker 2: that were brought online during 2022. Our PMA business grew significantly during the year and has recently won incremental contracts to be commenced during 2023. More of our torrent assets are seeing utilization presently and we intend to continue growing this business in 2023 as well. I'm now going to turn the call over to Melissa to dive deeper in the financial results from the quarter.
Speaker 4: fourth quarter, as Stuart mentioned, although we experienced some seasonality, we experienced an outsized impact from when a storm eliot. Despite the different circumstances of our revenue, a huge credit is due to our team for moderating the storms impact with strong responses on the cross line that resulted in profitability meeting our expectations.
Speaker 4: Fourth quarter revenue of $154.3 million was 25% higher than the fourth quarter of 2021. The company posted net income for the quarter of $7.6 million or 31 cents per share.
Speaker 4: Adjusted evid off for the fourth quarter was $21.6 million.
Speaker 4: 137 percent higher than the fourth quarter of 2021, with adjusted EBITDA margins at 14 percent.
Speaker 4: At the segment level, fourth quarter 2022 revenue for high specification rigs was $72.6 million, a 22% from the fourth quarter of 2021. We recorded operating activity of 113,600 hours in the fourth quarter.
Speaker 4: with average pricing of $640 per rig hour. Both rig hours and rate increasing year over year.
Speaker 4: Adjusted to the adopt for the high specification rig segment with $15.2 million for the quarter, up from $8.8 million in the fourth quarter of 2021. Increased pricing, activity, and margin expansion all contributed to the improvement year over year despite 4,300 rig hours of downtime due to winter storm alliant.
Speaker 4: In the wireline segment, revenues in the fourth quarter increased by 8% year-over-year to $48.3 million. This segment took the brunt of the winter storm impact resulting in 13 downtime days in December , which negatively impacted revenues by approximately $3 million relative to expectations. Adjusted EBITDA margins in the wireline segment were 10%, a material improvement compared to the current year-over-year.
Speaker 4: year-over-year earnings growth. This segment now represents just over 19% of overall revenues for the full year compared to just 11% in 2021. Adjusted EBITDA for this segment increased 83% year-over-year from $3.6 million to $6.6 million.
Speaker 4: which has been attributable to growth across all lines, but most notably, the rentals and fishing, quality viewing and plug-in abandonment businesses. Adjust the EBITDA margins were 22% for the full year, 2022, expanding 5% from the prior year.
Speaker 4: Switching gears to GNA, we saw a meaningful reduction in our GNA expense, which came in at $7.5 million. Down year over year, largely as a consequence of one time basic transaction and integration
Speaker 4: As we are finalizing our integration efforts, we expect that the current GNA levels will be stable moving forward, and the fourth quarter 2022 period reflects an appropriate run rate in future quarters.
Speaker 4: Finally, to the balance sheet. As Stuart mentioned at the beginning of the call, we couldn't be happier with the progress achieved to date on reducing our debt balance. During the fourth quarter, we repaid another $23.4 million of debt. Total adjusted net debt at December 31st was $22.4 million as compared to $72.3 million the year prior.
Speaker 4: allowed us to pay down more than $50 million of the aforementioned debt.
Speaker 2: With that, I'll turn the call back to Stuart to discuss our outlook and strategic priorities for 2023. Thanks, Melissa. In our earnings release this morning, we provided thoughts on where we expect our 2023 financial performance to fall, and I would like to review some of that information and provide you some further context. Think you for listening!
Speaker 2: As I hope you can tell, we feel confident in our business on the back of a strong 2022 and positive customer conversations as we head into 2023, despite a drumbeat of potential recessionary indicators and concerns about the natural gas markets.
Speaker 2: Activity levels are picking back up off of our December lows and have been resilient in our course service offerings.
Speaker 2: The company has entered into several rig and wireline service contracts that will begin in March and April once the harsher winter months are behind us, giving us additional comfort that our business will ramp to peak activity levels beginning in the second quarter and continuing into the third quarter.
Speaker 2: As we have indicated, this is a very typical pattern demand for Rangers core service offerings, given seasonality and weather impacts.
Speaker 2: There have been declines in wealth-servicing word account in traditional gas basins resulting from the decline in natural gas prices. That said,
Speaker 2: to other customers in Basin or in other basins.
Speaker 2: Based on conversations with our customers, we remain optimistic that the EMP activity will remain steady and potentially increase in the back half of the year.
Speaker 2: Now that we are past integration costs, resulting in a range of $55 to $70 million in free cash flow after capital expenditures, which we are expecting to total between $25 and $35 million, or about 4 to 5% of revenue. With regard to our expected quarterly cadence, the company has continued to see its normal seasonality in January and February , although we are now seeing activity levels improve and expecting a meaningful increase in March. Bearing in mind the shorter quarter with the marks ring weather, we think our key one financial result will be largely similar to Q4, barring any further weather disruptions, before improving sharply in the second quarter.
Speaker 2: New contracts have been placed for well-serviceing rigs, P&A spreads, and wireline operations that are due to commence in March and April that will provide momentum in the second quarter, which will continue through the third quarter.
Speaker 2: Next, I'd like to shift to an FDNR value creation roadmap and strategy.
Speaker 2: We have remained steadfast in the conviction that having a fortress balance sheet would position the company for maximum flexibility to engage in the next phase of growth. We believe that Ranger today is a more attractive investment opportunity than it has ever been. This belief is supported by the key powers of our strategic focus, which are as follows. First, we are doggedly focused on cashflow generation and expanding our EBITOM margin.
Speaker 2: across our segments and regions. And we are encouraged by some of our early successes.
Speaker 2: Second, we are initiating an attractive capillary turns framework this year that is rooted in our successful efforts to fortify our balance sheet and improve cash flow generation. Importantly, our capillary turns framework also allows for ample drive powder to continue investing in attractive, organic, and inorganic opportunities.
Speaker 2: that yield favorable returns on invested capital. This program incorporates both a share repurchase and a sustainable, growable dividend. The framework comes with a commitment to return at least 25% of our cash flows every year to investors, which we can flex that based on market conditions and opportunities.
Speaker 2: The Ranger Board and Management Team are firmly committed to long-term value creation for our investors. And we believe this balanced capillary-turned-frame work provides the greatest long-term value creation potential for our shareholders.
Speaker 2: And third, appreciating the optionality that comes with a balance sheet, with our balance sheet and pre-cash flow. We have been and continue to look hard for inorganic growth.
Speaker 2: We are presently reaping the benefits the consolidation has brought to the well-service space and feel a continued cut consolidation across all service lines will improve the long-term outlook in our still-fragmented industry. We will seek out opportunities to bolster our service offerings and increase our return on capital through accrued transactions.
Speaker 2: I believe our acquisition track record speaks for itself. We have refused the temptation to overpay for assets, and instead have smartly pursued opportunities that make financial and operational sense, and will continue to do so while striving to safely improve our own operations each and every day.
Speaker 2: Before opening up the call for Q&A, I would like to provide a brief corporate governance update as well. As we announced in our press release this morning, we were making some changes to the composition of our Board of Directors.
Speaker 2: As part of the board's normal governor through you, the board to decide that it would be in the best interest of the company to reduce the size of Ranger's board from nine members to seven. As such, Gerald Simidor has indicated his intention to resign from the board at the upcoming annual meeting and by rendign will not be standing for reelection.
Speaker 2: I would like to thank Gerald and Byron for their years of service on the Ranger Board. Both of them had been integral parts of Ranger's success, and we wish them success in their future endeavors. Thank you again for your participation this morning and your interest in Ranger. Now I'll turn the call back to the operator for questions.
Speaker 5: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad.
Speaker 5: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker 5: into a draw question please press star then two.
Speaker 5: At this time, we will take our first question, which will come from Don Crist with Johnson Rice. Please go ahead.
Speaker 6: Morning guys, how are y'all this morning? For good, how are you, Don?
Speaker 6: Pretty good. Stuart, I wanted to ask, obviously there's been some weakness in completions on the gas side and a little bit of rig reductions in the permeant, but I wanted to dive in a little bit and ask what portion of the rig business is
Speaker 6: related to completions versus workovers. I believe it's a majority are on the workover side. And how has the demand on the workover side, you know, outside of seasonality? Is that holding pretty firm these days?
Speaker 2: Yeah, the answer to the first part of the question is, you know, roughly we're kind of 25% completion related and 75% workover related, you know, from a revenue basis. Workover demand has actually held up incredibly well. So we're actually quite excited about that.
Speaker 2: There's been a little softness as we talked about in the natural gas markets, but we also felt like we had some unmet demand with other customers both in Basin and actually in some of the Willy Basin. So we feel like most of those rigs, we think we'll find a home in many have and will in short order. And to take that one step further, I know in the past you've talked about PNA opportunity.
Speaker 2: just a couple of anecdotes. So one is some of the money associated with the Infrastructure Act that was available to P&A is now starting to trickle through the system, so we are seeing more bids out for that. We've also seen some of our larger customers just embark on P&A programs as part of their regular operations.
Speaker 2: So we're seeing a pretty marked increase in demand for P&A.
Speaker 6: Okay, and one for I believe Melissa here, can you outline the the CapEx spend this year and kind of where that's going to versus growth versus kind of maintenance?
Speaker 4: So the vast majority, we only have a couple of million dollars sort of earmarked. We do have increased, we have a couple million dollars earmarked for growth capEx, really geared towards ESG related growth capEx. So electrification or emissions reductions is the only real growth.
Speaker 4: We are investing the 25 to 35 also includes sort of the vehicle leases. There is sort of a fleet refresh budget out there. So I don't think of that as growth, that's maintenance, but that's a piece of it. That's probably outside. And then everything else is sort of maintenance capex, but also trickled into that. I don't call it growth capex, but it's sort of that reactivation of rigs.
Speaker 4: So we do have, you know, 10, 15 rigs earmarked to reactivate this year and put into service. As those come out, they require a couple hundred thousand dollars each. So that's included in that number. Again, we think of it as sort of longer term maintenance, not necessarily growth cat that.
Speaker 6: Thank you for sharing all the colors there. And one further one for me before jumping back in the queue on the M&A side Stewart is the bit asked coming closer to reality these days or is it still pretty wide.
Speaker 2: No, it is, I think since we all last talked at the end of Q3, the number of in-bounds that we're taking has increased substantially. And those conversations, obviously, before we spend a whole lot of time, we're public. You can see where we're trading, right? And we explain that. And I do think that people...
Speaker 5: Please go ahead. A good morning, Stuart Melissa.
Speaker 7: Good morning Stewart Melissa. Good morning, load carrier.
Speaker 7: I'm doing well. Stuart just wanted to touch on it. I guess you mentioned it earlier with a potential speed bump and overall industry activity due to gas. You're moving assets or placing it with new customers within the basin. But I just wanted to get your thoughts on how you think about pricing returns in this framework. I would assume you're moving in an equivalent price. But...
Speaker 7: If you can't get your desired price return, would you consider stacking assets and remaining any pretty displeant there?