Q1 2023 Ranger Energy Services Inc. Earnings Call
Speaker 1: That.
Speaker 1: And.
Speaker 2: Good morning and welcome to the Ranger Energy First Quarter 2023 conference call. All participants will be in a listen-only mode. Should you need assistance, please sign up a conference specialist by pressing the star zero on your telephone keypad.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask questions, please press star 1 on your telephone keypad. 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 Shelley Weimer.
Speaker 3: financial results for the three months ended March 31, 2023. This press release, together with accompanying presentation materials, are available in the investor relations section of our website at www.rangerenergy.com.
Speaker 3: Today's discussion may contain forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic report filed with the Securities and Exchange Commission.
Speaker 3: Accept as required by law, we undertake no obligation to update our forward-looking statement. Further, please note that non-GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non-GAAP measures are available in our latest quarterly earnings release and conference call presentation.
Speaker 3: With that, I would like to now turn over the conference call to Stuart Bowden, Ranger CEO , for his prepared remarks.
Speaker 4: Thank you, Silly. Good morning, everyone.
Speaker 4: Ranger's performance during the first quarter continued to reinforce the resiliency and attractiveness of our business model.
Speaker 4: As a result of the hard work done in 2022 to integrate the basic asset purchase and the Patriot and Pertex acquisitions, our year-over-year results demonstrate the leverage and growth potential of the business.
Speaker 4: Despite challenges in the natural gas markets, we achieved significant year-over-year growth across each of our business segments.
Speaker 4: and I would like to share with you some of the highlights in this quarter as compared to the first quarter of 2022. Total company revenue increased 27% to 157.5 million, with growth rates between segments ranging from nearly 20% to 50% as compared to the first quarter of 2022.
Speaker 4: High specification RIGS revenue grew 19% year over year with continued strong activity in all markets and significant price and gains.
Speaker 4: Not to be outdone, our Wireline Services Division grew revenue by 29% year over year, with increasing activity levels in our production business, where we have a focused growth effort, and incremental pricing improvements across completions, productions, and pump-down service lines.
Speaker 4: Finally, Rangers Processing and Antillary Services segment increased revenue by 50% year over year.
Speaker 4: The operating leverage and synergies from our integration efforts were also well demonstrated with cost of services improving 400 basis points to 83% of revenue as compared to 87% in the prior period.
Speaker 5: honor the
Speaker 4: We achieved a 109% increase in adjusted EBITDA and a 500 basis point expansion margin from 8% to 13%.
Speaker 4: The Ranger team is proud of the traction we have found with the combined businesses.
Speaker 4: and feel these results continue to reinforce our strong position in the marketplace and our ability to continue growing.
Speaker 4: Our business also continues to generate substantial free cash flow with $12 million reported in the first quarter of this year.
Speaker 4: further demonstrating the value of our strategy and the modest capital investments required to maintain our industry leading fleet.
Speaker 4: We believe our 60% free cash flow conversion rate distinguishes Ranger amongst oilfield service providers and gives us a strategic advantage going forward. Case in point, the cash flows generated over the last 12 months enabled us to rapidly reduce our adjusted net debt balance.
Speaker 4: from $80 million this time last year to less than $10 million of adjusted net debt at quarter grand. Very close to our stated goal of being net debt zero.
Speaker 4: Why are we so focused on debt reduction? Because we believe that balance sheet strength, particularly in a sector known for its difficulty, is critical to building a business that can systemally perform for the benefit of shareholders. It gives us flexibility to adapt to changing market conditions, strategically seize opportunities as they present themselves.
Speaker 4: and provide a programmatic return of capital to our shareholders.
Speaker 4: Consistent pre-cash flow and a 4-5 balance sheet has increased our confidence in the underlying strength of our business and provided us the opportunity to
Speaker 4: to focus on maximizing total shareholder returns. As announced last quarter, the Ranger Board has committed to returning at least 25% of our annual cash flows to investors through a combination of share repurchases and a 5% per share quarterly dividends that will commence upon achieving our net debt zero target.
Speaker 4: When it comes to capital allocation and shareholder returns, both the board and management are taking a disciplined approach to evaluating the best available options to maximize shareholder returns.
Speaker 4: As such, late in the first quarter, we began repurchasing shares of our common stock on the open market. Given the value of our shares, we believe the repurchase offers the greatest return on capital available to us at this time. We continue to actively evaluate our capital deployment options.
Speaker 4: including potential acquisitions, and will remain diligent in prioritizing shareholder returns as we proceed.
Speaker 4: Before I turn the call over to Melissa, let me share my thoughts related to the macro environment and the expected impacts to our segments, as well as the way we are responding.
Speaker 4: While commodity price volatility in the first quarter, particularly in natural gas, has presented a challenge, it has not dampened our view that the supply-demand fundamentals for oil and gas and our services remain constructive.
Speaker 4: While natural gas prices are depressed relative to one year ago, remember that significant LNG export capacity.
Speaker 4: is expected to come online by 2025, increasing demand and relieving bottlenecks that have dampened prices.
Speaker 4: As a result of the falling gas prices in the first quarter, Ranger has seen activity changes and felt the impacts of these declines in natural gas basins.
Speaker 4: although there are nuances to be appreciated between our segments.
Speaker 4: In our wealth services segment, although some rigs were idle during the quarter, there was more than enough demand for our rigs from other customers or in other basins, which virtually offset all negative effects, save for nominal logistics costs.
Speaker 4: We relocated some assets and crews from the Haynesville to the Permian and were able to hold pricing and asset utilization steady.
Speaker 4: A huge credit to our operational teams who hustled hard this quarter to hold utilization through these changes and we are very pleased with the results thus far.
Speaker 4: and feel our growth prospects for the year remain very encouraging. In our wireline segment, our northern wireline region, which represents the bulk of our wireline business, continues to outperform expectations and we feel confident in its upward trajectory as we move into the warmer summer months.
Speaker 4: However, despite no meaningful exposure to gas-your-basins, our wireline operations in the Permian have felt the collateral effects of the market pullback, as assets have been shifted into the basin by some of our competitors disrupting the supply demand balance.
Speaker 4: We have also seen pricing softness creep in recently, with pricing concessions being offered by others, despite pricing having not yet recovered to pre-COVID levels.
Speaker 4: We have been transparent about our work to transform our operations in this region, and we remain focused and committed to that transformation, as evidenced by our year-over-year improvement.
Speaker 4: Although certain of our segments may experience more muted growth this year, we do believe that oil and gas prices are set for a multi-year upcycle and are confident that the services we provide will continue to be in high demand.
Speaker 4: We are unique to many of our peers that have more drilling or completion only service lines, which predominantly rely on operators' capex budgets, whereas Rangers exposure is more weighted to customers' operating expense budgets through our production services.
Speaker 4: Let me summarize by saying we are very confident in the fundamentals of our business. We continue to believe that Ranger is positioned to thrive in an upcycle environment and, thanks to its balance sheet strength and business line diversity, is uniquely situated to weather slowdowns when they occur. Finally we are focused on capital efficiency.
Speaker 4: capitalizing on our considerable operating leverage to drive returns through cycles and maximize returns to shareholders.
Speaker 4: Given our in-line first quarter performance and visibility into the remainder of the year, we continue to expect revenue growth of approximately 15%, landing between $685 and $715 million for the year, and growth of adjusted EBITDA by over 30% at the midpoint to between $95 and $105 million. More importantly, as mentioned earlier, and as demonstrated in the first quarter, we are looking at the growth of our first quarter performance.
Speaker 4: We expect to convert approximately 60% of that adjusted EBITDA to pre-cash flow, providing the company with the ability to carry out a robust shareholder return program and grow the company through strategic acquisitions.
Speaker 4: I will wrap up by thanking the incredible team at Ranger for their dedication and commitment to excellence.
Speaker 4: We are a services business with a high performance culture, and we depend on our employees to uphold the mission and values of our organization each and every day to be successful. I'm proud of the work they do, and our results are a direct reflection of their efforts.
Speaker 4: We are a services business with a high performance culture, and we depend on our employees to uphold the mission and values of our organization each and every day to be successful. I'm proud of the work they do, and our results are a direct reflection of their efforts. I will now turn over the call to Melissa.
Speaker 3: Thank you, Stuart, and good morning, everyone. I am pleased to report that for the first quarter of 2023, our revenue increased by 27% to $157.5 million compared to $123.6 million in the first quarter of 2022. The increase in revenue was driven by activity and pricing improvements across all three of our business segments.
Speaker 3: Quarter over quarter revenue was relatively flat as we continued to deal with winter conditions in our northern business and shifting assets in the south due to recent pressure on gas prices.
Speaker 3: As Stuart mentioned, a real priority for us last year was integrating our businesses to improve marketing.
Speaker 3: In the first quarter, our gross margins were 16.9% of net sales, compared to 12.6% in the first quarter of last year. This improvement was due, in large part, to maximizing our operating leverage through fully integrating our businesses, reducing the number of operating facilities and increasing collaboration across regions.
Speaker 3: Margin expansion was also facilitated by pricing improvements made in 2022.
Speaker 3: As part of our 2023 initiatives, we intend to continue streamlining operations and incrementally strengthen margins. Net income for the quarter was $6.2 million, or 25 cents per fully diluted share, compared to a net loss of $5.7 million.
Speaker 3: are negative 31 cents per share in the first quarter of 2022. This does not include the effect of our non-cash tax expense recorded during the first quarter that affected EPS by 7 cents. The company does not anticipate incurring material cash taxes during the current fiscal year. A destiny of its after the first quarter of 2023 was $20.1 million.
Speaker 3: more than double that at the first quarter of 2022.
Speaker 3: First quarter adjusted EBITDA did carry additional payroll taxes and labor costs associated with incentive compensation programs during the quarter as relative to Q4 of 2022.
Speaker 3: Turning now to the financial performance of our business segments.
Speaker 3: First, our high specification rate segment revenue was $77.5 million for the first quarter, a 19% increase over the first quarter of 2022. We are pleased to report hourly rig rates of $689 per hour as compared to $577 per hour last year, demonstrating that we have been able to sustain pricing power while providing outstanding...
Speaker 3: Next in our Wireline Services segment, revenue was $49.9 million in the first quarter of 2023, a 29% increase from $38.6 million in the first quarter of 2022.
Speaker 3: Operating income was $1.8 million, while adjusted EBITDA was $4.2 million, meaningfully from the losses incurred during the first quarter of 2022.
Lastly, in our processing and an ancillary services segment, revenue was $30.1 million in the first quarter, up 50% from $20.1 million in the first quarter of 2022. Operating income was $3.4 million, an increase of 162% from $1.3 million in the first quarter of 2022.
Adjusted EBITDA also increased to $5 million, up from $3.3 million a year ago.
Switching to GNA, we continued our year-over-year improvements reporting $8.4 million of expense as compared to $10.2 million last year as we continued to recognize less acquisition and integration costs. GNA costs during the first quarter were affected by payroll taxes and associated labor costs across.
as well as additional professional fees in connection with our year-end audits that we do not expect to reoccur during the second quarter.
With that, Stuart and I would like to thank you for your time this morning, and we will now turn the call over to the operator for Q&A. Operator? Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your headset before pressing the star keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
certainly we have some. And as we noted, most of those rigs and crews have already been kind of redeployed. We're finding demand and the oilier basins for our services to continue to be very, very strong. So right now we're pretty optimistic going forward.
And as we noted, most of those rigs and crews have already been kind of redeployed. We're finding demand in the oilier basins for our services to continue to be very, very strong. So right now, we're pretty optimistic going forward. Okay, got it. Thanks, Stuart.
Hey, good morning everyone. So I want to get your thoughts on the Permian wireline completions market. So we're seeing the increasing trend from pressure pumpers to integrate around the frac site, which includes wireline, optimizing revenue per frac job, which could come at the expense of pure wireline pricing. Obviously it's been a pretty volatile segment for you guys in terms of the margin. You've mentioned Northern operations are performing well, but what are your current thoughts on your long-term position in the Permian completions market? Are you going to keep trying to consolidate the fragmented market or could this potentially actually be an exit for you guys to those who are integrating around the frac value chain?
Thanks for the question, Derek. So at this point, we don't have any intention to exit the position in the Permian. Obviously, we're always looking at alternatives, but we don't have any intention to exit. And I think as you said in the Permian, we are seeing pricing pressure. There is some bundling, but a lot of the pricing pressure we're seeing is actually not from the bundled services, but it's from other players.
are saying is, after kind of some of the initial softness, we're not seeing kind of big movements one way or the other at this point, is what I would say. And then I think I would also just say, and this is really across all basins, Derek, we are seeing a trend that as the EMPs consolidate, they're starting to consolidate their vendor lists. And so, we're active in a number of conversations with particularly larger players, and this is across service lines, who are trying to streamline their vendor lists and really focus on players with outstanding service quality. And we think that really plays to our strengths.
All right, great. Appreciate the call. I'll turn it back. Thanks, Derek.
Next question comes from Don Christ with Johnson Rice. Please go ahead.
Good, how are you doing? Doing well. Obviously, we've been focused on the rig count and a lot of new drill-outs for you all. But given your exposure to the workover community, and with oil moving up to that mid-70s level, although it's down a little bit today, can you talk about the demand for workover rigs in particular on the workover side? It seems like you saw a pretty good pickup in pricing traction there in the first quarter. Just your thoughts around that? Thanks for the question, Don. I would say particularly on the...
come in any given the you know perceived weakness and service demand over the past call it three to four months.
I'll let Melissa weigh in as well, but I think we feel like it is starting to close. I think that we obviously don't have a deal to announce, but I do feel like conversations are just becoming a lot more realistic about where the market's trading. So I do think it's starting to close. I think Styrid said it well. I think the conversations have picked up certainly in number of frequency, number of outreaches. I think there's still maybe some underlying differentials, if you will, but the conversations are progressing to a more meaningful level and I think people are starting to become more
and the dividend, you know, as we kind of navigate working capital and the ramp here over the next quarter, it's a little bit of put and takes, but I think that that's very realistic and on our side. So yeah, hit that Like button, that College
dividend as we kind of navigate working capital and the ramps here over the next quarter. A little bit of put and takes, but I think that that's very realistic and on our side. Yeah. Agreed. OK. I appreciate the color. Thanks a lot.
Thank you Don.
The next question comes from John Daniel with Daniel Partners. Please go ahead.
Hey, thank you. Just a first and operational question for y'all. You know, you look back the last several quarters, there have been a bunch of EMP companies increasingly chatting about refracts and the opportunities for them. This is probably a dumb question, but can you remind me what your opportunity set is?
with refracts and what maybe you've done thus far, just some color would be helpful. So I don't think that, well, I mean, a refract for us would be pretty similar to the exposure that we have, both in our current well services and wireline operation.
different if there's a another subset of demand that you see coming from that.
There's nothing different than what we're currently offering, but I think that we are seeing increasing demand from what we offer just based on that.
Got it, okay. And then a question on M&A. With respect to some of the smaller, call it bolt-on transactions, where you all, where Ranger passes on them.
Can you say, I don't know, when that decision is made today, is it valuation driven, is it equipment quality driven? What's typically making you say no?
But with I don't know when that decision is made today is it valuation Driven is it equipment quality driven at what what's typically making you say no most of the time
Yeah, so I'd say first and foremost at times it's valuation, right? Yeah, sort of the consideration. I think that's one. Probably at this point we've seen
We've been very open about the fact that we do have assets that we could invest in and redeploy. So, asset quality has to be pretty high for us. Otherwise, we're just buying customers. Right. Right. So, I mean, I say that, I would say what we've looked at, I don't feel like we've seen a bunch of comp-
I actually think that, to Stuart's point, the valuation ends up being the issue, but it ends up being a valuation because if it's a smaller sort of ones or onesy-two-v type company, then we need to have that much more opportunity set. So it's typically a conversation that ends in...
hey, we would be willing to entertain this, but here's our valuation and then you're back to the bid ask. And we would tell you that's kind of, so it's valuation, but it's more, we're not willing to pay as much for it unless it can actually move the needle more meaningfully for us. And on a smaller basis that criteria is higher.
In your lifetime, Stuart, do you expect to ever see an electric workover rig?
I think in my lifetime, I think a Newville pure electric rig feels like a pretty long cut. I think there have been some conversations, or we are having conversations with some players about potentially re-burbing some of our rigs. And even if they're not fully electric, potentially putting on battery packs so that they could work, they worked really hard.
hooking to full power on location. So I wouldn't be surprised if we see kind of a refurb.
Okay, so both of them scratch feels like a long putt at least for me Fair enough. Okay, that's all I got. Thank you
both from scratch feels like a long putt, at least for me. Fair enough. OK, that's all I got. Thank you. Bye, thanks, John .
This concludes our question and answer session. I would like to turn the conference back over to Stuart Bodden, CEO for closing remarks. Thank you, operator. Quickly, thank you everyone for your interest in Ranger and participating in the call. I hope everyone has a great week.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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