Ranger Energy Services Inc (RNGR) 2024 Q3 法說會逐字稿

Hello and welcome to the Ranger Energy Services third quarter, 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance Please signal a conference specialist by pressing the star key followed by 0. 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 and to withdraw from the question queue, you may press star. Then two as a reminder, this conference is being recorded today.

I would now like to hand the call to Joe Meath, Vice President of Finance. Please go ahead.

Thank you and welcome to Ranger Energy Services third quarter, 2024 results conference call. Ranger has issued a press release, summarizing operating and financial results for the three months ended, September 30th 2024. This press release together with accompanying 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.

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 reports filed with the securities and exchange commission except as required by law. We undertake no obligation to update our forward-looking statements. Further please note that Non-GAAP financial measurements may be disclosed during this call. A full reconciliation of GAAP to Nongaap measurements are available in our latest quarterly earnings release and conference call presentation.

With that. I would now like to turn the conference call over to Stuart N. Bodden Rangers, CEO and Melissa Cougle Rangers CFO for their prepared remarks.

Thank you and good morning everyone. We are pleased to welcome you to our third quarter, 2024 earnings conference call. This quarter's performance continues to demonstrate. Rangers differentiated business model that enables strong performance, no matter macro conditions, drilling rig count declines completion activity decreases and gas market pressure have all contributed to challenging market conditions since early in 2023.

Despite these conditions, ranger's financial performance has been markedly more resilient than the broader ofss complex. And we have once again validated our production focused business model and set a new high watermark for some of our service lines.

Our high specification rig segment continues to execute at a very high level setting another quarterly record for revenue and adjusted EBIT top ancillary services also achieved new record results with our coil tubing business posting a new quarterly revenue record in our torrent brand showing exceptional growth. Encouragingly, we saw a positive rebound in our wireline segment giving us an indication of the future earnings potential of the business.

These results are a testament to our teams and crews in the field. Ranger was able to deliver the second best quarterly results in our company's history with sales of $153 million and adjusted EBITDA coming in at $25.1 million, adding a few Ts around our segments in our high specification rigs business, we achieved another record quarter with revenues of $86.7 million and adjusted EBITDA of $19.2 million resulting in gross margins of 22%. This performance highlights our scale and targeted basins and the investments we have made in our partnerships with core customers.

Over the past year, we have worked diligently to showcase rangers commitment to quality assets and personnel at every well site partnering closely with our customers and making strategic investments alongside of them as well. The results of those investments are now taking shape our production focus and commitment to quality have allowed us to grow our base of work with the highest quality customers and deliver more incremental services. As we head into Q4, we do expect seasonality will affect business performance because of weather and holiday impacts. But core customer demand remains strong and we anticipate another robust year in 2025 for this segment.

Processing and ancillary services also had an outstanding quarter with revenues of $36 million and adjusted EBITDA of $8.8 million which resulted in an impressive gross margin of 25%. We increased revenue by 17% and adjusted EBITA by 21% quarter over quarter with our coil tubing business and torrent business driving the growth in this segment, coil tubing increased revenue by 33% and EBITA by 52% over last quarter. With record margins. The winter and holiday season will likely bring some declines in this service line, But we believe the declines will be less severe than those encountered. Last year.

We are frequently asked about our gas conditioning and processing service line branded Torrent. This business is focused on in field, gas processing and has exposure to the fast growing fuel power generation market. It showed impressive growth during the third quarter, nearly doubling its va do from Q2 service line margins are now touching 25% in some months and there is room to continue deploying additional assets with minimal reactivation CAPEX. We have a great team leading this business and we are excited to see it continue to grow its contribution to ranger as we reach further into this high growth market.

Lastly, I want to touch on wireline services third quarter performance in wireline was encouraging with revenue and margins growing quarter over quarter, giving us a sense that our restructuring efforts are paying off. We have discussed previously how the wireline completion's plug and perf space has become commoditized which has put collateral pressure on traditional production, wireline work and pump down work as well. We continue to pursue opportunities to grow production and pump down related wireline services work.

Our progress has been slow but steady in production and pump down and we have seen revenues grow each quarter a great accomplishment given current market conditions. Due to our heavier exposure in our northern region, seasonality is expected to more significantly impact this segment's margins in the fourth quarter and first quarter where margins are expected to decline. However, moving into the spring, we believe we should return to an upper trajectory and wire line and grow from the base we have created this year.

We talk frequently of our balance sheet strength and how significant a role it plays in our overall financial strategy, through current market conditions. we have made a priority of maintaining a rock solid balance sheet which provides us maximum flexibility to execute on opportunities for the benefit of our shareholders. We operate in a fragmented industry that is ripe for consolidation and we believe we are well positioned to continue to be a consolidator in this space. While we continue to look for opportunities to further consolidate the industry, we have taken dramatic action on the shareholder returns front, given the compelling investment our own shares represent and we believe our shareholder returns efforts have been second to none in small capital energy.

We have returned over 80% of our free cash flow year-to-date to our shareholders through a regular dividend and significant share repurchases. We have put our money where our mouth is and bought back our stock at highly agreed evaluations. Despite strong financial results, cash flows and compelling capital returns, we believe the market continues to undervalue ranger and we will continue to capture strong returns through our share repurchases from this value.

GAAP, our multiples of adjusted EBITA and free cash flow represent significant untapped value. And our production focus and commitment to superior service quality and safety have proven remarkably resilient. Despite anemic us land rig count, we believe with consistent execution and greater understanding of our business model. Our strengths will be more widely recognized and acknowledged by the market.

Looking forward to 2025. We are becoming increasingly confident that we will achieve year over year growth, high specification rigs should continue its climb and further cement its role as a market leader and ancillary services is poised to keep increasing its contribution to our overall results as well. But once for smaller components of our business such as P&A grow tubing and torrent are now growing into larger service lines that generate robust margins with further growth potential. Finally, we are cautiously optimistic that wireline will continue to stabilize and that 2025 will bring about further improvement in this regard.

I want to thank our leadership team for their dedication and our employees for showing up every day no matter the conditions with an excellent spirit and a dedication to service and safety. And I want to thank our customers for their loyal partnership. We are frequently asked about the impact of operator consolidation on our business and the answer is that we believe consolidation has been a net benefit to Ranger.

Ranger continues to be a preferred partner with larger operators that prefer to work with high quality service providers that will show up on time and perform the work on budget with well trained crews and well maintained equipment. Ranger has successfully built a reputation for quality and reliability, which is one of the key reasons for our continued success through the cycle.

Finally, I would like to recognize and thank Charles Leykum who has announced he will be stepping down from Rangers Board of Directors. Charles and [CS L] have been with Ranger since its founding and he has been instrumental in setting the company's strategic direction and supporting its growth. Quite simply, Ranger would not be where it is today without his leadership and guidance. He has been an invaluable member of the board and we are grateful for his contributions and everything he has done for the company.

With that, I will turn the call over to Melissa to review our operations and financial results.

Good morning everyone. and thank you for joining us today to discuss Rangers third quarter, 2024 financial results. We take great pride in the progress we have made as an organization and particularly in our differentiated performance. While we have faced our share of challenges, our trajectory has been undeniably positive.

Our slow and steady approach has allowed us to build a business that delivers consistent resilient performance with notably less impact from broader market conditions. When we have felt those effects, we have rallied together as a team and worked to streamline the organization according to market conditions and tweak strategy as appropriate.

Starting with the top line revenue for the third quarter was $153 million an 11% increase over the second quarter and down 7% year over year due to wireline completion activity declines. In fact, every service line in the company showed year over year growth in the third quarter excluding wireline completion, net income for the quarter was $8.7 million resulting in earnings per share of 39¢, which represents an improvement of 86% from the prior quarter. Representing both our improved performance and the accretive impact of our share repurchase program.

Cost of services for the quarter was $122 million representing 80% of revenue. This is a 200 basis point improvement from both the previous quarter and the prior year period, reflecting the operating leverage we achieved by effectively managing white space on our calendar, capitalizing on favorable summer weather conditions and longer days that optimize utilization while also closely controlling operating costs. Ranger is operating more efficiently than ever focusing on the highest quality service lines, customers and assets adjusteds offer. The quarter was $25.1 million. A 20% increase from $21 million in the second quarter and a 5% increase over the prior year period of $24 million gross margin was 16.5% nearly matching our prior peak level.

Looking further into our segment results high spec rigs set a new quarterly revenue record at $86.7 million increasing an incremental 5% from the record set last quarter at $82.7 million. And an increase of 9% year over year rig hours increased by 3% from the previous quarter and 4% from the third quarter of 2023. Our pricing environment has remained relatively flat and resilient as well with the blended hourly rig rate for the quarter coming in at $741 per hour.

In ancillary services revenue was $36 million in the third quarter. A 17% increase from Q2 and a 13% increase over the prior year period. Coal tubing was a standout performer with revenue up 33% quarter over quarter and adjusted EBITA up 52% torrent gas processing service line also had its best quarter in recent history with EBITA nearly doubling from the second quarter and on track for further significant growth in the fourth quarter as Stuart mentioned. Wireline showed significant improvement in Q3.

This segment concentrated in the northern basins benefits greatly from the longer summer days without weather disruption. The strong performance is an indication that our production focused pivot is taking hold and the bottom of the market has likely been found. Revenue grew 24% from the second quarter reaching $30.3 million with both production and pump down service lines showing double digit growth from the prior quarter year. Over year. Wireline is down 43% with the decline being entirely driven by wireline completion activity adjusted EBITA was $2.7 million. A significant improvement from the $400,000 in Q2 with 9% ebita margins for the quarter.

Turning to the balance sheet, we maintain a net debt zero position providing us with flexibility to manage our business in the best interest of our shareholders. We ended the quarter with $86.1 million of liquidity consisting of $71.3million of capacity on our revolving credit facility and $14.8million of cash on hand.

For the first nine months of 2024 we generated $51.8 million in cash from operating activities comparable to the $53.1million reporting during the same period of last year.

Year-to-date free cash flow stands at $23.1million as compared to $25.2million. Over the same prior year period, capital expenditures of $28.7million this year are running slightly above 6% of revenue due to the elimination of wireline completion's revenue streams and the deployment of growth CAPEX earlier this year to upgrade coil tubing assets and provide ancillary equipment in support of additional rig work with stronger customers.

Our capital allocation strategy remains disciplined and we are focused on investing in our business to preserve future cash flows while also continuing to return excess cash to shareholders. Year-to-date, we have repurchased approximately $1.5million shares for a total of $15.5million. This is nearly double the amount we purchased in 2023 and represents our steadfast commitment to allocate cash flows toward their highest return potential, which has been our own stock to date.

Over the past year, we have far exceeded our minimum return commitment of 25% of free cash flow to shareholders. Since a little over one year ago, we've returned over $40 million to shareholders by repurchasing the company's outstanding shares and paying a quarterly cash dividend of 5¢ per share and we will continue to repurchase shares opportunistically and in keeping with our commitments to our shareholders.

Rangers financial position and operational execution are unmatched in our space and we believe over time this will be recognized more and more in the marketplace by both customers and potential shareholders. We are steadfast in our belief that over time, our production focused business model will produce undeniable results and serve as a testimony in the energy services sector. Our attractive free cash flow profile and yield sets us apart and we are eager to engage with investors on the merits of our story. We appreciate your support and look forward to connecting with you in the weeks and months to come with that. We will turn the call back over to the operator for questions.

Thank you. (Operator Instructions)

Don Crist with Johnson Rice.

Good morning guys. How are you all this morning?

Hey, we're good. Good morning John. How are you.

Doing? Well, Stuart, I, you touched on this in your in your opening comments. But you know the theme coming out of this this quarter for all the all guys has been industry consolidation and and the slowdown that they've experienced. Y'all have really bucked that trend. I know you touched on it in your opening comments, but can you, can you give us a little bit more details of, of around what y'all are doing to actually grow market share in, in a market that's actually slowing a little bit.

Sure, thanks for the question. Don I think there's a couple of things that I would highlight. I mean, one is, as I mentioned in my remarks, the consolidation on the E&P side has been a net benefit to us. We have been through, our investments have been a lot of time really trying to partner with the best customers. And as we've done that over the last several years, that that's really benefited us, again, because the consolidation has helped us and it's tended to give us more, more potential work. I think the other thing is if you look at some of the other service lines in the broader Ofsofs complex is things like fuel efficiencies and track efficiencies, really, really hit them pretty hard. But because of our production focus, it hits us a lot less hard and I think that's also helped us, but the trend quite a bit as well.

I appreciate that. And, and obviously fourth quarter is going to slow as, as normal with seasonality and weather. But can you touch on 25? And, and what gives you confidence today that, that you should see growth next year? I mean, is it more p and a work or is it just the, the total adjustable market for workovers, et cetera growing in the 25? That, that gives you confidence that you'll see growth next year.

You know, II, I think it's really across the board and if you start off with, with, with the well service space, our high spec rig space again, I think just back on our discussions with our customers, you know, we have a lot of confidence going into the year, but I think that's really across all the service lines. Right. As Melissa touched on, we feel like we've, you know, probably hopefully see the bottom in wire line. We think that as you move into spring, that'll really start to, to, to improve as well. And then in ancillary PN A has been strong, the coil has been strong, torrent has got nice gel winds behind it. So it, it's not really one thing. I think it's multiple things. But again, I think, you know, the core is based on our conversations with our customers. We have a lot of confidence, that we will see some model growth next year.

I appreciate that as well. and just one further one for me, I know Charle has been on the board for, for a long time. Is, there anything else around his, stepping down that you would like to highlight?

Well, I appreciate the question. The first thing I would just say is that, you know, when I reiterate my appreciation for, our appreciation for Charle and the [CS L] organization, you know, they have been with the organization since the ITO in 2014, they have really been in [instrumental] and, and kind of getting where we are today. We maintain a good relationship with them and I are going to be in Boston later this week to talk about the, there is a, case, Harvard business case study on the Ranger up here that's going to be there regarding his shares, as you know, as you probably recall on, [CL] has agreed not to sell any stocks until the end of 2024. Beyond that, we don't really know of any specific plans that, that he has or [CS L] has. Well, obviously maintain a relationship with him and obviously try to be supportive you know, down the road when we can be, but we do not know of any specific plans right now.

I appreciate the color and I will jump back in you. Thanks.

Thanks Don.

Thank you. Jeff Robertson with Water Tower research.

Thanks Stuart or Melissa you all highlighted the margin improvement in the in the quarter compared to pre pandemic. Can you talk about any specific areas going forward where you think you can further increase margins? And then there's a follow up to that in a fragmented industry. Are there certain acquisition opportunities that you think could present themselves that would be margin accretive and support or further support your capital, return to shareholder plans?

Sure. Thanks for the. Question, Jeff, I will, why don't I, will touch on the M&A and the chance to talk about some of the, the larger improvement things that we are working on. On the M&A Front, we continue to be believers that in a, would benefit the company. That's part of the reasons that we maintained a very conservative balance sheet, we think because it's a lot of optionality. We, we have been in a number of discussions. There's still just a bit a spread is what, what we've been finding. We are, again, that doesn't mean we're not talking to lots of folks. We do think there's some attractive opportunities for the company that would make both companies stronger on the back of M&A but again, right now, the bid ask has been a bit of an issue.

Yeah, and maybe on the internal side, I guess I will just say, I think it's, you know, I used the term slow and steady whenever I made my comments and I think that's really how we think about further margin improvement for revenue dollars. And particularly last year margins came under a little bit of pressure because we talk a lot about whitespace. When we have an opportunity to manage our calendar better, we can really plan our business better and sort of optimize labor and optimize a lot of our expenditure profile. And as we look forward in the future, barring consolidation, which would bring about, you know, we could scale up facilities a lot better and bring synergies in that way.

I think, on a on a stand alone basis, we would see incrementals really from operational efficiency. So we're sort of just continuing chip away at the edges in terms of well, site planning and things like that would probably yield some results. We also are seeing some of our other service lines that are growing. We mentioned torrent again, very small, but those margins are just generally higher. And so we're getting better fall through on those as well. So everything is helping a little bit, but I don't think we're expecting huge differentiation in terms of margin until we, until we probably look at getting another deal under us.

Thank You.

No, thank you.

John Daniel with Daniel Energy partners.

Hey, thanks for including me. I just touched on this in the prepared remarks. I missed it. So I apologize, but as you look to to 2025 where would you most likely allocate growth.

CAPEX?

So right. Now when we look at at 2025 and it really goes back to our biggest customers. And, and we touched on it if you kind of look at our growth CAPEX even this year, there were some in coil, but a lot was with additional equipment around our well service rigs on the well site. And and we think that that will, that will likely continue as well next year. What we're finding on is the biggest customers. Don't just want the well service rigs, but they want the complete packages around that. You know, they can include pipe hammers and power swivels and, you know, pumps, et cetera. So, so I think most of it would likely be around that because that's where we see the biggest demand from our customers.

Okay. Are there any lead time issues with those product at this stage?

There are so you have touched on something that we're debating a lot, you know, right now at this moment, there are some issues depending on what the equipment is. Some, some things have, you know, kind of six plus months of lead time. So you, you do have to be pretty thoughtful about when you want the equipment to show up, to marry up with additional Rig deployments.

Okay. That's all I got. Thanks for including me. All right.

Thanks, John.

Thank you. This concludes our question and answer session. I would now like to turn back to management for any closing remarks.

Thanks, operator. Thanks everyone for joining the call today. Appreciate your continued interest in Ranger. And we will be reaching out to many of our investors shortly and we look forward to speaking with you. Have a good day, everybody.

The conference is now concluded. Thank you for your participation. You may now disconnect your lines.