Ranger Energy Services Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2023

There are 9 speakers on the call.

Operator

Good day, and welcome to the Ranger Energy Third Quarter 2023 Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Justin Whitley, Ranger's General Counsel. Please go ahead.

Speaker 1

Thank you, operator, and welcome

Speaker 2

to Ranger Energy Services' 3rd Quarter 2023 Results Conference Call. Before the market opened today, Ranger issued a press release summarizing operating and financial results for the 3rd 9 months ended September 30, 2023. The press release, together with accompanying presentation materials, are available in our Investor Relations section of our website at Actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties, including risks described in 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 non GAAP financial measures may be disclosed during this call.

Speaker 2

A full reconciliation of GAAP to non GAAP measurements

Speaker 3

And good morning, everyone. Thank you for joining us today. I'm pleased to share our Q3 2023 financial and operational results, Results that reflect Ranger's resilience and ability to succeed despite the lower U. S. Onshore drilling activity I will begin with a summary of our Q3 performance by segment, followed by our thoughts for the macro setup as we head into our 2024 planning cycle.

Speaker 3

As we reflect on our business This year, we are incredibly proud of the hard work of our teams and the resilience demonstrated by our business. At a consolidated level, Ranger has seen Sequentially increasing revenue, adjusted EBITDA and adjusted EBITDA margin each quarter in 2023, Despite U. S. Rig count dropping by more than 15% since the end of last year, we talk frequently about our production focused business model And our differentiation in service quality and safety performance. And this year, we saw that differentiation in action.

Speaker 3

To elaborate, we do have 30% to 40% of our revenues exposed to completion activity in some of our assets in Gassier Basins. We saw some of those exposed assets get released during the spring early summer. Due to the hustle of our operations teams And strong collaboration across regions, along with a strong reputation for service quality and safe operations, we were able to redeploy idled assets efficiently To keep revenue moving in the right direction in the High Specification Rig segment this year, we did have to contend with more white space anticipated due to rig redeployments in the Q3, but having the bulk of our assets allocated to production focused work in the oilier basins Allowed us to limit churn and turnover to keep our baseline activity largely unaffected. Our ability to hold our revenue level Even increase them in some segments despite the decline in overall onshore activity this year should provide clear evidence about the flexibility and robustness of our production focused business model and strong operational teams. Finally, and its further support of our strong operational performance, We are pleased to have signed a new customer agreement with a major integrated onshore operator this quarter that provides for significant market share of the well service work in their onshore U.

Speaker 3

S. Asset portfolio. This agreement and commitment for work provides us with higher confidence in our 2024 plan And opportunities for further growth from an already strong base of revenue with this customer. We have talked in the past about our positioning with larger Customers and vendor consolidation momentum and it is encouraging to realize the first of what we hope will be a series of similar agreements. Stated already, but worth reiterating, is the fact that our highest quality customers are willing to get stickier in their agreements with Ranger, which is a testament to the commitment and service reliability of our teams and the industry leading quality of our assets.

Speaker 3

Moving on to our 3rd quarter specifics. We reported net revenue of $164,400,000 the 2nd highest revenue quarter in Ranger's history. Looking at trends in our business, I'm pleased that although down from our record Q3 of last year, we have been able to provide steadily increasing results across 2023. Net income on a year to date basis is $21,700,000 or triple that of the $7,500,000 reported over the same period in 2020 2. Adjusted EBITDA for the quarter was $24,000,000 and adjusted EBITDA margin has increased from 12.8% At the beginning of this year to 14.6% in the 3rd quarter.

Speaker 3

We realized higher EBITDA quarter over quarter in all segments and feel this sequential growth quarter over quarter will prove rare across North American onshore service providers. Our high specification rig business has been a consistent source of stability and strength for us this year. We've talked a lot about Ranger's production focus And how it helps us weather energy sector volatility and this segment's performance this year is Exhibit A. Despite unexpected white space in the schedule due to several rig jobs that created some additional labor costs, rig hours held steady quarter over quarter with slight pricing improvements. Moving on to our wireline business, the North region, which is our largest contributor to this segment substantially improved its margins this quarter By focusing on strong execution and efficiency.

Speaker 3

However, the South region continues to experience significant competition and price destruction and completion services, eroding much of the progress we made last year. We're continuing to make a strategic shift to focus on production and pump down oriented wireline work within the South region, while choosing not to bid at breakeven levels or below. This work better aligns with Ranger's production focus and comes with higher margins as well, and we expect this realignment will result Stronger segment contribution as we move into 2024 and provide for more seasonal resilience. Relative to the Q4 of 2022, we've grown revenue by 10% despite the decline in U. S.

Speaker 3

Drilling and completion activity And we've also more than doubled operating income over the same period and increased adjusted EBITDA by 57%. Finally, with our ancillary services business, we have achieved modest sequential improvements largely across the board in 2023. Our P and A business has grown by double digits this year, which has been an intentional effort on our part. And our coil and rentals businesses have held steady despite activity declines. We have seen some pricing declines both within our Quail business as well as our Rental business because of new competition that migrated from gas turbines this year, which has affected our year to date margins.

Speaker 3

We're hard at work to maintain growth momentum in our P and A business and also restart growth in our rentals and coil business. We have achieved steady, albeit moderated growth this year despite significantly lower than expected customer activity. The activity declines on the completion side certainly threw up our original much more ambitious growth plans for the year and we have aggressively reacted to those activity by redeploying assets, pursuing operating efficiencies and reorganizing where appropriate. The great news The challenges we've experienced in 2023 have made our fundamental business stronger today than it was a year ago with higher margins and more streamlined operations. You saw in our earnings release this morning that we adjusted our full year guidance to calibrate for year to date results.

Speaker 3

And although disappointed to pull back our expectations, Our team has handled the market challenges this year remarkably well and is poised to hit the ground running in 2024. We are also still on track to convert 60 percent of our adjusted EBITDA to free cash flow this year, which is an important differentiator for Ranger and influences our capital return strategy. The latter part of 2022 and early part of this year has been evaluating, developing and ultimately rolling out a capital returns framework. The framework we announced included returning at least 25 percent of free cash flow to shareholders through a quarterly dividend and or share repurchases. No other small cap oilfield service company has the fundamental strength and confidence in its business to be able to offer this kind of share order returns program.

Speaker 3

In the Q3, we paid off the 1st quarterly dividend in Ranger's history of $0.05 per share. Additionally, I'm pleased to report that year to date, We have repurchased approximately 781,000 shares for approximately $8,600,000 Reflecting our belief that Ranger shares traded at a compelling discount to their intrinsic value. We have approximately $26,000,000 of authorization remaining or 14% of our current float and intend to opportunistically deploy that capital to buy back shares should conditions be supportive, Although we remain mindful of liquidity. Through the end of the Q3, we have already exceeded our 25% annual shareholder return commitment. Looking ahead, we hold a similar view to other industry observers who believe the rig count is close to its bottom and we anticipate increased activity levels in 2024 As customer budgets reset, the tight global supply and demand balance suggests a constructive oil and gas market and our early conversations with customers have been positive.

Speaker 3

Furthermore, the 2 recent major consolidation announcements in E and P indicate both a positive long term view of North American resource development There are an opportunity for the highest quality service providers to continue to gain market share. We are observing an increasingly prevalent trend among our customers to consolidate their service providers, which holds positive implications for Ranger's business, particularly as we look forward to recovery in reactivity going into 2024. In conclusion, while we have faced unexpected market headwinds this year, Our ability to adapt, innovate and focus on efficiency has allowed us to not just weather the storm, but to thrive. We remain steadfast in our commitment to create value for our shareholders. The steps we've taken, including accretive acquisitions, Share repurchases and the initiation of a quarterly dividend showcase our dedication to delivering value to our shareholders.

Speaker 3

Before I turn the call over to Melissa, I want to mention our other press release issued this morning. As part of our Board succession process, We initiated a search earlier this year for 2 new Board members, and we are happy to announce that Carla Mashinsky and Sean Woolverton Have agreed to join the Ranger Board starting in the New Year. They both bring a wealth of industry related experience and Fresh perspectives to our Board that we are excited to have available to us. As part of these changes, Bill Austin, who has been our Chairman And Dick Agee, who merged his private well service company into Ranger before the IPO, will both be exiting their seats at the end of this year. Both have helped nurture and guide Ranger for these past several years and have been instrumental in the growth experience since 2021.

Speaker 3

Because of their leadership and guidance, Ranger has successfully completed multiple acquisitions, simplified its capital structure, Achieve net debt 0 and implement a capital returns program. We could not have done this without them, and we wish them well as they take on new endeavors. As part of this transition, Michael Carney will assume the role of Chairman in 2024. Mike has been Chairman of 2 other publicly traded companies It's an exciting time at Ranger. We are successfully navigating the headwinds of 2023 and positioning the company for continued growth and to benefit from E and P consolidation.

Speaker 3

With that, I'd like to turn the call over to Melissa to discuss our financial results and outlook.

Speaker 4

Thank you, Stuart. Good morning, everyone. I'll now provide further insights into our financial performance for the Q3. In the Q3 of 2023, our revenue was $164,400,000 marking a 1% increase from the Q2 of this year. As Stuart mentioned, we experienced some unexpected white space early in the quarter in our High Spec Rig business, which resulted in lower growth than expected.

Speaker 4

Year to date, our revenue is $485,100,000 marking a 7% increase from the prior year. Our net income for the quarter was $9,400,000 or $0.38 per fully diluted share. This is a significant improvement From the $6,100,000 or $0.24 per share in the Q2 of this year. Our continued focus on operational efficiency has contributed to this increase. Year to date, net income stands at $21,700,000 or $0.86 per fully diluted share, A significant improvement from $7,500,000 or $0.33 per share in the prior year.

Speaker 4

We achieved an adjusted EBITDA of $24,000,000 in the 3rd quarter, representing a 10% increase from the Q2 of this year. This performance underscores our commitment to controlling what we can control. We achieved an adjusted EBITDA of $66,000,000 year to date, representing a 14% increase from the prior year. During the quarter, we repurchased $2,700,000 worth of shares under our existing share repurchase authorization, Bring the total repurchases year to date to $8,600,000 We also initiated a $0.05 per share quarterly dividend during the quarter and announced today that the Board has approved our 4th quarter dividend as well. On the growth side, during the quarter, we closed on our acquisition of pump down assets for our wireline business, Paying approximately $7,250,000 with some of those assets already working and the remainder undergoing upgrades and refurbishments to bring them up to Ranger standard.

Speaker 4

We remain active in screening acquisition and consolidation opportunities, but have committed to being very disciplined in our approach. The pump assets proved a great fit given their relatively easy pull through in our existing service lines and too good to pass up from a valuation perspective With payback economics of less than 2 years. We would call attention to the increase in capital expenditures this quarter as not only were the pumps treated as CapEx as well as their ongoing refurbishment, but we also spent some capital dollars in support of the contract that Stuart mentioned earlier. We expect capital costs May remain a bit elevated in the next couple of quarters, driving us to the high end of our guidance range as these certifications and refurbishments are completed and additional equipment on order To conclude our review of the financials, let me touch briefly on the balance sheet. Our liquidity was $70,000,000 at the end of the quarter.

Speaker 4

We ended the quarter with approximately $10,300,000 in debt and $8,200,000 of cash. Financially, Ranger is as strong as it's ever been With near 0 net debt and over double the liquidity it had 1 year ago. Free cash flow for the quarter was affected by the accounting treatment of the pump down assets that were treated as capital expenditures and some build in working capital, which is already trending in the right direction in the Q4 once more. Turning to 2023 guidance. As Stuart previewed in his comments, given the lower than expected results during the Q3, we have revised our expectations accordingly for the year.

Speaker 4

While revenue growth hasn't been as robust as we had hoped at the beginning of the year, the revised forecast does reflect the resiliency of our business amid what has been a trough in onshore We would stress that our 4th quarter will be dependent on a variety of factors, both positive and negative, and we A lighter quarter before picking back up in 2024. We are already contending with some early winter effects and talking about holiday planning with customers. Offsetting those challenges, we have continued to deploy new assets during October, which somewhat moderate our seasonality impact. These adjustments reflect our commitment to transparent communication, delivering value to our shareholders and our dedication to managing our financial performance in an ever changing environment. We are currently in the process preparing and reviewing our 2024 budgets and look forward to sharing insights on 2024 and updating our investment community with those insights as part of our year end report.

Speaker 4

We remain positive about our market fundamentals and the constructive backdrop for a multiyear growth cycle. And we currently expect activity to increase modestly in 20 24. Operator, please go ahead.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from John Daniel with Daniel Energy Partners. Please go ahead.

Speaker 1

Thank you for having me and congratulations on the incremental work you guys are getting from The bigger E and P companies, I guess the first question, Stuart, is there any way that you can Provide some quantification as to what the incremental rig opportunities will be and then just touch on the ability to find people to man Those rigs or will you just transition rigs from existing customers to take that work?

Speaker 3

Good morning, John. Thanks for the question. I think it's going to be a little bit of both. I think there will be some rigs that transition from existing customers and I think there will be some incremental growth as we go into the year. I think on the labor markets, What we're finding is it still is a tight labor market, but it is certainly better than it was in 2023.

Speaker 3

So I think We're confident that if we need to find those crews that we can. But again, I think I would reiterate is I think just sort of depending on how budgets play It could be a combination of new rigs or incremental rig adds, but also some kind of reshuffling amongst customers.

Speaker 1

Okay. And then just 2 other quick housekeeping. Does the agreement provide for Pass throughs in the event of inflationary labor or other costs, are you locked in at a certain rate?

Speaker 3

No. It allows for pass throughs.

Speaker 1

Okay. And then on the wireline business, as you shift to more of a production work, what happens? Are you idling some of the completion oriented units? Do they become candidates to sell? Or can you just repurpose them for the production work?

Speaker 1

That's my final question.

Speaker 3

Yes. I appreciate the question, John. They can be repurposed Production work relatively easily. We do through the acquisitions have a fair amount of Kind of wireline production related equipment and tools. So we don't think we need to really do anything incrementally Other than just really kind of put greater emphasis on that.

Speaker 1

Okay. Thank you very much.

Speaker 3

Yes, you bet.

Operator

Our next question comes from Don Crist with Johnson Rice. Please go ahead.

Speaker 5

Good morning, guys.

Speaker 3

Good morning, Don.

Speaker 5

It looks like the 4th quarter is going to be impacted By normal seasonality, but given that we're in the RFP season right now, I mean, obviously, you signed a new contract, but Can you give us any indication on 2024 with the caveat that I know it's still early?

Speaker 3

Yes. I think what we'd say is early and kind of hard to get a definite read. I mean, what I would say is on the rig side and with the contract that we recently signed, that pricing was We're strong, so we're excited about that. I think we are seeing in some RFPs like in the wireline side for instance, There have been some contracts that we won that I think we would say are attractive pricing and then there have been some That we have lost at pricing that we've been really quite surprised at how low they went for from what we understand. So I think it's a bit of a mixed bag at the moment.

Speaker 3

And again, I think as you said, it's still kind of early days.

Speaker 5

Okay. And on the recent consolidation, obviously, those deals haven't closed, the bigger ones anyway. Do you think that impacts your business? I mean, do you think there's any kind of synergies there that maybe you could go or working for those bigger companies now and kind of Expand operations or how do you think that kind of plays out over time?

Speaker 3

I think ultimately we feel like it's a positive. I think there might be Without kind of getting, you must have to answer about each one of the announcements a little bit differently. So I think there is one that we would Very clearly feel like it's a long term positive for us. I think there is one that we would say Will be a positive long term, but there could be a little bit of kind of near term choppiness just depending on sort of how that closes. So but generally, I think we view that the trend to consolidation, the trend to our E and P customers wanting fewer providers, Fewer higher quality providers, we think that's just ultimately a good thing for Ranger.

Speaker 5

Okay. And it looks like the pricing, At least the hourly pricing on the rigs ticked up a little bit. Is that the indication of the market bottom in your opinion? Or Do you think that that's just a shift between lesser quality customers towards higher quality customers in your opinion?

Speaker 3

Yes. In general, I think we would say it's a move to higher quality customers. I think underlying that I think as we've gone forward, we've really been focusing on getting additional ancillary equipment out with those rigs that ultimately helps pricing and margins as well.

Operator

Our next question comes from Donovan Shafer with Northland Capital Markets. Please go ahead.

Speaker 6

Hey, guys. Thanks for taking the questions. The first one I want to ask is, with the Lower rig count, I know that some of that on some basis is being offset By focusing on longer trying to go a bit longer on the laterals. And So I'm wondering if there's any kind of offsetting benefit for you guys with that over time. Just I know the focus on high spec rigs With services is with the idea in mind that more wells are going to have are going to be horizontal and require The ability to pull heavier loads against friction in the horizontal section or whatever.

Speaker 6

So, it's a slowdown near term. Is there any like later benefit a year out, 2 years out when these wells Go on need to go on artificial lift or something and it skews things more favorably or adds To the relative value of your high spec rigs, just kind of think through that.

Speaker 3

Yes. Again, and Melissa chime in. No, I appreciate the question, Donovan. So again, I think long term, we would say that does help us because I think to go Do whether it's routine well work or more intensive work over work, you do need higher spec equipment over time to get into the outer reaches of the lateral. So So we do think that that will help us and it becomes harder and harder as an example to get coil out there if you're doing any kind of remedial work.

Speaker 3

So Ultimately, we think that's a good thing for us. And I think you're also kind of highlighting another issue that we'll just say that As long as the industry is drilling more new wells than are being sort of plugged and abandoned, ultimately, we feel like our total addressable market is growing. So And certainly, we believe we're in that environment right now. So again, I think long term, we think that that's a positive.

Speaker 6

Okay. And then a follow-up question on that. With kind of talking about your different segments And wireline completion activity is obviously going to be pretty tightly tied to like the rig count for drilling new wells. But I'm curious for the servicing side, the high spec service rigs, is there any kind of rule of thumb or anything for Like a time lag where if you get a big jump or a big drop in the rig count On the Newell side of things, is there like a 1 year lag, 2 year lag where you see Maybe it's a less pronounced movement, but some kind of a correlated movement on Yes, demand for the high spec servicing rigs, again, maybe it's like a typically a 1 year before they go to artificial lift or something like that. Just any way to kind of what the lag there is between rig count on the front end for new wells and kind of demand for the high spec

Speaker 3

I don't think we've found a situation where we can kind of model it with any kind of But again, Donovan, I think I guess I would just say a couple of things. Generally, within the 1st year or less, After a well has been drilled, we typically go back in we, the industry, typically goes back in and puts that well on artificial lift. So I do think that happens relatively quickly and then every year or 2 you tend to go back into the wells to I think the other thing I would just sort of point to is if you kind of look at on the high specification rig segment through this year, Hours have really been quite steady all through the year despite the fact that drilling rig count has It's dropped pretty substantially. So again, I think we kind of talked about it earlier, but I think we feel like being really exposed and oriented This production focused business model and making sure that we're keeping existing wells online just makes us a lot more resilient through the cycle.

Speaker 6

Okay. That's helpful. And on the plugging and abandoning kind of opportunity, it's something I haven't I need to kind of brush up on it. I'm trying to remember the state of legislation around there. So just have there been any More updates or guidance clarifications or anything around potential to monetize Credits for reducing methane emissions from going back and doing plugging and abandoning whether at the federal or the state level or Just kind of the current state of affairs for the Subsidized or statutory kind of side of that equation would be great.

Speaker 3

So on the P and A side, there's a lot of different ways to kind of to start to answer the question, but I'll As you know, there's a lot of money that was in the Inflation Reduction Act that was targeted to the orphan wealth program. And that's federal money that ultimately gets distributed by the states. I think what we're seeing is Kind of very early days, some of that state money is actually showing up in the industry in the form of bids. So we're we've seen kind of one of the early ones come out in the last several weeks. So on the orphan well program as it relates to the Inflation Reduction Act, I would say that money is just now starting to come in.

Speaker 3

I think what we are seeing on kind of a broader trend is that Certainly, our larger customers feel like this that they're really developing their own P and A programs outside of the IRA, They feel like that that's part of their ESG effort. And so a lot of our work right now on the P and A side is actually directly with E and Ps And I guess the third thing I would say is, I think there's several people that are trying to Think through, does it make sense to buy a big package of wells, do P and A on them and then take the carbon offsets? I'm not sure there is a business model that has sort of developed that is the winning way yet, but we're seeing lots of different people trying To piece that together. So hopefully that answers the question, Donovan.

Speaker 6

Yes. No, that does. And actually, if I can squeeze just one more in about kind of I'm curious if there are any trends To be mindful of like in terms of approaches to workovers or artificial lift installations That are either that either hurt or benefit the economics for work the high sec work over rigs. Like think about If there's more use of electric submersible pumps versus displacement pump jacks or something, any kind of trends there moving

Speaker 3

So I don't think we've seen any trend on the as an example, the type of artificial lift. I mean, obviously, it varies by region a bit, but I don't think we've seen that trend. I do think what we've seen with customers is as customers have become very Focused on efficiency. I think as it relates to a lot of our work, what they see is that continuity of crews and specific crews It's actually really driving a lot of efficiency. So I actually think that we talked about the contract earlier.

Speaker 3

I think a lot of that is driven by Safety is 1, but I think it's also driven by efficiency. And they're saying I think our biggest customers are saying they recognize that If they have steady work programs that basically allows for crew continuity, that they see improved performance across the board.

Speaker 4

I'll just add to that. I think Stuart's point that's a trend that you're seeing throughout multiple service lines, whether that be frac, whether that be Whatever drilling, the programs are getting tighter, which altogether is better serves the Industry, there's less white space for everyone. I think this year has been a bit anomalous just given the gas market crunch that we had, it kind of freed up. And then the thought of us had to deal with assets being redeployed.

Speaker 6

Okay. That makes a lot of sense. All right. Thanks, guys. I'll take the rest of my That's fine.

Speaker 6

All right.

Speaker 3

Thanks, Donovan.

Speaker 4

Thank you.

Operator

Our next question comes from Jeff Robertson with Water Tower Research.

Speaker 7

Stuart, on the contract, can you I assume it's a 1 year contract from the way the And secondly, can you just talk about what level of business you would like to see underwritten by these types of agreements?

Speaker 3

So it is a 1 year contract that has evergreen provisions in it. So we actually think it could go for quite a long time. So that's on the first. We don't really have a target per se. This type of a contract is pretty unique.

Speaker 3

I think if you look in our portfolio, we can point to one other. It has slightly different mechanics, but I think has a lot of the same kind of Duration, if you will, to it, through time. What I can just say is that we have some other larger customers There are again, I think it relates to this conversation about efficiency and continuity of work that have kind of opened up discussions about doing something similar. It does tend to be with larger customers. Again, I think that they want us to get a lot more Enmeshed with their SOPs and guidelines and protocols, etcetera.

Speaker 7

I presume that's just to help drive their efficiencies in their capital program as Melissa alluded to earlier? Absolutely. And secondly, is this agreement, does it span multiple basins or is it just in one basin?

Speaker 3

It's multiple basins.

Speaker 7

Okay. Thank you very much.

Speaker 3

You bet.

Operator

Our next question is a follow-up from Don Crist With Johnson Rice, please go ahead.

Speaker 5

Thanks for letting me back in. Melissa, just one for you. The working capital ticked up A little bit in the Q3, but it sounds like it's starting to release a little bit. Any color there? And should we expect all that to kind of come out 4th quarter, just kind of trying to model your cash as we go into the 4th quarter year end?

Speaker 4

No, good question. And yes, we We saw a nice big release. We had done some automation where we were pushing through sort of the invoices automatically with customers and saw a nice big release early in the year. What we didn't anticipate is over the summer that we basically hit a walk as we ran out of PO On several of our biggest customers and things really got stalled out and getting those POs replenished. And by the time we noticed, If you will, we were in remediation mode, but these things just take a couple of months to sort of sort themselves out.

Speaker 4

So I do think we're going to get back right here in the Q4. 4th quarter is always tricky because everybody sort of manages their cash at year end. But we certainly have seen The contract asset, more is running into AR and more collections are really we had sort of our best collection week just a week before last. So we're certainly seeing a trend back in the right direction. If that holds, we'll get to where we'll get to a really comfortable place for year end.

Speaker 4

It's just there's a little bit of anybody's guess, depending upon who wants to squeeze cash at the end of the year.

Speaker 5

Completely understandable. Thanks for letting me back in. Appreciate it.

Speaker 3

No problem. You bet.

Operator

Our next question comes from William Kim with Prestido Asset Management. Please go ahead.

Speaker 8

Hey, Stuart, Marcella. How are you? Good morning. Good morning. You mentioned earlier in your call, I think in your Remarks regarding the intrinsic value of your shares looking attractive for repurchase.

Speaker 8

I guess, how are you viewing Intrinsic value, what do you I guess, what is the thought process between in determining what you think intrinsic value is for Ranger?

Speaker 4

Yes. So we had an initiative we kicked off this year. I'll take this one. I guess it's a Fashion projects of mine. We had an initiative we kicked off this year to actually do some intrinsic value work.

Speaker 4

So we actually did a multiyear model, We've built out our first DCF. We started with just kind of a 3 year view and we're adding on to 5 year view. So we're driven by that. That's how we get to intrinsic value assessment. And then we also sensitize that.

Speaker 4

So what happens if There's some upside. What happens if things continue to languish? So we build a fundamental model that we think is here's our Best guess of what we think the world is going to play out to be and here's a much harsher view and here's an upside view. And then we try to triangulate between those as well as sort of where the share price is at today. And so every quarter, we're now refreshing it.

Speaker 4

This is actually the 2nd quarter we refreshed it. So we're really proud to get it done. And then we kind of sit back around the table, Stuart and I on how we want to think about share repurchases through that lens and then we also make an approach in the proposals to the Board

Speaker 8

Got it. And then as a separate follow-up, change And the Board, is there something that prompted that? Is it just regular retirement? How did that kind of come about?

Speaker 3

No. That, William, was just part of a kind of ongoing refresh process that we undertook. So there was again, So it's been sort of in the works for a while and planned just to make sure as part of good governance we're kind of keeping good turnover to the Board.

Speaker 4

Yes. I mean, you saw us I'll add to that. You saw us do a little bit earlier as part of proxy. We made some initial changes. These had been Just sort of at a high level back then and we've been working towards our Board hadn't we had had outside parties, institutions point out our Board Lack of diversity, number 1, and then also, frankly, had not had any turnover in it.

Speaker 4

So we thought it was appropriate to kind of start that process.

Speaker 8

Got it. I guess last question for me is, if you look at the last downturn in 20 2021, Ranger managed to kind of hang in there pretty well as a company. I guess if there's a lot of talk of recession coming, That were to kind of happen again. How are you looking at liquidity, cash flow? And how do you think in the current asset base, Because it's a much larger company now, how do you think Ranger would fare?

Speaker 7

Do you

Speaker 3

want to start?

Speaker 4

You can go first.

Speaker 3

So again, I appreciate the question. I think a couple of things that I'm really quite proud that the team has done is Much like we had back then, but we've been very focused on making sure that we have large operations versus a lot of scattered kind of local shops, which really in a downturn in particular, If you have like a lot of scattered shops, it's very hard to control costs in those environments. I think we've done a very good job just by doing that and consolidating our footprint It's kind of one of the first things that you do structurally to prevent or to position yourself for a downturn if it happens. So I think we've actually done a really job of that, and I think that's one thing. We run very lean G and A, again, kind of on purpose, both in the corporate center and also in the regions, Again, trying to be protected in case there is something.

Speaker 3

I'd also sort of highlight that in the wake of the acquisitions, We have a larger percentage of our yards and shops that we own, which actually just kind of lowers our burn rate in the downturn. So I guess I feel like that a lot of the structural things that we've kind of worked on position us well.

Speaker 1

And I would kind of Yes.

Speaker 4

I mean, I would only add to that to say, I think what we're also doing Just pure financials and management perspective is we've really worked hard over the past year to get more real time data. Before I even showed up, Stuart had been working on Power BI dashboards to show what rigs are working, where, how much. We've really worked to expand that to make our monthly financial reviews much more impactful to really start proliferate much more deeply our views on profitability. And then I finally say, look, we have a lot of the same team. Matt Hooker is here in the room with us.

Speaker 4

He helps manage the COVID process, if you will. And Ranger appreciates that Survivability is priority number 1. And I would tell you that if we had no one wants to make tough decisions again, But we recognize we have 2 at times.

Speaker 8

Yes. I think that last part is kind of where I was Looking for some clarity, Ranger was very, very quick to cut costs when you saw weakness out there. I guess, what is the state of the labor market now in your industry? And how does that compare to 2020, 2021?

Speaker 3

Yes. I mean, so it's kind of as I said earlier, like what we would say is, it's actually still pretty tight. It hasn't Kind of freed up like you might have thought. But again, I think just to kind of reiterate what Melissa And this is the team that for better or for worse has been through a couple of downturns and We know that acting quick is in the best interest of really the survivability of the company. So hopefully, we don't have To do that, but we're ready.

Speaker 3

We have to.

Speaker 8

Great. Thank you. Keep up the great work.

Speaker 6

All right.

Speaker 3

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Stuart Bowden for any closing remarks.

Speaker 3

Thank you everyone for your interest in Ranger joining the call today. Happy Halloween and I hope everybody has a great and safe week. Thank you.

Powered by Quartr
Earnings Conference Call
Ranger Energy Services Q3 2023
00:00 / 00:00