Ranger Energy Services Q2 2024 Earnings Call Transcript

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Provided by Quartr
July 30, 2024

There are 4 speakers on the call.

Operator

Thank you, and welcome to Ranger Energy Services Second Quarter 2024 Results Conference Call. Ranger has issued a press release summarizing operating and financial results for the 3 months ended June 30, 2024. This press release together with accompanying presentation materials are available in the Investor Relations section of our website at www dotrangerenergy.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.

Operator

Except as required by law, we undertake no obligation to update our forward looking statements. Further, please note that the non GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non GAAP measurements are available in our latest quarterly earnings release and conference call presentation. With that, I would now like to turn the conference over to Mr. Stuart Bowden, Ranger's CEO and Ms.

Operator

Melissa Kugel, Ranger's CFO, for their prepared remarks. Please go ahead.

Speaker 1

Thank you and good morning everyone. We are pleased to welcome you to our Q2 2024 earnings call. We are happy to report very strong performance in the Q2 after a challenging start to the year. The Ranger team banded together across service lines and functions to regroup in the Q2, taking bold action in some areas, exercising patience in others, but ultimately emerging as a stronger and more focused company. 2nd quarter results reflect the inherent strength of our production focused business model, which is able to write out cycles and maintain consistency despite broader activity and spending declines.

Speaker 1

The most illustrative example of this was in Ranger's high specification rig business, which reached a new high watermark for revenue with outstanding margins along the top side growth. We continue to have a firmly held belief that most of our business doesn't behave the same way as a traditional oilfield services company. While market conditions have been difficult over the past 12 months with the U. S. Onshore rig count declining by over 20% and frac activity following suit, several of our service lines are showing year over year improvement.

Speaker 1

This improvement is driven by several factors, including a consistent spending profile for production tied work, a more consolidated and rationalized space for some service lines along with high growth market backdrop for service lines such as P and A and gas processing. We also feel that we have deepened and strengthened ties to customers who appreciate and value Ranger's differentiated service quality. In light of recent consolidating transactions in the E and P space, Ranger is regularly presented with the question, what does consolidation mean to Ranger? We believe over the long run, the E and P consolidation trend, while removing and reducing the customer population, has also placed Ranger in an enviable position of being a preferred provider in a space that was historically characterized by smaller and more fragmented players. This consolidation has strengthened our ties with most of the acquirers who are interested in reducing their total number of vendor relationships and work with companies who maintain consistent superior service quality and safety records.

Speaker 1

Our Q2 is an indication of the earnings potential we have, the strength of our customer relationships and we are excited to continue building on that momentum in the Q3. Our confidence in the consistent earnings power of Ranger is best evidenced through the continued return of capital to our shareholders through our base dividend program and share repurchases, which have continued throughout the year. We believe our own stock represents a compelling investment, So we have opportunistically been repurchasing shares in the open market and have purchased nearly 1,400,000 shares this year. Since the inception of our shareholder returns program, we have repurchased nearly 3,200,000 shares or 14% of the total current outstanding shares as of June 30. Since inception of our capital return framework in the Q2 of last year, we have returned nearly 70% of our free cash flow to shareholders.

Speaker 1

There is no other small company in our industry with the level of conviction and commitment to capital returns that Ranger has with such an attractive valuation profile. Melissa will provide more detailed commentary in a few minutes, but let me highlight some of our more notable results for this past quarter. Total company revenue during the Q2 was $138,100,000 a slight increase over the Q1 with meaningful improvements in High Spec Rigs and Ancillary segments offset by a decline in our Wireline segment, which I will discuss in a moment. Our adjusted EBITDA was $21,000,000 nearly double our first quarter results on the back of EBITDA margins that improved substantially to over 15%, a higher mark than any quarter in the past 2 years, which is a remarkable achievement in light of recent market pressures. Our efforts to increase synergies across service lines and promote cross pollinization are bearing fruit and we are seeing more efficiency at every level of the company.

Speaker 1

This is exciting for the leadership team who have pushed hard on this initiative for the past couple of years. Further, a huge credit goes to our over 2,000 team members who have truly embraced our 1 Ranger spirit and execute at an exceptional level each and every day, insisting on superior safety performance and service quality. All of these factors matter and are responsible for pushing Ranger forward in a tough environment. Focusing on our high specification rig segment, we couldn't be more pleased with this performance this quarter. Consistent demand together with strong customer relationships resulted increases in both rig hours and pricing this quarter, allowing us to post record top line revenue of $82,700,000 and record adjusted EBITDA of $18,700,000 The majority of our business is exposed to production related services and that strategic focus continues to prove remarkably resilient.

Speaker 1

As we often note, as long as more wells are being drilled in the U. S. Than are being plugged, our total addressable market and Ranger's value to its customers continues to grow. In our processing and ancillary services, we are encouraged by the bounce back in the Q2 and the future earnings potential of this business. We increased revenue over the Q1 by 27 percent and nearly tripled adjusted EBITDA to $7,200,000 the 2nd highest quarter on record.

Speaker 1

We achieved a 23% margin and saw notable results in several of our service lines, particularly coiled tubing, which reverted to more historical norms after a challenging Q1. Our P and A business also had a strong rebound in the Q2, posting record top line revenue and adjusted EBITDA numbers, exhibiting strong margins as winter seasonality abated and customers began more aggressively pursuing their P and A programs for the year. Although a small contributor, we have also seen our gas conditioning and processing service line branded Torrent, double revenues from earlier in the year. This service line has exposure to the fast growing field power generation market and we are excited to see it continue to grow its contribution to Ranger. Concluding with our wireline segment, we have been transparent about the challenges of this business.

Speaker 1

The past 2 years have been marked by intermittent performance and significant volatility. The wireline completion space over the past 5 years has grown increasingly commoditized with lower barriers to entry and more widespread availability of what was at one time differentiated technology and service offerings. At this point, we believe that the best thing we can do for Ranger is to stay focused on our production wireline offering rather than chase price to the bottom hoping for the turnaround in plug and perf. As many say, hope is not a strategy. Our shift to more production focused wireline work is bearing fruit and we have recently seen real traction on the top line.

Speaker 1

We mentioned in our prior quarter that a series of restructuring efforts have been outlined and they are now largely complete. In the past couple of months, we have seen the results of this restructuring along with a moderating and more stable market backdrop. We have been pleased with the most recent months uptick in margin in this segment and we are pleased to report our highest ever top line revenue for our production service line. But to be clear, this segment has changed dramatically over the past year and its contribution to Ranger's overall results has been diminished. We do expect to see modest but steady increases in future quarters, although there is quite a ways to go before it replaces the historical revenue contribution from wireline completions work.

Speaker 1

Looking forward, we are encouraged by trends we are seeing moving into the second half of the year. The Q3 is looking strong based on seasonal activity and we believe that our high specification risk segment will continue to perform well this quarter with modest incremental growth. All the indicators support continued strength in our processing services and ancillary segment as well. We believe the worst of the wireline declines is behind us look forward to operating this segment with a much leaner cost structure while repositioning it to emerge stronger in the coming quarters. This market has proven unpredictable during Q4 periods, but we will update investors regarding our year end thoughts during our next call.

Speaker 1

In summary, we believe we have a stronger, more fundamentally resilient business today than we did 1 year ago, as evidenced by our margin profile and record setting results in some service lines. We remain focused on creating long term value for our shareholders based on our strategic pillars of maximizing cash flow conversion, growing through acquisition, maintaining a pristine balance sheet and returning substantial capital to our shareholders through dividends and share repurchases. We repurchase shares because we think our valuation is particularly compelling at current trading levels. As the sector emerged from this challenging period and customer activity rebounds, Ranger's differentiated value proposition will continue to shine and ultimately be rewarded by the market. With that, I would now like to turn the call over to Melissa to give more detail on our financial results.

Speaker 2

Good morning, everyone, and thank you for joining us today to discuss Ranger's Q2 2024 financial results. As Stuart said earlier, we are pleased and reassured with our results this quarter. Ranger took thoughtful and decisive action after the Q1, which has been validated by historically strong results in 2 of our 3 segments, despite a rig count decline of over 20% since last year's peak. Despite the declines in our wireline segment, our year over year EBITDA performance is comparable on the back of stronger margins this year, which is a very encouraging sign for the health of our business. Revenue for the Q2 was up slightly from the Q1 of 2024 at $138,100,000 but down 15% year over year.

Speaker 2

Improvements in both high specification rigs driven by expansion in rig hours and rig rate as well as increases in ancillary segment revenues were offset by further reductions in wireline completions activity. Net income of $4,700,000 or $0.21 per share rebounded nicely from the first quarter's net loss of $800,000 Cost of services for the quarter was $113,200,000 representing 82% of revenue. This is a significant improvement over the Q1 of the year, which represented 88% of revenue and the prior year period that was 84% of revenue. The decrease in the cost of services as a percent of revenue was primarily attributable to restructuring activities undertaken to adjust for reduced activity in our wireline completions business, as well as improved pricing in other service lines. We are operating leaner and more in line with market realities, which has a direct positive impact on our bottom line.

Speaker 2

Adjusted EBITDA for the quarter was $21,000,000 nearly double the $10,900,000 of adjusted EBITDA from the Q1 of this year and a slight decrease from the prior year period of $21,900,000 The High Specification Rigs segment provided its strongest contribution ever to adjusted EBITDA along with record margins, while ancillary margins were at their highest level in the past 2 years. The company's consolidated EBITDA margin of 15.1% was the highest recorded in nearly 2 years. Providing some additional segment details. High Spec Rig revenue for the 2nd quarter was a record $82,700,000 a 4% increase from the company's previous record of $79,700,000 which was achieved in the Q1 of this year. Year over year, the segment increased 7% from $77,800,000 in the Q2 of 2023.

Speaker 2

Rig hours increased 2% from the previous quarter and held flat from the Q2 of 2023. The blended rig hourly rate for the Q2 was $7.32 per hour, 2% higher than the Q1 and 6% higher than the prior year period. In our Ancillary Services segment, revenue was $30,900,000 in the 2nd quarter, a 27% increase over the 1st quarter and flat with the prior year period. Contributing most notably to the rebound was a return to more historical levels of revenue in the coiled tubing service line and stronger activity levels and margins in our P and A service line. In our wireline services segment, revenue was $24,500,000 in the 2nd quarter, down 25% compared to the 1st quarter with stage counts down 50%.

Speaker 2

Year over year, revenue was down 55% and stage counts are down 77%. These numbers provide clear definition to Stuart's remarks regarding our determination not to chase market share at the expense of profit. We instead have acted to right size the organization to accommodate current activity levels. As Stuart also mentioned, we continue the strategic pivot towards production focused wireline work, which grew top line revenue by an encouraging 14% over the prior quarter and prior year quarter. Turning to the balance sheet, our strong financial condition remains a differentiator and the choices we made last year to pay off all our outstanding debt have supported our ability to continue to repurchase our shares at very attractive valuations.

Speaker 2

We firmly believe that our financial stability positions us to act strategically in the best interest of our shareholders, whether that be through accretive acquisitions or prudently returning capital. Year to date, cash from operating activities was $34,100,000 a modest reduction from $40,900,000 during the same period last year. We front loaded our capital expenditures this year, so the first half number of $21,800,000 is high relative to $12,900,000 reported in the prior year period. Due to growth CapEx we deployed this year to upgrade coiled tubing assets and provide supporting equipment for new contracts with stronger customers. We do expect capital expenditures to decline in coming quarters as this deployed growth CapEx abates.

Speaker 2

That said, there are active discussions ongoing with customers regarding the deployment of additional assets and associated equipment that could result in capital expenditures in future periods to support their requirements. As and when those conversations progress to firm decisions and contracted work, we will provide our investors with an update. Free cash flow for the quarter was $6,800,000 or $0.30 per share, reflecting a lower than typical conversion rate given the elevated CapEx spending in the 2nd quarter. We continue to be opportunistic and focused on our share repurchase program and bought back over $5,300,000 of Ranger shares during the quarter. Over the past year, we have far exceeded our commitment to return at least 25 percent of free cash flow to shareholders.

Speaker 2

Since rollout of our program, we have returned close to $40,000,000 to shareholders and repurchased approximately 14% of the company's current outstanding shares, while paying a consistent quarterly dividend of $0.05 per share, no matter the market conditions that have presented themselves. We ended the quarter with $72,200,000 in liquidity, consisting of $63,500,000 of capacity on our revolving credit facility and $8,700,000 of cash on hand. All told, Ranger is in an enviable financial position, having demonstrated a significant rebound in our operations during the quarter and the continued strength of our high specification rig segment, our flagship service line. We looked at the second half of the year with cautious optimism, noting that the Q3 is typically our strongest. Our attractive free cash flow profile and yield at current share prices, combined with substantial capital returns is always worth reinforcing to the market as well.

Speaker 2

We appreciate your support and look forward to engaging with you in the coming weeks months. With that, we will turn the call back over to the operator for questions.

Operator

Thank you. We will now begin the question and answer session. Our first question will come from Don Crist with Johnson Rice. Please go ahead.

Speaker 3

Good morning, guys. How are you all this morning?

Speaker 1

Good. How are you, Don? Awesome.

Speaker 3

Doing well. You had a really good rebound from the Q1 and I wanted to kind of dig into customer behavior. Obviously, in your remarks, Stuart, you talked about the consolidation and customers kind of floating towards higher performing companies with better safety records and better maintenance program. But can you talk a little bit more about that and how you're seeing the back half of the year shape up? Is that one of the main driving factors that's helping you gain market share?

Speaker 1

Yes, it really is Don and appreciate the question. I think what we saw coming out of Q1 into Q2 is exactly that. Some of our largest customers not only maintained demand, but also increased it. And we're really seeing that demand and that sort of request for additional rigs and equipment continuing into Q3, which is why in our guidance, we've said that we think that Q3 will be modestly up over Q2. So we continue to believe that the consolidation trends are really helping us.

Speaker 1

We referenced last year a big contract that we signed. That contract, we think it's really starting to bear fruit. So again, I think we're pretty pleased with how it's happening and it really has been on the back of our largest customers in particular.

Speaker 3

Okay. And on the wireline segment, obviously, it has been a challenging market in wireline for not just you, but for everybody in the market. But can you talk about the reorganization? I know you touched on it in your presentation and your press release. What steps you've taken?

Speaker 3

And do you see the margins in that segment kind of rebounding towards that 8% to 10% where you have been historically?

Speaker 1

Yes. We certainly hope the margins get back up there. We talk about wireline in really 3 segments, our Completion segment, our Production segment and our Pump Down segment. We really are just given pricing on the completion segment and that's in the segment, Don, that's historically had the highest revenue, not necessarily the highest margins, but the highest revenue. That's where we're really seeing the pricing pressure and just things becoming unsustainable.

Speaker 1

So part of the restructuring has been really twofold. 1 is, unfortunately, we've had to do some headcount reductions associated with the completion service line. We've also been reorienting some of those assets. We are able for the most part able to redirect those assets to the production space. And that's in the second part is doing that both with wireline trucks equipment and also some of our pumps for pump down.

Speaker 1

Again, kind of reorienting them more toward the production space.

Speaker 3

I appreciate that. And if I could sneak in one more, some of your peers in the segment have kind of looked outside of the traditional oilfield for M and A. And I'm hearing that M and A bid ask spreads are narrowing. Any comments just broadly around M and A and if you're looking kind of outside of the historical business lines that you have today?

Speaker 1

We have been looking outside and I think been looking at a number of things. That said, Don, we remain convinced that our existing service lines, particularly our flagship service lines are still right for additional consolidation. So that's really been where most of our focus has been, although I don't want to give the impression that we're not looking at other things. But that's where most of the focus has been. I think the bid ask, I feel like every time we get the question, we sort of have the same response, which is we think it's narrowing, but it's still not quite there.

Speaker 1

So we're hopeful. We would love to do a transaction. But again, we're committed to being incredibly disciplined, making sure that any deal is accretive to our shareholders. But I'm hoping that maybe things are starting to break free a little bit. We'll see how the next 12 months shakes out.

Speaker 3

I appreciate all the color. Good quarter. I'll turn it back.

Speaker 1

All right. Thanks, Don. Really appreciate it.

Operator

Our next question will come from Jeff Robertson with Water Tower Research.

Speaker 3

Stuart, you touched on valuations in the M and A market. I'm just wondering how you think about valuations that you're seeing in the market versus the valuation of Ranger stock and the share repurchase opportunity you have?

Speaker 1

Well, I think that the question probably really kind of highlights the issues around the bid ask. We are we think we're a very compelling investment proposition right now given our stock price. But we also recognize if we do any deal that it needs to be accretive to our shareholders. And then I think we think that that's quite important. So again, I think we're looking at things and a lot of the conversations with potential counterparties really starts there, which is you can see where we're trading.

Speaker 1

Again, we need to be accretive for our shareholders. So if that's a kind of range that you'd be willing to transact on, then let's have deeper conversations. We are having deeper conversations. But again, sometimes people get into it and it becomes a bridge too far. But hopefully, it's starting to close a little bit.

Speaker 3

And secondly, you touched on consolidation. Are you seeing companies look to narrow their vendor lists that have been consolidating? And is that creating any opportunities for Ranger to do any additional exclusive service type contracts?

Speaker 1

We're definitely seeing the trend continue. What I would say is for the largest customers and the ones that tend to be acquisitive, most every conversation with that is associated with a desire on their part to reduce vendors and come with kind of more reputable vendors. So we definitely see that trend continuing. As regards to kind of other long term contracts, we're having those conversations. They're kind of earlier days, but we've been with the one that we were able to sign and we talked about last year, I think that one I think both sides feel like that's been really an advantageous contract.

Speaker 1

So we would certainly like to have more of them.

Speaker 3

Thank you.

Speaker 1

Thanks, Jeff.

Operator

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

Speaker 1

Great. Thanks, Chuck. Thank you everyone for joining. Thank you for your interest in Ranger. Before we do break, I just want to just sort of commend the Ranger team, the broad Ranger team for their hard work and dedication and the strong performance in Q2.

Speaker 1

So thanks to them. And again, thanks, everybody. I hope you have a nice day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Strong Q2 financial performance: revenue of $138.1 million rose slightly vs. Q1, while adjusted EBITDA nearly doubled to $21 million and the EBITDA margin improved to 15.1%, a two-year high.
  • High Spec Rig segment achieved record quarterly results with $82.7 million in revenue and $18.7 million in adjusted EBITDA, driven by higher rig hours and pricing despite a 20% decline in U.S. rig count.
  • Ancillary and processing services bounced back with revenue up 27% over Q1 and EBITDA tripling to $7.2 million, led by coiled tubing normalization, strong P&A results, and a doubling of Torrent gas-processing revenues.
  • Wireline segment revenue fell 25% from Q1 and 55% year-over-year amid commoditization; restructuring and a strategic pivot to production-focused wireline work are underway to restore margins.
  • Maintaining a pristine balance sheet and returning capital: repurchased ~1.4 million shares year-to-date (3.2 million total, ~14% of outstanding) and have returned ~70% of free cash flow since program inception.
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Earnings Conference Call
Ranger Energy Services Q2 2024
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