Good morning, and welcome to the Ranger Energy Third Quarter 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Stuart Bodden, Chief Executive Officer. Please go ahead.

Thank you, operator. Good morning, everyone. I hope everyone is well. And welcome to Ranger’s Q3 2021 Analysts Call. As operator said, this is Stuart Bodden, President and CEO of Ranger Energy Services. And I'm joined by Brandon Blossman, Ranger’s Chief Financial Officer. Before we dive into the numbers, I think it's important to reflect on what the Ranger organization has accomplished over the last 12 months. During the first half of the year, we rebuilt our legacy business from the 2020 trough, rehiring and adding nearly 600 employees. More recently, through the acquisitions of Patriot, PerfX and the basic assets, we have tripled the size and revenue potential of the company, building meaningful scale in our rigs and wireline businesses. The two wireline acquisitions increased our unit count more than five times from 13 to 68 wireline units. We more than doubled the scale of our High Spec Rig business along with the addition of incremental service lines and a significant number of ancillary assets. We also greatly simplified our capital structure. We refinanced our entire balance sheet, eliminated a potentially burdensome tax receivables agreement and pave the way to collapsing our equity structure into a single class of stock. We also diversified our investor base. In short, Ranger is a very different company today than it was at the beginning of the year. We're pleased with the progress today, there's still a lot of work to do, particularly with regards to margin improvement and generating sustainable cash flow. Given the strong macro environment and given the early indications from our acquisitions, we are optimistic about our ability to improve margins and generate cash. I'm going to briefly review company-wide performance in Q3 and then talk about our future outlook. Then Brandon will review Q3 segment level financial performance,…

Right. Thank you, very much, Stuart. For this quarter, I'm going to change it up a little bit relative to what we've done historically for my comments. I'm going to go straight to the segment financials, skipping some of the high level corporate numbers that Stuart mentioned and that you can easily read in the press release. I'll spend a little bit more time on those segments, specifically on the KPIs for our two most significant businesses. Try to give you a little bit more detail on those two lines in terms of operating metrics, and then move on with some comments and details on the balance sheet before handing it back to Stuart. So first, for the high spec rig segments. Here revenues increased 3% or $1 million dollars moving sequentially from $29 million to $30 million. The revenues were up. Segment margins decrease to touch moving down from 17% in Q2 to 16% in this quarter. That resulted in a slight drop in EBITDA from $5 million to $4.8 million in Q3. First, on the revenue side driving that 3% revenue increase was an increase of 3% or $18 an hour, and the hourly average rig rates moving from 5.66 in Q2 to 5.84 in Q3. And a sidebar, I'll note that our reported Q2 hourly rig number or rig hours was higher today than as we reported in Q2. That was some of the prior period adjustments that we did in Q3 bringing those hours that we reported for Q2 up, and of course the offset is bringing the reported rig rate down. So you'll note that as you compare the Q3 release to the Q2 release. Again, however, on the adjusted numbers, hourly rates are up $18 an hour. That increase in rig rate coincided with…

Great. Thanks, Brandon. To come back to the basic asset acquisition, there's actually quite a bit to talk about, we are very pleased with the progress to-date on the integration of Basic into Ranger, and I would be remiss if I did not thank everyone in the organization for their hard work and dedication to making the integration successful. It's been a heavy lift and what the team has accomplished in the last month is truly incredible. Regarding active rigs, we operated a total of 180 rigs in October, 67 legacy Ranger rigs and 113 legacy Basic rigs, this easily makes Ranger the largest operator of active well servicing rigs today. 180 rigs is admittedly more than we had originally intended to run, but we have strategically kept them running for several reasons. First, we want to keep crews. We're seeing an increase in demand for rigs and manpower and crews are turning into the critical bottleneck to putting additional rigs out. Second, even though Basic's average hourly rate is lower than Rangers, customers are showing a willingness to accept higher pricing. Therefore, we believe we can earn attractive margins across all of these rigs. It is worth noting that Ranger and Basic had different go to market strategies, with Basic often providing lower spec packages relative to Rangers higher spec packages. That said, we believe both types of packages can generate attractive returns. So we will keep both types of packages running. I bring this up so that you aren't surprised if average hourly rates for rigs are lower across the combined fleet next quarter. Again, we are actively pushing price. But there is more lower spec work in the Basic fleet, which will impact the company wide averages next quarter for hourly rates. We also as have noted,…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ian Macpherson of Piper Sandler. Please go ahead.

Thanks.

Good morning, Ian.

Good morning, Stuart and Brandon. How are you?

Good. How are you Ian?

Good. Thanks. I appreciate all of the detail in the opening remarks. On your go-forward consolidation strategy, are you leaning more in one direction or the other between service rigs and wireline, or do you see both of them as areas for further growth?

I'll start and I’ll let Brendan add on. So I think the short answer is that we see opportunities in both segments. I think there are more near term opportunities that I think the market is aware of on the rig side, which are being evaluated. But I think, again, I think we see opportunities in both segments.

I agree completely. And I'll just my addition will be that we have and likely will continue to be incredibly opportunistic here. I think that the basic deal reflects that willingness to go after something that looks like it's going to be an exceptionally good deal, and to be cool on things that may get pushed in terms of valuation. So I think, point one, it's great to have a strategy, but it's also great to be willing to modify that strategy based on the facts that are presented to you at any point in time. So I think we'll be biased towards creating the most value wherever that fits. And it may be rigs, it may be wireline, it may be building up one of these new business lines that we acquired with the basic transaction. So we have a bigger portfolio of business lines, and probably more strategic options, and we had three months ago. And so you may see us do something even surprising. Not that we have any plans to, but I think we can -- we're open to a variety of possibilities.

Got it. Thank you both. And then Stuart, if I heard correctly, you said your run rate annual revenue capacities 400 to 500. Now you hope to hit or eclipse that high end for 2022 with 16% margins, did I get those notes correct?

Yes. So right now our run rate is between 450 million and 500 million. I would say, our target to be clear, that's an October run rate.

Yes. That's an October run rate. So as we think about annualized as we think about into 2022, as you said Ian, we would expect to be on the top end of that range or to surpass it, because of price increases and activity increases. We do have a target for 15% EBITDA margins, as you alluded to at the company level. I think our intent is to get to that run rate by the second half of the year. I think it will take a quarter or two to get there, just based on the integration that needs to be done going forward. Which side of the business needs more price improvement to hit that goal, or would you say, it's equally weighted in terms of where you are where you need to be by the middle of next year to get margin?

Yeah. I'd say, it's on the wireline side. If you kind of think about how pricing is developed, rig pricing crashed earlier, and then started to climb back. Whereas wireline had a slower decline on pricing that hasn't really come back. And I think you're seeing that when you kind of look at other people that have announced earnings this quarter. So I think there's really kind of more opportunity, and there needs to be better pricing, it's more of an acute problem on the wireline side. What I would also say is, if you look at the rig side, I would change my comments a little bit for the basic side. Some of the basic pricing is well below what our margin requirements are. And we are very actively pushing that up. So I think you will see in the coming, kind of quarters on the rig side, and increase, particularly on the basic side.

Okay. That's helpful. Thanks. And then lastly, how are you thinking about maintenance CapEx today, and if you get to call it 75 million annualized run rate of EBITDA second half next year, what kind of free cash flow conversion out of that EBITDA could you – could you hope to get?

So we, as we forecast out for 2022, we are trying to hold the line at that $2.5 million of maintenance CapEx per quarter, so $10 million per year. All indications are that we should be able to hit that so far. Having said that, there's still very basic rigs that we need to understand, whether or not they will be in the market and what the required kind of catch up maintenance on those will be. So that's the variable as you know, we took down 500 an incremental rigs. We have not visited every single one of that 500. So we've made a lot of progress. And as Stuart pointed out, we have 100 of that 500 earmarked for that parting out and reward cutting up in destruction. But that's silly is a good handful of rigs that we'll have to figure out what will happen. Part of that, will be determined by the macro backdrop and how much demand there is. So its tough to answer, but I think, $10 billion a year on maintenance CapEx is going to be our target. And the macro will determine whether or not we hit that, but it'll be good news if got that.

Yeah. And I would add to that, I mean, the macro is important, and I think probably everyone is at a place, where if we put in a significant number of new rigs out that will require some maintenance contracts to get them put into service.

Okay. Awesome. Thanks. So you guys are undertaking a lot of Yeoman's work here with this consolidated you pointed out. So well done and good luck and look forward to catching up next time.

All right. Great. Thanks, Ian.

Thank you, Ian.

The next question comes from Jason Bandel from Evercore ISI. Please go ahead.

Yeah. Good morning, Stuart. Good morning, Brandon.

Good morning, Jason.

Good morning.

First question, can you guys talk more about the trends, you're seeing the high spec rig market, and some reputations for the market itself in 2022? Do you think labor continues to remain tight? And as you scale help with that and also, how do you guys continue to approach the balance between rates and regards and that balance there?

Thanks for the question. I'll start. So I think the first question is about how do we see the market developing. I’d say, I think we see the market – we see demand continuing to increase and I think we do think that – that labor will remain constrained, I think, OSHA's COVID-19 emergency temporary standard may also impact that to the negative. So I think all of that together will kind of lead or we're expecting it to lead to a tightening of the market, which obviously is attractive for pricing going forward. So I think that's the first thing that I would say on that. I think as that as a backdrop, based on the conversations we're having with customers, I think, you’re kind of asking, how do you balance rig hours and rates. Frankly, in a conversation with customers, part of it is, hey, if you don't let us get pricing to where it earns us a reasonable rate of return, we will take that rig and we'll give it to our higher paying customer. So that's exactly what is sort of happening as we think about it. And it kind of goes back, Jason, to why we're saying we want to keep these rigs running and cruise, because we don't want to lose the cruise. So now we have different conversations with our customers that will allow us to high-grade customers as we go forward so --

Got it. And just on -- and then actually, along the lines of the high-grading use, you talked about there and you guys did a lot of work, even before the downturn in high-grading your traditional customer base and shifting more to top tier clients. How different was basic customer base compared to your own? And if you really continue that strategy going forward by trying to put their rigs more with your high-graded customer base?

Yes. I mean, it's interesting, if you actually look at our customer base, I mean, they obviously have in some regions, I would say, probably -- don't have quite as attractive as a customer base. That said, their customer base is not bad, it's their pricing. So, if you kind of look at it, and I think it's important to remember, with C&J, remember, basic part C&J and C&J had a pretty robust customer list. So I really think it's probably less about changing customers out as much as it is about getting better pricing with those customers.

And, Jason, I'll just add that, basic looked from our vantage point to be trying to be everything to every customer. So there's the full range of full high spec packages on one side. I'll note that on a relative basis, much lower early incentives versus our fleet, as you would expect, all the way to bare rigs with four-man crews getting barely more than labor variable costs. And so, there's -- and there's everything in between. So to Stuart’s point, they had a very robust -- they have a very robust customer list. There was strong overlap with us. But they were, I think, pretty apparently pursuing a strategy of getting as many rigs out into the market as possible and focusing solely on revenue. And I think to the detriment of margin. Overall, it’s better than we expected. But that doesn't mean there's not a whole lot of work to do there still.

And then, as you guys look across the customer base and expectations into next year of higher activity levels, is that really broad base? Are you seeing an increase in activity and demand entirely across the universe, or is there a certain part of that customer base at driving that?

Yes. I guess, I'll start. I do think there's a regional answer to that. And I think the greatest increases we're seeing are in the Permian. So certainly, in Permian, and then I would say, inside of the mix of kind of daylight work to 24 hour work, I think we are seeing an increase demand for 24 hour work. That said, daylight work is pretty robust. It's some of the cheapest barrels that E&P operators have to add. And then in terms of where that incremental demand falls on the customer from large cap IOC, all the way down to the mid cap and smaller unit fee.

Yes. I mean, I would say on that, that we're actually seeing increases demand at the large caps right now. I mean, if you think about the last year, a lot of the demand increases have been from smaller players, as the bigger players really were remained very disciplined. I'm not saying we're seeing that trend reverse, but I think we are seeing more demand from the bigger players.

And then last quick one for me, just housekeeping question for Brandon. Can you give us some guidance around Q4 G&A and share count? Thanks.

Yeah. So share count will be just under $25 million, when all set is done, it is $24.8 or exactly at $24.78, I believe is where we'll end up on share count. And then, G&A, there are a few changes in G&A in terms of bringing on quite a bit of more activity. However, I think that that, that I would say that $16 to $17 million a year run rate that we haven't seen, should not change materially as we move into 2022.

And I just add on the G&A I mean and I think it's probably worth highlighting on the yard consolidations. And this is really at the segment level, but there is a lot of G&A tied-up in the large number of yards, the basic range. So remember, when we took over the basic assets, we in essence, took over 28 different properties. We think that those will basically be a net addition of $10 not $28. So there's, a lot of yards and that includes utilities, internet. People, it's kind of everything. So I think as we work our way through that in Q4 and Q1, you'll see the signal level G&A went down.

Sounds good. Thanks for taking my questions. I'll turn it back.

Thank you, Jason.

The next question comes from John Daniel of Daniel Energy Partners. Please go ahead.

Hey Guys, just one for me. Stuart, as you guys talk to customers. You've just now taken the basic assets to access has got, Forbes and superior pioneers about to do something? Do they get what's happening, in terms of the market backdrop? And when did they really sort of see the light and say, it's time to sort of allow you guys to generate an appropriate return on your investment?

Yeah, I think it's happening in real time, John, from the conversations. I mean, I'll give you just like one anecdote. We had one customer give me two access. One customer was a smaller customer, that we went and said that these needs to be the new rig race for us to continue, working beyond what we had committed to. They were pretty upset. Give some pretty colorful language. And we said, we're going to okay, well, we will finish up our jobs that we committed to. And we'll walk away, half an hour, they call back and agreed to it, right? So clearly, our view is that they got on the phone called around and realized that there wasn't anything available. And another one with a much bigger customer said that, they wanted to add additional rigs. They were trying to use that as a bargaining chip for basically a volume discount. We very quickly said we'll talk about additional rigs only, until we get our first pricing, basically the first wave of price increases. It's been a multiple conversation event, but I think you're getting there. So, long way of saying, John, I do think that they are starting to get it.

Okay. And when you see this, what I'm going to call positive traction, right. And you have an ability to look at further consolidation or just acquisition opportunities. It would seem to lend itself well that you focus on those two areas of core competency where you have scaling or growing and as opposed to maybe trying to consolidate something else to have that third wheel. Just your thoughts there and then I'll just try to dig in now.

Sorry, John. Can you just rephrase that real quick?

Well, what I'm saying is, I know that it sounded like a response to one question maybe in the prepared comments that you might look at other acquisition opportunities sort of outside the scope of wireline in the rig business. And I would contend that when you look at the positive traction, you're going to get – continue to get on the rig side, you should stick with those two core competencies as opposed to trying to grow a third, third business line. Just your thoughts on that.

Yes, I mean, and I guess, I would pretty go back to the, you know, like, I think we've proven that – on the acquisition side will be incredibly disciplined. I mean, I think there is a risk in the macro environment as it's happening right now. That we may see some of the things that are going are that are out in the market right now. Go for pricing that we may, that we probably wouldn't chase up, right. And I think that that is likely, it wouldn't surprise me if that's – if that's what happens. Again, we're going to be kind of looking at everything. And we think we are a logical consolidator. I think you're alluding to something else, it's important is if you kind of you know, on the management team, we've tripled the size of the company last year, right? 2022 is all it is all about execution, right? I mean, it's got to be about execution, margin improvement, cash flow. We can't put any of that at risk. We kind of recognize that that's, it's critical for us to do that.

I like what you guys have done. And I know you're busy business integration. So good luck with that.

Thanks,

The next question comes from Daniel Burke of Johnson Rice. Please go ahead.

Good morning, guys.

Good morning, Daniel.

Good morning.

Let's see. Ian touched on the completion side of the business, but wanted to revisit that briefly. I mean, I'd imagine when we look at a Q3, we're seeing some frictions related to onboarding PerfX and the like, but just curious without benefit of that pricing, which will come, where can you all – where can the margins for the Completion and Other Services business go, or where can you get them on your own? Just wanted to understand what net pricing has to yield versus what you can do internally?

Right.

Yeah, I can hit that. So the levers that we have in the wireline business today are gun prices and labor costs. Labor costs, not on an absolute per person, field labor basis, but on a number of crews per job. So historically, Mallard had one fewer person per crew than PerfX did. That's a cultural shift for the PerfX folks. And it's underway, but it's certainly not anywhere near fully done. So we have some downward costs of flex on that side of it. And then gun costs. I think we pretty neatly cover the spectrum with our related party XConnect guns, and then there is historic use of the Dyna guns at Mallard. They have different attributes. But certainly they're coming at very different cost points. And that's another lever that we can play with. Now that the gun usage is definitely something that happens in conjunction with customer consultations in a big way, so that is also as you imagine ongoing. To answer your question succinctly, we print a 5% margin at that business now with the – the two levers I talked about, I think something in the 15% to 20% would be achievable, without a dramatic change or without any change in pricing. But that's probably aspirational right now. We really do need to get pricing up. And it's not just for us. I mean, I think we have one of the most if not the most optimized plug and perf wireline businesses out there relative to the peer group. Pricing needs to go for -- some of our peers who make a cash on cash not returned, but just for survivability.

Yes.

Factor there.

Yes. That was helpful. Thank you. Thank you for that, Brandon. I guess, as a final follow up here. Maybe premature a little early to ask this. But in terms of the financial projections you'd shared for basic, I guess a month ago. Any updated thoughts or learnings or is that still I assume appropriate?

Yes, I would say right now, I think we would say that it is appropriate. And we're cautiously optimistic that there's no upside to that. And again, I kind of go back to, there are more active rigs running than we originally anticipated. You know, we had internally model of between 80 and 85, basic rigs running. We obviously have a lot more than that running. But we think we can do that, you know, profitably. So we think there's upside there. And then we also think there's upside and the additional service lines that we purchased. So you know, I would say those numbers still hold that we're getting more optimistic to the upside.

Great. Okay. I appreciate the comments, guys. Thanks for the time.

Thanks. Operator: The next question comes from Derek Podhaizer of Barclays. Please go ahead with your question.

Hey, good morning, guys.

Good morning.

.:

One of the things on the high spec grades I want to talk about your outlook for the completion rate packages. I know part of the basic acquisition strategy around that was to increase those types of packages that you roll out. And I believe you were pretty much at full capacity on the Ranger side, you've got more of the ancillary equipment. You got more of the basic rigs that are completion packs. So maybe just talk to us about where you see the increase of completion rig hours through the end of this year and primarily into next year.

So the top-line, the top-line is as you noted, we did pick up a lot of ancillary equipment. And we are seeing, we do think that as you go into 2022, you'll see an increase in demand for 24 hour completion work that tends to be higher spec work. So we do think that's happening. I'm a little hesitant to sort of give you numbers, and they explain why. For Q4, I think there's some mixed messaging for Q4 on the completion side, as people sort of exhaust budgets from 2021. They are in budgeting season. I do think that 2022 is going to be quite robust. But I think for Q2 may look similar to what we're seeing right now.

Okay, got it. And then any color you can give on 2022. Like how many more rigs could be added at our completion, just thinking about the real leverage you can have on the on the rig base side.

We're looking..;.

We're looking at each one of you…

You know, it depends, obviously, on the macro backdrop of the good news, as you alluded to is that we will have more flexibility in terms of moving rates into the 24 hour market, we won't be constrained on random pieces of ancillary equipment because of the basic acquisition. But we have not given any firm indications from our ENT customers about what their 22 program will look like. So would be probably stepping over ourselves if we tried to give you any guidance on that.

Okay, now. Fair enough. I want to switch over to wireline. I know this is such that a couple of questions ago, but the PerfX on usage, obviously, Dino [ph] came out with announcing a pricing increase, and you now have the XConnect guns, can you maybe -- I know there's a lot of customer education you go through, could you talk about when you expect those first X guns to go on the Mallard units. How far -- I know the process just started, but is that a 2022 event? How closely you're there? Just thinking about how that could be a real leverage on helping the cost side of the equation to move those margins up?

Yes, so I guess a couple of things. So, the first thing Derek is it's not quite as simple as it seems, from a gun cost perspective, because they actually do require slightly different manpower to prepare the guns and load the guns. So, it is a slightly more complicated calculus than just simply going costs. That said, we do have on the Mallard side some customers that are specifically asking for certain types of guns, which we need to honor but I do think that as we move into 2022, we're going to try to minimize gun cost and leverage the PerfX or the XConnect system to a greater degree.

Okay. And then just my last question, can you touch back on the divestiture, I think you mentioned a figure, I didn't know if that was for fourth quarter this year or 2022? Just think about how you have all that extra equipment and what that can be as far as a nice cash windfall for you guys?

Yes, so right now, we -- I think we've been consistent our guidance saying that at least $15 million in asset sales over the next 12 months. Again, I think we are consistent with we're maintaining that. One of the reasons that maybe to help kind of understand what would what would send it more to 15 and what would send it more to the other side. We've talked about some of the ancillary service lines that we've picked up and that we're evaluating the strategic intent and what kind of returns those assets can generate. If some of those business lines we do exit that will actually drive up asset sales beyond the 15. So, to kind of think about that part of the tradeoff we're making is sort of how do you want to sort of generate more asset sales or build kind of attractive returns, that's part of the calculus we're working through.

Got it. Okay. Appreciate the color, guys. Thanks.

All right. Thanks Derek.

The next question comes from John [indiscernible]. Please go ahead.

Hey, guys, thanks for taking my question. The last two questions kind of covered what I was thinking, which was really trying to connect the October run rate of 450 to 500 with kind of the outlook next year, with the bridge in the middle being pricings going up, hours are going up, we might start new businesses. And figuring out kind of what that -- it would seem like there would be a large opportunity for growth between an October run rate number and kind of, second half 2022. Obviously, you haven't made the decision on the ancillary business lines, as you just explained and there's a big question mark in the macro backdrop. But what you're seeing now kind of in some kind of range, I am at least thinking about this, right, that there is a reasonably substantial, call it 10% to 20% -- 5% to 20% growth opportunity with your existing businesses relative to the October run rate, with kind of what you're looking at.

Yeah. I'll take. Thanks for the question, John. Appreciate it. Look, I think that's right. And I think if you even just -- if you kind of start to marry what we're saying and you say, like, we're on the rig side, where the 16% margin, we need to be 20% to 25%, let's just say, we took 10% price increase to get their net price increase. Well, there you are. You're already at -- well, north of 500, maybe even 550, right, in revenue. So, I think that's right. I think if you're sensing any sort of hesitation, the labor market is incredibly tight right now, right? And so it is -- it's a situation we’re adding new crews really is a challenge. I think it's a challenge for everyone right now. So, I think part of what that means we were talking about earlier, John, is that, it's going to be a kind of mix of crews, existing rigs, or existing crews and into higher margin customer tries to see a migration. I think, unless the labor market changes, it's going to be difficult to add a lot of new rigs or wireline units -- a bit more wireline units out. Does that…

And just one last question on these kind of ancillary businesses that could either be asset sales or business lines. What are -- can you give us some idea of -- kind of orders of magnitude that we're talking about in terms of revenues? And I assume they kind of have to hit your kind of corporate margin targets? But are we talking about 10 million, $50 million, $100 million? What are what are we looking at in terms of how big you think this business is could be? And then to the extent you exit, what could they be in terms of asset sales?

Yeah, again, thanks for the question. John, I would say on an annualized basis, from a revenue perspective, we're thinking that probably in the $25 million, maybe $25 million to $30 million, so between $2 million and $3 million monthly revenue.

At roughly corporate margins?

Correct. Yeah. And if we don't get corporate margins or see a clear pathway to that, then don't be surprised if they show up as asset sales, right.

Super. Guys, thanks a lot, and good luck. You got a lot of work. Yeah, bruschetta. Thanks, John.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bodden for closing remarks.

Again, thanks everyone for joining us. I’m not sure we have a lot to add from what we talked about. There is a lot of work going on. Hopefully, you sent our optimism about what we're doing and what we've accomplished today. So again, thank you everyone, and I look forward to talking to you next quarter.

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