Good morning, and welcome to the Ranger Energy Services First Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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, Gary. Good morning, everyone. As Gary said, this is Stuart Bodden, President and CEO of Ranger Energy Services. I'm joined this morning by Brandon Blossman, Ranger's CFO, and welcome to the first quarter 2022 Ranger Energy Services Analyst Call. Brand and I are very much looking forward to speaking with you this morning. We're very excited about our Q1 results. And in particular, we are very excited about the velocity of the business as we exited the first quarter. Before we dive into the numbers and commentary, I would like to take a moment to reiterate Ranger's strategic objective. Our goal is to build the leading completions and production-oriented service company that generates sustainable cash flow through the cycle. There are three underlying pillars to this strategic intent. First, creating leading positions in selected basins to create in-basin scale; second, building efficient field operations and back-office functions to cost-effectively deliver world-class customer service; and third, maintaining a conservative balance sheet to promote financial resilience and enable opportunistic M&A. Our Q1 performance and early indications in Q2 suggests we are well on track to deliver against these goals and bring meaningful cash to the bottom line. During Q1, the Ranger management team has been working diligently to integrate our recent acquisitions, and we have made significant strides in building rightsized and efficient operations in each of our service lines. We have also remained focused on the sale of excess assets, and we launched a concerted effort in the first quarter to improve our working capital balance. All of these efforts are paying off, particularly as we move out of Q1 and into Q2. Despite experiencing seasonal and supply chain-related issues during January and February, Ranger finished Q1 with a quarterly revenue run rate of $140 million and corporate EBITDA…

Thank you, Stuart, and good morning to everybody on the call. Let's dive into the numbers and go through several of the details here, and I will endeavor to add some incremental color wherever appropriate. So let's start with net income. As with last quarter, the discussion of the sequential change in net income is colored by the $37 million after-tax gain that we booked on the purchase of the basic assets. For Q1, the reported net income moved down from a gain of $24 million to a loss of $6 million. However, adjusting out Q4 is $37 million gain left or leave Q4 at a $13 million net income loss, with Q1 showing a $7 million improvement. That $7 million delta being primarily attributable to acquisition-related expenses, the TRA settlement expense and other non-operating items that were included in Q1's net income number. Now bridging from Q1's net income to the reported $9.6 million of adjusted EBITDA. Here are the unique items for the quarter. The first $3.2 million of transaction expenses that associated with the continued basic integration transition and residual capital raise expenses. These transaction-related costs will continue to taper off quickly through the first half of this year with the expenses associated with the excess asset sales processes being the majority of the expected remaining cost to adjust out. Also, we had a small $200,000 legal settlement hit in Q1 that we are backing out of the adjusted EBITDA. And finally, these two add-back categories were partially offset by a $1 million gain on sale related to the asset sales that took place during Q1. This being included in net income, but being adjusted out of EBITDA. And now a note on G&A before we move to the segments. We did see a material sequential increase…

Great. Thanks, Brandon. Moving into Q2, we continue to see increasing demand in the constructive pricing environment across all service lines, which, along with the operational improvements in the business that we've been discussing, are setting Ranger up for a very strong second quarter and second half of the year. We have experienced weather-related delays in April, but early in our northern operations, but we expect Q2 revenue to be between $135 million and $145 million with corporate EBITDA margins ranging between 10% to 12%. For full year 2022, we are increasing our guidance for revenue to be between $540 million and $580 million, with full year EBITDA margins of 11% to 13%. We continue to target 15% EBITDA margins by year-end. Based on the improvement in net debt in April that Brandon discussed, coupled with the strong performance of the business, by early 2023, we expect Ranger will have term debt of $10 million to $15 million, no revolver draw and a positive cash balance. Depending on market conditions and availability of accretive deals, we intend to either build cash reserves in preparation for additional M&A or we will also consider paying dividends. Concludes our prepared remarks, and we'll now open it up for questions.

[Operator Instructions] Our first question is from Don Crist with Johnson Rice. Please go ahead.

Good morning, Stuart and Brandon. And how you are today?

We're good.

Hey, Don.

I wanted to drill down a little bit on demand. It sounds like there's significant demand out there, but you're holding back a little bit on deploying 15 or 20 more rigs to kind of keep that margin where it is today and continuing to go up. Can you just talk about demand in general across the industry and where you see it moving in kind of the back half of the year?

Sure. I'll start and Brandon chime in, obviously. So I think as you said, Don, we are seeing increasing demand across all services. And I'd say, particularly on the well servicing side just because for a lot of operators, some of their cheapest incremental barrels are workover barrels. So we are seeing that demand. As Brandon indicated, we're now running 157 rigs and we would expect through the year that, that number starts to kind of trend up. We are being pretty diligent in maintaining margins, but we do think we can deploy additional rigs and maintain margins.

Good. And it sounds like you've done a fantastic job in integrating, particularly the Basic assets. I know that, that was an asset purchased. But - are you having any kind of growing pains on kind of back-office stuff or hiring any kind of people to make that integration, as it seems like it's gone very smooth, but any details on how that's going and if we should see any more efficiencies going forward?

Yeah. Again, sort of chime in on the back office. I mean I'd say a couple of things. First of all, the integration has gone very, very well. I mean I just can't thank the team enough for what they've done. There's been a lot of hard work, but it really has paid off a lot. As far as efficiencies, I think a lot of the consolidation efforts from consolidating into yards, and sort of simplifying the org structure is pretty much complete. I think there's a little bit of fine-tuning to do there. On the back office, most of the effort really has been around the AR processes, just given the new scale. We've added headcount there. We have changed processes, but I don't think we're having any problem finding people. And then I think we'll continue to build that muscle, but it's gone pretty well.

Yeah. Not its remarkably successful, Don, as you pointed out. I think the way I conceptualize it is that probably six weeks ago, we shifted into kind of the second phase of this integration effort. So the first part was all hands on deck, very long hours, everybody doing whatever they could to make sure that it was successful. So all of that work has been done. The second phase here is kind of the continuous process improvement phase where we continue to come through and go back to square one and make sure that we've done everything possible. There's a lot of systems work here and process mapping and making sure we're being as efficient as possible with the headcount that we have and making sure that we get everything done that we possibly can do in terms of efficiencies. So as we go through this year, I would expect incremental efficiencies and incremental gains in terms of small synergies that we capture whether it's out in the field or in the corporate office, but the order of magnitude will be much smaller as we move through the year.

Yes. I commend you for more than doubling the size of the company and having very few hiccups, if any, that we can see from the outside. So bravo on that. And just one more quick question for me. On the divestiture side, I know Basic had a lot of malls [ph] that you all got rid of, initially trucks and whatnot. From the asset sale perspective, are you pretty much done with that? Or is there still a lot more to go as you work through all of the basic assets that you acquired?

Yeah, Don. So what we have modeled is another $10 million of asset sales through the end of the year. So I think there's still more to go. As Brandon indicated, a lot of that starts to move into physical properties. So everything to date hasn't included real properties, but we do have some being marketed and some of those are fairly large. So again, we kind of have 10-ish modeled through the end of the year additionally.

Okay. I appreciate all the color and great quarter and great guidance. Keep up the good work. I'll turn it back.

Yeah. Thanks, Don.

[Operator Instructions] Our next question is from John Barton with Dialectic Capital. Please go ahead.

Hi, Stuart. How are you?

Good morning. How are you John?

Good, thanks. Can you – two questions. Can you help me understand a little bit what has to happen in each of the business lines and in particular, on the Wireline side to get to the margin guidance that you've given. Is that almost baked in with contract renewals? Or is there a lot of work left to be done on that? I think you answered that a little bit in the last question, but I just want to understand what you're assuming in giving that guidance? And also, if you can just touch on the labor bottleneck. I can see sand and pipe improving with time, but I'd love to know if there's any bright spots to think that you might be able to hire more?

Yeah. So I'll kind of go through each of the segments on your first question. I think what do we expect. Obviously, on the rigs business, the 22% segment EBITDA margins really continue - I mean, just really performing very well. And I think we just have that model similarly going forward. And as we talked about earlier, I do think that activity will start to kind of trend up as we put some additional rigs into the market. On the Wireline side, there's really a couple of things. So we talked about pricing a lot of that is starting to go into effect in early Q2. And there's really two components to it, one sort of absolute pricing on a per stage basis and then also putting it in either day rates or standby rates, so that if there are supply chain disruptions, we're not stuck with no revenue through the day. So that's really kind of what we're focused on, on the top line. On the bottom line, on labor, it does feel like it's easing up a little bit. In Wireline, in particular, there are several efforts to address non - what we're calling non-billable direct labor, which where we had talked last time we had over hired ahead of demand. A lot of that demand has been slow to materialize. So we have basically rightsized that organization going forward. So that's where we are in that. And then on Processing and Ancillary services, we continue to see increasing demand. And I would say that's across P&A, that's across coiled tubing and also our fishing business as well, so...

Great…

Does that answer that? Yeah, you bet.

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

Great. Thank you, Gary. Again, I appreciate everybody getting on the call this morning. We're really excited about how things are going, and we look forward to speaking to you about Q2 in a couple of months. Have a great day, everyone.

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