Welcome to the Ranger Energy Services Second Quarter 2022 Investor Conference Call. All participants will be in listen-only mode until the question-and-answer portion of this call. Please note this event is being recorded. I would now like to turn the conference over to Stuart Bodden, President and CEO; and Melissa Cougle, CFO. Please, go ahead.

Good morning, everyone. Before we begin, I would like to remind all participants that some of our comments today may include forward-looking statements, reflecting views from the company about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the beliefs of the company based on current conditions that are subject to certain risks and uncertainties and that are detailed in our earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and adjusted net debt are not a substitute for GAAP measures, and they may not be comparable to similar measures of other companies. A reconciliation of these items are presented in our earnings release, which is available on our website. I will now turn the call over to Stuart.

Thank you, Melissa, and good morning to everyone joining us today. Although, you just heard from her, I'm pleased to introduce Ranger's new CFO, Melissa Cougle, and welcome her to the Ranger team. Melissa brings a wealth of experience and strategic insight into the CFO role, and she is already bringing fresh new perspectives to our leadership team. It's great to have her on board. Since I joined Ranger in the fall of last year, we have been communicating our belief in the importance of consolidation. Our strong sense of market fundamentals were quickly improving for oilfield services and that Ranger specifically was much stronger and had far more earnings potential as a result of our acquisitions. All of these beliefs have been and continue to show in our financial results. Our performance in Q2 shows that our 2021 acquisitions have created shareholder value and provided needed scale and operating leverage, which will allow Ranger to capitalize on what is expected to be a multi-year upcycle. The future of Ranger is exciting, and this quarter demonstrates why. Quarter-over-quarter, we grew revenue by 24%, achieving nearly double the revenues seen pre-COVID. Our adjusted EBITDA increased nearly 90%, approaching a doubling from the prior quarter, with EBITDA margins improving by more than 400 basis points from increasing prices, activity and strong operating leverage. While some peers have been building working capital on the back of increasing revenues. Beginning in Q1, we placed significant focus on managing working capital, which facilitated the generation of $20 million of operating cash flow in this quarter, combined with the ongoing sales of surplus assets. These efforts allowed us to deleverage by more than $21 million, reducing our total net debt balance by almost 25% in a single quarter. Ranger now stands with a debt load that…

Thank you, Stuart and I appreciate the kind words. It's been exciting for me to join a team full of energy and a desire to grow and build a business that's better every day. As Stuart mentioned, our second quarter results were very strong. Activity increased in all service lines and the pricing environment remained constructive, while we manage inflationary pressures that are being experienced across the sector. In reviewing the details of our second quarter results, our consolidated second quarter revenue grew 24%, increasing from $123.6 million in the first quarter to $153.6 million in Q2. The company posted a net loss for the quarter of $400,000, an improvement of $5.3 million over the first quarter's net loss. Going forward, we do anticipate generating positive net income in future periods. Adjusted EBITDA improved from $9.6 million in the first quarter to $18 million in Q2, an 88% increase with margins expanding 400 bps over the same period from 8% in Q1 to 12% in the second quarter. At the segment level, revenue for High Specification Rigs increased from $64.9 million in the first quarter to $76 million in the second quarter with contribution from both an increase in activity levels and pricing. Rig hours increased by 7% over this period and rig rates increased by 10%, driving the 17% quarter-over-quarter improvement in the top line. Segment EBITDA for High Specification Rigs was $14.2 million in the second quarter as compared to $14.1 million in the first quarter. Operating income and adjusted EBITDA for this segment were both detrimentally affected by certain insurance related costs that were previously unidentified and related to increased exposures from the basic asset acquisition. When normalizing for these items, adjusted EBITDA margins for the first six months of the year were approximately 20% in this…

Thanks, Melissa. Moving into the second half of the year. We continue to see robust demand and a constructive pricing environment across all of our service lines. As noted earlier, given our significant leverage across the company to production and workover barrels, we continue to believe that demand for our services will remain strong even if the commodity price environment deteriorates somewhat due to recessionary conditions. For full year 2022, we're increasing our guidance for revenue on the back of strong market fundamentals and our healthy quarterly results. We now believe that revenue will be between $580 million and $600 million for the year. We continue to believe full year EBITDA margins will be between 11% and 13%. Based on current performance and ongoing discussions with our customers, we expect continued revenue growth into Q3. Quarter-over-quarter, we're expecting mid- to high single-digit growth in Q3 as compared to the 24% growth seen during Q2, which pulled forward much of our planned growth for the year and allowed us to increase our full year guidance. Our growth will likely be constrained somewhat by labor shortages which are expected to continue and will affect how quickly we can deploy additional crews and equipment. We are also feeling pressure from supply chains, which are widely prevalent and causing delays to certain maintenance projects. As the bulk of our integration efforts are not complete, we'll be turning our attention to making incremental improvements in the operating efficiency of our cost structure and we'll be striving to continue to improve EBITDA margins each quarter. We also believe that some of the incremental pricing gains achieved in the second quarter will demonstrate their full effect during the third quarter. Our High Spec Rigs and Ancillary Service segments have seen tremendous growth throughout the year, and we've seen significant improvement in our Wireline business as well. We believe that the Wireline and Ancillary Services segments, in particular, have additional capacity for growth and will be focused in the upcoming quarters on improving market penetration in these segments. Asset sales have totaled over $20 million since the basic acquisition, including both Basic and Ranger legacy assets. And we believe that achieving another $4 million to $5 million in asset sales is realistic this year. We also believe that our full CapEx spend for the year will not exceed $15 million. We demonstrated our strong desire to be acquisitive in 2021 and feel that Ranger remains a strong consolidation partner for US land servicing companies. We remain interested in pursuing growth opportunities that demonstrate our ability to generate through-cycle returns to our shareholders. As our balance sheet strength improves and we generate consistent cash flow, we'll be evaluating how to best create and return value to our shareholders, whether that be through dividends, a buyback program, additional acquisitions or most likely a combination of these approaches. This concludes our prepared remarks. We've appreciated your time today, and we'll now open it up for questions.

We will now begin the question-and-answer session [Operator Instructions] Today, the first question comes from Derek Podhaizer of Barclays. Please go ahead.

Hi, good morning.

Good morning.

So I wanted to dig into the side of high cyclings [ph]. And if there's the same tightness in this mark that we're seeing out of the pusher pumping and last but on the service and based on the Basic acquisition appears to be a lot of inventory and idle rigs on this line. Can you maybe talk targets by -- what the total cost would be to redeploy those rigs and how it would show up? I just think, more color on the supply side would be helpful to frame this market.

Yes. I'll -- you're breaking in it out a little bit, Derek, but I think the question was whether or not the high-specification rig business has the same equipment constraints that we're seeing on pressure pumping. As you highlighted, there are still a number of excess rigs when you kind of look at the top line or if you look something from research reports. The reality is, a lot of those rigs at this point are on the fence and would actually take investment to get off the fence. So whether they need category four inspections, new engines, new transmissions, we kind of feel like we could put, call it, 10 to 20 additional rigs out if we had crews, which is tough to get ahead of that of labor hiring. But we think we have 10 to 20 that we could put out for $3 million to $4 million of maintenance CapEx, inspections, et cetera.

Got it. Okay. That's helpful. And sorry if the connection hasn't been great. Next question, I wanted to just dig into more about the coiled tubing business.

Sure.

So if we think back to the IPO, the Ranger story of High Spec Rigs was to more or less displaced coiled tubing, particularly when you do the extended reach wells. Maybe talk about that, just the competing services in a sense and how they fight for capital and how you take a balanced approach between the two given that we're seeing coiled tubing become a successful part of the Basic acquisition. I just think it's interesting, given how it's a competing service for the High Spec Rigs.

Yes. Thanks for the question, Derek. The first thing I'd highlight is that in the coil business, it's really a DJ Basin focused business. So I think the core investment thesis around high-specification rigs kind of outperforming and longer-reach laterals still holds. The way I would think about it is, this equipment is really ideally suited for working in the DJ. And at the moment, we do not have plans to expand coil outside of that basin.

Got it. Okay. That’s helpful. I appreciate that. I’ll turn it back.

Yes. Thanks Derek.

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

Hey, guys. Good quarter. Stuart, what's impressive to me is when I look at the pricing; the average of $630 per hour is now much higher than pre-COVID levels. I'm curious how much of that reflects benefits of consolidation or versus rig mix? Just if you could elaborate on that delta?

Yes, sure. Thanks for the question, John. I really think a lot of it. We haven't done the analysis to quantify it specifically, but I would say a lot of it is really on the back end of consolidation. As we've kind of talked in the past, there were certain players that tended to take a market share approach. We obviously haven't, operating those assets. And -- so I think, that is a large part of it.

Okay. Got it. And then, you mentioned Ranger being a good -- a strong partner for further industry consolidation. I'm curious, obviously, you can't speak to specific deals. But what's the appetite and potential prospects of tuck-in transactions within the next two to three quarters? Is it high or low?

For us, I would say it's high. I think as we just continue to get confidence in the market and how it's developing and the market and our services. So, I'd say our interest is high.

Okay, great. Okay. And I was more referring not to interest, but likelihood that something might happen. Again that and--

Yes, it's a little tough to handicap it, John. So, I'd say we have a lot of interest. What I would tell you is it will be interesting as the quarter plays out and how other people perform and what the bid-ask ultimately looks like. So, I think that's the question.

Okay, that's just good enough. That's sufficient. I got two quick housekeeping ones. And one, the assets held for sale, if you could elaborate on what that $5 million is? And then second, I don't know if Derek asked this, I got distracted during his questions, but on the coiled tubing, just how many of your coiled tubing units are running today?

Yes. So, the first question on the kind of $4 million to $5 million of remaining asset sales, they are predominantly physical properties. So, we really hadn't done a lot of that in the first half of the year. So, that's what that is. On the coil side, so we do have some smaller units that run as part of the P&A business. I won't include that those in the numbers. But for our 2.375-inch units, we would expect -- we have three running full-time. We invested to complete it partially -- a partial spread, if you will, that we bought from basic. So, we would expect to have four running by the end of the month.

Cool. Awesome. Thank you so much.

[Operator Instructions] Our next question comes from Don Crist of Johnson Rice. Please go ahead.

Morning Stuart and Melissa. How are you all this morning?

Good, how are you Don?

Doing well. Doing well. I wanted to start with Wireline, I know you highlighted in your script some changes that you implemented there and it's turned around quite nicely from the first quarter. Can you just elaborate on where you think that can go for the third quarter? And do you think the margins can increase substantially from where they are today?

So, the short answer is, yes. We do. If you look at the quarter, the performance of Wireline improved kind of each month as the quarter developed. So, I would say right now, we'd be targeting for Q3 margins to, let's call, adjusted EBITDA margins if they're running I think to shy of 9%. We would hope that they would kind of range between 15% and 20% as we move into Q3. So we are expecting margin expansion. And that really is -- our confidence in that is just given what we saw in the back half of the quarter.

We're seeing in the hundreds right now throughout Q -- Don, for color just during Q2. we're expanding by 200-plus bps per month. So, as we getting more on ground, so if we just look at sort of performance even towards the end of the quarter, if we held that flat, that would feel pretty good. And we think there's room to go far beyond that.

It sounds exciting to me. And in the past, Stuart, you had given us how many High-Spec Rigs you had running. I don't know if you're going to give those going forward. But in your script, you had talked about adding rigs going into the third quarter. Would it be possible to get how many rigs you had running in the second quarter, and how many you expect in possibly the third quarter?

Yeah. I'll -- if it's okay, we might just send that to you, because I want to make sure that we're comparing apples and apples and we’ll send you the number. We would expect rig count to continue to increase modestly. I would say, to put a number on it, probably I can point to five or so additional rigs that we would expect to put to work. And I think I'm now looking less handing over, I think looking at what you'd be used to. In Q1, we were running 154 rigs and we were at 161 in Q2. So I think kind of the five or so additional rigs would be reasonable for Q3.

And that flexes a little bit at the end of each period depending upon what rigs we’re working and what rigs are waiting to go to work?

Right, right. Obviously, it's an average, and it kind of flexes up and down through the quarter. Yeah, I get it totally. And just one more for me, and obviously, this will be a harder one to answer. But, obviously, the debt reduction is progressing nicely, the plan that you put out in the first quarter. How does the Board balance debt reduction going into year-end, where you might be completely debt-free versus share buybacks and/or dividends going forward. Can you just give us a little bit more color on where that stands and how the Board kind of thinks about it?

Yeah. So I mean, as you would expect, it's really becoming a hot topic of conversation, both at the Board and also with investors. So I'll be honest and say, I don't think there's a definitive view right now, but I think there's a recognition that we have to, as our balance sheet improves or continues to improve, that we have to return capital back to shareholders in some way, right? And so I think that's a belief would be kind of the first thing that I would say. The second thing I would highlight is just as we continue to get more confidence in the business going forward, I don't think we, as a management team, necessarily feel like that we have to be completely debt-free before we think about some kind of a capital returning -- or a capital program to return money to shareholders.

I appreciate as much color you gave on that, because I know you're living it, but…

Exactly, my CFO is squirming right now, so.

I get it. I’ll turn it back. I appreciate the color.

Thanks Don.

Thank you.

Our next question comes from John Fichthorn of Dialectic Capital. Please go ahead.

Yeah. Thanks guys for taking the question, and nice work on the quarter and really pulling it all together. A lot of my questions have been asked mostly by Don, but I'll expand a couple of them. Can you -- how much more cash can you pull out of working capital, if any, in this kind of a growth environment, where do you think that that can get to. It was a great job seeing the DSOs down. But I don't know if this is normalized number for contract assets or really the other items on the balance sheet, so curious what you're thinking about that?

Yeah. John, it's a good question. We're not budgeting any more release for the year. The DSO was down very close to 60 days, barring blowing up and completely reengineering how we bill our customers. I don't think we're going to get it much healthier than that. So the question is, can we do any work on the margins there? We'll certainly be going after it, but I don't think we could plan on improving it by releasing anymore. We're at a really healthy level now when we look at DSOs, DPOs. So you always want to do better, but that was probably more going to be on the trenches.

Super. And you've talked a little bit about kind of where you think rigs could get to. But could you talk a little bit at least on Wireline or in Ancillary Services, what you think the real potential is with the existing asset base that you have without kind of a material change to CapEx. I know labor is probably going to be the biggest swing factor that you can't know the answer to – to answer this question. But just kind of wondering what the capacity of the business is in your minds at this point in this environment.

Yes. And so I think you're right, a lot of it, John. Thanks for the question. It will be around labor and how much labor we can deploy. To kind of just quickly sort of tick through each one, what I would say in Wireline is, we have a -- really, we are not asset constrained by and large in Wireline. I would say that is particularly true in our Permian Basin operations. And so we think that there's definitely room to run there, particularly on the completions and plug and perf side. So I think there's really -- it's hard to sort of think about it in terms of equipment constraints. It's more people constraints. And really making sure on Wireline, particularly on plug and perf that we're following frac crews that are very consistently running. I think we made the comment about non-billable labor, one of the things that we have found is that if you start chasing spot work, non-billable labor starts to eat you up if there are any kind of supply chain disruptions be it with frac or sand. So we’ve been pretty diligent about following frac crews that are running consistently. So on that. On the Fishing business, we are not equipment constrained. We are people constrained. That is a little bit of a black art. And so you just have to find the right people. So we're actively doing that. Coil, I think you're going to see an increase in coil. But then it will level out just because we're basically going to be tapped out on that. But I think we would expect to see additional growth out of, as I mentioned, fishing. And I think our P&A business as well looks like in the back half of the year, it's going to start to get some traction.

Great. And I will just kind of echo Don's question in a slightly different way about capital return. You guys have -- are competing for people to buy your stock with the other members in your industry who are now all returning capital fairly aggressively, and you've been talking about doing it now for upwards of a year, and I would encourage the Board to stop talking about it and start announcing concretely what the intentions are, even if it's just the beginning of some kind of capital return program and when it could start, you could announce it now even if you wanted to wait until your debt level is lower, I really would encourage more clarification from the Board to you guys as to what they're going to do because shareholders want...

Yes. understood, John. Thanks for the comment.

Thank you.

Seeing no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Stuart Bodden for any closing remarks.

Great. Thanks. Again, thanks, everyone, for joining. Obviously, we're very excited about the state of the business, and we look forward to talking to you in in a few months. Thank you.

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