Welcome to the Ranger Energy Services Third Quarter 2022 Investor Conference Call. I am Shelley Weimer, Vice President of Reporting and Finance. 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 Melissa Cougle, Chief Financial Officer of Ranger.

Good morning, everyone. Joining me today, is Stuart Bodden, our CEO and Justin Whitley, who is joined us at Ranger as our new General Counsel. We are excited to have him onboard. 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 are not a substitute for GAAP measures, and they may not be comparable to similar measures of other companies. A reconciliation of these items is 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. As Melissa just mentioned, Justin Whitley has joined Ranger is General Counsel, and we are very excited to have him onboard. Justin brings a wealth of oil and gas service experience to the company. And I know he's going to be a great fit for us. Again, welcome to the team, Justin. All of us are excited to speak with you this morning to share our Q3 results, discuss our outlook for the sector and Ranger and outline some of our strategic thoughts as we look to the future. Ranger delivered another quarter of strong performance in Q3, with all three of our business segments showing increased revenue and expanded margins during the quarter. Our strong performance is the direct result of the hard work of our teams and our continuous focus on service quality and disciplined execution. We have spent a year integrating the company's acquired during 2021 and getting the fundamental building blocks in place to execute with excellence. Due to those efforts, financial performance at Ranger is much improved from prior years and even the first half of this year. Our performance in Q3 shows that our 2021 acquisitions have created shareholder value and provided valuable scale and operating leverage, which have positioned the company to capitalize on what is expected to be a multi-year upcycle. We hosted our first leadership team meeting this past quarter in several years, and our team developed new and shared objectives to find incremental efficiencies and opportunities for growth across segments. We are creating a new wave of initiatives and organizational changes, such as the one that brought Justin to our team. As our Ranger vision states, these new efforts will help us drive toward new thinking and enhance our…

Thank you, Stuart. It was a great quarter and I think really gratifying for the team here at Ranger to see the results of all of our efforts demonstrated financially. Our third quarter results were excellent, with activity increasing and all service lines and pricing gains experienced earlier in the year showing your full quarter effect. And reviewing the details of our financial results, our consolidated third quarter revenue grew 15% increasing from $153.6 million in the second quarter to $177 million in Q3. The company posted net income for the quarter of $13.6 million, an improvement of $14 million over the second quarter's net loss. Going forward, we do anticipate generating positive net income in future periods and should be in a positive retained earnings position at the end of the year. Adjusted EBITDA improved from $18 million in the second quarter to $30.3 million in Q3, a 69% increase with margins expanding 500 bps over that same period from 12% in Q2 to 17% in the third quarter. At the segment level revenue for High Specification Rigs increased from $76 million in the second quarter to $79.7 million in the third quarter due to an increase in both activity levels and the full quarter effective pricing gains. Rig hours and rig rates both increased from the prior quarter, driving the 5% quarter-over-quarter improvement in the top-line. Segment EBITDA for High Specification Rigs was $17 million in the third quarter as compared to $14.2 million in the second quarter. Margins in this segment expanded to 21% during the third quarter from 19% in the prior quarter due to some unplanned charges during Q2 that were non-recurring. In the Wireline segment revenues increased by 22% from $49.5 million in the second quarter to $60.6 million during the third quarter. The…

Thanks Melissa. I would now like to provide more detail and clarity about our thinking for the business moving into Q4 and then into 2023. We continue to see demand and pricing resilience across all of our service lines. We have seen isolated pockets of budget exhaustion, although customers have committed to picking those rigs back up in early 2023. The few rigs that had been released have already been redeployed to other customers, many for extended work programs, likely setting up increased market tightness for our services in early 2023. Although we are mindful of a potential recession, our customers have indicated they intend to hold activity levels and maintain production targets during 2023. And we see steady demand throughout the year with opportunities for incremental growth. We recently updated our full year guidance for 2022 and now anticipate revenue to be between $615 million and $620 million for the full year, which exceeds prior full year guidance a $580 million to $600 million. Full year adjusted EBITDA margins are expected to be near the top end of prior margin guidance at around 13%. During the fourth quarter, we are expecting typical seasonality and holiday impacts and believe that consolidated revenues could decline by mid-to-high single digit percentages. But that will be highly dependent on each individual customer adjusted EBITDA will likely be affected by the seasonality as well. Although the team remains highly focused at staying near 15% EBITDA margin target through Q4. We do believe that we have harnessed great momentum during the back half of 2022 that we can build upon in 2023. And we are working with our teams right now to pin down those opportunities and develop specific budgetary targets for next year. We are developing plans to grow utilization across all business segments,…

We will now begin the question-and-answer session. [Operator Instructions] The caller with the phone number 2887, please ask your question.

Yes. Hi, Stuart, this is John Fichthorn. Thanks.

Good morning, John. How are you?

Good. How are you?

Good. Thank you.

Great numbers out today. You guys have done a really excellent job running the business. And I just would love it, if you guys could expand a little bit on what you intend to do with all the cash flow? You kind of speak explicitly around paying down debt, rock solid balance sheet, yet at the same time, you talked about how currently your net debt is quote, well below one times EBITDA. So I would say that is pretty much a rock solid balance sheet. All of your competitors are currently returning cash to shareholders in some form or fashion. And it seems like something that would both support your stock, which would give you a currency to use to do further acquisitions, as well as kind of seemingly do the right thing for shareholders. But I'd love your thoughts on it.

Great, thanks for the thanks for the question, John, very much appreciated. As we said, there's been a lot of discussion between the management and the board. We also through the quarters focus with really a large number of our investors to get their perspectives as well. And I think for those conversations, really, a couple of things came out. So the first thing is that really a strong desire to have just been net debt zero. So we do think, as you said that our balance sheet is very strong, but we have a very clear target to be net zero. So that's kind of the first priority as we go forward. We also feel like that, in our current sector, our current segments and the adjacent segments, there's still a lot of consolidation opportunity. We're having a lot of conversations and we just feel like we need to be flexible financially, to act opportunistically if something develops. Our cover return framework is going to be an ongoing discussion. Again, lots of conversation with the board and investors and we would expect that that will continue in the coming months and quarters.

And just net debt zero, with this level of EBITDA, your adjusted EBITDA was $39 million for the quarter you have net debt of $57 million, that target will be achieved, arguably in the next four months, if you continue with this run-rate. Your equity is obviously consideration for further consolidation I would imagine. And is it not, I mean, what do you intend to do? How can you buy a company in an accretive fashion when your stocks trading at three times cashflow without getting your stock price up?

Yeah. Again, not to be a broken record, but it really was we again had a lot of discussion. And kind of where we reach. We thought that the best thing that we could do for maximizing the long term value of the company was to get to net zero, be flexible on opportunities. But again, John, like this is going to be on -- it is an ongoing discussion and dialogue with the board. So I don't think this is, again, I think just as market conditions develop, we're going to continue to reevaluate our framework.

Thank you.

The next question will come from the caller with the phone number of 8215. Please go ahead.

Hey, guys. The new call in system is confusing for an old person like me. It's John Daniel. Really nice results and balance this quarter and good call on the debt paydown strategy from someone who's lived through way too many cycles. Hey, Stuart, I think if I heard correctly, in the prepared remarks, you've talked about an expectation for stable rates going forward in '23. As you may know, there are different views on activity levels next year. Patterson, for instance, yesterday cited their internal customer survey, which is actually quite positive, which would call for call it another 90 rigs from now through '23. Let's assume they are right. And that's call it a plus 10% move in the rig count drilling recounts. In that scenario, would you still see rates being stable? Or do you think there'd be further upside from here?

I think in that scenario, that would absolutely be absolutely the further upside John.

Okay. As we speak to various LFS enterprises, there still seems to be a lot of interest and further industry consolidation. You noted that in your prepared comments, just given -- I think you said you had you still continue to see inbound inquiries coming in. But it just feels like the valuation differences, kind of what keeps further deals from happening. I don't think anyone would disagree with the industrial logic of further consolidation. But what do you think it's going to take for the sellers to have more reasonable expectations? And I guess what I'm going to steward as we're getting to the point where even though EBIT, da multiples might look low, the valuations on a replacement value would start to screen high. And there's nothing more unappealing than overpaying on an asset value. So just your thoughts,

Again, thanks for the question, John. How we've been really thinking about it. And I'd say the majority of our conversations would be primarily a equity deals. So rather than as going and kind of raising, a bunch of debt to get paid for something. So that that's been most of the discussions. And again, I think, in a way, that's why we're being ultra-conservative with the balance sheet. Because some of those targets do have some debt themselves that we would potentially have to absorb. So, again, but I think generally, it would be the equity deals.

Okay. And then a last one, I might squeeze two more here. And this one might be tough, but I'll just throw it out there. In terms of the M&A, is that the private equity people or the incumbent management teams, who tend to be the greatest obstructionist in getting deals done?

So -- it is a tough one. Yeah, I'll speak from personal experience and just say that, I think that that is definitely true. I do think that just given the duration that many of these companies have been held by PE firms, I think some of the social issues appear. I'm not going to say that they're easy to overcome, but I think people are having more realistic conversations.

Okay, great. I'm going to go back to operations here because I was really impressed by the comments on coiled tubing, the rate of improvement. To the extent you have any granular data points in your notes there. Just give us your -- if you don't want to give me your thoughts on as we see range or participate in that market and opportunities there.

So, in the quarter, we put our fourth large coil unit out to work. So the fourth quarter results don't fully reflect the full utilization of that unit. That said, I think we do expect some seasonality. At the moment, we have been supporting that business. Again, it's a DJ-focused business, I've been supporting it. At this moment, we don't intend to go out I have the DJ. The equipment that we have we really liked the team that's leading it, but at the moment, we intend to be pretty focused on the DJ.

Hey, great. Really good quarter. Thanks for letting me that one.

Yeah. Thanks, John. Appreciate it.

Next call will come from the caller with the phone number of 84351. Please go ahead.

Hey, good morning, Stuart and Melissa. Luke Lemoine from Piper Sandler. Stuart you have nice increase in your wireline stage count and 3Q. And you've been highlighting the potential for improved results here I'll just flipping, available trucks to active.Can you talk a little bit about how this progressed during the quarter versus maybe how much efficiency improvement you saw from 2Q active trucks, along with how many trucks maybe could go back to work in '23?

Sure, probably a couple of just comments about it. Right now that the results, on average, we're operating, I would call kind of low-40s. On the number of wireline units that we're operating right now, we have upper-60s. So obviously, we have some room to run there. Really, there's a couple of things that really drove the increase in margin, but we still think that we have more to do. The north in particular, both in our production segment and in our plug and perf a completion segment showed both nice revenue and margin expansion. Pricing in Midland or in the Permian Basin, around completions in particular, had really been challenged through Q2 and coming into the quarter. And we feel like we made some progress there. It's not all the way where we want it to be yet, but I think we are -- we are -- on pricing and plug and perf we are still below pre-COVID levels, unlike rigs that is over. So we do you think there's still some opportunity there. But the North really had a had a great quarter.

Thank you. Thanks a bunch.

The next question will come from a color with the phone number 9243. Please go ahead.

Hey, thank you for calling me. This is Derek Podhaizer from Barclays. I like the number system, I feel like John [indiscernible].

Good morning, Derek. How are you?

I'm good. I'm good. I'm like my thoughts here. I just wanted to hit on the budget exhaustion comment a little bit. Obviously, not getting that much from your peers and the pressure within your land drilling side. And then you mentioned this might or will extend in the first quarter and you're really planning on hitting your stride. I guess first quarter that surprised me a little bit. As far as seeing that for the first quarter, I would think we would be more like a coiled spring and hit the ground running. I know there'll be some weather in first quarter, but can you just walk me through that a little bit? Maybe why that we should expect something different view versus some of your peers? Is that a mix thing? Is that how operators drill and complete their program? Just some more call around that would be helpful?

Sure. The thing I always say is we're seeing it materially -- we're seeing it as an High-Spec Rig business. And a lot of that is just because of the amount of production exposure we have. And there's some drill out rigs that, again, what a couple of our customers have said is that they wanted to -- they were out of budget, they were out of wells to complete. They wanted to stop that in kind of mid-Q4 and then pick them back up in Q1. Now we've had demand that's kind of been building up behind. And so most of those rigs have already been redeployed. And so, we're now in a situation and maybe this goes with your quote, spring comment. We're now in a situation where even though there was some budget exhaustion, those rigs are now being put to work. And we know we have demand coming on the backside and 2023. So it could get pretty interesting as we exit 2023.

Yeah. And I'll just add on Derek, I think what I heard from your question, what we're trying to convey is there's actually kind of two different phenomenon going on. So the isolated budget, exhaustion to Stuart's point, you heard there. When we talk about extending into Q1 of next year, that's really not budget exhaustion clearing, that's really the winter effect on the backside of that. So there's sort of two different phenomenon not connected to each other, that we just sort of think if there's a really hard winter that we could see a little bit of depression continuing into Q1 next year. But we're not Looking at them as really connected events, it's more the winter phenomenon as one and just really isolated pockets. I don't think we've seen the same and nothing to add on Stuart's comment on the budget exhaustion.

That's okay. Now that's helpful. I appreciate the color there. So last month, you put out some, maybe some bookends as far as what 2023 could look like on your current asset base? Could you refresh our memories there, I think that'd be important to walk through. And then if you have some preliminary thoughts where you might increase that soft guidance to be more stable, and then what you're thinking of 2023, given the assets that you currently have?

Yeah. So I think you're referencing our Investor Relations stack that's on the website. And where we present what we thought was potential capacity. I mean, I think we were trying to be clear that that wasn't necessarily guidance. But if you'd looked at that there was still from our current run rates, there was kind of 10% to 15%, you know, additional revenue growth with our asset base that we think we could realize. How we're kind of thinking about the budgeting process is, our experience is there, there tends to be seasonality in Q4 and kind of the early part of Q1. So the way we kind of think about it is to take Q3 and what we expect in Q4 and take the second half, which is why we had kind of guided around that. And that's really sort of the baseline. We think about kind of revenue and margins when you take those two quarters combined, if that makes sense. And I think as we do as we move into budgeting season, we're taking that as, quote the baseline and then looking for opportunities to grow off of that.

Yeah, I think that the growth for next year will be what is of that utilization that you saw in the investor deck? How much of that can we reasonably expect to get online next year. And I think those are just very early conversations that I just don't think we're ready to tell you how much of what was in that deck. We feel like we can really get up after. We're doing a very much a bottoms up, every district is going through and saying these are the customers, here's the programs, it's just going to take us a little bit of time to get arms fully wrapped around to give you better guidance around with it. We feel very confident we can grow from the back half of this year. If we look at that as a baseline for all of next year. We just we're just not ready to really say how much.

I understood Fair enough. Thanks for all the color, appreciate it and turn it.

Thanks, Derek.

Thanks.

The next question will come from the color 9243. Please go ahead.

Well, so this is [indiscernible] for Citi. How are you guys?

Good morning, how are you, Bill?

Good. Good quarter. Just wanted to follow up on a couple items. I guess, the first thing is on the wireline side, it's good to see the progress there because I think there's a lot of untapped earnings potential in those assets. But, could you give some color and how many active wireline units were operating in Q3?

Yeah, on average in Q3, it was kind of 42-43, depending on the time, but low-40s. And now, I guess -- no, I was going to say and that does include obviously, depending on the work, sometimes we would have to send a backup truck and that's in those numbers. But really to think about kind of 42-43 active trucks, running trucks.

But that's a big gap from where you were last couple quarters. From what I say call where those numbers, average active wireline is closer to 14 or so.

It should have been higher than that. Why don't we kind of go check it? We can follow up with you.

We could follow up. We would argue with -- it's been pretty consistent. So there might just be wires across there, but we can follow back up with you and make sure you've got the right information. But I think the trucks had been running largely in the-40s through really Q2 and Q3. But our Q1 was kind of more depressed level certainly.

Got it. Okay, great. Yeah, we can follow up on a call. Next question regarding G&A. I mean, it's staying somewhat elevated, although it's down from previous quarter. If you looked at the beginning of this year and late last year, management, you're guiding for somewhere around $16 million to $17 million per annum as the run rate Now, that's gone up quite a bit from here. And I understand that there's been some transaction related integration related expenses. But, I wonder if maybe we can reset here and reset expectations as to what we can expect going forward once all these integration expenses are done there?

Yeah, no, it's a good question. Bill. I do think, I don't know that I was aware of the 16 to 17 per annum guide before. that does seem pretty low. What I will say is, you have a phenomenon that's showing up within the G&A, where a lot of that transaction and integration that actually kind of goes and then comes back out. So that's where all of the transaction and integration sort of is housed, that then ultimately gets adjusted out for EBITDA. When we look at sort of pure G&A, run-rate G&A, if you will. We've been tracking more between $7 million and $8 million. And I think that probably the $8 million is around that's kind of if I was to give you more conservative, I see us probably edging up just a little bit on the back of all the growth this year. But I think about $8 million per quarter is probably where we wouldn't be which is meaningfully higher than 16 and 17, but again, much lower than the 12 and 11 that you've seen.

Great. That's helpful. Couple of balance sheet items. How exactly would you describe the contract assets on your balance sheet? Is there an offsetting item on the liability side? Or is this really just prebuild revenue, that doesn't have an offsetting cost yet?

Yeah, it really is unbilled revenue. So we call it contract assets, because it's -- it took me a little bit when I first showed up. I asked the team as well, the same question, but it really is our unbilled revenue.

Okay, okay. Great. So that leads me to kind of my final, I guess, question and our point. As you both know, I'm kind of in the camp of conservative balance sheet. But I think, at this point, there's no reason to necessarily say one way or the other is the right way. I think at this point, kind of, if you look at your, how your working capital has evolved, since the last quarter, with the debt paid down. And if you exclude the contracted assets, because the costs aren't kind of in there yet. You've kind of increased your working capital to a point now where it covers a lot of the debt, which is a good place to be, you have a lot of AR booked. And if you do see some seasonal declines in the next couple of quarters, you're going to see some of that released back to you. Perhaps it's a good point, maybe now to think about not necessarily just paying down debt or just buying back equity, because I don't think there's an easy answer here. Your stock price is too low for what these assets are worth. But maybe you can kind of split it up a little bit, paydown some debt with the cash flow, and then maybe start to buy back a little bit of equity, given the attractive stock price. How do you feel about kind of looking at a hybrid approach?

Yeah, I think, kind of similar to John's questions is, all of those points -- and again, I really appreciate the comments at though. We're actively discussing with board and management. And I think your point about, needing to be flexible, and understanding that it may be kind of horses for courses, depending on the time is absolutely right. So, again, I think we're just continuing to evaluate it. The board is very engaged in this topic.

And we recognize that. The balance sheet is moving meaningfully quarter-over-quarter. So that means our positions could move. I think what's important for what we'd like our investors to take away is we're listening to you as along with ever all the others. And we're making sure that feedback is coming in dynamically and getting to the board level and making sure we're having the right kind of discussions. So appreciate the feedback.

Okay, great. That's helpful. I mean, I certainly appreciate where you stand on paying down debt. And I think that should continue, but perhaps given the stock has not moved at some time. It's not that I care where the stock goes in the near term, it's just that -- it might be a decent return on capital that you get at current prices.

Understand.

Yeah, very much understood.

Great, thank you.

Thanks, Bill.

The next call the next question comes from Don Crist with Johnson Rice. Don go ahead

Hey, guys, how are you all today?

Good. Hey, Don. How are you?

Hanging in as the best in Ohio? Thanks for all the color. Sorry, I'm kind of one of the last in line. But I wanted to dig in a little bit on margins, particularly on coil, up 10%, quarter-over-quarter. Can you talk about what's driving that? And is that sustainable income of that high-20s as we kind of move into '23 you think?

Yeah, we, again, thanks for the questions. We do think that that is sustainable. So, a lot of that margin was getting a fourth unit out and really had just sort of good utilization. There wasn't a lot of whitespace, so we didn't have the units in the yard much at all, which is great. But I think as far as when we kind of look at our cost base and pricing, we kind of feel this is pretty sustainable.

Okay, and pretty much everything else has been done. But one modeling question for me, Melissa. As far as taxes go next year, do you have sufficient NOLs to kind of cover cash taxes as we move through the year?

Yes.

Okay, so we shouldn't we shouldn't plan on any cash taxes next year.

Not cash taxes, no. I mean we're going to start to see a little balance sheet noise on the tax line as we move into the net income territory, but the tax advisers have assured us we're in a pretty good position with our NOLs.

I appreciate all the color. Great quarter, guys.

Thanks, Don.

Thank you.

We have now completed with all questions. I would like to turn the conference call back to Stuart Bodden for closing remarks.

Thanks, Shelley. Again, thanks, everyone, for joining us today. Hopefully you got a sense of our excitement for how the business is running. So just really just pleased with where things stand and just really proud of the team. We would also like to remind everyone that management intends to conduct investor meetings in New York and Chicago during the week of November 13. And we would encourage any interested party to reach out to management for scheduling availability. Again, thanks everyone. Have a great weekend.

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