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Edited Transcript of RNGR.N earnings conference call or presentation 28-Feb-20 3:00pm GMT

HOUSTON Mar 24, 2020 (Thomson StreetEvents) — Edited Transcript of Ranger Energy Services Inc earnings conference call or presentation Friday, February 28, 2020 at 3:00:00pm GMT

* Darron M. Anderson

Ranger Energy Services, Inc. – President, CEO & Director

Ranger Energy Services, Inc. – CFO

* Christopher F. Voie

Good morning, and welcome to the Ranger Energy Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Darron Anderson, Chief Executive Officer. Please go ahead.

Thank you, operator. Good morning, and welcome to Ranger Energy Services Fourth Quarter 2019 Earnings Conference Call. Joining me today is Brandon Blossman, our CFO, who will offer his comments in a moment.

While today’s call is to focus on our Q4 results and to share an outlook for 2020, I would like to spend the beginning of this call highlighting some of our operational accomplishments and metrics for the full year of 2019.

To set the backdrop for 2019, I would like to remind you of a few strategies we communicated early last year. Our primary focus entering 2019 was cash flow generation and using that cash to further pay down the modest level of debt carried on our balance sheet. Operationally, we were thinking to drive efficiencies not only at the wellhead, but also within our back-office processes and systems. And finally, we wanted to broaden our customer base by increasing our exposure to existing and new top-tier customers.

As you well know, strategy execution can often be met with headwinds. One particular headwind in 2019 was the softening market as compared to 2018. On a year-over-year basis, average oil and natural gas prices dropped 12% and 18%, respectively. The U.S. land drilling rig count dropped 10%, while completion activity finished 14% below 2018 levels. In spite of these market conditions, I’m very proud of the results produced by our team and our successful strategy execution.

So speaking of these strategies. First, the strategy to drive efficiencies. Defying year-over-year market softness, Ranger’s combined business delivered an 11% growth in revenue and a 24% adjusted EBITDA growth. While we are pleased with these results, the real accomplishment was achieving this growth while operating more efficiently. Efficiency gains were delivered at the wellhead, bringing value not only to ourselves but, equally important, to our customers. Additionally, we achieved improved performance through our back-office processes and systems.

To highlight a few metrics, our year-over-year average head count was down 1%, but due to our revenue growth and more efficient use of our workforce, our revenue per employee increased 12%. Within our Mallard completion business, the team delivered a 22% increase in stages per truck, a definite driver for our customers’ performance. Outside the field, Brandon and his team did an excellent job driving efficiencies within our back-office processes, resulting in an 8% reduction in our already low G&A cost structure versus 2018. While I could point to several more achievements, these metrics are an indication of the effort and results delivered both operationally and through our supporting staff.

Our second strategy: increasing our exposure to existing and new top-tier customers. This strategy is one that you’re probably most familiar with as we’ve talked about it on the last couple of calls. Although Ranger has maintained a high-quality customer base, we were missing a few large and important integrated oil companies. As we executed on our efficiency strategy across 2019 and combined it with our strong safety performance, high-quality asset base and sound balance sheet, we began to pursue these missing IOCs and gained their market share.

During the year, we spoke of 2 multiyear, multi-rig contract wins. Deploying rigs for these types of contracts came with onetime upfront expenses that penalized our income statement during the back half of the year, but they also came with the opportunity to deploy high-end full-rig asset packages, resulting in higher revenue per hour earnings and increased utilization. The most tangible result of this strategy is our team’s ability to grow rig hours in the fourth quarter as compared to the third quarter of 2019. This achievement was accomplished during the traditional seasonal low fourth quarter activity period, which was further impacted by severe year-end budget exhaustion. In spite of these challenges, successful strategy execution led to fourth quarter rig hours increasing 3%. Our revenue per hour also increased 3%, driven by the deployment of high-end full-rig packages.

And third and finally, our focus on cash flow generation. The operational execution previously discussed, combined with our team’s disciplined approach to capital spending, definitely fueled our cash generation in 2019. While certain 2018 growth capital commitments spilled over into the first half of ’19, once completed, our second half 2019 CapEx spend totaled a mere $7 million, which included $2 million of maintenance capital.

Our modest incremental growth CapEx was directed to smaller, high-return, quick-payback ancillary assets to support some of our new contract wins. Our high-quality, young asset base continued to pay dividends with full year maintenance CapEx totaling $3.6 million. The stewardship of capital demonstrated in 2019 led to $27 million of free cash flow after growth CapEx, which implies a 25% cash flow yield and a corresponding net debt reduction of $27 million, all figures we are quite proud of.

Now I would like to turn our focus to the fourth quarter specifically, starting with a few highlights. Our Wireline continues to gain market share. Stage count saw a slight increase against an industry-wide completion activity drop of more than 20%. However, continued pricing pressure more than offset the stage count increase, netting to an 8% drop in revenue. The impact to margins was once again this quarter offset by disciplined focus on labor and input costs and our ongoing highly efficient operations.

Next highlight, high-grading our high spec rig customer base continued. During the quarter, we deployed 6 additional rigs to satisfy contract wins and other new rig demand. These rig additions and associated rig hours more than offset the normal seasonal decline, resulting in our highest quarterly rig hours of the year.

Within our Other Services, last quarter, we saw some underperformance in this specific line of business within our Other Services segment. During the third quarter, we completed a full restructuring of the service offering to better align our cost structure with a near-term expected revenue stream. As a result, our restructuring efforts had a positive impact to the segment’s fourth quarter results.

And finally, Processing Solutions. While this segment has historically seen limited performance volatility, this quarter was an exception. MRUs coming off contract during the quarter were not quickly rolled over or redeployed. For Q4, revenue was down 32% sequentially. While this underperformance is likely to impact Q1 as well, we are expecting this trend to reverse itself and look forward to return to historic performance levels later in the first half of 2020.

Now to give you a little more details on the quarter. Specifically for the quarter, revenue was down a modest 5% to $80 million from Q3’s $84 million. Growth within our High Spec Rigs segment was more than offset by declines in Other Services and Processing Solutions. Specifically, with our High Spec Rigs, we experienced a revenue increase of 7%. This revenue growth was driven by increases of 3% in both rig hours and hourly rates. In regards to hourly rate, we did not achieve actual price increases during the quarter, but the deployment of ancillary support equipment with the additional rigs placed into service resulted in a higher revenue-per-hour mix. As stated earlier, the modest amount of capital spend in the second half of the year was largely directed to these type of assets, which we immediately deployed at full utilization.

Moving on to our Completion and Other Services segment. Our Mallard-branded Wireline completion business saw a modest 8% decrease in revenue driven by ongoing price pressure and, as expected, fourth quarter seasonality. This overall revenue decline was tempered by a record stage count during the fourth quarter, which just eclipsed our previous peak, quite an accomplishment given the backdrop of a significant decline in market conditions, which sources calculate to be down somewhat to the level of 20% for completion activity.

This result was achieved through a step-up in efficiency, delivering more stages per truck day rather than with more units in the field. It also implies a material market share gain during the quarter. As in previous quarters, we are seeing pricing pressure in this business. However, we continue to have success offsetting that pressure with per-unit cost reductions.

Revenue from our remaining services captured within this reporting segment were down for the quarter with several service lines showing declines for the quarter, in line with holiday impact expectations. However, the structural changes undertaken in our well testing line of business to better align cost and revenue, as we discussed last quarter, paid dividends in the fourth quarter, supporting flat segment margins in a declining revenue environment.

And finally, as I mentioned earlier, our Processing Solutions segment stumbled with several contract terms ending during Q4 and built units not being immediately rolled as new terms. We view this as a temporary issue, but nonetheless, we are disappointed in the Processing Solutions results this quarter. Here, overall segment revenue was down 32% on a decrease in MRU utilization. An uptick in MRU rates and an increase in gas cooler account provided a modest offset to the MRU utilization decline. We are in various stages of several contract opportunities to deploy idle MRUs back into our current space or for other potential new applications and hope to share improvements on this front on our first quarter call.

Moving on to consolidated earnings. Adjusted EBITDA decreased 7% to $11.4 million from $12.2 million in Q3, while margins were modestly decreased from 14.5% to 14.2%. Brandon will provide further detail now. But as you can see, overall, it was a very solid quarter and a good demonstration of the resiliency of our business in a very tough market.

Brandon, I will now turn the call over to you.

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John Brandon Blossman, Ranger Energy Services, Inc. – CFO [3]

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Thanks, Darron, and good morning to everybody on the call. Let’s jump right into a full walk through the numbers for the quarter. I’ll reiterate the highlights Darron covered and add some incremental detail.

Again, on a consolidated basis relative to last quarter, Q4’s overall revenue was down 5% or $4 million from $84 million to $80 million. Adjusted EBITDA, down 7% or $800,000 from $12.2 million to $11.4 million. And resulting EBITDA margins ticked down just slightly from 14.5% to 14.2%.

Now moving to segment details and starting with revenue. Quarter-over-quarter revenues saw decreases at both Processing Solutions and Completion and Other Services. Those declines were partially offset by the growth that we saw at the High Spec Rigs segment. Specifically, in our High Spec Rigs segment, revenue was up a healthy 7% or $2.3 million, moving from $33 million to $35 million on a 3% increase in both rig rates and period rig hours. Hourly rig rates went from $519 an hour in Q3 to $535 an hour in Q4, while revenue hours themselves were up 62,400 to 64,400 hours in Q4. This revenue — this rig revenue hour increase is even more notable given that our expectations at the single-rig level were for revenue hours to have been down about 10% quarter-over-quarter given the holiday and other seasonality impacts. So against that down 10% expectation, the increase in rig hours implies a fourth quarter market share gain in the low-teens on a percentage gain basis. Also, our completion rig count bumped up 1 rig to average 14 rigs for the quarter.

In the Completion and Other Services segment, revenue was down 9% or $4.2 million from $45 million to $41 million in Q4, with both Wireline and other non-Wireline services seeing declines during the fourth quarter. Wireline revenues and sales were down 8% sequentially, driven by a more than 8% reduction in revenue per stage, which was partially offset by a slight increase in period stage count sequentially. As Darron noted, this quarter’s stage count just exceeded our previous quarterly record 4 stages per quarter. The drop-off in other non-Wireline service lines occurred across business lines and was largely in line with our expectations, again, given the seasonal declines in overall activity.

And finally, moving to our Processing Solutions segment. Here, revenues were down $2 million or 32%, moving from $6.3 million to $4.3 million. The driver of this decrease, as Darron mentioned, was a material reduction in MRU utilization with 8 units coming off contract and not being deployed — redeployed during the quarter. The remaining MRUs and service were at a modestly higher average revenue rate, bringing Q4 average pricing for the MRUs up 7% sequentially. Also partially offsetting the MRU decline was a full quarter contribution from our entire 50-unit gas cooler fleet with the average deployed unit count coming up from 41 units in Q3 to 50 units in Q4.

Now moving on to segment-level EBITDA and segment level margins. Overall, consolidated segment level adjusted EBITDA, and this is before corporate G&A, saw a modest decline of 3% quarter-over-quarter, moving from $17.5 million to $17 million in Q4. Here at the segment level, a sequential high spec rig segment EBITDA increase was offset by declines at Completion and Other Services and Processing Solutions segment.

Specifically, for the quarter, High Spec Rigs saw an EBITDA increase of $2.1 million, which was offset by a $1.5 million decline in Processing Solutions and a $1.1 million segment EBITDA decline at Completion and Other Services. On the margin front, consolidated segment margins, this is, again, before corporate G&A, held flat at around 21%. Disaggregating that overall 21% margin to the segment level, Completion and Other Services margins were sequentially flat at approximately 23% despite the revenue decline that we saw in this segment. Here, cost management successes, particularly in well testing, helped to maintain margins on a sequential basis. High Spec Rigs margins saw an increase from 10% to 15%. This is primarily driven by the sequential uplift in hourly rig rates.

For the Processing Solutions segment, margins moved down from 56% to 47%, and here, the decline was driven by the reduction of the contribution from the higher-margin MRU rentals.

Moving on to G&A expense. As adjusted, G&A was up $300,000 sequentially on year-end true-up items, along with some full year year-end professional fee payments.

Net income. The change in the net income line quarter-over-quarter was an $800,000 improvement. We reported a loss of just $100,000 in Q4 against Q3’s loss of $900,000. This improvement, largely driven by the non-reoccurrence of Q3’s $1.1 million recorded noncash tax expense, which was partially offset by the quarter-over-quarter EBITDA decline.

Now let’s move on to the balance sheet and cash flow metrics. For the year, for the full year 2019, we produced nearly $52 million of cash flow from operations and reduced our net debt by nearly 40%, moving from year-end 2018’s $71 million net debt balance to an exit of $44 million, Q4 2019.

During the fourth quarter, we produced cash flow from operations of $16 million and reduced net debt a further $11 million. At the end of Q4, our term debt balance stood at $28 million. As usual, that was down $2.5 million from Q3 per our quarterly amortization schedule. That $2.5 million reduction in term debt, combined with a $10 million reduction in our revolver draw, was slightly offset by a $1 million reduction in cash, which netted to this quarter’s $11 million net debt reduction.

Now moving on to CapEx. Total CapEx recorded for the quarter was $3.6 million. That $3.6 million breaks down into $1.9 million related to High Spec Rigs. And similar to last quarter, this spend was almost solely attributable to new assets and upgrades to rig packages in preparation for work for our new and existing integrated high spec rig customers. Maintenance CapEx was $1.5 million, which reflects a bit of a catch-up after last quarter’s fairly low $200,000 number. And then we did add another $400,000 worth of new leased light-duty vehicles to our fleet.

Our stock buyback program during the quarter: we did buy back another handful of shares, 66,000 shares or about $400,000 worth of stock.

And finally, moving to liquidity. For Q4, we ended with $27 million worth of liquidity, which was up slightly from Q3’s $25 million on an $8 million decrease in revolver draw, offset by — sorry, that’s a $10 million decrease — no, that’s an $8 million decrease in revolver draw, offset by a $5 million reduction in quarter-end borrowing base and $1 million reduction in cash on hand.

That’s it for my comments, and I’ll turn it back over to Darron.

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [4]

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Thank you, Brandon. So looking forward, as we turn the page to 2020, I’m sure the first question is how has the year started. My answer would be, it has started in a similar fashion to 2019’s end. We have some service lines for strategic geographical locations start slow as customers move to their 2020 budgets.

Additionally, our locations with higher natural gas exposure such as our Mid-Con region are seeing even greater challenges as we move into the new year, but offsetting, we’ve experienced positive results, such as our Mallard completions business yet again raising the bar for stage count in January and continued high spec rig rate improvement driven by full rig packages. Net of these dynamics together, we continue to be pleased with our position early in 2020.

Moving into the year. Our first objective is to continue with a couple of our already successful strategies. We are maintaining our commitment to pursue and work for customers who share the common goals of safety, quality, efficiency and value for both parties. While progress was made in 2019, we still have ample room for improvement and further market share gains across each of our reporting segments.

So far, in 2020 alone, our Mallard brand has added a new dedicated Permian customer who maintains a very active completion calendar. And our High Spec Rigs and Processing Solutions groups are in active dialogue or bidding processes with 2 new incremental IOCs.

Efficiency will again be a primary focus for 2020. We will continue to challenge ourselves by driving technology and data collection further into our business. This effort, combined with one of the best fleets of assets in the industry, will continue to drive efficiencies at the wellhead for our customers and for ourselves.

Another focus similar to 2019 is our balance sheet. While last year our strong cash flow was used to solidify our balance sheet, this year, we plan to leverage our balance sheet as a competitive advantage on all fronts. To do this, we must maintain a fortress balance sheet that can withstand the current market conditions for an extended period of time and one that affords us the opportunity to make strategic moves when others cannot. While it is early, in some cases, the strength of our balance sheet is leading to unsolicited market opportunities from clients. These calls are coming from customers who are concerned about their current supplier sustainability or they cannot get their service needs met due to asset quality.

Additionally, a strong balance sheet allows us to opportunistically build around our core asset base with ancillary assets or complementary service lines as opportunities arise. This may be executed through one-off, low-capital, quick-payback asset investments similar to our second half of ’19 spend or acquiring an additional service line that complements one of our current offerings. Please do not take these comments as implying an aggressive growth capital year. We will remain conservative with our 2020 capital plan. Including maintenance CapEx, our 2020 total spend for our current service mix will be in the low double digits. A conservative CapEx plan in this market environment is simply prudent operating, but the flexibility of a strong balance sheet allows us to adjust when attractive opportunities become available.

We expect our strong free cash flow generation to repeat itself in 2020 with similar operational execution to last year. While pricing pressure is likely to have a negative impact on results, a continued strong Mallard stage count and growing high spec rig hours with full packages will help to offset that negative impact. Additionally, we have further upside as we improve our Processing Solutions performance and continue to integrate our smallest service lines into some of our newly acquired rig customers.

All of this translates into a projected 2020 EBITDA growth over 2019, albeit modest, given the current macro environment. Achieving this performance with a much reduced capital spend will again produce a very strong free cash flow year.

And finally, this brings me to my final objective of 2020. At the Board level, we will be looking at a balanced use of our free cash flow. Here, again, we plan to take a conservative approach as our market is cyclical and we desire to maintain our strong balance sheet through the full cycle. However, Board conversations do include the opportunity to return cash to shareholders. And we note that even modest success in the execution of our 2020 plan will yield cash generation that allows our Board to consider more aggressive stock buybacks or dividends as the year progresses.

In closing, I would like to say that our entire team is highly motivated for what’s ahead of us. We have solidified our market position and look forward to advancing it across the year. While the market is tough, the opportunity for another successful year exists for us, and we look forward to sharing our progress with you.

This concludes our prepared remarks. And operator, we will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Jacob Lundberg with Credit Suisse.

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Jacob Alexander Lundberg, Crédit Suisse AG, Research Division – Research Analyst [2]

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I guess just to start off, and, Darron, you kind of touched on this in your prepared remarks, but perhaps a little more just on your recent customer conversations. We’ve had about a $15 decline in crude oil prices since the beginning of the year. You guys have done a good job reorienting the customer base towards operators who’ll be a little less sensitive to changes in oil prices, but it is a fairly dramatic change. Do you get the sense that anybody is rethinking their FY ’20 budgets in light of what’s happened in the crude — with crude prices?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [3]

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Yes. So great question. I mean it is a very, very tough market, as I said in my opening comments. I think as we’ve started 2020, and we had operators, I think, certain budget levels and expectations, January was a little bit of a slow start. But as we guided into the early part of February, and as we sit here today, activity significantly start to pick up. Now as recently as last night, I got a phone call from a particular operator who was running a pretty healthy frac count and dropped about 50% of their spread. So no impact to Ranger, but just an example of — I think it’s going to be a very dynamic market here over the next quarter. And I think operators will be rethinking their plans. Again, we’re not seeing any impact outside of the softness that we saw within the first 3 weeks of January. Specifically on the rig side, we’re back to producing our highest revenue run rate in February that we’ve seen over — past on the rig side. Our Mallard side of the business again set a record count for the month of January. They started off very, very strong. So we continue to be very excited about our business, but we’re very aware that this market will present challenges, and it is going to be a very difficult year. And we’re going to have to work very, very hard to deliver the results that we have planned.

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Jacob Alexander Lundberg, Crédit Suisse AG, Research Division – Research Analyst [4]

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Got it. That’s helpful. And then one on the capital allocation front. So as stated in the earnings release, and you touched on it in your comments as well, if you’re going to be growing EBITDA year-over-year with lower CapEx, you’re obviously set for another strong year of free cash flow generation. So you touched on the potential for increased shareholder returns in 2020. But I’m also curious on your take on M&A in terms of what’s available in the market. Are — is it an appealing — are there appealing assets out there that are being shopped? And are they anywhere near prices that would incentivize you guys to look at inorganic growth over shareholder returns? If you could just kind of speak generally to what sort of assets, markets you guys would be interested in. I’m just kind of curious what you’re seeing in the market today.

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [5]

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Well, again, I think that’s the whole balanced approach comment, generating the type of free cash flow. We do feel that we would like to return cash back to shareholders, and that’s being discussed at the Board level. But the balanced approach has also continued to grow and build the business.

Coming into 2019, at the Board level, one of our objectives was to be conservative from the CapEx spend, clean up the balance sheet, build a fortress balance sheet so we could be positioned if and when the market turned like this to act on acquisition opportunities. So we continue to, I think, review opportunities. And we’ll see if there’s a great opportunity we can act upon. I think when you look at specific assets and values for acquiring assets out there, anytime we’re having to add assets, we’re not going straight to a new market. We are looking at what existing assets are out in good, high-quality shape that we can bring on. I’ll give you a couple of examples.

On the drill-out rigs, we’ve seen horsepower needs going from 600 horsepower to 1,000 horsepower and now up to 2,500 horsepower. The frac market has had some struggles. There’s been a lot of assets come online. From a sales process, we were able to pick up 5 2,500-horsepower pumps at a very, very reduced value compared to new that were in great shape that will appear with our drill-out rigs. So having a balance sheet like we do allows us to be opportunistic when those opportunities present itself. Asset values are very low at this point, and so we’ll continue to identify those opportunities across 2020.

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Jacob Alexander Lundberg, Crédit Suisse AG, Research Division – Research Analyst [6]

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Great. And just a follow-up there. Are there actual new service or product lines you would look to enter? Or would you mostly look to augment the existing business?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [7]

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It’s a combination of both. I think when you look at our business and you look at our Mallard completion business, and that’s really the strong platform to build around. So how do we augment that business? And what additional service lines can we provide inside of that Mallard platform? And these are service lines that would be operationally offered in conjunction with the Mallard-type operation. So it is how do we build around the core.

The same thing on the rig side, but in 2 parts: our drill-up rigs, what are the service lines come out with our drill-up rigs. Is there a way we can offer some of those services as well as augment our rigs with high-pressure pumps, like I talked about, the 2,500 horsepower case? And then the same thing with our well service rig on the production side. What services are provided alongside production operations or P&A operations that we can get into? So it’s a combination. I won’t go into more detail than that, but it’s not just augmenting. It also — it’s maybe adding additional service lines.

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Operator [8]

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The next question is from Daniel Burke with Johnson Rice.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division – Senior Analyst [9]

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Darron, you’ve made reference to sort of opportunistic sort of asset purchases and the potential to expand into some ancillary service lines, but it feels like the word consolidation features heavily in your sort of prepared comments. And I was wondering if I’m reading too much into that. Or what reasons or what your current level of interest is in more meaningful consolidation opportunities in the space?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [10]

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We definitely think, specific in the well servicing side, consolidation needs to occur. We’ve always said we wanted to be part of that, but we do have to be cautious when we think about the asset quality and the consolidation efforts. In my prepared comments, I made some notes about market share gains. We’re getting unsolicited phone calls. We do have customers who are reaching out to us that, frankly, as we’re targeting these IOCs, it’s a process. It takes time, and there are a group of customers that we just haven’t even gotten to yet. And we’re getting unsolicited calls from those customers pursuing us because of our asset quality relative to what they’re getting from their other service providers. So we do support consolidation. We want to be part of that, but we are being conservative because the value that we’re bringing to our customers, asset quality, balance sheet. We don’t want to hinder that and change the direction of our organization. Brandon, do you want to add anything to that?

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John Brandon Blossman, Ranger Energy Services, Inc. – CFO [11]

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So one, I absolutely did not intend anybody to read anything into a change of focus in terms of consolidation versus not. So we are, if anything, redoubling our efforts this year relative to 2019 on that front. So transformative M&A is still front and center in terms of our thinking for the longer term. I think just kind of adding to Darron’s comments, the asset quality, absolutely, when we look at combinations, one of the first stops that we have in terms of deal metrics is cash flow contribution to a combined entity. And while it’s a good problem to have, it’s still a bit of a hurdle when we look at our expected cash flow for 2020 and beyond relative to perhaps some of the potential merger candidates that we’re looking at. And so we have to get through that part of the process. And to date, that’s been challenging. Given the current macro backdrop as in last week or so, that makes it even harder. So we absolutely don’t want to lose our current shareholders on a cash flow generation — from a cash flow generation perspective. And the dynamic market here creates opportunities, absolutely, but it also, being so dynamic, creates some roadblocks to getting deals done easily.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division – Senior Analyst [12]

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Got it. That’s helpful. And then maybe a more specific question. It was great to hear — kind of helpful to hear sort of the overarching EBITDA expectations for full year ’20 versus 2019, and we can certainly fill in the pieces. But I guess, more specifically to the High Spec Rigs in Q1 ’20, I think I heard you all referenced the thought that revenue per hour will tick higher again in Q1 ’20. I was just curious to understand a little bit more what hours look like as ”20 comes along, recognizing there was a slow start to the year, but also — and the gas market is a bit challenged, but also weather hasn’t been too big an impediment this quarter. And I’d imagine there’s some of the share gain opportunities captured in Q4 you’ll have full capture of in Q1. So I was just wondering if a mid-single-digit or 10%-type increase in well service hours is possible or if that’s way too ambitious.

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [13]

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So I agree with everything you said for the driver increase in hours, and I will go and say that we are expecting revenue to be up in the High Spec Rigs side, even with the slow start to January, given that we’re 2 months into the quarter. Again, that is being fueled by the combination of the rates, which is due to the rig packages, full-rig packages, and then the increased utilization that we’re getting here in the month of February. March, there’s no indication that’s going to slow down. So we’re quite happy with where we’re trending on the top line for the rig side. I think from the margins, not that it will be challenged, but maybe it’ll be maybe subdued relative to the increase in revenue because as we’re putting out these additional rigs, there is cost associated with it. And that’s both labor cost, that’s repair and maintenance costs. We’re bringing rigs out that literally haven’t worked for quite a period of time. So there is an upfront investment into the rig that most of that does just get expensed to our income statement. There’s onboarding crews. And so we’ll have that additional cost that will hit us across Q1 on the rig side. So optimistic for the direction of that business, optimistic to have these new contracts that we’ll get the full benefit from for the full year of 2020 that we only had partial for 2019.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division – Senior Analyst [14]

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Got it. And maybe one last one, maybe a little bit quicker with this one. But just to the extent — it seems like maintenance CapEx run rate for you guys is probably $5 million if we look at last year’s figure, and if I’m off, let me know. What warrants — or what’s in the growth CapEx budget, albeit a small growth cap budget? What’s in that budget for 2020?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [15]

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We won’t go into specifics, but I mean, when you talk about the dollar figures, we’re saying low double digits. And you’re probably not too far off the group maintenance CapEx expectations, so it doesn’t leave much room there. So it’s really just a continue of needed answer or quip, but I wouldn’t say it’s exactly identified, but we know we’re going to continue to grow market share, win contracts that we’ve earmarked from capital for supporting assets that would be needed to support future contracts.

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Operator [16]

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(Operator Instructions) The next question is from Chris Voie with Wells Fargo.

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Christopher F. Voie, Wells Fargo Securities, LLC, Research Division – Associate Analyst [17]

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So I understand the shift in the backdrop is pretty sudden and recent. But thus far, have you had any customers reaching out on the rig side asking for price breaks?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [18]

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So I will say that we have done a very good job defending our price point. When you look at the rig hours growth that we had across Q4 and even what we’re seeing early in Q1, those hours could have been higher, but we’re only sending rigs out at a price point that we can get margin and return that we’re looking for. So it is a difficult market. The price pressure exists in the Wireline side. It’s definitely there on the rig side, but we’re defending that price point, I think, very aggressively, and it’s showing definitely in the results. So we’re happy with where we stand there.

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Christopher F. Voie, Wells Fargo Securities, LLC, Research Division – Associate Analyst [19]

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Okay. And then in the quarter, pretty impressive gain in rig hours. In the rig service business in general, are you seeing competitors kind of consolidating to their core basins or exiting certain basins to facilitate that kind of growth?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [20]

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It’s a combination. Yes, we’re seeing basically competitors shutting the doors in some basins. I think the most prevalent area is definitely in the Mid-Con. We’ve seen a little bit in the Eagle Ford, but the Mid-Con is definitely the leader for where we’ve seen competitors shut the door. So that’s definitely a driver. I think that Ranger — you got to remember, we’re still a fairly young company relative to the competitors. So we’re still penetrating customers for the first time. So the internal efforts we’re doing there, I think, we’re differentiating ourselves, especially on the 24-hour drill-out market requiring some of the higher horsepower, higher-pressure-rating type equipment and really picking up market share there. So it’s a combination. And one of those attributes is competitors that were at breakeven in this market or losing money, and some of them are shutting the doors.

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Christopher F. Voie, Wells Fargo Securities, LLC, Research Division – Associate Analyst [21]

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Okay. And if I could just sneak one more in. On the Wireline side, you mentioned the pricing pressure. Where is the leading edge for pricing for Wireline right now compared to the average in 4Q? And in other words, how much — assuming flat activity, how much lower would revenues be just based on where pricing is right now?

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [22]

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Yes. Again, I won’t give specific numbers. And I think the Wireline side, whether it’s our Mallard business or any other competitors’, there’s a lot of pricing variability and that’s because the overall ticket price for Wireline relative to that completion is low. And so if you can execute and perform and bring efficiency and a lot of operator to get more stages per day, you’re typically going to see an operator will pay you a higher price point. So yes, we have been impacted across all of 2019. I think our team has done a very good job executing — allowing us to get the best available price in the market while we have been hindered getting the best available price in the market. So again, I don’t want to give you specifics on absolute numbers.

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Operator [23]

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

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Darron M. Anderson, Ranger Energy Services, Inc. – President, CEO & Director [24]

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Well, I just want to thank everyone for their participation. I want to thank all of our brands delivering this performance across 2019. I want to thank them for the good start we have for 2020. And we look forward to sharing our results on future calls with you. So thank you very much, everyone.

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Operator [25]

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

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