Ranger Energy Services, Inc. Price & Performance (RNGR)

With that, I would now like to turn the conference call over to our CEO, Stuart Boden, and our CFO, [indiscernible] for their prepared remarks. Thanks, Joe. Good morning, everyone. And thank you for joining us today to discuss our fourth quarter and full year 2024 results. We closed out 2024 on a strong note. Delivering another quarter of outperformance that reflects our teams focused on operational execution, disciplined cost management, and smart capital allocation. We have consistently showcased the resilience of our production focused business model exceeding expectations and generating stable earnings and cash flow despite ongoing lower drilling rig and frac crew counts. By announcing increase in our dividend are excited about several things at Ranger. The outstanding results of our high spec rigs business, the double digit growth in our Torrent business line last year and that business line's prospect of being fully utilized this year. The significant growth in margin expansion in our P and A and rental business the strong momentum in our share price from the fourth quarter significant liquidity and share volumes, and a 2025 that shows the promise of continued steady growth. And looking at the quarter, we reported revenue of $143,100,000 and adjusted EBITDA of $21,900,000 achieving a margin of 15.3% a three twenty basis point improvement over the same period last year and the best profitability on record during our fourth quarter period.

This quarter marked the third consecutive quarter of year over year margin growth. How did we achieve these results? Ranger is different. Because we had built a well service business that is resilient through the cycle. Has generated strong cash flows and grown despite an unstable market and multiple customer consolidations. As more wells are drilled in The U. S. Basins, more well servicing work is needed and as our customers further consolidate, they recognize the need to consolidate vendors as well and partner with strong service providers. Ever since our transformative acquisitions in 2021, we have focused on driving efficiencies throughout the portfolio. Now have industry leading well service capabilities in the Permian Basin South Texas, the DJ Basin in Bakken, as well as in the Mid Continent region. We have built reputation for outstanding service quality, reliability and safety. Factors that have made us the well serviced vendor of choice for some of the largest companies in the world. Ranger has gained market share because we have good relationships with major operators. And they are increasingly looking for vendors with strong reliability and safety programs, that can provide full package solutions for their wellsite needs. This dynamic is most apparent our high specification rigs business.

Which has been a workhorse for Ranger Ranger. It is a very resilient business because it focuses so heavily on our customers' production base. It boasts strong margins of greater than 20% and delivers through macro environment and commodity price shifts. We have continued to aggressively drive efficiencies and expand relationships with our major to reduce white space on our operations calendar. These efforts have resulted in an average of 20% year over year EBITDA growth in the past three quarters. I received consistent feedback when engaging with our blue chip customer base that Ranger's wellsite inspections, and fuel visits are second to none in this space. Our rigs are properly certified and maintained, and our crews are engaged and aware of the expectations of them on both the safety and service front. Throughout our organization, we focus on servicing our customers first and foremost and through doing so, we differentiate ourselves and become more like a partner to customers who begin to appreciate that this level of service deserves a margin in return that supports the sustainability of our business. Both inside and outside of high specification rigs we look to maximize profit by making smart investments in high margin growth areas.

Is evident in the selective CapEx we deployed to augment our rig business. But also in ancillary services. Which contains a number of smaller businesses that have seen meaningful growth in margin expansion thanks to strong demand. While revenues were relatively flat in 2024, adjusted EBITDA increased by 19% and margins increased from 18% to over 21%. One business we have previously highlighted is Torrent, our infield gas processing business. Torndant provides modular mobile equipment to capture condition and process wellhead natural gas that would likely otherwise be flared into the atmosphere. Our units provide a processing solution for stranded gas to deliver pipeline spec natural gas for a wide variety of uses including mobile power generation, dual fuel frac, and even cryptocurrency mining. This year, we saw significant demand from our customers for this service which allowed us to double EBITDA. And we expect to more than double EBITDA again in 2025. And potentially achieve full utilization later this year. We are looking at further strategic investments in this service to expand our capacity to continue to maximize potential of this service line. We have also seen progress in our plugging and abandonment business this past year. The business saw year over year growth in 2024 and significant margin expansion as our business saw improved utilization and greater efficiencies.

We allocated additional resources into this business in late twenty twenty four to pursue additional opportunities and we think this will continue to grow meaningfully in the future. While we focus on expanding high margin growth areas, we have also had to make strategic decisions where demand and pricing have deteriorated. We have discussed the wireline completion service line at length in the past noting the fundamental change in its economic model. As frac crew counts have declined, and it has become increasingly commoditized due to lower barriers to entry. The margins have become largely uneconomic in this product line which had previously represented a large percentage of the revenues our wireline segment. As a consequence, we have focused on pivoting to capture more work associated with conventional wireline services. 2024 was a year of transition and we saw wireline revenue drop by nearly half and margins fall to single digits for the year. As the loss of scale out in the business negatively affected the remaining product lines. We acknowledge the challenges in wireline completions and the management team stays highly engaged in our pivot to conventional wireline. Which we believe will position us to stabilize the segment and extract long term value when possible.

Now let me turn to our strategic priorities and give you an update on how we are creating long term value for shareholders. Our priorities have been consistent over time. The maximization of free cash flow, the prioritization of shareholder returns, and growth through accretive acquisitions while defending our balance sheet strength. We maximize cash flows by benefiting from light capital intensity particularly as it compares to drillers and frackers. Each year, we expect maintenance CapEx to be between 46% of revenue which allows us to generate significant free cash flow. In 2024, we achieved free cash flow of $50,400,000 or 64% of adjusted EBITDA. When you consistently generate cash as a small company, it provides flexibility for management to make the highest return capital allocation decisions and you see that in our shareholder returns this year. We have also prioritized returning capital to our shareholders. We made a commitment in 2023 to return at least 25% of free cash flow to and we greatly exceeded that baseline in 2023 and 2024 returning 40% of free cash flow to shareholders through a regular dividend and opportunistic share repurchases in both years. Because of our high cash conversion rate and our pristine balance sheet, we can take advantage of opportunities whether internal or external to the company.

For much of this year, the value of our own stock was the most compelling investment we could make. And we bought aggressively. Spending $15,500,000 tax to repurchase shares. And reducing outstanding shares at an average price of just $10.01 $1 per share an investment that has returned nearly 60% at current prices. As we look at 2025 and our continued belief in our strong cash flows, management, together with our Board of Directors, is pleased to announce a 20% increase to the regular quarterly dividend from $0.05 per share to $0.06 per share. Reflecting our confidence in the stability and strength of our business, and further demonstrating our commitment to return capital to shareholders in meaningful ways. When it comes to our balance sheet, if you have been a Ranger shareholder for a while, you've heard us repeat the theme of flexibility. Being able to take advantage of opportunities to grow long term value. We can be nimble, opportunistic and smart allocators of capital because of our balance sheet strength. At year end, we had nearly $41,000,000 in cash and zero long term debt. We are constantly evaluating opportunities for where our next dollar of capital should be deployed or returned.

Leads us to our final priority of growing through accretive acquisitions. We We believe we are a natural consolidator of a fragmented industry. We have been diligent in our search for opportunities take Ranger to the next level but also prudent as the bid ask spread has been too wide for comfort. We remain highly disciplined in evaluating opportunities and will only pursue acquisitions that are strategically and financially accretive. We don't see signs of capitulation in the services M and A market but we do see it becoming more rational and believe there may be attractive opportunities to pursue in 2025 that would add scale and efficiencies to the Ranger portfolio. As we enter 2025, we are well positioned to build on our momentum leveraging our operational strengths and financial flexibility to drive sustainable growth and shareholder value. Our commitment to disciplined capital allocation remains unchanged. And we will continue to prioritize shareholder returns, while investing in opportunities that drive sustainable growth. Melissa will now review our financials and 2025 outlook. And we think you'll see in the numbers why we are so confident in the strength of our business and our ability to deliver shareholder value.

Melissa?

Thanks, Drew, and good morning, everyone. As Stuart mentioned, we delivered another great quarter continuing our track record of operational excellence financial discipline. Revenue for the fourth quarter was $143,100,000 down from $153,000,000 in the third quarter reflecting typical seasonality through the holiday season. Adjusted EBITDA came in at $21,900,000 with a margin of 15.3%. Which is slightly lower than the previous quarter but up three twenty basis points from the fourth quarter of twenty twenty three.

It's worth repeating through its earlier comment that each of the past three quarters have boasted margin improvement, over the previous year. We are seeing continued operational efficiency and growth in some of our higher margin service lines supporting our profitability. For the full year, revenue of $571,100,000.0 was 10% down from the previous year almost exclusively due to lower activity levels and wireline completions. Adjusted EBITDA of $78,900,000 was down slightly from $84,400,000 in 2023 largely a consequence of the slower start to the year as well as the previously mentioned wireline Most notably, cash flows in the fourth quarter were expected to be and came in quite strong. Enabling us to achieve full year free cash flow of $50,400,000 in 2024. Looking at segment results, High Spec Rigs set another quarterly revenue record at $87,000,000 We reported adjusted EBITDA of $19,000,000 which is up 21% over the same period last year with slight margin compression compared to the third quarter to holiday operations. For the full year, 2024 was the best year in the company's history for high spec ratings, revenues of $336,100,000 and adjusted EBITDA of $70,500,000 up 710% respectively year over year.

Ancillary services also had its best year in the company's history with revenue of $124,800,000 adjusted EBITDA of $26,600,000 increases of 118% respectively year over year. The 300 plus basis point improvement in margin and significant increase in adjusted EBITDA was driven mainly by our plug in abandonment, rentals and torrent service lines. Each of which saw increases in 2024. Finally, and as Stuart touched on, wireline remains a challenge. Fourth quarter revenue of $22,600,000 was 26% lower than the prior quarter breakeven margin. These declines were anticipated and the margin shifts between the third and fourth quarters illustrate the heavy leverage in this Winter slowdowns have been heavy thus far in 2025 we expect that the first quarter will continue to be depressed given the extreme winter weather we've experienced. That said, we will benefit from the same operating leverage beginning in the second quarter as spring arrives and activity picks Our balance sheet remains in great shape. We built cash during the fourth quarter and ended the quarter with $40,900,000 in cash and total liquidity of $112,100,000 This liquidity gives us ample flexibility to execute on our strategic priorities. We remain disciplined in our approach to capital expenditures and saw lower CapEx during the fourth quarter totaling $5,400,000 We had CapEx expense for the year of $34,100,000 including the incremental growth CapEx that we deployed earlier in the year in support of new customer contracts.

Looking ahead, we expect The U. S. Land services market to remain subdued through the first half of twenty twenty five. With potential for some recovery in the back half of the year. Our largest customers have indicated consistent activity levels throughout the year. However, Rangers' start to the year has been impacted by two polar vortex events. Significantly reducing activity levels in January and February. Given these challenges, we believe it is unlikely that total company EBITDA will reach $20,000,000 in the first quarter. That said, absent further disruptions, we should get above mid teens.

For the full year, we expect 2025 to track closely with 2024 the potential for modest upside in the back half of the year as commodity prices Getting into segment specifics, we expect that high spec rig and ancillary segments will post modest year over year growth. We do not see significant improvement in broader market conditions for the Wireline segment this year. We will continue pushing for growth of conventional wireline work.

Regardless of this growth, in the more production exposed area, we believe it is possible that wireline revenues may decline slightly year over year. We do expect margins will improve to the high single digits in this segment in the second and third quarter. Similar to 2024, we expect maintenance CapEx will remain in the range of 4% to 6% of revenue.

We are anticipating enhancing shareholder value through a balanced approach to growth and returns. With that, I'll turn the call back over to Stuart for closing remarks.

Before we conclude, I want to reiterate a few key takeaways. 2024 was a year of consistent execution, financial discipline, strategic progress.

We continue to strengthen our position as the leading production focused well service [indiscernible] delivering solid results despite market fluctuations and customer consolidation. Looking ahead, we enter 2025 with momentum and a clear focus on value creation. Our priorities remain Ranger. Maximize free cash flow, return capital to shareholders, maintain our financial strength, and pursue disciplined growth opportunity. With a strong balance sheet, resilient business model a proven ability to execute we are well positioned to drive sustainable long term value for our shareholders. Customers and employees. Thank you for your time today.

And with that, we'll open the call for questions.

And your first question today will come from Don Chris with Johnson Rice. Good morning, Stuart and Melissa, and Happy Mardi Gras.

I'm doing well. Stuart, I think I heard you correctly in your prepared remarks saying that you all made some investments into the P and A market to help there. Excuse me. Can you discuss kind of what those investments may have been? And is the increase in P and A work, is that driven just by the E and P or is it more government related that's driving the increase in the P and A market as we move through 2025? It's mainly on the E and P side. We do have an effort to really get a lot more kind of focused on potentially getting and bidding on some of the government work that's associated with IRA. As far as the equipment and the spreads, a lot of that is activating additional spreads on the P and A side. Which typically consist of a wireline truck, a well service rig and then a cementing unit. So that's really what the investment has been Okay. And as we've gone through earnings this season, we've heard a couple of gas companies that or several gas companies that have talked about adding rigs particularly in the Haynesville. And other gas basins In your discussions, are you seeing the potential for a pickup as we kind of move into the third quarter, maybe fourth quarter to to get ready for some LNG gas that's needed in 'twenty six?

Are you hearing those as well?

We are hearing that right now in the back half the year. We've also seen some strength in the in the kind of Mid Con and Haynesville markets on the well service side. With the recent run up in gas prices. So we have seen some strengthening I think we are cautiously optimistic as we kind of look forward, but we are hearing some of the same things that you are doing.

Okay. And if I could ask just a more kind of broader question on the health of the business. You highlighted that TRIR in the press release and congratulations on that. But as you're talking to these larger companies that continue to get larger through M and A, How important the safety record and the maintenance schedules and the training of your people factoring into contracts and work as you work for these larger and larger companies as they continue to consolidate.

Yes. I'll start off in the I'll chime in as well. So we're seeing it becoming increasingly important John, typically when we deploy a spread, not only does it go through our own inspection process, before we deploy it, but typically the largest customers will come in and inspect the equipment very often they will go make sure that the training documents for our crew have been completed. And again, we're very open about our safety programs and a lot of times where you've been going through some of our customers Ranger programs, our crews are as well. So I think we're seeing it becoming increasingly important. Also commented in the past that they want not only a well service rig, but they want a complete package on the wellsite from us. And again, I think that all just goes to confidence in our systems and our safety and maintenance records.

I think the only thing I'd add to that, Dom, is that the scale of it too. So in addition to everything that's Stuart said, because they're looking to train vendor list, they're looking to work with vendors that can work with them across multiple basins. So that also puts Ranger in only a couple of our peers. Really in the runnings for some of these bigger they some of our customers have shown interest in a lower 48 contract. Will they want somebody who can cover provide rigs across all basins. And so the ability to have all of the things that Stuart mentioned, but across multiple basins I think it's actually proving to be somewhat of a differentiation as well.

And Don, if I can just as an example, last week our EVP of Well Services and I were in all day as one of our largest customers and a select number of vendors on their side. And so these were all global vendors and going through their safety systems and records Ranger brainstorming with them what we can all do to improve. So again, we're all tied pretty closely to HIP on this. I appreciate the color. I'll get back in queue. Thanks. Thanks. Thanks, Don. And your next question today will come from John Daniel with Daniel Energy Partners. Hey, guys. Thanks for including me. Hope you can hear me okay. Just curious, at this stage, do you have much visibility into the rig demand coming up from the major oil and gas companies? Over the next few quarters or getting calls from more rigs? Just I think what we're seeing John is with the largest customers, what we kind of hear is steady as she goes. So very consistent, demand going forward over the next couple of quarters. So that's the message we hear We are hearing from some of our biggest customers that have that have consolidated or that have bought other companies.

We may pick up a little bit of work associated with that.

But generally, the overall message is just very consistent work programs.

Okay.

Then I guess a little bit of a follow on to sort of Don's questions. Are you getting an indication any indication from those operators that they might be dropping smaller incumbents so that even though they're working is flat, you guys get more work yourselves? Or is it?

That's certainly what happened through 2024 and think some of that will continue into 2025.

So we are seeing that. Just takes a little bit of time if you go some of these majors now have incredibly large workover programs. But yes, we do think that the overall trend is that that we as a larger player will gain share at the expense of some of the smaller ones.

Okay.

That's all I had. Thanks for including me. Thanks, John.

Concludes our question and answer session. Would like to turn the conference back over to Stuart Boden for any closing remarks.

Thanks, operator. Thank you, everyone, for joining us today. Thank you for your interest in Ranger Ranger we look forward to hearing from you. Have a great day everyone.

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