Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ranger Energy Services Inc (RNGR, Financial) reported a strong performance in the second quarter of 2024, rebounding from a challenging start to the year.
- The High Specification Rig segment achieved record top-line revenue of $82.7 million and record adjusted EBITDA of $18.7 million.
- The company has returned nearly 70% of its free cash flow to shareholders through dividends and share repurchases since the inception of its capital return framework.
- Adjusted EBITDA for the quarter was $21 million, nearly double the first quarter results, with a consolidated EBITDA margin of 15.1%, the highest in nearly two years.
- The Processing and Ancillary Services segment saw a 27% increase in revenue over the first quarter and nearly tripled adjusted EBITDA to $7.2 million.
Negative Points
- Revenue for the second quarter was down 15% year-over-year, despite a slight increase from the first quarter of 2024.
- The Wireline segment experienced a 25% decline in revenue compared to the first quarter, with stage counts down 50% and revenue down 55% year-over-year.
- The cost of services for the quarter was $113.2 million, representing 82% of revenue, which is still a significant portion despite improvements.
- The company had to undertake restructuring activities, including headcount reductions, particularly in the Wireline segment.
- Capital expenditures were front-loaded this year, resulting in a higher first-half number of $21.8 million compared to $12.9 million in the prior-year period, impacting free cash flow.
Q & A Highlights
Q: You had a really good rebound from the first quarter and I wanted to kind of dig into customer behavior. Can you talk a little bit more about that and how you're seeing the back half of the year shape up? Is that one of the main driving factors that's helping you gain market share?
A: It really is, Don. Appreciate the question. Some of our largest customers not only maintained demand but also increased it. We're seeing that demand and request for additional rigs and equipment continuing into Q3, which is why we believe Q3 will be modestly up over Q2. The consolidation trends are really helping us, and we are pleased with how it's happening, particularly with our largest customers.
Q: On the Wireline segment, it has been a challenging market. Can you talk about the reorganization and do you see the margins in that segment rebounding towards that 8% to 10% where you have been historically?
A: We hope the margins get back up there. We talk about wireline in three segments: completion, production, and pump down. The completion segment has seen significant pricing pressure. Part of the restructuring involved headcount reductions and reorienting assets towards the production space. This includes redirecting wireline trucks, equipment, and pumps for pump down to the production space.
Q: Some of your peers have looked outside of traditional oilfields for M&A. Any comments broadly around M&A and if you're looking outside of your historical business lines?
A: We have been looking outside, but we remain convinced that our existing service lines are still ripe for additional consolidation. Most of our focus has been there, although we are looking at other things. The bid/ask spread is narrowing, but it's still not quite there. We are committed to being disciplined and ensuring any deal is accretive to our shareholders.
Q: How do you think about valuations in the M&A market versus the valuation of Ranger stock and the share repurchase opportunity you have?
A: We think we're a very compelling investment proposition given our stock price. Any deal needs to be accretive to our shareholders. We start conversations with potential counterparties by highlighting our trading range and the need for accretive transactions. We are having deeper conversations, but sometimes it becomes a bridge too far. Hopefully, the gap is starting to close.
Q: Are you seeing companies look to narrow their vendor lists that have been consolidating? Is that creating any opportunities for Ranger to do additional exclusive service type contracts?
A: We are definitely seeing the trend of companies wanting to reduce vendors and work with more reputable ones. We are having conversations about long-term contracts, and the one we signed last year has been advantageous. We would certainly like to have more of such contracts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
