Good morning, and welcome to the Ranger Energy Third Quarter 2018 Conference Call. [Operator Instructions] Please note this event this 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 Third Quarter 2018 Earnings Conference Call. Joining me today with prepared remarks is Brandon Blossman, our CFO. On the last quarter call, I characterized Q2 as a continuation of the momentum we're building throughout the year. This quarter's results reflect more of the same, which is improving metrics across all aspects of our business. I would like to start out this morning by calling your attention to some of these areas of improvements and highlights for the quarter. First, our high-spec rig rates. Our service rig rates continued a modest rise, supported by incremental ancillary equipment deliveries, which was offset somewhat during the quarter by a modest decline in utilization. Next, our organic capital investment continues to drive performance. Specifically, our other rig services, led by wireline completions business, continues to see market share gains, which we're very proud of. On the activity front, no slowdown yet. We have yet to experience any year in slowdown or Permian takeaway constraint impacts, but we do expect some seasonality impacts across business lines as we move into the holiday season. On the labor front, labor pressure is taking a pause. While labor wage rates were up slightly quarter-over-quarter, we did see some easing in the latter part of Q3. And finally, free cash flow pivot in January 2019. Our new rig payment obligations will be satisfied by year-end. Looking forward, I expect that 2019 cash flow considerably opens up and go forth strategic options. Now I'd like to give a little more detail on the quarter. Revenue for the quarter increased 12% to $82 million from $73 million in Q2. This improvement in top line performance was the result of improved pricing and select asset additions. Within our Well Services segment,…

Thank you, Darron, and good morning, everyone. It's my pleasure to be running through the details of another nice quarter from the Ranger team. As Darron noted, overall, on a consolidated basis, we saw material quarter-over-quarter growth on both the top and the bottom line. Sequentially, for Ranger as a whole, revenues moved up 12% or $9 million from $73 million to $82 million, while EBITDA margins at the same time moved up from 13% to 15%. Those 2 metrics combined pushed adjusted EBITDA up 30%, as Darron noted, from $9.7 million to $12.6 million. Now let's run into the segment details, starting with revenue. As in the past, we'll break out the consolidated report - the consolidated results into our 2 reporting segments: our smaller, Processing Solutions segment; and our larger, Well Services segment. And again, keeping with history, I'll further break out well services into high-spec rigs and all of the other well services. Starting with revenue. Our overall sequential revenue increase of 12% was driven at the segment level by our Well Services segment. Here, revenue was up 13% over the same $9 million, moving Well Services revenue from $69 million in Q2 to $78 million in Q3. Within Well Services, it was the other or the non-rig services side of that business that drove essentially all of the revenue increase. We'll run through the details on the non-rig side in a minute. But first, let's take a look at the high-spec rig metrics. High-spec rig revenues were flat quarter-over-quarter at $39 million, where an increase in rig rates and incremental asset deployments were offset by a decrease in utilization. The metrics are average hourly rates up quarter-over-quarter by a bit more than 1% or $6 an hour, moving from $513 an hour in Q2 to $519…

Thank you, Brandon. So looking forward, as I mentioned in my opening remarks, we do see some risks of seasonal slowdown in the latter part of Q4. For example, last year, our Q4 rigs were down 4% sequentially on an hour-per-rig basis. Thus far, on a public company view, we have yet to experience any impact from customer exhaustion or slowdown related to the Permian and construction constraint. Additionally, we feel good about our ability, so far, to offset any customer slowdowns with market share gain. As I've said before, our strategically-designed, diverse footprint and customer base allows us to reallocate resources to basins and clients with the highest demand. However, given the potential seasonality risk, incremental work is required on our side to ensure we mitigate this risk as effectively as possible. For our high-spec rigs, we will focus on ensuring our crews are working the highest-margin jobs and upgrading work when and where possible. The previously mentioned easing of wage pressure should provide a bit of a tailwind as we continue our work on optimizing our labor force, both in the sales and in the corporate office. This pause in wage pressure is allowing us to high-grade our rig workforce with increased training and reduced turnover. During Q4, our high-spec rigs will continue to benefit from the ongoing deployment of incremental rigs and ancillary equipment to support our 24 operations. On the Mallard side, we should average 10 trucks in Q4 and exit the year with 12 operational trucks. Within Mallard, we'll continue to deploy incremental pump-down trucks in conjunction with some of our dedicated wireline units. We expect to have four sets of pumps operating by year-end, up from an average of 1.5 in Q3. Within our Processing Solutions group, we expect a step-up in performance with both better utilization and higher rates as more units are mobilized into new higher-priced contracts. As we look to 2019, we'll have a new round of strategic choices to make. Given our expected cash flow generation, we'll have a substantial amount of capital to deploy. I'm expecting to be opportunistic with our decision-making, but all options are likely to be on the table. In summary, while it continues to be a large potential headwind, our 2018 trajectory has been reassuring. We'll continue to work with our client base to achieve the pricing levels required to assure their serviceability and protect our profitability. We'll continue our diligent efforts in reviewing and adjusting our cost structure outside of labor while remaining focus on day-to-day execution and efficiency gains. Service companies who have constantly demonstrated the ability to execute through safe and efficient operations will gain market share and maintain activity levels even in the face of a growth pause. We will continue to work to ensure Ranger stays in this position. That concludes our prepared remarks. Operator, we'll now open up the call for questions.

[Operator Instructions] And our first question comes from James Wicklund with Credit Suisse. Please go ahead.

It's Jake on for Jim. First question. Just on - you kind of touched on it in your prepared remarks, but we keep hearing about some tightness in the labor markets. Is this going to be for wireline crews? I'm just looking for an update on what you're seeing there. And are you having any issues in passing through things, specifically labor cost inflation, but perhaps more generally as well just inputs cost inflation? Any issues passing that through to customers?

On the wireline specifically, we just came up on our 1-year anniversary of starting that business. And as you've seen our performance, it continues to grow. It continues to do very, very well. We've not had any issues attracting a high-quality labor force. I think with the purpose-built assets that we have with our operating efficiency, we're getting some of the highest, I think, metrics as far as stages pumped in the day. All that translates into additional value to the workforce. And so from a retention standpoint, recruiting standpoint, I think we've been doing very, very good there. Because of the execution, the efficiency for delivering to our customer, we're getting paid a very fair value. So the value we're getting from our customer is, by all means, absorbing any wage pressure that we've historically had in that business. But I think on the wireline front, wage or labor concern is not an issue for us at this point.

And then what about, just more generally, input cost inflation?

Yes. I think on the rig side, in some of the comments I gave earlier on the labor on that side, I think of - throughout the first 2.5 quarters of 2018, we were continually fighting labor pressure there, wage pressure. And I spoke about our price increases on previous calls, and we were achieving to increase pricing to not only cover the wage pressure but also to drop something to the bottom line. As we got to the back half of Q3 on the rig side, at least internally, that wage pressure started to subside. The labor market is still tough. I expect that when we get into the back half of Q1 of 2019 and activity start to ramp up across the industry again, we'll start to see some of that pressure. As far as other, I think, cost input, there's nothing that is concerning right now, nothing we're not able to absorb from a pricing standpoint. Brandon, anything else you want to add to that?

No. I mean, I think the slowdown in activity, as Darron pointed out, in the back part of Q3 kind of put some - took pressure off of all aspects of the input costs and allowed us to kind of get a little bit of focus on doing small blocking and tackling and further reducing kind of the cost structure. And hopefully, that's a structural change that'll help us out as we, as Darron pointed out, deal with kind of the wage or - wage and other cost pressure at the beginning of '19.

And then hoping we could get a little more color on some of the conversations you're having with the customers about incremental capacity for 2019. How much visibility do you have in your highest demand? It sounds like your company will be able to fund any incremental capacity from cash flow from operations. But how much visibility do you have in those conversations? How in-depth are you at this point? Or is it just sort of initial conversations that indicate that, at least, demand is going up?

Well, the additional completion demand is going up. A lot of customers are still working through 2019 budgeting process. I think, directionally, demand will be going up. What that means for Ranger on the rig side, we say that we have enough rigs at this point to continue to build out around those rigs with additional ancillary equipment that will further drive 24-hour completion-type [indiscernible] opportunities, will be our growth aspect of the rig side. We continue to see customers talking about, especially in Permian, lateral lengths getting longer, lateral length getting materially longer, which bodes well for our high-spec rigs and drill-out process that we're seeing there. So great opportunity there. On the wireline side, again, all of our units are working on a dedicated basis. Every unit that we put out still has been delivered, has gone out on a dedicated basis. So we still virtually run 100% utilization there. You would expect that the Permian takeaway constraint issue starts to subside in the back half of 2019, will lead to additional growth opportunities for that business as well. And then on the Torrent side, we continue to see growth in that business. As Brandon mentioned, we put out a couple of more MRUs. We're transitioning to newer higher-priced contracts, which reflects the demand of those assets. So great opportunity going into 2019. We expect activity to be up for the reasons I've just given. But as far as specific clarity from customers, again, they're working through their budgeting processes.

[Operator Instructions] Our next question comes from John Daniel with Simmons Energy. Please go ahead.

Good quarter, and please excuse me if I'm not - I'm driving right now, so I don't know have my numbers in front of me. But I guess, congratulations, I think your EBITDA is more than your largest peer and rapidly approaching the second largest well service players so on a much smaller asset base. Congratulations there. Can you speak, Darron, just to the - if you have this, an optimal size or desired size for the Mallard business?

Yes. So first of all, thank you for the night's opening commentary there. And specifically, be careful driving. And hopefully, you pull over to the side of the road while listening here. To the Mallard side of the business, optimal size. That business has great performance, and we want to grow that business. We'll be strategically looking at where will the next basins be that we will move and penetrate. There are still growth opportunities in the Permian, but we're not going to hang our hat strictly on the Permian. So I don't want count or give specifics as far as what an ideal unit count would be. I've always been a believer in running oilfield service company that you need consumer diversity, you need geographical diversity. Right now, we have great customer diversity within the Permian basin, which is one of the reasons that our revenue and performance have hugged in as we've seen operator slowdown. And with our performance, while we've been attached to a frac fleet that's been released, we've actually had our spread moved to another frac fleet where they're keeping them. So that customer diversity we have is a great attribute to the business. We now need the geographical diversity. So we'll continue to look to grow that business into 2019 and beyond for the reasons stated.

When you look at the revenue generation from your wireline businesses, it's really good. And I'm just curious, is there anything different from a design standpoint from your units that you've got out in the field versus maybe the traditional wireline unit? Just any color there would be appreciated.

Well, I think when you look in the comment I made that we started the business a year ago, and we do 100% pump-down completions. We do the oil production and maintenance work. And so when you look at our unit design and when you look at the ancillary equipment and when you look at the pressure control equipment, all of the equipment was procured within the last year, specifically for long lateral horizontal wells that need high efficiency for completion opportunities to keep frac spreads up and running. And so I don't want to give specifics of our assets, but when you look at the type of assets that we have, they are purpose-built assets for this type of activity and to drive this type of efficiency. As a result of that, the customers are meeting that demand. That's very different than wireline companies that were started 3, 4, 5, 10, 15 years ago that have a different type of asset base that was more geared toward vertical well completions and more geared toward maintenance. Again, we are a completion-focused pump-down company. The great attribute of that is it's allowed us to have an ancillary equipment to pump down spreads that we've added to it. So those pump-down spreads have gone out, attached right to our wireline business and running at the same utilization. So a very, very good business model. We have a very, very good team running that business that we're very proud of.

At this time, I'm showing no further questions. So I would like to turn the conference back over to Darron Anderson for any closing remarks.

Thank you all for participating in our third quarter call. Thanks for your continued support. And to our different brands of Ranger, Mallard and Torrent, thank you for the hard work that you're doing to produce these performance and benefits. So we look forward to talking again at the end of the fourth quarter. Thank you, everyone.

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