Good day, and welcome to the Ranger Energy’s First Quarter 2019 Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I’d like to now turn the conference over to Darron Anderson, Chief Executive Officer. Please go ahead.

Thank you, operator. Good morning, and welcome to Ranger Energy Services first quarter 2019 earnings conference call. Joining me today is Brandon Blossman, our CFO, who will offer his comments in a moment. On our fourth quarter call, I highlighted the strength and diversity of our portfolio that allowed us to deliver strong performance during a seasonally low activity period and a declining oil price environment. Entering the first quarter of 2019, this macro environment continued to exist. But once again, Ranger was able to deliver strengthening results. I would like to start out this morning by calling your attention to some of the more significant events of the quarter. First, the several headwinds faced during the quarter. As you’re all aware, crude pricing reached a Q3 2018 high of $74 a barrel and quickly fell to below $45 by year-end. This 40% drop impacted industry activity levels heading into the first quarter of 2019. The second headwind encountered this quarter was the very tough winter in our Northern U.S. operations. As a reminder, one-third of our rig fleet operates in Colorado and North Dakota, where we spent several days of inclement weather, which negatively impacted operations during the period. Next, our consolidated results. We are pleased that our strategic portfolio of select production and completion of services allowed us to overcome the Q1 headwinds. Our solid results topped previous quarterly highs, driving us to six quarters in a row of increasing revenue and EBITDA following our 2017 IPO. Another good event for the quarter is our continued strong wireline performance. Our Permian wireline activity not only remained strong, but actually grew during the quarter with the addition of a 13th wireline unit and a 26% increase in stage count. And finally, we are well positioned moving forward. Q1 is…

Thank you, Darron, and good morning everyone on the phone. Let’s get started with a full walk-through of the numbers for the quarter. As in past quarters, I will reiterate some of Darron’s comments and numbers and add a few additional incremental bits of information. So as mentioned earlier, on a consolidated basis, Ranger saw another quarter of both revenue and EBITDA growth marking six consecutive quarters of growth for the company. Sequentially, revenue moved up 4% or $3 million from $85 million to $88 million. EBITDA moved up in line with revenue, 4% from $13.7 million to $14.2 million, while EBITDA margins were held flat at 16%. Now moving into the segments and starting with revenue. At the segment level, the sequential revenue gain was driven by increases in our Completion and Other Services segment, which were partially offset by revenue declines in both our Processing Solutions and High Spec Rigs segments. Specifically, in the Completion and Other Services segment, revenue was up 18% or $7.9 million quarter-over-quarter. The primary driver of the segment revenue growth was our completions-focused wireline fleet, which saw an uptick in average unit count from just over 11 average units in Q4 to 13 in Q1. As Darron mentioned, wireline stage count was up 26% quarter-over-quarter. That is the additive effect of a 15% increase in unit count along with a 12% sequential efficiency gain, as measured by average stages completed per truck day. As with last quarter, the material increase in stage count highlights our continued market share gains against the backdrop of flattish Permian completions count. Also notably contributing to Completions and Other services segment revenue growth was our well testing business, which saw a marked sequential revenue increase as that business matures into its full operations. As Darron outlined in our…

Thank you, Brandon. So looking forward, I would describe our view of upcoming quarters as highly optimistic. Crude prices have increased approximately $20 per barrel from year-end, and Q1 weather is behind us. We expect our 24-hour completion activity to continue to rebound, resulting in both increased rig utilization and pricing growth. We continue to operate one of the highest quality rig fleets in the industry with incremental capacity fully available. We are aggressively continuing our strategic customer alignment efforts. Incremental contract wins, like the one discussed today, will lead to additional market share gains. Within our Completion and Other Services segment, we expect continued strong wireline performance. With all of our new wireline assets having now been received, our continued focus is on the operational execution and efficiencies that have fueled our growth to date. I also believe we will be presented with the opportunity to pull select other services into our growing new rig contract relationships. Several of our other services are strategically placed to be delivered seamlessly with our 24-hour completion rigs. And finally, we’re continuing our efforts with real-time data analysis for quicker decision-making, select differentiating technologies and process improvements. When you take a step back and look at our first quarter adjusted EBITDA, which annualizes to 57 million, I believe we are already trending at least to consensus expectation for the full year of 2019. However, please remember, this performance was delivered in a quarter with considerable macro headwinds. Given the opportunities ahead of us, it should not be a surprise that our internal full year 2019 expectations are in excess of our Q1 annualized results. We benchmark ourselves against several of our direct peers and closely associated service companies. When comparing metrics of quarterly revenue growth, EBITDA growth, G&A cost structures, debt ratios, our required maintenance CapEx investments, we rank to the top or near the top of all categories. And most importantly, we believe this performance will yield a free cash flow as described by Brandon earlier, and further set us apart from our peer group. We look forward to delivering all these expectations going forward. This concludes our prepared remarks. And operator, we’ll now open the call for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Dylan Glosser with Simmons Energy. Please go ahead.

Hi. Good morning, guys.

Good morning, Dylan.

So just to get some more color on your new contract, is there a minimum rig or rig hour commitment or does this contract just cover pricing?

So because of confidentiality around the contract, I will be somewhat vague but I will give you a little more details on the contract. So as I’ve stated before, it is a multiyear contract and I would define that as greater than three years. It is not a take-or-pay contract that has a defined minimum number of hours, but it is an agreement that over a period of time only a select number of well servicing providers can service the contract. The operator is a very large operator, has a material number of well servicing rigs operating for them. So as a result, they’re not going to secure just one service provider. And in fact, Ranger would not want 100% of their work because it would create a customer concentration issue for us. As far as the pricing is concerned, the contract does have a nature of fixed pricings to it that has defined timeframe for review and end market cost adjustments. It’s a contract that we’re very proud to have. It’s definitely a blue chip customer and we think it’s going to definitely have a material impact on our performance.

Awesome. Congratulations, again, on the big contract. Last thing for me, how do you guys think about growth in your wireline business? Is the Q1 CapEx spend a good framework for capital allocation, say, in 2020 and moving forward?

Yes. So I think, as Brandon mentioned, free cash flow for the rest of the year, strategically that is our focus. And so we’ve wound down our 2019 growth CapEx plans, which a large portion of that was just the '18 spillover. And our focus for the remainder of the year is the free cash flow. I think once we are generating free cash flow, we’re paying down debt, we’ll have the opportunity to look at the most attractive uses of future free cash flow. And based on historical performance of our wireline business, I think wireline is going to be at the top of the list as far as those investment opportunities. So again, we want to focus on delivering the free cash flow and address the organic growth for our wireline business post those events.

And Dylan, I just want to reiterate that I mentioned $5 million of balance of 2019 growth and maintenance combined CapEx. So definitely Q1 is not the guide. The guide is $5 million total for the next three quarters.

Understood. Thanks, guys. I’ll turn it back.

Thanks, Dylan.

Our next question comes from Ryan Pfingst with B. Riley FBR. Please go ahead.

Hi. Good morning, guys.

Good morning, Ryan.

I’m subbing for Tom this morning. For the new customer, will you only be working in the Permian with that customer or will you be able to provide rigs and services elsewhere?

So the contract is specifically written for what they define as their Mid-Con. But I would say 90% of the rigs operate in the Permian. So that is the geographical area. That will be the focus.

That’s helpful. And then for the High Spec Rigs fleet pricing, could you possibly give the monthly sequential trend in the hourly rig rates in Q1?

Let me see if we have that handy. Just one second. Ryan, while we’re looking for that, just I think it may be useful to note that, as Darron pointed out, the aggregate number was definitely driven by mix shift and not the individual prices, say, production versus completion.

Got it.

So the trend was actually a trend up. You’re looking at $518 prior, $528 prior, and $521. So it peaked a little bit in February and down a little bit in March. So again, that’s the monthly --

And that is the aggregate number. I think production – individually, production was probably rising through that entire period.

Yes. Fair point, yes.

Great. I appreciate you checking that for me. And then one more, if I could. For the free cash flow you’ll be generating over the rest of 2019, you have obviously reaffirmed debt reduction as a priority for the capital allocation. Have you yet or do you plan soon to also decide on returning some of that excess cash to shareholders in maybe a preferred method of doing so?

Yes. So again, we’re going to look at all strategic opportunities including the one you just mentioned. I think we want to take this in steps and generate the free cash flow first, which we expect to do that materially starting in Q2 and then going to Q3. Again, priority focus on the debt pay down and then from the Board level decide what is the next best uses of that cash with nothing being off the table at this point, including what you’ve mentioned as far as distribution to shareholders.

Great. Thanks, guys. I’ll turn it back.

Thank you.

[Operator Instructions]. Our next question comes from Daniel Burke with Johnson Rice. Please go ahead.

Hi. Good morning, guys.

Good morning, Daniel.

Brandon, maybe you’ve got the worksheet still in front of you, but I’ll ask for the other piece of the monthly progression. Could you give us a sense for how maybe total hours advanced from January over to March? And I don’t know if at March we’re starting to capture a touch of the contract or not, but I just want to understand how the hours looked as you moved past some of the seasonality?

I’ll hand this back to Darron. But on the new customer impact to Q1, I would characterize that as relatively immaterial. Darron, you want to comment on the new customer impact to Q1 results on the High Spec Rigs? I think just from either a price or an hours’ perspective, it’s not that big of a number.

Yes, not that big of a number. Again, we executed the contract in the first half of '19 -- I’m sorry, first half of Q1 of '19 and the rigs started their deployment process after that. And when I said we’re up to four rigs a day, that’s with two of those rigs going out during the month of April, which is, of course, the second quarter. So the materiality impact on the quarter was minimum. I think we’ll start to see the full impact of that starting in Q2. Again, we hope to continue to increase the rig count with that particular customer across 2019. So four rigs is not where we’re capped out. That is our beginning point. As far as your question on hours. Looking at the hours, we’re talking roughly 10,700 dropping back down to around 10,000 in February, which was a short month and then getting back up to that 10,700 range. And I’m sorry. I apologize, we’re giving numbers. And let me repeat that again. I’m looking at the wrong column. 19,000 hours going up to pretty much by '19 and going up to I’d call it 21,000.

Great. That’s 21,000 aggregate hours in March, month of March. Okay, that’s helpful.

Yes. And to be fair, just kind of – just not giving too much away I hope, but kind of the inflection that we expected to see in March on an hours’ basis was delayed probably due to commodity pricing until April. So you would expect the natural inflection post winter to occur and it feels like that’s about four weeks late, but it is showing up.

Okay, great, Brandon. So I take away from that that hours per day have continued to decline into April. That’s helpful. And then maybe one other one again revisiting the contract that you’ve announced, you alluded to the opportunity to pull through some of your other completion services. I’m guessing flowback, but could you talk about what the pull-through opportunities are? And are those explicitly specked in the contract or is that just something you’d be able to work on given your touches with that operator?

Yes. So again, the contract is for the well servicing opportunities. And I would define that as more of your routine type of maintenance work, which is going to be your rod and tubing type applications; to your major type work, which is going to be more clean-outs, horizontal wells, possibly refracs, things of that nature, all the way to your completion drill outs. When you look at the rig application, of course, you’re going to have your highest rig count from an activity level doing more of the maintenance link over into the major work over in your minimum rigs on the drill-out portion. Specifically, on the drill-out portion, which is part of this contract as well too, we have included inside of our drill-out process to include not only the ancillary equipment of pumps, power swivels, catwalks, but the ancillary services of flowback and rig assist snubbing. So it’s not something that we’re hoping and wishing. It’s something that we bid the contract that way. And again, the drill-outs will be a minimum number from a rig count standpoint. But from a revenue contributor, it will be strong in material. We don’t expect that portion to fire up until later in the year. So from a modeling standpoint, I wouldn’t get too aggressive there.

Okay, great. Nice quarter, guys. Thank you for the time.

Thank you for your questions, Daniel.

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

Great. Thank you. Yes, so in closing, I just want to thank all of our outstanding team members for contributing to this success. Every day they’re doing an outstanding job. And I also want to thank everyone for participating in today’s call and your continued interest in Ranger. So this concludes our call, and we’ll see you the next quarter. Thank you.

This concludes our conference today. Thank you for attending today’s presentation. You may now disconnect.