Good morning, and welcome to the Ranger Energy Fourth Quarter 2020 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Darron Anderson, CEO. Please go ahead.

Thank you, operator. Good morning. Welcome to Ranger Energy Services' Fourth Quarter 2020 Earnings Conference Call. Joining me today, as always, is Brandon Blossman, our CFO, who will offer his comments in a moment. Getting started here, the fourth quarter marked the first real signs of our industry rebounding from the activity low points of 2020. With WTI prices widening in the $40 range during the quarter, operators began to increase activity, translating to a 22% growth in U.S. land rig count, and a 63% growth in frac spread count, although both metrics were starting from historic lows. Not surprisingly, Ranger experienced its first significant increase in activities within our production related rig operations. These type of operations can be quickly mobilized to bring production back online and we expected to see this part of our diversified offering as a forefront of operator demand. If you recall from our June reporting, the upward trajectory of our rig activity started in late Q3 and early Q4. The trends were experiencing at the time calculated the rig hours to be up 25% to 30% in the fourth quarter. With actual rig hours up 43% through Q4, activity continued to ramp even faster than we had projected. This growth boosted our consolidated revenue to $41.5 million, a 20% sequential increase. While we are very pleased with our top-line performance, we did experience a onetime offsetting cost in year-end disruption that resulted in an adjusted EBITDA of $3.2 million. This figure represents our 14th quarter in a row of positive EBITDA since going public, and we are very proud of the fact that during the fiscal year of 2020, Ranger delivered positive EBITDA each and every single month of the year. Before I dive into the details of our quarterly results, I would like…

Thank you, Darron, and good morning to everybody on the call. Let's go ahead and do our normal full walk-through of the fourth quarter details. First, to reiterate the consolidated numbers, relative to last quarter, Q4's revenues were up 20% or $7 million moving from $35 million to $42 million. Adjusted EBITDA was down 27% or $1.2 million moving from $4.4 to $3.2 million. And as Darron mentioned just a bit ago, that $3.2 million in EBITDA does include $1.3 million of expenses associated with high-spec rig reactivations. Overall, the adjusted EBITDA margin moved from 13% to 8% for the quarter. And now onto the segment details, starting with revenue. High Spec Rig revenue was up a solid 50% or $7 million, moving from $14 million to $22 million on the combined effect of an increase in period rig hours, along with an increase in composite rig rates. Specifically, revenue hours increased 43% or 12,900 hours, moving from 30,200 hours to 43,100 hours, partially on the addition of an average of 12 rigs in the quarter, bringing the Q4 average rig count to 42 rigs. Composite hourly rig rates also increased. They were up 5% quarter-over-quarter or $23 an hour, moving from $480 an hour to $503 per hour. Increased 24-hour work supported the higher rig rigs with 26% of our activity being 24-hour operations as compared to 20% for the third quarter. In the Completions and Other Services segment, revenue saw a slight decrease of $300,000 moving to $18.6 million in Q4. This slight decrease was fully attributable to our Mallard Wireline business, which, as Darron detailed, on early year-end shutdown on budget's option and a COVID-related delay, along with ongoing pricing pressure. Here in the Mallard Wireline business, our revenues were down 7% sequentially, driven by a 6%…

Thank you, Brandon. Looking forward, I must reiterate the growing confidence that we have in the market and our business. We feel that our portfolio of services are well-positioned to participate in this new E&P dynamic of efficient capital spending while maintaining production levels. Operators are prioritizing well maintenance activities, combined with disciplined drilling and completion growth. We expect to see material demand growth for our high-spec rigs across 2021. This growth will lead to further price improvements. I will point out that our Q4 pricing is within 10% of our Q1 pre-downturn pricing. Therefore, our current pricing discussions with our clients have been mutually beneficial and we will continue to have positive discussions as commodity prices improve. I also want to point out for this segment as well as our Completions and Other Services segment, the significant weather event in February will have an impact on our Q1 results. Our year has started off slightly choppy as the customer consolidation impact mentioned earlier, spilled over into early January. But by the first week of February, our daily rig revenue was reaching the high peaks realized post downturn. Unfortunately, shortly thereafter, we began to experience a significant disruption weather event in North Dakota, which moved across each of our operating regions and ultimately into as far as South Texas. It has taken us 19 days for our combined rig locations to return to the peak level experienced in early February. To further compound the impact, we continued to be in a ramp mode, therefore, carrying higher cost into this disruptive event. While our optimism regarding our rig business is probably the highest it's ever been in company history, the materiality of where this business is headed will be [ played ] until Q2. Within our Completion and Other Services segment,…

[Operator Instructions] Our first question today will come from Jason Bandel with Evercore ISI.

The first question, let's start on the rig side of the business. Obviously impressive increase in hours at the bottom here. Can you give a little more color around expectations for the cadence of rig deployments? I know you guys talked about deploying 12 it sounds like in Q4 there. And obviously, you had some make-ready expenses and what that can mean in terms of hours given the other puts and takes with the weather impact that you talked about for Q1.

Yes. So thanks for the question, Jason. Our rig demand definitely is continuing to grow across Q1. We are experiencing a continuous ramp. As I mentioned in my comments, the weather was very disruptive. We operate from the Bakken in North Dakota down to the [ Bakken in ] Oklahoma, across all of Texas, West Texas, East Texas, South Texas. And literally, as storm the moved out, we watched our revenue get impacted across each location with each location, each missing about 1 week of revenue. So as I said, it takes 19 days to get back to the peak that we were seeing in early February. So it will map the performance for Q1. But to your question, the ramp continues. I think that we're going to see, call it, another 10% increase in activity. When you think about excluding the weather impact from additional rigs across Q1. And that's with what we have in front of us from our customers. I think if we see improvement in commodity price, that will continue to grow. But at the $60 oil level that we find ourselves at today, we're getting more demand. And it's a commodity price driven issue, but at the same time, it's a market share driven issue. The health of our rig business puts us in a unique position relative to our competitor base. And when you think about the working capital demand as activity increases, when you think about the operator consolidation and the sophisticated processes of there being larger demand that they have, it is putting a strain on competitors. And when you don't have the balance sheet, it's very difficult to compete. So we're picking up market share and commodity prices is definitely helping out as well.

And then given the operator base that you're dealing with here, as your percentage of revenue has increased with the larger operators, if you look on the drilling side, that group has been, I'd say, more conservative in adding activity and trying to spend money. On the production services side, what are they telling you in terms of expectations for 2021? And do you see additional demand for more integrated contracts?

So for 2021, again, the large part of our demand are coming from the large E&P integrated oil companies. I think it's really boiling down to the capital discipline by the E&Ps and being trying to drive cash out of their businesses. But that's also being balanced with having to maintain the level of production. We all know the history of horizontal unconventional wells and the decline rate. And so what that's causing is, it's causing operators to really focus more on getting wells back on line, to go offline, or doing maintenance activity to try to get production up. And then that of course is that with the capital expenditure. So I think in a normal commodity price environment, you could see a -- or historic commodity price improvement, you would see more of a straight run to the drill bit. I think you're going to see more of a balance between the drill bit and maintenance activity in this new environment we find ourselves in.

That makes sense. And let me get one more in here on the completion side of the business. In Wireline, you talked about how in the past, you were able to kind of offset falling prices with other -- either reducing costs or frac guns. It seemed like even though your revenue fell, your cost of services has increased in Q4. So what kind of steps can you take here in the near term? I think I saw one of the frac gun providers talk about a possible increase in the near future. How can you reduce your cost there? Can you consider looking at a different provider? Or would you move to more of like a hybrid gun solution? Just some thoughts around that, please.

Yes. So currently, we run an integrated gun solution right now. We like that type of solution because it calls for minimal headcount or back office shop support loading that business. So we are committed to [indiscernible] and of the type guns that we do use. As Brandon mentioned on a historical basis, we have been able to offset our price reduction with labor efficiency as well as to our supply chain and getting cost out there. Now it was a very, very tough year. We worked both of those as hard as we could, but you get to a point to where there is just no more [ place to meet ], right? And so right now, we're looking at our supply chain, and we're going to make the best decisions for the organization that gives a good level of quality at the right cost. So we're committed to the type of systems that we use, but we are looking at alternatives around our supply chain.

Our next question comes from Daniel Burke with Johnson Rice.

Let's see. I don't want to get hung up on a transitory weather impact storyline in Q1. But do you guys have visibility to say if Q1 revenue will be sequentially higher or not versus Q4?

Yes. So we're still in the process of collecting all of that data and figuring out what is going to happen for the full quarter. I would say that right now, we're probably looking at flat, including all of the revenue impacts, but the wildcard here will be the March ramp. And so we're seeing early signs of -- and I don't want to oversell this, but faster, I think, than expected ramp here as we look forward to the next 2 or 3 weeks. Now whether those all come to fruition or not is a question. But off of the weather disruptions has been pretty aggressive in terms of requests coming in to get back out in the field with incremental assets. So I think baseline we're talking flat with some risk, positive risk to the upside on March ramp. Darron, I don't know.

No, that's [ correct ].

That's helpful. I appreciate that clarity and recognize it's still the quarter obviously isn't closed. All right. Just to retread on each of the 2 larger segments. Darron, I think I heard you reference, I mean, another 10% increase in activity in your answer just a moment or 2 ago, I wasn't quite sure what the context was or maybe I misheard that, again, just trying to weigh what rig service activity could look like exiting Q1.

Yes. And that was my comments on rig [ activity ]. It was when we think about kind of our average market rate for Q4 compared to where I believe we'll exit Q1 will be about a 10% increase. Now again, that's taking out the disruptive events that we had. So I've rated that [indiscernible] flat revenues, you would think with that [indiscernible], you would be up. But again, my [indiscernible] is just on the absolute numbers for rigs working coming into the quarter versus exiting the quarter.

Okay. Got it. That helps. And then a final one on the completion services side. Again, I understand you'll take a hard look at the supply chain, and it's plausible that pricing pressures, that the pricing has bottomed and with certain activity scenarios, maybe later this year, there's some pricing upside. But I mean, is the completion services segment in the first half of '21, now a 20% business as it was in Q4? Or can it return to the mid-20% that you all had really held very well as frankly other competitors experienced some pressures over the preceding 2 years?

Well, I think the margins that were reflected here in this quarter are probably more relative to the margin than compared to what we've gotten, call it, in '19 or first quarter of '20, unfortunately. I think when the operators to their credit and benefit went out to the 2021 bid, commodity pricing wasn't at this point. And on the wireline side, they tend to go for annual contracts. And so a lot of pricing was locked in. Now that being said, we have reopened those discussions and are pursuing price increases. So we're doing the right thing. That will not happen overnight. So when you think about a Q1 pricing, it's pretty much base for Q1, anything we get on price improvement will not start to occur until Q2. So I'd really look at the back half of the year to start to get back to more of a Ranger Mallard historical wireline margin profile you've seen in the past.

Our next question comes from Tom Curran with B. Riley Securities.

Darron, with the M&A prospects where you've advanced the farthest but couldn't reach a deal; what have been some of the insurmountable obstacles? I'm asking about issues other than the sheer span of the bid-ask spread. And do you currently have prospects where the gating item or items are unrelated to valuation and seem resolvable?

Yes. I think when we look at the acquisition opportunities that we've been looking at historically or have looked at, there have been various issues why we haven't consummated [ start with ], right? I think when you look at our activity in the last, call it, 9 days it definitely sets up -- our phone is ringing quite a bit. We are in active dialogue. There's some things that are being delayed relative to [indiscernible] organizations that may have took PPT money. And it is a risk that we see by consummating the transaction while a loan hasn't been forgiven that we may just make the decision to hold off and complete those transactions afterwards. So I would say my guiding principle or thoughts on some acquisitions that we're running a good organization. Yes, we had some disruptive events in Q4. But we're very pleased with where we are. We have a strong balance sheet. We've proven that we know how to operate efficiently. And all those things are attracting some good candidates for potential mergers and acquisitions, and we will continue to work with the process.

Okay. And then thank you for that update you gave on the customer high grading success you've had over the last few years with penetrating and growing your share of total revenue derived from those top 12 E&P operators. Zeroing in on the majors, what do the majors specifically represent as a percentage of your active rigs or rig fleet revenue?

Gosh. I don't have those exact figures in front of me. I'm looking at Brandon, my head of rigs right now...

Well, you did comment that 74% of our revenue comes from that top 12 list. As you might guess, the vast majority of that is majors with some very large independents in that list. Of that, [ 74% ] call it, it's not the vast majority, but it's certainly well north of 50%. It's probably closer to 75%.

Great. And Brandon, that would specifically be for the High Spec Rig division?

That's correct. Sorry, yes.

Right. And then I'll close with one for you, Brandon. And I'm sorry if I missed this, but what is your debt reduction target for 2021, whether it's a specific level or a range, just where would you like to exit this year at?

Where would I like to end it? And so that's our target. Now I did mention those 2 items that will add cash to our balance sheet. And on a net debt basis, obviously, that's a one-for-one addition. If we get those 2 items executed, and I think I'd like to say we're very optimistic about both of those, then it is very realistic to think of net debt as 0. But that's an aspiration, not a promise.

[Operator Instructions] Our next question comes from John Fichthorn with Dialectic Capital.

Just one thing for everybody's benefit, if you guys could do this call not in a room with a speaker phone, we could all hear you a little bit better. It's a little fuzzy. So I appreciate that this quarter is tricky with the weather, but I'm just kind of curious if you can give us some idea of how you see the year playing out. This is the time of year where you will give annual guidance or one might love to know what your thoughts are on the matter.

Yes. So as you know, from a historical standpoint, we have a [ in fact ] of full year guidance. I think when I talk about the optimism that we have in the market and our business, that is absolutely true. And while Q1 will be tough due to the weather, as Brandon has mentioned, what we're seeing right now as our ramp has continued post the weather event, it is very strong and it continues to get stronger. On the rig side of our business, we will be looking at considerable improvement in the back half of the year compared to what we've run in the last few quarters, and I will say considerable improvement. On the completion side of our business, our wireline business, we have to give some level of pricing back. We talked about the pricing and the cost side there. So we'll see improvement, but that will be muted by some other things that we have to get accomplished there. And I think the real upside that we can have for 2021 could be with our Processing Solutions, as I talked about in our comments. With what we're seeing with the ESG efforts, what we're thinking the gas capture side. Net bids has definitely leveled off, given the drop-off in drilling and completion activities. As that activity comes back it's going to drive demand for our Processing and Solutions assets, but we think the gas capture is going to drive an equal and even greater demand for those assets. So if you add all that together, we're very, very optimistic, John, for 2021. Again, Q1 will be muted, but I really think that you'll start to see the take off in Q2 and beyond. And I do want to apologize for the conditions of the call today. This is the first time we're taking the call from our new office. The beauty of our new office is that we reduced our annual rent cost significantly and dropped our square footage down. So it's a cost saving for all our investors, but unfortunately, it's the first time we're taking the call from this new room. And so we'll correct that in the future.

Well, that's a great excuse. I'm happy to listen more carefully if you're saving money. I like it. So when do you think -- or if you had to guess, when do you think you'd get back to peak revenue? And do you see a path to exceeding your prior peak revenue at some point in the visible future?

On the rig side, we definitely see a path to exceeding peak revenue and probably sooner than later, and that's the optimism I have in that business. On the wireline side, the pricing in the market has come down materially over the last 1.5 years. And so reaching those peak levels will be difficult here in the short term. We will need pricing help to get back to those type of levels with the same asset.

Great. And so once again, I know Tom asked about acquisitions and what the kind of hurdles were. Do you still think the window is open to get some done? Do you think it's the first half of the year? Is it just too difficult to tell? I mean I know you've been focused on it for the better part of 6 months, maybe 9 months at this point. So I don't know, how do you handicap it?

You're right. Every time we have the call, we have a note on acquisitions, and we felt like a broken record. So yes, we've been working on them for quite a while. But I can honestly say that we feel like that we're getting close and there are things on the horizon that are near term. And so we hope to get 1 or 2 of these over the fence and have some interesting announcement.

I couldn't quite understand what you said, but it sounded like you're -- you still hope you're going to get one done. Is that a fair summary?

Yes. It's fair summary. Yes, sir.

And my last question is really based on everything you've said today and even to my questions, you should be generating some real free cash flow over the course of this year on a run rate basis and on a cumulative basis over the course of the year, your debt is going to be at 0 or approaching 0. So I feel like it's exactly 1 year ago today. I think I asked the same question. What's your plan on that free cash? Are you going to return it to shareholders? Are you going to do some share buybacks? What are your thoughts?

This is Brandon, John. The thoughts are, as they have been, that we will evaluate that when we come to that juncture. And we've historically had active conversations in the boardroom about strategy, thought processes and what to do specifically. No decisions have been made at this point. And then I'll add to Darron's point, in your question earlier, M&A is on the horizon for us. So we will need to incorporate that into our thought process, so depending on what transactions we get done. At the margin, we're talking about small amounts of money here. Some of those transactions could require a little bit of cash to get across the finish line and get the synergies taken out of that transaction, again, a little bit of cash, we're not talking about a lot. And conversely, some of the transactions will bring incremental cash to the balance sheet. So that changes the calculus on that capital disposition question just a bit at the margin. So the short answer is, all options are on the table. All options continue to be discussed around capital allocation, and we'll see what the right answer is when the time comes to make that decision.

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

Thank you, operator. I think my final closing remark is that I just want to thank our team. 2020 was a very difficult year for the industry, a very difficult year for Ranger, but our team did an absolutely outstanding job stepping up to the challenges, so job well done. I also want to thank everyone on the phone for your interest in Ranger. And again, we apologize for the sound quality, and we'll take care of that next quarter. This concludes our call. Thank you.

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