Greetings and welcome to Ranger Energy Services Incorporated First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Darron Anderson, Chief Executive Officer. Please proceed, sir.

Thank you, operator. Good morning and welcome to Ranger Energy Services' first quarter 2021 earnings conference call. Joining me today is, Brandon Blossman, as always, our CFO, who will offer his comments in a moment. First quarter presented some very unique challenges for Ranger. The compounding effect of several activity disruptions that I will talk about in a moment had a material impact to our quarter's performance. However, while we had planned for better results, the fundamentals of our business and performance metrics are all pointing in the right direction as indicated by our Q1 exit rates and the start to Q2.

Great. Thanks, Darron and good morning to everybody on the call. Let's go ahead and do the standard walk through of the first quarter details. First, on the consolidated numbers, Q1 consolidated revenue was came in at $38.3 million, down 8% or $3.2 million as compared to Q4's $41.5 million. Consolidated adjusted EBITDA went to just negative at a $200,000 loss, which was down $3.4 million from Q4's $3.2 million print. Note, that in our reported non-adjusted EBITDA, it was higher than our adjusted number by $1.4 million. This delta reflects the inclusion in EBITDA, but not in adjusted EBITDA of a $1.4 million benefit, reflecting forfeited 401K matching amounts that were expensed in prior periods. Also note, that this quarter's earnings similar to previous quarter did not include the addition or do sorry -- do include the additional expense of $1.1 million associated with high-spec rig reactivations. And now under the segment details, starting with revenue. High Spec Rig revenue was flat at $22 million, the result of a slight increase in rig hours offset by an equally slight decrease in composite rig rates. Specifically, revenue hours increased from 43,100 hours to 43,200 hours, a less than 1% change. As noted, both a slow January ramp and weather played a role in dampening the Q-over-Q hours increase. More reflective of the actual ramp we saw in activity across Q1 is the metric that Darron had just mentioned. The 22% increase in rig hours we saw at Q1's exit versus Q4's peak hourly run-rate. Q4's average rig count was up 4 rigs to 65, but again, that metric has quite a bit of volatility both due to February's weather disruptions and some swapping out of customers as we moved to more 24-hour work. Quarterly average composite hourly rig rates decreased just slightly again, down 2% or $10 an hour moving from $503 an hour to $493 an hour. Here, the quarter-over-quarter decline in pricing was the result of February's weather disproportionately hurting 24-hour work, leading to a mix shift for the month towards lower rate day light work. Specifically, on average, for the entirety of Q1, 24-hour work dropped to just 19% of total rig activity as compared to 26% for Q4. However, that sequential drop was driven solely by February's activity. In March, 35% of the rig activity was related to 24-hour work, a recent high point.

Thank you, Brandon. So you will note that we pushed back earnings a couple of weeks this quarter. We had two specific reasons for doing so and expect to return to upfront you to reporting for Q2. Firstly, we wanted to have a full look at April in order to be able to share some incremental insights in real time. And second, we are currently working on multiple smaller M&A transactions. One of which we are hoping to have done by this earnings call. Unfortunately, this still has not yet closed, but the measurement period for completions is in days, not weeks. Given the likelihood of a couple of transactions closing prior to our next quarter's call, I thought it would be appropriate to share some detail around our current M&A thinking. Our acquisition strategy has been fixed and simple. We are focusing on potential counterparties with top-tier assets, who have a reputation for best-in-class service quality. We are looking at both bolt-ons to our existing service lines and complementary service lines that extend our current core service offerings. Tactically, we believe in being opportunistic. There is a right time and a wrong time and each cycle to be acquisitive. And I'll note that what proved to be the right timing decision in the long run, it's often counter to consensus thinking at the time.

Our first question comes from Jason Bandel with Evercore ISI.

First question and thanks for all the data points that helped to illustrate the impacts from the winter weather and clearly a better exit rate coming out of Q1 and a nice ramp here in April for rates and hours in High Spec Rigs. But can you quantify further the revenue and EBITDA impact weather had on Q1? And as we think about the revenue progression of Q2, what kind of rig hour or growth do you think you guys can achieve?

Yes. So don't have the exact number for quantifying the exact weather amount. As I said in my comments, it was a combination of weather and the slow start to January ramping back up. And we had some consolidation with our E&P customers that occurred in the fourth quarter. And we had some pretty material 24-hour rig go down in the last couple of weeks of December and then in fire back up to until mid-January. Then, also on the wireline side, we had one of our simul frac operation did stop until the mid-January. So the challenges of January with combination of the weather, but along with somewhat of a slow start to January. As we're coming into Q2 and really focusing on the rig that in my comments here, the ramps if I use the word significant is probably the right word to use. We're very pleased with what we're seeing right now. We're showing the average rig count I believe was 65 for Q1. As we're sitting here today in April, we're at 72 rigs. As we sit here in April with 11 of those 72 rigs working 24 hours. And with, we anticipate a minimum of a number now that 324 our rig going out. So translating that into hours is going to be a very, very nice pickup for Q2. Brandon, do you want to add to that?

So to answer succinctly, we have several numbers for the winter impact, the winter weather impacts that we saw in Q1. The problem is, is that as Darron kind have highlighted in his prepared comments, we are carrying a lot of additional cost and anticipation of the rig ramp that has occurred. And so, if I include those additional expenses as sitting idle, while the weather delayed our ramp, we get to a really big number for winter weather impact. To the three, it's almost not believable. So we really shied away from absolutely quantifying that because of that extra expense that we are carrying through this ramp period, which did materialize, but was delayed by the weather. So again, the range is wide in terms of what metric you we actually want to use and we again just decided to not quantify it exactly because there would be a paragraph of explanation underneath that specific metric.

Yes, it's always kind of hard to quantify those kind of numbers, especially early on the recoveries where incremental funky. I guess, next question on pricing. It just been kind of a hot topic this earning season as I felt tourist companies work to recapture some of the concessions that were made in the downturn. I know, you touched on a little bit in your prepared remarks. But can you talk more about the trends that you're seeing in both Rigs and Wireline for pricing? On the rig side is it being driven more by mix as completions were comes back 24-hour comes back or utilization improvement helping as well? And then on the wireline side, what gives you the confidence that you're at a bottom here?

So I would say from a timing standpoint, our rigs are probably a quarter ahead of our Wireline, from actual price increase if not a mix issue, just strictly price increases. So we started moving prices on Rigs actually towards the end of Q4 coming into Q1. And we're starting to see the full impact of that materializing now and are actually preparing for second rounds of that to occur. Whereas on the wire line side, we just started to get our first improvement in the quarter of Q1 and towards the back end of the quarter of Q1. So again, that's why I'd say from a timing standpoint, it's about a quarter difference between the two. Definitely on the mix side, we're going to see on the rigs, a probably fairly decent step-up in rates composite rate when we report our two numbers and that will be combination of the actual rate increase we will see, but also the higher component of mixing in more 24-hour rig than the hourly rates just significantly higher on a 24-hour rig packages just from a normal daylight package. So you'll see composite rig rate reported in Q2. I believe the move up materially from what we've reported here in Q1.

And then, on the wireline side Darron?

On the wireline side, I think, look at that at kind of mid-single-digits here for our initial price increases and those are tangibles. So that's why we feel like that pricing has bottomed out, because we've had some success. The market is still over too much capacity. So it will be I think a slower timeline for container moved pricing up, but at least we have come off bottom.

And I'll just add Jason. Your question of how do we know that pricing has bottomed? Certainly, we don't know absolutely. But as we look through the kind of the fourth quarter, as the second half of 2020 and into the first quarter, on our math looking at kind of over the fence at some competitors. We think that their pricing, they work at breakeven EBITDA at best and that was sustainable in 2020 and early this year with PPP money coming to our some of our smaller more focused competitors with that used and gone variable price -- pricing, variable cost pricing is not a sustainable business. So we assumed just that that from a macro and micro perspective that is not pricing that can continue to exist in this sector.

And then, the last one for me on simul frac. There's still seems to be some debate around the efficiencies that are gains and kind of the value created in doing simul frac jobs. Can you touch on what you guys learned from the simul frac trials that you are on and the financial benefit that you guys achieved from being simul frac job?

Well, I think the efficiencies are real. Again, we did our first trial job starting at the --towards the end of the December with one customer. To-date, all of our customers have completed simul-frac jobs and all of our customers are adopting them as the go forward processes. So the operators are definitely seeing the benefits of it. From the service side, we did see the benefit of it in Q1, spoken about the efficiencies. And that's because from a drilling standpoint, you need a minimum of four wells per pad to per simul frac to be effective. And the drilling rates hadn't got out in front. So we had situations where we would do a simul frac operation. The next pad we're moving to with three well pads, just that we had a crew and a truck that was not needed. That's led over into April as we've gotten into May. We feel like with these customers to adopt this process with the go forward process, they have adapted the drilling programs to run full bore on simul frac. And we actually have two trucks on location two crews running four simul frac, we're back to our normal type efficiencies and we're getting the benefit. So I think the benefit on the services side is still to come. The E&Ps got on that benefit that they are adopting this as part of their go-forward strategies.

Our next question comes from John Daniel with Daniel Energy.

Good to see the echo the comments before the step-up in April and really glad to see the progress on M&A. I know you can't name names and that's fine. But as you forward Darron, it sounds the way you're describing it, these are more tuck-ins as opposed to transformative. Do you think the strategy in the near-term will be more tuck-ins or do you think we'll see a transformative deal or given, well, are you looking at the bigger opportunities as well, obviously with their let you opine?

No. Great question. So, look, nothing is off the table John. And we've looked at what I would define as small tuck-ins that moved the needle modestly two transformative opportunities that moved the needle greatly. I think the near-term opportunities that we have while aren't transformative to an overall Ranger from a materiality standpoint to our Mallard business. They do moved the needle with our Mallard business. So we're excited about these opportunities. But to answer your question, yes. We continue to look at transformative deals. Yes, we're hoping to get these two of the finished line will be our part two. But the key word is first, right. And we hope to do multiple transactions. We positioned our balance sheet. And we continues to get a lot of inbound from smaller opportunities to us, I would say equal size of sometimes larger companies looking to partner up with Ranger and build a strong business together.

There is a universal scene with all the well service companies are now labor issues. And a significant number of them talk about the inability they're going to be miss their jobs, because they don't have the crews. That clearly one would then provides the backdrop to be more sort of on pricing. It sounds like you guys are taking the first steps of that, you have the backdrop of access of Forbes getting together. I mean, to me, it feels like that part of your business for the first time in a long time feels pretty good? Would you care to elaborate it? I mean, did I miss anything?

I would agree with you 100%. For the first time about that it feels very good. And our strategies of focusing on the top-tier clients, I think got said at too many times about pursuing super-majors. I'd even mentioned that we went to work for a new super-major in fourth quarter, as we did refer today. We first job we did with them in the fourth quarter. As we sit here today, we have four rigs working for them, three of them on 24 basis. So labor is tight, have we missed some job, that would call in we just how the crews? Yes, we have. Have we raised rates on some lower work that we were doing, with the objective of moving those crews over? Yes. We view that strategy as well to mobilize our workforce and asset base to higher paying work. So it is a challenge, I think for our program work, we're loading out for 24 basis that we know staying out. We're able to go out and recruit the crews and get them on. But we have turned down some work that called in or more of a spot basis, because we just, we didn't have crews available.

And John just for fun these, the senior management team here is on, call it, we do need a little bit help on that.

I hope so. Well, I guess my final question. Darron, I mean look you have to strike the balance is leadership about growth versus returns. I mean at this point you what's sort of your mandate internally is it? Hey, guys try to push for that extra make up a number of 5% incremental rate increase, before you try to put on a rig or do you try to put out the rig to thank here of the customer, because they have a need? How are you striking that balance it out?

No, look. One of our objectives that we're going to be a strong cash flow generating organization. And well, to answer that question is I would expect that going into Q3, on the rig side, we are going to be back to pre-downturn revenue levels for our rig, so matching Q1 20-type revenue level. But, running less rigs and higher margin. So that's well answer that question.

Our next question comes from Daniel Burke with Johnson Rice.

Let me take my little budget the M&A Apple here as well. Darron, you talked about these near term high probability opportunities is existing a sector where we're kind of breakeven-ish EBITDA levels entering a recovery cycle there's going to be working capital requirements. How do you get comfortable with the cash generative nature of the deals you're looking at?

Can you take that Brandon?

Yes. So one the deals are going to be cash flow accretive likely from day one. And day one means that we've accomplished a good portion of the transition work, not all of it obviously. But all of this stuff is pre-mapped and have a good portion of it happens day one. So these businesses that we have on the front burner are expected to be cash flow positive. The majority of the consideration for the transactions that we have again on the front burner will be equity. So the cash-out will be a little to none, they will come with their own working capital as we move them over generally speaking. So there won't be a big draw on working capital day one or no draw on working capital day one, cash flow positive day one. So they should be accretive to kind of all the metrics that you would imagine from a credit perspective. Does that hit it?

I appreciate the insight as well. It's a kind of dual structure that's helpful to know going into what looks like pretty imminent probability of the closure. So I appreciate that that added preview. I guess the only other one I had left was plenty of indications, the press release and the call today pivoting back to the model putting indications on where the rig business is, could you talk a little bit about the Completion business. It wasn't clear to me if some of the fits and starts related to the simul frac activity of your customers was fully cleaned up as we entered April or whether their considerations to take into account when we think about revenue trajectory on the completion side?

So, in the month of April, we had one of our core customers who we had a unit down for two weeks due to the solid frac business start. It had since returned back to full simul frac for the rest of the year. So May forward, we believe this business start to simul frac is now in our rearview mirror. I think what we're seeing in our business. Overall, as we were coming out of this downturn, we saw the first response in activity to come to the maintenance side of our well servicing rigs that's why continues to grow. Then, we start to see the 24-hour size of our rig activity pick-up, that is continuing to grow. On the completion side, again, running a quarter behind, we think that next level of growth will start to occur here in Q2 and going into Q3. And I think that's just the way the operators are looking at their spin to get well back on from a maintenance standpoint. We'll continue to focus on more completion, that completion activity. And then we're starting to see the drilling activity to increase as well too. So I think it's coming back in those type of stages. And I think our wireline opportunities that we're looking at are going to be well-timed from a pricing and activity standpoint.

Thank you. At this time, we have come to the end of our Q&A session. So I would like to turn the call back over to Mr. Anderson for closing comments.

Great. In closing, I just want to thank all of you for your continued support. And as always, I thank our wonderful team members for the great job they do every day, from the sales to our corporate office. Operator, thank you. And that ends the call.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation and have a great day.