Ranger Energy Services, Inc. (RNGR) Q3 2026 Earnings Call Transcript

Good morning, and welcome to the Ranger Energy Services Third Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your touchtone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Joe Mies, Vice President of Finance. Please go ahead.

Good morning, and thank you for joining Ranger Energy Services' third quarter 2026 results conference call. Before we begin, Ranger has issued a press release outlining our operational and financial performance for the quarter ended September 30, 2026. This press release, along with our most recent investor presentation, is available in the Investor Relations section of our website at www.rangerenergy.com. Today's discussion may contain forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Factors that could cause actual results to differ include but are not limited to changes in crude oil and natural gas prices, customer activity levels, operating risks, competitive pressures, weather conditions, integration risks related to acquisitions, and other risks as described in our filings with the Securities and Exchange Commission. We will also reference certain non-GAAP financial measures during today's call, including adjusted EBITDA and free cash flow. Reconciliations of these measures to the most directly comparable GAAP financial measures are included in our earnings release. Joining me on the call today are Stuart Bowden, our Chief Executive Officer, and Melissa Kugel, our Executive Vice President and Chief Financial Officer. Stuart will begin with an overview of the quarter and our strategic progress, including the completion of the step-coiled tubing acquisition and the continued build-out of our ECHO rig fleet. Melissa will then walk through our third-quarter financial results in more detail. Following their remarks, we'll open the call for questions. With that, I'll turn it over to Stuart.

Thank you, Joe, and good morning, everyone. We appreciate you joining us today. Consistent execution and steady progress define Ranger. In this quarter, we continued to deliver against our strategic goals. Most notably, we completed the acquisition of the STEP U.S. quail tubing assets, making Ranger the second-largest quail tubing provider in the lower 48. In addition to this transaction, Chevron committed to four additional ECO hybrid electric workover rigs, which will take our contracted ECO rig fleet to 24 rigs by the end of 2027. Finally, strong cash generation allowed us to fully repay the revolver borrowings from our American Wealth Services acquisition, allowing us to exit the quarter with zero net debt less than a year after closing that transaction. This progress was a result of intentional and consistent effort from the organization that continues to strengthen Ranger as we approach 2027. I firmly believe Ranger has more ways to grow today than at any point in our history. First, a few words about the quarter itself. Ranger generated revenue of $162.8 million and adjusted EBITDA of $20.1 million in the third quarter, results that were softer than we expected. Customers managed their budgets more closely, smaller competitors lowered price to win back work, and we absorbed cost inflation across several cost categories, the largest being an incremental $1.5 million in employee medical costs compared to the second quarter. Considerable time has been spent recently with our operating teams, evaluating ways to improve utilization and margins, and many of those efforts are already in flight. Melissa will walk through some additional color in this segment detail. Cash generation, however, remains strong. Ranger produced $20 million of free cash flow in the third quarter, which allowed us to fully repay our revolver borrowings while continuing to return capital to shareholders and giving us capacity to complete the STEP acquisition. Now let me turn to the STEP asset acquisition, which we closed on October 8th. I want to first welcome our new professionals to Ranger. The STEP team has earned a strong reputation for technical execution. Service quality and solving customers' most challenging drill-out applications safely and reliably, and they are a tremendous addition to our organization. This transaction does three important things for Ranger. First, it gives our coil tubing business scale. We have long been proud of our coil tubing operation in the north, but it was a single-basin business, and in coil tubing, scale drives utilization and returns. STEP adds 13 coil tubing units operating from the Bakken through South Texas, with its largest presence in the Permian Basin, right alongside our high-spec rigged fleet. We are now a multi-basin coil tubing provider in the U.S. coil tubing market estimated at $1.5 billion annually. Second, it gives us differentiated technology. The Coil Plus Extended Reach Technology has helped operators successfully reach total depth on more than 60 long lateral wells, with its deepest well exceeding 30,000 feet. As laterals get longer, that capability lets us compete for the most demanding work in our basins, and it gives customers real flexibility in their drill-out programs, because Ranger can now offer either a coil tubing unit or a high-spec rig for the job. Third, it creates pull-through. The overlap between STEPPS customers and our own is significant, and a larger quill tubing business lets us provide more services and equipment to those customers across more of their wells. We acquired these assets for approximately $27.5 million, and we expect STEPPS quill tubing assets to contribute more than $10 million of adjusted EBITDA in 2027, with significant further upside expected in 2028. That is a compelling valuation for a business of this quality, and exactly the kind of targeted M&A that continues to set Ranger apart. We are adding shareholder value at attractive prices in businesses we know well. Turning to Echo. During the quarter, we were awarded contracts for four additional Echo rigs. This represents additional expansion of our ECHO relationship with Chevron this year, following the rigs committed to earlier in the year, and it will bring our total contracted fleet to 24 rigs by the end of 2027. Repeat orders from an operator of this caliber are the strongest validation of this technology we could possibly ask for. The ECHO build program is also running slightly ahead of schedule. Five ECHO rigs have been delivered through the third quarter, with the balance of the fleet scheduled for delivery through the third quarter of 2027. Customer feedback has been positive, reinforcing both the efficiency of operations and the enhanced safety ECHO brings to location. And our current customer conversations point to additional rig commitments in the future. We are beginning to track safety and operational performance on these rigs and feel over time their value proposition will become increasingly evident in the data, driving further demand. Importantly, ECHO represents growth where our customers are investing alongside Ranger. Our agreements include upfront customer payments or day rate premiums that support returns on the capital we invest. And as ECHO's efficiency gains are solidified, we expect the fleet to help push down overall service costs for our customers. That is a powerful combination in a market where operators are looking to do more with less. We have also now passed the one-year mark since closing AWS. We have realized approximately $5.2 million of annualized cost synergies ahead of the $5 million we targeted, and we have fully repaid the borrowings used to fund the transaction. The acquired high-specification rigs have largely tracked our expectations, while some of the ancillary service lines, particularly transportation, mixing plants, and tubing inspection, underperformed during the third quarter. We have taken several operational steps to reorganize those operations to improve accountability, utilization, and profitability. In high-specification rigs, customers manage their spending more closely in the third quarter, creating incremental white space across our fleet. At the same time, as Ranger has gained share through operator consolidation, smaller displaced competitors have offered price reductions to regain work, and some budget-constrained customers took advantage of those savings. We have held our pricing discipline, which allows us to maintain our standards for safety and service quality, and we expect that decision to pay off as the market normalizes and budgets reset next year. Elsewhere, our legacy rentals and plugging and abandonment service lines continued to perform well, with P&A supported by an expanding and steady base of work from the Texas Railroad Commission. Our wireline segment performed, as we expected, with a break in customer well programs. The team managed the activity decline with timely cost reductions, demonstrating the progress made in creating a more responsive cost structure. New work programs began in October, and we believe that the fourth quarter will provide improvement from this quarter. Stepping back, crude prices moved sharply higher during the third quarter, and U.S. production and land drilling activity continued to grow. Although commodity prices have recently retreated somewhat, we believe Ranger's production-focused services, which deliver the fastest and lowest-cost incremental barrels from existing wells, are well-positioned as our customers' budgets reset. As we head into 2027, we have a fast-growing EcoFleet, an expanded coil tubing platform, reorganized ancillary service lines, and a wireline segment that has shown its resilience. The moat is deeper now than it has ever been, and we remain focused on our goal of achieving $100 million of annualized adjusted EBITDA supported by these initiatives. With that, I'll turn the call over to Melissa.

Thank you, Stuart, and good morning, everyone. I'll walk through our third quarter results in more detail with a particular focus on drivers and then cover cash flow, the balance sheet, and capital allocation. Revenue for the third quarter was $162.8 million, a decrease of $13.7 million, or 7.8%, from $176.5 million in the second quarter, and an increase of $33.9 million, or 26.3%, from $128.9 million in the third quarter of 2025. The sequential decrease reflects lower activity across our three segments, while the year-over-year increase reflects the contribution of the AWS business. Net income was $2.5 million, or $0.10 per diluted share, compared to $6.9 million, or $0.29 per diluted share, in the second quarter, and $1.2 million, or $0.05 per diluted share, in the third quarter of last year. Operating income in the quarter included a $3 million non-cash benefit from a reduction in the contingent consideration related to the AWS acquisition. Adjusted EBITDA was $20.1 million, a 12.3% margin, compared to $28.6 million and a 16.2% margin in the second quarter, and a $16.8 million and a 13% margin in the third quarter of 2025. Cost of services rose to 85% of revenue from approximately 81% of revenue in the second quarter, driven by two forces, lower activity, which created negative operating leverage against a cost-based staff for a busier quarter, and higher costs, most significantly employee-related costs and fuel. The single largest contributor was employee medical costs across segments, which was $1.5 million higher than in the second quarter. General and administrative expense was $7.7 million, essentially flat with the second quarter, with both quarters including expenses related to the AWS integration and the STEP acquisition. Turning to high specification rigs, segment revenue was $110.5 million, a decrease of $2.9 million, or 2.6%, from $113.4 million in the second quarter, and an increase of $29.6 million, or 36.6%, from $80.9 million a year ago. Rig hours were 143,500 hours, down 2% sequentially from 146,800 hours in the second quarter, and up 29% year-over-year from 111,200 hours in the third quarter of 2025. Our average hourly rig rate was $770, essentially flat, with $772 in the second quarter, and up 6% from $727 a year ago, largely reflecting the pass-through of fuel surcharges and changes in asset and regional mix. Segment adjusted EBITDA was $18.4 million compared to $20.6 million in the second quarter, and segment margins were 16.7 percent, down from 18.2 percent in the second quarter. With margins down roughly 150 basis points, I want to walk through a few drivers. The first was white space. Customers managed their spending more closely, and operators laid down rigs for intermittent periods. A rig idled for a week still carries its crew and equipment costs, so even modest gaps in the schedule weighed disproportionately on margins. These were rig breaks that were not anticipated given the macro backdrop, but reflect budget exhaustion early in the year given the strong activity in the second quarter. It is worth noting that our 24-hour rig activity increased about 6% sequentially as operators continued converting production work to around-the-clock operations, but that growth was more than offset by white space and rig releases, which brings me to our second driver. During the quarter, we contended with a couple of smaller new market entrances offering price reductions to win back lost share the past couple of years, particularly in the Permian Basin. A couple of key operators, who are now budget-constrained, took advantage of those lower prices, which displaced a number of our daylight rigs. We made a deliberate decision not to follow pricing down. That kept our rates stable, but it did cost us some activity in the quarter. The third was cost inflation. Labor and fuel costs both increased as a percent of revenue, with employee expenses, including medical costs I mentioned, and diesel prices running even higher this summer, deteriorating margins further. We are presently redeploying some of our displaced rigs with customers who have work available, restructuring some of our operations, and working with key customers who see the value in Ranger differentiation on cost adjustments that reflect wage and fuel inflation. In processing solutions and ancillary services, segment revenue was $40 million, a decrease of $4.5 million, or 10% from $44.5 million in the second quarter. Segment adjusted EBITDA was $6.8 million compared to $10 million in the second quarter, and segment margins were 17% compared to 22.5% in the second quarter. Declines were attributable to a few service lines. Most notably, certain service lines we acquired through AWS, including transportation, mixing plants, and tubing inspections, saw significant declines in activity this quarter, which had a knock-on effect on margins. Torrent grew revenue on expanding contracts, but its results were affected by one-time charges, including legal fees, mobilization costs, and unique rental charges, along with the loss of some higher margin rentals. There were bright spots, though, with plug-in abandonment as well as rental margins improving and reaching their highest level in the past several quarters. In wireline services, revenue was $12.3 million, an expected decrease of $6.3 million, or 34%, from $18.6 million in the second quarter. Our wireline completion service line saw gaps in customer work schedules after the completion programs that drove our strong second quarter concluded. Segment-adjusted EBITDA was $200,000 compared with $3.6 million in the second quarter. Turning to cash flow, cash provided by operating activities was $30.5 million in the third quarter and $53.5 million year-to-date. Free cash flow was $20 million for the quarter, and year-to-date free cash flow was $18.3 million compared to $25.8 million over the same period in 2025. With the decrease primarily reflecting higher customer receivables resulting from a customer changing to 90-day payment terms, partially offset by internal efforts that have reduced our internal processing time. Capital expenditures were $10.5 million in the third quarter and $35.2 million year-to-date, compared to $19.1 million over the same period in 2025, with approximately $16.8 million of this year's spend related to ECHO construction payments. Our ECHO contracts include upfront customer contributions, which re-record as contract liabilities and recognizes revenue over the life of those contracts. Short and long-term contract liabilities totaled $19 million at the end of the quarter. As of September 30th, we had no borrowings outstanding under our revolving credit facility, and total liquidity was $76.2 million, consisting of $70.2 million of revolver availability and $6 million of cash on hand, up from $61.3 million at the end of the second quarter. Paying down the outstanding borrowings this quarter means we fully repaid for the AWS acquisition within a year of closing. After quarter end, we funded the cash consideration for STEP with Revolver Borrowing, consistent with the plan we outlined when we announced the transaction. Ranger expects to allocate the majority of its cash flows in the next several quarters to echo delivery payments and repayments on the borrowings used to fund the STEP acquisition. On the capital returns front, we repurchased 142,100 shares during the third quarter for $2.2 million at an average price of $15.74 per share. Since the inception of our repurchase program in 2023, we have repurchased approximately 4.8 million shares for $54.1 million at an average price of $11.31 per share. Year-to-date, we have returned $11.7 million to shareholders through repurchases and dividends, or 64% of year-to-date free cash flow, well above our commitment to return at least 25%. Our board has also declared a quarterly cash dividend of $0.06 per share, payable on December 4th to stockholders of record as of November 20th. With that, I'll turn the call back over to Stuart for closing remarks.

Thanks, Melissa. Before we open the line for questions, I want to leave you with a few thoughts. This quarter tested us, and our teams responded the way Ranger always does, by holding the line on safety, service quality, and pricing discipline, and by continuing to execute on the strategy that will drive our next phase of growth. That strategy is working. Within the span of a year, we have closed two acquisitions, AWS and now Step, at attractive prices. And we fully repaid the borrowings for the AWS transaction within a year of closing. We are growing our contracted Echo Fleet to 24 rigs with conversations for additional rigs underway. And we have returned $11.7 million to our shareholders through share repurchases and dividends so far this year. I said earlier that Ranger has more ways to grow than at any point in our history. A batch-growing echo fleet An expanded quail tubing platform and a streamlined ancillary business with room to grow gives us more levers than we have ever had. I want to thank our professionals for their hard work and commitment this quarter and those who have recently joined the OneRanger family. With a strong balance sheet and a consistent record of performance, we are confident in Rangers' ability to deliver durable, long-term value. With that, operator, we can now open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Don Crist with Johnson Rice. Please go ahead.

Good morning, guys. Hopefully you all are doing well. I wanted to start with the STEP acquisition. I know you've only had it for a couple weeks now, and you're still integrating, but just the customer dynamic of having more flexibility to either use stick pipe or coil to drill out and do workovers with longer coil, et cetera. How were those conversations going? It seems like STEP was kind of underutilized for what they had in the U.S., and just how was that progressing as you've had the last couple weeks?

Yeah, thanks for the question, Don. I think we're really encouraged by the conversations we've been having so far with customers. You know, the Ranger Coil business was really a one-basin business. We were focused in the Rockies, and we had some of our biggest customers, you know, tell us they wish we were in multiple basins, and STEP obviously gives us that ability. And I'll just sort of say just the reputation that the STEP professionals had built around service quality, technology, differentiation, et cetera. So we're pretty encouraged. It's kind of, as you said, early days. I think we're a month and two days into it, but we feel like the customers have been really receptive to it and, you know, appreciate having the ability to either use stick pipe or coil, kind of just depending on the well profile.

Okay, and I don't know if you really want to answer this question, but I'll ask it anyway. It seems like every couple years, the market kind of ebbs and flows and tries to get cheaper services and then kind of goes back to more quality operators, and it sounds like that's kind of what happened in the third quarter. But how are you seeing customers? I kind of revert back to higher-quality workover rig or coil or wireline providers after going through a little bit of budget exhaustion in the third quarter and using some of the lower-quality operators out there. We've heard of a couple accidents that have happened for low-quality operators, and it seems like everything ebbs and flows over the past. You know, a couple years, but are you seeing people revert back now and kind of contract for next year?

I think the honest answer, John, is that – I mean, Don, is right now I think it's too early to tell. As we said in my comments, we made a very conscious decision not to chase down that price. Our experience has been if you do that, it's almost impossible to get it back, and I think underpinning that is a belief that certainly the largest operators will stick with and go with the most reputable players. As far as the kind of shift back right now, I think it's too early to say.

Okay. Well, I fully believe that you'll gain more work going forward because it's better to be safe than to chase price. But that's just my opinion, and we'll leave it there. My last question. Yeah, exactly. My last question is just on labor. You know, obviously, a lot of data centers and whatnot construction out there that seems to be a little bit more stable than oil field work is drawing a lot of people away. Are you seeing any labor constraints or people leaving for other construction jobs out there?

I think we feel like we are, Don. It doesn't feel like it's a full-blown labor crisis yet, but I think we do think that we are seeing a labor market tighten, and we expect it to continue into next year. So, I think that's something we're pretty mindful of.

I'll leave it there. I appreciate it. Hopefully, I can see you in the next couple days.

All right. Thanks, Don. Appreciate it.

The next question is from Derek Podheiser with Piper Sandler. Please go ahead.

Hey, good morning. Just I guess maybe to kind of continue the conversation around losing some of the work to lower priced competitors. And Don mentioned accidents, obviously safety first and foremost. So what other challenges do you expect these customers to face going with lower priced, lower quality work that would cause them to come back to Ranger next year when budgets reset? Just thinking through the operational challenges that EMPs might face going to lower quality, aside from safety and accidents, but what else should we think about that would bring these customers back to Ranger?

I think what our experience has been, Derek, is I'd highlight a couple of things is You know, one is out in the field, the company men get very attached to, you know, our tool pushers, our supervisors, and it is not uncommon for us to see, you know, the company men really, you know, start to raise a bit of a fuss and kind of ask for ranger crews to come back. I think that's one thing. The second thing I would highlight, and it's related to safety, but it's on inspections. So a lot of times what we find is some of these smaller players aren't doing the proper. We've been doing inspections on their equipment, and more than once we've been in situations where we got a call and says, hey, you need to come out because we just did a spot inspection or a spot audit on a smaller player and, you know. The derrick, the blocks weren't properly inspected and were not comfortable. So I would highlight that. We have certainly seen that historically as well. And then again, I think just the familiarity with our crews. There's been a lot of time and effort and money training our crews, and we feel like it really shows out in the field.

Got it. Okay. That's helpful, Keller. And maybe just a bigger picture question, looking into 2027, just your initial views on it. Maybe you can kind of walk through the three different segments and what you expect to be some of the drivers as we go into next year and think about, you know, potential top line growth, margin expansion. You know, you obviously have the couple acquisitions getting up and running, but just more high level big picture. Just would love to get your initial views into next year.

Yeah, I think right now we're, you know, we don't have kind of a firm view. There's obviously a lot of moving parts, and I think the things I would, you know, highlight were, you know, obviously we're encouraged early days, but with the step acquisition, the asset acquisition, you know, our ability to provide coil in multiple basins, I think that's something that we're pretty excited about. You know, we've talked about in ancillary some of the, you know, some of the changes were made to sort of drive more profitability and accountability. I think some of the things that we're, you know, kind of wrestling with right now, just as we think about next year, Derek, are, you know, we've talked about labor. Thank you. I'll kind of say, just to follow up to the end. So, it's...

Got it. No, great. It's helpful. All right. I'll turn it back. Thank you. All right. Thanks, Eric.

The next question is from John Daniel with Daniel Energy Partners. Please go ahead.

Hey, Stuart. Hopefully they can hear me. I got some background noise, but my question relates to the echo rig. I'm curious if you can characterize interest levels. Are they broadening yet, or is it sort of the same two or three key customers coming back looking for more? Thank you.

Yeah, it is starting to broaden. I think we're getting more people You know, taking a look, hearing about it at conferences, et cetera. So, you know, again, we're not at the point where we have, you know, another customer that is, you know, contracted for one, but I would say it's fair to say that interest is growing for sure.

Okay. Thank you very much.

This concludes our question-and-answer session. I will now turn the conference back over to Stuart Bowden for any closing remarks.

Thanks, Operator, and thanks to everyone on the call. I appreciate your interest in Ranger, and don't hesitate to reach out if you have any questions. Have a great week, everybody. Thank you.

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