Earnings Call Transcript - RNGR Q3 2022

Shelley Weimer, Vice President of Reporting and Finance

Welcome to the Ranger Energy Services Third Quarter 2022 Investor Conference Call. I am Shelley Weimer, Vice President of Reporting and Finance. All participants will be in listen-only mode until the question-and-answer portion of this call. Please note this event is being recorded. I would now like to turn the conference over to Melissa Cougle, Chief Financial Officer of Ranger.

Melissa Cougle, CFO

Good morning, everyone. Joining me today is Stuart Bodden, our CEO, and Justin Whitley, who has joined us at Ranger as our new General Counsel. We are excited to have him onboard. Before we begin, I would like to remind all participants that some of our comments today may include forward-looking statements, reflecting views from the company about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the beliefs of the company based on current conditions that are subject to certain risks and uncertainties and that are detailed in our earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures are not a substitute for GAAP measures, and they may not be comparable to similar measures of other companies. A reconciliation of these items is presented in our earnings release, which is available on our website. I will now turn the call over to Stuart.

Stuart Bodden, CEO

Thank you, Melissa, and good morning to everyone joining us today. As Melissa just mentioned, Justin Whitley has joined Ranger as General Counsel, and we are very excited to have him onboard. Justin brings a wealth of oil and gas service experience to the company. And I know he's going to be a great fit for us. Again, welcome to the team, Justin. All of us are excited to speak with you this morning to share our Q3 results, discuss our outlook for the sector and Ranger, and outline some of our strategic thoughts as we look to the future. Ranger delivered another quarter of strong performance in Q3, with all three of our business segments showing increased revenue and expanded margins during the quarter. Our strong performance is the direct result of the hard work of our teams and our continuous focus on service quality and disciplined execution. We have spent a year integrating the companies acquired during 2021 and getting the fundamental building blocks in place to execute with excellence. Due to those efforts, financial performance at Ranger is much improved from prior years and even the first half of this year. Our performance in Q3 shows that our 2021 acquisitions have created shareholder value and provided valuable scale and operating leverage, which have positioned the company to capitalize on what is expected to be a multi-year upcycle. We hosted our first leadership team meeting this past quarter in several years, and our team developed new and shared objectives to find incremental efficiencies and opportunities for growth across segments. We are creating a new wave of initiatives and organizational changes, such as the one that brought Justin to our team. As our Ranger vision states, these new efforts will help us drive toward new thinking and enhance our positive energy culture. Looking at our specific results, the company grew revenue by 15% quarter-over-quarter, nearly doubling the pre-COVID revenue levels of the company. Our adjusted EBITDA increased 69% to $30.3 million with EBITDA margins improving by more than 500 basis points to just over 17%, on the back of increasing prices and activity as well as strong operating leverage. Our revenue and EBITDA levels are the highest that we have ever seen historically, and we have operating capacity and assets yet to tap into the future. Our operating performance, continued focus on managing working capital, and ongoing sales of surplus assets has allowed Ranger to deleverage by $13 million this quarter, reducing our total debt balance by 19%. This year, Ranger has been able to nearly half its debt load and currently stands at a leverage level that is well below one times its current EBITDA run-rate. I now let’s spend a few minutes to talk about our segments. In our High Specification Rigs, we continue to increase the total number of rig hours worked, which totaled 123,000 hours for the quarter, and approximately a 3% increase quarter-over-quarter that has moved higher than at any time on record for Ranger, at $648 per hour on a blended basis. We anticipate these rates will be stable going forward with the possibility of some additional moderate gains to be had during 2023. Our active rig count has stayed steady the past quarter, but transitions for rigs between customers and into the yards for maintenance and certifications are ongoing. Our teams continue to be focused on strong execution, cost management, and operating efficiency, which we feel will drive more market penetration and continue expanding margins. We received several customer acknowledgments this quarter, most notably the Rig of the Quarter award from Pioneer Natural Resources in the Permian region. We've been proud of the partnership and relationship with this key customer. We also received acknowledgment from two separate super majors this quarter for outstanding safety in our operations and effective use of stockwork accountability. Our stockwork accountability program, which we call 'I Got Your Six,' stresses the importance of stopping activities that are unsafe, confident in the knowledge that management has got your back. For our rigs business in Q4, we do expect typical seasonality and holiday impacts. We are seeing some isolated impacts of budget exhaustion; however, the few rigs that have been released have largely been redeployed with other customers. Moving to our Wireline segment, revenue increased 22%, with segment EBITDA increasing more than twofold to over $11 million with margins of 19% in Q3. This improvement is a result of a series of changes we made to this business earlier in the year, including changes in leadership, focus on improving service quality, redeployment of assets, and ensuring our rigs are appropriately profitable. In short, we have made significant strides in this business. We are proud of this progress and continue to believe there's more potential in the Wireline segment. We do expect to encounter some seasonality, particularly in our northern operations during the latter part of this year and into the first quarter of 2023. As activity begins to pick back up in the first quarter of next year, we will be pushing for additional growth and utilization of our Wireline assets. Finally, in our Ancillary Services business, we had a very strong quarter more than doubling segment level EBITDA and realizing segment level EBITDA margins above 25%. Coiled tubing, P&A, rentals in fishing, and Torrent, our field gas processing division, all saw increased revenue and margins quarter-over-quarter. Our coiled tubing business has grown 157% year-to-date and produced 25% EBITDA margins in Q3, while our rental and fishing business has grown 65% since year-end and is realizing margins of 24%, showing promise as well. As we approach year-end and reflect on the company's accomplishments and where we go from here, it is clear that our acquisitions executed last year are now delivering strong returns, demonstrating the value of our consolidation strategy for Ranger and for the sector more broadly. The Ranger management team and board believe that consolidation remains an essential and ongoing process for the company within both existing and adjacent product lines, and we continue to be actively engaged on this front. We regularly field inbound opportunities and maintain active dialogues with potential partners to look at ways to create value together. We have our investor group shares our excitement about this quarter's results. Our teams across all three of our business segments have worked hard and shown incredible dedication to the company, and our financial results back them up. It has truly been a team effort, and I'm proud of what they've accomplished. I'll talk more about our outlook and strategic priorities here shortly, but I'll now turn the call over to Melissa to walk through some of the details of our financial results.

Melissa Cougle, CFO

Thank you, Stuart. It was a great quarter, and I think really gratifying for the team here at Ranger to see the results of all of our efforts demonstrated financially. Our third quarter results were excellent, with activity increasing in all service lines and pricing gains experienced earlier in the year showing their full quarter effect. And reviewing the details of our financial results, our consolidated third quarter revenue grew 15%, increasing from $153.6 million in the second quarter to $177 million in Q3. The company posted net income for the quarter of $13.6 million, an improvement of $14 million over the second quarter's net loss. Going forward, we do anticipate generating positive net income in future periods and should be in a positive retained earnings position at the end of the year. Adjusted EBITDA improved from $18 million in the second quarter to $30.3 million in Q3, a 69% increase, with margins expanding 500 basis points over that same period from 12% in Q2 to 17% in the third quarter. At the segment level, revenue for High Specification Rigs increased from $76 million in the second quarter to $79.7 million in the third quarter due to an increase in both activity levels and the full quarter effect of pricing gains. Rig hours and rig rates both increased from the prior quarter, driving the 5% quarter-over-quarter improvement in the top-line. Segment EBITDA for High Specification Rigs was $17 million in the third quarter as compared to $14.2 million in the second quarter. Margins in this segment expanded to 21% during the third quarter from 19% in the prior quarter due to some unplanned charges during Q2 that were non-recurring. In the Wireline segment, revenues increased by 22% from $49.5 million in the second quarter to $60.6 million during the third quarter. The increase in revenue was attributable to an increase in activity levels for our completions business, with stage counts increasing by over 10% from 8,000 stages in the second quarter to 9,200 stages during the third quarter, as well as strong activity levels within our production business. We also gained incremental improvements in pricing during the third quarter in this segment. Our processing and ancillary services revenue increased from $28.1 million in the second quarter to $36.7 million in the third quarter, a 31% growth rate. All ancillary product lines grew with the strongest growth coming from our coiled tubing business, with revenue nearly 50% up from the prior quarter attributable to the deployment of an additional coil unit. Adjusted EBITDA for this segment increased by 106% quarter-over-quarter from $5.1 million in Q2 to $10.5 million in Q3. On the G&A front, costs decreased by $1.2 million over the period from $12.2 million in the second quarter to $11 million during the third quarter. The quarter-over-quarter changes in G&A, largely related to integration costs, legal settlements, and severance, all of which we expect to continue to decline during the fourth quarter. Turning to the balance sheet, the company reduced its net debt load by $13.2 million, or 19% over the quarter, and is reporting adjusted net debt of $45.2 million at the end of the third quarter. The company was able to pay down this debt with operating cash flow of $10.7 million for the quarter and asset sale proceeds totaling $6.5 million. With that, I'll turn it back over to Stuart, to address our outlook and thoughts on the strategy front.

Stuart Bodden, CEO

Thanks, Melissa. I would now like to provide more detail and clarity about our thinking for the business moving into Q4 and then into 2023. We continue to see demand and pricing resilience across all of our service lines. We have seen isolated pockets of budget exhaustion, although customers have committed to picking those rigs back up in early 2023. The few rigs that had been released have already been redeployed to other customers, many for extended work programs, likely setting up increased market tightness for our services in early 2023. Although we are mindful of a potential recession, our customers have indicated they intend to hold activity levels and maintain production targets during 2023. And we see steady demand throughout the year with opportunities for incremental growth. We recently updated our full year guidance for 2022 and now anticipate revenue to be between $615 million and $620 million for the full year, which exceeds prior full year guidance of $580 million to $600 million. Full year adjusted EBITDA margins are expected to be near the top end of prior margin guidance at around 13%. During the fourth quarter, we are expecting typical seasonality and holiday impacts and believe that consolidated revenues could decline by mid-to-high single-digit percentages. But that will be highly dependent on each individual customer. Adjusted EBITDA will likely be affected by the seasonality as well. Although the team remains highly focused at staying near the 15% EBITDA margin target through Q4. We do believe that we have harnessed great momentum during the second half of 2022 that we can build upon in 2023. And we are working with our teams right now to pin down those opportunities and develop specific budgetary targets for next year. The company is using the second half of 2022 as a 2023 budget baseline and does believe that there are additional opportunities to grow in these levels. Our focus through these budget discussions will be to push our teams to deploy assets where there are sufficient market demand and make incremental improvements to operating efficiency to facilitate additional margin expansion. Finally, the management team and board have spent significant time this quarter thinking about next steps for the company, in light of the successful integration of our 2021 acquisitions and our desire to drive shareholder value creation. I would like to share some of those thoughts with you now. Over the quarter, we've spent time looking at our strategic priorities as a company and gathering a number of investor perspectives as well. There are commonalities to these discussions that are forming the foundation of our go-forward thinking. The Ranger management team and board believes that the company should ensure balance sheet strength and resiliency in any economic environment and during any part of the commodity cycle, and the vast majority of our investors have echoed this belief. The company believes that a balance sheet without debt is absolutely vital, and that we should continue to pay down debt and deleverage the company. As a smaller public company in a sector that remains highly fragmented and competitive, the company should be in active pursuit of appropriate consolidation opportunities in the coming years. Growing the company and gaining additional scale in the space is an essential part of the company's strategy to generate shareholder returns over the long term. We have and will continue to be actively engaged on this front. And we believe maximizing financial flexibility and balance sheet strength provides us an advantage in these discussions. Finally, we need to remain flexible and be focused on making sound investment decisions. With the dynamic sector and market backdrop, we will continue to evaluate our shareholder return framework and the appropriate time to consider either a share buyback or dividend. This concludes our prepared remarks. We have appreciated your time today. And we will now open it up for questions.

Shelley Weimer, Vice President of Reporting and Finance

We will now begin the question-and-answer session. The caller with the phone number 2887, please ask your question.

John Fichthorn, Analyst

Yes. Hi, Stuart, this is John Fichthorn. Thanks.

Stuart Bodden, CEO

Good morning, John. How are you?

John Fichthorn, Analyst

Good. How are you?

Stuart Bodden, CEO

Good. Thank you.

John Fichthorn, Analyst

Great numbers out today. You guys have done a really excellent job running the business. And I just would love it, if you guys could expand a little bit on what you intend to do with all the cash flow? You kind of speak explicitly around paying down debt, rock solid balance sheet, yet at the same time, you talked about how currently your net debt is quote, well below one times EBITDA. So I would say that is pretty much a rock solid balance sheet. All of your competitors are currently returning cash to shareholders in some form or fashion. And it seems like something that would both support your stock, which would give you a currency to use to do further acquisitions, as well as kind of seemingly do the right thing for shareholders. But I'd love your thoughts on it.

Stuart Bodden, CEO

Great, thanks for the question, John, very much appreciated. As we said, there's been a lot of discussion between the management and the board. We also through the quarters focused with really a large number of our investors to get their perspectives as well. And I think for those conversations, really, a couple of things came out. So the first thing is that really a strong desire to have just been net debt zero. So we do think, as you said, that our balance sheet is very strong, but we have a very clear target to be net zero. So that's kind of the first priority as we go forward. We also feel like that, in our current sector, our current segments and the adjacent segments, there's still a lot of consolidation opportunity. We're having a lot of conversations and we just feel like we need to be flexible financially, to act opportunistically if something develops. Our return framework is going to be an ongoing discussion. Again, lots of conversation with the board and investors, and we would expect that that will continue in the coming months and quarters.

John Fichthorn, Analyst

And just net debt zero, with this level of EBITDA, your adjusted EBITDA was $39 million for the quarter. You have net debt of $57 million. That target will be achieved, arguably in the next four months, if you continue with this run-rate. Your equity is obviously consideration for further consolidation, I would imagine. And is it not, I mean, what do you intend to do? How can you buy a company in an accretive fashion when your stock's trading at three times cash flow without getting your stock price up?

Stuart Bodden, CEO

Yes, I don't want to repeat myself, but it was indeed a significant point. We had extensive discussions about this. Ultimately, we believe that the best way to enhance the company's long-term value is to achieve net zero while remaining open to various opportunities. However, John, this is a continuous conversation with the board. As market conditions evolve, we will keep reassessing our strategy.

John Fichthorn, Analyst

Thank you.

Shelley Weimer, Vice President of Reporting and Finance

The next question will come from the caller with the phone number of 8215. Please go ahead.

John Daniel, Analyst

Hey, guys. The new call-in system is confusing for an old person like me. It's John Daniel. Really nice results and balance this quarter and good call on the debt paydown strategy from someone who's lived through way too many cycles. Hey, Stuart, I think if I heard correctly, in the prepared remarks, you've talked about an expectation for stable rates going forward in '23. As you may know, there are different views on activity levels next year. Patterson, for instance, yesterday cited their internal customer survey, which is actually quite positive, which would call for another 90 rigs from now through '23. Let's assume they are right. And that's call it a plus 10% move in the rig count drilling recounts. In that scenario, would you still see rates being stable? Or do you think there'd be further upside from here?

Stuart Bodden, CEO

I think in that scenario, that would absolutely be further upside, John.

John Daniel, Analyst

As we engage with various LFS companies, there still appears to be significant interest in further industry consolidation. You mentioned in your comments that you continue to receive incoming inquiries. However, it seems that the differences in valuations are what prevent additional deals from occurring. I believe there is general agreement on the logical reasoning for more consolidation. What do you think will be necessary for sellers to adjust their expectations? Additionally, I'm referring to the fact that even if EBITDA multiples seem low, the valuations based on replacement value could appear quite high. Overpaying for an asset is particularly undesirable, so I would like your insights on this matter.

Stuart Bodden, CEO

Again, thanks for the question, John. How we've been really thinking about it. And I'd say the majority of our conversations would be primarily equity deals. So rather than going out and raising a bunch of debt to get paid for something. So that's been most of the discussions. And again, I think, in a way, that's why we're being ultra-conservative with the balance sheet. Because some of those targets do have some debt themselves that we would potentially have to absorb. So, again, but I think generally, it would be the equity deals.

John Daniel, Analyst

Okay. And then a last one, I might squeeze two more here. And this one might be tough, but I'll just throw it out there. In terms of the M&A, is that the private equity people or the incumbent management teams who tend to be the greatest obstructionists in getting deals done?

Stuart Bodden, CEO

It is a challenging situation. From my personal experience, I believe this is certainly accurate. Considering how long many of these companies have been under private equity ownership, some social issues become apparent. While I won't claim they are easy to address, I think people are engaging in more realistic discussions.

John Daniel, Analyst

I'm going to go back to operations here, because I was really impressed by the comments on coiled tubing and the rate of improvement. If you have any specific data points in your notes, please share your thoughts on how Ranger is participating in that market and the opportunities available.

Stuart Bodden, CEO

So, in the quarter, we put our fourth large coil unit out to work. So the fourth quarter results don't fully reflect the full utilization of that unit. That said, I think we do expect some seasonality. At the moment, we have been supporting that business. Again, it's a DJ-focused business. I've been supporting it. At this moment, we don't intend to go outside the DJ. The equipment that we have, we really liked the team that's leading it, but at the moment, we intend to be pretty focused on the DJ.

John Daniel, Analyst

Hey, great. Really good quarter. Thanks for letting me that one.

Stuart Bodden, CEO

Yeah. Thanks, John. Appreciate it.

Shelley Weimer, Vice President of Reporting and Finance

Next call will come from the caller with the phone number of 84351. Please go ahead.

Luke Lemoine, Analyst

Hey, good morning, Stuart and Melissa. Luke Lemoine from Piper Sandler. Stuart, you have a nice increase in your wireline stage count in 3Q. And you've been highlighting the potential for improved results here. I'll just flipping available trucks to active. Can you talk a little bit about how this progressed during the quarter versus maybe how much efficiency improvement you saw from 2Q active trucks, along with how many trucks maybe could go back to work in '23?

Stuart Bodden, CEO

Sure, I have a few comments on that. Currently, we are operating at an average of low-40s in terms of wireline units, while we have upper-60s available. This indicates that we have some room for growth. There are several factors that contributed to the increase in margin, but we believe there is still more work to be done. Notably, both our production segment and our plug and perf completion segment experienced significant revenue and margin growth. Pricing in Midland and the Permian Basin, particularly related to completions, faced challenges throughout Q2 and into this quarter. However, we feel we have made progress, although we are not yet where we want to be. In terms of pricing for plug and perf, we are still below pre-COVID levels, unlike rigs, which have exceeded those levels. Therefore, we believe there are still opportunities for improvement. Overall, the north had a strong quarter.

Luke Lemoine, Analyst

Thank you. Thanks a bunch.

Shelley Weimer, Vice President of Reporting and Finance

The next question will come from a caller with the phone number 9243. Please go ahead.

Derek Podhaizer, Analyst

Hey, thank you for calling me. This is Derek Podhaizer from Barclays. I like the number system, I feel like John. Good morning, Derek. How are you? I'm good. I'm good. I like my thoughts here. I just wanted to hit on the budget exhaustion comment a little bit. Obviously, not getting that much from your peers and the pressure within your land drilling side. And then you mentioned this might or will extend in the first quarter, and you're really planning on hitting your stride. I guess first quarter that surprised me a little bit. As far as seeing that for the first quarter, I would think we would be more like a coiled spring and hit the ground running. I know there'll be some weather in the first quarter, but can you just walk me through that a little bit? Maybe why we should expect something different view versus some of your peers? Is that a mix thing? Is that how operators drill and complete their program? Just some more color around that would be helpful.

Stuart Bodden, CEO

Sure. I always mention that we're seeing significant improvements in our High-Spec Rig business, largely due to our production exposure. Some customers have mentioned they wanted to pause on a few drill-out rigs due to budget constraints and fewer wells to complete, intending to restart in mid-Q4 and pick back up in Q1. However, we have been seeing demand build-up behind that. Most of those rigs have already been redeployed, so we're currently in a situation where, despite some budget exhaustion, those rigs are now being utilized. We also anticipate demand increasing in 2023, making it potentially very interesting as we move towards the end of 2023.

Melissa Cougle, CFO

Yeah. And I'll just add on Derek, I think what I heard from your question, what we're trying to convey is there are actually kind of two different phenomena going on. So the isolated budget exhaustion to Stuart's point, you heard there. When we talk about extending into Q1 of next year, that's really not budget exhaustion clearing; that's really the winter effect on the backside of that. So there are two different phenomena not connected to each other that we just sort of think if there's a really hard winter that we could see a little bit of depression continuing into Q1 next year. But we're not looking at them as really connected events; it's more the winter phenomenon as one and just really isolated pockets. I don't think we've seen the same and nothing to add on Stuart's comment on the budget exhaustion.

Derek Podhaizer, Analyst

That's okay. Now that's helpful. I appreciate the color there. So last month, you put out some maybe some bookends as far as what 2023 could look like on your current asset base? Could you refresh our memories there? I think that'd be important to walk through. And then if you have some preliminary thoughts where you might increase that soft guidance to be more stable, and then what you're thinking of 2023, given the assets that you currently have?

Stuart Bodden, CEO

Yeah. So I think you're referencing our Investor Relations stack that's on the website. And where we present what we thought was potential capacity. I mean, I think we were trying to be clear that that wasn't necessarily guidance. But if you'd looked at that, there was still from our current run rates, there was kind of 10% to 15%, you know, additional revenue growth with our asset base that we think we could realize. How we're kind of thinking about the budgeting process is our experience is there tends to be seasonality in Q4 and kind of the early part of Q1. So the way we kind of think about it is to take Q3 and what we expect in Q4 and take the second half, which is why we had guided around that. And that's really sort of the baseline. We think about kind of revenue and margins when you take those two quarters combined, if that makes sense. And I think as we do as we move into budgeting season, we're taking that as, quote the baseline and then looking for opportunities to grow off of that.

Melissa Cougle, CFO

Yeah, I think that the growth for next year will be what is of that utilization that you saw in the investor deck. How much of that can we reasonably expect to get online next year? And I think those are just very early conversations that I just don't think we're ready to tell you how much of what was in that deck. We feel very confident we can grow from the back half of this year. If we look at that as a baseline for all of next year. We just we're just not ready to really say how much.

Derek Podhaizer, Analyst

I understand. Fair enough. Thanks for all the color, appreciate it and turn it.

Stuart Bodden, CEO

Thanks, Derek.

Melissa Cougle, CFO

Thanks.

Shelley Weimer, Vice President of Reporting and Finance

The next question will come from a caller with the phone number 9243. Please go ahead.

Unidentified Analyst, Analyst

Well, so this is Citi. How are you all?

Stuart Bodden, CEO

Good morning, how are you, Bill?

Unidentified Analyst, Analyst

Good. Good quarter. Just wanted to follow up on a couple items. I guess, the first thing is on the wireline side. It's good to see the progress there because I think there's a lot of untapped earnings potential in those assets. But, could you give some color on how many active wireline units were operating in Q3?

Stuart Bodden, CEO

On average in Q3, it was around 42 to 43, varying at times but generally in the low 40s. This number includes instances where we had to send a backup truck, so it really reflects about 42 to 43 active running trucks.

Unidentified Analyst, Analyst

But that's a big gap from where you were last couple quarters. From what I say call where those numbers, average active wireline is closer to 14 or so.

Stuart Bodden, CEO

It should have been higher than that. Why don't we kind of go check it? We can follow up with you.

Melissa Cougle, CFO

We can follow up and clarify things. It has been relatively consistent, so there may be some miscommunication, but we will ensure you have the correct information. The trucks have primarily been operating in the 40s during Q2 and Q3, although Q1 was at a lower level.

Unidentified Analyst, Analyst

Got it. Okay, great. Yeah, we can follow up on a call. Next question regarding G&A. I mean, it's staying somewhat elevated, although it's down from previous quarter. If you looked at the beginning of this year and late last year, management, you're guiding for somewhere around $16 million to $17 million per annum as the run rate. Now, that's gone up quite a bit from here. And I understand that there's been some transaction-related integration expenses. But, I wonder if maybe we can reset here and reset expectations as to what we can expect going forward once all these integration expenses are done there?

Melissa Cougle, CFO

Yeah, no, it's a good question, Bill. I do think, I don't know that I was aware of the 16 to 17 per annum guide before. That does seem pretty low. What I will say is, you have a phenomenon that's showing up within the G&A, where a lot of that transaction and integration that actually kind of goes and then comes back out. So that's where all of the transaction and integration sort of is housed, that then ultimately gets adjusted out for EBITDA. When we look at sort of pure G&A, run-rate G&A, if you will. We've been tracking more between $7 million and $8 million. And I think that probably the $8 million is around that's kind of if I was to give you a more conservative, I see us probably edging up just a little bit on the back of all the growth this year. But I think about $8 million per quarter is probably where we wouldn't be which is meaningfully higher than 16 and 17, but again, much lower than the 12 and 11 that you've seen.

Unidentified Analyst, Analyst

Great. That's helpful. A couple of balance sheet items. How exactly would you describe the contract assets on your balance sheet? Is there an offsetting item on the liability side? Or is this really just pre-billed revenue that doesn't have an offsetting cost yet?

Melissa Cougle, CFO

Yeah, it really is unbilled revenue. So we call it contract assets because it took me a little bit when I first showed up. I asked the team as well, the same question, but it really is our unbilled revenue.

Unidentified Analyst, Analyst

Okay, okay, great. So that leads me to kind of my final, I guess, question and our point. As you both know, I'm kind of in the camp of conservative balance sheet. But I think at this point, there's no reason to necessarily say one way or the other is the right way. I think at this point, kind of, if you look at how your working capital has evolved since the last quarter, with the debt paid down. And if you exclude the contracted assets because the costs aren't kind of in there yet. You've kind of increased your working capital to a point now where it covers a lot of the debt, which is a good place to be, you have a lot of AR booked. And if you do see some seasonal declines in the next couple of quarters, you're going to see some of that released back to you. Perhaps it's a good point, maybe now to think about not necessarily just paying down debt or just buying back equity, because I don't think there's an easy answer here. Your stock price is too low for what these assets are worth. But maybe you can kind of split it up a little bit, pay down some debt with the cash flow, and then maybe start to buy back a little bit of equity, given the attractive stock price. How do you feel about kind of looking at a hybrid approach?

Stuart Bodden, CEO

I believe that, similar to John's questions, all those points are valid, and I appreciate the insights shared. We are actively engaging with the board and management on this matter. Your observation about the need for flexibility and recognizing that different situations may require different approaches is absolutely accurate. We are continuously evaluating the situation, and the board is highly involved in this discussion.

Melissa Cougle, CFO

And we recognize that. The balance sheet is moving meaningfully quarter-over-quarter. So that means our positions could move. I think what's important for what we'd like our investors to take away is we're listening to you, along with all the others. And we're making sure that feedback is coming in dynamically and getting to the board level and making sure we're having the right kind of discussions. So appreciate the feedback.

Unidentified Analyst, Analyst

Okay, great. That's helpful. I appreciate your commitment to paying down debt and believe it should continue. However, considering the stock hasn't moved for some time, I think it might represent a good return on capital at current prices.

Melissa Cougle, CFO

Understand.

Stuart Bodden, CEO

Yeah, very much understood.

Unidentified Analyst, Analyst

Great, thank you.

Stuart Bodden, CEO

Thanks, Bill.

Shelley Weimer, Vice President of Reporting and Finance

The next call, the next question comes from Don Crist with Johnson Rice. Don, go ahead.

Don Crist, Analyst

Hey, guys, how are you all today?

Stuart Bodden, CEO

Good. Hey, Don. How are you?

Don Crist, Analyst

Hanging in as the best in Ohio? Thanks for all the color. Sorry, I'm kind of one of the last in line. But I wanted to dig in a little bit on margins, particularly on coil, up 10%, quarter-over-quarter. Can you talk about what's driving that? And is that sustainable income of that high-20s as we kind of move into '23 you think?

Stuart Bodden, CEO

Yeah, we again thanks for the questions. We do think that that is sustainable. So, a lot of that margin was getting a fourth unit out and really had just sort of good utilization. There wasn't a lot of whitespace, so we didn't have the units in the yard much at all, which is great. But I think as far as when we kind of look at our cost base and pricing, we kind of feel this is pretty sustainable.

Don Crist, Analyst

Okay, and pretty much everything else has been done. But one modeling question for me, Melissa. As far as taxes go next year, do you have sufficient NOLs to kind of cover cash taxes as we move through the year?

Melissa Cougle, CFO

Yes.

Don Crist, Analyst

Okay, so we shouldn't we shouldn't plan on any cash taxes next year.

Melissa Cougle, CFO

Not cash taxes, no. I mean, we're going to start to see a little balance sheet noise on the tax line as we move into the net income territory, but the tax advisers have assured us we're in a pretty good position with our NOLs.

Don Crist, Analyst

I appreciate all the color. Great quarter, guys.

Stuart Bodden, CEO

Thanks, Don.

Melissa Cougle, CFO

Thank you.

Shelley Weimer, Vice President of Reporting and Finance

We have now completed all questions. I would like to turn the conference call back to Stuart Bodden for closing remarks.

Stuart Bodden, CEO

Thanks, Shelley. Again, thanks everyone for joining us today. Hopefully, you got a sense of our excitement for how the business is running. So just really pleased with where things stand and just really proud of the team. We would also like to remind everyone that management intends to conduct investor meetings in New York and Chicago during the week of November 13. And we would encourage any interested party to reach out to management for scheduling availability. Again, thanks everyone. Have a great weekend.

Shelley Weimer, Vice President of Reporting and Finance

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