Ranger Energy Services, Inc. Q4 FY2025 earnings call

Strategic initiatives: AWS acquisition completed with smooth integration, enhancing Permian Basin footprint; ECHO rig program advanced, with first two rigs deployed in 2025 and 15 rigs contract signed in 2026, addressing customer needs for efficiency, safety, and emissions reduction; legacy core businesses performed well despite 2025 headwinds, with high-spec rig fleet stable, some ancillary services finding growth, and wireline showing improvement. 2026 outlook: Operating environment expected stable, continue integrating AWS, advance ECHO platform rollout, explore service enhancements, focus on fundamentals, safety, cost control, and customer service.

Fourth quarter revenue was $142.2 million. High spec rigs generated $92.3 million, up from $80.9 million in Q3 and $87 million in Q4 2024, with rig hours growing 16% sequentially to 128,500 hours. Processing solutions and ancillary services contributed $37.5 million, a 22% sequential increase. Wireline services revenue was $12.4 million, down from $17.2 million in Q3. Full year revenue was $546.9 million. Adjusted EBITDA was $73.2 million, 13.4% margin. HSR anchored earnings, processing and ancillary improved with AWS acquisition, wireline faced headwinds from lower utilization and pricing.

2026 operating environment likely stable activity-wise, year of execution and strategic evaluation; full year free cash flow conversion rate expected closer to 50% due to ECHO rig capital timing; pro forma financial profile post-AWS acquisition expects over $100 million annual EBITDA in 2026, and 15 new ECHO rigs expected operating in lower 48 by mid-2027 with more contracts underway.

Q: Good morning, guys. Hopefully, you all are doing well this morning. Yeah, we are. Good morning, Don. How are you? I'm doing well. My first question is surrounding the Echo build-out and the conversations you're having with customers there. Just an update on how those conversations with other operators are going. And as a second step to that, you know, what is the manufacturing capability of your partners? Do you have a lot of capability there to put a lot more orders on the books? Just any comments around that?

A: Yeah, thanks for the question. I was very excited about the contract that we signed earlier in the year. We are in a couple of pretty advanced conversations. I think what we found historically is sometimes it takes a while and then it happens really fast. But we are having really kind of very productive conversations. As far as manufacturing, we've been working with our vendor pretty closely. and feel like that we can expand manufacturing capacity if needed. I would kind of highlight these are refurbs. And so there are some things that we can do on our side to streamline the process and increase throughput. So we don't feel like manufacturing should be a bottleneck for us. There are some long lead time items that we're pretty mindful of. But other than that, again, we feel like we can respond to the market demand.

Q: And I don't believe you mentioned it in your prepared remarks, but I did want to touch on the plug-in abandonment contract that you put in the press release. The comment about regulatory agencies, I don't know if you want to disclose who this contract's with, but if I remember correctly, this could probably expand your P&A fleet pretty significantly. Any comments around that?

A: Yeah, it's the Texas regulator, so it's public. You can look it up. So what this is, Don, and I think one of the reasons we're excited about it and wanted to call it out in the script is that these are for complex wells in particular. And so we really have been trying to position ourselves on some of the government P&A programs as a kind of contractor of choice for some of the more complex P&As. And so that's really what this represents. And you're right. I think it's something that we think we have growth opportunity within this regulator and in other states as well.

Q: Okay. And how many rigs do you think that's going to occupy? I mean, if I remember correctly, it was low single digits that were kind of dedicated to P&A in the past. Any kind of metrics around that?

A: Yeah, it's still kind of think three-ish, you know, kind of plus or minus depending on the program at the moment. But certainly, if we needed to ramp it up, we could. But it's kind of low single digits right now. That's right. Okay. And one for you, Melissa. As we kind of think about CapEx for the ECHO-REG program through the year, any kind of metrics around kind of quarter-by-quarter growth DOLLAR AMOUNTS THAT WE COULD KIND OF PUT IN THE MODEL? SO WHAT I WOULD SAY, DON, IT'S A VERY GOOD QUESTION. PART OF MY COMMENTS AROUND IT, WE'LL LET YOU KNOW. A LOT OF IT DEPENDS BECAUSE THERE'S PROGRESS MILESTONE PAYMENTS, SO YOU'LL SEE A LITTLE BIT START TO TRICKLE IN IN THE FIRST HALF OF THE YEAR, BUT THE REALITY IS MOST OF THAT CAPEX REALLY STARTS TO SHOW UP WHEN WE MAKE FINAL MILESTONES AND WE START TO HAVE DELIVERIES MONTH AFTER MONTH IN THE BACK HALF OF THE YEAR. I think we've got a long way to really organizing how that flows. We have a model, but I also think we're too early in the build cycle to probably give hard guidance on that. That said, I think you'll see light build in the first half of the year as just kind of some progress payments are made, but then it'll really ramp up in the back half of the year. And just calling attention to the wording was pretty intentional when we said You know, the conversion rate has deteriorated a bit this year on timing, because in some cases we have capital coming in from customers timed alongside this. So what you'll see is, and I'm just trying to give a sense of the complexity, because you might see us lay out capital that ultimately ends up getting refunded to us further down the line too. But we will try to call that out each quarter, you know, to any degree it's material, which I suspect it will start to be material as well. And Q1 of 2026. Right. But it's safe to say that you should still build cash through the quarters as, you know, even with this cap-out.

A: I think that the one thing we were calling out, Don, is Q1. There are a few things going on in Q1, actually less so on the echo side, more just to do with seasonality and working capital bills. So I think you will not see cash start to really come in until Q2, Q3, Q4. But our guide right now is closer to 50% conversion rate for the year. And most of that will show up as is typical in the later quarters of the year and not in Q1. I appreciate the color. Thank you so much. I'll turn it back.

Q: Thank you for the question. Thanks, Don. Again, if you have a question, please press star then one. The next question comes from Patrick Podheiser with Piper Sandler. Please go ahead. Derek Padezer. Morning, Derek. Yeah, morning. Patrick's my cousin. Sticking on the Echo rig build out, I guess how should we think about the 15 rigs plus the two rigs under operation as far as maybe like a percentage of your fleet? And then where could this go if you continue to execute on additional contracts? And then also, Are these all incremental rigs to the fleet or are you replacing some of your older legacy assets? Just maybe some color on that as well.

A: Yeah. So I'll kind of take it in pieces. Um, so obviously we have the two in the field, this is a contract for 15 to 17. You know, right now, once they're deployed, that would be, you know, kind of a little less than 10% of the quote kind of active fleet, which does include some rigs that are, you know, constantly in, you know, refurb, repaint, maintenance, et cetera. As far as the conversations, I do think that, I think it's really hard to put a number on it. And the reason I say that is that kind of based on the conversations we're having, I MEAN, THERE'S A SCENARIO WHERE IT COULD BE THE SAME NUMBER AGAIN, BUT I THINK PROBABLY IT LOOKS LIKE, YOU KNOW, THAT THE NEXT CONTRACT WOULD BE, YOU KNOW, FOR LESS THAN 10, MOST LIKELY. SO, YOU KNOW, IF THAT KIND OF GIVES YOU SORT OF A SENSE. AND THEN I THINK DEPENDING HOW JUST SORT OF THE NEXT 18, 24 MONTHS GO, YOU KNOW, AGAIN, I THINK WE DO THINK THERE IS KIND OF LONGER TERM DEMAND FOR THIS. You want to remind me of your second question? Sorry, Derek. Yeah, just as far as incremental or replacement. It's very customer dependent on that answer. I think for a lot of the ones that we're deploying right now, I think that if there is not a change in the macro environment, I think they will do some replacement of existing rigs. I think what we would highlight is that given who the customers are that are interested in ECHO, The rigs that get displaced tend to be high spec and very high quality rigs. And so, you know, we're certainly thinking that they'll find homes pretty quickly. That said, I think we want to be, you know, kind of open and transparent that the first wave of Echo rigs will replace some of our existing rigs. Right. Okay. That makes sense. That's helpful. And then how should we think about the earnings power with the Echo rig build out? Just look at your margins right now in high spec. You're in the low 20s to end the year. As we move over the next 18, 24 months and these start to become a bigger part of your rig mix, where could those margins start going to when we also start thinking about integrating AWS and now with the build out of Echo? How should we think about the margin profile?

A: Yeah, it's a good question, Derek. And I would tell you, we're still working on how that can come together. Again, you've got a little bit of timing. Each one of these contracts sort of looks and flavors itself out differently. So in some cases where you would have a contract that has more upfront capital, then we'll have deferred revenue, which actually turns into amortization. So you're not going to get, even though we're getting probably pulled forward return, it's not going to be as readily obvious in margins because it doesn't, it'll be an amortization item as opposed to a current revenue item and collection item. On the inverse side, where we get more hardcore rate uplift over the life, you will see margin uplift. So it's going to be a little bit of a mix of both coming through the pipeline. On the AWS side, what we are seeing is when it's the best of operating leverage and the worst of operating deleverage, because what we are seeing, for example, in December where we had a lot of good activity and utilization, we saw real margin expansion in just one single month. That said, the winter storm in February hit us hard and we had the opposite effect. So I think we're still trying to establish a better cadence and flow. I think there is margin expansion to be expected this year. I just think it's too early to tell you that's 200 bps or 100 bps or 300 bps. It's probably not 5%, though. I would tell你 that. Right, right. Great. No, it's all helpful. Thank you. I'll turn it back.

A: All right. Thanks, sir. Patrick. This concludes our question and answer session. I would like to turn the conference back over to Stuart Bowden for any closing remarks. Thank you, operator. Thank you, everyone, for joining. Thank you for your interest in Ranger, and have a great day and a great rest of the week. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.