TUSK - NASDAQ

Greetings, and welcome to the Mammoth Energy Services Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you, Rick. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Mammoth Energy call to review 2023 second quarter results. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section of mammothenergy.com. Information reported on this call speaks only as of today, August 11, 2023, so please be advised that any time sensitive information may no longer be accurate as of any subsequent date. I would also like to remind you that statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance, are considered forward-looking statements made pursuant to the safe harbor's provision for the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call that, by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to the earnings press release that was issued today for our disclosure on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA. This definition of a non-GAAP measure and the reconciliation to the most comparable GAAP measure can be found at the end of the earnings press release that was issued today. It's also in the investor presentation on the company's website. Mammoth Energy assumes no obligation to publicly update or revise any forward-looking statements. And with that, I would now like to turn the call over to Mammoth's CEO and Arty Straehla. Arty?

Thank you, Rick, and good morning, everyone. I'll start with a high level overview of our results for the second quarter, followed by our outlook for the second half of the year and the overall market environment before providing an update on our PREPA receivable. Then I'll turn the call over to Mark to cover the financials in more detail. As we foreshadowed during our first quarter earnings call, results for the second quarter were challenged. Primarily related to industry-wide pressure due to lower demand for our pressure pumping fleet and a declining rig count. The result from Mammoth was a lower active fleet count, which negatively impacted our top and bottom lines for the quarter. Despite a tough quarter, we see many bright spots ahead across all of our business segments, and we expect to exit this year and enter 2024 better position for growth. I'd like to also mention that we are very pleased to announce today that we've entered into two non-binding agreements with lenders to refinance and repay our existing revolving credit facility, which Mark will discuss in his remarks. In addition, our Board of Directors has authorized a stock repurchase program subject to certain conditions discussed in our earnings release. We believe these actions will enhance our financial capacity and flexibility and return value to our existing shareholders. Our overall performance in the quarter was heavily impacted by the decreased activity of our customers, which resulted in significant utilization headwinds in our well completion services division. This was a common theme amongst our peers during the second quarter. And while we anticipate these headwinds persist into the third quarter, we expect to see improvements as we exit 2023. Currently, we believe there will be increased opportunities later this year and into 2024. Our lower average active pressure pumping fleet count and corresponding decrease in stages completed during the quarter were the primary contributors to our decreases in revenue, net income and adjusted EBITDA. Despite the industry-wide challenges seen in the pressure pumping market, our sand and infrastructure services divisions performed well during the quarter and the resilience in their results gives us optimism for what we can achieve in the future. We are also pleased with the continued growth of our Infrastructure segment and the strong macro tailwinds created from the Infrastructure Investment and Jobs Act. We're beginning to see funding for these projects hit the market and expect bidding activity to ramp up in late 2023 and into 2024. As we have demonstrated throughout our history, we have a resilient, diversified business comprised of talented and hard-working teams that will continue to find solutions that optimize our operational efficiencies with a customer and safety first focus. Supply chain and logistical obstacles have somewhat subsided. And as we work through industry-wide constraints in our Well Completion Services segment, we expect to see utilization improvement late this year and into 2024. Now I'll walk you through each of our major business segments. In our Well Completion Services division, we exited the quarter with three of our six pressure pumping spreads actively operating. The industry environment today remains choppy as demand from our customers is constrained due to regional production slowdowns in response to lower natural gas prices, particularly in the Northeast where we have a concentration of frac fleets. We are currently operating one of our six pressure pumping fleets. Despite this short-term softness, we are seeing indications that activity levels will begin to ramp back up in the fourth quarter and into 2024, creating an opportunity to reactivate fleets. Additionally, in response to the recent near-term reduced fleet utilization. We have reduced head count and further amended our 2023 capital expenditures budget. We now expect CapEx of approximately $18 million for the year. Turning to our Infrastructure Services division. Operational efficiencies, team performance and sustained utilization of crews and equipment continue to drive improved results. Revenue, net income and adjusted EBITDA grew year-over-year in this segment. We're encouraged by the robust bidding activity in the infrastructure space, specifically in the substation area. A critical part of the infrastructure funding for upgrading the grid is adding substation capacity. This is an area where we believe our team itself in the infrastructure segment. We are also seeing a number of opportunities related to fiber, which continues to be a growth driver for this business. We remain very encouraged about the potential for continued growth in the sector, and we feel strongly that Mammoth's infrastructure business is well positioned for long-term growth into 2024 and beyond. As a reminder, we have grown our fiber division strictly by organic means. The sand business was resilient during the second quarter despite the impact of the wildfires in Western Canada, which hindered our ability to transport sand. This resulted in a marginal decrease in proppant sales in the quarter. Pricing for and also remained stable. This is largely due to strategic sand supply agreements that we mentioned last quarter that provide us with a solid foundation for predictable cash flow. We continue to be pleased with our team's performance in this business and are excited to build on our momentum. As we have stated before, we believe our diverse portfolio and ability to adapt quickly to changing environments positions us well in these segments. Before I turn the call over to Mark, I'd like to provide an update regarding PREPA. On June 15, 2023, Cobra received a payment from PREPA in the amount of $10.75 million for a portion of the work completed in the aftermath of Hurricane Maria. We were pleased to receive this payment, but it's still only a portion of what is owed, a fraction of what FEMA has made available to PREPA for the work performed by Cobra. Cobra work has been affirmed by FEMA and numerous independent reviewers. However, as of today, we are still owed over $390 million by PREPA, and we will continue to pursue payment for the work that we have completed. Now let me turn the call over to Mark to take you through our financial performance in greater detail.

Thank you, Arty. I hope everyone is doing well and we appreciate you joining us today. As I usually do, I'm going to take this time to provide additional details on some meaningful metrics and several key highlights. A detailed breakdown of our results can be found in our earnings release and in our second quarter 10-Q once it is on file with the SEC. Mammoth's total revenue during the second quarter of 2023 came in at $75.4 million compared to $89.7 million during the same quarter last year. In Q2 of 2023, we pumped 956 stages with approximately 1.6 fleets utilized on average compared to 1,716 stages and an average utilization of 3.5 fleets during the same quarter last year. The 16% year-over-year decrease in revenue was primarily attributable to the softness in utilization that we're experiencing in the well completion services division. We alluded to the activity headwinds on our last call and many of our peers in this industry have experienced similar challenges. We will remain disciplined stewards of capital and as our actions to cut our capital expenditures forecast demonstrated, we will align our spending with the demand that we're seeing from our customers. Our sand division sold approximately 384,000 tons of sand during the second quarter of 2023 compared to 350,000 tons of sand during the same quarter last year. The average price per sand sold during the second quarter of 2023 was approximately $30.8 per ton compared to $26.86 per ton during the same quarter last year. Our Infrastructure Services division contributed revenue of $28.3 million for the second quarter of 2023 compared to $25.6 million for the same quarter last year. We're seeing increased bidding activity in our Infrastructure Services division as a result of the Infrastructure Investment and Jobs Act, among other things and we expect to build on that momentum that we're seeing in this space to generate continued improvement in the back half of the year. Our net loss for the second quarter of 2023 was $4.5 million compared to net income of $1.7 million for the same quarter of last year. Adjusted EBITDA, as defined and reconciled in our earnings release was $16.4 million for the second quarter of 2023, a decrease compared to the $23 million from the same quarter of 2022. CapEx for the second quarter of 2023 was approximately $4.5 million. We have continued to prudently manage our costs to more accurately reflect the activity levels of our customers and as of today, we expect to operate within our reduced CapEx budget of $18 million for 2023. With that said, we expect to be able to scale our capital spending should we see a ramp in activity prior to year-end as some customers may look to get a jump start on 2024. Selling, general and administrative expenses totaling $10.4 million during the second quarter of 2023 and compared to $8.2 million for the same quarter of last year. This increase is primarily the result of certain legal fees associated with the work we performed in Puerto Rico. We expect that we will begin to see a reduction in these Puerto Rico related legal fees in the back half of this year. As of June 30, 2023, we had cash on hand of $8.8 million and debt of approximately $59.4 million. Our total liquidity was approximately $22.5 million. As Arty mentioned, earlier this week, we entered into two non-binding agreements with lenders to refinance and repay our outstanding debt obligations under the existing credit facility. We expect to close these transactions prior to the maturity of our existing credit facility on October 19, 2023 subject to customary closing conditions and closing deliverables. Once executed, these facilities are expected to secure Mammoth's liquidity for the next five years. Our Board also recently approved a stock repurchase program pursuant to which Mammoth is authorized to repurchase up to the lesser of $55 million or 10 million shares of the company's common stock, subject to the expected repayment and refinancing of our existing credit facility, certain financial metrics and other factors discussed in Mammoth's earnings release. Following the completion of the refinancing transaction, repurchases under the stock repurchase program may be made opportunistically from time-to-time on the open market or through privately negotiated transactions and compliance with Rule 10B18 under the Securities Exchange Act of 1934 and including any 10b5-1 plan. This program has no time limit and may be suspended, modified or discontinued by the Board of Directors at any time. As always, to conclude our call, we would like to thank our 875 employees throughout the company for their hard work, dedication and commitment to maintaining safe and sustainable work sites for themselves and their teammates. As anticipated, our second quarter results were heavily impacted by softness within the well completion services division. We have a resilient and diversified service offering with a track record of generating favorable results and we look forward to recapturing that momentum in the second half of this year. We will continue to prioritize operational excellence, efficient execution and capital discipline in each of our businesses, which we believe will drive meaningful shareholder value. Operator, we would now like to open the call up for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from John Daniel with Daniel Energy Partners. Please proceed with your question.

Good morning, guys. Thanks for including me. First question is for you on just the frac side. As you look at the reduction from 3 to 1, do you get an indication from the customers whether that was budget shortfall, M&A, price shopping? And if it's the budget shortfall, when would they be guiding you to come back, I would assume January, February? Any color on there would be helpful.

First of all, are you still in Italy or are you back?

I'm in Italy, yes.

Okay.

A couple of wine glasses in. So Hopefully, I write this down.

You got a good connection. Look, there was a number of different factors that affected Q2. One was E&P redeterminations on that softened a little bit with the commodity pricing going from average of 560 in the fourth quarter to 230, 240 at that point in time during Q2. And then we had some specific -- a large operator that just said we're going to stop our program until October and come back at that point. Another one had well communication issues that pushed off. And so a number of cancellations like that. But what we're hearing and seeing is that people are starting to look into the October time frame. We're seeing the bidding activity increase in that time frame. And so and we think that's a lead-in into '24. Obviously, you've seen some movement in natural gas prices and moving in a higher direction. So that should enhance activities.

Fair enough. I'm going to sneak one more in to your area, then one at Mark. But on the inquiries, are you -- are they going to be more from the Northeast or Mid-Cont?

Combination of both that we're seeing.

Okay. And then, Mark, just for you, can you -- if possible, it's kind of might be tough on to answer, but characterize just the discussions with the commercial bankers today versus maybe the last time you did this a few years ago, how that's changed?

It's certainly changed a little bit. But I think the reception that we received in the market was favorable. Obviously, backstopped by the execution of the business over the last 12 months. So the discussions we had in the credit market were good from our perspective.

Okay. Are they -- do they try to place any ESG restrictions? It might be a stupid question, but I'm just curious how does that play into any credit discussions?

No ESG restrictions necessarily, but certainly, you see some ESG factors at play in the credit market just relative to the interest as it relates to energy lending.

Fair enough. Thanks for including me, guys. I’ll let it turn to others.

Thanks, John.

Our next question is from Michael Matheson with Singular Research. Please proceed with your question.

This is Chris [indiscernible] in for Michael. Just was going to ask about your well completion services. You guys are saying you're expecting a rebound in the second half of the year. What should we be looking for that rebound?

Well, more specifically, we're seeing the rebound starting to come from bidding activities in -- as we enter into and go through Q4. So that's really what we're seeing right now. The increase of bidding activity and the increase of inquiries into the services.

Okay. Sounds good. And this year, we've seen a record storm damage in many regions of the country. As this led to a pickup in crew utilization in the last -- in the infrastructure segment.

Yeah. So as you point out, it's been a fairly busy storm season, and our crews have responded to several storms during this season. We're we still got a few months left in storm season, but that's certainly a lift to both the revenue and EBITDA out of that segment as we get a spike in storm-related activity.

Okay. Sounds good. And then can you share, do you have any more updates on court filings or any sense of the timing of any judicial finding for PREPA?

Yeah. We are very active in the courts and everything with PREPA during their bankruptcy and things have been slid from a time perspective a couple of months as PREPA really goes through with the bondholders and go through that negotiations. But obviously, it was a big positive for us receiving $10.75 million. And then in their filings, PREPA also said that they have another $80 million that they are working through. Now this $80 million is FEMA-approved funds that were approved on March 27 of this year. And PREPA has already had filed theirs for their money -- their part of that of $130 million, and they received $117 million in June. So we feel like that there's another tranche of $80 million that they're working through. Now there's no time certainty when you're dealing with the PREPA and what they have -- what they are doing. From a court standpoint, there's an Omnibus hearing at the end of this month. We are not certain whether we will get hurt or not, but there is a hearing in front of the federal judge. So all in all, as you categorize PREPA, you kind of categorize it as kind of coming together and getting towards the end of this bankruptcy period. And obviously, we are a claim that was post after the filing of the bankruptcy. So we feel pretty enthused that we're going to receive monies in the next several months.

Okay. Thanks for that answer. And then last from me. How does the demand picture look for natural gas pumping?

We're seeing some increased bid activity in the Northeast region. So similar to the time frame that already characterized earlier, we're seeing some activity related to the October, November time frame in the gas basins.

Okay. Great. thanks for your answers.

Our next question comes from Carter Dunlap with Dunlap Equity Management. Please proceed with your question.

Hi, guys. I didn't quite understand the cadence of the Board decision to authorize a buyback and the financing redetermination. Can you clarify -- I mean I assume the financing redetermination has to be inked before you can embark on the buyback?

Possibly. So there are really two triggers. One being closing of the refinancing. The other would be payments from PREPA that are enough to satisfy our current debt obligations.

Okay. And obviously, that is what we all hope for. But holding that aside, and my note taking sucks, so I apologize. But did you say that you expect to close the redetermination by October, but not sooner?

Yes. We -- our statement was we expect to close by the current maturity, which is in October. So certainly to the extent that we can close that sooner, then we'll do so.

I see. Okay. Thank you.

Thanks.

[Operator Instructions] This concludes our question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Thank you again for joining us on the call today. We maintain our belief that Mammoth is well positioned for growth and supported by experienced team members that are among the best in the business. This concludes our conference call and we look forward to speaking to you all again next quarter.