TUSK - NASDAQ

Greetings. Welcome to the Mammoth Energy Services third quarter 2024 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. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host,

Thank you, Christine, and good morning, everyone. We appreciate you joining us for the Mammoth Energy conference call to review 2024 third 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 www.mammothenergy.com. Information reported on this call speaks only as of today, November 1, 2024. 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 the statements made in today's discussion that are not historical facts, including statements of expectations or future events, future financial performance, are forward-looking statements made pursuant to the Safe Harbor provision of 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 detailed in the company's filings with the Securities and Exchange Commission. Management may also refer to non-GAAP measures, including adjusted EBITDA. The definition of this non-GAAP measure and its reconciliation to the most directly comparable GAAP measure can be found at the end of our earnings release and in our investor presentation, which can be found on our website. Mammoth Energy assumes no obligation to publicly update or revise any forward-looking statements. Now, I would like to turn it over to Mammoth Energy CEO, Arty Straehla.

Thank you,

Thank you, Arty. I hope everyone is doing well. We appreciate you joining us today. As I usually do, I am 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 10-Q once it is on file with the SEC. Mammoth's total revenue during the third quarter of 2024 came in at $40 million compared to $51.5 million in the second quarter of 2024. The 22% sequential decrease in total revenues was primarily attributable to the continued activity softness in the natural gas basins that our well completion services division operates. We continue to believe there are positive demand implications for natural gas on the horizon, and we remain optimistic that associated activity increases will occur in 2025. Additionally, the strategic investments we are making across our business divisions will support further financial improvement. In Q3 of 2024, we had one pump down crew active, which accounted for the division's $2.2 million of revenue during the quarter. The well completion services division remained challenged during the third quarter due to continued activity softness felt across the industry as well as sustained lower natural gas prices and commodity price uncertainty that impacted utilization. Operators continue to push much of their activity to the right, and this resulted in persistent white space on the calendar. While we largely expected these trends to linger throughout the remainder of 2024 due to typical seasonality and end-of-year budget exhaustion, we recently activated a pressure pumping fleet and anticipate activating a second fleet in the coming weeks. We currently expect that both of these fleets will be utilized through the end of the year. Looking forward, our current visibility points to relatively flat activity levels in the first half, but we believe there will be demand-driven improvements later next year. We will remain disciplined stewards of capital and continue to align our spending appropriately with the demand that we see from our customers. As Arty mentioned, we intend to invest to upgrade our pressure pumping equipment to more efficient technology in preparation for a ramp in demand later next year. Our sand division sold approximately 163,000 tons of sand in the third quarter of 2024 at an average sales price of $22.89 per ton, compared to 141,000 tons of sand at an average sales price of $22.73 per ton during the second quarter of 2024. We continue to be encouraged by discussions with our customers and expect further improvements in the coming quarters. Our infrastructure services division contributed revenue of $26 million for the third quarter of 2024, which represents a sequential decline when compared to $31.4 million for the second quarter. We had approximately one week of storm-related work at the end of the quarter that utilized roughly one-third of our crews in response to Hurricane Helene. This storm-related work continued into the fourth quarter as we responded to the aftermath of Hurricane Milton. We are seeing an uptick in bidding activity and are focused on operational execution. We will continue to pursue opportunities within this sector as we strategically structure our service offerings for growth, especially around T&D and fiber projects. We have allocated additional capital this year and in 2025 for investments in our infrastructure services division related to T&D, which will entail the purchase and lease of various incremental equipment. As Arty mentioned, we also have a great engineering team, and we are seeing significant traction with our service offerings. We plan to support this with additional investments over time. Our net loss for the third quarter of 2024 was $23.4 million, or a loss of $0.50 per diluted share. Adjusted EBITDA, as defined and reconciled in our earnings release, was a negative $6.4 million for the third quarter of 2024. CapEx for the third quarter of 2024 was approximately $1.9 million, which was down sequentially compared to our CapEx of $4.9 million for the second quarter. However, although we remain focused on prudently managing our capital to align our spending with the activity levels of our customers, following the receipt of settlement funds from PREPA, we have adjusted our current CapEx budget for 2024 to $23 million, which represents an increase from the previously announced CapEx guidance of $12 million. This increase relates to the investments we are making in our infrastructure and well completion services divisions to upgrade equipment, add scale, and grow our capabilities in order to improve our service offerings ahead of the anticipated ramp in demand. Selling, general, and administrative expenses totaled approximately $8.7 million during the third quarter of 2024. Professional fees related to Puerto Rico totaled $1.4 million for the third quarter of 2024 and $4.1 million year-to-date. We expect these fees to decline substantially in future periods as a result of the settlement agreement with PREPA. As of September 30, 2024, we had cash on hand of $4.2 million. Our revolving credit facility was undrawn, and we had approximately $13.7 million in available borrowing capacity. Our total liquidity was approximately $17.9 million. Subsequent to quarter-end, as you know, COBRA received the first two installment payments totaling $168.4 million in connection with the previously disclosed settlement agreement with PREPA. The company used a portion of these funds to pay in full all amounts owed under the term credit facility with Wexford, including the accrued and unpaid interest, which totaled $50.9 million. The term credit facility was terminated. As of today, Mammoth is debt-free and has approximately $86 million of cash. This cash balance excludes restricted cash of approximately $21 million. To conclude our call, we would like to thank our 740 employees throughout the company for their hard work, dedication, and commitment to maintaining safe and sustainable worksites for themselves and their teammates. We are excited for the opportunities that lay ahead for Mammoth. The funds we have received from PREPA will enable us to substantially invest in the company for future growth. We intend to use our enhanced liquidity to strategically position the company for success while remaining focused on improving our operating results in 2025 as both demand and activity improve. We now have the means to add scale, increase our capabilities, and upgrade equipment, which we expect will build a stronger, more resilient business for the future. We will continue to prioritize disciplined operations, efficiency, and strategic capital allocation, which, when coupled with our strong balance sheet, we believe will drive meaningful improvement in 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. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Josh Jayne with Daniel Energy Partners. Please proceed with your question.

Thanks. Good morning. First question, just on the pressure pumping side, when we think about upgrading equipment and demand increasing into the second half of next year, could you talk about lead times for equipment that you are currently seeing if you are having discussions? And I am just curious about your outlook there for the capital equipment market.

Oh, we are making, as I think you know, Josh, we are making moves to move to Tier 4 dual fuel, which are the more efficient pumps. And the availability of engines right now is extremely good. In fact, we have got them, and we are doing it. I mean, changing them out at our own manufacturing facility, and we have no issue getting those engines.

Okay. So ultimately, you could be adding fleets by when then?

We are going to modernize that fleet because we are doing the work internally and saving ourselves significant sums of money. We are going to do it over the next eight to ten months.

Okay. And then the second question for me, you highlighted just where the cash balance stands today. Sounds like opportunities for M&A. Could you just speak to when you think about scale, are you looking to break out into sort of verticals that you are not involved in today, or would it be in the business lines that you are already involved in today? I am just curious how you are thinking about M&A going forward and how to position the company over the next couple of years.

Well, we think about it both ways that you talked about there. Some of it is internal, and we really are focused on the T&D business right now. We have seen a change in customer behavior where they are requesting more crews as we go out into the future. And we feel very good about it. We have also always had our eyes on the ability to acquire, integrate, and grow strategic acquisitions that we like in that space that may bring us a different regional customer or may bring us a different management group and that type of thing. So very excited about that business and where it is pointing to. But I think one of the things that you know about us since inception is that we try to be entrepreneurial. And we try to see investments in all areas. We are not necessarily confined just to the oilfield services or just to the T&D. And then we have a history of starting businesses. We started the engineering group with one engineer, and we have grown her to sixty-four. And it is giving and adding significant cash flow to us. We did the same thing with our fiber group. And we are starting to see some traction there because you are starting to see the release of monies that are coming from the previous acts. We are starting to see those release, and our bidding activity is going up significantly. So we see it both ways.

Yeah. And I think that, you know, Arty touched on some of the organic demand we are seeing in the T&D business. The customer demand has changed. So we are seeing organic demand in the range of 25% to 30% over our current run rate relative to the T&D business.

Okay. Thank you very much. I will turn it back.

Thank you. This concludes the question and answer session. I would like to turn the floor back over to management for closing comments.

Thank you again for joining us on the call today. We continue our focus on positioning Mammoth for future growth, improvement in operating results, and success, which we expect to achieve with the help from our talented and skilled team members. This concludes our conference call, and we look forward to speaking to you all again next quarter. Thank you.