Mammoth Energy Services Q1 2023 Earnings Call Transcript

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April 27, 2023

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Mammoth Energy Services First Quarter 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard.

Operator

Thank you, Ken. You may begin.

Speaker 1

Thanks, operator. Good afternoon, everyone. We appreciate you joining us for the Mammoth Energy conference call to review 2023 1st quarter results. This call is also being webcast and can be accessed through the audio link of the Events and Presentations page of the Investor Relations section atmammothenergy.com. Information reported on this call speaks only as of today, April 27, 2023.

Speaker 1

Please be advised that any that time sensitive information may no longer be accurate as of the time of any The subsequent date, pardon me. I would also like to remind you that statements made in today's discussion that are not historical facts Include statements of expectations or future events or future financial performance are forward looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Management 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.

Speaker 1

These factors and other risks and Uncertainties are described in detail in the company's filings with the SEC. Management may also refer to non GAAP GAAP measures, including adjusted EBITDA, the definitions of these non GAAP measures and their reconciliations to the most comparable GAAP measures can be found at the end of the earnings release and in our Investor Relations presentation, which can be found on the website. Mammoth Energy assumes no obligation to publicly update or revise any forward looking statements. And now with that behind me, I'd like to turn the call over to Mammoth Energy's CEO, Arty Strahler.

Speaker 2

Arty? Thank you, Ken, and good afternoon, everyone. We had a solid Q1 that I'm pleased to discuss on today's call. I will also provide an update regarding our ongoing pursuit of the PREPA receivables owed to us before turning the call over to Mark To review our financials in more detail. Our Q1 performance was in line with our expectations contributing to significant year over year growth In revenue, net income and adjusted EBITDA, for the Q1 of 2023, net income came in at $8,400,000 compared to a net loss of $14,800,000 in Q1 of last year.

Speaker 2

Q1 2023 adjusted EBITDA was 30,700,000 dollars compared to $9,300,000 in Q1 of last year. I'm proud of the hard work across all of our business segments by our have experienced persistent supply chain constraints and logistical problems over the last few years. We have and intend to continue to operate to the best of our ability to meet the needs of our customers. Recently, we have experienced some improvements throughout supply chain and we anticipate More improvement to come in the back half of the year, but we believe it is important to note that these constraints still remain an obstacle that we must navigate. While we may never return to the way things were pre COVID, we're proud of the adaptability of our team to adjust to this new normal.

Speaker 2

Now I'll walk you through each of our major business segments. In our Well Completion Services, we generated strong growth in the quarter. We exited the quarter with 3 of our 6 pressure pumping spreads actively operating. Today, we are seeing regional production slowdowns Due to lower natural gas prices, particularly in the Northeast, where we have a concentration of frac crews, Natural gas prices have been cut nearly in half compared to what they were at the end of 2022. While we remain bullish long term On natural gas, in the near term, the lower prices are reducing activity in our well completion segment are leading to more calendar white space.

Speaker 2

We have a deep understanding of how this pullback impacts our business and have already made changes to manage the large variable cost in the well completion segment. However, we expect this will reduce near term utilization as we adjust to current market conditions. We plan to offset this reduction by significantly lowering our capital expenditures for the year. Turning to our Infrastructure Services division, operational improvements, team performance and Higher utilizations of crews and equipment continue to drive improved results. Revenue, net income and adjusted EBITDA grew year over year in this segment despite increases in SG and A and legal expenses, but we expect these expenses to have less impact less of an impact in the coming quarters.

Speaker 2

The bidding and pricing environment for infrastructure services throughout our footprint continue to be robust, with added opportunities expected from the historic federal investment in our nation's infrastructure through the Infrastructure Investment and Jobs Act. We continue to view this sector as a key growth driver for Mammoth over the long term, and I'm pleased with the continual progress we are achieving. As a reminder, we have grown this division strictly by organic means over the past 5 years. The sand business also grew in the quarter, And we are pleased with our team's performance. As we have mentioned before, we entered into 2 strategic sand supply agreements late last year at attractive price.

Speaker 2

These contracts are providing a solid foundation for predictable cash flow in our natural sand proppant division. 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 March 27, 2023, COBRA was notified that FEMA had approved $233,000,000 in COBRA invoices related to the December 21, 2022 determination memorandum. The 90% federal cost share of the approved amount was $210,000,000 which was obligated and made available for drawdown on March 27, 2023.

Speaker 2

Of this $210,000,000 approximately $99,000,000 has been represented by both PREPA And FEMA has intended to pay COBRA for outstanding invoices, and the remaining $111,000,000 is a reimbursement to PREPA for payments already made on COBRA invoices. PREPA, inexplicably, refuses to pay COBRA for the work accomplished in the aftermath of Hurricane Maria and has so far failed to take the steps necessary to obtain the funds from COR3, funds that were appropriated by Congress to FEMA and then obligated to COR3 for payments to COBRA. We continue to vigorously pursue payment of the over $390,000,000 owed to us from PREPA and continue to exhaust efforts with congressional members, legal teams and frequent meetings with decision makers. Now let me turn the call over to Mark to take you through our financial performance in greater detail. Thank you, Artie.

Speaker 2

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 10 Q, which we expect to file tomorrow after market close. Mammoth's total revenue during the Q1 of 2023 came in at $116,300,000 compared to $62,300,000 during the same quarter last year. In Q1 of 2023, we pumped 2018 stages with approximately 3.6 fleets utilized on average compared to 6.99 stages and an average utilization of 1.6 fleets during the same quarter last year.

Speaker 2

This 87% year over year increase in revenue is a key indicator that we have capitalized on favorable market conditions and have driven improved operational efficiencies. Looking forward, as Artie mentioned earlier, We are seeing some softness related to natural gas prices, which may adversely impact results for our Well Completion Services division in the near term. We plan to offset this by significantly reducing our capital expenditures as we progress through the year. Our sand division sold approximately 391,000 tons of sand during the Q1 of 2023 compared to 329,000 tons of sand during the same quarter last year. The average price for sand sold during the first Quarter of 2023 was approximately $31.02 per tonne compared to $21.44 ton during the same quarter last year.

Speaker 2

Our Infrastructure Services division contributed revenue of $28,300,000 For the Q1 of 2023 compared to $23,000,000 for the same quarter last year. As already mentioned, There were some cost headwinds in the quarter that we anticipate becoming less impactful as we progress through 2023. We expect this coupled with operational execution to drive improvement as the year progresses. Net income for the Q1 of 2023 was $8,400,000 compared to a net loss of $14,800,000 for the same quarter of last year. Adjusted EBITDA as defined and reconciled in our earnings release was $30,700,000 for the Q1 of 2023, an increase of 230% compared to the $9,300,000 for the same quarter of 2022.

Speaker 2

CapEx for the Q1 of 2023 was approximately $6,000,000 In light of the commodity price softness that we're seeing and its direct impact on some of our customers' spending. We intend to continue to prudently manage our costs and as a result, We are reducing our previously announced full year 2023 CapEx budget to approximately $24,000,000 As of March 31, 2023, we had cash on hand of $11,700,000 and debt of approximately $84,600,000 Our total liquidity was approximately $29,100,000 As always, to conclude our call, We would like to thank our 975 employees throughout the company for their hard work, dedication and commitment to maintaining safe and sustainable worksites for themselves and their teammates. Despite some of the softness that we're seeing on the horizon, Our businesses continue to perform well and we're confident that the diversified and differentiated nature of our service offerings positions us Well to continue generating favorable results in 2023. We will maintain our focus on operational excellence and efficient execution in each of our businesses, which we believe will enable us to drive meaningful shareholder value. Operator, we would now like to open the call up for questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question is from Ignacio Bernalves of

Speaker 3

Two quick questions. The first, Any more color on the bidding and pricing environment for Infrastructure Services and specifically how the Infrastructure Investment Jobs Act is

Speaker 2

We continue to see an increase in bidding activity, primarily for projects. So we think that bodes well for the remainder of the year. To date, we've not seen a lot of activity in relation to Infrastructure Act, but we expect that bidding activity to start hitting the market late this year. Yes. I'd add on to that Ignacio that we are seeing some of the activities, Some price increases that are going through to our customers.

Speaker 2

Utilities started out a little bit tight this year. As it was described to us from some of our key customers, which are were larger investor owned utilities, The goods or their products that they use had inflation had hit them about 20 30%. I'm talking about poles and transformers and wooden poles and metal poles and all those type of things that they utilize. So they trimmed back a little bit at the very beginning on crews, and now they're going back out and they're regenerating. So We're seeing activity move up pretty quickly.

Speaker 2

In addition to that, we We have worked out some of the issues we've had previously with bonding and that type of thing, and we feel pretty good about where the team is going, Specifically, in being able to do some of the higher priced transmission substation work and some things away from the Distribution. But all in all, a good quarter for our team.

Speaker 3

That's really helpful. I appreciate that. And then just secondly, You mentioned white space on the calendar through 2023. I guess, what's the extent of that? Maybe, again, a little more color on that.

Speaker 2

Sure. As we exited the 4th quarter, natural gas was Averaging around $5.56 per MMBtu. We saw some prices less than $2 and that's Caused some of the operators to pull back. But we are seeing a lot of it is just delays Because they still have amounts of gas that they have to get to hit their quota for the year. And so we've just seen some delays on things.

Speaker 2

We've also seen it where some of the folks that are delaying are also Continuing to drip, but just not complete right now.

Speaker 3

That's really helpful. Thank you again for your time and congratulations on

Operator

Question is from John Daniel of Daniel in Key Partners. Please go ahead.

Speaker 3

Hey, guys. Thanks for including me. First is a housekeeping. Mark, can you remind me what the budget was for 2023?

Speaker 2

We had started out For a CapEx budget of just over $60,000,000 so we peeled that back $30,000,000 plus

Speaker 3

Okay. Are you guys still proceeding with the Tier 4 dual fuel upgrade? Or can you walk us through what might have been put on hold?

Speaker 2

We're still proceeding with the Tier 4 upgrades. That is one area where we continue to see some supply chain difficulties On those engines, but we are continuing to proceed on that front. Yes. John, I'll give you a little bit more color on that piece on the supply chain aspect. I think as we stated in our last call, went up to Cat and visited them at their factory and all those type of things.

Speaker 2

And they've continued to get they have the engine. We have the 1st Tier 4 dual fuel engine That was delivered. It was not delivered with all of its parts. It's like getting an automobile and not getting the steering wheel or Tires to go with it. So it continues on.

Speaker 2

We are still working it out of our Manufacturing facility, of course, and it's just going to be a little bit slower, slower going. So part of that reflection that Mark talked about on that delay is just purely the supply chain that we see and we've encountered.

Speaker 3

Okay. Just last one for me. I've got some cell phone issues, so I apologize. But just given sort of the you had a really successful ramp in bringing those fleets back and now a modest pause. Can you just walk us through how you handle the labor situation?

Speaker 2

We've had to Cut back on frac crews as a result of the white space in the calendar. Historically, we've been able to ramp up and Fine, qualified crews, so we're not too concerned about having to ramp back up, but we've certainly actively managed that staffing label Level at the frac side to align with the activity that we've got on the calendar.

Speaker 3

Fair enough. And Not trying to put you in a weird spot, but when the customers, given they're ultimately the ones that sort of drive the slowdown, Do they are they trying to work with you at all? Because I would assume that they will be coming back and using that equipment down the road.

Speaker 2

Yes, the customers have absolutely been great in working with us and the schedule has been very dynamic, but our sales Tim has done an excellent job of filling in those gaps and working with each of our customers.

Speaker 3

Okay, great. Thanks for including me guys.

Speaker 1

Thanks, John.

Operator

The next question is from John Kreut of Johnson Rice, please go ahead.

Speaker 4

Good afternoon, Artie, Mark and Britney. How are you all today?

Speaker 2

Hey, Don. How are you?

Speaker 4

I'm doing well. I'm doing well. Thanks for including me. Your commentary about white space has been very kind of widespread Across the industry this quarter, but I wanted to take that a step further given your Divisions that you have, namely sand. There's a lot of talk that there's going to be a lot of gas completions going into the end of the year.

Speaker 4

I didn't know if you were having any customer conversations on the sand side from a demand perspective, Specifically related to that can be construed into the frac side of the business, I. Demand for sand is a leading indicator, obviously. So I didn't know if there was any kind of

Speaker 2

color you can provide there. Yes. Of course, we're backstopped with our 2 contracts and that certainly helps things. What we are seeing is still strong demand for sand. Obviously, you have a little bit of a break with the breakup in Canada, because as you know, we go to Canada and to Colorado and to the Northeast Primarily with the sand, but we're still seeing strong buildup coming in June July.

Speaker 2

We still that business has performed as good as it ever has during this winter time period.

Speaker 4

And one further on sand for me, it sounds like pricing has been fairly stable over the last 3 or 4 months. Do you see that Continuing or do you think it kind of pulls back for a month or 2 and then kind of goes forward with demand?

Speaker 2

Based on what we've seen over the next 2 to 3 months, it looks like pricing will be fairly stable. Don, one of the things you know about us is that we are always A lot of our pricing is determined by the mix that we have. Obviously, Fortyseventy Is the gold grade and then everything else trails. So when you're seeing it, we're still seeing pricing remain Pretty strong. But if you see lapses with it, it's because of the mix with 30, 50 and 2040, Getting in mixed with the fortyseventy.

Speaker 4

I appreciate all the color and thanks for including me.

Speaker 2

Thanks, Don.

Operator

The next question is from Michael McTyson of Singular. Please go ahead.

Speaker 5

Good afternoon, gentlemen, and thank you for taking my question. With everyone else, I congratulate you on the quarter, big increases.

Speaker 2

Thank you.

Speaker 5

Kind of looking at the demand environment where there's Cutbacks in drilling activity, cutbacks in well completion. You previously forecast EBITDA of around $15 to $18 per frac Spread that's out there operating. In today's demand environment, are we still within that range or dropping a little bit, do you think?

Speaker 2

Likely peeling back a little bit to put that in perspective, Closer to the $12,000,000 to $15,000,000 per spread on an annual EBITDA basis.

Speaker 5

Good. Got it. And if you can allow one more question, coming back to that news on PREPA, I just want to make sure that I've

Speaker 2

It has to go. The way the system is set up COR3 is the grant recipient And they have to submit the they received the paperwork from PREPA. PREPA has to do An RF or request for reimbursement and then Core3 will pay them and then PREPA will pay us. Now, inexplicably, and we're a month into this. So we found out about it on March 27th through some of our congressional leaders that were inquiring for us.

Speaker 2

And we I think that they have received that they put in a request for requisition of $130,000,000 So the timing for that is starting to come upon us. And I'm not trying to indicate that payment is imminent All that type of thing, PREPA, has been tough in this regard. But they have, as I said in the As we went through the earnings part, they have funds that have been appropriated by Congress for a specific FEMA determination memorandum. And those funds have been made available to Core 3 as the grant recipient. They can continue to refuse to pay, but I don't think Congress will appreciate that very much that they that those funds Are not going to the people who performed the work.

Speaker 5

Right. Again, we're struck by their unwillingness to pay even when they themselves have been paid. So I wanted to make sure understanding When money is likely to fall into your hands, it sounds though like, if I understood what you said, there is some possibility of getting 130,000,000 Maybe sooner rather than later, is that fair?

Speaker 2

To clarify, the portion of that $210,000,000 that relates The unpaid invoices for COBRA is $99,000,000 Correct. And that money to the extent that Core 3 draws it It's not fungible, so that money can only be paid to COBRA once drawn.

Speaker 5

Okay, great. Well, thank you for all of that information. Very helpful.

Speaker 2

Thank you.

Operator

The next question is from Carter Zandlaf of Zandlaf Equity Management. Please go ahead.

Speaker 6

Hi, gentlemen. Is there any plans to mobilize any of the spreads from, let's say, the Northeast to your other basins?

Speaker 2

We don't have any near term plans, but we've certainly got the capability to move those spreads and can do so Fairly quickly. So our crews are able to be moved along with those spreads and have been fairly mobile. So to the extent that the sales team lines up work in the Mid Continent, we're certainly willing and capable of moving those spreads.

Speaker 6

One last question. You cited 3.6 as the average for the quarter. What Remind me what how many stages are I'm sorry spreads are converted, Not the natural gas dual fuel, but weren't you trying to finish 4 or 5, number 4 or 5?

Speaker 2

So we've currently got almost 2 spreads converted to Tier 2 dual fuel. As we've referenced earlier, We're in the process of converting 1 spread to Tier 4, but that conversion has been impacted by supply chain restraints.

Speaker 6

Okay. Thank you.

Speaker 2

Thanks, Carter. With no other questions, thank you everybody for joining us. Thanks, operator. Thank you again for joining us on the call today. We maintain our belief that Mammoth is well positioned

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Earnings Conference Call
Mammoth Energy Services Q1 2023
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