Mammoth Energy Services Q1 2024 Earnings Call Transcript

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May 2, 2024

There are 6 speakers on the call.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Baum.

Operator

Thank you, sir. You may begin.

Speaker 1

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Mammoth Energy conference call to review 2024 Q1 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, May 2, 2024. Please be advised that any time sensitive information may no longer be accurate as of any subsequent date.

Speaker 1

I would also like to remind you that the the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance, are forward looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We will be making forward looking statements as part of today's call that by 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.

Speaker 1

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. And now I'd like to turn it over to Mammoth Energy's CEO, Arti

Speaker 2

Strayla. Thank you, Zach, and good morning, everyone. I'll start with some overview comments about our business and the quarter discussing recent developments and updated expectations for 2024. Then I will turn the call over to Mark to cover the financials in more detail. Our Q1 results were challenged for a number of reasons.

Speaker 2

Most notably, our Well Completion Services division experienced continued activity softness resulting from lower energy prices in the quarter, particularly in natural gas and operators electing to defer activity to later in the year. This softness resulted in white space in our frac calendar for the month of March and had a direct on our revenue and earnings for the quarter in this segment. Our Infrastructure Services division was also challenged this quarter, primarily due to experiencing less storm related work in the quarter than we had anticipated, and that caused a slight underperformance relative to our expectations. I'll update everybody on our visibility for the remainder of the year in a moment, but we do expect this Q1 results to serve as our low watermark for 2024. Our Infrastructure division experienced a sequential decline in both revenue and adjusted EBITDA for the Q1 stemming from less storm related activity.

Speaker 2

However, we are now seeing an uptick in bidding opportunities related to engineering, fiber, transmission and distribution, all of which are areas I believe we have differentiated and specialized capabilities to capitalize on opportunities in the market. Our engineering group continues to do well, and we're building up more projects in the T and D space currently. The Infrastructure Investment and Job Act are being released funds are being released for infrastructure projects such as fiber and engineering as well as transmission and distribution, areas where we remain excited participants, and this continues to give us optimism for improvements throughout 2024. Although the storm season in 2023 and so in 2024 has been benign relative to historical standards, NOAA is forecasting an active storm season this year, and we will be prepared to deploy teams in the areas that may be impacted. We remain encouraged about the potential for continued growth in this sector, and we feel strongly that Mammoth's infrastructure business is well positioned for long term growth.

Speaker 2

Our well completions business experienced persistent challenges associated with lower U. S. Onshore activity and sustained weakness in gas basins in which we operate. This continued to result in underutilization in the Q1, but we entered in the 2nd quarter with improved visibility in line of sight for the remainder of 2024. We are seeing indications of the increased activity levels in the back half of the year in anticipation of increased natural gas demand, and we will be strategically positioned to capitalize on this anticipated demand if and when it ramps up.

Speaker 2

As always a component of our internal analysis and decision making, we continue to weigh opportunities to potentially move our assets to more oily basins, but we haven't had a sufficient opportunity yet that would allow us to sustain the calendar and costs associated with relocation. We remain extremely focused on our cost structure, and we'll continue to efficiently manage our capital expenditures to align with activity levels and demand. In our sand division, we experienced increased demand resulting in sequential improvement in tonnage sold as well as slight uptick in pricing relative to the 4th quarter. The higher Q1 demand was primarily driven by Western Canada, and we expect to see additional improvements in demand across North America in the second half of twenty twenty four. Despite the slow start to the year, we have entered 2024 with an undrawn revolver and cash on the balance sheet, We believe Mammoth remains poised to capitalize on near term opportunities.

Speaker 2

As we have demonstrated throughout our history, we have a resilient and diversified business comprised of talented and hardworking teams that will continue to find solutions that optimize our operational efficiencies with a customer and safety first focus. We believe our diverse portfolio and ability to adapt quickly to changing environment positions us well in these segments. Turning now to PREPA. As previously announced, PREPA has paid $64,000,000 so far in 2024 with respect to our receivable. While we are pleased with these payments, we are still owed approximately $349,000,000 in principal and interest.

Speaker 2

PREPA has been holding $18,200,000 in FEMA funding specifically related to COBRA's work since December. We continue to vigorously pursue payment of the outstanding amounts, especially the $18,200,000 PREPA's withholding funds. We remain engaged in mediation with PREPA regarding our claims. If mediation is unsuccessful, we intend to litigate the disputed issues. Looking forward, we enter the 2nd quarter with improved visibility and expect our results to take a meaningful step up as we progress through 2024.

Speaker 2

We are encouraged by customer conversations and the anticipated ramp in demand and associated well completions activity in the second half of this year. Our current line of sight gives us confidence that we will generate improved adjusted EBITDA results in each of the remaining quarters of 2024. We have a strengthened balance sheet, revolving credit facility agreement and a new term loan agreement, and we remain well positioned for growth in 2024. Now let me turn the call over to Mark to take you through our financial performance in greater detail.

Speaker 3

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 10 Q once it is on file with the SEC. Mammo's total revenue during the Q1 of 2024 came in at $43,200,000 compared to $52,800,000 in the Q4 of 2023.

Speaker 3

The 18% sequential decline in total revenues was primarily attributable to the continued activity softness in the natural gas heavy basins that we operate, along with an overall decline in North American energy prices in the quarter. We believe there are positive demand implications for natural gas on the horizon, and we remain optimistic for associated activity increases later this year. We view the Q1 as low watermark for 2024 and anticipate improvements in our results moving forward. In Q1 of 2024, we pumped 380 stages with approximately 0.6 fleets utilized on average compared to 669 stages and an average utilization of 0.9 fleets during the Q4 of 2023. This decrease resulted from sustained lower natural gas prices and commodity price uncertainty that continued to lead to the utilization headwinds that we experienced in the Well Completion Services division during the Q1.

Speaker 3

Operators continue to elect to push much of their activity to the right and were slow to reset and finalize their budgets, which resulted in white space on the calendar, but we now feel that we have a better line of sight for later this year. As many of our peers have noted on their calls, the expectation is that activity will begin to ramp up meaningfully in the second half of twenty twenty four. We will remain disciplined stewards of capital and continue to align our spending appropriately with the demand that we are seeing from our customers. Our sand division sold approximately 146,000 tons of sand in the Q1 of 2024 at an average sales price of $24.38 per ton compared to 104,000 tons of sand at an average sales price of $23.62 during the Q4 of 2023. The lower sequential revenue despite an increase in both tons sold and average sales price stem from approximately $2,000,000 in shortfall revenue that was recognized in the Q4 of 2023 compared to none in the Q1.

Speaker 3

Our Infrastructure Services division contributed revenue of $25,000,000 for the Q1 of 2024, which represents a sequential decrease when compared to $27,200,000 for the Q4. As Artie mentioned, storm work in the Q1 was much lower than in previous years and it resulted in a slower start to 2024 than anticipated. However, we are seeing an uptick in bidding activity. We continue to focus on operational execution and pursue opportunities within this sector as we strategically structure our service offerings for growth, especially around T and D and fiber projects. Our net loss for the Q1 of 2024 was 11 point of $6,000,000 for the Q4 of 2023.

Speaker 3

Adjusted EBITDA as defined and reconciled in our earnings release was $4,500,000 for the Q1 of 2024, a decrease sequentially compared to $10,500,000 in the Q4 of 2023. CapEx for the Q1 of 2024 was approximately $4,200,000 which was in line with our CapEx for the Q4 of 2023. We continue to prudently manage our costs to more accurately reflect the activity levels of our customers. We are revising our CapEx budget for 2024, and we now expect to spend approximately $9,000,000 for the year, which represents a $6,000,000 decrease from our previous guidance. This budget remains heavily weighted towards pressure pumping.

Speaker 3

But as always, we will continue to monitor customer spending activity trends in order to most effectively manage our capital to align with the demand we see in the market. Selling, general and administrative Selling, general and administrative expenses totaled approximately $8,800,000 during the Q1 of 2024, up 6% compared to $8,300,000 for the Q4 of 2023. Sequential increase in Q1 SG and A was related to a change in provision for expected credit losses in our infrastructure segment as well as audit fees. As of March 31, 2024, we had cash on hand of $22,000,000 Our revolving credit facility was undrawn and we had approximately $21,000,000 of available borrowing capacity. Our total liquidity was approximately $43,000,000 The aggregate $64,000,000 that was paid by PREPA with respect to our receivables so far this year enabled us to satisfy in full our $54,400,000 obligation to SPCP Group under the previously reported financing arrangement, while adding $9,600,000 to our cash position.

Speaker 3

And we are pleased to have bolstered our liquidity with the credit facility refinancing that occurred in the Q4. To conclude our call, we would like to thank our 735 employees throughout the company for their hard work, dedication and commitment to maintaining safe and sustainable work sites for themselves and for their teammates. Despite the soft start to 2024, we maintain our belief in our teams and the direction that we are headed. We have taken appropriate steps to align our business with demand and strategically position Mammoth for improved results as activity rebounds later this year. We will continue to prioritize disciplined operations, efficiency and strategic capital allocation, which when coupled with our strong balance sheet, we believe will drive improvements in shareholder value.

Speaker 3

Operator, we would now like to open the call up for questions.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from Blake McQueen with Daniel Energy Partners. Please proceed with your question.

Speaker 2

Hey, good morning. Morning, Blake.

Speaker 4

Thanks for taking my question here. I had a bit of a bigger picture question. I was hoping you could talk to us a little bit about the labor market and kind of how you guys are thinking about the balance between kind of maintaining staff and good hands and wages in a competitive environment?

Speaker 2

Yes. I'll take that one. We do the labor market is still competitive, but we are able to find people and to grow those businesses as we start to add them. And I'm talking primarily about T and D because that's where the biggest shortage is right now. With a little bit of the decrease in activity in oil and gas, labor is a little bit labor market is a little bit improved over it was over, say, 6 months ago.

Speaker 2

But on the transmission distribution, where we are bringing on crews and that type of thing, we have been able to attract very talented individuals and grow that business as we go.

Speaker 4

That's helpful. Thanks. I was also hoping maybe you could share some thoughts around kind of the shape of the activity recovery in the back half of this year and early 2025 and what you're hearing from customers and what they're looking at and how they're thinking about it? I mean, I know there's a big demand pull that they've got to feed, but any color you could provide around kind of the shape of that activity uptake would be useful for us?

Speaker 2

Yes. And our schedule has really been pretty dynamic on especially on the frac side. With customers coming at kind of late in the process, say, no, we're going to defer this to a little bit later because of where pricing is and because we can get better rates with water or some other reason that would lower the cost to produce. So we've seen a fair number of those where everything has slid to the right, but they still anticipate getting the work done this year. So I mean, we're already looking at things into the July August time frame that we believe will come to fruition.

Speaker 4

Got it. That's helpful. Thank you very much for the time this morning.

Speaker 2

Thanks, Blake.

Operator

Our next question comes from Michael Matson with Singular Research. Please proceed with your question.

Speaker 5

Good morning, you guys, and thanks for taking my question.

Speaker 1

Good morning. Good morning.

Speaker 5

Let's see, just a couple of things on the revenue side first. You mentioned there's a lot of bidding activity in infrastructure. Low storm volume left you behind a little bit in this quarter, but looking at new build infrastructure, do you have any that kind of seem imminent to close that would be significant?

Speaker 3

We've won some bids recently and continue to see a fairly robust pipe line, primarily as it relates to transmission projects as well as substation projects.

Speaker 2

Yeah. One of the emphasis we want to do this year is get more and improved in the transmission area. And I think we've been able to do that. Our bidding is a lot more robust in that area. We currently have a couple of transmission jobs going concurrently right now.

Speaker 2

On the distribution side, and just and obviously, I'm not going to tell you the customer or who it is or anything on the T and D side, but we are in the midst of a 15 crew offer with major utilities that would certainly be helpful to us. Doesn't guarantee that we're going to get it, doesn't mean we're going to get it, but we think we're very competitive in trying to achieve that and get that bid. It just brings home the area that we're in, in T and D and where we think that growth will come from. We're already starting to see it in one of the precursors, our engineering business that we started from scratch a few years back. We'll do $20,000,000 to $23,000,000 in revenue.

Speaker 2

They were just awarded a nice contract and they continue to build that business. So that is a precursor to obviously the T and D activity and we view that as a vertical integration opportunity as we progress. So we feel very good about that. We all hear and read I saw a report I saw a report out of Texas that they need twice the size of the grid in the next 8 to 10 years to stay up with the demand. So that bodes well for where we're at and where a lot of our functional growth will come from.

Speaker 5

Terrific. That's very encouraging. Just a couple of nitpicky questions through the income statement. I noticed that there was a spike in interest and financing charges relative to Q4 of last year, even though we paid down some debt using the proceeds from the PREPA payment. Can you help me reconcile that?

Speaker 5

What's going on there?

Speaker 3

Sure. The largest component of that spike relates to the SPCP agreement that was entered into in December. So there was just under $3,000,000 that impacted Q4 of 2023 and round numbers about $5,000,000 that impacted Q1 of 20 24 that's hitting interest expense relative to the SPCP deal.

Speaker 5

Terrific. So I wouldn't expect those interest levels going forward?

Speaker 3

That's correct. Those are one time charges. The $5,000,000 round numbers that was included in Q1 fully extinguishes the SPCP agreement.

Speaker 5

Excellent. Well, thank you for the information and good luck in the coming quarters.

Speaker 2

Thank you.

Operator

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

Speaker 2

Thank you, Maria. Thank you again for joining us on the call today. We continue to position Mammoth for improved results, growth and success, and is all made possible by our talented and skilled team members. This concludes our conference call, and we look forward to speaking to you again next quarter.

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Earnings Conference Call
Mammoth Energy Services Q1 2024
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