Good day, ladies and gentlemen, and welcome to the Mammoth Energy Services First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay on Mammoth Energy Services’ website. I would now like to introduce your host for today’s conference, Mr. Don Crist, Mammoth Energy Services Director of Investor Relations. Sir, you may begin.

Thank you, Ashley. Good morning, and welcome to Mammoth Energy Services First Quarter 2019 Earnings Conference call. Joining me on today’s call are Arty Straehla, Chief Executive Officer; and Mark Layton, Chief Financial Officer. Before I turn the call over to them, I’d like to read our safe harbor statement. Some of our comments today may include forward-looking statements, reflecting Mammoth Energy Services’ views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Mammoth Energy Services’ Form 10-K, forms 10-Q, current reports on Form 8-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today may also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our first quarter press release, which can be found on our website along with our updated presentation. Now I’ll turn the call over to Arty.

Thank you, Don, and good morning, everyone. The first quarter of 2019 was a busy one for Mammoth as we increased activity across our pressure pumping fleets in sand mines and wound down our operations in Puerto Rico. As you are aware, oil prices increased 32% during the first quarter of 2019, leading to higher profitability for the E&Ps and more optimism throughout the industry. The widely expected reduction in the land rig count has been muted versus original forecasts, and there are signs of increased pressure pumping utilization and pricing. Several of our completions-focused business lines saw higher utilization during the first quarter, and discussions with E&Ps interested in increasing activity in the back half of the year are increasing. While it is difficult to predict future activity levels given the current investor sentiment around keeping CapEx within cash flows and the return of capital to shareholders, we are encouraged with current conversations. In the T&D space, we’re seeing an upward trend in the amount of maintenance spending from the larger IOUs. This is growing the overall spending of the industry and is expected to translate into more work for all the companies in the sector. Given our recent investments, we feel we – that we are well positioned to be potentially – to potentially increase our market share over the coming years. Now let me give you an update on our current operations, starting with our infrastructure division. Our Lower 48 infrastructure business has grown rapidly over the past 18 months. While a lot of emphasis has been placed on Puerto Rico over the 1.5 years, let me remind you of what the Lower 48 infrastructure business has accomplished during that time period. At the end of the third quarter of 2017, we had a backlog of approximately…

Thank you, Arty, and good morning, everyone. I hope that all of you have had a chance to read our press release, so I will keep my financial comments brief and focus on certain highlights. Mammoth’s revenue during the first quarter of 2019 came in at $262 million, down 6% from the fourth quarter of 2018. A reduction of activity in Puerto Rico in our infrastructure segment contributed to the lower revenue compared to the prior period. Net income for the first quarter of 2019 came in at $28 million, which was slightly below the fourth quarter of 2018. On a per share basis, net income for the first quarter came in at $0.63 per diluted share. During the first quarter of 2019, income taxes were $23 million, resulting in an effective tax rate of 45%. Adjusted EBITDA for the first quarter of 2019 came in at $83 million, as comparable to consensus estimates of $74 million. Our corporate adjusted EBITDA margin was 32% during the first quarter of 2019. Selling, general and administrative expenses came in at $17 million or 7% of revenues during the first quarter of 2019 compared to $15 million in the fourth quarter of 2018. Other income was $25 million during the first quarter of 2019. Other income was comprised of $26 million related to interest on accounts receivable, partially offset by other expenses of approximately $1 million. The interest charge was pursuant to the contractual agreement with PREPA. The receivable from PREPA was $284 million as of March 31, 2019, and was $273 million as of April 26, 2019. CapEx during the first quarter of 2019 was approximately $20 million, the majority of which was related to the organic growth of our trucking, rental and water transfer businesses. For 2019, we anticipate spending approximately $80 million on CapEx throughout the year. Of this total, approximately $25 million is designated for our infrastructure services, with approximately $55 million designated for oilfield services. Given our current outlook, we expect this level of CapEx to be completely funded through internally generated cash flows. As of March 31, 2019, we had $21 million in cash and $82 million of borrowing under our $185 million credit facility, resulting in total liquidity of $115 million, net of letters of credit. Pursuant to the terms of our original PREPA contract, once our 2018 Puerto Rico income tax returns are filed, which we currently expect to happen in mid-May, we’re entitled to receive $45 million from PREPA related to a contractual income tax provision. We thank our shareholders for their support. This concludes our prepared remarks, and we thank you for your time and attention. We will now open the call for questions.

[Operator Instructions] And our first question comes from the line of Tommy Moll with Stephens.

Arty, it’s pretty clear the Northern White sand market caught a bid here in the first quarter. Could you take us through some of the drivers there? What drove pricing in particular? What the forward outlook appears to be saying in second quarter? And in particular there, is it fair to assume that your average sales price should continue to tick up quarter-over-quarter? And then at a higher level, where do you think we stand in terms of the market on capacity that’s shut in with some of your peers? And do you see them coming back online as a threat near term to some of the good fundamentals you’ve experienced recently? Or does it seem more like those who were shut down aren’t coming back anytime this year?

A lot of questions in there, Tommy. Let me start and talk about the sand performance and our teams. And as you well know, in Q4 that we talked about on the phone call, we were operating three to four days in each one of our plants, and price was down in the teens for our 40/70 and we were in a position where it was looking pretty bleak. With the reset of budgets, and we started alluding to that a little bit as we started coming out of it, our plants are now operating seven days most weeks, and in the alternate weeks, six days. So it’s back to where we’re running our operations about the 95% level. The pricing is up 90% on 40/70, and our costs are down around $12 at the mine. We see very strong clarity as we move into May and June with our order book. So we think it’s continuing. A lot of it is in support of our activities. Quite honestly, the vertical integration aspect of having access to our own sands was very strong to – in contributing to the pressure pumping side, where you saw us set a record for the number of stages in a month. We were challenged with transportation issues. But because of our team’s focus and our ability to get there – and when I say transportation issues, the rivers were flooded in the lock – there was a lock that was down that backed up barges for approximately 2.5 weeks. And then there were some challenges with rail that our team was able to overcome that. So you can see that contribution of our sand is not only just straight from our third-party contracts that we still have and are in force, but also from the vertical integration aspect of it. So a very strong quarter for sand. They are continuing to perform very well. Our costs are down around $12 per ton, and we think that the order book looks very sound.

Let me add one thing to that, Tommy. This is Don. A lot of the mines in Wisconsin produce a lot of course-grade material. The market for coarse-grade material is still very poor throughout the industry, and a lot of that coarse-grade material is being dumped. So depending on the mine, if you produce upwards of 50% coarse-grade material, you’re literally dumping that back into the reclamation pile, and it’s costing you money to actually produce it. So if you’re dumping that much sand, it could inflate your costs by upwards of $5 to $10 per ton, and that could be a barrier to entry for a lot of the mines that are currently idled and completely shut down today from coming back in the current pricing environment. So we don’t see a lot of sand coming back in the short term, given where spot prices are today, and our order book, as already said, is very strong for the next 30, 60, 90 days.

Great. And don’t want to leave Mark out here. Mark, I wanted to ask you about working capital. There are a lot of moving pieces, with the business winding down in Puerto Rico, with your receivables, your payables, taxes that you guys owe, but then some of that comes back in the form of a refund. Anything in particular you can help us with in terms of walking through those different drivers? Or maybe, if we just want to kind of get to the punchline, which I think is where a lot of investors’ heads are at, is it fair that there – that we should end the year with north of $100 million in cash after a pretty significant net working capital release in the coming quarters?

Yes. I think to jump to the punchline, we would expect to end the year between $2.50 and $3 per share in cash, which would imply $110 million to $135 million in cash on the balance sheet. We’ve got just under $5 per share in working capital less debt today, and we expect to monetize that, have that cash on the balance sheet at year-end, based on what we have line of sight of today.

Okay. Great. And we can spare ourselves going through all the different accounts on the balance sheet. That gets us what we need. And that’s all for me.

Thanks, Tommy.

And our next question comes from the line of Jason Wangler from Imperial Capital.

Arty, I wanted to ask, I mean, with your background in the vertical integration, is – in the manufacturing side, is that something that you guys would look at or something that they would pursue to kind of continue a vertical integration that you guys have been doing in the last couple of years?

I’ll tell you, Jason, that that’s an interesting question. Of course, yes, the answer – the short answer is yes. From previous business that I ran for Wexford Capital, that was very successful. We had a very good outcome. We had a 5-year non-compete that actually ends May 9. So we are – we’ve been actively looking for manufacturing spaces to start that process up, and I would expect that we will be manufacturing something in the next – begin to manufacture in the next couple of months. So we are looking at that aspect. Now it – it’s not necessarily going to be the large equipment that we have in mind, but it is going to be things for our rentals and our – for our rental division and for our water transfer division that we think would have a very nice return for us. So yes, we are actively considering. And that’s more of the move towards the industrial side as well. But yes, we are actively engaging. And we’ve actually looked at a couple of manufacturers over the course of the last couple of months. We’re – as you well know, we are very active. We have about 25 going – 25 deals that we’re looking at, and we get – we receive lots of deal flow, of course.

Okay. That’s helpful. I appreciate the color. And maybe, Mark, to dovetail on Tommy’s questions, as you think about that level of cash later this year, you’re obviously paying a dividend already. You – as Arty was just saying here, you’re obviously focused on M&A when appropriate. But is there – besides, I assume the natural paying down some of the credit facility as some of those funds come in, is there something else that you guys are kind of focused on? Or is it more just kind of seeing what happens as the cycle evolves?

Well, we’ll be nimble as the cycle evolves, as we always have been. We still see a fairly robust deal flow. As Arty mentioned, we’ve got approximately 25 deals that we’re currently evaluating. Absent an investment opportunity that meets our return thresholds, we can evaluate returning cash to shareholders.

And our next question comes from the line of Daniel Burke with Johnson Rice.

Question for you. Can you go ahead and provide us with the split of, I mean, U.S. and Puerto Rico revenues in Q1 in infrastructure, just to get a sense of the baseline U.S. performance?

Daniel, absolutely. The split was about 70% Puerto Rico inside of Q1 on the revenue side.

Okay. And was – in terms of thinking about margin performance and the business, obviously, transitioning back to Continental U.S. here in the near term, can you give us a sense for whether margins were in range with your targets in Q1? And then as we look to Q2, I mean, any wrinkles to keep in the back of our minds as you complete the wind-down in Puerto Rico?

I think as you look at Q1 and Q2, there’s a little bit of noise, if you will, in the transition of our linemen from Puerto Rico to the Lower 48. So you’ve got some labor costs in Q1 that will bleed into the early part of Q2. And then you’ve got some logistics cost mobilizing that equipment from Puerto Rico to the U.S. inside of Q2 that will hit. So there will be a little bit of margin noise that will continue inside of Q2. But looking into the back half of the year, we expect the infrastructure business to generate EBITDA margins in that 15% to 18% range that we’ve talked about historically.

Daniel, let me give you a little bit more color on our infrastructure segment. Because we are rapidly increasing our customer base, we’re going into Florida to start working for the large IOUs there, Florida Power & Light, Duke, Tampa Power & Light. We’re adding crews with our major IOUs. We’re up to 141 now. We’re expanding into Tennessee in the next 60 days. And one of the more important parts are we’re – we continue to renegotiate rates with our existing IOUs. The other part of that, and it was asked earlier about the vertical integration, our helicopter company continues to perform very well. We’re deploying – we have helicopters deployed in with PG&E on the West Coast. We have one heading towards Minnesota to do transmission work on a year-long contract. And we’re – we continue to feed that business. And again, that vertical integration of being able to handle your own helicopters with your own work is extremely important. And that’s – we’ve continued to – and we’ve mentioned this before, we want to continue to move our – over to the transmission side of things, and having those helicopters available is very helpful.

Yes. That’s helpful, Arty. And it’s good to see the push towards the transmission side is continuing. I guess as a follow-up, just to pivot here, on the pumping side, Arty, you alluded, I think, in your early comments to signs of increased pumping pricing. I don’t think we heard – we’ve heard a lot of different things this quarter. So I was wondering if you can elaborate on that. And then I guess the other – second element of a question on pumping will be to ask if you all can sustain the efficiency levels you achieved in the month of April, are those efficiency levels alone good enough to get you back to an annualized EBITDA per fleet in the low teens here in Q2?

It’s – certainly, the efficiency is always extremely important. And the crew – I mean, just to give you a little – we set another record in the month of April, with 858 stages. Yesterday, with five crews operating, we did 40 stages. And with the clarity of schedule we see until August, it helps us absolutely to be prepared for it. Pricing has not come all the way back. It’s still a little bit suppressed. But we’ll get our margins up to – with the – those type of efficiencies, to the 15% to 17% EBITDA range. Now I think one thing of significance that we saw over the course – because we’ve had this and we even mentioned it in our script about the E&Ps being very disciplined, not going to break ranks and all that type of thing. We actually saw Laredo announce yesterday that they were going to outspend their cash flow. They were the first E&P that I know of that is going to break ranks and outspend the cash flow. They’re to complete 30 from – their original plan was to complete 36 wells. They’re actually going to complete 52, and their stock is up today. It was up about 10% to 11%. Now one robin doesn’t make a spring, but if other – if the price of commodity stays stable and other E&Ps start to do the same, we think the pricing will come back in the second and third quarter.

That – it’s helpful, Arty. And just to make sure I heard you correctly, you alluded to, with the efficiency levels you’re achieving, being able to get back to a 15% to 17% EBITDA percent margin, correct?

Correct.

And our next question comes from the line of Praveen Narra with Raymond James.

I guess if I can follow up on Daniel’s first question. In the U.S. infrastructure business, as we see the equipment shift from Puerto Rico to the U.S. and you can use more owned corporate versus rented, can we actually see some upward movement to that 15% to 18% target? Or what am I missing there?

Praveen, there is some upward possibility on that 15% to 18%, and that’s largely driven by mix. We briefly mentioned the transmission side of the business earlier, and that’s a higher-margin service line. And as we increase that particular mix, we would expect the margins to be biased higher.

Okay. Okay. And then as we think about – you mentioned $3.5 billion of bidding outstanding for the U.S. side. Can you talk about the size of projects you guys are bidding on, what – the turnkey versus time and materials, and just how you think about success rate for bids?

We have a lot of outstanding bids. And as we said in the conference call – and those aren’t all just Continental United States. We are doing something in international markets, and we have access – and again, it goes back to our deal flow that we have. And we had a huge bid for a transmission project in Nebraska that we lost. And you usually don’t talk about the ones that you lose, but it just gives you an indication of the type of business development that our teams are doing. And they are extremely astute at business development, and they are pretty widespread with the number of customers that they’re hitting. So we do have some very good line of visibility on our basic business right now, but we are also going after some – more aggressive forms of business as well.

Okay. And if I can ask one more clarification question just in terms of year-end cash figure. I assume it doesn’t contemplate any cash M&A transactions or anything like that?

That’s correct.

[Operator Instructions] And our next question comes from the line of Taylor Zurcher with Tudor, Pickering, Holt.

Arty, you had some encouraging outlook commentary as it relates to pressure pumping. And my question is just on the geographic positioning of your fleet. I think you said 5-year fleets are in the Northeast today, and it feels like that’s been one of the markets that’s really ramped, at least year-to-date. But then, if you look at the natural gas strip, it would suggest that at some point, that, that strength is going to crater a bit. And so just curious, it doesn’t like you’re seeing any weakness year-to-date. But how do you think about the overall macro environment as it relates to your geographic positioning on the pressure pumping side in the Northeast?

Well, we have four of our five – just to be clear, Taylor, we have four of our five fleets that are up in the Northeast and working, and we have one in the Mid-Con area. We actually see – right now, we’re seeing a little bit firmer pricing in the Northeast than we are in the Mid-Con. Mid-Con is a fairly tough, competitive area. But with the efficiencies that we have, we’re able to still make some significant money. We still think that the oil is the place to be in everything and focused on that, and we’ll make our moves, so that equipment is mobile. But let me also remind you about our contract that we have with Gulfport. And that has been part of our story since we did the IPO in 2016, and that is a base part of our pressure pumping story.

Understood. And a couple of follow-ups on the infrastructure side, and it’s probably just borne out of the fact that – of a focus on the OFS side for the most part. But when you talk about $3.3 billion of bidding and quoting activity out there, how does that look historically, maybe three months ago? Has that level of bidding and quoting activity improved naturally as you’ve moved a bit more equipment back to the U.S. from Puerto Rico? And what’s the best way to think about that sort of quoting activity translating into additional sequential improvements in the Lower 48 backlog moving forward?

Well, Puerto Rico, and you go back to the history of how we started the infrastructure. And we started off with two small acquisitions and then Puerto Rico came up and that morphed into a $1 billion opportunity. But it also gave us a showcase – ability to showcase our talents. And now with the integration of helicopters and that type of thing, it’s really gotten us to where we proved what we could do in fairly tough conditions in Puerto Rico. You go back to the way it was initially, with no power, absolutely no power, and being able to house our men and do all the logistical aspects of that job. That tells you that we can go to tougher areas. We can go to areas that are still developing their infrastructure, and those are some of the things that we are bidding on. Can’t tell you – I can’t tell you the exact locations and that type of thing because it’s – we’re in the midst of those processes. But those can morph into very large jobs. One of them alone is $2.4 billion that we’re looking at. Now I don’t want to insinuate at all that we’ve got that, but we have a team that can absolutely execute on the logistics aspect, can – and can live in tough terrains and tough areas and still be very, very successful. So we’re very encouraged by what’s happening with our infrastructure business.

Okay. Got it. And last, a housekeeping one from me. When you talk about a year-end cash balance of north of $110 million, does that contemplate collecting all the receivables from PREPA, which I think you said was somewhere around $270 million?

Yes. As of April 26, it was just north of $270 million, and we fully expect to monetize that receivable and collect what’s due under the terms of the contract.

There’s no reason to think that we won’t collect it, right? So far, we’ve collected in excess of $1 billion, and that’s about 80%. We still have some unbilled that is still coming in and that we’re – we’ve got to deal with. So we have no reasons to suspect that we won’t get paid. I’d also add that we have open dialogue with the principals at PREPA, and we keep that dialogue very close. In fact, two of our three largest payments so far this year have come in the last two weeks. So we’re very encouraged.

And ladies and gentlemen, this concludes today’s Q&A session. I would now like to turn the call back over to Arty Straehla for any closing remarks.

Thank you. We want to thank everyone for dialing in today. I want to personally thank our team. Without the hard work performed by each of you, Mammoth would not be what it is today. The future is bright for Mammoth and our team members as we intend to grow and deliver shareholder value in the years to come. Thank you to our shareholders for your support and interest in our company. We look forward to seeing many of you at our upcoming conference appearances and speaking with you again in August, when we release our second quarter earnings. This concludes our first quarter conference call. Good day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program, and you may all disconnect. Everyone, have a wonderful day.