Good day ladies and gentlemen and welcome to the Mammoth Energy Services Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this 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. Good afternoon and welcome to Mammoth Energy Services' third 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 would 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 third 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 afternoon everybody. Those that have followed the Mammoth story closely and know us well understand the steps we are taking to become a more industrial-focused company. We know that it would take several years and will not be a smooth transition, but progress is being made.We recently formed an engineering services subsidiary focused on the transmission and distribution industry and started equipment manufacturing operations. The manufacturing operation will initially serve our internal needs, but we need to expand the business into third-party sales in the future.We're very excited to have these two new companies, which were started organically with very little capital in the Mammoth portfolio. Similar to our infrastructure and water transfer business, which have grown significantly since their creation, we intend to grow these new businesses in the years to come to further our reach into the industrial sector.As of today, Mammoth has diversified its portfolio of companies into industrial businesses, including general freight trucking, rental equipment, infrastructure construction, aviation services, engineering, and equipment manufacturing.Our industrial-focused business complement our oilfield-related businesses and are intended to smooth out our earnings as they grow and become a larger portion of our cash flows. As many of you are aware, businesses which rely on underlying commodity prices have been subject to large swings in cash flows and earnings and Mammoth has experienced several of these cycles since its inception.In our infrastructure division, we continue to see strong demand for our services, and bidding opportunities remain robust. We recently hired an industry veteran to lead and grow our infrastructure division. With a new President of our Infrastructure Operations in place, we are continuing the process of rightsizing of our operations and performing needed maintenance on our equipments, which returned from Puerto Rico.Both 5 Star and Higher Power,…

Thank you, Arty and good afternoon 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 third quarter of 2019 came in at $113 million as compared to $182 million during the second quarter of 2019. Majority of the change quarter-over-quarter was due to a slowdown in the oilfield.Our net loss for the third quarter of 2019 was $36 million as compared to a net loss of $11 million during the second quarter of 2019. Several factors contributed to the increased net loss, including a general slowdown in oilfield activity and work in Puerto Rico coming to an end. On a per share basis, the net loss for the third quarter of 2019 came in at $0.79 per diluted share.Adjusted EBITDA for the third quarter of 2019 came in at a negative $4 million. Selling, general, and administrative expenses were $14 million during the third quarter of 2019 compared to $9 million during the second quarter of 2019. CapEx during the third quarter of 2019 was approximately $5 million, the majority of which was related to the organic growth of our water transfer and equipment rental businesses.Our full year 2019 CapEx budget remains at $41 million with $35 million spent through the first nine months of the year. As of September 30th, 2019, we had $10 million in cash and $80 million of borrowings under our $185 million credit facility, resulting in total liquidity of $106 million net of letters of credit.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]The first question will come from Tommy Moll with Stephens Inc. Please go ahead.

Good afternoon and thanks for taking my questions.

Hi Tommy.

So, for industrial, now it looks like all the revenue's being generated here in the Lower 48. On the margin, there's been some noise in the past couple of quarters. It sounds like for Q4, you expect revenue will be higher versus Q3. Can you help give us a sense of what drove the margin in Q3 and how that might evolve here as revenue ticks higher in Q4? And then to the extent you've got any sense on next year that would be helpful as well. Thank you.

Tommy, in Q3, we continue to take some costs out of the organization relative to the demobilization from Puerto Rico. As you referenced, there were still some noise inside of Q3 and we would expect some of that noise relative to head count as well as repairs and maintenance to continue into Q4.But I think going back to the prepared comments; we've hired a new President for that division. We're excited about that division and the reasons we started that division, to diversify the portfolio. We think it provides stable cash flows for the business and going into 2020, we would expect those margins to stabilize in that high-teen range that we've referenced previously.

Yes, Tommy, this is a business we're really excited about as we go forward. We -- you will see -- we walked away from some customers where the MSAs were not quite as profitable as what we would like.And as Mark stated, we hired a new President. The new President comes to us -- he's a past President and COO of Quanta Power, and he's a former CEO of Power Line Services, a very, very experienced guy with the ability to bring with him customer relationships and relationships in management that we felt like we need.So, we're very excited he's begun his career with us, and we feel very good about where that segment is going to go. The demand still continues to outstrip the supply of needing crews and that type of thing. So, we feel very strongly about that aspect of our portfolio of companies.

Yes and good to hear that next year, we may hit the margin level that we've talked about in the past. As you look at Q4, though, just to help us get our expectations set, do you think that there's going to be sufficient noise bleeding through that will still be in the red on the EBITDA line? Or should we be back into the black and then going higher into next year to a more normal level?

In Q4, I think we'll see EBITDA margins in the same zip code as what we saw in Q3, flipping to positive inside of 2020. There was going to be some head count and repairs and maintenance noise in Q4, so that will create an overhang on EBITDA in Q4 for that segment.

Okay. Thank you for the clarification. And then to follow-up on Puerto Rico, Arty, you mentioned filing the claim in the bankruptcy court and that you'll be limited in what you can say there. So, I would just ask what would you be able to share with us at this point even if it's just in terms of the process that we should think about going forward.

Well, we filed an action, an administrative action, that puts us in a position as a post-petition creditor to where our feeling is that we should jump ahead of the ones before the -- that were involved in the previous part of the bankruptcy. So, we feel pretty good.We continue to communicate with PREPA. And I think one of the things that we were a little bit encouraged with, on October 30th, José Ortiz, who is the CEO of PREPA, made the comments that he expects to see FEMA start to resume payments in December. And we continue to work through some of the items with them, and we continue to communicate to them.

Okay. Thank you. I'll turn it back.

Thanks Tommy.

The next question is from Daniel Burke with Johnson Rice. Please go ahead.

Yes, good afternoon guys.

Good afternoon Daniel.

Let's see, I guess I'll pivot over a bit to the oilfield service side with deference to the fact that you all are focused on building out the industrial side. A question maybe on the sand business, a pretty pronounced slowdown in volumes or volumes sold in Q3. Can you talk about your take-or-pay contracts? Are those intact? Are you hitting mins there? Or are you accruing towards -- were volumes low enough in Q3 that you'll have the opportunity for some catch-up payments from customers in either Q4 or next year?

Yes, definitely. We experience the same thing as other sand manufacturers and that type of thing. But our take-or-pay contracts do allow for cure periods. So, they are still intact, but they do allow for cure periods, and that will carry on to the first quarter. So, we still feel like -- still feel pretty good.Operationally, we've cut costs where we can. We've got some of our -- we've reduced head counts, of course, as a part of -- that you normally do from -- and we've also reduced hours that the teams work. So, we're doing everything to keep those businesses until the first quarter. When -- we do see a little bit of a rise in activity coming back that will utilize our sand.

Okay. And just, I guess, just for clarification, we certainly don't think completion activity will be higher in Q4 than in Q3. But with the potential for some catch-up payments, I mean does proppant look the same? Do the financial results in proppant look the same in Q4, worse or better? Can you give us maybe a directional suggestion?

Daniel, for Q4, proppant probably looks in the similar zip code. We may get some activity mid to late December for prefills related to January activity. But I think as we look at Q4, it's likely in a similar zip code as Q3 for the proppant segment.

Got it. Okay. And then maybe shifting to the service lines, both plumping and some of the other service lines, you guys have a contract or two that we tend to think produce pretty healthy margins. And overall, though, the business remains challenging. Any thought to stepping back from service lines incremental to, I guess, the cementing and -- I forget the other one, but the couple of lines you've already stepped back from this year?

Flowback, yes. We evaluate each one of the businesses individually every couple of weeks or so. So, we're definitely looking at that on -- as we step back a little bit, we're also going to spend some money. We're going to convert some of our fleet to dual fuel because of the customer demand that we see. And we think that, that will help us with some of our marketing and some of our sales and help us keep some of the customers that we will have. So, we are making some investments there. They'll be relatively light.You know us very well. We like to protect the balance sheet. We like to protect our debt position. We came in less debt in Q3 than we did in Q2. We came in at $80 million. We had $10 million in cash, so net debt, about $70 million. And this is one of those that we've been through these times before in the oilfield services.To take you back -- and Daniel, I know you'll remember, as a lot of the analysts on here will, that 2014, we had $142 million in debt. And we have about a two and a half times the equipment and assets that we had now -- had been, and we have considerably less debt. So, we've been -- we know how to navigate through the downturn, very optimistic about where we're going to go.

Got it. And then -- I guess then the last piece, just to mop up, maybe on the pumping side, when you talk about the dual fuel, Arty, I assume you're talking about Tier 2 retrofits, not new Tier 4 engines. And then maybe could you give us a sense of the level of fleet utilization you expect in Q4?

You are correct that it will be Tier 2s that we do the dual fuel on. It's -- we will -- our Q4 utilization will be higher than Q3. But we have -- quite honestly, we've had some jobs slide just because of some blackwater in the particular areas that we're pumping. And we have -- we see customers that are sliding some that -- because the rigs aren't quite complete on the wells that they're doing as they move forward. But we do expect Q4 to be more active than Q3.

Okay. All right guys. I'll leave it there. Thanks for the time.

Thank you.

The next question is from Jason Wangler with Imperial Capital. Please go ahead.

Hey afternoon all. Was curious, as you think about where we sit now and obviously growing on the infrastructure side, where do you kind of think CapEx kind of shakes out as you look at 2020? Is it kind of similar to what we're looking at second half of this year or just kind of your thoughts around that?

We're continuing to evaluate that right now, and we're doing our 2020 annual operating plan. Really, as we speak, the teams are finishing up. But we would expect CapEx to be relatively light given where we're at from a debt perspective and being conservative with the balance sheet. So, I think, yes, we've lowered it considerably this year, and we will continue to be conservative with our debt.

Okay. And obviously, you just spoke about it a minute ago about kind of putting in some of the businesses and kind of closing them if the demand is not there. As you're continuing to focus more on infrastructure, is there an idea to look to monetize any of the businesses or kind of other segment or any thoughts around that as you kind of plan the portfolio for the long-term?

Jason, we look at a lot of deals. And as we look at those deals, at any time, we're a buyer or a seller. So, to the extent opportunities present themselves to monetize some of our investments, then we're so really open to that. We'll do whatever is in the best interest of our shareholders.

All right. Appreciate it. I'll turn it back.

Thanks Jason.

[Operator Instructions]And we do have a question from John Daniel with Simmons Energy. Please go ahead.

Hey guys, good afternoon.

Hi John.

Just a few questions, if I may. A quick follow-on to Jason, would you have any objection to take in equity on any like small asset sale, just thinking of some of your peers who might use it as a deleveraging event, you to get out of a non-core business? Is that something you'll consider?

Yes, we certainly consider equity. We're cognizant of where our peers are at. And if the opportunity presents itself for us to take the right equity and trade for some of our service lines, we'd certainly consider that.

Okay. Cool. When you look at infrastructure, like just the asset base that you have today, the people you have today -- and this might be kind of a hard number to come up with, but like what -- if everything was clicking perfectly, what's sort of the max revenue you could do on a quarterly basis with what you have?

What we've got today, we're in likely the $40 million to $45 million per quarter range with the crews and equipment we've got inside of the portfolio today.

Okay. Thank you. And then going to sand -- sorry to jump around here. Can you tell us or remind us how much volume is under contract in 2020?

$1.1 million.

Okay. And then anything under 2020 and 2021 contracted?

$1.1 million.

Probably should read about that. Okay. I know it's out there somewhere. All right. Thank you for saving me some time.

Thanks John. Sure.

At this time, I would like to turn the conference over to Arty Straehla for any closing comments.

We want to thank everyone for dialing in today. I want to personally thank our team. We believe the future is bright for Mammoth and our team members as we intend to strategically develop our service offerings to grow and deliver shareholder value in the years to come.Thank you to our shareholders for your support and interest in our company. Given the current oilfield market conditions, we're working hard to control costs and transition Mammoth into a more industrial-focused company.Revenues at Higher Power and 5 Star, our infrastructure subsidiaries, have increased by over 65% so far in 2019 and 21% during the third quarter alone. The hiring of a new president with deep industry experience to lead our infrastructure division should bring stability and is expected to increase profitability in years to come.In addition, the start-up of two new companies focused on engineering and manufacturing furthers our reach into the industrial sector and should continue our transition into a company that is less reliant on commodity prices.This concludes our third quarter conference call. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.