Good day, ladies and gentlemen, and welcome to the Mammoth Energy Services Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. 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. Please go ahead sir.

Thank you, Charlie. Good afternoon, and welcome to Mammoth Energy Services' fourth quarter and full year 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, Form 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 fourth quarter and year-end 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 everyone. The fourth quarter of 2019 was challenging on several fronts, but we are continuing down the path to transition Mammoth into a more industrial focused company. In our infrastructure division, the recent addition of an industry veteran has brought about significant changes to the business. While it’s difficult to see the changes from the outside, significant improvements have occurred over the past three months. The new president has been able to fill several key management positions with highly qualified people from other large infrastructure focused companies and the performance of the business is improving. As the new management team gets to work, demand remained strong throughout the industry, especially in the transmission and renewables, construction areas and new bidding opportunities are being pursued. The backlog for our infrastructure division currently stands at $490 million. Turning to the oil field service sector. The fourth quarter of 2019 saw low industry utilization and pricing across all of our operating subsidiaries. Since early November, multiple companies have announced retirement of an aggregate of approximately 4.5 million horsepower or 18% of the pressure pumping equipment in the market with a large portion of the announced retirements being scrapped. In addition, a wide variety of equipment is being shipped overseas primarily to the Middle East to satisfy increased demand in that area. Early in the fourth quarter of 2019, our pressure pumping utilization bottomed and we saw a steady increase into year-end. The upgrading of our fleets to dynamic gas blending, or DGB, is underway with the initial converted units expected to be field tested in the coming weeks. During the fourth quarter of 2019, we pumped 989 stages was 1.7 fleets utilized throughout the quarter on average. Today, we have all three of our staffed fleets operating…

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. CapEx during the fourth quarter of 2019 was approximately $1 million. Our full year 2019 CapEx came in at $36 million, which was below our forecast of $41 million. Looking forward to 2020, we have budgeted CapEx of up to $20 million depending on industry conditions and our financial results. Included in the budgeted 2020 CapEx is the upgrading of our pressure pumping fleets to DGB as demand warrants and expanding the capabilities of our infrastructure division. As of December 31, 2019, we had $6 million in cash and $80 million of borrowings under our $185 million credit facility, resulting in total liquidity of $102 million net of letters of credit. On February 26, 2020, Mammoth entered into an amendment with our bank group to modify the terms of the credit facility. Under the new terms, the borrowing base has been reduced to $130 million with a $50 million unfunded accordion feature. The financial covenants have been modified for the following. The interest coverage ratio was eliminated. The maximum leverage ratio test at 4 to 1 was eliminated for the first two quarters of 2020 and changed to 2.5 to 1 beginning on September 30, 2020. In addition, a fixed charge coverage ratio of 1.1 to 1 was added beginning on September 30, 2020. As of February 26, 2020, after giving effect to the amendment, our liquidity under the credit facility was approximately $21 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] Your first question comes from the line of Tommy Moll with Stephens Inc. Your line is now open.

Good afternoon and thanks for taking my questions.

Hi, Tommy.

Arty, I wanted to start on the frac sand business. Fourth quarter was really slow for Mammoth and for the industry generally. I mean your volumes and pricing were both down and, as I said, the same was true for the industry. So I'm curious about first quarter here as we get back to business. How are our volumes and pricing trending today? And is there a pathway where we're back on the right side of positive for EBITDA on that segment this quarter? Or is that potentially a horizon that's beyond the first quarter?

Yes, the – Tommy, frac sand, obviously, was very challenged in the fourth quarter. It has moved up significantly. Obviously, there's still pressure on pricing as we go through. But we're – it's one of those where we are shipping quite a bit more sand than what we did previously. And it does have a pathway to make a little bit in this quarter and or breakeven as we go forward.

Another thing I'd add to that, Tommy, is the biggest hindrance we have in that segment right now is the amount of rail cars that we have under lease. We actually have about 800 or so rail cars that are going to roll off by the end of the year. So as you go through the year, the profitability should get better and better as those leases roll off and we don't have that that fixed fee every month.

Got it. Thank you both for the context there. Shifting to the outstanding receivables balance and acknowledging you're going to be limited in what you can say. Could you though give us a sense of what the process and timeline are in terms of the pending litigation?

Tommy, right now, we continue to pursue collection through the bankruptcy. As you can imagine, that's a somewhat slow process, but we are making progress there. We do have active dialogue with PREPA and have continued that dialogue throughout the process. So we remain hopeful that we'll collect the outstanding balance, but don't have a firm timeline for you.

Yes. Mark and I went down to Puerto Rico in January and we got to see the head of the financial group that has been through this processes and who has been with us quite a bit and they're working through the things as well. But as you said, we're not going to comment much on the litigation vetted, but we did decide to take that on and we are progressing with that. They are wanting to get out of bankruptcy and they're going to have to go – they're going to have to deal with us as we go through in the future. So – and one of the benefits of them being bankruptcy if there is one as there is a tremendous amount of public information available. So from what we've been able to glean from recent filings, their liquidity has increased a little bit recently.

Okay. Thank you for all the details there. And if I could sneak one more in, I was curious on the DGB conversions. Any financial payback metrics you could share there or any way you would frame it up for us from a financial standpoint? And then in terms of the customer or market rationale, what's the pull from the customer side? Or is this more purely a financial decision for you guys? Thanks.

For us it's part of the ESG conversion. And we spent a lot of time. We spent a lot of time with our board, this past board meeting, talking about ESG and the reasons to do it. Our customers are requesting it and certainly we want to stay busy as we go through. And we think it makes good financial sense to do it. We currently are proceeding to convert about 30 of our units and that will be two of our fleets that we'll have that will be able to run on a dual-fuel as you know, both natural gas and diesel. So we feel pretty good about the investment that we made. We actually got that approved in the fourth quarter and we're continuing to progress and put it in. It's ready to be field tested in the next couple of weeks.

Great. Thank you again and that's all from me. I'll turn it back.

Thanks, Tommy.

Your next question comes from the line of Daniel Burke with Johnson Rice. Your line is now open.

Yes. Hey, guys. Good afternoon.

Hi, Daniel.

Let's see, could you – Arty, again, there might be limits on what you could say, but could you address maybe the status of take or pay contracts with both Gulfport and on the sand side, some other parties?

Gulfport is still – is in litigation as I think you know and you realize and we still continue to be partners and we're still hopeful that you can solve things outside of litigation. So we're still hopeful with that situation. The other contracts continue to operate. And we've actually seen a benefit where the market is moving around a little bit on some of the other grades and they're taking some of the things that we used to – when there was just a pure 40:70 market, you were having to waste 20:40 or hundred mesh. And we're seeing where they're taking a few of that, a little bit of that as well. Sand market is not robust and I'm not going to describe it as that, but it is much better than where it was in the fourth quarter as the activities curve downwards.

Got it. Okay. And then I guess maybe shifting over to infrastructure, it looks like a pretty wholesale reboot that you guys have underway there. Could you talk a little bit more about, you know, maybe the second level leadership changes you made and maybe a timeline on returning that portion of the business or the infrastructure segment overall to EBITDA positive operations?

Yes. We're really proud of the team we're putting together. I'll start a little bit with the president and just give you some. He is an industry veteran. He has been either a President and COO or CEO since 1985 in either construction or infrastructure business and very polished president. Very pleased to having the one thing that he brings, of course, are the relationships. And you're right, we've – our next year of – operating guys are very strong industry veterans as well. Some of them have in excess 30 years. Our business development guy has in excess of 20 years in the industry. Our new leader that we brought in for one of our subsidiaries is 30 years in the T&D business, in the substation business and he’s the next president of another entity. We brought in a safety professional and we're seeing immediate improvement in the area of safety and a very seasoned guy. Our VP of transmission operations has about 20 years of experience in the utility areas and is a past director in some of our competitors. So very pleased and there's more to come and we're still building that organization. So we're very pleased with where we're heading with this group. And the opportunities they bring us with their experiences in things like renewables and in other areas that we may not have been in, in telecom and that type of thing. This is a business that we've talked about many times that has more demand than supply for crews. And if you look at our history, we went from 30 crews at the end of 2017 and we're somewhere around 140, 145 right now. And we're continuing to move the needle with that business. Again, it gets us out of the counter cyclical of oil and gas and everybody knows what's going on with oil and gas and oil touched into the forties and gasses in the $1.60s and we haven’t entered a shoulder period yet. So lots of opportunities and the strategy that we employed as we went into this business is working because we think it will be countercyclical to oil and gas and we think that demand outstrips the supply.

Okay. That's helpful. And then again the second – maybe the second little piece of that question, I mean, any thoughts about when the U.S. infrastructure business kind of returns to breakeven EBITDA or better?

Yes. So, Daniel, if you strip out the interest on the PREPA receivable out of that segment, we expect that segment to have a shot at a breakeven to possibly positive EBITDA in Q1 and then flip the positive in Q2.

Okay. And I guess maybe just to cram one last one on here. We look at the liquidity position post the – post the credit facility refi and the operation is still kind of dancing around that EBITDA breakeven level plus or minus at least a couple of segments if not all the segments. I mean, what other avenues do you guys have to explore to maybe give you – provide yourselves a little bit more of a liquidity cushion?

So one of the things that we got out of the amendment was the ability to unlock some liquidity that we’ve got on the fixed asset side of the business. So, we've got up to $25 million that we can dispose of or enter into a sale leaseback transaction that will allow us to unlock some of the collateral that we've got – that we've been previously unable to access.

Okay.

In addition, Daniel, we’ll be working extremely hard on the cost side of the equation. Obviously, my background from a lean and elimination of waste and elimination cost. And while we've taken some cost out, we've got more costs to come. So we will be taking cost out of that system and making sure we're running at the best efficiencies we possibly can.

Okay. All right guys. Got it. Thank you for the time.

Thanks again.

Thank you, Daniel.

[Operator Instructions] Your next question comes from John Daniel with Simmons Energy. Your line is now open.

Hey, guys. Thanks for putting me in.

Hi, John.

Quick question. Hey there. Just – one on just the Northeast operations not any particular product per se, but just the visibility you have in the operations up there, just given where gas prices are, and just how you see that playing out over the course of the year.

John, right now, our visibility extends through the end of Q1. We do have limited visibility into April, but for the activity in the Northeast right now what we're seeing is very cautious operations from the E&P companies that we work with in the area. And we've got – like I said, we've got pretty firm visibility through the end of Q1 and then it starts to fall off on our visibility.

Yes. I mean, we're – John, of course, we – just like you do, we watch closely our customers and what the E&P budgets and to a T they're all cutting budgets and they're cutting activity given the prices of the commodities. So we are anticipating a pretty rough after the first quarter and we'll continue to match if our businesses aren't EBITDA positive we're going to look deeply at them. We closed down – temporarily shutdown three businesses last year until it comes back. And we – each and every business, that's one of the things we do is look at each one as a portfolio of company. If they don't make money, we look seriously at them and what they're – where they're going.

Okay. You mentioned that there's more talk at the board level about ESG and we all hear a lot about the desires for E&Ps to pursue or looking at the dual-fuel alternatives. Are they looking – talking about anything else within your business from an ESG perspective? Or is it just on the frac side where you tend to focus on it?

John, I would say that it's across the board. It touches all aspects not only the pressure pumping side, but the coil side and the infrastructure side has been big for a long time as well. So just because a lot of our followers are in the oil and gas space, the ENG has – ESG has been all across the industry, so – and it's only ramping up. So, we will roll out additional measures to improve our scores in the coming months and we're taking it very seriously here, just like our customers do as well.

Yeah, I would echo what Don is saying about taking it serious. And we for a long time every – every week we measure. If we have a cup or a gallon or two gallon spill, we talk about it. Even if it's in containment, no matter what we discuss. And we make sure that every one of them has a root cause. We look at the root cause and why it happened and make sure that it doesn't happen again. So we've been doing this for a long period of time and we will continue to do that. We are getting pulled by our customers. Our customer is very important to us.

I guess where I was going as I just didn't know – if there's other – within other product lines if there's any pressure by customers to do something from an asset enhancement if you will to be – like does dual-fuel extend to having natural gas pickup trucks or dual-fuel pump down yet. So just – that’s where I was going in terms of just other assets where you might have to spend money, how about put it that way.

We haven't seen that pressure yet.

Okay.

But those are our natural areas to look at in the future, particularly in regards to pickups.

Okay.

Yes. I'd also remind you that we have an avenue within our T&D group as we get into renewables and all that type of thing that will make a significant difference with ESG and beyond.

Okay. And then I guess just the final one, you guys have has always been a bit entrepreneurial, looking at new opportunities. Is there anything that you can do or see as an opportunity on the flaring side party?

John, we haven't seen it – we haven't seen it yet. I haven't – we haven't done anything there, that's mostly controlled by our customers and just haven't focused on that side of it. I know it's a huge issue with the emissions and everything, but we just haven't – we just haven't pushed that aspect.

Okay. That's all I got. Thanks for your time guys.

Thanks, John.

Thank you.

That concludes our question-and-answer session for today. I will now turn the call back to the presenters.

Thank you very much. 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 oil field market conditions, we are working hard to control costs and transition Mammoth into a more industrial-focused companies. This concludes our fourth quarter conference call. Good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. Have a wonderful day. You may disconnect.