Mammoth Energy Services, Inc. (TUSK) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Mammoth Energy Services Second Quarter 2021 Earnings Conference Call. I would now like to hand the conference over to your speaker host, Rick Black, Investor Relations. Please go ahead.

Thank you, operator and good morning everyone. We appreciate you joining us for the Mammoth Energy conference call to review second quarter 2021 results. This call is also being webcast and can be accessed through the audio link on the Events & Presentations page of the Investor Relations section of mammothenergy.com. Information recorded on this call speaks only as of today, July 30, 2021. So, please be advised that any time-sensitive information may no longer be accurate as of the date of any replay.

Thank you, Rick and good morning everyone. Second quarter results did not meet our expectations. However, we are extremely focused on improving near-term results as we continue migrating the company further into the infrastructure space as a part of our shift to a broader industrial focus to enhance long-term growth and sustainability. During the quarter, our oilfield businesses did observe some positive green shoots. While oil prices have rebounded from recent lows, activity levels remain depressed industry-wide due to capital discipline amongst E&Ps. We currently believe E&Ps will generally keep production flat with year end levels. However, we are currently seeing some upticks in pricing and utilization for our oilfield services. In general, our customers are taking a very measured and conservative approach to new projects and capital spending, but it does now appear we are moving away from the extreme down-cycle that occurred over the past year and a half. For example, we are in the process of staffing an additional crack crew that is currently scheduled to start working in mid-August. In addition, we expect increased market activity in our sand business in the second half of 2021. During the second quarter of 2021, we pumped 520 stages, with approximately 1 fleet utilized throughout the quarter on average. Our sand division sold approximately 255,000 tons of sand during the second quarter of 2021 and the average sales price for the sand sold was approximately $15.80 per ton. While Northern White sand pricing remains challenge, we believe a significant reduction in supply has positioned our mines well to benefit from an increase in completion activity levels. Despite the events of the past year having had significant impacts on our company and the sectors in which we operate, Mammoth has adapted quickly to the changing environment. We believe our diverse portfolio and migration into the infrastructure space provides a solid foundation from which to grow in the future.

Thank you, Arty and hello 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 second quarter of 2021 came in at $47.4 million as compared to $60.1 million during prior year quarter and $66.8 million during the first quarter of this year. A majority of the change quarter-over-quarter was due to a decrease in infrastructure revenue as a result of management and crew turnover. As Arty indicated in his remarks, we believe we are well equipped, experienced and engaged to lead these businesses to more sustainable operating performance going forward. The net loss for the second quarter of 2021 was $34.8 million or $0.75 per share loss as compared to a net loss of $15.2 million or $0.33 per share loss for the same quarter last year and a net loss of $12.4 million or $0.27 loss per share for the first quarter of 2021. Adjusted EBITDA, as defined and reconciled in our earnings press release, was negative $5.5 million for the second quarter of 2021 as compared to $6.9 million for the same quarter last year and $6.4 million for the first quarter of 2021. CapEx during the second quarter of 2021 was approximately $561,000. We have reduced our full year 2021 CapEx budget to $4.5 million from $9 million. As of June 30, 2021, we had cash on hand of approximately $11 million and debt of approximately $64 million. In conclusion, we would like to thank our 800 employees throughout the company for their hard work, dedication and commitment to maintaining safe work sites for themselves and their teammates. We also want to thank all of our stakeholders for their support as we work diligently to enhance stockholder value. Operator, we would now like to open up the call for questions.

And we have a question coming from the line of Daniel Burke with Johnson Rice. Your line is open.

Yes. Good morning, Arty. Good morning, Mark.

Hey, good morning, Daniel. How are you?

I am doing fine. I am doing fine. Hope you are doing well as well. Okay, so let’s see. I think sort of a one sort of pretty glaring place to go with questions this morning. Can you guys maybe talk about the path to repair in the infrastructure segment? I guess last quarter it hadn’t felt evident to me that the business could see sort of the dip it experienced in Q2. So, just kind of wondering what the performance of the business is, as we now sit 1 month into the third quarter, has it improved from the levels we see in Q2 or is it still in a tough place in the very near-term?

Good morning, Daniel. I think as you look at Q3, we have certainly seen ongoing bidding activity for the infrastructure business. So we are excited about that. We are excited about the continued integration of the infrastructure business with both our engineering offerings as well as our recent entry into the fiber business that Arty spoke about inside of his comments. So I think that’s probably a long answer for we are seeing increased opportunities and it will likely take through Q3 absent storm work to increase our crew count and restore profitability of the infrastructure business. But we are seeing strong demand. And we believe we made the right pivot into the infrastructure side.

Yes. I would add on to that. And say that macro wise, we think we are into a perfect spot. And to all the reasons that we alluded to, with the vertical integration in the manufacturing, we think equipment is going to get short in the space. And we think that will be perfectly situated because we can refurbish and/or manufacturer some of the pieces and parts that we do. And again, our engineering group continuing to grow up to 25 people started with one, we started with one in fiber optics, and we are – our bidding is becoming more and more robust. With that you still got to execute on a day-to-day basis and the things that causes the issues in Q2 were crew turnover, and that type of things. Some of it, we wanted this to happen. Since that time, we have gotten a little bit more bidding activity a little bit more profitable business. But that’s not something that you fix overnight. So going forward, we are going to work our way. We are going to stay disciplined with our approach. And we are going to continue to work our way through that aspect of performance and execution. It’s not that everything is broken. And I think Daniel, you would also – you would probably be interested in what’s going on from our perspective in the oilfield as well. We are seeing a little bit better opportunities, obviously, it helps when you have got a $4 gas in late August and your futures are out there. We are seeing some additional bidding activity coming from the privates, while the publics have a tendency just to remain pretty disciplined. And that type of thing we are seeing some additional from the privates. And we believe that that bodes well for us. We are partners second to crew together at a little bit improved pricing from where we had been earlier with our frac crews. So, we will have two frac crews on. And you always give a little bit of plus or minus with when you are dealing with E&Ps in well preparation, but by mid-August, we should have to run it. So, we feel good about that. Our forwards indicators on our sand seem to be stronger than they have been in the past with sand companies actually or with E&Ps actually looking out to the October-November timeframe start accumulating sand for the frac jobs that they are doing, so. But again, we are focused on the day-to-day of fixing the infrastructure aspect, stabilizing the crews that we have, and making money on just the core aspects of the distribution and transmission business.

Got it. Alright. Let me ask one more kind of on the same topics, but I can kind of span both OFS here and infrastructure. So, you have got some need then to staff up a little bit on the OFS side, if you are adding that second fleet. And obviously restoring crew count on the infrastructure side is an imperative. And I guess I am just looking for general thoughts on sort of the challenges of ramping up and maintaining personnel given challenges around labor, I guess, across the United States really broadly.

Yes. As we have gone back and ramped up on the frac side, it’s – it has been relatively easy. Easier compared to some of our, for example, we were losing as I think a lot of different companies were because of the lack of truck drivers. Truck drivers had optionality not only ours, but other companies that were hauling sand to the well sites. Truck drivers have a lot of options and things like that. We were able to staff our frac crews. We did go up in our sand facilities with some additional people and that type of thing. But I think as we ease into fall, it will become the labor shortages that were there will take care of themselves. We are finding it a little bit easier to bring people on.

Okay, alright. Well, look guys, I will leave it there. I appreciate the chance to check-in this morning. Thank you.

Now we appreciate it, Daniel. One thing I would bring your attention to that I know you haven’t had a lot of time to go through the documents and all that type of thing. But our long-term debt net of current position, December 31, 2020, was at $81 million and some change. Today, it’s at $62.8 million. So, despite a little bit of lack of execution and performance in Q2, we are still continuing to take down that long-term debt. And as you know, we are very debt averse. And if and when, not if, but when the PREPA receivable comes, certainly we will be in very, very good shape. I would say that the conversations between us and PREPA have been more intense, more engaging in the last 60 days to 90 days than they were in the previous 2 years. You see overtures that Puerto Rico is going to try to get out of bankruptcy and PREPA is going to try to follow. Obviously, we are post petition – post bankruptcy petition creditor, and we feel like our position is very strong. So, I don’t think anybody in the marketplace has given us credit for the $300 million receivable. But we continue to pursue that with every bit of the abilities we have, including, as we mentioned in our press release yesterday with the Congressional and Senate help.

Understood, understood, and I appreciate the magnitude of that effort. Again, thank you. Thank you, guys for the talk.

Thank you, Daniel.

And I am showing no further questions at this time. I would now like to turn the call back over to management for any closing remarks.

Thank you very much. We believe the future is bright for Mammoth and our team members as we continue to strategically develop our service offerings to grow and deliver stockholder value in the years to come. We look forward to talking to you in the – at the conclusion of the third quarter. Thank you very much.

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect.