Q3 2019 Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time airlines can be placed on musicals. Thank you for your patience.
And instructions will follow with a 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, Sir you may begin.
Some of our comments today may include forward looking statements, reflecting mammoth energy services views about future about.
These matters involve risks and uncertainties that could cause our actual results may materially differ from our forward looking statements. These risks are described 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 the already.
Thank you Don and good afternoon everybody.
Those that have told the mammoth story closely knows well understand steps were taken to become a more industrial focus comp.
We know that it would take several years and not be a smooth transition, but progress has been my.
We recently formed an engineering service the subsidy subsidiary focused on the transmission and distribution industry and started equipment.
Manufacturing operations.
Manufacturing operation will initially server internal needs, but we intend 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 amendment portfolio.
Similar to our infrastructure water transfer business, which has grown significantly since our creation, we intend to grow these new businesses in two years to come to further our reach into the industrial sector as of today Mammoth is diversified just portfolio companies into industrial businesses, including general freight trucking rental equipment infrastructure construction.
In addition services engineering and equipment manufacturer.
Our industrial focus business complement our oilfield related business isn't are intended to smoothed out.
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 large swings in cash flows in earnings amendments as 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 the new president of our infrastructure operations in place. We are continuing the process of rightsizing of our operations in performing needing needed.
Maintenance or equipment, which returned from Puerto Rico.
Both five star and higher power, our operating companies in the U.S. saw revenue growth throughout the third quarter. We anticipate this growth to continue during the fourth quarter the backlog or infrastructure Division is currently $510 million.
Turning to oilfield service the third quarter 2019 was challenging.
As many of your where the oilfield has always been a cyclical industry and today, we are in a period of low industry utilization.
We have been making reductions in our cost structure across our portfolio to rightsize our operations to current activity levels.
During the third quarter, we saw a decline in oilfield service activity across several of our business lines, but we believe a shift by operators away from the lowest cost providers towards most sufficient companies is occurring.
As a result this we ship of this shift we saw a pickup in our pressure pumping utilization at the start of the fourth quarter.
During the third quarter of 2019, we've come 783 stages with 1.2 fleets utilized throughout the quarter on average.
Our sand division performed well despite industry demand decline quarter over quarter, we sold approximately 456000 tons of San during the third quarter 2019 of which approximately 19% was broker.
The average sales price for the same sold during the third quarter of 2019 was $26.84 per tonne, while our blended third quarter production cost remained at approximately $12 per ton.
We continue to position our transportation business to grow beyond crude oil and Frac sand.
We have identified opportunities to expand our fleet to support our other divisions and into new areas to further our expansion during the fourth quarter 2019 and into 2020.
While we continue to look at several M&A opportunities the best opportunities. We see today are to further our transition into the end industrial space by introducing in engineering services, expanding our manufacturing operations to include much the equipment, we used today across our business lines and expand our rental and trucking fleets.
Let me sum up to third quarter of 2019 in this way mammoth remains in a transition as it shifts to a broader industrial focus and we're continuing down that path.
The startup the manufacturing and engineering is a further step in that process, we will remain disciplined patient and focused on opportunities that we believe will move us towards our goal.
Now, let me take a moment to address the ongoing situation involving our Puerto Rico work, while it is disappointing dosing profile continues to.
To be behind on payments for the quality work that our teams completed.
Remain focused on collecting the full amount or.
We call it a claim in the bankruptcy court to aid in the payment process. We're limited in what we say about pending litigation as it progressed through the courts.
Let me turn the call over to Mark can take you through the financial performance during the third quarter of 2019, after which we will take questions.
Thank you already 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.
Managed revenue during the third quarter of 2019 came in at $113 million as compared to $192 million during the second quarter of 2019.
Jordi of the change quarter over quarter was due to a slowdown in the oil.
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 2019.
Several factors contributed to the increase 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 79 cents per diluted share.
Adjusted EBITDA for the third quarter 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 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 dollar spent during the first nine months of the year.
As of September Thirtyth, 2019 at $10 million, and cash and $80 million and borrowings under our 185 million dollar 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.
At this time, we'd like to remind everyone that if he would like to ask a question to press star one on your telephone keypad now again that star one for any questions over the phone line well pause for just a moment to compiled acuity roster.
The first question will come from Tommy Mall 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 revenues being generated here in the lower 48 of.
On the margin Theres 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 the margin in Q3, and how that might evolve here as revenue ticks higher in Q4 and the to the extent you've got any sense on next year that'd be helpful. As well. Thank you.
Tommy in Q3, we continue to take some cost 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 that division and the reasons. We started that division to diversify the portfolio. We think it provide stable cash flows for the business and.
Going into 2020.
We would expect those margins to stabilize and that high teen range that we've referenced previously.
I mean this is just as a business we're really excited about as we go forward.
We you will see.
We walked away from some customers where the.
My assays 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 visa that past president and COO of quantum power and ease of former CEO Carlyn services.
Very very experienced sky.
With the ability to bring within customer relationships and relationships in management.
That we felt like we need so we're very excited he began his career with us and.
We feel very good about where that segments undergo the demand still continues to outstrip the supply or needing crews and.
That type of thing so we feel very strongly about.
That aspect of our portfolio of companies.
Yes, good 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 theres going to be sufficient noise bleeding through that will still be.
And the read on the EBITDA line or where 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 will still be some some head count and repairs and maintenance noise in Q4, so that will create an overhang on on EBITDA in Q4 for that.
Okay. Thank you for the further clarification and then to follow up on Puerto Rico already you mentioned.
Filing the claim and 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 the process that we should think about going forward.
Well, we filed an action.
Ministry of action that.
This is a position as a post petition creditor.
Where our feeling is that we should jump ahead of the once before the.
Before they the that were involved in the previous part of the bankruptcy. So we feel pretty good we commute we continue to communicate.
With the prep and.
I think one of the things that we were a little bit encouraged with the on October thirtyth.
I would say Ortiz who is the.
The CEO of prep.
Made the comment said he expects to see FEMA start to resume payments in December and.
We continue to work through some of the the items with them and we continue to communicate to.
Okay. Thank you I'll turn it back.
Thanks Tommy.
Okay.
The next question is from Daniel Burke with Johnson Rice. Please go ahead.
Yeah, good afternoon guys.
Afternoon.
Let's see.
Yes, I guess I'll pivot over a bit to the the awful service side with deference to the fact that you all are focused on building out the industrial side of course, you maybe on the sand a sad business pretty pronounced slowdown in in volumes or volume sold in Q3 can you can you talk about your.
You take or pay contracts are those are those intact or you hidden men's there or are you accruing towards.
We're volumes low enough in Q3 that you'll you'll have the opportunity for some catch up payments from customers in either Q4 next year.
Yes.
Definitely yes were experienced same thing is other.
Sand manufactures and.
That type thing, but our take or pay contracts do do allow for cure periods. So they are still intact.
But they do allow procure periods and that will carry on into 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 have reduced head counts of courses as a part of that you normally do from a.
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 rising activity coming back that will utilize our site.
Okay. Thanks. Thanks are you just I guess just for clarification, we certainly don't think completion activity will be.
Higher in Q4 that in Q3, but with the potential for some catch up payments I mean, just just proppant look the same the financial results and profit look the same in Q4 worse or better can you give us maybe fractional suggestion.
Daniel for Q4 proppant, probably looks in the similar ZIP code, we may get some activity.
Mid to late December for Prefill.
Related to January activity, but I think as we look at Q4 is likely in a similar ZIP code as Q3 for the proppant segment.
Got it Okay, and then maybe maybe shifting to the service lines, both pumping and some of the other service lines you guys have a contractor to that.
We tend to think produce.
Pretty healthy margins and you know the overall, though the business is challenging any any thought to stepping back or from from probably from from service lines incremental to I guess this the cementing and I forget the other one but the couple large you've already step back from this year.
Flowback, yes, we evaluate each one of the businesses individually.
Every.
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 fleets to some of our fleet to dual fuel.
Because of the customer demand customer demand that we see and we think that that will help us.
With some of our marketing in some of our sales and help us keep some of the customers that we will have so.
We are making some investments there there will be there will be.
Relatively light.
You know us very well, we'd like to protect the balance sheet, we'd like to protect our debt position.
We came in less debt in Q3 than we did in Q2 came in at 80 million had 10 million cash. So net debt about 70 and this is one of those that we've been through these times before in.
The oilfield services.
Take you back and Daniel I know, you'll remember as a lot of the analysts on their will that 2014, we had $142 million and debt and and we have about a two and a half times the equipment and assets that we had now has then 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 than 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 your to.
Retrofits not new tier four 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 twos that we do the dual fuel on.
You know, it's who 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 black water in the air 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 in 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.
Good afternoon.
I 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.
Similar to what we're looking at second half of this year or just kind of your thoughts around that.
Well, we're continuing to evaluate that right now we're doing our 2020 annual operating plan really as we speak the teams there 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 with the balance sheet. So I think yes, we've lowered it considerably this year and we will continue to.
Be conservative.
Our debt.
Okay and.
See you spoke about in a minute ago about kind of.
Putting in some of the businesses kind of closing them if the demand out there as you continue to focus more on infrastructure is there an idea to look to monetize any of the businesses, they're kind of that other segment or any thoughts around that as you kind of.
Plan the portfolio for long term.
Yes, Jason we look at a lot of deals as we look those deals at anytime we're we're a buyer or seller.
So to the extent opportunities present themselves.
To monetize some of our investments than than were so let me open to that.
What we'll do what at whatever is in the best interest of our shareholders.
I appreciate I'll turn it back.
Thanks.
Thanks, Jason.
Once again, if he would like to ask your question. Please press star one on your telephone keypad again that star one for any questions, we'll pause for just a moment.
And we do have a question from John Daniel with Simmons Energy. Please go ahead.
Hey, guys good afternoon.
Just a few questions. If I may have a quick follow on the Jason.
Would you have any objection to taking equity.
On any like small asset sale, just thinking of some of your peers you might use it as a deleveraging event you to get out of an encore business that something you consider.
Yes, we'd certainly consider equity.
We're cognizant.
Where our peers are at.
And the opportunity presents itself for for us to take a REIT equity in trade for some of our service lines, we'd certainly consider that.
Cool.
When you look infrastructure like just the asset basis, you have today that people we have today.
Most might be kind of a hard number to come up with 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 were Ren likely the 40 to 45 million dollar per quarter range with the crews and equipment, we've got inside of the portfolio today.
Okay. Thank you and then go into San sorry to jump around here can you keep tell us or remind us how much volume is under contract in 2020.
1.1 million.
Okay.
And then anything under 20 and 21 contractor.
1.1 million.
Yeah.
I should read about okay.
All right now I was talking somewhere alright. Thank you for saving me some time.
Thanks, John Sir Thank you.
At this time I would like to turn the conference over to Arty's trailer for any closing comments.
We want to thank everyone for dialing in today I want to personally. Thank our team we believe the futures bright from MF and our team members as we intend to strategically develop our service offerings to grow and deliver shareholder value in years to calm. Thank you to our shareholders for your support and interest in our company given the current oilfield market conditions were work.
Hard to control costs and transition mammoth into a more industrial focused company revenues at higher power and five 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 device.
Division should bring stability and is expected to increase profitability in years to calm.
In addition, the startup 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.