Q4 2019 Earnings Call
All participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow that at that time. As a reminder, this conference call is being recorded and will be available for replay on Mammoth energy services. That's fine I would now like to introduce your host for today's conference you certainly I understand you G.
I wish list director of Investor Relations. Please go ahead Sir.
Thank you Charlie good afternoon, and welcome to my Mammoth Energy Services' fourth quarter and full year 2019 earnings Conference call. Joining me on todays call are already straight <unk>, Chief Executive Officer, and Mark weight, and 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.
These statements reflect the mammoth energy services views about future events. These matters involve risks and uncertainties that could cause our actual results.
Not really differ from our forward looking statements. These risks are discussed in Mammoth energy services form 10-K forms 10-Q quarterly 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 color 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 already.
Thank you Don and good afternoon, everyone fourth quarter 2019 was challenging on several fronts, but we're continuing down the path to transition mammoth into a more industrial folks come.
And our infrastructure Division in the recent addition of an industry veteran has brought about significant changes to the business was 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 position highly qualified people from other large infrastructure focused companies.
The performance of businesses improving.
As the new management team gets worked demand remained strong throughout the industry, especially in the transmission in renewables.
Construction areas and new bidding opportunities are being pursued the backlog for infrastructure Division currently stands at $490 million.
Turning to the oil field service sector, the fourth quarter of 2019, so low industry utilization and pricing across all of our operating subsidiary.
Since early November multiple companies have announced retirement of an aggregate of approximately four and a half million horsepower or 18% of the pressure pumping equipment in the market with a large portion of the announced retirement screen scrapped. In addition, a wide variety of equipment is being shipped overseas primarily to the middle East dissatisfied increased demand in that area.
In the fourth quarter of 2019, our pressure pumping utilization bought them and we saw steady increase into year end the upgrading of our fleets to dynamic gasoline blending or GGB is underway with the initial converted units expected to be filled tested in the coming weeks during the fourth quarter 2019, we comped 980.
Nine stages with 1.7 fleets utilize throughout the quarter on average today, we have all three of our staff fleet operating in the northeast.
Our sand division sold approximately 76000 tons of sand during the fourth quarter. Two 2019, the average sales price for the sand sold during the fourth quarter 2019 was approximately $20 per tonne. We're blended fourth quarter production cost remained at approximately $12 per ton.
We continue to.
Position or transportation business to grow beyond crude oil in Frac sand. We recently opened an office in southern Florida room, we are moving general commercial grade.
Over the coming months, we expect this business become a larger part of our logistics offerings.
The two new businesses, we first discussed our last call November manufacturing and engineering or both operating and growing Anaconda, our manufacturing operation in Oklahoma is currently building and refurbishing equipment for both our rolling equipment and water transfer companies are cool our engineering business is working on projects for several customers.
Growing its customer base.
Both of these business haven't potential to grow over the coming years.
We continue to seek to collect payments from crop up for the quality work that our teams performed in Puerto Rico as you can imagine we're limited in what we can say about pending litigation as it progresses through the courts as many of your where perrigo experienced two significant earthquakes of 6.0 and 6.4 magnitude in recent months the transmission.
Crusher pairs that our teams performed calling hurricane Maria withstood both of these earthquakes and the subsequent aftershocks.
Mamis diverse portfolio of companies.
Across several industries, including general afraid trucking rental equipment infrastructure construction aviation services engineering equipment manufacturing in energy services, our industrial focused business complement our oilfield related businesses and are intended to smoothed out our earnings as they grow and become a larger portion of our cash flow let me.
Turn call over to Mark to take you through the financial performance during the fourth quarter 2019, after which we will take questions.
Thank you already and good afternoon, everyone.
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 a $41 million.
Looking forward to 2020, we had budgeted capex of up to $20 million, depending on industry conditions and our financial results.
Included in the budget in 2020, Capex is the upgrading of our pressure pumping fleet DDB at demand warrants and expanding the capabilities of our infrastructure Division.
As of December 30, Onest 2019, we had $6 million in cash and $80 million a borrowings under our 185 million dollar credit facility, resulting in total liquidity of $102 million net of letters of credit.
On February 26, 2020, Mamet entered into an amendment with our bank group 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 to the following.
Interest coverage ratio was eliminated.
The maximum leverage ratio test. The portal won was eliminated for the first two quarters of 2020.
And change to 2.5 to one beginning on September Thirtyth 2020.
In addition, a fixed charge coverage ratio of 1.1 to one was added beginning on September Thirtyth 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.
Ladies and gentlemen, if you would like to ask the question at this time, we suppresses far didn't number one key touchtone telephone. If your question has been answered all your at least through the movie I saw some because press the pound again thats all I want to ask a question. Your first question comes from the line at Tommy Mode with Stephens, Inc. Your line is now.
Good afternoon, and thanks for taking my question.
I told me.
Already I wanted to start on the Frac sand business fourth quarter was really slow for Maximus and for the industry generally I mean, you your volumes and pricing or both.
Down and and.
As I said the same was true for the industry. So I'm curious about first quarter here is as we get back to business.
Our volumes and pricing.
Trending today and is there a pathway where we're back on the rights had a positive for EBITDA not segment this quarter or does that potentially.
Oh for rising that's beyond the first quarter.
Yeah, the Tommy Frac sand, obviously, it was very challenged in the fourth quarter. It's a it hasn't moved up a significantly obviously, there's still pressure on pricing.
As we go through but Oh, we're it's it's one of those where we are shipping quite a bit more sand than what we did previously and it does have pathway to.
Make a little bit a in this quarter and ER or breakeven.
As we as Gulfport.
Another thing I'd add to that Tommy is a the biggest hindrance. We have in that segment right. Now is the amount of railcars that we have under lease we actually have about 800, or so railcars 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 a as those leases roll off.
We don't have that that fixed fee every every month.
Got it thank you both for the context there.
Shifting to.
The outstanding receivables balance and and acknowledging you're going to be limited what you can say.
Did you, though give us a sense of what the processing 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 proper and have continued that dialogue throughout the process. So we remain hopeful that will collect the outstanding balance, but don't have affirmed timeline for you yeah, marking our wind down Puerto Rico in January and we got to see the the head to the financial group that has been through this process systems, who has been.
With us quite a bit and.
They're working through things as well, but as you said, we're not going to comment much on litigation that it but we did decide to take take that on and we are progressing with that.
You know they they are wanting to get out of bankruptcy.
And.
There are 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. It. If there is one is there's a tremendous amount of public information available. So from what we've been able to glean from recent filings. So their liquidity has increased a little bit recently.
[laughter].
Okay. Thanks.
Thank you for all the details there and if I could sneak one more at <unk> I was curious on the DG be conversion.
Any financial payback metrics, you could share there or.
It 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.
It's for US it's it's part of the S.G. a conversion and we spent a lot of Tom we spent a lot of Tom with our board.
This past board meeting talking about Iasci and the reasons and do it our customers are requesting it and certainly we want to stay busy as we go through and we think it makes a good financial sense to do it.
We currently are proceeding to convert about 30 of our units that will be two of our fleets that we'll 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 a progressing but I mean, it's ready to be field tested.
In the next couple of weeks.
Great. Thank you again and that's all for me I'll turn it back.
Thanks, Tom.
Your next question comes from the line Daniel Burke with Johnson Rice. Your line is now open.
Yeah, Hey, guys good afternoon.
Hi, Daniel.
Let's see a pitch RT again, it might be limits on what you could say, but could you address maybe the status of the take or pay contracts with both gulfport not a sand side some other parties.
Gulfport is still.
Is is in litigation is as I think you a you know when 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 was we're still hopeful with what that situation.
The other contracts continue to 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 taken some of the things that we used to when it was just a pure 40 70 market you were having to waste.
2040, or or a 100 mesh and we're seeing where they're taking a few that a little bit of that as well.
End markets, not robust and I'm not going to describe it as that but it is it is much better than where it wasn't the fourth quarter is as the activities occur downwards.
Got it okay.
And then or I guess, maybe maybe shifting over to infrastructure looks like a pretty a wholesale reboot that you guys have underway. There could you talk a little bit more about you know maybe to the second level leadership.
Changes you've made it and maybe a timeline on returning that portion of the business or it's the infrastructure segment overall to see EBITDA positive operations.
Yeah. It's we're really proud of the team we're putting together I'll start I started a little bit with the president and just give you some.
He is an industry veteran he's been a either president COO or worse CEO.
Since 1985 in either construction or.
Infrastructure business and very Polish Preston very pleased having the one thing that he brings a portion of the relationships and you're right. We are we are next year well operating.
Huh.
Guys are very strong industry veterans as well.
Some of them have an excess 30 years, our business development Guy has an excess of 20 years in industry.
Our our new leaders that we brought in for one of our subsidiaries is 30 years in the TNT business in sub station business.
And.
As the next president of the.
Another entity.
We brought in a state your professional and we're seeing in me improvement in the area safety in very seasoned Oh gosh.
Our VP of transmission operations has about 20 years experience in the utility areas and as a.
Past director in.
Some of our competitors, so very pleased and there's there's more to come and we're still building that organization. So we're very pleased with where we're heading with with this group and the opportunities is bringing us with their experiences in things like renewables and in other areas that we may not have been.
No and telecom and that type of thing.
This is a business that we've talked about many times that has more demand and supply for crews and if you look at our history. We went from 30 crews at the end of 17 were somewhere around 140 145, right now and we're continuing to.
To move the needle with with that business again, it gets us that was a counter cyclical of oil and gas and everybody knows what's going on oil and gas and oil touch in the Fortys and gas is in the dollar Sixtys and we haven't entered a shoulder period yet so.
Lots of opportunities in 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 this demand outstrips the supply.
Okay.
That's helpful and then it gets in the second maybe the second piece of that question I mean, any thoughts about when when the U.S. infrastructure business kind of returns to breakeven EBITDA or better.
Yeah, So Daniel if you strip out.
The interest on the prep a receivable out of that segment.
We expect that segment to have a shot at breakeven to possibly positive EBITDA in Q1, and then let the positive in Q2.
Okay.
And I guess, maybe just to cram one last one on here.
We look at the liquidity a position post the.
Post the credit facility Rifai.
And the operation still kind of dancing around that that that EBITDA breakeven level, plus or minus at least a couple of the second is not all the segments. What other avenues or do you guys have to explore to maybe maybe give you provide yourself 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 a fixed asset side of the business. So we've got up to $25 million. So 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 weve been previously unable to access.
Okay. In addition.
Daniel will be working extremely hard on the cost side of the equation obviously.
You know my background from a lean and elimination of waste <unk> elimination of cost and.
Well, we've taken some some cost out we've got more cost comp. So we will be taking cost out of that the system in making sure. We're running at the best efficiencies, we possibly can.
Okay, Alright, guys got it thank you for the type.
Thank you.
Again, ladies and kids and then if you would like to that's a question. Please press star one on your telephone keypad and be cleaning could be a now.
Next question comes from John Daniel Good since any change to your line scandal.
Hi, guys, thanks for putting in.
Hi, John Good question.
Hey, there just one on just the northeast operations not any.
Particular product per se, but just.
Just a visibility you have any operations up there just given where gas prices are and just how you see that played out over the course of the year.
John right now our visibility extends through the end of Q1.
We do have limited visibility and into April.
But for the activity in the northeast right now what we're saying is.
Very cautious operations from from the S&P companies that we work with any area and we've got like said, we've got pretty firm visibility through the end of Q1 and then it starts to the falloff farm on our visibility.
Yeah, I mean were we.
One of course, we just like you do we watch closely our customers and what the MP budgets and.
To achieve their 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 we'll continue to match if our businesses aren't EBITDA positive, we're going to look deeply and we we close down a temporarily shut down three businesses last the last year.
Until it comes back and we each and every business. That's one of the things we do look at each one as a portfolio company and they they don't make money.
We'd look seriously Adam.
And what their where everyone.
Okay.
You mentioned that Theres more to talk at the board level about F G and.
No. We all hear a lot about that desires for Ian piece to pursue our look at the dual fuel alternatives.
They are lucky talking about anything else within your business from many of two 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 it it touches all aspects not only a the pressure pumping side.
But the coil side and you know the infrastructure side has been big for a long time as well. So just because you know a lot of a lot of our followers on the oil and gas space CNG as SG has been all across the industry. So and it's only ramping up. So we are we will roll out additional additional.
Measures to improve our scores in the in the coming months and and we're taking a very seriously or just like our customers do as well, yeah, I would echo what dawn, saying about taking a serious and we for a long time.
Every every week we measure.
If we have.
A couple or gallon or two gallons spill, we talk about it.
Even if it's in containment no matter, what we discussed and we we make sure that every one of them has the root cause we'd look the root cause and why it happened to make sure that didn't happen again. So we've been doing this for a long period of time and we will continue due to do that it we are getting pulled our customers our customer it's very.
Patent tool.
I guess, we're always going and if I just didn't know if there's other within another product lines, if there's any pressure by customers to.
Do something from an asset and you know enhancement. If you will see be you know like this dual fuel extend to have any natural gas pickup trucks or you know dual fuel pump down. Yes, you. Just that's why I was going in terms of just other asset well you might have to spend money how about it that way.
We haven't seen that pressure yet.
Okay, but those are natural areas to look at in the future, particularly in regards to.
Pickups.
Okay, Yeah I'd also.
I'd also remind you that we have we have an avenue within our.
Indeed group as we get into renewables and all that type of thing that.
We'll make a significant difference with the.
SG and beyond.
And then just a final one you guys.
Entrepreneurial looking at.
Yeah, you opportunities.
Is there anything that you can do or sees an opportunity on the flaring side arty.
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 on that side of it and I know, it's a huge issue.
With the emissions and everything but we just haven't we just haven't pushed that that aspect.
Okay. That's all I got it thanks for your time guys.
Thanks, John.
That concludes our question answer session for today I will now turn the call it back to the center.
Thank you very much we want to thank everyone for dialing in today I want to personally. Thank our team we believe the futures bride from Amazon 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 working hard to control costs in transition management into a more industrial focused company. 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 may disconnect.
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