Q2 2020 Mammoth Energy Services Inc Earnings Call
At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow with that site. As a reminder, this conference call is being recorded and will be available for replay anomalous energy services that site I would elect to introduce your host for todays conference Mr., Don Chris Mammone.
And I just heard this isn't director of Investor Relations, Sir you may begin.
Thank you great. Good afternoon, and welcome to Mammoth Energy Services' second quarter 2020 earnings Conference call. Joining me on todays call are already straight <unk>, Chief Executive Officer, and Mark Leighton Chief Financial Officer, before I turn the call over them I'd 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 rig.
Ports on form 8-K, and other Securities and Exchange Commission filings, we undertake no obligation to advise 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 second quarter 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 well start todays call by discussing a very important report that we released the public on June nine to 2021 form 8-K. This report was prepared at the request to the Federal Emergency management is agency FEMA by the home security operational analysis.
Center federally funded research and development Center operated by the brand Corporation for the U.S. Department of Homeland Security.
The report examines the contracting process. The work our teams performed and the rates that were charged in Puerto Rico. This is the second review of the contracting processing cost analysis. Following a determination memorandum, which was produced by FEMA on December 20, Threerd 2017, and it is included in 8-K public for it.
Lease on June 920, 20.
The ran report is an in depth examination of our work in Puerto Rico and on 40 page 48 comes to the conclusion that purpose procurement process was reasonable and the billable rates charged by Cobra reasonable for the work for Fourq I want to repeat this because it is very important to contract was procured in a reasonable manner.
And the rates charged for reasonable.
Please bear with me, while I read one quote from page 22 of the report, which also feel is very important.
Quote Cobra was uniquely positioned for rapid response to the crisis deploying heavy equipment to seaports chipboard transports on the day after contract signature on October 22017.
Transmission work on the Allen began on October 30, Onest of 2017, two weeks. After Cobra was awarded the contract. Furthermore, a fully equipped crew of 463 linemen and 200 support staff of rock on many of them within three weeks of contract signing November 13th of 2017.
This fully equipped pre was composed of quandaries alignment and security, which greatly exceeded the levels proposed in the I must say.
This timely delivery of quantities of work and support.
Labor in excess of did levels. Initially proposed quickly three weeks after the amount emmis say with side clearly reflects responsiveness to requirements for both immediate availability.
And contract flexibility and close clubs, we feel that this report validates what we've been saying for nearly three years and as further evidence to our claim that we should be paid fully for the work our team performed under harsh conditions in Puerto Rico.
Quality of our work was at the highest level on continues to perform well today. Despite several large earthquakes over the past several months.
We continue to pursue several avenues to collect the monies that we are as you can imagine we're limited in what we can say about litigation as it progresses through the courts, if you'd like a copy of the ran report for the determination memorandum a copy can be found on our website or Alternatively, you can call.
Contact Dawn and he will send you a copy.
Now, let me move onto the current operations since the outbreak of the Cobot 19.
Pandemic nearly every aspect of our daily lives has been impacted our first priority is and has always been the safety and health of our team and we continue to take steps to protect our team members from the virus.
We have discussed our diversification strategy for several years and we now have a full year financials in our infrastructure division, excluding Puerto Rico operations when analyzing the financials you can clearly see the effect the new infrastructure management team has made over the past six months with the gross margin coming at 17% during the second quarter 22.
And EBITDA growing nearly 50% per quarter for the past few quarters, when excluding interest on the prep or receivables.
Our operating subsidiaries higher power in five star are well respected amongst the utilities. They worked for in our expanding their customer base from our two core geographic regions.
These businesses have significantly expanded since acquisition and are currently comprised of approximately 600 experienced field personnel.
Right across a 130 cruise our customer base is diverse and is aware of our technical abilities.
The new infrastructure management team is leveraging current operations to introduce our capabilities to potential customers. We believe this industry demand and bidding opportunities remain robust with our cost structure streamlined in our core base of operations. We have built a solid foundation our position to grow both our customer base in geographic footprint.
Over the coming years.
Our engineering business that we created is expanding its footprint and we're looking at ways to integrate engineering into our infrastructure business to begin bidding for MPC work or engineering procurement and construction.
Type work.
In addition, we are exploring ways to integrate our manufacturing operations into our infrastructure offering through manufacturing of equipment materials and products used by our infrastructure teams. We're very encouraged by what our infrastructure engineering and manufacturing teams have done over a short period of time and what the future holds for these teams.
Turning to the oil field the operating environment remains challenged as oil prices continue to be impacted by effects from the cobot 19 pandemic, we saw significant swings in the price of oil during the second quarter 2020 as demand fail oil prices have since stabilized, but remain depressed from historical norms.
Nevertheless, we are continuing to maintain our oilfield service equipment planned to be ready to ramp up our service lines when demand returns during the second quarter 2020, we pump 658 stages with 1.9 fleets utilize throughout the quarter on average.
We have upgraded several of our pumps to dynamic guess blending or DG b and these units are high are in higher demand than our conventional onions.
Our sand division sold approximately 82000 tons of sand during the second quarter 2020, the average sell price for the San sold during the second quarter was approximately $15 per ton.
While the events of the past, but five months of cost significant impacts to both our daily and Professionalized Amendment has adapted quickly to the changing environment our diverse portfolio of companies across several industry has have performed as expected.
The infrastructure business is positioned with a solid foundation from which to grow as it looks to ways looks for ways to further integrate into our other businesses to lower cost.
Let me turn the call over to Mark to take you through the financial performance during the second quarter of 2020, after which we will take questions.
Thank you already and good afternoon, everyone I.
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 second quarter 2020 was approximately $3 million.
The total of 4 million spent during the first half of the year.
We now expect our full year 2020, capex budget to be $10 million as oilfield service utilization and pricing remain challenge.
Operating cash flows came in at a positive $7 million for the first half of the year. While debt has stayed relatively flat at 89 million and cash increased by 5 million to 18 million.
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.
Question at this time. Please press Star then the number one key honor touched on telephone.
Question has been answered or you wish to remove Gustav and MCU. Please press the pound again that is garden. The number once asked a question.
Okay.
Your first question comes from the line of Daniel Burke from Johnson Rice. Your line is open.
Yes, good afternoon guys.
Hey, Daniel How're you.
Im doing fine you if I hope you all are doing the same let's let's see.
Already I think I think.
All right appreciate all the detail on.
In Puerto Rico, So I'm not sure there's much more I can listen there.
Let me ask one on infrastructure perhaps.
Hi.
Maybe maybe just.
Broadly.
Give me a sense or give us a sense of a progression infrastructure can can take of the near term here into the second half a 20 and then you mentioned looking at.
Expanding the business to address APC type contracts will kind of scope do you envision.
I would be able to address.
Well, let me, let me take you back through.
Daniel I know, you've been along with us and all the way through the history and we got in this too obviously as a pivot.
To get get away from the cyclicality of oil and gas and certainly that process is working well and what what normally happens as you start off when you start off like this you start off with the distribution.
And that has certainly been true with us the distribution aspects as business, but again, we started vertically integrated with the engineering group with the manufacturing much like we did we've done in the past in oil and gas and.
We're we're moving more and more towards transmission.
I actually.
I think that more and more we're going to be getting into renewables and here's reason why say that the competency of our team has.
Your team comes to that we brought on has a lot of different competencies, but one of the things that they've done in the past is a lot of solar projects from for some large.
Large groups so we.
We I actually flu and looked at a.
6500 acre solar project.
Last last week. So this is very very recent this was about 640 megawatts, which is huge we think that solar and renewables in general are going to be a huge.
Boon in the future and there's more money that's going to be spent right now.
If you take a look at it.
Renewable have surpassed coal as supplier of energy and they're going to continue to grow you look at the projections that are they're coming in in the foreseeable future in the next five years. It's in the hundreds of billions of dollars of projects. So I think that gives us the ability to go out and do the larger.
PC projects, which are usually more profitable, there's a little bit of risk taken on with the engineering procurement with the construction aspects of it but there's a there's also a lot better reward for and we've got the team that can go out and do that we've spent a lot of time over the last six months getting the right people into the REIT shares.
To to build this particular aspect of our company and as you saw with our numbers that we released.
They were they were EBITDA positive in gross margin.
Of 15%.
So we look forward to the future look forward to continuing as long as oil and gas is depressed and we can't get.
A good market there, we're going to continue to build that.
That area.
You did mentioned the prep a piece I just want to bring you up to date and a lot of it is just the same thing, but the release of the ran report, which we went after and got with a freedom of information Act of four yet with the Governor took us about 18 18 months to get that information.
But what it did prove is that.
The contract that we got was done correctly and the rates that we charge were reasonable.
So we feel very good about where that's headed we can't comment on on the litigation of course, but we feel very positive and we continue to pursue.
Our monies.
Okay. Thanks, Thanks for that already.
And maybe to pivot to Mark a little bit Mark I think I think last quarter you you to offer some guide posts on where margins.
Could trend.
On the on the infrastructure side.
What's the timeline to getting them back to that kind of 10% to 15%.
Range, maybe maybe excluding the receivables bookings.
Yes, so were fairly close to that Daniel I think we had guided high single digits.
For Q2 during the last conference call and the operating entities performed at about 8.5% EBITDA margins inside of Q2.
So to Arty's point on on the team that we brought in place Theyre executing.
As we continue to change the job mix and the customer base, we think that margin that we saw in Q2 will continue to creep up.
Side of both Q3 Q4.
Okay and is that.
Is that based.
This topline rise in the second half the year I mean crew counts have drifted down a little bit this year I'm sure you encountered some some type of disruption in the in the Q2 environment, but do you have the ability to.
Grow revenue in the second half the years, we stand right now.
I think we've got some ability to continue to grow revenue.
They're executing well and winning a fair number of bids so that helps us to obviously stabilize the revenue for that particular segment, but also increases the margins in that in the segment given that the majority of the wins that they're getting on the contracting side or transmission project.
So so Danielle I think one of the thing sets.
Pretty important to understand is that of course cobot is affected everything it affects our leadership group that has very good customer relations from going into these utilities and talking about our our capabilities that part has been affected because for a large part.
Like some of our customers that San Diego gas electric they're already announced they've already announced that they're out of the office until 2021 because of cope it so its impeded our growth somewhat but certainly we continue to perform.
Very very well and this management team is is a special group.
Okay got it and then I guess.
Maybe last question just to pivot to the oilfield side.
I think of ashes from before for already but.
You guys do you still have a couple that the take or pay contracts can you give us any update I don't know that you can on what's going on with Gulfport and then.
Maybe on the sand side of those take or pays holdings.
One of the railcar cost going to come down is that a business that we that you can get back towards a more of an EBITDA breakeven.
In the second half the year.
Yes, I can't comment on the Gulf War piece tied up in and litigation and that type of thing.
But from the standpoint of or other contracts. They remain in force in San contracts, we have seen some we probably saved about a million dollars. This first half.
In negotiations with our railcar guys.
Negotiations with the railroads for the first time in a long time, we've seen railroads, where they are willing to discuss some willing to talk so that they can pick up some of the market share. So we've gone back to them and make lowered some of the rates on some of the sand that we're carrying and that type thing and this would help of course northern industrials northern.
Sands to be more competitive.
So we continue to pursue then take all the cost cutting.
Beginning of the year, Daniel including oilfield, including the infrastructure business. We had 1600 seven people today, we have a 32.
So we save cost a lot like most.
Most other companies by cutting the cost.
Where you can and pulling everything in if you look at the balance sheet and marketing comment more on that.
It continues to hold up very well with the after the second quarter and we continue to be very optimistic.
About where we're going.
Yes.
To expand on Arty's point, net debt improved quarter over quarter about $4 million. So even given the overhang on oil and gas we've been able to harvest receivables and generate positive operating cash flows were encouraged by that.
Got it guys then one last simple one maybe on the pressure pumping side with what's the outlook too.
What's the outlook for fleet activity here in the third quarter.
Q3.
Looks like flat activity levels based on what we've seen we're not forecasting any increase in activity compared to what we saw in Q2 right now.
Okay that makes sense.
I'll leave it there thanks for all the time.
Daniel Thank you.
Once again, an artist to ask the question. Please press Star then the number one on a telephone keypad.
Im showing no further questions at this time I would now like to turn the conference back to Mr. artist Trella for any closing remarks.
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 comp.
Thank you to our shareholders for your support and interest in our company while the current oilfield market conditions are challenging the infrastructure side of the business has seen growth, we're working hard to control costs and continue to pivot mammoth into a more industrial focused company.
This concludes our second quarter conference call.
Thank you very much.
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