Q3 2021 Mammoth Energy Services Inc Earnings Call
P J and thank you for standing by welcome to the third quarter <unk> Center, One earnings conference call.
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I'd now like to hand, the conference over to your Speaker today, Rick Black Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone. We appreciate you joining us for the main with Energy Conference call to review third quarter 2021 results. This call is also being webcast and can be accessed through the audio link on the events and presentations page of the Investor Relations section of Mammoth energy Dot com.
Information recorded on this call speaks only as of today November five 2021. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay listening or transcript reading.
Also like to remind you that the statements made in today's discussion.
Not historical facts, including statements of expectations or future events or future financial performance.
Our forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1095.
We will be making forward looking statements as part of today's call led.
By their nature are uncertain and outside of the company's control actual results may differ materially. Please refer to the earnings release that was issued today for our disclosure on forward looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.
Management May also refer to non-GAAP measures, including adjusted net income loss and adjusted EBITDA reconciliations to the nearest GAAP measures can be found at the end of the earnings release.
I mean with energy assumes no obligation to publicly update or revise any forward looking statements and now I would like to turn the call over to Mammoth energy CEO, our historical arty.
Thank you Rick and good morning, everyone I'll begin with an overview of the third quarter and provide an update on our efforts to recover the PREPA receivable owed to the company before turning the call over to Mark to walk you through our financials.
We are pleased with the positive trajectory throughout our business segments during the quarter that led to higher revenue and an improved bottom line compared to last quarter based on the directional improvement we experienced in September we are encouraged by the positive trends in our infrastructure business due to increased storm work on new fiber maintenance and installation contract.
And increased bidding activity as well as an intern.
Internal personnel changes that are gaining traction in this segment funding.
Funding for projects in the infrastructure infrastructure space remained strong with the added opportunity of a new federal infrastructure, Bill, which we are optimistic will be passed in the near future. While we recognize that this is a sector impacted by near term seasonality, we believe that migrating the company further into the infrastructure space.
We will allow us to enhance long term growth and sustainability in.
And our oilfield businesses.
Improved commodity prices continues contribute to a positive industry environment environment and increased equipment utilization as we ramped up a second hydraulic fracturing fleet during the third quarter and our sand business, we continue to see increased market activity.
I will now provide a bit more color on each of our primary segments.
During the third quarter, we pumped 688 stages with approximately $1 two fleets utilized on average this compared to an average utilization of <unk> nine fleets during the same quarter last year and during the second quarter.
Our sand division sold approximately 315000 tons of sand during the third quarter and the average sales price for the sand sold was approximately $16 58 per ton both metrics, representing an increase sequentially from the second quarter.
As these sectors continued to rebound from the significant economic impacts over the past year. We are beginning to see more positives in terms of activity pricing scheduling and new inquiries, particularly focused in 2022, we believe our diverse portfolio and ability to adapt quickly to changing environments.
Positions us well in these segments.
As I mentioned earlier, our infrastructure business improved sequentially, while the business continuing seasonality and some inherent lumpiness we continue to.
Establish ourselves in new markets, our fiber business, which were organically started only a few months ago is gaining traction we will kick off our first fiber project in coming weeks and recently won a second project that we expect will begin before the end of the year.
We firmly believe that the migration into the infrastructure space will lead to more sustainable operating performance going forward.
It is important to note that the infrastructure space.
<unk>, improving macro trends related to increased project demand and opportunities in a sustainable macro environment with strong and growing funding.
Capability.
We continue to pursue other opportunities within this sector as we strategically structured our service offerings for growth in both the geographic footprint and the depth of projects. This type of work is very much needed in our country to improve infrastructure repairs hardening and modernization.
Electrical grid, along with shift towards renewables continue to grow nationwide.
Bidding levels continued to be robust. In addition, we will we still think we will we still believe that the federal government will pass an infrastructure bill in the near future.
Vertical integration of service offerings through engineering procurement and construction.
As well as our manufacturing equipment refurbishing facility continues to differentiate our offerings to infrastructure project needs. We believe these capabilities will provide a competitive advantage going forward in.
In addition, having vertically integrated services and equipment manufacturing capabilities will be a key component to scaling operation and controlling costs. We continue to believe that the future of our company will reside primarily.
In the infrastructure space, which we believe has tremendous growth potential.
I'd like to close.
Paired remarks with an update regarding the efforts to collect a receivable from PREPA.
As many of you are aware PREPA continues to breach its contractual obligations by refusing to make payments for services that are subsidiary of Cobra provided to date PREPA has contended that they are withholding payment primarily because of the September 2019 indictment.
<unk> former president along with two FEMA officials. This position is at odds with several reviews that have taken place, including the termination memorandum from FEMA dated May 26, 2021 to date FEMA. The Grand Tour has not raised the issue of the indictments any new report and simply.
Put PREPA has chosen not to comply with its contractual obligations based on our position that not even the grantor recognizes sadly PREPA has a long history of not paying contractors as PREPA. The bankruptcy filings demonstrate PREPA has not paid other contractors, who just like Cobra responded.
In a time of critical need and restored power in Puerto Rico following Hurricane Maria.
As referenced in the October six 2021 U S House of Representatives Natural resources Committee the federal government has.
<unk> has provided another.
Nine <unk>.
$9 5 billion in funding the Puerto Rico to rebuild its grid to date those federal funds just like the funds for the work. We perform are stuck in PREPA is one gridlock, even when significant amounts of federal funds are available PREPA has repeatedly demonstrated an unwillingness to pay its contractors and Magnus experience there.
This grid lock in inability to pay contractors is <unk> unique to PREPA. Our teams have responded to several other disaster declarations. Since we responded to PREPA and its Tom in need including disasters caused by Hurricanes, Michael Sally Lora and Ida numerous ice storms.
The direct go in 2020 that hit the Midwest in each others. These responses we were paid for our work.
In addition, PREPA OS Cobra approximately $69 million for services performed under the first contract as amendment of this amount approximately $62 million relates to what is commonly referred to as the tax gross up provision of the contract. Despite the existence of two FEMA determination.
Randoms of comprehensive review performed by the highly respected Rand Corporation, a review by the U S. Army Corps of engineers and an internal conclusion by FEMA that the tax gross up costs are eligible PREPA continues to withhold payments of the amounts owed under the first contract and to knowingly breached their contract.
Obligations.
While we have been extremely patient and have tried to work with PREPA. It has become apparent to us that the only way to change PREPA is behavior is to hold them accountable.
We urge our stakeholders to visit our website and to contact our Representatives Congress has the power right. This wrong through the seven persons, Puerto Rico control Board, which was created in 2016 as a part of the bipartisan Puerto Rico oversight management and economic stability Act, which is commonly referred to.
As for Mercer.
For messes intent was to address Puerto Rico's financial crisis without a bail out by American taxpayers, we now need Congress to push the control board to hold PREPA accountable convenience contractual obligations and to pay its debt. The alternative is that companies like ours, which responded in an <unk>.
Rice's pay the price.
Again, please visit our website to review the documents that support the compliance of our contract and the quality of our work that our team perform. Additionally, our website contains information on how you can contact your representatives to help us get paid for the work we performed in Puerto Rico.
Let me turn the call over to Mark to make to take you through the financial performance during the quarter before we open the call to questions.
Thank you Aarti 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.
<unk> total revenue during the third quarter of 2021 came in at $57 5 million as compared to $75 million during the prior quarter and $47 4 million during the second quarter of this year the.
The sequential revenue increase represented revenue increases in each of our segments.
As already indicated in his remarks, we believe that we are well equipped experienced and engaged to lead these businesses to more sustainable operating performance going forward.
The net loss for the third quarter of 2021 was $40 9 million or <unk> 88 loss per share as compared to net income of $3 4 million or seven income per share for the same quarter last year and a net loss of $34 8 million or <unk> 75 loss per share for the second quarter of two.
'twenty one.
Adjusted EBITDA as defined and reconciled in our earnings release was negative $29 7 million for the third quarter of 2021 as compared to $22 1 million for the same quarter last year and negative $5 5 million for the second quarter of 2021 during.
During the third quarter of 2021 Mammoth recognized a nonrecurring noncash expense of $32 6 million related to a settlement with Gulfport Energy Corporation.
Excluding this expense adjusted EBITDA was $2 9 million for the third quarter of 2021.
Capex during the third quarter of 2021 was approximately $2 8 million our full year 2021, Capex budget is $5 million.
As of September 32021, we had cash on hand of approximately $8 million and debt of approximately $80 6 million.
In conclusion, we would like to thank our 825 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 the call for questions.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press with talent.
Standby, while we compile the Q&A roster.
Our first question comes from the line of Dan.
From Johnson Rice your line is open.
Yeah, Hey, good morning, guys.
Good morning, Daniel.
Let's see.
Already I appreciate the detailed update on PREPA.
I'll direct my questions, therefore to maybe more of the fundamental side of the business.
Infrastructure it was.
Good to see the sequential improvement in the business.
I'm wondering if you could highlight.
Maybe maybe some of the drivers of that improvement a little greater detail and then at least give us a bit of a look ahead I heard you guys reference seasonality in Q4 so.
I mean can you sustain the performance of the business in Q3 can you drive closer to.
EBITDA breakeven, excluding the interest on receivable or is that realistically more of a 2022 progression.
Yes.
Daniel as we look at Q3, we saw improvement July August and then August to September September received a lift from storm activity.
As we look into Q4.
Hard for us to forecast storm activity, but I think as you look at the underlying business itself through the management changes. We've made we saw improvement throughout Q3 and continue to see that into Q4 as we look forward.
On a breakeven basis, excluding the interest on the PREPA receivable, that's more than likely a Q1 of 2022 event that being said, we continue to expect improvement throughout Q4 ex storm activity.
Daniel I'd add I'd add to that that we're encouraged with what we're seeing on the fiber side.
As you well know we started that up organically hard to.
The first person.
In the.
May timeframe and starting to build that business, we think thats.
We're going to be a great business for us but we've.
Been awarded a couple of contracts amount that are pretty good and the margins seem to be a little bit better than traditional transmission and distribution work. It does utilized a lot of the same equipment, we think equipment will get tight.
As things go on and more and more work and more and more hardening has gone in and that type of thing and we think we have a competitive advantage there one with the equipment that we have and two the ability to.
Refurbish it and get it ready and and even manufacturer we've menu we've switched our manufacturing over from the oilfield.
Type.
Yes equipment to making.
Infrastructure equipment, so we feel pretty good about where they go in our engineering group continues to grow.
We're awarded.
Contract to.
500.
Electric vehicle sites.
In Southern California.
And we believe that becomes a segue into doing a little bit more of an engineering as we go forward. So.
Lot of Innerworkings that are going on.
Working hard to work on the business and to make it more profitable and.
Holden with accountability and the things you normally do through through management. So we're pretty encouraged with where that segment is going to go and we still believe it was the right decision when we started.
The infrastructure segment.
Several years ago, as a way to offset the cyclicality of oil and gas.
Okay.
Thank you already I appreciate I appreciate all that detail, let me, let me ask one on the wholesale side.
If you're willing to share I mean already how many pressure pumping fleets do you think you could be operating by kind of mid 'twenty. Two just want to understand kind of the depths of inquiries you're seeing right now and then maybe as a follow up could you talk about the scope of your DGB program.
And to what extent that is helping.
<unk> work or.
Support inquiry levels.
Yes, as you well know we've got.
Two spreads running now and we are in.
Discussions about bringing the third when you talk about mid 'twenty, two and we actually think.
With where commodities you have seen the fluctuations in oil, but still stay around the 80 to $82 barrel per barrel pricing.
Think that oil has a significant opportunity to get tight.
In the May June timeframe, I think you got it.
You've got a lot of factors a lot of variables in there such as winter and such as the.
Gastro oils switching and within coal and all those type things, but we think the possibility exists to get back up to around four spreads.
With everything that we're seeing right now.
Mid 2022.
Okay, Okay great.
Let's see.
Maybe one last one just wanted to ask you about the.
The credit facility.
I guess.
As I read the language talks about.
Waivers to the ratios.
It looks like through year end.
I mean, I would imagine you may have some challenges with those ratios into the first half of 'twenty. Two so could you talk about maybe your strategy or how that situation evolves.
Daniel I think we've got a long history with PNC and the bank group and that's been a great relationship. So we certainly continue to appreciate their support of the company looking into 2022.
Really as we look at infrastructure business, we've got a number of tailwind there.
We've got a number of tailwind on the Oss side of the business. So we're encouraged by what we're seeing on both sides of the business going into 2022.
And to your point.
The ratios go back into effect beginning in Q1 of 'twenty, two but based on our analysis of Q1 and the remainder of 2022, we think the opportunity exists for us to get back into compliance with the covenants as they exist.
Daniel I'd add to that you've seen.
A definitive change.
In effort and urgency to collect.
Our receivable we have a lot of underlying efforts going on currently that are pursuing that we learned in one of their filings over the summer that.
The money had been allocated $250 million has been allocated to our specific PW or project worksheet.
So with that <unk>.
<unk> has accessibility now PREPA has despite numerous power outages and lots of problems. They have not made any progress whatsoever. They continue to have all kinds of problems two.
Two weeks ago, there was there was.
Protests.
Were they blocked one of the largest avenues or largest streets in in.
Puerto Rico.
<unk> also been.
Protesting at the governors mansion in Porto.
Puerto Rico, Unfortunately has the highest electrical rates of any.
United States our Commonwealth.
And they have the poor service.
And that Hasnt changed I touched on that.
There has been another $9 6 billion.
Allocated to PREPA.
And when the house and natural resources Board.
Went through and they started asking questions. It was kind of a deer in the headlights look in that.
None of that money has been spent.
They can't get out of their own way their engineering is incomplete.
So there are a lot of things Theres a lot of things that we're communicating with the house and natural resources Board.
Communicating with <unk>, we're communicating the core three and we're communicating with a lot of other stakeholders that we're looking to get paid the easiest and simple way is the tax gross up.
They were $69 million on the first contract.
And the tax gross up comprises $62 million of that.
That was we released we did a press release about three weeks ago that said that.
FEMA has signed off in February of 2019 and said this is eligible.
It could have been funded them and yet they still don't pay.
We're going to pursue our money, we're going to continue to pursue our money and we are going to.
That will make a difference in the whole trajectory.
Reinvestment in growing this company.
Understood Okay.
Okay, well look.
I appreciate the chance to ask some questions. Thank you guys for the time.
Thank you Daniel Thanks, Daniel.
There are no question at this time I would now like to turn the call back 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.
This concludes our conference call. Thank you all very much for joining.
Have a good day.
This concludes today's conference call you may now disconnect. Thank you for participating.
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