Q4 2022 Mammoth Energy Services Inc Earnings Call

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Greetings and welcome to the Mammoth Energy services fourth quarter earnings Conference call. At this time, all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conflict being recorded it is now my pleasure to introduce your host Ken Dennard of Investor Relations. Please proceed.

Thank you operator, and good afternoon, everyone. We appreciate you joining us for the Mammoth Energy Conference call to review 2022 fourth quarter and full year results. This call is also being webcast and you can access through the audio link on the events and presentations page of the Investor Relations section at Mammoth.

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Information reported on this call speaks only as of today February 23rd 2023. Please be advised that any time sensitive information may no longer be accurate as of date of any replay listening or transcript reading.

I'd also like to remind you that statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance.

Forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.

We'll be making forward looking statements.

Nature are uncertain and outside of the company's control.

Actual results may differ materially please refer to the earnings press release that was issued this afternoon for a 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 EBITDA, adjusted net income or loss adjusted earnings.

Earnings or loss per share.

These definitions.

These non-GAAP measures and their reconciliations to the most comparable GAAP measures can be found at the end of our earnings release and in our Investor presentation, which can be found on the website.

<unk> assumes no obligation to publicly update or revise any forward looking statements and now that behind me I'd like to turn the call over to Mammoth energy CEO Arty, Australia arty.

Thank you Kim and good afternoon, everyone. We had a great fourth quarter and strong full year that I'm happy to discuss with you on the call today.

We'll also discuss our ongoing pursuit of the PREPA receivable owed to us before turning the call over to Mark to review our financials in more detail.

In the fourth quarter total revenue grew 80% compared to the same quarter of 2021.

And it was up 58% for the full year compared to 2021.

Demand for our services in each of our businesses generated this topline growth. In addition profitability also grew substantially for the quarter and the full year in Q4, adjusted EBITDA was up 40% compared to the fourth quarter of 2021. It is also important to point out that we recognized a bad debt expense of $3 five.

During the fourth quarter of 2022 this was related to a previously disclosed legal settlement.

Excluding this expense adjusted EBITDA for the quarter would've been up 60% for the full year adjusted EBITDA was $86 1 million and excluding the bad debt expense was $89 6 million last years adjusted EBITDA was a loss of $11 6 million.

Despite adverse weather during the fourth quarter of 2022 and continued supply chain constraints that impacted productivity I'm proud of the hard work and perseverance displayed by our talented teams throughout our organization. Let me just provide some examples of what we were experiencing in the field in the shop related to supply chain construe.

Right.

I know this has become a common phrase over the past year, but here's how we are seeing an impact our business. We continue to see supply chain constraints at one of our key suppliers for our pressure pumping business. While this supplier is actively working to reduce the supply chain factors. They are facing we expect that the supply chain is.

<unk> war persist through at least the first half of 2023.

Now I'll walk you through each of the major business segment mix.

In our well completion services division, we continue to improve our performance generating strong growth as the macro demand in the pressure pumping industry remains robust we exited 2022 with four of our six pressure pumping spreads operating and we added a bit spread into operations in January of 2023.

Hi.

In addition, we are planning to upgrade another spread to tier four dual fuel and put it into operation in the back half of 2023 and.

And upgrade two of our existing spreads to tier two dual fuel subject to both market conditions and supply chain constraints.

This would give us a total of four dual fuel fleets. We're excited about the opportunity to add another dual fuel fleet not only because of the economic benefits, but also for the reduced environmental impact for those that aren't aware dual fuel engines produce the same amount of power as conventional diesel engines engines.

But they really significantly less emissions, while also reducing costs through just so diesel displacement.

It's just as important for us to operate environmentally responsible as it is for us to operate efficiently.

And we believe that this is our next step towards becoming a better better mammoth we.

We exited Q4 with annualized net income per fleet of approximately $9 million in annualized adjusted EBITDA per fleet of approximately $15 million.

Turning to our infrastructure division operational improvements team performance and higher utilization of our crews and equipment continue to drive improved results. There is a healthy bidding and pricing environment for our infrastructure services throughout our footprint with the added opportunities expected from the historic federal investment in our nation's infrastructure.

Through the infrastructure investment and jobs Act, we continue to build view this sector as a key growth driver for mammoth over the long term and I am pleased with the continued progress we are achieving as a reminder, we have grown this division organically over the past five years.

<unk> business also continued to maintain strong demand and were pleased with our team's performance.

As we reported last November we entered into two strategic sand supply agreements with third party customers at attractive pricing that are providing a solid foundation for predictable cash flow and our natural sand proppant division.

We believe all of our business segments are performing well in high demand environment. Despite the continued daily challenges presented by supplying supply chain constraints inflation and higher labor costs.

We are we are bullish on the future of mammoth and intend to continue to focus on improving operational efficiencies across our business segments and driving financial performance to enhance shareholder value.

As we have stated before we believe our diverse portfolio and ability to adapt quickly to changing environments positions us well in these segments moving forward. We continue to see macroeconomic trends that we believe will further support demand for our services. We believe the future remains bright for Mam.

Before I turn the call over to Mark I'd like to provide an update regarding PREPA as we continue to vigorously pursue payment from PREPA last month, we reported that two important determination memorandums from FEMA relate released late last year affirmed the work we completed on the island and the.

Eligible cost reimbursement.

January joint status report filed in PREPA is bankruptcy case, PREPA indicated that subject to approximately $21 $5 million in offsets asserted by PREPA approximately $99 2 million.

Dollars in FEMA funding would be available to PREPA for our outstanding invoices.

November and December determination memorandums can be found on our website.

Separately. In addition, we have sought and obtained bipartisan help from Senate and congressional members in pursuit of collecting the over $379 million outstanding.

Ending receivables from PREPA as the company continues to pursue multiple avenues to collect the money owed from PREPA.

Now, let me turn the call over to Mark to take you through our financial performance in greater detail.

You already I hope everyone is doing well and we appreciate you joining us today as I, usually do I'm going to take this time to provide additional details on some meaningful metrics in several key highlights.

A detailed breakdown of our results can be found in our earnings release and in our 10-K, which we expect to file tomorrow.

<unk> total revenue during the fourth quarter of 2022 came in at $102 9 million as compared to $57 2 million during the fourth quarter of 2021.

Total revenue for the full year ended December 31, 2022 was $362 million compared to $229 million for the full year 2021.

This 58% year over year increase is attributable to the amalgamation of improved results from all of the <unk> business segments, most notably well completions as a result of sustained favorable macroeconomic conditions and improved operational execution.

During the fourth quarter of 2022, we pumped 1837 stages with approximately 3.4 fleets utilized on average.

This compared to an average utilization of one six fleets during the same quarter last year for.

For the full year of 2022.

We pumped 6149 stages with approximately three fleets utilized on average.

Our sand division sold approximately 366000 tons of sand during the fourth quarter of 2022.

And $1 4 million tons of sand during 2022.

The average price for sand sold during the fourth quarter of 2022 with approximately $29 80 per ton, while the full year average price was $27 11 per ton.

On a year over year basis, we sold 40% more sand in 2022 in the prior year and the average price per ton increased $10 35.

Our 62% when compared to the 2021 average.

Our infrastructure services Division contributed revenue of $29 6 million in the fourth quarter of 2022 compared to $19 $7 million in the fourth quarter of 2021.

Total infrastructure services revenue for the year 2022 was $111 5 million compared to $93 4 million for 2021.

The year over year increase in revenue is primarily due to improved operational execution, coupled with an increase in crude count.

Net income for the fourth quarter of 2022 was $4 8 million as compared to a net loss of $13 3 million for the fourth quarter of last year.

Adjusted EBITDA as defined and reconciled in our earnings release was $24 1 million for the fourth quarter of 2022 as compared to $17 2 million for the fourth quarter of last year <unk>.

Excluding the nonrecurring $3 5 million of bad debt expense that our sand division incurred during the fourth quarter of 2022, adjusted EBITDA would have been $27 6 million for the quarter.

Full year adjusted EBITDA was $86 1 million in 2022, an increase of $97 7 million year over year.

Capex for the fourth quarter of 2022 was approximately $3 6 million. This was down from the $5 1 million of Capex that we incurred during the third quarter.

Total Capex for 2022 was approximately $12 7 million, which came in significantly lighter than the $20 million that we had projected for the year.

This was largely due to supply chain constraints that resulted in dual fuel engine delivery delays.

These delays have caused capital expenditures to move to the right and into 2023.

As of December 31, 2022, we had cash on hand of $17 3 million and debt of approximately $83 5 million.

Our total liquidity was approximately $37 million.

As always to conclude our call we would like to thank our 1045 employees throughout the company for their hard work dedication and commitment to maintaining safe and sustainable work sites for themselves and their teammates.

2022 was a year full of improvement for Amanda.

We were able to capitalize on the favorable market conditions to generate significant improvements in all of our key financial metrics year over year.

We're optimistic that this sets the stage for further growth in 2023 and.

And we are confident in our ability to continue driving meaningful shareholder value through our focus on operational excellence excellence efficient execution and differentiated service offerings.

Operator, we would now like to open the call up for questions.

Thank you we will now conduct a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is another question in queue.

You May press Star two if you will.

Like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Once again Thats star one to ask a question at this time.

One moment, while we poll for questions.

Tony while you are polling for questions, we've gotten an email during the call that actually.

Came in from an investor that said.

Already you mentioned supply chain issues can you elaborate in more detail on that topic, which I think is pretty astute question yes.

Yes.

Absolutely.

Have you note that know me at manufacturing background, one of the things.

We always hear supply chain is as a reason for not completing everything on.

On January 23rd I made a visit to the factory.

Net of the largest aspect of our supply shortages and others. Other pressure pumping supply shortage went through the factory asked a number of questions and found out in detail.

The the problems behind the shortages, which I do expect to continue.

Some of the specific parts that they were short of where wiring harnesses and breather assemblies crankshafts connecting rods specific even down to specific bulbs that they used to fabric fabricate the parks.

We were looking at.

They did not offer a lot of hope.

Of getting out of this very quickly so we expect supply chain.

Risks to stay with us for a good while with that said, we did get a better understanding of of everything.

We think we formed some relationships that should help us into the future. So.

We're pretty optimistic about continuing to get parts in.

Bringing those parks in so.

I'll turn it back or would you see if theres any other.

One of the things one of the things I will observe about the factory visit before I turn it back to Ken.

We asked them about the situation.

The shortages from all of their suppliers and they actually said, we have our own employees.

That are working in our suppliers' factories, we're paying for them just trying to get additional product out so we.

And I took them at face value when they said that.

I believe what they what they were saying so theyre supplies are short and.

This one will continue for a while.

Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad.

Go acquire a bunch today, operator, while were waiting let me let.

Let me give a little bit more color on on the PREPA receivable.

We go through and we go through the call and we talked about determination memorandums from FEMA and that type of thing. This was a huge step forward and we did we.

We did release.

We did release.

A press release on that aspect and everything but the determination memorandums said much the same thing that we've seen in other documentation they reiterated that our contract was in compliance and our rates were reasonable.

This takes away all of the excuses at all of the reasons for PREPA not to release their bonds.

You have a situation where the Congress appropriates money to a federal agency in this case it was FEMA and then fever, FEMA obligates that money to PREPA.

And still we havent been paid.

But it feels like the excuses for not getting paid are running out so we're very well continue to pursue.

And we will continue as early as next week with the visit that is designed to help.

Collect those monies.

I think as all of you know those monies are worth at our current.

Share count or worth about $6 50 per share.

For the total $379 million.

So Ken I will turn it back over to you.

Anything else, yes timing has got another question around the board.

The question comes from Carter Dunlap Dunlap equity management. Please proceed.

Hi could you.

String together.

The schedule for converting the two spreads to dual fuel and how that.

Enter plays with with the with the supply chain shortages I mean, how do you.

Are those two projects directly.

Pendant on those supply chains and more importantly, how do you convey to your customers when those when those spreads are going to be out of service.

Convert.

Yes, they are directly related with.

With the <unk>.

Our modifications to get our.

Spreads to tier four dual fuel.

And their primary parts that go for that conversion.

So right now we communicate with our with our customers and we tell them exactly where we're at and that we're working through solutions I think they appreciated that we just didn't take a just a supply change chain shortage and just pass it on went to the factory.

And did a deep dive into it with our supplier.

Tried to work through.

Solutions, So we think that.

That is a lot better than just sitting and waiting knit listening to them, telling me that it's going to be short so.

Can I predict when we're going to receive everything that allows us to do I cant do it yet.

The supply chain is two two unknown at this at this point, but.

Im going to tell you that I've got an update.

From the factory.

This afternoon that came in.

And here's the here's what I got for three pieces of equipment ship hold shipment.

Short installation of Assembly.

Hold for a part availability hold for part availability so out of out of five key pieces of equipment come in three of them are on hold in the factory waiting for them to have parts. Now. These same parts are used as replacement parts. So as you see.

Some of the attrition that's going on with not as many pressure pumping spreads out is as other attrition in this business as we run this equipment very hard.

And having to have the parts to correct. It is a major issue for the industry.

If I could just follow on because I don't think I've ever asked this question on it.

Gives me on and on and on a new bid job what is the difference for the rate of of putting a dual fuel in our customers' hands versus.

What's there now the single field.

Well.

It's more economical it's more and it's more efficient from an emission standpoint so.

Tire industry is converting over to either dual fuel or in some case in some cases theyre going through electrification of those spreads.

To really make a valid point about this is.

<unk> really long conversion process to go to this even in the Permian, where they're very set up to run dual fuel only about half the spreads there.

There are running dual fuel the rest of them more are running.

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But it is more economical for the customer and it is more efficient friendly and we want to get converted as quickly as possible.

Okay, I mean, I realize it's a table stakes investment, but it doesn't sound like it.

That's it.

I mean, it's either.

The non dual fuels at some point won't be marketable, but it's not a question of being able to put the machine back out at a higher rate.

That's correct.

Thank you.

At this time there are no further questions I would like to turn the call back over to management for closing comments.

Thank you operator, and thank you again, everybody for joining us on the call today, we maintain our belief that <unk> is well positioned for continued growth and supported by experienced team members that are among the best in the business. This concludes our conference call and we look forward to speaking to you again.

Next quarter.

Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.