Mammoth Energy Services Inc. Q1 2023 Earnings Call
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Greetings and welcome to the Mammoth Energy services third quarter earnings.
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A brief question and answer session will follow.
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Thanks, operator, good afternoon, everyone. We appreciate you joining us for the Mammoth Energy Conference call to review 2023 in the first quarter results.
This call is also being webcast and can be accessed through the audio link in the events and presentations page of the Investor Relations section.
Mammoth energy Dot com.
Information reported on this call speaks only as of today April 27, 28 23. Please be advised that any time sensitive information may no longer be accurate as of the time of any subs.
Subsequent date pardon me I would 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 are forward looking statements made pursuant to the safe Harbor provision of the.
Private Securities Litigation Reform Act of 1995.
Management will be making forward looking statements as part of today's call.
By their 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 today for our disclosure on forward looking statements.
These factors and other risks and uncertainties.
Certainties are described in detail in the company's filings with the SEC.
Management May also refer to non-GAAP measures, including adjusted EBITDA.
Definitions of these non-GAAP measures and their reconciliations to the most comparable GAAP measures can be found at the end of the earnings release and in our Investor Relations presentation, which can be found on the website.
<unk> assumes no obligation to publicly update or revise any forward looking statements.
And now with that behind me I'd like to turn the call over to Mammoth energy CEO already Australia already thank you, Jim and good afternoon, everyone.
We had a solid first quarter with that I'm pleased to discuss on today's call. I will also provide an update regarding our ongoing pursuit of the PREPA receivables owed to us before turning the call over to Marc to review our financials in more detail.
Our first quarter performance was in line with our expectations contributing to a significant year over year growth in revenue net income and adjusted EBITDA for the first quarter of 2023 net income came in at $8 $4 million compared to a net loss of $14 8 million in Q1 of last year.
First quarter 2023, adjusted EBITDA was $37 million compared to $9 3 million in Q1 of last year.
I'm proud of the hard work across all of our business segments by our talented teams that contributed to the meaningful growth we have realized over the last year and this most recent quarter, while we face no shortage of challenges every day and have experienced persistent supply chain constraints and logistical problems over the last few years, we have an intent.
To continue to operate to the best of our ability to meet the needs of our customers.
Recently, we have experienced some improvements throughout the supply chain and we anticipate more improvement to come in the back half of the year, but we believe it is important to note that these constraints still remained an obstacle that we must navigate.
While we may never return to the way things were pre Covid, we're proud of the adaptability of our team to adjust to this new normal.
Now I'll walk you through each of our major business segments, and our well completion services, we generated strong growth in the quarter, we exited the quarter with three of our six pressure pumping spreads actively operating today, we are seeing regional production slowdowns due to lower natural gas prices, particularly in the northeast where we have a concentration.
Frac crews.
Natural gas prices have been cut nearly in half compared to what they were at the end of 2022, while we remain bullish long term.
On natural gas in the near term the lower prices are reducing activity in our well completion segment are leading to more calendar white space, we have a deep understanding of how this pullback impacts our business and have already made changes to manage the large variable cost in the well completions segment. However, we expect this will read.
<unk> near term utilization as we adjust to current market conditions, we plan to offset this reduction by significantly lowering lowering our capital expenditures for the year.
Turning to our infrastructure services division operational improvements team performance in hydro higher utilizations of crews and equipment continue to drive improved results.
Revenue net income and adjusted EBITDA grew year over year in this segment despite increases in SG&A and legal expenses, but we expect these expenses to have less impact less of an impact in the coming quarters.
The bidding and pricing environment for infrastructure services throughout our footprint continue to be robust with added opportunities are expected from the historic federal investment in our nation's infrastructure through infrastructure investment and jobs Act we.
We continue to view this sector is a key growth driver for mammoth over the long term and I am pleased with the continual problem or else. We are achieving as a reminder, we have grown this division strictly by organic means over the past five years.
The San business also grew in the quarter and we are pleased with our team's performance as we had mentioned before we entered into two strategic sand supply agreements late last year at attractive pricing.
These contracts are providing a solid foundation for predictable cash flow in our natural sand proppant division.
As we have stated before we believe our diverse portfolio and ability to adapt quickly to changing environments positions us well in these segments.
Before that before I turn the call over to Mark I'd like to provide an update regarding PREPA.
On March 27, 2023, Cobra was notified that FEMA had approved $233 million in Cobra invoices related to the December 'twenty, one 2022 determination memorandum.
The 90% federal cost share of the approved amount was $210 million, which was obligated and made available for draw down on March 27 2023.
Of this $210 million approximately $99 million.
Dollars has been represented by both PREPA and FEMA is intended to pay Cobra for outstanding invoices and the remaining $111 million of REIT is a reimbursement to PREPA for payments already made on Cobra invoices prep.
PREPA inexplicably refuses to pay Cobra or the work accomplished in the aftermath of Hurricane Maria and has so far failed to take the steps necessary to obtain the funds from core three.
<unk> that were appropriated by Congress to FEMA, and then obligated to core three for payments to Cobra.
We continue to vigorously pursue payment of the over $390 million owed to us from PREPA and continue exhaust efforts with congressional members legal teams and frequent meetings with decision makers.
Now, let me turn the call over to Mark to take you through our financial performance in greater detail.
Thank 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 and several key highlights.
A detailed breakdown of our results can be found in our earnings release and in our 10-Q, which we expect to file tomorrow after market close.
<unk> total revenue during the first quarter of 2023 came in at $116 $3 million compared to $62 3 million during the same quarter last year.
In Q1 of 2023, we pumped 2018 stages with approximately $3 six fleet utilized on average compared to 699 stages.
And an average utilization of one six fleets during the same quarter last year.
This 87% year over year increase in revenue is a key indicator that we have capitalized on favorable market conditions and have driven improved operational efficiencies.
Looking forward as already mentioned earlier, we are seeing some softness related to natural gas prices, which may adversely impact results for our well completion services division in the near term.
We plan to offset this by significantly reducing our capital expenditures as we progressed through the year.
Our sand division sold approximately 391000 tons of sand during the first quarter of 2023 compared to 329000 tons of sand during the same quarter last year.
The average price per sand sold during the first quarter of 2023 was approximately $31 <unk> per ton.
Third to $21 44 per ton during the same quarter last year.
Our infrastructure services Division contributed revenue of $28 $3 million for the first quarter of 2023 compared to $23 million for the same quarter last year.
As already mentioned there was some cost headwinds in the quarter that we anticipate becoming less impactful as we progress through 2023.
We expect this coupled with operational execution to drive improvement as the year progresses.
Net income for the first quarter of 2023 was $8 $4 million compared to a net loss of $14 8 million for the same quarter of last year.
Adjusted EBITDA as defined and reconciled in our earnings release.
It's $37 million for the first quarter of 2023, an increase of 230% compared to the $9 3 million for the same quarter of 2022.
Capex for the first quarter of 2023 was approximately $6 million.
In light of the commodity price softness that were seeing and its direct impact on some of our customer spending.
We intend to continue to prudently manage our costs and as a result, we are reducing our previously announced full year 2023, capex budget to approximately $24 million.
As of March 31, 2023, we had cash on hand of $11 7 million and debt of approximately $84 $6 million.
Our total liquidity was approximately $29 $1 million.
As always to conclude our call we would like to thank our 975 employees throughout the company for their hard work dedication and commitment to maintaining safe and sustainable work sites for themselves and their teammates.
Despite some of the softness that we're seeing on the horizon, our businesses continued to perform well and we're confident that the diversified and differentiated nature of our service offerings positions us well to continue generating favorable results in 2023.
We will maintain our focus on operational excellence and efficient execution in each of our businesses, which we believe will enable us to drive meaningful shareholder value.
Operator, we would now like to open the call up for questions.
Thank you.
We will now be conducting a question and answer session.
Good question P. J, sorry, maybe one kind of thing.
Pat.
Okay.
Question two.
Yeah, That's a star then two.
Maybe a question from the queue.
For participants using speaker equipment, it may be necessary to pick up your phone.
Equal picking the destocking.
One moment, while we.
A question.
The next question is from.
Yeah, I think that's right.
Hey, good afternoon. Thank you for your time and congratulations on the quarter two quick questions. The first.
Any more color on the bidding and pricing environment for infrastructure services and genetically how the infrastructure investment job jobs Act.
Bolstering are contributing in that environment.
Yeah.
We continue to see an increase in bidding activity primarily for projects. So we think that bodes well for the remainder of the year to date, we've not seen a lot of activity in relation to the the infrastructure Act, but we expect that bidding activity to <unk>.
<unk> hitting the market late this year.
Yeah, I'd add onto that Ignacio.
Hum.
We are seeing some of the activities some price increases that are going through to our customers utility started out a little bit.
Right this year.
You know as it was described to us from some of our key customers, which are larger investor owned utilities.
Are the goods or there are products that they use had inflation had hit them about 20% to 30% I'm talking about poles, transformers, and wooden poles and metal Poles and all those type things that they utilize so they trimmed back a little bit at the very beginning.
On cruise and now Theyre going back out and their regenerating. So we're seeing activity move up.
Pretty quickly in addition to that.
We have worked out some of the issues. We've had previously with bonding and that type of thing and we feel pretty good about where the team score.
Specifically in being able to do some of the higher priced transmission substation work and some things away from the distribution.
But all in all a good quarter for our team.
That's really helpful. I appreciate that and then just secondly, you.
You mentioned white space on the calendar or through 2023 I guess.
What's the extent of that and maybe again, a little more color on that.
Sure.
As we were as we exited the fourth quarter natural gas was averaging around $5 56 per.
For him and Btu.
We saw some prices less than $2 and that's caused some of the operators to pull back.
But we are seeing.
A lot of it is just delays because they still have.
Amounts of gas that they have to get to hit their quota for the year.
And so we've just seen some delays on things. We've also seen it where some of those folks that are delaying are also.
Continuing to drill.
But just not complete right now.
That's really helpful. Thank you again for your time and congratulations on the quarter I really appreciate it.
Thank you.
The next question is from John Daniel.
Please go ahead.
Okay. Thanks, a incredible first is a housekeeping Mark can you remind me what the budget wise or 'twenty three.
We had started out.
For a capex budget of just over 60 million. So we peel that back a 30 plus million.
Are you guys still proceeding with the tier four dokey.
Your upgrade or can you walk us through what might have been put on hold.
We are still proceeding with the tier four upgrades that is one area, where we continue to see some supply chain difficulties on those engines, but we are continuing to proceed on that front.
John I'll give you a little bit more color on that particular piece of the supply chain aspects I think as we stated in our last call went up to CAD visitor met their factory and all those type things.
And.
Dave.
<unk> continued to get they have the engine.
We have the first tier four dual fuel engine that was delivered.
It was not delivered with all of its parts.
It's like getting an automobile and not getting a steering wheel or tires to go with.
So.
It continues on we are still working out of our manufacturing facility of course, and it's just going to be a little bit slower.
Slower go.
So part of that reflection that mark talked about on that delay is just purely a supply chain that we see and we've.
We've encountered.
Okay.
Last one for me I've got some stuff on issue. So I apologize, but just given sort of the you had a really successful ramp in bringing those fleets back in now a modest pause can you just walk us through how you handle the labor situation.
We've had to cut.
Cut back on the Frac crews as a result of the white space in the calendar here.
Historically, we've been able to ramp up and find qualified crews. So we're not too concerned about having to ramp back up but we've certainly.
We actively manage that staffing label.
Level at the Frac side too.
With the activity that we've got on the calendar.
Fair enough and not trying to put you in a weird spot, but when they.
The customers you know given they're ultimately the ones that sort of drive the slowdown did they are they trying to work with you at all because I would assume that they will be coming back and using that equipment.
Down the road.
Yes, the customers that <unk> been great in working with us in the schedule has been very dynamic, but our sales team has done an excellent job of <unk>.
In those gaps and working with each of our customers.
Okay, great. Thanks for including me guys.
Thanks, John .
Okay.
Yeah.
The next question is from Chris.
Oh, okay.
Okay.
Afternoon already Mark and Brittany, how are you all today.
Hey, Don how are you.
Doing well doing well, thanks for including me.
Your commentary about white space has been very kind of widespread across the industry. This this quarter, but.
But I wanted to take that a step further given your your divisions that you have in namely sand.
You know theres a lot of talk that there's going to be a lot of gas completions going into the end of the year and I didn't know if you were having any customer conversations on the sand side.
From a demand perspective.
Specifically related to that can be construed into the us.
The frac side of the business I E.
Demand for sand is a leading indicator obviously, so I didn't know there was any kind of color you can provide there.
Yeah of course, we're backstopped.
With our two contracts in that.
Certainly helps things what we're seeing is still strong demand for.
<unk>, obviously, you have a little bit of a break.
With the breakup in.
Canada, because as you know we go to two Canada into the.
Colorado to the northeast.
Primarily with the sand, but we're still seeing strong buildup in coming in June and July .
So you know we.
We still that business has performed as good as it ever has in during this winter time period.
And one further on sand for me it sounds like pricing has been fairly stable over the last three or four months do you see that continuing or do you think you'd kind of pulls back a month or two and then kind of goes forward with demand.
Based on what we've seen over the next two to three months it looks like pricing will be fairly stable.
Yeah.
One of the things you know about us is that our that we are always.
A lot of our pricing is determined by the mix that we have.
Obviously 40 70 as is.
Is the the gold grade and then everything else trails, so when youre seeing it we're still seeing pricing remain pretty strong.
But if you see lapses with it it's because of the mix with 30 50 and 2040.
But getting in mixed with a 40 70.
I appreciate all the color and thanks for including me.
Thanks, Don.
Yeah.
The next question is from Michael Thompson.
Please go ahead.
Good afternoon, gentlemen, and thank you for taking my question with everyone else I congratulate you on the quarter.
Increases.
I think you.
Kind of looking at the demand environment, where.
There's.
Cut backs in drilling activity cutbacks in well completion.
You previously forecast EBITA up around 15 to $18 per frac spread that's out there operating.
In today's demand environment or are we still within that range or dropping a little bit do you think.
Okay.
Likely peeling back a little bit to put that in perspective.
Or to the $12 million to $15 million.
Per per spread on an annual EBITDA basis.
Okay got it.
And if you can allow one more question coming back to that news on PREPA I just want to make sure that I fully got the implications.
Is the fed share that has been approved on payable correctly to you or does it have to go through PREPA and its complicated thing here unwillingness to play.
It has to go.
The way the system is set up is core three.
Is is the grant recipient.
And they have to submit the NDA.
Received the paperwork from PREPA PREPA has to do an RFP or request for reimbursement.
And then core three will pay them and then PREPA will pay us now inexplicably.
And we're a month into this.
So we found out about it on March 27 through some of our congressional leaders that were enquiring for us and we we think that the.
They have received.
That they put in a request for requisition of $130 million. So.
The timing for that is starting to come upon us.
And I'm not trying to indicate that payment is eminent and all that type of thing PREPA has been <unk>.
In this regard, but they have as I said in the.
As we went through the earnings.
<unk>.
They have funds.
That had been appropriated by Congress for a specific FEMA.
Nation memorandum.
And those funds have been made available.
Two core three as the grant recipient.
So.
You know they can continue to refuse to pay but I don't think Congress will appreciate that very much that that those funds are not going to the people who perform the work.
Right.
Again was struck by their unwillingness to pay even when they themselves have been paid so I wanted to make sure I'm understanding them when money is likely to fall into your hands. It sounds, though like if I understood. What you said there was some possibility of getting a $130 million.
You know maybe sooner rather than later is that fair.
Clarify the portion of that to turn that relates to unpaid invoices for Cobra is $99 million correct and that money to the extent that core three draws it is not fungible. So that money can only be paid to cobra once drawn.
Yeah.
Okay, great well. Thank you for all that information very helpful.
Thank you.
The next question is from corporate.
Okay.
Okay.
Hi, Hi, gentlemen is there any plans to mobilize any of the spreads from let's say the north east to your other basins.
Okay.
We don't have any near term plans, but we've certainly got the capability to move those spreads and can do so fairly quickly.
So our crews are.
Well to be moved along with those spreads have been fairly mobile so to the extent that the sales team lines up work in the mid continent, we're certainly willing and capable of moving those those spreads.
And one last question you cited three six as the average for the quarter what.
Me, what what how many how many stages are.
I am sorry spreads are are converted not not not the not the.
The natural gas dual fuel, but once you're trying to finish finish four or five number four or five.
So we've currently got almost two spreads converted to tier two dual fuel <unk>.
Ernst earlier, we're in the process of converting one spread to tier four.
But that conversion has been impacted by supply chain restraints.
Okay. Thank you.
Thanks Carter.
With no other questions.
Thank you everybody for joining us.
Thanks, operator, thank you again for joining us on the call today, we maintain our belief that mammoth 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 concludes today's conference. Thank you for joining US you may now disconnect your lines.
Okay.
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Right.
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