Mammoth Energy Services, Inc.

An 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 conference is being recorded. It's now my pleasure to introduce your host, Rick Black, Investor Relations for Mammoth Energy Services. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Mammoth Energy Conference call to review fourth quarter and year-end 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 mammothenergy.com. Information recorded on this call speaks only as of today, March 4, 2022, 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. I would also like to remind you that the statements made in today's discussion that are not historical facts including statements of expectations for future events or future financial performance or forward-looking statements made pursuant to the Safe Harbor's provision of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call that 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 this morning 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 income loss and adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of the earnings press release. Mammoth Energy assumes no obligation to publicly update or revise any forward-looking statements. And now I would like to turn the call over to Man With Energy CEO, Arti Shrela.

Arti? Thank you, Rick, and good morning, everyone. I'll begin with a review of the fourth quarter of 2021 and an overview of each of our businesses. Following that, I'll touch on the macro trends that continue to emerge. We believe the trend lines look positive for our business across the board as we head into 2022. I'll then turn the call over to Mark to review our financials in more detail. We ended the year sustaining sequential quarterly momentum on top line revenues and reducing our net loss. We are experiencing ongoing improvement in our infrastructure business, which became cash flow positive exiting 2021 and has continued that trend in the first two months of 2022. Clearly the macroeconomic infrastructure backdrop is strong, especially with the recent passage of the federal infrastructure bill. We're focused on operational execution in this business segment and believe we now have the right people and processes in place to gain stronger momentum in this large and growing market. The opportunities we see in this area, especially around fiber maintenance and installation contracts and MSAs are encouraging heading into the next year. Funding for projects in the infrastructure space remains strong. Mammoth will continue to pursue opportunities within infrastructure services as we strategically structure 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 of the electric grid, along with the shift towards renewables continues nationwide. As a result, bidding levels continue to be robust. Man this vertical integration of service offerings through engineering procurement and construction capabilities, as well as our manufacturing equipment refurbishment facility continue to differentiate our offerings. In the infrastructure project area, we believe these capabilities, along with our ability to add additional infrastructure crews with nominal capex requirements will provide a competitive advantage going forward, in addition. Having vertically integrated services and equipment manufacturing capabilities will be a key component to scaling operations and controlling costs. We continue to believe that our vertically integrated infrastructure offerings have tremendous growth potential as we go forward. In our oil field service business, improved oil and natural gas commodity pricing continues to drive positive industry movement and increased equipment utilization. albeit at a more measured pace than we've seen in past up cycles. We operated two hydraulic fracturing fleets in the fourth quarter of 2021 and are currently staffing up a third fleet. The line of sight on our frac calendar is also improving, as is the pricing, and we have better visibility through the end of 2022. Additionally, in our sand business, pricing remains good and looks to stay that way. As these sectors continue 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 the back half of 2022. We believe our diverse portfolio and ability to adapt quickly to changing environments positions us well in these segments. Turning to the cost side of the business, we managed fixed costs well in the fourth quarter of 2021. I'm proud of the progress our team is making to further enhance our efficient fixed cost model. We have implemented a cost management structure and methodical operating procedures that we believe will enable future top line growth without meaningfully changing our SG&A structure. As we enter 2022, we see improved macroeconomic trends that we believe will drive increased demand for our two largest business segments, infrastructure services and well completion services. Let me provide the most recent information in regards to our contracts with PREPA. As you recall, FEMA issued a determination memorandum on May 25, 2021, in respect to the first contract. In this determination memorandum, FEMA found that $46.7 million was not payable under that contract. On July 23, 2021, with aid from COBRA, PREPA filed an administrative appeal of the entire $46.7 million disallowance. On January 5, 2022, PREPA received a request for information from FEMA in connection with this appeal. PREPA's response was filed on February 4, 2022. Upon PREPA's submission of its response, FEMA's 90-day period for determination of the appeal renews. If PREPA does not receive a decision from FEMA within 180 days after the appeal was received by FEMA, PREPA can file a demand for arbitration. The first opportunity to file for arbitration is on March 21, 2022. On July 15, 2021, FEMA advised PREPA that it had commenced review of the second contract and that FEMA's intent was to complete work on this project and issue a determination Memorandum before December 31, 2021. As of January 19, 2022, PREPA has not received any update from FEMA as to when it anticipates completion on this project to occur. Since August of 2021, PREPA and COBRA have worked to reconcile approximately $159.5 million in invoices under the second contract that PREPA had not submitted to FEMA. Since that time, PREPA has submitted approximately $90 million in invoices to FEMA. This approximate $90 million in invoices had not been submitted to FEMA by PREPA due to purported discrepancies in personnel head counts on the invoices as compared to reports prepared by PREPA's inspection contractor. Although COBRA personnel had pointed out the errors in the reports prepared by PREPA's inspection contractor for more than two years, we are thankful that PREPA finally submitted our invoices to FEMA. On this past Monday, PROPA filed a motion for an order approving a settlement agreement with Whitefish Energy Holdings. We believe this is a positive development since it will result in approximately $90 million for services to be paid to Whitefish in two installments, an approximate $6 million administrative claim relative to mobilization and demobilization invoices, and an administrative claim of approximately $34 million for interest on past due invoices. While this is an encouraging development, we still have work to do for us to get paid, and it continues to be apparent to us that the only way to change PREP's behavior is to hold them accountable. We urge our stakeholders to continue to push the control board, commonly known as the FOMB, to hold PREP accountable to meet its contractual obligations and to pay its debt, which continues to accrue interest at the rate of about $3.1 million per month. Let me turn the call over to Mark to take you through the financial performance during the fourth quarter of 2021 before we open the call to questions.

Thank you, Artie, and hello, everyone. As I did in the third quarter of 2021, 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-K. MAMIS total revenue during the fourth quarter of 2021 came in at $57.2 million as compared to $85.1 million during the fourth quarter of 2020 and $57.5 million during the third quarter of 2021. Although product revenues were up over $6 million quarter over quarter, there was a decline in storm-related activity during the fourth quarter of 2021, which essentially offset our product-related upside. As already alluded to earlier, we are well positioned to differentiate our offerings and optimize our operational execution, which we believe will drive meaningful revenue growth now that the macro economic environment surrounding industrials and oil and gas appears to be strengthening. During the fourth quarter of 2021, we pumped 891 stages with approximately 1.6 fleets utilized on average. This compared to an average utilization of 0.6 fleets during the same quarter last year and 1.2 fleets during the third quarter of 2021. For the full year 2021, we pumped 2,544 stages with approximately 1.1 fleets utilized on average. Our sand division sold approximately 270,000 tons of sand during the fourth quarter of 2021, and 1 million tons of sand during the full year into December 31st, 2021. The average price for the sand sold during the fourth quarter of 2021 was approximately $17.84 per ton, while the full year average price was $16.76 per ton. On a year-over-year basis, we doubled our tonnage of sand sold, and the average price per ton increased $2.20 when compared to 2020's average. The net loss for the fourth quarter of 2021 was $13.3 million as compared to a net loss of $11.9 million for the same quarter of 2020 and a net loss of $40.9 million for the third quarter of 2021. Adjusted EBITDA as defined and reconciled in our earnings release increased to $17.2 million for the fourth quarter of 2021 as compared to 7.5 million for the same quarter last year and a negative 29.7 million for the third quarter of 2021. CapEx for the fourth quarter and full year 2021 was approximately 1.4 million and 5.8 million, respectively. Our full year CapEx came in slightly higher than our guidance of 5 million, and this was mostly attributable to our pressure pumping business. We anticipate CapEx for 2022 to be approximately $6 million, spending most heavily weighted towards well completions in the back half of the year. As of December 31st, 2021, we had cash on hand of $9.9 million and debt of approximately $86.7 million. In conclusion, we would like to thank our 830 employees throughout the company for their hard work dedication, and commitment to maintaining safe work sites for themselves and their teammates. We will continue to operate responsibly and put Mammoth in the best position possible to maximize value for each and every one of our stockholders. Operator, we would now like to open up the call for questions.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. Our first question comes from the line of Don Crist with Johnson Rice. Please proceed with your question.

Good morning, Artie, Mark, and Brittany. How are you all this morning? Morning, Don. Morning. Artie, I'm really happy to see the movement within PREPA. I know it's been a long time since things were going back and forth there. Any kind of timeline that you can give on when you think that things should start breaking loose, or do you think that we're moving in a general direction to where we get paid sometime in the back half?

Well, Don, good question. And I don't know if you had a chance to see it. About 30 minutes ago, we released the press release on whitefish and entering that. We think a lot of momentum is carrying forward. There's no absolute dates that we can discuss. But you can see, and when you start looking at it at the macro and go from the macro down to the micro, of course, we saw Puerto Rico's plan of adjustment that was approved. They're coming out of bankruptcy. The FOMB who controls those affairs for the island is putting a lot of pressure on PREPA to emerge from bankruptcy. There's been a lot of talk that we've heard where they are talking about emerging before the end of the year. And, of course, you look at the way it stacks up. They just got through with Whitefish, and that's one of the administrative claims that they had to get out of the way. And Whitefish started before we did. So we think it's a very positive development with the whitefish and showing that they're going to try to get out of bankruptcy. The words we've heard is they're going to try to do it before the end of the year, and we believe they have to go through us in order to get there because of our administrative claim status. So it's a very positive development, Don, Mark and I spent last week in Washington, D.C., and the reception is really very positive. And, you know, we've had some good help from our hometown legislators where we reside, Representative Bice, Senator Langford have helped out in inquiries. And we've even reached out. I met with Rand Paul earlier in February He came to our facility in Clay, Kentucky to congratulate our team for the work they've done on the tornado restoration. And I met with his aide last week, or his chief, and we believe there's a lot of forward momentum. Doesn't mean that we're there yet, and to be able to give you a timeline, not quite sure, but it is moving in the right direction.

I know that y'all fought the good fight for a long time, and I'm very happy to hear that everything's breaking loose. Shifting gears a little bit to the oil field, obviously there's been a lot of talk industry-wide about the tightness and pressure pumping and sand. Can you just talk about, number one, when the third fleet you expect to actually start pumping, and number two, what the overall environment looks like today?

Yeah, we are staffing up our third fleet. We believe we have the MSA signed and sealed, and it'll start in April. We have line of sight, and Don, I think alluded to this on the third quarter conference call last year that we had line of sight to four fleets, and we still have that. We think the fourth fleet will start up in June, and You know, the thing that's going on, of course, is pricing is increasing as it had to. You know, at the end of the day, when you use natural gas and or diesel for whether you're running dual fuel or regular diesel engines, those costs have gone up. So there's some inflationary pressures, but we're finally seeing some pricing as I think most others are. Pricing is better than it was in the fourth quarter, and we think it's going to be very strong moving forward.

I know you have a large manufacturing background. Can you just talk about what lead times are today on a Tier 2 or a Tier 4 engine? That goes to the broader question of, are 50 more fleets going to come off of the fence lines, you know, industry-wide and kind of flood the market, which it doesn't seem like that's possible today. But can you just talk about, you know, if somebody wanted to refurbish a fleet today, what the lead times look like?

It's for CAT 3512s, which are pretty much the standard in the industry, either Tier 4 engines, you're looking at – about 54 weeks, the latest numbers that we've seen. Don, I will tell you, the supply chain, and you're seeing it where even just getting parts, and I think you probably saw a lot of the commentary from the Thrive Conference last week where even just getting parts for things is getting more and more difficult with the supply chains the way they are.

Yeah, it definitely looks like we're going to stay where we are on fleets today. Shifting just a little bit over to the fiber and infrastructure side, it seems like you're getting a lot of good momentum there. Any color you can provide on the fiber side or on the contracts that you signed in the fourth quarter for either the engineering side or on the fiber side?

On the fiber side, we kicked off our first project inside of Q4, and that's going well recently. Since that time, we've executed a couple of MSAs, which should come with some projects in time. The bidding opportunities for fiber are fairly robust right now, and we would expect those to continue to pick up throughout 2022 as we see some of the funding related to the infrastructure bill that hit some of the states.

Yeah, Don, I think Mark brings up a good point that The infrastructure bill was signed and everything late last year, but the government is going through studies to see who is unserved and who is underserved, with unserved meaning they have no Internet access whatsoever. There's about 4 million in this country. Underserved is about $22 million, where speeds are so slow it's about to the 90s dial-up type of situation. So they're going through that. The point is the release of monies to the states is going to be coming probably in the next four to six months. In anticipation of that, there's bidding going on and people wanting to lock up crews. In some cases, you have equipment shortages, which again comes back to our vertical integration process and the manufacturing facility that we have where we refurb our own equipment. You use a lot of the same type of equipment, certainly not in the underground, but in the in poles and attaching to items there. So you need bucket trucks and of course we have bucket trucks and the capability of refurbishing those bucket trucks. So we feel good about where that part of the business is going. The other thing I would add is our engineering group continues to grow. We've got 39 engineers, and you'll remember when we started that with one person. We continue to grow, and we continue to get additional work for them to keep them busy. They're running at about an 82%, 83% utilization factor, which is very good when you factor in the SG&A as a part of that. So we feel good about that aspect of the business as well.

Then on the contract side for the engineering group, as you saw, they entered into the contract relative to the EV charging stations last year. It's really provided a springboard for additional opportunities in that same area for the engineering group. So I think it bodes well for their opportunities for the remainder of 2022.

Very, very happy to hear that. It sounds like the majority of your businesses have really turned the corner. One final one for me, Mark, on the financial side. SG&A fell quite considerably in the fourth quarter. What do you think it looks like going forward in the 22? Should it stay at that kind of $4 or $5 million level, or do you think it's a little bit higher than that?

Yeah, so if you look at Q4, that included a reclassification of about $5 million relative to some legal fees incurred. So on a run rate basis, looking into 2022, SG&A should hover in that $8 to $8.5 million range.

Okay. I appreciate all the time today, and best of luck going forward. I'll turn it back. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any final comments.

Thank you, Melissa. We believe the future is bright for MF and our team members as we continue to strategically develop our service offerings to grow and deliver shareholder and stockholder value in years to come.

This concludes our conference call. Thank you for joining us.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.