Mammoth Energy Services, Inc. (TUSK) Q2 2021 Earnings Call Transcript

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Mammoth Energy Services, Inc. (TUSK -0.60%)
Q2 2021 Earnings Call
Jul 30, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Listen and gentlemen, thank you for standing by, and welcome to the Mammoth Energy Services second-quarter 2021 earnings conference call. [Operator instructions] I would now like to hand the conference over to your speaker host, Rick Black, investor relations. Please go ahead.

Rick Black -- Investor Relations

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Mammoth Energy conference call to review second-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 mammothenergy.com. Information recorded on this call speaks only as of today July 30th, 2021.

So please be advised that any time-sensitive information may no longer be accurate as of the date of any replay. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements or expectations or future events or future financial performance, are considered forward-looking statements made pursuant to the Safe Harbor 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 net income, loss, and adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our 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 Mammoth Energy's CEO, Arty Straehla. Arty?

Arty Straehla -- Chief Executive Officer

Thank you, Rick, and good morning, everyone. Second-quarter results did not meet our expectations. However, we are extremely focused on improving near-term results as we continue migrating the company further into the infrastructure space as a part of our shift to a broader industrial focus to enhance long-term growth and sustainability. During the quarter, our oilfield businesses did observe some positive green shoots.

While oil prices have rebounded from recent lows, activity levels remain depressed industrywide due to capital discipline among E&Ps. We currently believe E&Ps will generally keep production flat with year-end levels. However, we are currently seeing some upticks in pricing and utilization for our oilfield services. In general, our customers are taking a very measured and conservative approach to new projects and capital spending.

But it does now appear we are moving away from an extreme down cycle that occurred over the past year and a half. For example, we are in the process of staffing an additional frack crew that is currently scheduled to start working in mid-August. In addition, we expect increased market activity in our sand business in the second half of 2021. During the second quarter of 2021, we pumped 520 stages with approximately 1 fleet utilized throughout the quarter on average.

Our sand division sold approximately 255,000 tons of sand during the second quarter of 2021 and the average sales price for the sand sold was approximately 15.80 per ton. While Northern White sand pricing remains challenged, we believe a significant reduction in supply has positioned our mines well to benefit from an increase in completion activity levels. Despite the events of the past year having had significant impacts on our company and the sectors in which we operate, Mammoth has adapted quickly to the changing environment. We believe our diverse portfolio and migration into the infrastructure space provide a solid foundation from which to grow in the future.

Our infrastructure business underperformed during the second quarter primarily due to management crew turnover that we are actively working to mitigate. While there are always challenges to growing and expanding, I believe we are well-equipped, experienced, engaged to lead these businesses to more sustainable operating performance going forward. In the infrastructure space, improving macro trends related to increased project bidding levels and funding capacity in the sector persists. We continue to pursue opportunities within the sector as we strategically structure our service offerings for growth in both the geographic footprint and the depth of projects.

The need for and recognition of infrastructure projects, repairs, hardening, and modernization of the electrical grid, and shift to renewables continues to grow across the country. Bidding levels continue to be robust. In addition, we believe that at some point, federal government will pass an infrastructure bill. As we mentioned last quarter, our infrastructure companies signed two significant multi-year contracts with major utilities which we expect will provide a base of business.

And to date, these projects are progressing. We continue to build our offerings in the infrastructure space including our engineering group. Today, we employ 25 people in that group which reflects significant growth from one engineer a short time ago. We currently anticipate continued growth in this group as additional jobs were assigned to them.

In addition, our engineering group continues to work closely with our infrastructure team. This allows us to jointly bid projects as we progress toward expanding the engineering procurement and construction or EPC capabilities of our company. Likewise, our manufacturing equipment refurbishment facility has converted from primarily oilfield service equipment to very specific and specialized infrastructure equipment and products. We believe this capability will provide a competitive advantage going forward.

In addition, a few months ago, we entered the fiber optic space in a hardened and experienced industry veteran to lead our new subsidiary company called Falcon. We believe this is a large market that represents additional opportunities for our company, and we've already begun bidding on new projects. We are pleased with our continued strategic efforts to build out and scale our engineering design, T&D services, and equipment capabilities to compete for infrastructure projects to grow in this space. Having vertically integrated services and equipment manufacturing capabilities will be a key component to scaling operations, controlling costs, and differentiating Mammoth in a very competitive landscape.

We continue to believe that the future of our company will reside primarily in the infrastructure space which we believe has tremendous growth potential. Before I turn the call over to Mark to take you through the numbers, let me give you an update on Puerto Rico. We are continuing our efforts to collect our outstanding receivables from PREPA, the Puerto Rico Electrical Power Authority for work performed by our subsidiary Cobra in Puerto Rico. We believe that published documentation today continues to show that our team performed a difficult job in a difficult environment to save lives and aid the people of Puerto Rico in their time of need.

As a reminder, we earned and were paid over $1 billion for the work that Cobra performed for PREPA. Also please note that on June 8th, we posted to our website additional information addressing two documents recently released by the Federal Emergency Management Agency then related -- that relate to hurricane repair work performed by Cobra. One of these documents we released is a FEMA determination memorandum dated May 26, 2021, related to the first of two contracts Cobra successfully performed for PREPA. In the determination memorandum, FEMA concluded based on its review of certain documents that 890 million of the total contract amount of 945 million were eligible contract cost and that 47 million or 5% of the total contract were to be disallowed.

In addition to the determination memorandum, the company also recently obtained a draft cost analysis prepared by FEMA. This cost analysis represented yet another confirmation that the work performed by Cobra in Puerto Rico was both within the scope of the PREPA contract in all material respects and was at a lower overall cost than other contractors on the island. As of June 30th, 2021, PREPA owed us $227 million for services performed and $92 million in interest for an aggregate amount of approximately $319 million. Yesterday, we issued a press release announcing that on July 23rd, 2021, with our aid, PREPA filed an appeal of the entire $47 million that FEMA de-obligated in the May 2021 determination memorandum.

FEMA has 90 days following the receipt of the appeal to notify PREPA of the disposition of the appeal or request additional information. If PREPA does not receive a decision within 180 days after the appeal was filed, PREPA can file a demand for arbitration. We think this appeal by PREPA for the entire de-obligated amount is significant. Lastly, we have recently sought and obtained help from Senate and Congressional members in pursuit of collecting the receivable due from PREPA.

We believe the assistance of these Senators and Congressional members will be beneficial to the efforts to collect the receivable from PREPA, and we continue to pursue multiple avenues to collect the money owed. Again, please visit our website to review these documents. Let me turn the call over to Mark to take you through the financial performance during the quarter before we open the call to questions.

Mark Layton -- Chief Financial Officer and Secretary

Thank you, Arty, 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. Mammoth's revenue during the second quarter of 2021 came in at 47.4 million, as compared to 60.1 million during prior-year quarter and 66.8 million during the first quarter of this year. A majority of the change quarter over quarter was due to a decrease in infrastructure revenue as a result of management and crew turnover.

As Arty indicated in his remarks, we believe we are well-equipped, experienced, and engaged to lead these businesses to more sustainable operating performance going forward. The net loss for the second quarter of 2021 was 34.8 million or $0.75 per share loss, as compared to a net loss of 15.2 million or $0.33 per share loss for the same quarter last year and a net loss of 12.4 million or $0.27 loss per share for the first quarter of 2021. Adjusted EBITDA as defined and reconciled in our earnings press release was negative 5.5 million for the second quarter of 2021, as compared to 6.9 million for the same quarter last year and 6.4 million for the first quarter of 2021. Capex during the second quarter of 2021 was approximately 561,000.

We have reduced our full-year 2021 capex budget to 4.5 million from 9 million. As of June 30th, 2021, we had cash on hand of approximately 11 million and debt of approximately 64 million. In conclusion, we'd like to thank our 800 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 up the call for questions.

Questions & Answers:

Operator

[Operator instructions] And we have a question coming from the line of Daniel Burke with Johnson Rice. Your line is open.

Daniel Burke -- Johnson Rice -- Analyst

Yeah. Good morning, Arty. Good morning, Mark.

Arty Straehla -- Chief Executive Officer

Hey. Good morning, Daniel. How are you?

Daniel Burke -- Johnson Rice -- Analyst

I'm doing fine. Hope you're doing well. OK. So let's see.

I mean, I think sort of one pretty glaring place to go with questions this morning. Can you guys maybe talk about the path to repair in the infrastructure segment? I guess last quarter it hadn't felt evident to me that the business could see sort of the dip it experienced in Q2. So just kind of wondering what the performance of the business is as we now sit one month into the third quarter. Has it improved from the levels we see in Q2, or is it still in a tough place in the very near term?

Mark Layton -- Chief Financial Officer and Secretary

Morning, Daniel. I think as you look at Q3, we've certainly seen ongoing bidding activity for the infrastructure business. So we're excited about that. We're excited about the continued integration of the infrastructure business with both our engineering offerings as well as our recent entry into the fiber business that Arty spoke about inside of his comments.

So I think that's probably a long answer for we're seeing increased opportunities, and it will likely take through Q3 absent storm work to increase our crew count and restore profitability of the infrastructure business. But we are seeing strong demand and we believe we made the right pivot into the infrastructure side.

Arty Straehla -- Chief Executive Officer

Yeah. I'd add onto that and say that macro wise, we think we're into a perfect spot and to all the reasons that we alluded to with the vertical integration and the manufacturing, we think equipment is going to get short in the space and we think that we'll be purposefully situated because we can refurbish and/or manufacture some of the pieces and parts that we do. And again, our engineering group continuing to grow up to 25 people starting with one. We started with one in fiber optics and we're bidding is becoming more and more robust.

With that, you still got to execute on a day-to-day basis. And the things that cause the issues in Q2 were crew turnover and that type of thing. Some of it, we wanted it to happen. Since that time we have gotten a little bit more bidding activity, a little bit more profitable business.

But that's not something that you fix overnight. So going forward, we're going to work our way. We're going to stay disciplined with our approach, and we're going to continue to work our way through that aspect of performance and execution. It's not that everything is broken.

And I think, Daniel, you'd also -- you'd probably be interested in what's going on from our perspective in the oilfield as well. We're seeing a little bit better opportunities. Obviously, it helps when you've got $4 gas in late August and your futures are out there. We are seeing some additional bidding activity coming from the privates while the publics have a tendency to remain pretty disciplined and that type of thing we are seeing some additional form from the privates.

And we believe that that bodes well for us. We're partners second to crude together at a little bit improved pricing from where we had been earlier with our frac crews. So we'll have to frac crews running and you always give a little bit of plus or minus with -- when you're dealing with the E&Ps and well preparation. But by mid-August, we should have two running.

So we feel good about that. Our forward indicators on our sand seem to be stronger than they have been in the past with sand companies actually -- or with E&Ps actually looking out to the October-November time frame start accumulating sand for the frac jobs that they're doing. So -- but again we're focused on the day to day of fixing the infrastructure aspect, stabilizing the crews that we have, and making money on just the core aspects of the distribution and transmission levels.

Daniel Burke -- Johnson Rice -- Analyst

Got it. Well, Arty, let me ask one more. Kind of on the same topics but I can kind of span both OFS here and infrastructure. So you've got some need then to staff up a little bit on the oilfield side if you're adding that second fleet.

And obviously restoring crew count on the infrastructure side is imperative, and I guess I'm just looking for general thoughts on sort of the challenges of ramping up and maintaining personnel given challenges around labor, I guess, across the United States really broadly.

Arty Straehla -- Chief Executive Officer

Yeah. We -- as we've gone back and ramped up on the frac side, it's -- it has been relatively easy -- easier compared to some of our -- for example, we were losing -- as I think a lot of different companies were because of the lack of truck drivers. Truck drivers had optionality not only ours but other companies that were hauling sand to the well sites. Truck drivers have a lot of options and things like that.

We were able to stop our frac crews. We did go up in our sand facilities with some additional people and that type of thing. But I think as we ease into fall, it'll become -- the labor shortages that were there will take care of themselves. We're finding it a little bit easier to bring people on.

Daniel Burke -- Johnson Rice -- Analyst

OK. All right. Well, look, guys. I'll leave it there.

I appreciate the chance to check in this morning. Thank you.

Arty Straehla -- Chief Executive Officer

No. We appreciate it, Daniel. One thing I would bring attention too that I know you haven't had a lot of time to go through the documents and all that type of thing. But our long-term debt net of current position, December 31st, 2020, was at 81 million and some change.

Today, it's at 62 8. So despite a little bit of a lack of execution and performance in Q2, we're still continuing to take down that long-term debt. And as you know, we are very debt-averse. And if and when -- not if but when the PREPA receivable comes, certainly we'll be in a -- in very, very good shape.

I would say that the conversations between us and PREPA have been more tense -- more intense, more engaging in the last 60 to 90 days than they were in the previous two years. You see old rituals at Puerto Rico is going to try to get out of bankruptcy and PREPA is going to try to follow them. Obviously, we are a post-petition -- post-bankruptcy petition creditor, and we feel like our position is very strong. So I don't think anybody in the marketplace has given us credit for the $300 million receivable, but we continue to pursue that with every bit of the abilities we have, including as we mentioned in our press release yesterday with the congressional and Senate health.

Daniel Burke -- Johnson Rice -- Analyst

Understood. Understood. And I appreciate the magnitude of that effort. Again, thank you.

Thank you guys for the time.

Mark Layton -- Chief Financial Officer and Secretary

Thank you, Daniel.

Operator

And I'm showing no further questions at this time. I would now like to turn the call back over to management for any closing remarks.

Arty Straehla -- Chief Executive Officer

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. We look forward to talking to you in the -- at the conclusion of the third quarter. Thank you very much.

Operator

[Operator signoff]

Duration: 27 minutes

Call participants:

Rick Black -- Investor Relations

Arty Straehla -- Chief Executive Officer

Mark Layton -- Chief Financial Officer and Secretary

Daniel Burke -- Johnson Rice -- Analyst

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