Mammoth Energy Services, Inc. (TUSK) Q2 2022 Earnings Call Transcript

Mammoth Energy Services, Inc. (TUSK -4.54%)
Q2 2022 Earnings Call
Jul 28, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Mammoth Energy Services' second quarter earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ken Dennard, investor relations.

Ken Dennard -- Investor Relations

Thank you, operator. Good afternoon, everyone. We appreciate you joining us for the Mammoth Energy conference call to review 2022 second quarter 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 at www.mammothenergy.com.

Information reported on this call speaks only as of today, July 28, 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 statements made in today's discussion that are not historical facts, including statements of expectations of 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. We will be making forward-looking statements as part of today's call and that, 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. The factors -- 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 or loss and adjusted EBITDA.

Definitions of these non-GAAP measures and their reconciliation to the nearest GAAP measures can be found at the end of the earnings release and in the investor presentation, which can be found on the website. Mammoth Energy 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's CEO, Arty Straehla. Arty?

Arty Straehla -- Chief Executive Officer

Thank you, Ken, and good afternoon, everyone. I'll begin with a review of the second quarter, followed by an overview of our businesses before turning the call over to Mark to review our financials in more detail. We are pleased with our second quarter results and the performance of each of our business segments. In addition, we believe that the trend lines look very positive for our business across the board as we enter the second half of 2022 and extending into 2023.

Overall, second quarter results marked significant improvement, and we believe serve as a notable inflection point for Mammoth. Total revenue was $89.7 million, up 44% sequentially from our 2022 first quarter revenue. Net income was $1.7 million, a major positive swing compared to the net loss of $14.8 million we reported in the first quarter of 2022. And our second quarter adjusted EBITDA was $23 million, a sequential increase of 147% compared to $9.3 million for the first quarter of 2022.

Our robust second quarter growth in revenue, net income, and adjusted EBITDA resulted from substantial gains in our infrastructure services, well completion services, and our sand business. Looking at our infrastructure services segment, we continue to grow and build upon our positive momentum in the first half of 2022 after becoming cash flow positive exiting 2021. Since the first quarter, we've been adding crews, currently, we have more than 100 crews, and we expect to add additional crews in the coming weeks in preparation for the seasonal storm restoration services anticipated in the third and fourth quarters. The overall infrastructure backdrop remains strong, and we believe the passage of the federal infrastructure bill last fall will provide opportunities in the infrastructure space for years to come.

As we have said previously, we anticipate the federal spending to begin stimulating project lettings across the sector later this year and into 2023. I'm proud of our infrastructure team's commitment and hard work to mitigate the myriad of headwinds in today's challenging economic environment as we remain disciplined with our capital spending to continue to improve Mammoth's cost structure. Moving to our well completion services segment. We posted the strongest quarter we've seen since mid-2019, resulting from the robust macro demand that the pressure pumping industry is experiencing.

We currently have four pressure pumping fleets operating, which have full schedules through the end of the year, and we expect to activate a fifth fleet in the fourth quarter. Looking to 2023, we plan to activate our sixth fleet in the first quarter of 2023, and we have plans to acquire or build a new Tier 4 dual fuel system in 2023. We anticipate operating seven pressure pumping fleets by the end of 2023. At today's pricings -- pricing, we would expect seven operating fleets to generate between $63 million and $84 million in net income per year and between $105 million and $126 million in EBITDA per year.

Our sand business is also experiencing strong demand, as well as increased pricing, which we believe will continue to improve in the back half of the year and into 2023. Mark will provide details on our increasing tonnage produced and improving pricing metrics. I am very proud of our entire Mammoth team's continued commitment and hard work to push through the challenges we have faced over the last few years, and I'm confident that we are well equipped to build on the improvements we have made this quarter. 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 improved macroeconomic trends that we believe will drive increased demand. Turning now to an update on PREPA. We continue our efforts to hold PREPA accountable for their contractual and financial obligations. Both FEMA and the Financial Oversight and Management Board for Puerto Rico have roles to play and we continue our efforts to hold both of them accountable as well.

The implications of this ongoing delay are enormous for both the people of Puerto Rico, as well as the unsecured creditors of PREPA. Interest piles up on the unpaid bills at more than $3.5 million each month, and our PREPA receivable now stands at $358 million. We are working diligently with congressional leaders to reach a fair resolution and we remain confident that the successful work we performed during the time of crisis and national disaster recovery should be and will be paid to the company. Now, let me turn the call over to Mark to take you through Mammoth's financial performance during the second quarter before we open the call to questions.

Mark Layton -- Chief Financial Officer

Thank you, Arty, and hello, everyone. 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. Mammoth's total revenue during the second quarter of 2022 came in at $89.7 million as compared to $47.4 million during the second quarter of 2021 and $62.3 million during the first quarter of 2022.

The 44% sequential increase in revenue is primarily attributable to the more favorable macroeconomic environment surrounding our key business segments, most notably, well completion services, which posted the strongest quarter since mid-2019. We're also seeing increased demand and pricing across our sand and infrastructure businesses, which we believe will continue into the back half of the year and into 2023. We intend to continue leveraging our differentiated service offerings to build upon the earnings growth that we realized in the second quarter. During the second quarter of 2022, we pumped 1,716 stages with approximately 3.5 fleets utilized on average.

This average compares to an average utilization of 0.9 fleets during the same quarter last year and 1.6 fleets during the first quarter of 2022. Our sand division sold approximately 350,000 tons of sand during the second quarter of 2022 compared to 255,000 tons of sand during the same quarter last year, and 329,000 tons of sand during the first quarter of 2022. The average price for the sand sold during the second quarter of 2022 was approximately $26.86 per ton as compared to $21.44 per ton during the first quarter of 2022. Our infrastructure services division contributed revenue of $25.6 million in the second quarter of 2022 compared to $18.4 million in the second quarter of 2021 and $23 million for the first quarter of 2022.

The increase in revenue versus the prior-year period is primarily attributable to the increase in storm-related activity, resulting in higher storm restoration revenue. Net income for the second quarter of 2022 was $1.7 million as compared to a net loss of $34.8 million for the second quarter of 2021 and a net loss of $14.8 million for the first quarter of 2022. Adjusted EBITDA, as defined and reconciled in our earnings release, was $23 million for the second quarter of 2022 as compared to a negative $3.3 million for the second quarter of 2021 and $9.3 million for the first quarter of 2022. Capex for the second quarter of 2022 was approximately $2.8 million.

This was up from the $1.2 million of capex that we incurred during the first quarter. The sequential increase in capex was related to the increase in pressure pumping fleet utilization within our well completion services division, which we anticipated and guided toward last quarter. We expect capex for 2022 to be approximately $20 million, an $8 million increase from our previously announced capex guidance for 2022. We intend to fund our 2022 capex with cash flow from operations, cash on hand and borrowings under our revolving credit facility.

As of June 30, 2022, we had cash on hand of $12.7 million and debt of approximately $85.5 million. Our total liquidity was approximately $27 million. In conclusion, we would like to thank our nearly 1,000 employees throughout the company for their hard work, dedication, and commitment to maintaining safe and sustainable work sites for themselves and their teammates. As we look ahead to the second half of the year, we believe that the strong macroeconomic backdrop surrounding industrials and oil and gas gives us significant opportunity to capture additional market share.

As always, we will maintain our emphasis on operational excellence and efficient execution, which we believe will drive meaningful shareholder value. Operator, we would now like to open the call up for questions.

Questions & Answers:

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator instructions] One moment, please, while we poll for questions. Our first question is from John Daniel with Daniel Energy Partners.

Please go ahead.

John Daniel -- Daniel Energy Partners -- Analyst

Hey, guys. Good afternoon and thank you for letting me get in the queue. You know --

Arty Straehla -- Chief Executive Officer

Hey, Dan.

John Daniel -- Daniel Energy Partners -- Analyst

Hey there. I'm just -- I didn't have a chance to read the press release because I'm driving. But as I think about your frac business, in hindsight, you guys have done a really kind of spectacular job. You weren't fast to reactivate when margins were depressed and you're reactivating right at the kind of a, you know, sweet spot, if you will.

So kudos on that. I'm curious, what other assets within the legacy [Inaudible] do you kind of have here maybe you can xerox that playbook and replicate it, coil or other things?

Arty Straehla -- Chief Executive Officer

Well, we're still -- and John, we try to be as entrepreneurial as we possibly can. And by the way, it's good to talk to you. It seems like old times again. But, you know, we haven't seen where -- right now, it's the time to go back into coiled tubing.

We certainly have our equipment on the side and we've got it aggregated at one location and if we see the pricing where we want it to. And I'll tell you, we are having the discussions about the inflection points, so how many rigs in the market and that type of thing. So we are continuously looking at that. We continue to do -- you know, our rental equipment is basically sold out, and our water transfer is going strong as well.

So we feel very good about our other equipment. We are looking hard at rigs, and rig count continues to climb. You get to an inflection point at 800. And you've got to study it because pricing will have come up as we know and that type of thing.

So -- 

John Daniel -- Daniel Energy Partners -- Analyst

Right. So it's on the table as an opportunity.

Arty Straehla -- Chief Executive Officer

Yeah. It is.

John Daniel -- Daniel Energy Partners -- Analyst

Fair enough. OK. You have a, you know, your, prior to a lot of experience on equipment assembly, etc., supply chain issues are very topical, the past, this quarter, last quarter. I'm curious if you could opine on how you see the market particularly things like just the spare parts for some of the major component parts like engines, transmissions, and how that's impacting, if at all, the business?

Arty Straehla -- Chief Executive Officer

Yeah. John, that's a very good question. And obviously, we started up our Duncan facility. We started it up and we started out to refurbish T&D equipment.

But this was a group that in their prior history built $70 million to $80 million a year of frac equipment. So we have that same manufacturing footprint right now, and we continue to refurb frac equipment even as we speak. I will tell you, it's been a godsend because Caterpillar is backed up. They have, and other vendors are all backed up with -- in their shops.

Parts are a huge issue. I will tell you that our guys say that Caterpillar gives them a call about every other day, looking for parts that are common to some of the 3512Cs and some of the TH55 transmissions. So parts are really, really tough. The supply chain on that is tough.

With that said, we've got 20 dual fuel frac pumps that we've steadily been moving toward, and we're adding another 20, not additive to we're converting to dual fuel, but additional 20. And then part of our goal is next year to bring out a dual-fuel Tier 4 fleet either acquire it or bring it out.

John Daniel -- Daniel Energy Partners -- Analyst

Got it. I'm going to squeeze one more and then turn it over because he said something I think my interest, you said, Cat is calling you every other day. I mean is that unusual that they would be calling you looking for help when they should be calling you to sell you stuff?

Arty Straehla -- Chief Executive Officer

Well, it's unusual that they'd be calling for parts. That -- I don't know that they need the expertise. I think they are labor -- they have labor constraints as well. At least that's what we're told.

And the lead time of bringing out items is longer than it has ever been. That was one of the reasons that helped us decide to bring our manufacturing back on and into that space to help change out engines and get those going.

John Daniel -- Daniel Energy Partners -- Analyst

OK. Well, thank you very much. Good quarter. And I hope PREPA sees the right thing to do is to pay their obligations.

And I'll leave it at that. Thanks, guys.

Arty Straehla -- Chief Executive Officer

Thank you, John.

Ken Dennard -- Investor Relations

Arty, we had a couple of investors that couldn't be on the call but emailed in some questions. So, I thought I'd read those questions to you and you could reply to them and people can hear it on the transcript or the read it on the transcript or listen to the replay.

Arty Straehla -- Chief Executive Officer

Sure.

Ken Dennard -- Investor Relations

"Regarding the sand business, given the strong market conditions, please tell us about your current sand capacity and your ability to expand with timing and cost."

Arty Straehla -- Chief Executive Officer

Well, we feel good about the sand business. Basically, we have the ability -- we're doing about 120,000 tons per month right now. We have the ability to go up to about 150,000 sometime in the latter part of third quarter, fourth quarter. But we're also, at the same time, getting pricing.

So, it's a very strong market for us. We continue to go -- we meet every week with our leadership team in this past week. Our average sales price was -- had a three in front of it, so -- which is significant for us because we sell all grades. So, when you have an ASP of over $31 for that one particular period, that's a very strong indicator of where it's going, what it is.

Now with that, it still has our -- it still has significant challenges. Rail turns, a big factor in Q1, lessened up a little bit in Q2 and is really getting stronger. And then we've run into a couple where our -- quite honestly, our customers were storing sand, and we had to implement some different rules on that. So -- but the takeaway on this is that we will be expanding and adding some additional tonnage to our plants in the Q3 and Q4.

Ken Dennard -- Investor Relations

Thanks. And the same investor asked about your frac business. "Can you discuss current market conditions and pressure pumping and that" -- I think he's going to have a second question after that.

Arty Straehla -- Chief Executive Officer

Sure. And I will tell you -- and we answered a lot of these questions with John's question and discussing the frac, but the frac is going well. We're sold out with our four fleets through the remainder of the year. We have our fifth fleet come in, in the fourth quarter.

It's already sold out and carried on. And then we'll add a sixth fleet and then eventually depending on supply chains and various factors will go after that seventh fleet. It does have its challenges. As all businesses do with labor and people move in, there's pretty high turnover.

And I spoke about the parts and getting parts and getting things out. But that's where our vertical integration model of having manufacturing the ability to switch from T&D type of equipment to refurbish. And now we're refurbishing frac equipment and getting it ready and sending it out. It's really escalated things by five to 10 weeks in getting some pieces of equipment out that we wouldn't have been able to get out.

So, in some basins, we're seeing water as a significant issue. And I think everybody -- I think our total vertical integration with frac has been very good for us. We have our own trucking. We have our last now logistics that is helping us out tremendously.

We also have our own sand. When sand was very hard to get in Q1 and early parts of Q2, we were able to bridge some of that with our own sand. So we feel good about where frac is going. And we think that we have the ability to grow that business significantly.

Ken Dennard -- Investor Relations

Thanks. OK. Moving to infrastructure, "can you provide a little -- you had some color in your formal remarks. Can you need to provide an update on that business and the deployment of crews?"

Arty Straehla -- Chief Executive Officer

Yeah, sure. Since the end of last year, we have grown to -- by 20 crews, continue to grow that business. We're up over 103 crews. The significance is that we are also building transmission, which everybody knows that business between transmission and distribution, transmission is a better margin of business.

So we continue to build that business to continue to add crews. We continue to build our fiber business. It's growing significantly with about six projects going now and more on the board, and we think that there is a significant way to make some pretty good money. We've been building our street lighting groups as well.

And then again, the vertical integration model, we have our own engineering. We have grown our engineers by 33% since the end of last year and continue to build that business. That business is doing close to $1 million a month in revenues. So, we feel good about the infrastructure business.

We feel good about the pivot we made in '17 to offset a little bit of the oilfield, and now the oilfield has come back. And we just feel good about the direction of where TUSK is going.

Ken Dennard -- Investor Relations

Operator, if you want to queue one more time to see if there's any questions from the field. And otherwise, we'll wrap up this quarter.

Operator

Thank you. [Operator instructions]

Ken Dennard -- Investor Relations

It looks like nobody is queued up. So, Arty, turning it back to you for closing comments.

Arty Straehla -- Chief Executive Officer

Thanks, Ken. Appreciate it. Certainly, I want to thank our team for all they've done this quarter to make us successful. We believe the future is bright for us and our team 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 for joining.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Ken Dennard -- Investor Relations

Arty Straehla -- Chief Executive Officer

Mark Layton -- Chief Financial Officer

John Daniel -- Daniel Energy Partners -- Analyst

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