Mammoth Energy Services Inc
NASDAQ:TUSK
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Mammoth Energy Services Inc
Earnings Call Analysis
Summary
Q2-2024
In Q2 2024, Mammoth Energy saw a 19% revenue growth to $51.5 million, driven by increased infrastructure and storm-related work. Despite a $170.7 million non-recurring expense from the PREPA settlement, the company improved its financial position, reducing net loss and adjusting EBITDA. The PREPA settlement will provide $188.4 million, to enhance liquidity and investment. The Infrastructure Services division performed well, expecting continued growth through new projects. Management is focused on cost control and strategic investments, anticipating better returns in 2025.
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Greetings, and welcome to the Mammoth Energy Services Second
Quarter 2021 Earnings Conference Call.
[Operator
Instructions] As a reminder, this conference is being
recorded.
It is now my pleasure to introduce your host, Ken
Dennard. Thank you, sir. You may begin.
Thank you, Maria, and good morning, everyone. We
appreciate you joining us for the Mammoth Energy
Conference Call to review 2024 second quarter
results. This call is also being webcast and can be
accessed through the access through the audio link
on the Events and Presentations page of the Investor
Relations section of mammothenergy.com. Also note
that information reported on this call speaks only
as of today, August 9, 2024. Please be advised that
any time-sensitive information may no longer be
accurate as of any subsequent date.
I would also like to remind you that statements made in
today's discussions 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. We will be making
forward-looking statements today as part of today's call
that by nature are uncertain and outside the company's
control. Actual results may materially differ. Please refer
to the earnings press release that was issued this morning for our disclosure on forward-looking
statements. These factors and other factors 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 in today's call. The definition of this
non-GAAP measure and its reconciliation to the most directly
comparable GAAP measures can be found at the end of the
earnings release and in the investor presentation, which can
also 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?
Thank you, Ken, and good morning, everyone. I'll
start with some commentary around several highlights
and recent developments for Mammoth before
discussing our second quarter results. I'll then
provide commentary about our expectations going
forward, before turning the call over to Mark to
cover the financials in more detail.
I'd like to kick off today's call by discussing the PREPA
settlement agreement that we announced last month on July
22. We -- our subsidiary, Cobra acquisitions, entered into a
settlement agreement with PREPA to settle all outstanding
matters between COBRA and the Puerto Rico public Electric
Power Authority, or PREPA., The settlement agreement remains
subject to approval by the Title III court, which is
expected to hear the motion related to the settlement
agreement at the next Omnibus hearing to be held on
September 18, 2024. We are pleased to have reached this
agreement with PREPA and look forward to receiving the money
for work we concluded over 5 years ago. We plan to use a
portion of the $188.4 million in settlement proceeds to pay
off our term credit facility, which had a balance of
approximately $49.3 million as of June 30, 2024.
The remaining amount of approximately $139.1 million will be
cash on our balance sheet to be used to invest back into our
businesses and for general corporate purposes. This is a
significant development for us and may enable us to
meaningfully enhance our standing within the markets that we
operate and ultimately drive additional value creation for
our shareholders.
Turning now to our results. Our second quarter results
demonstrated sequential improvement compared to the first
quarter despite continued challenges that persist due
to industry activity softness. This softness particularly
impacts the natural gas basins where we operate, which has
especially constrained our well completion services division
and other oilfield services. This demand softness in the
first half of the year resulted in underutilization of our
assets. Current indications are that activity levels are
expected to remain relatively flat in the back half of the
year with potential for ramp up in 2025. We will be
strategically positioned to capitalize on this anticipated
demand if and when it ramps up.
In this business segment, we remain very focused on our cost
structure, and we'll continue to efficiently manage our
capital expenditures to align with expected activity levels
and demand. Our Infrastructure Services business continues
to perform well and in Q2 demonstrated growth both
sequentially and year-over-year. We are seeing an uptick in
bidding opportunities relating to engineering, fiber and
transmission and distribution, all of which are areas that I
believe we have differential and specialized capabilities to
capitalize on the opportunities in the market.
Our engineering group continues to do well, and we expect
that business will continue to grow in terms of both revenue
and EBITDA. The infrastructure investment and job funds are
slowly being released for infrastructure projects such as
fiber and engineering as well as the transmission and
distribution areas where we remain excited participants, and
this continues to give us optimism for improvements
throughout 2024. In addition, on the storm-related side of
this business, Noah is forecasting an active storm season
this year, which we've already seen commenced with several
named storms beginning in June and we will be
opportunistically prepared to deploy teams in the areas that
may be impacted. We remain encouraged about the potential
for continued growth in this sector, and we feel strongly
that Mammoth's infrastructure business is well positioned
for long-term growth.
As we enter the second half of the year, our teams across
the organization remain focused on efficient and effective
cost management to align with the activity levels of our
customers. Currently, we have an undrawn revolver and cash
on the balance sheet as well as the recently announced
resolution with PREPA. Moving forward, we believe Mammoth is
well positioned for the second half of 2024 and beyond. We
have improved our financial position with a strong balance
sheet and cash position. We also have better visibility and
opportunities across our business segments than we had at
the beginning of the year. And having reached our settlement
agreement with PREPA, we can finally put that chapter of our
history in the rearview mirror, pay off our term loan
facility and focus on opportunities to invest in our current
business segments, explore new opportunities and return to
more meaningful enhancing -- meaningfully enhancing the
value of our organization for all shareholders.
Now let me turn the call over to Mark to take you through
our financial performance in greater detail.
Thank you, Arty. 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
once it is on file with the SEC.
To begin, I'd like to point out that our second quarter
results were impacted by the recognition of a $170.7 million
noncash and nonrecurring expense related to the settlement
between Mammoth subsidiary, COBRA Acquisitions, LLC and
PREPA. Of this amount, $89.2 million was charged to credit
loss expense, which is included in SG&A and $81.5 million
was charged to interest on delinquent accounts receivable
which is included in other income. Mammoth's total revenue
during the second quarter of 2024 came in at $51.5
million compared to $43.2 million in the first quarter of
2024. The 19% sequential increase in total revenues was
primarily attributable to the increased infrastructure and
storm-related work during the second quarter after a mild
Q1.
This improvement demonstrates the benefits and resilience of
our differentiated service offerings despite the continued
softness in activity, within the natural gas-heavy basins
that we operate. We generated improved revenue in the face
of a 7% sequential decline in total rig count, which is a
true testament to the diversified nature of our business. We
continue to believe that there are positive demand
implications for natural gas on the horizon, and we remain
optimistic for associated activity increases in 2025 that
will support further financial improvement.
In Q2 of 2024, we pumped 292 stages with approximately 0.3
fleets utilized on average compared to 380 stages and an
average utilization of 0.6 fleets during the first quarter
of 2024. This decrease resulted from the continued activity
softness both across the industry as well as sustained lower
natural gas prices and commodity price uncertainty that
impacted utilization across our well completion services
division in the second quarter. Operators continue to push
much of their activity to the right, and this resulted in
persistent white space on the calendar. We now expect these
trends to linger throughout the second half of the
year resulting in relatively flat activity levels.
Looking forward, our current visibility points to
improvements in 2025. We will remain disciplined stewards of
capital and continue to align our spending appropriately
with the demand that we are seeing from our customers. Our
sand division sold approximately 141,000 tons of sand in the
second quarter of 2024 at an average sales price of $22.73
per ton compared to 146,000 tons of sand at an average sales
price of $24.38 per ton during the first quarter of 2024.
Although sand volume sales and pricing declined slightly, we
are encouraged by discussions with our customers and expect
improvements in the coming quarters.
Our Infrastructure Services division contributed revenue of
$31.4 million for the second quarter of 2024, which
represents a sequential increase when compared to $25
million for the first quarter. During the quarter, we had a
greater amount of storm-related work than last quarter after
an unusually slow start to 2024. We are seeing an uptick in
bidding activity and are focused on operational
execution. We will continue to pursue opportunities within
this sector as we strategically structure our service
offerings for growth, especially around T&D and fiber
projects.
Our net loss for the second quarter of 2024 was $156 million
or a loss of $3.25 per diluted share. This net loss was
primarily attributable to the PREPA settlement agreement
that was recorded during the second quarter, impacting our
bottom line. Adjusted EBITDA, as defined and reconciled in
our earnings release, was a negative $160.7 million for the
second quarter of 2024, again, primarily related to the
settlement agreement charges we recorded during the
quarter. Excluding this nonredrecurring expense and a
portion of the interest income previously accrued on the
receivable with PREPA, adjusted EBITDA would have been
negative $0.3 million for the second quarter of an
improvement compared to the negative $6 million for the
first quarter of 2024.
CapEx for the second quarter of 2024 was approximately $4.9
million which was up slightly sequentially compared to our
CapEx for the first quarter. While we did make investments
in our well completions division during the quarter related
to several Tier 4 DGB upgrades, we remain focused on
aligning our capital spending with activity levels. As
already mentioned and as we've demonstrated, we continue to
prudently manage our costs to more accurately reflect the
activity levels of our customers. Our current CapEx budget
for 2024 is $12 million, an increase from the previously
announced CapEx guidance of $9 million. Our CapEx budget for
2024 remains heavily weighted towards pressure pumping but
as always, we will continue to monitor customer spending
activity trends in order to most effectively manage our
capital to align with the demand we see in the market.
Selling, general and administrative expenses totaled
approximately $97.5 million during the second quarter of
2024. As I mentioned, the significant sequential increase in
SG&A was related to the recording of the charges in
connection with the settlement agreement with PREPA. As of
June 30, 2024, we had cash on hand of $10.3 million. Our
revolving credit facility was undrawn, and we had
approximately $14.3 million in available borrowing capacity.
Our total liquidity was approximately $24.6 million. Mammoth
received $188.4 million due from PREPA. The company intends
to eliminate its outstanding debt obligations under the term
loan facility and we'll have a significantly enhanced
liquidity position to invest in the business for the future.
To conclude our call, we would like to thank our 690
employees throughout the company for their hard work
dedication and commitment to maintaining statements
sustainable work sites for themselves and their teammates.
As Arty mentioned, we are pleased to have reached an
agreement with PREPA and to be approaching an acceptable
conclusion after pursuing the outstanding receivables for
several years. The cash we expect to receive would enable us
to substantially invest in and grow the company. We continue
to position the business for the future and the boosted
liquidity will allow us to opportunistically advance our
standing within the market while remaining focused on
improved returns in 2025 as demand and activity improve. We
will continue to prioritize disciplined operations
efficiency and strategic capital allocation which when
coupled with our strong balance sheet, we believe will drive
meaningful improvement in shareholder value.
Operator, we would now like to open the call up for
questions.
[Operator Instructions] Our first question comes from John
Daniel with Daniel Energy Partners.
Arty, I'm going to ask a question on the infrastructure
business. Having just gone through Hurricane barrel and lost
power for 8 days. Subsequent to that, you see all of the
different companies come in to try to remedy the
situation. Can you remind me how you get that work? Because
when are you put on notice to get projects such as that or
other natural disasters.
John, -- good talking with you. And sorry about the
power loss for that length of time. Certainly, it
is very harmful. Make you appreciate electricity all
that much more. It depends on the intensity of the
storm. For example, as Debbie started going -- we
actually have mobilized some of our crews. We get
contacted early on when they see start -- the
clarity of the path of storms begins to become
evident. And the infrastructure that is there. So we
had deployed quite -- we deployed quite a few crews
to barrel, and we deploy crews as well to take care
of Hurricane Debbie. And as you well know, Noah has
forecast -- I think they lowered their forecast for
the first time from 25 named storms to 24 named
storms this year.
And so far, we're in the D, which connotates out -- it's the
fourth storm of the season. So it's expected to be inactive
with the heat of the oceans and it's expected to be an
impactive season. So and we try through -- we actually --
for most of them, we position our crews right outside the
path where they can then go in as soon as the hurricane is
past that particular aspect -- area.
Okay. So it sounds like you have like a prearranged deal
with FEMA and others or like ahead of the who is the
contract with?
Well, it's with a lot of times, it differs. It's not
with FEMA. It's with the investor-owned utility. And
it would be where they bring it in either under
mutual assistance that they have with other utilities or with independent groups like ourselves where they just call and say, "Hey, I need 8 crews over in this area, particular area at this particular point in time.
Got it. And then the last one for me as we hear more and more about E&Ps building out their own sort of micro grids. Are you guys dabbling with that much? Is there an opportunity for you there?
We have done some of that work for, but mostly for the utility that is in that particular area. So yes, we've done a little bit, but it usually goes through the utility that is in control of the area that -- where the E&P is.
Our next question comes from David March with Singular Research.
Let me just start -- I may have missed it or misunderstood it in the release, but do you guys have a sense of the timing of the payment that you'll receive from PREPA at this point?
Well, first of all, it's got to go through Title II through the Title III Court, which right now, the Omnibus hearing is scheduled for September 18. And once it does that, it will be up to the judge to release and then within our agreement, there's a certain amount of days after the approval of the court that PREPA has to pay.
[Audio Gap] will do is invest in our T&D group, including our engineering and transmission and distribution service business to grow it out and to fill it. we'll attribute some capital to modernize in our frac fleet -- and then we'll invest monies in our portfolio companies that would have the best return of capital. And then we'll be looking for other investments for growth. what we have proven over time is that we're effective stewards of capital and have the ability to go out and grow this business when opportunity arises as a debt-free very sound balance sheet indicates for us.
Really appreciate that color. Congrats on recent settlements. Great news. Thank you.
This concludes our question-and-answer session. I would now like to turn the floor back over to management for closing comments.
Thank you, Maria. Very much appreciate that. And thanks, everybody, for joining us on the call today. We continue to position Mammoth for improved results, growth and its success and is all made possible by our talented and skilled team members. This concludes our conference call. We look forward to speaking to you again next quarter.
Thank you. You may disconnect your lines at this time.