Good day, ladies and gentlemen, and welcome to the Mammoth Energy Services First Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded and will be available for replay on Mammoth Energy Services' website. I would now like to introduce your host for today's conference, Mr. Don Crist, Mammoth Energy Services' Director of Investor Relations. Sir, you may begin.

Thank you. Good afternoon, and welcome to Mammoth Energy Services' first quarter 2019 earnings conference call. Joining me on today's call are Arty Straehla, Chief Executive Officer, and Mark Layton, Chief Financial Officer. Before I turn the call over to them, I would like to read our safe harbor statement. Some of our comments today may include forward-looking statements reflecting Mammoth Energy Services' views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Mammoth Energy Services' Form 10-K, Form 10-Q, current reports on Form 8-K, and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today may also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our first quarter press release, which can be found on our website, along with our updated presentation. Now, I'll turn the call over to Arty.

Thank you, Don, and good afternoon everyone. Over the past two months since we last talked, the world has changed significantly. As the COVID-19 pandemic impacted nearly every aspect of our lives, our first priority is and has always been the safety and health of our team, and we're taking several steps to ensure that our team members are protected from the virus. The first quarter of 2020 was challenging on several fronts as the COVID-19 pandemic affected the world's economy and an oil price war broke out between Russia and Saudi Arabia. The disagreements between Russia and Saudi Arabia were ultimately resolved through a historic agreement involving OPEC and 23 additional countries to curtail oil production through April of 2022. We believe this agreement will provide support to oil prices once the global economy reopens. While the oilfield service portion of our business has been impacted by an oversupply of oil and significantly reduced economic activity, the infrastructure portion of our business has been relatively unaffected by the COVID-19 pandemic. The diversification strategy that Mammoth implemented nearly three years ago is working. As we have stated in the past, our infrastructure offerings are a vital part of our strategies to diversify Mammoth into an industrial company and the strategy is starting to come to fruition. While the revenue for our U.S. infrastructure business was relatively unchanged quarter over quarter, the EBITDA improved by 54%. Through the implementation of several cost-cutting measures, the structure of the business has improved significantly over the past four months, and additional savings are expected to be realized in the future. Our operating subsidiaries Higher Power and 5 Star are well respected among the utilities they work for and are expanding their customer base from our two core geographic locations. These businesses have expanded significantly since acquisition and are currently comprised of approximately 600 experienced field personnel spread across 130 crews. Our customer base is diverse and is aware of our technical abilities. The new management team that is now in place is leveraging current operations to introduce our capabilities to potential customers. The backlog for the infrastructure division currently stands at $425 million and we believe industry demand and bidding opportunities remain robust. With our cost structure streamlined in a core base of operations, we're positioned to grow both our customer base and geographic footprint over the coming years. Turning to oilfield service, the first quarter of 2020 started off strong, but weakened rapidly due to significant price volatility in the commodity markets. As you can imagine, job visibility for pressure pumping is limited at this time given current market dynamics. With the recent strength in the gas strip, we believe the gas basin should have a higher utilization than the oil basin over the coming months. During the first quarter of 2020, we completed 1,482 stages with 2.7 fleets utilized throughout the quarter on average. The upgrading of our fleet to Dynamic Gas Blending or DGB has progressed. We expect to upgrade additional units over the coming months. Our sand division sold approximately 239,000 tons of sand during the first quarter of 2020. The average sales price for the sand sold during the first quarter of 2020 was $13.67 per ton, while our blended per quarter production costs remained at approximately $12 per ton. The two new businesses we first discussed late last year, manufacturing and engineering, are both growing. Starting with Aquawolf, our engineering-based business, we added several new customers during the first quarter, and we're looking at ways to integrate engineering into our infrastructure business to begin bidding for engineering procurement and construction or EPC work. In addition, we are looking at ways to utilize our manufacturing facility for materials and products used by our infrastructure teams. We continue to seek collections from PREPA for the quality work that our teams performed in Puerto Rico. Unfortunately, Puerto Rico has experienced several large earthquakes recently. The infrastructure teams remain unaffected and are operating as designed. As you can imagine, we are limited in what we say about pending litigation as it progresses through the courts. While the events of the past few months have been unprecedented, Mammoth's diverse portfolio of companies across several industries have performed as expected. The infrastructure business has been relatively unaffected through the COVID-19 outbreak and continues to improve. While the oilfield service side of our business has been affected by commodity pricing, through monitoring our costs and right-sizing our operations to current activity levels, we are reducing our expenses, protecting our liquidity, and preserving our equipment. Let me turn the call over to Mark to take you through the financial performance during the first quarter of 2020. After that, we will take questions.

Thank you, Arty and good afternoon 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 focused on certain highlights. CapEx during the first quarter of 2020 was approximately $1.5 million. Our full year 2020 CapEx budget remains at up to $20 million, but it's biased downward as oilfield service utilization and pricing remain challenged. Operating cash flows came in at a positive $1.5 million while net debt stayed relatively flat at approximately $75 million. We thank our shareholders for their support. This concludes our prepared remarks, and we thank you for your time and attention. We will now open the call for questions.

We do have a question from the line of Daniel Burke.

Let's see, I guess a question or two on the infrastructure side then. Arty, you've referenced a $425 million backlog I think that's down from $490,000 at year end. So, it feels like there's been a little bit of churn there. Can you address what you've seen in that backlog? And what trends look like there?

First of all, I hope you and your family are safe during all this, Daniel. We're very encouraged with the new management team and what they've accomplished in the short time they've been together. Throughout 2019, the backlog was highly biased towards distribution, which is lower margin work. We've now started to work hard on that mix, and it's starting to look more and more like transmission projects, and I think that's what you're seeing is a change in the mix a little bit and running off of some contracts. We think that as we go forward, we'll have equal amounts of transmission, substation, and distribution work because distribution is an entry point into the business. We certainly had a lot of that, but we want to change our mix towards more transmission and substation, which allows us to do that. One of the things that will help us is our engineering that’s headquartered out of Denver. That will help us as part of our vertical integration aspects. So, we're very encouraged with our infrastructure group, with what they've done, what they've accomplished as they come on, and what they're going to do in the future. We think that the demand outstrips the supply, and we believe that the infrastructure bill that has been talked about quite a bit in Congress will eventually see the light of day, and we think that will be a big boon for us.

And then Arty, whether for you or Mark, I mean, as you're rebuilding and refashioned that backlog, it sounds like, can you maybe give us your latest thoughts about what we can think about in terms of margin progression in that business? I don't know if it's easy to make headway in terms of margins here in the very near-term because I'm sure even in that business, you're contending with some higher costs. But then how do we think about where you can go with margins in infrastructure?

Daniel, I think in the near-term, we had communicated at the last call that we expected to have a shot at possibly seeing some positive EBITDA in Q1. Recent developments, we have seen positive EBITDA for April out of the two operating entities, Higher Power and 5 Star. So, as we look forward to Q2, I think our band for margins would be high-single digits from the infrastructure segment and then improving throughout the year to the target ranges with which you data historically.

And then I guess, maybe just to go with the OFS side for just a moment. Arty, I mean, you guys have talked about idling some services businesses in the past. You mentioned it again in this press release. I just want to make sure I'm current with what's been idled. And then I guess kind of compare and contrast that with CapEx budget, I guess, I recognize that budget still elected, but interesting. Are you guys still considering putting dollars into water transfers, as we sit here today? Or what other places might warrant some growth capital on the OFS side given just how tough that market is?

Daniel, one of the things that you've always known about us is, we've been very conservative with our capital. We spend it when we see a good return. Right now, in oilfield services, there are not many things that are showing a good return. We are spending money to help convert our fleet to dual fuel, and that's the biggest part of the expenditures that we saw in Q1. So, we will continue to do that. That's customer demand that they want to see, especially in the Northeast, where we have some traction and we're currently working. So, they're wanting to have more and more dual fuel units. But our CapEx budget still sits at $20 million and will be conservative as we go. Certainly, in the oil and gas side, it's about preservation of cash and being very cognizant of where things are. Nobody knows exactly when things are going to pick up. We think that they'll come back a little bit with natural gas before oil, but we kind of want to wait and see how that's going. But the businesses that we do, we will have them ready to respond when the time is there. We'll have the core leadership group that can bring people on extremely quickly and be very agile during this time period.

Okay.

And just to frame it for you, Daniel. The only other business that we've idled since the last time we reported, which was year-end, is rig moving. So, as of our latest report, we have seen many flowback rigs and rig moving, that's idled right now temporarily.

Your next question comes from the line of Stephen Gengaro with Stifel.

I guess two things, one just to start from a balance sheet and cash flow perspective. How should we think about it, and I might have missed at the very beginning of the call, but how should the working capital be as we go through 2020?

So, we move through 2020, you strip out the receivable from PREPA. I think from a modeling perspective, you should model working capital relatively flat throughout the remainder of the year.

And then, what do you think about the pressure pumping business? You've mentioned sort of the DGB fleets. Are you seeing, and I know it's really hard right now to market in such a state of disarray, but are you seeing a different demand test for those assets versus conventional assets? And how do you think that plays out as we start to come out of this? Whatever the second quarter is obviously looks pretty bad, but how do we think about that as we come out of these low levels and maybe return to some level of normalcy?

We think dual fuel is definitely the way to go. Certainly, I don't know if anybody is going to make major investments into electrical fleets and that type of thing. Our conventional assets are still good. But primarily, we were pulled by customers in the Northeast that said they want to just be able to have the dual fuel capability. We feel good about where we're at and the conversion rate that we've done. As the teams have started working with it, they've moved it very quickly into a normal operating procedure. So, we think there should be more dual fuel, and we'll be prepared for that as we go forward.

And your next question comes from Tommy Moll with Stephens.

I wanted to start on pressure pumping. If we look over the last quarter, pretty good sequential improvement on the bottom line for that segment, but there's obviously been a lot of turmoil in that market of late, maybe less so in the gas basin. So my question is, how many fleets do you have active currently? And how are you thinking about go-no-go decisions on whether to keep them active, as the market corrects here or has been correcting? And then just on a net basis for the next quarter, do you think it's fair to say flat up or down for either down for the segment or just too early to tell?

Let me answer the first part of your question first. Up until a week ago Saturday, we had two fleets running up in the Northeast, and now we're currently down to one. We do see enough of a schedule in front of us, and schedules have changed. I mean, this is one of the more dynamic times in the oil and gas service sector that you'll ever see, as you well know. We see one fleet, and we have pretty good clarity into July and then a little bit beyond. So, that could change in a matter of any point in time.

And then Tommy, to comment on Q2 expectations, it's a little early to dial Q2 expectations, but at a high level based on what we know today, we’d expect Q2 EBITDA from the segment to be mid-to-high single digits in terms of EBITDA, so $6 million to $9 million.

Similar question on sand and then I'll pivot to infrastructure, but there's still on the negative side for EBITDA for the quarter, but an improvement sequentially. And now, we're confronted with just a lot of turbulence for the end market that you're selling into there. You've got a lot of leverage you can pull though. You're low on the cost curve. There's a broker component that can sometimes help the bottom line. So, what can you tell us in terms of how you're managing costs there and anything you're seeing on the demand side? That'll just give us kind of the latest update for sand. Thanks.

We're tightly managing costs, Tommy. We do have some subsequent fixed costs as far as expectations on a go-forward basis. Demand has significant headwinds as the number of completion crews drops. We do have the benefit of a handful of contracts that are holding up in this environment. So as far as our expectations for Q2 and Q3, we think EBITDA in the same range for that segment as it was in Q1. Beginning in Q3, we start rolling off some railcars, which decreases our cost profile and should improve the performance of that segment going forward.

Last question from me on the PREPA side. What would you give us just to guide expectations on the process and any range of outcomes there? There’s still a big receivable on the balance sheet. Obviously, from our seats, it's sometimes hard just to have a sense of what's a reasonable timeframe and resolution to anything you could do for us there would be helpful? Thank you.

The legal process is inherently slow in nature. So, we continue to work our way through that process. We believe in the quality of the work that our teams performed, and the quality of that work has shown up and withstood several earthquakes on the island. We'll continue to maintain a dialogue with PREPA and with all parties involved, using all the tools we have. But in regards to forecasting a timeline, there's not really a goalpost that we can put out there for you. We continue to be aggressive, and we'll be aggressive, but I don't have a firm timeline for you right now.

The only thing I would add, Tommy, is that we continue to aggressively pursue our receivables, and we are going to use a number of different strategies to do that. We'll continue going forward. Our team on the island has executed at an extremely high level. We want to be paid, and so we're going to continue to pursue as hard as we can.

Thank you both. I will turn it back.

Thanks for everybody that got on the call. We want to thank everybody. We hope that your families are doing well. I want to personally thank our team. We believe the future is bright for Mammoth and our team members, as we intend to strategically develop our service offerings to grow and deliver shareholder value in the years to come. Thank you to our shareholders for your support and interest in our company. While the current oilfield market conditions are challenging, the infrastructure side of the business has seen growth. We are working hard to control costs and continue to pivot Mammoth into a more industrial-focused company. This concludes our first quarter conference call. Good day.

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