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Operator: Greetings and welcome to the Mammoth Energy Services Fourth Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ken Dennard of Investor Relations. Please proceed.

Ken Dennard: Thank you, operator and good afternoon everyone. We appreciate you joining us for the Mammoth Energy conference call to review 2022 fourth quarter and full year results. This call is also being webcast and you can access through the audio link on the Events and Presentations page of the Investor Relations section at mammothenergy.com. Information reported on this call speaks only as of today, February 23, 2023. Please be advised that any time-sensitive information may no longer be accurate as the date of any replay listening or transcript reading. I’d also like to remind you that statements made in today’s discussion 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 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 afternoon 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 EBITDA, adjusted net income or loss, adjusted earnings or loss per share. These definitions of these non-GAAP measures and their reconciliations to the most comparable GAAP measures can be found at the end of our earnings release and in our investor presentation, which can be found on the website.

And Mammoth assumes no obligation to publicly update or revise any forward-looking statements. And now that behind me, I’d like to turn the call over to Mammoth Energy’s CEO, Arty Straehla. Arty?

Arty Straehla: Thank you, Ken and good afternoon everyone. We had a great fourth quarter and a strong full year that I am happy to discuss with you on the call today. I will also discuss our ongoing pursuit of the PREPA receivable owed to us before turning the call over to Mark to review our financials in more detail. In the fourth quarter, total revenue grew 80% compared to the same quarter of 2021 and it was up 58% for the full year compared to 2021. Demand for our services in each of our businesses generated this top line growth. In addition, profitability also grew substantially for the quarter and the full year. In Q4, adjusted EBITDA was up 40% compared to the fourth quarter of 2021. It is also important to point out that we recognized a bad debt expense of $3.5 million during the fourth quarter of 2022.

This was related to a previously disclosed legal settlement. Excluding this expense, adjusted EBITDA for the quarter would have been up 60%. For the full year, adjusted EBITDA was $86.1 million, and excluding the bad debt expense, was $89.6 million. Last year’s adjusted EBITDA was a loss of $11.6 million. Despite adverse weather during the fourth quarter of 2022 and continued supply chain constraints that impacted productivity, I am proud of the hard work and perseverance displayed by our talented teams throughout our organization. Let me just provide some examples of what we were experiencing in the field and the shop related to supply chain constraints. I know this has become a common phrase over the past year, but here is how we are seeing it impact our business.

We continue to see supply chain constraints at one of our key suppliers for our pressure pumping business. While this supplier is actively working to reduce the supply chain factors they are facing, we expect that these supply chain issues will persist through at least the first half of 2023. Now, I will walk you through each of the major business segments. In our Well Completion services division, we continue to improve our performance, generating strong growth as the macro demand in the pressure pumping industry remains robust. We exited 2022 with 4 of our 6 pressure pumping spreads operating and we added a fifth spread into operations in January of 2023. In addition, we are planning to upgrade another spread to Tier 4 dual fuel and put it into operation in the back half of 2023, and upgrade two of our existing spreads to Tier 2 dual fuel, subject to both market conditions and supply chain constraints.

This would give us a total of 4 dual-fuel fleets. We are excited about the opportunity to add another dual-fuel fleet, not only because of the economic benefits, but also for the reduced environmental impact. For those that aren’t aware, dual-fuel engines produce the same amount of power as conventional diesel engines, but they release significantly less emissions while also reducing costs through diesel displacement. It’s just as important for us to operate environmentally responsible as it is for us to operate efficiently. And we believe that this is our next step towards becoming a better Mammoth. We exited Q4 with annualized net income per fleet of approximately $9 million and annualized adjusted EBITDA per fleet of approximately $15 million.

Turning to our Infrastructure division, operational improvements, team performance and higher utilization of our crews and equipment continue to drive improved results. There’s a healthy bidding and pricing environment for our infrastructure services throughout our footprint with the added opportunities expected from the historic federal investment in our nation’s infrastructure through the Infrastructure Investment and Jobs Act. We continue to view this sector as a key growth driver for Mammoth over the long-term and I am pleased with the continued progress we are achieving. As a reminder, we have grown this division organically over the past 5 years. The Sand business also continued to maintain strong demand, and we are pleased with our team’s performance.

As we reported last November, we entered into two strategic sand supply agreements with third-party customers at attractive pricing that are providing a solid foundation for predictable cash flow in our natural sand proppant division. We believe all of our business segments are performing well in high demand environments despite the continued daily challenges presented by supply chain constraints, inflation and higher labor costs. We are bullish on the future of Mammoth and intend to continue to focus on improving operational efficiencies across our business segments and driving financial performance to enhance shareholder value. As we have stated before, 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 macroeconomic trends that we believe will further support demand for our services. We believe the future remains bright for Mammoth. Before I turn the call over to Mark, I’d like to provide an update regarding PREPA. As we continue to vigorously pursue payment from PREPA last month, we reported that two important Determination Memorandums from FEMA released late last year affirmed the work we completed on the island and the eligible cost reimbursement. In a January joint status report filed in PREPA’s bankruptcy case, PREPA indicated that subject to approximately $21.5 million in offsets asserted by PREPA, approximately $99.2 million in FEMA funding would be available to PREPA for our outstanding invoices.

Both in November and December Determination Memorandums can be found on our website. Separately, in addition, we have sought and obtained bipartisan help from Senate and Congressional members in pursuit of collecting the over $379 million outstanding receivable from PREPA as the company continues to pursue multiple avenues to collect the money owed from PREPA. Now let me turn the call over to Mark to take you through our financial performance in greater detail.

Mark Layton: Thank you, Arty. I hope everyone is doing well, and we appreciate you joining us today. As I usually do, I am 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, which we expect to file tomorrow. Mammoth’s total revenue during the fourth quarter of 2022 came in at $102.9 million as compared to $57.2 million during the fourth quarter of 2021. Total revenue for the full year ended December 31, 2022, was $362 million compared to $229 million for the full year 2021. This 58% year-over-year increase is attributable to the amalgamation of improved results from all of Mammoth’s business segments, most notably Well Completions, as a result of sustained favorable macroeconomic conditions and improved operational execution.

During the fourth quarter of 2022, we pumped 1,837 stages with approximately 3.4 fleets utilized on average. This compared to an average utilization of 1.6 fleets during the same quarter last year. For the full year 2022, we’ve pumped 6,149 stages with approximately 3 fleets utilized on average. Our Sand division sold approximately 366,000 tons of sand during the fourth quarter of 2022 and 1.4 million tons of sand during 2022. The average price per sand sold during the fourth quarter of 2022 was approximately $29.80 per ton while the full year average price was $27.11 per ton. On a year-over-year basis, we sold 40% more sand in 2022 than the prior year and the average price per ton increased $10.35 or 62% when compared to the 2021 average. Our Infrastructure Services division contributed revenue of $29.6 million in the fourth quarter of 2022 compared to $19.7 million in the fourth quarter of 2021.

Total infrastructure services revenue for the year of 2022 was $111.5 million compared to $93.4 million for 2021. The year-over-year increase in revenue is primarily due to improved operational execution, coupled with an increase in crew count. Net income for the fourth quarter of 2022 was $4.8 million as compared to a net loss of $13.3 million for the fourth quarter of last year. Adjusted EBITDA, as defined and reconciled in our earnings release, was $24.1 million for the fourth quarter of 2022 as compared to $17.2 million for the fourth quarter of last year. Excluding the non-recurring $3.5 million of bad debt expense that our Sand division incurred during the fourth quarter of 2022, adjusted EBITDA would have been $27.6 million for the quarter.

Full year adjusted EBITDA was $86.1 million in 2022, an increase of $97.7 million year-over-year. CapEx for the fourth quarter of 2022 was approximately $3.6 million. This was down from the $5.1 million of CapEx that we incurred during the third quarter. Total CapEx for 2022 was approximately $12.7 million, which came in significantly lighter than the $20 million that we had projected for the year. This was largely due to supply chain constraints that resulted in dual-fuel engine delivery delays. These delays have caused capital expenditures to move to the right and into 2023. As of December 31, 2022, we had cash on hand of $17.3 million and debt of approximately $83.5 million. Our total liquidity was approximately $37 million. As always, to conclude our call, we would like to thank our 1,045 employees throughout the company for their hard work, dedication and commitment to maintaining safe and sustainable work sites for themselves and their teammates.

2022 was a year full of improvement for Mammoth. We were able to capitalize on the favorable market conditions to generate significant improvements in all of our key financial metrics year-over-year. We’re optimistic that this sets the stage for further growth in 2023. And we are confident in our ability to continue driving meaningful shareholder value through our focus on operational excellence, efficient execution and differentiated service offerings. Operator, we would now like to open the call up for questions.

Operator: Thank you.

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Ken Dennard: Latonya, while you’re polling for questions, we’ve gotten an e-mail during the call that actually came in from an investor that said, Arty, you mentioned supply chain issues. Can you elaborate in more detail on that topic, which I think is a pretty astute question.

Arty Straehla: Yes, absolutely. And those of you that know me had a manufacturing background, one of the things we always hear supply chain as a reason for not completing everything. On January 23, I made a visit to the factory that €“ of the largest aspect of our supply shortages and other pressure pumping supply shortage, went through the factory, asked a number of questions and found out in detail the problems behind the shortages, which I do expect to continue. Some of the specific parts that they were short of were wiring harnesses and breather assemblies, crank shafts, connecting rods, specific €“ even down to specific bolts that they use to fabricate the parts that we were looking at. They did not offer a lot of hope of getting out of this very quickly, so we expect supply chain risks to stay with us for a good while.

With that said, we did get a better understanding of everything, and we think we formed some relationships that should help us into the future. So we’re pretty optimistic about continuing to get parts in bringing those parts in. So I’ll turn it back over to you to see if there is any other €“ one of the things I will observe about the factory visit before I turn it back to Ken. We asked them about the situation and the shortages from all of their suppliers. And they actually said, we have our own employees that are working in our suppliers’ factories, we’re paying for them, just trying to get additional product out. So we €“ and I took them at face value when they said that, and I believe what they were saying. So their supplies are short and this one will continue for a while.

Operator:

Arty Straehla: Operator, while we’re waiting, let me give a little bit more color on the PREPA receivable. We go through the call and we talked about Determination Memorandums from FEMA and that type of thing. This was a huge step forward. And we did release a press release on that aspect and everything. But the Determination Memorandums said much the same thing that we’ve seen in other documentation. They reiterated that our contract was in compliance and our rates were reasonable. This takes away all of the excuses and all the reasons for PREPA not to release their funds. You have a situation where the Congress appropriates money to a federal agency. In this case, it was FEMA. And then FEMA obligates that money to PREPA, and still we haven’t been paid.

But it feels like the excuses for not getting paid are running out. So we’re very €“ we will continue to pursue and we will continue as early as next week with a visit that is designed to help collect those monies. I think as all of you know, those monies are worth €“ at our current share count are worth about $6.50 per share for the total $379 million that is. So Ken, I’ll turn it back over to you. Anything else?

Ken Dennard: Yes. Latonya has got another question around the board.

Operator: The question comes from Carter Dunlap with Dunlap Equity Management. Please proceed.

Carter Dunlap: Hi. Could you string together the schedule for converting the two spreads to dual fuel and how that interplays with the supply chain shortages. I mean how do you €“ a, are those two projects directly dependent on those supply chains and more importantly, how do you convey to your customers when those spreads are going to be out of service to convert?

Arty Straehla: Yes. They are directly related with our modifications to get our spreads to Tier 4 dual fuels. And they are primary parts that go for that conversion. So right now, we communicate with our customers, and we tell them exactly where we’re at, and that we’re working through solutions. I think they appreciated that we just didn’t take just a supply chain shortage and just pass it on, went to the factory and did a deep dive into it with our supplier and try to work through solutions. So we think that, that is a lot better than just sitting and waiting and listening to them telling that it’s going to be short. So can I predict when we’re going to receive everything that allows us to do it? I can’t do it yet, just the supply chain is too unknown at this point.

But I’m going to tell you that I got an update from the factory this afternoon that came in. And here’s what I got for three pieces of equipment, hold shipment, short insulation assembly, hold for a part availability, hold for part availability. So out of five key pieces of equipment come in, three of them are on hold in the factory, waiting for them to have parts. Now these same parts are used as replacement parts. So as you see some of the attrition that’s going on with not as many pressure pumping spreads out as other, attrition in this business is real. We run this equipment very hard. And having to have the parts to correct it is a major issue for the industry.

Carter Dunlap: If I could just follow on because I don’t think I’ve ever asked this question? On a new bid job, what is the difference for the rate of putting a dual fuel in a customer’s hands versus what’s there now, the single fuel?

Arty Straehla: Well, it’s more economical. It’s more €“ and it’s more efficient from an emission standpoint. So the entire industry is converting over to either dual fuel or in some cases, they are going through electrification of those spreads. But to really make a valid point about €“ this is a really long conversion process to go to this. Even in the Permian, where they are very set up to run dual fuel, only about half the spreads there are running dual fuel. The rest of them are running diesel. But it is more economical for the customer, and it is more efficient friendly. And we want to get converted as quickly as possible.

Carter Dunlap: Okay. I mean I realized it’s a table stakes investment, but it doesn’t sound like it’s a €“ I mean it’s either the non-dual fuels at some point won’t be marketable, but it’s not a question of being able to put the machine back out at a higher rate.

Arty Straehla: That’s correct.

Carter Dunlap: Okay, thank you.

Operator: At this time, there are no further questions. I would like to turn the call back over to management for closing comments.

Arty Straehla: Thank you, operator, and thank you again, everybody, for joining us on the call today. We maintain our belief that Mammoth is well positioned for continued growth and supported by experienced team members that are among the best in the business. This concludes our conference call, and we look forward to speaking to you again next quarter.

Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation, and have a great day.