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Operator: Greetings, and welcome to the Mammoth Energy Services First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, sir. You may begin.

Zach Vaughan: Thank you, operator, and good morning, everyone. We appreciate you joining us for the Mammoth Energy conference call to review 2024 first quarter results. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page in the Investor Relations section at www.mammothenergy.com. Information reported on this call speaks only as of today, May 2, 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 the 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 provisions of the Private Securities Litigation Reform Act of 1995.

We will be making forward-looking statements as part of today’s call that, by 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 today 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. The definition of this non-GAAP measure and its reconciliations to the most directly comparable GAAP measure can be found at the end of our earnings release and in our investor presentation, which can be found on our website. Mammoth Energy assumes no obligation to publicly update or revise any forward-looking statements.

And now, I would like to turn it over to Mammoth Energy’s CEO, Arty Straehla.

Arty Straehla: Thank you, Zach, and good morning, everyone. I’ll start with some overview comments about our business and the quarter before discussing recent developments and updated expectations for 2024. Then I will turn the call over to Mark to cover the financials in more detail. Our first quarter results were challenged for a number of reasons. Most notably, our well completion services division experienced continued activity softness resulting from lower energy prices in the quarter, particularly in natural gas and operators electing to defer activity to later in the year. This softness resulted in white space in our calendar for the month of March and had a direct impact on our revenue and earnings for the quarter in this segment.

Our infrastructure services division was also challenged this quarter, primarily due to experiencing less storm-related work in the quarter than we had anticipated, and that caused a slight underperformance relative to our expectations. I’ll update everybody on our visibility for the remainder of the year in a moment, but we do expect this first quarter results to serve as our low watermark for 2024. Our Infrastructure division experienced a sequential decline in both revenue and adjusted EBITDA for the first quarter stemming from less storm-related activity. However, we are now seeing an uptick in bidding opportunities related to engineering, fiber, transmission and distribution, all of which are areas, I believe, we have differentiated and specialized capabilities to capitalize on opportunities in the market.

Our engineering group continues to do well, and we’re building up more projects in the T&D space currently. The Infrastructure Investment and Jobs Act are being released — funds are being released for infrastructure projects such as fiber and engineering as well as transmission and distribution, areas where we remain excited participants. And this continues to give us optimism for improvements throughout 2024. Although the storm season in 2023 and so far in 2024 has been benign relative to historical standards, NOAA is forecasting an active storm season this year, and we will be 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.

Our well completions business experienced persistent challenges associated with lower U.S. onshore activity and sustained weakness in the natural gas basins in which we operate. This continued to result in underutilization in the first quarter, but we entered in the second quarter with improved visibility and line of sight for the remainder of 2024. We are seeing indications of the increased activity levels in the back half of the year in anticipation of increased natural gas demand, and we will be strategically positioned to capitalize on this anticipated demand if and when it ramps up. As is always a component of our internal analysis and decision-making, we continue to weigh opportunities to potentially move our assets to more oily basins, but we haven’t had a sufficient opportunity yet that would allow us to sustain the calendar and costs associated with relocation.

We remain extremely focused on our cost structure, and we’ll continue to efficiently manage our capital expenditures to align with activity levels and demand. In our sand division, we experienced increased demand resulting in sequential improvement in tonnage sold as well as slight uptick in pricing relative to the fourth quarter. The higher first quarter demand was primarily driven by Western Canada, and we expect to see additional improvements in demand across North America in the second half of 2024. Despite the slow start to the year, we have entered 2024 with an undrawn revolver and cash on the balance sheet, and we believe Mammoth remains poised to capitalize on near-term opportunities. As we have demonstrated throughout our history, we have a resilient and diversified business comprised of talented and hard-working teams and we’ll continue to find solutions that optimize our operational efficiencies with a customer and safety first focus.

We believe our diverse portfolio and ability to adapt quickly to change in environment positions us well in these segments. Turning now to PREPA. As previously announced, PREPA has paid $64 million so far in 2024 with respect to our receivable. While we are pleased with these payments, we are still owed approximately $349 million in principal and interest. PREPA has been holding $18.2 million in FEMA funding specifically related to Cobra’s work since December. We continue to vigorously pursue payment of the outstanding amounts, especially the $18.2 million PREPA’s withholding from us. We remain engaged in mediation with PREPA regarding our claims. If mediation is unsuccessful, we intend to litigate the disputed issues. Looking forward, we entered the second quarter with improved visibility and expect our results to take a meaningful step-up as we progress through 2024.

We are encouraged by customer conversations and the anticipated ramp in demand and associated well completions activity in the second half of this year. Our current line of sight gives us confidence that we will generate improved adjusted EBITDA results in each of the remaining quarters of 2024. We have a strengthened balance sheet, a new revolving credit facility agreement and a new term loan agreement, and we remain well positioned for growth in 2024. 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’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. Mammoth’s total revenue during the first quarter of 2024 came in at $43.2 million compared to $52.8 million in the fourth quarter of 2023. The 18% sequential decline in total revenues was primarily attributable to the continued activity softness in the natural gas-heavy basins that we operate along with an overall decline in North American energy prices in the quarter. We believe there are positive demand implications for natural gas on the horizon, and we remain optimistic for associated activity increases later this year.

We view the first quarter as a low watermark for 2024 and anticipate improvements in our results moving forward. In Q1 of 2024, we pumped 380 stages with approximately 0.6 fleets utilized on average compared to 669 stages and an average utilization of 0.9 fleets during the fourth quarter of 2023. This decrease resulted from sustained lower natural gas prices and commodity price uncertainty that continued to lead to the utilization headwinds that we experienced in the well completion services division during the first quarter. Operators continued to elect to push much of their activity to the right and were slow to reset and finalize their budgets, which resulted in white space on the calendar, but we now feel that we have a better line of sight for later this year.

As many of our peers have noted on their calls, the expectation is that activity will begin to ramp up meaningfully in the second half of 2024. 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 146,000 tons of sand in the first quarter of 2024 at an average sales price of $24.38 per ton compared to 104,000 tons of sand at an average sales price of $23.62 during the fourth quarter of 2023. The lower sequential revenue despite an increase in both tons sold and average sales price stem from approximately $2 million in shortfall revenue that was recognized in the fourth quarter of 2023 compared to none in the first quarter.

Our infrastructure services division contributed revenue of $25 million for the first quarter of 2024, which represents a sequential decrease when compared to $27.2 million for the fourth quarter. As already mentioned, storm work in the first quarter was much lower than in previous years and it resulted in a slower start to 2024 than anticipated. However, we are seeing an uptick in bidding activity. We continue to focus on operational execution and 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 first quarter of 2024 was $11.8 million compared to a net loss of $6 million for the fourth quarter of 2023. Adjusted EBITDA as defined and reconciled in our earnings release was $4.5 million for the first quarter of 2024, a decrease sequentially compared to $10.5 million in the fourth quarter of 2023.

CapEx for the first quarter of 2024 was approximately $4.2 million, which was in line with our CapEx for the fourth quarter of 2023. We continue to prudently manage our costs to more accurately reflect the activity levels of our customers. We are revising our CapEx budget for 2024, and we now expect to spend approximately $9 million for the year, which represents a $6 million decrease from our previous guidance. This budget 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 $8.8 million during the first quarter of 2024, up 6% compared to $8.3 million for the fourth quarter of 2023.

The sequential increase in first quarter SG&A was related to a change in provision for expected credit losses in our infrastructure segment as well as audit fees. As of March 31, 2024, we had cash on hand of $22 million. Our revolving credit facility was undrawn and we had approximately $21 million of available borrowing capacity. Our total liquidity was approximately $43 million. The aggregate $64 million that was paid by PREPA with respect to our receivables so far this year enabled us to satisfy in full our $54.4 million obligation to SPCP Group under the previously reported financing arrangement, while adding $9.6 million to our cash position. And we are pleased to have bolstered our liquidity with the credit facility refinancing that occurred in the fourth quarter.

To conclude our call, we would like to thank our 735 employees throughout the company for their hard work, dedication and commitment to maintaining safe and sustainable work sites for themselves and for their teammates. Despite the soft start to 2024, we remain — we maintain our belief in our teams and the direction that we are headed. We have taken appropriate steps to align our business with demand and strategically position Mammoth for improved results as activity rebounds later this year. We will continue to prioritize disciplined operations, efficiency and strategic capital allocation, which, when coupled with our strong balance sheet, we believe will drive improvements in shareholder value. Operator, we would now like to open the call up for questions.

Operator: [Operator Instruction] Our first question comes from Blake McLean with Daniel Energy Partners.

Blake McLean: I had a bit of a bigger picture question. I was hoping you could talk to us a little bit about the labor market and kind of how you guys are thinking about the balance between kind of maintaining staff and good hands and wages in a competitive environment?

Arty Straehla: Yes, I’ll take that one. We do — the labor market is still competitive, but we are able to find people and to grow those businesses as we start to add them. And I’m talking primarily about T&D because that’s where the biggest shortage is right now. With a little bit of the decrease in activity in oil and gas, labor is a little bit — labor market is a little bit improved over what it was over, say, 6 months ago. But on the transmission distribution, where we are bringing on crews and that type of thing, we have been able to attract very talented individuals and grow that business as we go.

Blake McLean: That’s helpful. I was also hoping maybe you could share some thoughts around kind of the shape of the activity recovery in the back half of this year and early ’25 and what you’re hearing from customers and what they’re looking at and how they’re thinking about it. I mean I know there’s a big demand pull that they’ve got to feed. But any color you could provide around kind of the shape of that activity uptick would be useful for us.

Arty Straehla: Yes. And our schedule has really been pretty dynamic on – especially on the frac side with customers coming at – kind of late in the process saying, “No, we’re going to defer this to a little bit later because of where pricing is and because we can get better rates with water,” or some other reason that would lower the cost to produce. So we’ve seen a fair number of those where everything is slid to the right. But they still anticipate getting the work done this year. So I mean, we’re already looking at things into the July and August time frame that we believe will come to fruition.

Operator: Our next question comes from Michael Mathison with Singular Research.

Michael Mathison: Let’s see. Just a couple of things on the revenue side. First, you mentioned there’s a lot of bidding activity in infrastructure. Low storm volume left you behind a little bit in this quarter. But looking at new build infrastructure, do you have any that kind of seem imminent to close that would be significant?

Mark Layton: We’ve won some bids recently and continue to see a fairly robust pipeline primarily as it relates to transmission projects as well as substation projects.

Arty Straehla: Yes, one of the emphasis we want to do this year is get more improved in the transmission area. And I think we’ve been able to do that. Our bidding is a lot more robust in that area. We currently have a couple of transmission jobs going concurrently right now. On the distribution side — and just — and obviously, I’m not going to tell you the customer or who it is or anything on the T&D side, but we are in the midst of a 15 crew offer with a major utility that would certainly be helpful to us. It doesn’t guarantee that we’re going to get it. It doesn’t mean we’re going to get it. But we think we’re very competitive in trying to achieve that and get that bid. It just brings home the area that we’re in, in T&D and where we think that growth will come from.

We’re already starting to see it in one of the precursors. Our engineering business that we started from scratch a few years back will do $20 million to $23 million in revenue. They were just awarded a nice contract. And they continue to build that business. So that is a precursor to obviously the T&D activity, and we view that as a vertical integration opportunity as we progress. So we feel very good about that. We all hear and read the articles about the demand for grid infrastructure with AI and data centers coming online. I saw a report out of Texas that they need twice the size of the grid in the next 8 years to 10 years to stay up with the demand. So that bodes well for where we’re at and where a lot of our functional growth will come from.

Michael Mathison: Terrific. That’s very encouraging. Just a couple of nitpicky questions. Through the income statement, I noticed that there was a spike in interest and financing charges relative to Q4 of last year, even though we paid down some debt using the proceeds from the PREPA payment. Can you help me reconcile that? What’s going on here?

Mark Layton: Sure. The largest component of that spike relates to the SPCP agreement that was entered into in December. So it was just under $3 million that impacted Q4 of ’23. And a round number is about $5 million that impacted Q1 of ’24 that’s hitting interest expense relative to the SPCP deal.

Michael Mathison: Terrific. So I wouldn’t expect those interest levels going forward?

Mark Layton: That’s correct. Those are onetime charges. The $5 million round number that was included in Q1 fully extinguishes the SPCP agreement.

Operator: This now concludes our question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Arty Straehla: Thank you, Maria. Thank you again for joining us on the call today. We continue to position Mammoth for improved results, growth and its success, and it’s all made possible by our talented and skilled team members. This concludes our conference call, and we look forward to speaking to you again next quarter.

Operator: You may disconnect your lines at this time. Thank you for your participation.