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Edited Transcript of TUSK earnings conference call or presentation 15-Mar-19 3:00pm GMT

Q4 2018 Mammoth Energy Services Inc Earnings Call

Oklahoma City Mar 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Mammoth Energy Services Inc earnings conference call or presentation Friday, March 15, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arty Straehla

Mammoth Energy Services, Inc. - CEO & Director

* Donald Peter Crist

Mammoth Energy Services, Inc. - Director of IR

* Mark Layton

Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer

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Conference Call Participants

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* Daniel Joseph Burke

Johnson Rice & Company, L.L.C., Research Division - Senior Analyst

* James Marshall Adkins

Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research

* Jason Andrew Wangler

Imperial Capital, LLC, Research Division - MD & Senior Research Analyst

* John Matthew Daniel

Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service

* Taylor Zurcher

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Oil Service Research

* Thomas Allen Moll

Stephens Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Mammoth Energy Services Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions) 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.

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Donald Peter Crist, Mammoth Energy Services, Inc. - Director of IR [2]

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Thank you, Liz. Good morning, and welcome to Mammoth Energy Services Fourth Quarter and Full Year 2018 Earnings Conference Call. Joining me in today's call are Arty Straehla, Chief Executive Officer; and Mark Layton, Chief Financial Officer. Before I turn the call over to them, I'd 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, Forms 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 year-end and fourth quarter press release, which can be found on our website along with our updated presentation. Now I will turn the call over to Arty.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [3]

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Thank you, Don, and good morning, everyone. 2018 was a very good year for Mammoth. We saw a year-over-year growth across all of our business clients but most notably in our Infrastructure segment. This growth is best represented in our 2018 financials, with revenues growing more than a 140%, net income growing more than 530% and adjusted EBITDA growing more than 230% when compared to 2017.

When compared to 2016, the year we went public and earned $41 million in EBITDA, we had -- we have grown EBITDA by more than 12x to over $540 million. While these stats are great on their own, there -- this growth was executed while protecting the balance sheet, exiting the year with $68 million in cash and no debt.

From a portfolio perspective, our fourth quarter results, again, underscore our differentiation from many of the OFS companies we are compared to. This differentiation was expanded further in December through the purchase of Air Rescue Services, or ARS, and our investment in Brim. As we have done in our oilfield service business lines, we are always looking at ways to vertically integrate our operations and having a helicopter fleet is a big step towards that goal. We are now able to bid on transmission projects with greater certainty as, under most circumstances, we will not be reliant on aircraft lease from third parties to perform the work. Additionally, with Brim holding several FAA certificates, we are in position to expand or modify our fleet based upon our customers' needs. The acquisition of ARS in late December allowed us to enter into a new business line that is distinctly different from both Cobra Aviation and Brim. ARS is a safety training and safety equipment manufacturer, which is highly respected in the aviation industry. ARS' main business line is the training of local, federal and foreign police forces in search and rescue operations and the manufacturing of safety equipment used in search and rescue missions.

Now let me give you an update on our current operations, starting with our Infrastructure division. Our Infrastructure team has been in Puerto Rico for approximately 16 months, where it has worked closely with the PREPA and other governmental agencies to improve the energy Infrastructure network in Puerto Rico. However, the task of reconstructing the electrical grid to both harden it and provide better protection from future storms has not been completed and the fragility of the system remains.

Certain events which were out of our control occurred during the first quarter of 2019 that have impacted Puerto Rico in the rebuilding efforts. U.S. government shutdown for a period of 35 days delayed federal work on the island and the allocation of new reconstruction funds. In addition, front-end engineering work, which is performed by a consortium led by PREPA, has taken longer than expected, causing a slowdown in our activity levels versus earlier expectations. Our staffing levels declined during the first quarter of 2019, and we are currently in the process of winding down our operations in Puerto Rico, with the expectation of leaving the island completely within the next 60 days. As we have stated in the past, the reconstruction process in Puerto Rico is just beginning, with significant work to be done.

PREPA's reconstruction plan calls for spending $17.6 billion over the coming 8 years, with a ramp-up in reconstruction projects expected in the second half of 2019 through 2025. We expect RFPs to be issued in the back half of 2019 for work starting in 2020. While we currently intend to bid on this work, there can be no assurances that we will be able to secure contracts for any of this work.

The Lower 48 Infrastructure business gained strength throughout the back half of 2018, and we look for 2019 to be a substantial year of growth. Our teams are actively working for multiple investor-owned utilities in the Northeast, Southwestern and Midwestern portions of the United States. We remain in discussions with several existing and new larger -- new large investor-owned utilities to expand our operating footprint and build our backlog in these operating areas.

The Infrastructure's division total 3-year backlog was approximately $765 million at the end of the fourth quarter. The breakdown of the backlog includes approximately $140 million remaining in Puerto Rico associated with the existing contract and approximately $625 million in the Continental United States.

From an oilfield service perspective, the fourth quarter was challenging, with declining oil prices and E&P budget exhaustion leading to some weakness in both pressure pumping and sand pricing and demand. We pumped 1,164 stages during the fourth quarter of 2018, with our EBITDA margins for our pressure pumping division coming in at approximately 17% or approximately $13 million in EBITDA per active fleet per year.

That said, with a reset of E&P budgets, demand for our pressure pumping services increased in January, in line with our expectations, although pricing has remained at fourth quarter levels. All 6 of our fleets are operating today, 4 of which are in the Utica with 2 in the Mid-Continent.

Turning to sand. The weakness experienced during the third quarter of 2018 persisted into the fourth quarter, but we experienced some improvement in late December as operators prepare to restart completions in early 2019. Our order book has continued to increase over the past several weeks, with pricing up approximately 30% from the lows seen in Q4.

As a reminder, we continue to have a strong baseline of business via contracted capacity, which has kept our Taylor and Piranha plants operating and our costs low. We sold approximately 570,000 tons of sand during the fourth quarter of 2018, of which approximately 30% was brokered. The average sales price for the sand sold during the fourth quarter of 2018 was $27.47 per ton, while our blended fourth quarter production costs came in at approximately $12 per ton, below our projections.

As a reminder, we have approximately 1.3 million tons or 30% of our 4.4 million tons per annum processing capability under long-term take-or-pay contracts across multiple grades. Two of the 3 contracts in place are 3-year take-or-pay agreements, which run through late 2021. The third contract runs through the end of 2020.

The crude transportation business, which we acquired during the second quarter of 2018, has seen strong demand, with 47 owned trucks and 8 owner-operator trucks in the fleet today. While the differential between the Permian and Gulf Coast has narrowed in recent weeks, we still see strong demand for our crude trucking services. Due to customer demand, we are looking to expand crude hauling into the Northeast.

Two of our other business lines that we saw significant growth during the back half of 2018 were oilfield rentals and water transfer businesses. Starting with rentals, which we expanded into the Mid-Continent region in 2018, this business has seen both the customer base and equipment rented grow rapidly over the past 6 months at attractive margins. We plan to invest additional capital into this business in 2019 to grow further.

Our water transfer business in the SCOOP/STACK was started organically and is on pace to generate meaningful revenue in 2019. The water handling businesses is attracted to us, and we're looking at potential expansion opportunities, both organically and through acquisitions.

The market in both oilfield service and industrials has seen some weakness as of late. We see this is an opportunity to selectively pursue companies which may have overextended themselves and are takeover candidates. Given our balance sheet, we expect to be able to act quickly if we identify an attractive opportunity, unlike some of our peers.

We are currently evaluating approximately 25 transactions, some of which are in the oilfield and Infrastructure service space and will be expected to have attractive returns. In addition, we are evaluating several opportunities that tie to our interest to further expand our industrial presence and could provide stable cash flows in the years to come. As our history has shown, we intend to remain disciplined in the deployment of capital, choosing only the transactions that are projected to meet or exceed our hurdle rates.

Before passing the call to Mark, let me sum up 2018 in this way. We stayed true to our principles to remain disciplined in our investments, took care of the balance sheet, looked for opportunities to invest in areas that are stable and contract driven, returned money to shareholders and kept cost low. While we were unable to control the political and commodity environment, we are able to operate Mammoth in a way that prepares us to endure the tough times and take advantage of weakness.

Throughout 2019, we intend to be selective in our investments and build cash for future opportunities that may arise. The transformation that Mammoth has undergone over the past year to shift to a broader industrial focus has been deliberate and can clearly be seen in our financial results. We will remain disciplined, patient and exclusively focused on opportunities that meet or exceed our targeted threshold.

Let me turn the call over to Mark to take you through the financial performance during the fourth quarter and full year of 2018, after which we will take questions.

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [4]

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Thank you, Arty, and good morning, 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 focus on certain highlights.

Mammoth's revenue during the fourth quarter of 2018 came in at $278 million, down 25% from the third quarter of 2018. A reduction of activity in Puerto Rico in our Infrastructure segment and a slowdown in the oilfield completions market contributed to the lower revenue compared to the prior period.

For the full year of 2018, revenue came in at $1.7 billion, up 144% from 2017. Increased activity levels across all of our segments drove the increase year-over-year.

Net income for the fourth quarter of 2018 came in at $68 million, which was slightly below the third quarter of 2018. On a per share basis, net income from the fourth quarter came in at $1.51 per diluted share.

For the full year of 2018, net income came in at $394 million or $5.24 per diluted share, up 270% year-over-year.

During the fourth quarter of 2018, we recognized a tax benefit of $21 million, or $0.46 per share, related to a change in the mix of earnings between our United States and Puerto Rico operations.

For the full year of 2018, income taxes were $153 million, resulting in effective corporate tax rate of 39%.

Adjusted EBITDA for the fourth quarter of 2018 came in at $84 million as comparables consensus estimates of $86 million. Our corporate adjusted EBITDA margin was 30% during the fourth quarter of 2018.

For the full year of 2018, adjusted EBITDA came in at $547 million, up 230% year-over-year. The difference between analyst estimates of $480 million and actuals are the result of the reversal of bad debt expense of approximately $68 million during the third quarter of 2018.

Selling, general and administrative expenses came in at $15 million or 5% of revenues during the fourth quarter of 2018 compared to $23 million in the third quarter of 2018. For the full year of 2018, selling, general and administrative expenses came in at $73 million or 4% of revenues as compared to $50 million or 7% of revenues in 2017. Increased activity levels across all of our business lines drove the increase year-over-year.

CapEx during the fourth quarter of 2018 was approximately $42 million, the majority of which was related to the organic growth of our Infrastructure segment in the Continental United States and the expansion of our trucking, rental and water transfer businesses in the Mid-Continent region.

For the full year of 2018, CapEx came in at $192 million, below our announced plan of $205 million. For 2019, we anticipate spending approximately $80 million on CapEx throughout the year. Of this total, approximately $25 million is designated for our Infrastructure services, with approximately $55 million designated for oilfield services. Given our current outlook, we expect this level of CapEx to be completely funded through internally generated cash flows.

As of December 31, 2018, we had $68 million in cash and no borrowings under our $185 million credit facility, resulting in total liquidity of $243 million net of letters of credit. On March 13, 2019, we borrowed $82 million under our credit facility for 2018 Puerto Rico taxes to be paid today. Pursuant to the terms of our original PREPA contract, once our 2018 Puerto Rico income taxes are paid and the applicable returns are filed, we are entitled to receive $45 million from PREPA related to a contractual income tax provision.

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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Tommy Moll with Stephens.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [2]

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Arty, I am sure you'll get a lot of questions on Puerto Rico today, so I will limit myself to one for now. But you mentioned that you anticipate some additional RFPs to start coming out maybe the second half of this year for work that could begin sometime next year. Does that assume that the Congress will, in the interim, approve additional funding? Or is your visibility there based on funds that have already been approved?

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [3]

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No, it's based on additional funding that we think will be coming, but it's also based on the amount of work that has to be done. The fragility of the system is -- it's no better than it was before Hurricane Maria. And we think that there will be -- there is a lot of work is going to come. Unfortunately, in this type of situation, there is a lot of front-end engineering that has to take place and that's being done right now. So that means that once the front-end engineering is done, the RFPs will be let. We think that will come in the second half of 2019 and then the work will commence in 2020.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [4]

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Okay. Like I said, I anticipate you'll get a lot more on Puerto Rico, so I'll refrain from asking follow-ups until later potentially and move over to one follow-up on sand. You mentioned pricing is up so far this year 30% versus the lows in Q4, which is great to hear. And I just wanted to clarify, is that up off the 27 and change average price from Q4? Or that's the blend and we're up off of some lower number than that? And then also, any insight you can give us into what is driving the market up into the right would be helpful.

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Donald Peter Crist, Mammoth Energy Services, Inc. - Director of IR [5]

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Tommy, this is Don. So the 30% that we referenced there is spot market 40/70. Obviously, we have 3 contracts in place that are at much higher rates than spot today. To frame that, the -- in the fourth quarter, 40/70 hit a low in the mid-teens and it's up significantly off of those lows today.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [6]

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Now the second -- the compound part of that question was what we're seeing in the marketplace and that type of thing. And our orders have picked up significantly after the 1st of the year. 40/70 is selling very well. And we don't know if this is a complete flight to quality and some of the issues with -- we've seen several reports as you have on the quality of West Texas regional sand. And the crush factor being much stronger out of sand coming from Northern White plants. So -- but one thing is -- we are seeing is we're seeing strengthening in that market, both on a pricing and on a quantity basis.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [7]

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Okay. And so, Don, I appreciate your splitting hairs with me a fair bit on the pricing changes. Maybe just to try to laser in on a key issue. If you're looking at the blend at the segment level so far in first quarter or what you see for first quarter shaping up, are you pretty comfortable in it swinging back into a positive gross margin territory for the segment?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [8]

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Tommy, yes, this is Mark. Absolutely, we think we'll swing back positive for that segment inside of Q1.

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Operator [9]

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Our next question comes of the line of Jason Wangler with Imperial Capital.

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Jason Andrew Wangler, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [10]

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I wanted to ask on the Infrastructure side, pertaining to the U.S. side, how you see that business? I assume you're going to be pulling the equipment back and the people back from Puerto Rico and getting to work on the U.S. stuff. But is that timing going to work out well with the backlog that you have? Or just how we should be thinking about that segment going forward being predominantly U.S. focused?

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [11]

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No, the timing is working out extremely well, both bringing the equipment back and being able to put it in and make it fully utilized as well as bringing the people back. But the growth in our -- if you remember, I think you remember the numbers, at the end of the third quarter of 2017, in the Continental United States, we had $30 million of backlog. Today we have $625 million of backlog and that is -- that continues to grow. So this really is -- gives us the ability to avert some capital and bring those assets back from Puerto Rico to put them to work.

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Jason Andrew Wangler, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [12]

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Okay. That's great. And then maybe for Mark. Just, obviously, with the slowdown in Puerto Rico, how do you think about working capital, specifically accounts receivables kind of coming into you guys as you start to slow that in the first quarter? And obviously kind of don't have much going on in the rest of the year, I'd assume until those contracts come up for bid. How should we be thinking about that turning into cash?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [13]

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I think we'd view as near-term conversion to cash throughout the relationship with PREPA. They've continued to pay us better than what we see from Lower 48 utilities for storm work. So we fully expect that we will see that receivable convert to cash in the near term.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [14]

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As of March 8th, we had $281 million in receivables from PREPA. And just a reminder, they've paid us in excess of a $1 billion in the last year. So we expect to collect those monies and we do expect to collect them very quickly. The small amount of debt which we took on was just a timing issue with the taxes, and we expect to be out of debt very quickly as this year progresses.

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Operator [15]

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Our next question comes from the line of Daniel Burke with Johnson Rice.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [16]

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I guess it's easier to stay on the U.S. Infrastructure side. Backlog now up over $600 million, that's defined inside a 3-year window. Certainly, you guys are ramping. But is it reasonable to assume that by the time we get to the second half of this year, you'll be at an annualized $200 million revenue run rate? Can you get there that quickly with the manpower and the equipment you'll be redeploying?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [17]

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We think so, Daniel. As we have been all along, we've been excited about this business, and we'll continue to deploy capital. The need is certainly there. We see the demand. And the team has executed at a very high level, as we've mentioned before, in Puerto Rico. So what that really has become is a showcase for the talents of the team, and we fully expect that we'll transition that work to North America.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [18]

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I also wouldn't underestimate the use of the helicopters, the Brim investment that we have and the Cobra acquisition of additional helicopters at the end of December. Right now, we are managing 11 helicopters, all told. So we -- all that we own and then we are contracting with others. And we think that the aviation gives us a very good business opportunity with those assets.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [19]

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Got it. And then, Arty, just to be clear, the 11 helis, how do those split between the Continental U.S. and Puerto Rico as of today?

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [20]

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We have -- go ahead, Don.

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Donald Peter Crist, Mammoth Energy Services, Inc. - Director of IR [21]

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As of today, Daniel, we have 2 helicopters in Puerto Rico that are working. A lot of them, of the 11, are on the West Coast working for PG&E after the wildfires there. So for the most part, it's all Continental United States. One of our owned helicopters is in Puerto Rico today. One of them is, kind of, third party and then the other 4 of our owned helicopters are here in the States.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [22]

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Okay. Maybe just one on Puerto Rico. Would demob be incremental to the year-end backlog figure that you all described?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [23]

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Daniel, the demobilization is included in that year-end backlog figure.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [24]

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Okay. Good to understand. And then I'll ping pong just if you'll allow one last question, then back on the U.S. Infrastructure side. I mean, any change -- with the greater waiting of higher-margin transmission work, I mean, mid-teens U.S EBITDA margin, is that still sort of the guidepost for this year, for 2019?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [25]

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Yes, 15% to 18% is still the guidepost. That hasn't moved.

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Operator [26]

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Our next question comes from the line of Marshall Adkins with Raymond James.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [27]

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I'm just trying to get my arms around all this. So from what you said so far, it sounds like the Puerto Rican backlog goes away because they're shutting this down over the course of '19. Got a little bit more to do. But you lose over $500 million of backlog from that. But you're going to take all of those assets move to the U.S. and they're going to be fully utilized, in short order, with similar profitability. That's what I'm hearing. I just want you to comment on that and make sure that I'm kind of hearing it right.

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [28]

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Marshall, I think it's important to characterize Puerto Rico as a pause. It's not a shutdown, it's a pause while the engineering catches up. So we fully expect that RFPs will be pushed out in Q3 or Q4 of this year. And the same amount of work that we anticipated all along still has to be done in Puerto Rico. So while we work through this pause in Puerto Rico, we'll shift those assets back to North America and put them to work. But it's certainly not a "stop" in Puerto Rico, it's just a pause on that work.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [29]

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Okay. But it sounds like you're still confident that you can take those assets and go put them to work doing similar type work at similar margins. Is that a fair statement?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [30]

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We will put that equipment to work in the Lower 48, and we expect those margins to be 15% to 18%.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [31]

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Okay. So maybe you'll lose a little bit on margins there, but they will ramp back up in 2020 and you move stuff, hopefully, back down there, correct?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [32]

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We think we have -- we've shown our execution in Puerto Rico. Our teams have been there for 16 months and have executed at a very high level through their execution and their knowledge of the system. We fully expect to bid on that work and be competitive.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [33]

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Yes, Marshall, I'd add on a broader note about TUSK. We're going build cash this year. And if you look at our ROIC for 2018, it was 35%, and we're going to be poised for what comes next. And obviously, very -- we look at a lot of acquisitions, a lot of other opportunities, and I think the message really for TUSK, '18 was an exceptional year. If you would have looked at us 18 months before in 2017, I don't think we had any idea where we would be today. So we think that same opportunity lies in front of us, with a future growth of some of the existing lines that really want to focus on and with future opportunities to do some M&A.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [34]

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Right. Well, clearly, you've all been very adapted in moving and adjusting to changing market conditions. That was going to be my next question is, seems like you're putting a lot of money into this other oilfield services. I'd like to hear more about what you're kind of looking at there, getting a little more detail, kind of specifically, rental tools seems to be improving. What -- I mean, there's a lot of parts of the rental business. What are you focusing on there? And then, water handling as well seems to become a bigger deal. What's -- and there is many components to that. What specifically are you focusing on there? Just give us a little more color about those type of investments that seems to be that's your next kind of big push.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [35]

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Yes, it absolutely is. We really like what's going on in rental business. We expanded the Mid-Con. But one of the things out of expanding in the Mid-Con, it's not all oilfield services. We've been able to get some niches in the construction industry here. So with some of our cranes, we've actually got cranes out and deployed at Tinker Air Force Base here in Oklahoma City as we've -- so we're not only looking at those opportunities that exist in the oilfield on the rental side, we're also looking at it for other areas as well. We think generators are a strong aspect of that rental business, and we've made some investments there. But one of the things we get to do is we get to pick and choose the best investments within that particular grouping. So we see some investments that are 8-, 9-, 10-month type paybacks in that area. Water transfer business started organically in the last year is growing significantly. We invested some money in that and we continue to invest money as we see that grow. The other thing that we're trying to take advantage of is logistics area. Not only just trucking in the oilfield but other areas as well. We hired a truck broker to come onto our team, and we're looking at broken -- brokering other commercial activities. So the move in making the transition from an oilfield services company like we were in '16 to an energy services company and going to the industrial side, that part truly continues for us. We've made -- and Marshall, I haven't talked to you in a long time, but we made application to MSCI to move our GICS code over. And they're going to revisit that. We've been in active communication with them and they're going to revisit that in -- after our annual reporting comes out. We think that's a big move. We think we'd get other investors. We initiated the dividend last year. We're paying 2.3% dividend and returning money to shareholders. That is indicative of an industrial company. So -- and you know my background pretty well. So I have more -- come from a more of an industrial background.

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Operator [36]

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(Operator Instructions) Our next question comes from the line of Taylor Zurcher with Tudor, Pickering, Holt.

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Taylor Zurcher, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Oil Service Research [37]

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Most of my questions have been answered. Maybe I'll toss one out on the pressure pumping side. You talked in the script about your 6 frac fleets being effectively fully utilized at least since late January. And so as we think about the sequential changes in utilization from Q1 to -- or from Q4 to Q1, I suspect there's some weather issues that you're dealing with on a -- that you typically deal with every year up in the Northeast. So I'm curious if you could help us understand how we should expect average utilization changes from Q4 to Q1?

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [38]

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Really feel very good about it, very strong. We thought that a lot of our issues as things went on down, obviously, with the price of oil dropping 30% in a short period of time like it did, it was one of those type things that affected a lot of other people. But it was also budget exhaustion. The E&Ps don't get rewarded if they go outside their cash flows, and they had exhausted their budgets and we saw that. We thought and we correctly predicted that the market would pick up for us right after the beginning of the year. And it did a little bit earlier than that in sand, but it certainly did with the utilization of our crews. But if you look at it, we have 4 crews up in the Northeast. And not a lot of discussion, but I think everybody probably saw, there was 204 Bs taken out of the system in the last weekly EIE report. We're down to 1.1 trillion Ts in storage. That's one of the lowest marks we've been in a long time. Last year' storage at this time was 1.5 trillion and the 5-year average is 1.7 trillion. So we think significant opportunities are -- in the gas markets are going to be there. That's why we have 4 spreads up there currently working. And oil price is at $58, a lot of different commentary than it was at $42.

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Taylor Zurcher, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Oil Service Research [39]

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Got it. That's helpful. And then on the pricing side, I mean, you're still doing pretty healthy adjusted EBITDA per fleet. So 2-part question. Is that -- my back-of-the-envelope math would suggest around $13 million in EBITDA per fleet on annualized basis today. Is that something you can hold constant moving forward? And then second part is, you've had some of your peers in the Mid-Con, in particular, talk about how pricing is fairly challenged in that market, at least, relative to other markets around the country. And so curious if you're seeing any delta in pricing between the Utica and the Mid-Con?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [40]

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The Mid-Con is highly competitive right now, to answer your first question. We think that $13 million per fleet can be held. Q4 to Q1 sequentially, pricing is relatively unchanged, but the activity levels have picked up quite a bit. All 6 of our fleets have been working since late January, so we're optimistic about the utilization of our fleets. And I think it's important to note that as commodity prices recover, we expect that pricing for our services will recover as well.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [41]

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Don't forget that we also have 2 fleets under contract that are operating under contract with a little bit different pricing scheme there. And then the same thing holds true on our sand. We have contracted sand that were -- those contracts were made during pretty good times.

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Operator [42]

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Our next question comes from the line of John Daniel with Simmons.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [43]

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Just wanted to follow up on -- I think Daniel sequentially answered that you expect to be with the U.S. Infrastructure back on a $200 million sort of annual run rate for rev for the back half of the year. Just wanted to make sure if I heard that correctly? And then just sort of your vision, Arty, in terms of what that growth rate could be as you head into 2020?

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [44]

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Well, let me answer the first part -- the second part of your question first. And we think the growth rate -- we are bidding on a lot of work. And we're focusing on some transmission things. We've actually been bidding some with E&Ps putting Electrical Infrastructure out in West Texas in the Permian. So we think the future is very bright. We have a very, very strong business development group and they are in a lot of offices in -- we look at it in a lot of different things. I mean, we're actually looking at things internationally as well. When you think about it from an international perspective, we have the ability to do things like logistics and supply chain and all those things that we've proven that we have done under pretty tough conditions in Puerto Rico. I know everybody -- people have been going to San Juan and they say, oh, things all are back to normal. Remember that they weren't when we went there in 2017. And we had to establish not only housing, which he had experienced with our lodging up in the oil sands. And then in the supply chain, we had ex-military guys that are a part of our team that set up things logistically. So we're doing a lot of bidding on a lot of different projects and so we think that the growth is going to be there and we're going to grow it -- continue to grow it significantly. Helicopters were a big part of that. When you start to do bidding for transmission type business, you remember from manufacturing background we like to control our inputs. Helicopters are a part of that input. And having the availability of our helicopters is a very, very strong part because it's a one-stop deal for customers on transmission business.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [45]

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Okay. So in other words, you're opting to significantly grow in at from the current (inaudible)run rate. Just to make sure I translate correctly.

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [46]

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Yes.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [47]

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Okay. I hate to put you on the spot and ask a sort of direct modeling question, but just given that we are here in mid-March right now. Mark, can you give us just a frame for where Infrastructure might shake out in terms of top line and margin for Q1? And do you expect any type of one-off costs or benefits this quarter just as this thing is winding down?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [48]

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Yes, I think as you look at Q1, the swing there really depends on the demobilization of equipment, which is included in that $140 million in backlog. Demobilization is about $50 million of that. So that certainly may be a one-off type item in Q1.

And then margins in Puerto Rico, we would expect to be in a similar ZIP code to what we saw for Q4.

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Operator [49]

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We have a follow-up question from line of Tommy Moll with Stephens.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [50]

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And it's been partially answered, but I just want to make sure I'm hearing you correctly on the redeployment of assets from Puerto Rico to the Lower 48. Is -- are we hearing from you that on the current backlog you can immediately take those assets, redeploy and your revenue run rate should go up in the Lower 48 just as you run through the backlog quicker? Or we should assume there is maybe a longer lead time where you bring the assets back, you go out and bid on more work. Theoretically, your backlog ought to grow and with that, the quarterly run rate or revenue will rise with it.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [51]

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Tommy, I think, that your question has 2 answers. One, we expect the revenue growth rate to grow with those assets coming back, but we also expect the expense side to come down. We are currently renting equipment to do the workload that we have right now at the tune of about a $1.5 million a month. So that would displace those rentals and take the cost of doing business down. So we see it as certainly a good opportunity for the deployment of those assets.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [52]

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Okay. And then last one for me. There were recently some pretty large E&Ps that had analyst days talking about some aggressive medium-term growth plans, particularly in the Permian. And one of the themes that you guys have capitalized on in the past is to figure out what's going to be tight, and then go out and get exposure to that before everyone else gets there kind of skate to where the puck's going not where the puck is, I guess, is the way to put it. Are there any other themes that you have in mind as areas of the oilfield that you think are likely to get really tight here and or those some of the areas that you're already involved in?

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Mark Layton, Mammoth Energy Services, Inc. - CFO, Company Secretary & Principal Accounting Officer [53]

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I think as we look at the oilfield right now and our investments we're making, as Arty mentioned earlier, we're certainly excited about the rental side of the business as well as the water transfer side of the business. So we continue to invest and see high demand in those 2 particular areas on the oilfield.

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Operator [54]

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And that concludes today's question-and-answer session. I would like to turn the call back to management for closing remarks.

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Arty Straehla, Mammoth Energy Services, Inc. - CEO & Director [55]

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Thank you, everybody. We thank everybody for dialing in today. I want to personally thank our team. Without the hard work performed by each of you, Mammoth would not be what it is today. In particular, I want to thank our Infrastructure team who have shown the utmost professionalism while working in a very challenging environment and have answered the call when natural disasters have occurred. Future is bright for Mammoth and our roughly 2,380 team members as we intend to continue to grow and deliver shareholder value, appreciation in the years to come. Thank you to our shareholders for your support and interest in our company. We look forward to seeing many of you at our upcoming conference appearances speaking with you again in May, when release -- when we release our first quarter earnings. This concludes our fourth quarter conference call. Good day.

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Operator [56]

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Ladies and gentlemen, thank you for your participation in today's conference. This includes the program and you may now disconnect. Everyone, have a great day.