Good day, ladies and gentlemen and welcome to the Mammoth Energy Services Second Quarter 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.

Thank you, Ashley. Good morning and welcome to Mammoth Energy Services second quarter 2018 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, 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 second quarter press release, which can be found on our website along with our updated presentation. Now I will turn the call over to Arty.

Thank you, Don and good morning everyone. The second quarter of 2018 marked our seventh quarter as a public company and the fourth consecutive record quarter on an adjusted EBITDA basis. We are able to generate $149 million in adjusted EBITDA on $534 million of revenue, which is up from the first quarter of 2018 by 14% and 8% respectively. It was a busy period as our team executed well within our core businesses and we have been able to further improve our balance sheet, while focusing on some growth initiatives. We spent roughly $72 million in CapEx, the majority of which was for the expansion of our infrastructure and transportation and the expansion of our sand facilities. We completed two accretive acquisitions for $14 million and still paid off 100% of the borrowings of $39 million on our credit facility during the period, leaving us debt free. While Mark will elaborate further on our financial performance in his comments, I wanted to point out a few key highlights I am particularly proud of. Our infrastructure division performed exceptionally well in Puerto Rico. Similarly, our OFS teams excelled in spite the apparent concerns of softness in the market maintained full utilization during the period. From a portfolio perspective, our Q2 results again underscore our differentiation from many of the OFS companies we are compared to. As we look ahead, we envision a continued diversification towards industrial sectors to complement our existing OFS asset base. Consistent with our transition towards the less cyclical platform, our Board of Directors initiated a quarterly dividend, which was announced in July and will be paid starting in mid-August. This initial dividend reflects our balance shareholder focus on both growth and income. While the implied yield is modest at this time, we feel that it is…

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 second quarter of 2018 came in at $534 million, up more than 8% from the first quarter of 2018. The growth of our infrastructure segment, the expansion of our pressure pumping division, the growth of our internal sand production, improved equipment utilization and improved pricing for our services, all contributed to the higher revenue compared to the prior period. Net income for the second quarter of 2018 came in at $43 million or $0.95 per share. Adjusted earnings per share came in at $1.34 per share. It should be noted that Mammoth recorded a non-cash charge of $18 million related to equity compensation to non-employees at our sponsored level as a result of the recent secondary offering. While we recognize this may draw questions, it is important for everyone to understand that this charge is non-cash and was paid by our sponsor. Further, it did not result in the issuance of shares, so it is non-dilutive to Mammoth. Adjusted EBITDA for the second quarter of 2018 came in at $149 million, up more than 14% from the first quarter of 2018. Our corporate adjusted EBITDA margin was 28% during the second quarter as compared to 26% in the first quarter of 2018. Selling, general and administrative expenses came in at $65 million in the second quarter of 2018, up from $39 million in the first quarter of 2018. Excluding non-cash equity compensation to non-employees of $18 million and $28 million of bad debt expense, SG&A expenses during the second quarter were $18 million or approximately 3.4% of revenues. Growth across all…

[Operator Instructions] Our first question comes from Tommy Moll of Stephens. Your line is open.

Good morning, gentlemen. Thanks for taking my questions.

Good morning, Tommy.

So I wanted to start on Puerto Rico as you roll onto the new contract there, how do you expect the number of personnel on the island to fluctuate over the next few quarters, how does the top line evolve along with that and then as well on the margin side, how should we think about that?

Well, Tommy, let me first of all say that our team – our infrastructure team in Puerto Rico has executed at a tremendously high level and we are very proud of the work that they have done. As you know, we are nearing the end of the restoration phase and going to reconstruction. We increased our personnel on the island during the past quarter and it will start falling somewhat as it comes back to much more normalcy. What occurred was that the core of engineers, when they exited the island, there was still quite a bit of restoration work and we took our increases up. With that said, we are still about 700 on the island today. Now, that’s down from a high of about 1,000. So, we still view this as long-term work. We have the $900 million contract that we won during the course of the second quarter and we feel like that as we make the transition to reconstruction, we still have a long time to be on the island.

And any insight into when the next round of RFPs might kickoff?

No, I think as you have seen with – PREPA has had quite a bit of operational changeover and that type of thing. So right now, we are waiting on the PWs for the reconstruction. We have the first ones have been issued and we are currently working on those, but there will certainly be more. And when I use the term PW, those are project worksheets that PREPA is designing the work for the reconstruction and we have to be – and we have been an aid to them in doing this, but it will still be a longer term process.

Okay, thanks. And then as a follow-up I wanted to ask about the acquisitions that you completed in the second quarter both on the crude hauling and the cement and acid sides, it sounds like the angle here is similar to the one you played a year ago or so with T&D acquisitions, where you bought and then quickly invested capital to scale the acquired businesses. Is that what we should continue to expect for the more recent deals and how do they fit into your broader strategy in terms of where these businesses were operating or will operate and then any synergies you expect to realize with your existing portfolio? Thanks.

Yes, thanks, Tommy. I will tell you both of them were very strategic for us and that was part of the decision-making and then of course there are values that we can add on to our platforms, and that’s what we have done. If you go all the way back to pressure pumping a couple of years ago when we added additional horsepower and we have added additional sand mines and that type of thing and then we did the same thing with the infrastructure business, we bought two small platforms and then we added CapEx to it. It’s exactly what we are doing here. First of all, I will talk about WTL in the crude transportation. Number one, it fits into our broader thought processes of transportation. We are already in the sand-hauling. We are already in the rig hauling. So it’s a logical step to go into the crude transportation. We saw the tightness of the pipelines coming in Q1. We actually started the negotiations on this and we closed it in Q2. Since then, we have doubled the size of the fleet and we have continued to grow and we will continue to invest in it. Now, it being a Oklahoma-centric company that we started with, they had a little bit of work and they would truck oil out of Wichita Falls back into Oklahoma and things of that nature. We have seen a huge amount of demand for making the longer hauls from Owen Lake, which is just outside the Permian to Gardendale, which is southwest of San Antonio. So, we feel very, very good about that and we continue to build that business. We were able to buy a lot of used equipment on the market and we have certainly in the process of putting it to work. The second acquisition was RTS, small cementing, acidizing company in the Permian. The thing that attracted us to it was two things. One is it was covered land play in that. It had real estate that was associated with this, that gave us three new yards in the Permian in the Delaware. We liked that aspect of it for further expansion of other services that we currently have. Secondly, from our standpoint, it was a platform that we could build on and add some additional equipment and that’s exactly what we have done so far is add additional equipment to it. Thirdly, the part that we really like about them is their customer base. They had about 250 customers. Some of them large and some of them extremely small that we would be able to go out and go to work for and take cross services forward. So, we feel very, very good about both acquisitions, both of them were cash flow positive the first month if they came into our team.

Great. Thank you for all that and that’s all for me.

Our next question comes from Jason Wangler of Imperial Capital. Your line is open.

Good morning, guys.

Good morning, Jason.

Wanted to ask maybe on the infrastructure side here in the U.S., obviously, Puerto Rico has been taken most of the headlines for you guys, but how are you seeing that business build up and you mentioned a couple of regions that you are in, but could you maybe talk about the bidding or what you are seeing from a margin perspective there as you kind of grow that business?

Yes, it’s – obviously, when we went down the Puerto Rico last into the third quarter, we had about $30 million in backlog in the continental United States today that stands at $500 million. We have grown that business rapidly. What Puerto Rico gave us an opportunity when a number of the IOUs or investor-owned utilities came down to actually to do mutual aid and everything, they saw our capabilities and they saw our team working in an extremely high level. That has translated to us in about $500 million of backlog, but the bigger part of that is the pipeline that we see – we are actively bidding on about $2 billion within our pipeline and we think a lot of that work we will have a good – better chance to get. So, we feel very good about where infrastructure is on the continental United States. That has been our whole emphasis from the very beginning is to be a continental United States player with that group. So, we feel very good about where infrastructure is. We feel very good about the leadership and execution by the teams.

Appreciate the color. And maybe just on that backlog or even the bids at a higher level, I mean, is that type of work over the next couple of years, how you guys kind of think about backlog in terms of the timeframe of when you would hit?

We think about backlog in terms of the 3-year horizon and our pipeline would – in a lot of cases, we are bidding some fairly heavily that would be a little bit longer term than that. Right now, that’s the way we think about it is 3 years, but some of the backlog – some of the pipeline things that we are bidding or transmission projects that would have a longer horizon. And of course, I think you know the transmission is a little bit higher EBITDA producing than standard distribution work.

Thanks, Arty. Appreciate it.

Thank you.

Our next question comes from Jim Wicklund of Credit Suisse. Your line is open.

Good morning, guys.

Good morning, Jim.

Getting into the oil hauling business is clearly a positive right now. My question involves truck drivers, the famously quoted 20% shortage of truck drivers in every industry across America, what are you doing to hire and retain drivers? And the follow-up to that question is, once the pipeline capacity in the Permian is added, does your truck hauling, oil hauling, trucking business become somewhat obsolete?

Let me answer the second question first. No, it doesn’t become obsolete. You still have to pipe from the wellbore to the pipeline. So, there is still the gathering system that – and that’s what we initially saw, Jim. That’s exactly where we had started. On the second part, on the recruitment of drivers, we have had phenomenal success in the crude hauling business. We have certainly one of the advantageous things for us is that with the crude hauling or crude transportation in West Texas being something that goes down to South Texas, we have widened out where we seek our drivers. We are seeing a number of drivers come from San Antonio and surrounding areas. So, we are not necessarily recruiting in the tightest of the labor markets in the Permian, we are recruiting in better markets where there is more populous centers.

Okay, that’s helpful. And I assume most of them get home, so that’s always a positive. Let me move to the Gulfport contract, as I understand, the Gulfport contract, if they cut you loose and I think they have cut 1 crew loose then they make it up to you in terms of margin. But as you know you are already working for somebody else, so that is an issue. My question really centers around the annualized EBITDA per spread. I think you had been running close to $16 million this quarter, I think closer to $14 million and you had talked about not adding capacity, you have got your 6 crews and that’s where you are going to keep profile. Can you talk to us about your payback period that you quoted to us before where that stands today, obviously, it’s not getting better near term at least? Can you talk about where that payback period is today?

Yes, today, Jim, that payback period is just over 3 years, as we have commented publicly before, we would like to see that payback period reduce probably to the 2-year to 28-month timeframe to justify investment, but we are not quite there yet on leading edge pricing.

Okay. And do you see an annualized EBITDA per spread? Was that number going to stagnate for a little while we go through this transition period, does it go down a little bit or kind of what are the moving parts to that?

We have certainly seen some regionalized softness similar to many of our peers. We are seeing high inbound calls from our customers in relation to 2019 completion plans. So, there maybe some short-term softness in the pressure pumping market, but we are seeing a full calendar for our crews and a high number of increase related to 2019 completion plans.

Hey, Jim, one thing to remember, on our EBITDA per crew, ours is solely just the pressure pumping. We have our own individual sand segment that we also report separately and that maybe a difference between what you see in our sales and some of our other competitors.

Perfect, guys. Thank you. Good job.

Jim, thank you.

Our next question comes from Praveen Narra of Raymond James. Your line is open.

Hi, good morning guys. I guess if I could ask a follow-up on the crude hauling business, maybe if you could give us a little bit of color on how you see the – and I fully understand the longer term gathering in transportation, but I guess maybe the shorter term opportunity in the Permian, but maybe you could talk about kind of how many turns you guys expect to get as you are driving those long-haul routes and maybe how much of the spread you could capture? Any color you can give on the economics of the shorter term opportunity would be great?

Yes, we expect because of the distances. The distance is about 340 miles that we are traveling. So, it is one of those type situations where we will probably make 1 turn a day, but we will have multiple trucks deployed there to make it. We have seen pricing rise by 8% to 10% since we entered this a month ago. And quite honestly, we are pricing – you never tell a customer no, every once in a while, you raise the prices until they say no and it’s – quite candidly that’s what we are seeing somewhat in this business. We continue to raise prices and continue to think put those assets to good use and get a very good return. So, we feel very good about the crude transportation business.

Okay, perfect. And then I guess at least according to my mind, you guys – we expect you to end next year with the significant amount of cash on the balance sheet, but can you talk about those acquisition opportunities and the opportunities set that is available to you guys? Is it as attractive as it was or are we kind of saying the opportunities become more marginal and certainly hard to expect what happened in Puerto Rico with the infrastructure services business, but can you talk about the return opportunities that are available in front of you guys?

Absolutely. We feel that’s one of the brightest part of our stories is and when you are not confined to investing in solely into one sector and you have a broadened outlook where you can look at some different things that you can get into, we feel like that we can get the best returns on invested capital with that. Currently, we are looking at 25 active investments that we are considering. So far year-to-date, we have looked at 122 different investments and that compares – that’s at the end of Q2 and that compares with 135 discrete opportunities that we look. Our deal flow that we are seeing now is very broad and very, very strong. We feel extremely good about it. And of course, one of the highlights of this quarter is again being out of debt, building cash and being able to deploy that cash into businesses we think that will get the best return.

If I could ask one follow-up, I guess just in terms of the available opportunities, is it more attractive in the industrial space or the oilfield service space or the other kind of step-out spaces you are referring to?

We see both. And we will make discrete investments where we get a 15 to 18-month payback on those assets. We are making those within the oilfield services, but we are looking much broader and we try to look at macro trends. We look at IMO 2020 and we look at 5G and the implementation of 5G and the growth of data and those types of things. So, we are looking at a very, very broad spectrum of different opportunities.

Okay, perfect. Thank you very much, guys. Good quarter.

Thank you.

[Operator Instructions] Our next question comes from David Anderson of Barclays. Your line is open.

Great, thanks. Good morning. A question on the infrastructure services, there is a lot of moving parts here as you are kind of moving into more into reconstruction in Puerto Rico and you just highlighted how Lower 48 now would certainly makes up about a third of your backlog. Can you just kind of talk about if I think out over the next couple of years about how these mixes shift and how we should think about your margin profile, 31% margin is I don’t think anybody was expecting these to be maintained here, but just help us understand how they shifts over the next say 12 to 18 months? I am also particularly curious of how the Lower 48, how those margins compare to the margins you are already – or you are expecting to earn on the reconstruction side on Puerto Rico?

On the reconstruction side, we have previously bracketed those margins in the mid – high 20s. In regards to the U.S. work, we have bracketed those margins in the mid to high teens and I think the key takeaway as we look at the U.S. work is as Arty briefly mentioned earlier is that we have had a large number of investor-owned utilities, see the execution of the team’s firsthand in Puerto Rico. So, that’s helped us in our bidding process for Lower 48 work and also given us a better opportunity on the transmission side of the business, which is higher margin than the distribution work. So, that takes that bracket of mid to high-teens upwards as we change that mix between transmission and distribution. As Arty mentioned, we have got about $2 billion that the team is currently bidding and given the execution we feel fairly confident that we will win a fair portion of what we have got out for bid.

So, yes, I think you had said before I think that was about a 3-year timeframe to turn the backlog into revenue. So, if just kind of real loosely, does that imply that kind of Lower 40 will be like maybe a quarter of the infrastructure business in terms of top line by the end of ‘19, is that kind of ballparkish?

More than likely higher, probably couch that in the 35% to 40% range overall depending on how we deploy CapEx.

Got it. And a question on your pressure pumping side, one of the things you have been hearing from a lot of the E&Ps is they said we all be beating production numbers. I hear a lot of CapEx numbers higher. It sounds like a lot of these programs are sort of ahead of schedule than they have planned to. Some companies even seem like to point back on their schedules – on their planning, because they have gotten so far ahead. It sounds like there is a lot of completion efficiencies that are starting to kick in, particularly in the Northeast. I was just curious, if you have seen those with your customers, are you seeing those completion efficiencies really kick in? Is there any concern you have on any of your fleets up there in the Northeast or in the SCOOP/STACK that your customers are getting ahead of schedule, have you seen any of these kind of trends in your business?

We are seeing the efficiencies across the board. And I think you see that in relation to the percentage of zipper fracs. For Q2, 84% of our work was on zipper frac pads. So that drives efficiencies and you see that translate to the EBITDA per stage level. So quarter-over-quarter, our EBITDA per stage increased about 15%.

And in terms of the budgets, are you concerned at all about the budgets being potentially used up earlier than expected for this year or does that not bother you because of the contracted nature of your fleets?

We certainly like the contracted nature of fleets and we have historically contracted a percentage of our fleets. As we look into the back half of 2018, that’s certainly a concern that we are aware of. Our teams have executed at a high level. We have constant contact with a quality customer base and have line in sight of their completion schedules. So as we sit today, we have got line of sight for full calendar for the back half of ‘18 and taking a number of inbound calls for ‘19 in regards to dedicated fleets.

Okay, thank you.

Our next question comes from Brad Handler of Jefferies. Your line is open.

Thanks. Good morning, guys. If I could ask you to steer back to infrastructure as well, and I guess I don’t mind asking the very specific question perhaps stretching you outside of what you would normally like to speak to. But with infrastructure, it has beaten us from a top line and a bottom line perspective a couple of quarters in a row and I guess, I’d be welcome if you would be willing to share some specific revenue guidance for Q3 or just even some directional boundaries, because I am having trouble keeping up?

Directionally, Arty indicated a headcount earlier the reconstruction phase will not be linear. We have historically not given guidance on either revenue or EBITDA, so not going to give guidance in the back half of 2018 right now, but I think directionally given the headcount, we also have the $900 million reconstruction contract that’s out there as well as the backlog numbers that we have talked about in terms of a 3-year backlog in North America. So, we have got some data points publicly available to triangulate the directional revenue stream from the infrastructure segment.

I get those. I don’t have enough grip on those pieces to know what to do with that, but okay, we will wait and see. Could you update us on PREPA and the bad debt expense and the process of I guess trying to recapture that?

So we have got an excellent working relationship with PREPA, continue to have active dialogue with them. The bad debt expense specifically relates to a tax gross up provision that is contained inside of the restoration contracts as amended. So, we continue to have an active dialogue with PREPA, but we have not collected those tax gross up amounts as of today.

But other than that they are in the storm restoration investor-owned utility world, they are a pretty fast peer.

Okay. Is it reasonable to think of this continuing into the reconstruction phase as well? So is it the same, I don’t know, dispute is the word you would use, but is it the same issue that – so therefore we might expect this negotiation to run for a nice long time?

No, the reconstruction contract does not contain the specific provision.

Okay, okay. And then one more for me, please, does the equity compensation piece, I am not sure that I fully understand that either candidly and I guess that’s okay. Is there any reason to think that there is more of that that we might expect at different times or is that purely related to the secondary, I guess you may – you sort of alluded to that in your prepared remarks?

Yes. This type of arrangement is common with private equity backed entities. So, I think the key takeaway is first that this is a non-cash charge and secondarily that we did not issue any shares relative to this equity-based compensation. To your question in regards to whether or not there are any future amounts, there are and we have historically disclosed the fair value of those amounts inside of the notes of the financial statements. And as of today, the fair value of those future amounts is approximately $43 million. You are exactly right that this was triggered by the secondary offering.

Terrific. Thank you very much for that. I will turn it back.

And our next question comes from [indiscernible] Partners. Your line is open.

Steve, are you there? We can just move on Ashley.

Alright. Well, I am showing no further questions in the queue at this time. So I’d like to turn the call back to Arty Straehla for any closing remarks.

Thank you. We want to thank everyone for dialing in today during this very busy time. 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 teams who have shown the utmost professionalism while working in very challenging environment. I also want to welcome the newest members of the Mammoth family from WTL and RTS Energy Services. The future is bright for Mammoth and our roughly 2,500 team members, as our un-levered balance sheet will allow us to become as consolidator 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 and speaking with you again in early November when we release our third quarter earnings. This concludes our second quarter conference call. Good day.

Ladies and gentlemen, thanks for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.