Mammoth Energy's Q3 2025 Earnings Call: Contradictions Emerge on Sand Business Strategy, Rental Growth, and Free Cash Flow Path

Date of Call: October 31, 2025

Financials Results

• Revenue: $14.8M, down from $16.4M in Q2 and $17.1M a year ago
• EPS: Net loss from continuing operations of $12.1M, $0.25 per diluted share, compared to a loss of $8.9M or $0.18 per diluted share in Q3 2024
• Gross Margin: 19% (drilling segment — highest in segment history); consolidated gross margin not disclosed

Guidance:

• Expect improved cash generation and margin recovery in 2026 as transformation initiatives take hold
• Drilling expected to continue performing well in Q4 and into 2026
• Sand targeted to return to positive gross margin in 2026 after divestiture and cost actions
• Full-year 2025 CapEx expected to remain within previously communicated range, focused on aviation and maintenance
• Rentals to benefit from seasonal winter demand and redeployment of two off-lease aircraft at higher lease rates
• Pro forma liquidity >$170M after restricted cash release, supporting transformation and selective investment

Business Commentary:

* Financial Performance and Portfolio Repositioning: - Mammoth Energy Services reported net loss from continuing operations of $12.1 million for Q3, with revenue at $14.8 million, down from the previous quarter. - The decline was due to the divestiture of the Piranha assets and continued underperformance in the Sand segment, emphasizing the need for portfolio optimization and strategic capital deployment.

• Drilling Segment Growth and Market Focus:
• Drilling revenue rose to $2.3 million, marking a 207% sequential increase and a 47% increase year-on-year, with a record gross margin of 19%.

• This growth was driven by increased horizontal drilling in the Permian Basin, highlighting the value of concentrating capital in core markets.

• Aviation and Rental Segment Expansion:

• The Rentals segment revenue was $2.8 million, down 11% sequentially but up 24% year-over-year, with aviation contributing positively to this trend.

• The expansion in aviation rentals and strong customer demand are enabling Mammoth to enhance recurring earnings and improve cash generation.

• Cost Management and Efficiency Initiatives:

• Selling, general and administrative expenses were reduced to $5.2 million, a significant improvement from last year's approximately $35 million.
• This reduction reflects efforts to simplify the organization, streamline operations, and maintain strict discipline on discretionary spending.

Sentiment Analysis:

Overall Tone: Neutral

• Management emphasized restructuring and liquidity ("positive free cash flow from operations"), highlighted drilling and accommodations as strengths (drilling revenue tripled sequentially; 19% gross margin in drilling), while acknowledging headline profitability pressure (net loss $12.1M; adjusted EBITDA loss $4.4M) and ongoing work to restore margins and rightsizing underperforming segments.

Q&A:

• Question from Colby Sasso (Daniel Energy Partners): Can you speak on the visibility for sand volumes in 2026, ideally with some color on the basins you serve?
  Response: Management expects sand volumes to increase in 2026 versus Q3, citing logistic advantages into Western Canada (Montney) and the Northeast (Utica, Marcellus) and encouraging sales conversations.

• Question from Doug Garber (Westport Alpha): Your cash and marketable securities is about $123 million as of 10/31; do you still have $10M in escrow and $5M–$10M from held-for-sale not included in that number?
  Response: Yes — about $5M held-for-sale (primarily drilling rig assets) and roughly $10M remains in escrow from the April T&D transaction, expected to be released at the earliest in April 2026.

• Question from Doug Garber (Westport Alpha): On PREPA and tax items, how much remains and is the ~$20M net liability a fair way to think about it?
  Response: PREPA receivable is $20M collectible when PREPA exits bankruptcy (timing unknown); the majority of the tax liability relates to Puerto Rico and is recorded at gross pending negotiations/write-offs with Puerto Rico tax authorities.

• Question from Doug Garber (Westport Alpha): For Sand, how much of the drag was one-time railcar return costs and what's the path to free cash flow neutrality in 2026?
  Response: Q3 included ~$550k one-time railcar-return charges that reduce future fixed costs; path to cash neutrality relies on higher 2026 volumes, rightsizing the rail fleet and continued sales momentum.

• Question from Doug Garber (Westport Alpha): How much did returning railcars reduce monthly cost, and what's the current total railcar monthly liability?
  Response: Total railcar cost is about $120k/month; returning the recent set reduced cost by roughly $30k/month, with the next releases expected Feb–Mar 2026.

• Question from Doug Garber (Westport Alpha): Is sand pricing still in the ~$20 per ton FOB range?
  Response: Pricing was slightly below $20/ton in the quarter for some sales, but demand and pricing continue to be around $20/ton for 40–70 mesh volumes.

Contradiction Point 1

Sand Business Growth Strategy and Market Conditions

It involves differing expectations regarding the growth trajectory of the sand business and market conditions, which are crucial for investor expectations and strategic planning.

Can you provide visibility for sand volumes in 2026, including details on the specific basins you serve? - Colby Sasso (Daniel Energy Partners)

2025Q3: Mammoth's sand volumes in 2026 are expected to increase, following a Q3 that served as a low watermark or reset. The company's primary logistical advantages lie in Western Canada (Montney) and the Northeast (Utica, Marcellus). The sales team's conversations indicate positive prospects for 2026. - Mark Layton(CFO & Company Secretary)

Can you explain the Q1 volume growth in the sand business and your outlook for the remainder of the year, including sand prices? - Josh Jayne (Daniel Energy Partners)

2025Q1: Strong demand was observed in Western Canada, with stable pricing expected to persist throughout 2025. - Mark Layton(CFO)

Contradiction Point 2

Rental Business Growth Strategy

It highlights differing views on the growth strategy for the rental business, which could affect strategic planning and resource allocation.

How is the balance sheet positioned regarding cash, marketable securities, recent sale escrow, and land rigs held for sale? - Doug Garber (Westport Alpha)

2025Q3: We see strong demand and opportunities to grow our customer base. There are discrete opportunities in the construction market. We view the rental business broadly and believe this is an area where we can acquire high-quality assets at attractive prices. - Mark Layton(CFO)

In the rental business, can you provide details on customer trends and demand cycles? What are the growth and demand drivers for next year? - Rick Black (Mammoth Energy Services)

2024Q4: Our current customer base is primarily comprised of E&P companies, along with other service companies. We see strong demand and opportunities to grow our customer base. There are discrete opportunities in the construction market. We view the rental business broadly and believe this is an area where we can acquire high-quality assets at attractive prices. - Mark Layton(CFO)

Contradiction Point 3

Free Cash Flow and Path to Neutrality

It involves the company's financial projections and strategies to achieve free cash flow neutrality, which is crucial for investor expectations and company valuation.

Can you explain the Sand business's path to free cash flow neutrality by 2026 or next quarter? - Doug Garber(Westport Alpha)

2025Q3: We continue to expect to be free cash flow neutral by 2026. - Mark Layton(CFO)

What's your path to free cash flow neutrality? - Doug Garber(Westport Alpha)

2025Q2: We've executed on aviation deals that have been positive contributors from day 1. We still have SG&A overhang from Puerto Rico litigation. As it declines, along with organic growth and utilization, that will help us achieve free cash flow neutrality. - Mark Layton(CFO)

Contradiction Point 4

Sand Sales Market Split

It concerns the division of sand sales between the domestic market and Canada, which impacts strategic positioning and revenue projections.

Can you provide visibility on sand volumes in 2026 and specifics regarding the basins you serve? - Colby Sasso(Daniel Energy Partners)

2025Q3: Our sales team has been having positive conversations with customers indicating a rebound in 2026. It's in 2026 as the low watermark or reset that we'll start to see an increase. - Bernard Lancaster(COO)

What percentage of your sand is sold domestically compared to Canada? How do you expect these markets to develop over the next 3-4 quarters? - Colby Sasso(Daniel Energy Partners)

2025Q2: The majority of our sand has historically been sold into Western Canada, particularly into the Montney. We believe this split will continue to be more weighted towards the Montney Shale in the future. - Mark Layton(CFO)

Contradiction Point 5

Sand Business Growth Strategy and Capacity

It involves differing perspectives on the growth strategy and capacity utilization for the Sand business, which could impact investment decisions and operational planning.

Can you provide visibility on sand volumes for 2026, including details on the basins you serve? - Colby Sasso (Daniel Energy Partners)

2025Q3: Mammoth's sand volumes in 2026 are expected to increase, following a Q3 that served as a low watermark or reset. The company's primary logistical advantages lie in Western Canada (Montney) and the Northeast (Utica, Marcellus). The sales team's conversations indicate positive prospects for 2026. - Mark Layton(CFO & Company Secretary)

What characterizes the Sand business environment, are there opportunities to deploy capital or pursue acquisitions, how can the business grow, and what does the 2025 outlook look like? - Rick Black (Mammoth Energy Services)

2024Q4: For '25, we're seeing some stabilized demand. The key drivers for our Sand business are commodity pricing. We're operating well underneath our maximum capacity, so we have the ability to expand capacity and capitalize as we see demand. - Mark Layton(CFO)