Mammoth Energy Services, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Mammoth provides electric infrastructure services and oilfield services, including well completion, natural sand proppant, drilling and other services. Comparisons below are with Q1 2021 unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $62.3 million | $66.8 million |
| Operating loss | $18.0 million | $20.4 million |
| Net loss | $14.8 million | $12.4 million |
| Net loss per diluted share | $0.32 | $0.27 |
| Adjusted EBITDA (non-GAAP) | $9.3 million | $9.2 million |
| Cash from operating activities | $(2.4) million | $14.2 million |
- Revenue declined 7%; operating margin improved to approximately negative 28.9% from negative 30.6%. Cost of revenue before depreciation and related charges rose to 87% of revenue from 72%.
- Infrastructure revenue fell 24% to $23.0 million, principally due to $9.7 million less storm-restoration revenue. Well completion revenue rose 4% to $23.9 million; sand revenue rose 6% to $9.2 million; drilling revenue increased to $2.9 million from $0.9 million.
- Well completion activity increased, including stages completed rising 57% to 699 and average active fleets increasing to 1.6 from 0.9. However, its cost of revenue rose sharply, to 96% of segment revenue from 41%.
- Sand volumes sold increased 92% and average price per ton rose 27%. Q1 2021 included $4.9 million of sand shortfall revenue; none was recognized in Q1 2022.
- Cash and cash equivalents were $8.1 million at quarter-end. Working capital was $297.5 million, but included substantial PREPA receivables. Total debt was $88.9 million, including $86.0 million drawn on the revolving facility. The company reported $11.5 million of facility availability at quarter-end, subject to letters of credit and reserves.
- Interest expense increased to $2.3 million from $1.2 million, reflecting higher rates and average revolver borrowings. Capital expenditures were $1.2 million.
Material changes, liquidity and outlook
- SG&A decreased to $8.7 million from $18.0 million, primarily because Q1 2021 included $10.0 million of Gulfport-related bad-debt expense. Professional-services costs increased, mainly due to ongoing legal matters.
- Operating cash flow swung to an outflow of $2.4 million from an inflow of $14.2 million, primarily reflecting timing of receivable collections. Cash declined $1.8 million during the quarter.
- The February 2022 credit amendment eliminated the leverage covenant and revised other tests. Mammoth said it was compliant with applicable revolver covenants at March 31. The facility matures October 2023. At May 5, borrowings were $84.7 million and availability was $10.3 million after required reserves and letters of credit.
- The company reported failing the Aviation Note’s minimum debt-coverage ratio at March 31; Bank7 waived the default on May 4, 2022, and revised the minimum-cash requirement through September 30, 2022.
- Management expects oilfield pricing and utilization to improve during 2022 and anticipates stronger activity and pricing in sand. As of May 5, three of six pressure-pumping fleets were operating. Management said infrastructure funding opportunities remain strong, including potential work associated with the Infrastructure Investment and Jobs Act.
- Estimated 2022 capital expenditures are $12.0 million, including $9.5 million for well-completion fleet upgrades and maintenance. Management believes available cash, operating cash flow and revolver capacity will fund requirements, while noting liquidity depends in part on customer collections.
Risks, contingencies and unusual items
- PREPA owed approximately $227.0 million for services plus $120.7 million of accrued interest at March 31; total receivables, including interest, were reported as $347.6 million. PREPA is in bankruptcy, collection depends substantially on FEMA or other funding, and a court stay on Mammoth’s recovery efforts remained in place. FEMA had questioned approximately $47 million of costs; PREPA appealed that determination. Nonpayment or disallowance could materially affect liquidity and results.
- Mammoth’s $19.3 million accrued MasTec settlement liability remained current. The settlement requires payments of $9.25 million on August 1 and December 1, 2022, bears interest, and includes an acceleration provision tied to specified collections.
- Government investigations and litigation related to Cobra’s Puerto Rico work remain significant uncertainties. Mammoth and its subsidiaries were not charged in the cited criminal indictment and said they are cooperating with SEC and DOJ investigations. The filing also describes Foreman and related claims, municipal tax lawsuits, and other proceedings; outcomes and potential impacts were not determinable.
- Commodity-price and customer-spending volatility, labor and supply-chain constraints, inflation, weather, interest rates, and the Russia-Ukraine conflict are cited risks. Several oilfield service lines and the Wisconsin sand facility remained suspended or idled.
- The filing’s financial statements and tax note report $3.7 million of income tax expense in Q1 2022, although parts of MD&A label the amount a tax benefit. Investors should verify this internal wording inconsistency.
Important facts for investors to verify
- Progress and timing of PREPA collections, FEMA funding and the appeal concerning the questioned $47 million.
- Actual revolver availability, covenant compliance and cash needs for the amended facility and Aviation Note.
- Whether operating cash flow improves and whether well-completion activity can generate better segment margins.
- Funding and timing of the 2022 capital plan and the two scheduled MasTec settlement payments.
- Developments in Puerto Rico-related investigations and litigation, and any resulting effect on receivables, contracts or liquidity.