Mammoth Energy Services, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020. Mammoth provides electric infrastructure and oilfield services, including well completion, sand, drilling, and other services.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $66.8 million | $97.4 million |
| Operating loss | $23.3 million | $89.0 million |
| Net loss | $12.4 million; $0.27 per diluted share | $84.0 million; $1.85 per diluted share |
| Adjusted EBITDA (non-GAAP) | $6.4 million | $13.5 million |
| Cash from operations | $14.2 million | $1.5 million |
- Revenue fell 31%. Cost of revenue excluding depreciation and amortization was 72% of revenue, compared with 84% a year earlier; this is not a GAAP operating margin.
- Operating loss narrowed largely because Q1 2020 included $68 million of goodwill and long-lived asset impairments. No comparable impairment was recorded in Q1 2021.
- Cash and cash equivalents were $14.4 million at quarter-end. Total debt was $68.4 million, including $64.0 million drawn on the revolver. Revolver availability after letters of credit was $48.7 million.
- Revolver borrowings declined $14 million during the quarter. Operating cash flow benefited primarily from the timing of receivable collections; capital expenditures were $1.1 million.
- Current assets were $443.7 million and current liabilities $119.6 million. Working capital was $324 million, but it includes substantial PREPA and Gulfport receivables.
Material changes and operating trends
- Infrastructure revenue increased 16% to $29.3 million, primarily from storm restoration work. Average infrastructure crews decreased from 100 in Q4 2020 to 92 in Q1 2021.
- Well completion revenue declined 47% to $23.0 million; completed stages fell 70%, and an average of 0.9 pressure-pumping fleets operated versus 2.7 a year earlier. The company was operating only one of six fleets.
- Sand revenue declined 10% to $8.7 million as tons sold fell 29%; the average selling price per ton rose 23%. Drilling revenue fell 80% to $0.9 million, and other services revenue fell 60% to $5.7 million.
- SG&A increased to $20.8 million from $10.8 million, mainly due to a $10.1 million bad-debt provision. Adjusted EBITDA declined despite the lower reported net loss.
Outlook, risks, and unusual items
- Management expects oilfield activity, pricing, and utilization to remain depressed through 2021 and says customer budgets are expected to remain relatively unchanged. It will monitor conditions before restarting suspended services. Suspended operations include contract land drilling, rig hauling, coil tubing, full-service transportation, cementing, acidizing, and flowback.
- Estimated 2021 capital expenditures are $9 million, subject to industry conditions and financial results. Management believes cash, operating cash flow, and available revolver capacity should fund operations for at least 12 months, but emphasizes dependence on customer payments.
- PREPA owed approximately $227 million for services plus $82.9 million of delinquent interest. PREPA is in bankruptcy, and repayment depends substantially on FEMA or other funding. Collection proceedings remain stayed, with related deadlines adjourned to a June 2021 hearing. The company says it believes the receivable is collectible, but warns it may not be.
- Gulfport’s bankruptcy and rejection of pressure-pumping and sand contracts led Mammoth to recognize estimated unliquidated damages, while also recording substantial reserves. Net Gulfport receivables were approximately $33 million at March 31; the ultimate claim recovery is uncertain. Mammoth also funded $2.2 million in Gulfport’s preferred rights offering.
- The Aviation Note’s minimum debt coverage covenant was not met at quarter-end; Bank7 waived the event of default on April 26, 2021. Mammoth reported compliance with the revolving-credit covenants at March 31.
- Other significant uncertainties include federal investigations and litigation connected with Puerto Rico contracts, PREPA-related claims, employment and securities litigation, and Gulfport claims. The filing does not quantify a clear potential financial exposure for these matters.
- COVID-19, commodity-price volatility, customer concentration, weather, and access to financing remain risks. Infrastructure work has historically depended substantially on PREPA restoration contracts, which ended in March 2019.
Important facts for investors to verify
- Whether and when PREPA will receive funding and pay the approximately $310 million of principal and accrued interest, and the accounting support for collectability.
- Expected recovery on Gulfport receivables and contract-damage claims, including the effects of bankruptcy proceedings and recorded reserves.
- Actual revolver borrowing-base availability, covenant headroom, and the status of the Aviation Note waiver.
- Whether oilfield service utilization and pricing stabilize, and whether suspended operations can resume profitably.
- How much of reported operating cash flow reflects sustainable collections rather than timing, and whether the $9 million capital spending estimate changes.
- Developments in Puerto Rico investigations, PREPA litigation, and other legal proceedings that could affect receivables or create additional costs.