Mammoth Energy Services, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing was signed February 28, 2020. This is an annual report, not a standalone fourth-quarter filing. Unless otherwise noted, amounts are U.S. dollars.
Business context
Mammoth provides electric utility infrastructure services and oilfield services, including pressure pumping, frac sand, drilling and related services. In 2019, the company began infrastructure engineering and oilfield equipment manufacturing. Its large Puerto Rico restoration projects ended March 31, 2019, while weaker oilfield demand led it to idle several service lines.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $625.0 million | $1,690.1 million |
| Operating income (loss) | $(128.4) million | $394.5 million |
| Net income (loss) | $(79.0) million; $(1.76) per diluted share | $236.0 million; $5.24 per diluted share |
| Adjusted EBITDA (non-GAAP) | $77.3 million | $547.3 million |
| Operating cash flow | $(95.3) million | $386.7 million |
| Capital expenditures | $35.8 million | $191.9 million |
| Cash and cash equivalents at year-end | $5.9 million | $67.6 million |
| Revolver borrowings at year-end | $80.0 million | None |
Revenue fell 63%. Operating margin was approximately negative 20.5%, versus positive 23.3% in 2018; gross profit was $81.2 million, or about 13.0% of revenue, versus $596.3 million, or about 35.3%. These calculations use reported revenue and operating results.
- Infrastructure: Revenue declined 80% to $214.4 million after PREPA work ended. Continental U.S. revenue rose 96% to $118 million. Year-end backlog was $490 million, but approximately $479 million was under agreements without minimum purchase commitments; management estimated about $148 million could be realized in 2020.
- Pressure pumping: Revenue fell 33% to $246.4 million; completed stages decreased 14% to 5,378, and average active fleets declined to 2.4 from 3.6.
- Natural sand: Revenue fell 40% to $99.6 million. Tons sold declined 25% to 2.0 million and average selling price fell 24% to $29.70 per ton. The segment reported a $12.6 million net loss.
- Drilling: Revenue declined 52% to $32.2 million; average active rigs fell to 1.4 from 4.3. Contract land drilling was temporarily shut down in December.
- Quarterly trend: Revenue decreased each quarter, from $262.1 million in Q1 to $67.6 million in Q4. Q4 gross loss was $7.9 million and net loss was $60.8 million, compared with Q1 net income of $28.3 million.
Liquidity, debt and material changes
Working capital was $276.6 million at year-end, but cash was only $5.9 million and operating cash flow was negative. The company reported $80 million drawn on its revolving facility at year-end. On February 26, 2020, after the reporting date, it amended the facility: the maximum revolving amount was reduced from $185 million to $130 million, pricing increased, and covenants were revised. As of that date, borrowings were $87.4 million and available capacity was approximately $20.6 million, subject to letters of credit and an availability requirement.
Management estimated 2020 capital expenditures of up to $20 million, potentially materially lower if conditions remained weak or worsened. Management stated that cash, operating cash flow and available revolver borrowings should fund operations for at least 12 months, while cautioning that this depends on customer collections, including PREPA and Gulfport. The quarterly dividend was suspended in July 2019; $0.25 per share was paid during 2019.
Outlook, risks and unusual items
- Management described oilfield market fundamentals as challenging and expected depressed pricing and utilization to persist for the foreseeable future. Customers were expected to remain cautious on 2020 activity and capital spending.
- PREPA owed approximately $227 million for services, plus $42 million of accrued interest, at December 31, 2019. PREPA is in bankruptcy, and collection depends substantially on outside funding. The company’s recovery motion was stayed until a June 17, 2020 status conference.
- In 2019, Mammoth recorded $33.7 million of goodwill impairment and $7.4 million of other long-lived asset impairment, reflecting weak operating prospects and idled activities. It also recorded $42.0 million of PREPA delinquency interest as other income; this non-cash accrual is not evidence of collection.
- Gulfport, which accounted for 20% of 2019 revenue, sued to terminate its pressure-pumping contract and seek alleged overpayments, audit costs and other damages. Mammoth said it would contest the claims. Its separate sand supply contract with Gulfport runs through December 2021.
- Investigations by the SEC and DOJ relate to the PREPA contracts and allegations involving Cobra’s former president and a former FEMA official. Mammoth and its subsidiaries were not charged in the unsealed indictment and said they were cooperating. Related securities, derivative and other lawsuits remain unresolved; Mastec alleged $500 million in damages in a separate 2020 suit. The company said it could not predict the outcomes.
- Other key exposures include customer concentration, weak frac-sand demand and pricing, covenant and refinancing risk, project backlog that is largely cancelable, and commodity-price, regulatory, environmental and operational risks.
Most important facts for investors to verify
- Whether and when PREPA pays the $227 million receivable and $42 million interest, and the accounting or liquidity impact if recovery is delayed or reduced.
- Post-amendment revolver availability, covenant compliance and performance against the revised financial tests.
- Developments in the Gulfport contract lawsuit and any resulting effect on pressure-pumping utilization and related-party revenue.
- Whether infrastructure backlog converts to revenue, given that most is not contractually committed, and whether new continental U.S. work replaces PREPA activity.
- Whether oilfield and frac-sand demand, pricing and utilization stabilize, and whether further impairments or service-line shutdowns become necessary.