Mammoth Energy Services, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Mammoth provides electric-infrastructure services and oilfield services, including pressure pumping, sand, drilling and other services.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $70.5 million | $113.4 million | $228.0 million | $557.4 million |
| Operating loss | $(10.7) million | $(48.5) million | $(126.2) million | $(47.1) million |
| Net income (loss) | $3.4 million | $(35.7) million | $(95.7) million | $(18.3) million |
| Adjusted EBITDA (non-GAAP) | $22.1 million | $(3.8) million | $42.4 million | $87.6 million |
| Cash from operating activities | $(5.1) million | $9.6 million | $1.8 million | $(92.2) million |
Q3 operating loss was about 15% of revenue; nine-month operating loss was about 55% of revenue. Q3 net income included a $6.2 million income-tax benefit and substantial interest income on overdue customer receivables; it did not reflect positive operating income. Adjusted EBITDA is a company-defined non-GAAP measure and includes adjustments related to interest on trade receivables.
At September 30, cash was $13.9 million, working capital was $335 million, total assets were $831.1 million and equity was $574.2 million. Long-term debt was $89.8 million, all under the revolving credit facility. Reported unused borrowing capacity was $18 million after the facility’s minimum-availability covenant and letters of credit. The company reported covenant compliance. At October 28, it reported $12 million cash, $88.4 million borrowings and $28.1 million available capacity.
Nine-month investing cash outflow was $1.1 million; capital expenditures were $5.9 million. No dividends were declared in 2020; the quarterly dividend had been suspended in July 2019.
Changes versus comparable periods
- Q3 revenue declined 37% year over year; nine-month revenue declined 59%. Pressure pumping, sand, drilling and other services contracted sharply, while Q3 infrastructure revenue increased 18% to $44.0 million.
- Nine-month infrastructure revenue fell 47%, largely because PREPA restoration work ended in March 2019. Continental U.S. infrastructure revenue increased 10% year over year for the nine-month period.
- Oilfield weakness reflected lower customer spending, utilization and pricing. Nine-month sand volume sold fell 80%, and average selling price fell 52%. The company recorded $55.0 million of goodwill impairment and $12.9 million of other long-lived-asset impairment in 2020, primarily following the downturn in oil markets.
- Q3 net income improved from a prior-year loss, but the company remained loss-making for the first nine months. Nine-month operating results included $68 million of impairments.
Outlook, risks and unusual items
- Management expected depressed oilfield demand and pricing to continue at least through the remainder of 2020 and described market fundamentals as challenging. It gave no specific earnings or revenue guidance. Estimated 2020 capital expenditures were up to $10 million, with $5.9 million spent through September.
- The company had temporarily suspended several oilfield activities, including contract drilling, rig hauling, flowback, cementing and acidizing; coil tubing and full-service transportation were also suspended from July 2020. Management said all six pressure-pumping fleets were not operating at the time of its discussion, while reporting limited fleet activity during the quarter.
- PREPA owed approximately $227 million for services, plus $65.8 million of accrued interest. PREPA is in bankruptcy proceedings, and collection depends substantially on government funding. A court extended a stay on recovery proceedings to a December 2020 hearing; non-collection could materially harm liquidity and results.
- Gulfport-related receivables included $36.1 million under the pressure-pumping contract and $2.4 million under the sand contract. Gulfport disputed the pressure-pumping agreement and had not paid amounts claimed due after its alleged termination date. After quarter-end, Gulfport disclosed a deferred note-interest payment and forbearance arrangements; Mammoth warned that restructuring or bankruptcy could impair collection.
- The company continued cooperating with SEC and DOJ investigations concerning matters involving a former Cobra president and Puerto Rico contracts. Mammoth and its subsidiaries were not charged in the cited criminal indictment. The filing also describes pending employment, securities, shareholder, tax and other litigation; outcomes and potential impacts were uncertain.
- COVID-19, commodity-price volatility, customer concentration, covenant compliance, reduced access to capital and the company’s significant overdue receivables are material risks. Management stated that available cash, operating cash flow and borrowing capacity should fund operations for at least 12 months, while noting dependence on customer collections.
Most important facts for investors to verify
- Whether PREPA and Gulfport receivables are ultimately collected, and the timing and treatment of accrued interest.
- Gulfport’s financial restructuring outcome, its impact on Mammoth’s receivables and the contested contracts.
- Current borrowing-base availability, covenant headroom, interest costs and continued compliance with the revolving credit facility.
- Whether infrastructure growth can offset weak oilfield activity, and when suspended services or fleets may return to operation.
- Developments in the Puerto Rico investigations and litigation, including any effect on PREPA payment claims or future contracts.
- The sustainability of reported Q3 profitability and Adjusted EBITDA, given the tax benefit, delinquent-receivable interest and non-GAAP adjustments.