Mammoth Energy Services, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Mammoth provides electric utility infrastructure services and oilfield services, including pressure pumping, sand, drilling and related businesses. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $262.1 million | $494.2 million |
| Operating income | $27.2 million | $102.7 million |
| Net income | $28.3 million | $55.5 million |
| Diluted earnings per share | $0.63 | $1.24 |
| Adjusted EBITDA (non-GAAP) | $82.8 million | $130.8 million |
| Operating cash flow | $(103.0) million | $101.3 million |
| Capital expenditures | $20.3 million | $35.8 million |
Operating margin was approximately 10.4%, compared with 20.8% a year earlier. Cash and cash equivalents were $21.3 million at quarter-end, down from $67.6 million at December 31, 2018. Long-term debt was $82.0 million, with $93.5 million of borrowing capacity available after letters of credit. Current assets were $499.3 million and current liabilities were $201.2 million.
Operating cash use reflected increased receivables and related-party receivables, as well as $92.0 million of cash income tax payments. Financing provided $75.9 million, primarily from $82.0 million in revolver borrowings, partly offset by $5.6 million in dividends. The company paid a quarterly dividend of $0.125 per share.
Material changes and business trends
- Revenue fell 47%, primarily because infrastructure revenue declined $216.7 million as work under Puerto Rico Electric Power Authority (PREPA) restoration contracts wound down. Infrastructure revenue was $108.7 million versus $325.5 million; 79% of Q1 2019 infrastructure revenue came from PREPA, compared with 98% a year earlier.
- Pressure-pumping revenue declined 9% to $92.1 million, mainly due to lower pricing and customers sourcing more materials themselves, although completed stages increased to 1,889 from 1,672.
- Sand revenue declined 26% to $37.9 million. Average price per ton fell 27% and tons sold fell 9% to approximately 665,806. Management reported firmer first-quarter market demand and a recovery in 40/70 sand pricing from late-2018 lows, while warning that industry supply remains elevated.
- Operating income declined $75.6 million. The decline reflected lower infrastructure activity and weaker sand results. SG&A fell substantially, but Q1 2018 included a $25.5 million bad-debt provision, most of which was reversed later in 2018.
- Net income included $25.7 million of interest income recognized on delinquent PREPA receivables. Accordingly, reported profit and Adjusted EBITDA include a material item tied to collection of overdue balances.
Outlook, risks and unusual items
- Management estimated 2019 capital expenditures of approximately $80 million. It said cash, operating cash flow and revolver availability should fund operations for at least 12 months, while noting that future cash flows depend in part on PREPA payments.
- PREPA owed Mammoth approximately $258 million for services as of March 31, excluding about $26 million of accrued interest. PREPA is in bankruptcy proceedings, and payment depends substantially on FEMA or other funding. Mammoth said its PREPA work had ended, it was not in discussions to extend the contracts, and replacement work is uncertain.
- Management reported growing continental U.S. infrastructure activity: approximately 130 crews at March 31, up from 105 at year-end 2018. It expected cautious customer activity and no material near-term improvement in oilfield pricing, while noting that early-2019 demand had improved with commodity prices and budget resets.
- After quarter-end, Mammoth borrowed an additional $26.5 million. At April 30, borrowings were $108.6 million, cash was $33 million and remaining revolver capacity was $66.9 million, net of letters of credit.
- Material contingencies include a Puerto Rico putative class action alleging electrical failure damages of at least $300 million, four municipal tax lawsuits, and a separate overtime lawsuit filed in April 2019. The company said it could not predict the outcomes or potential material impact of these matters.
- Other exposures include customer and PREPA receivable concentration, oilfield activity and sand pricing volatility, minimum purchase commitments of $46.1 million (including sand commitments), and the possibility of weather disruptions. The company reported compliance with credit-facility financial covenants at March 31.
- Mammoth adopted the new lease standard on January 1, 2019, recognizing approximately $60 million of operating lease assets and liabilities. The adoption did not materially affect Q1 earnings.
Important facts for investors to verify
- Subsequent collections from PREPA, the status of its funding and bankruptcy proceedings, and the recoverability and timing of the $258 million receivable plus accrued interest.
- Whether replacement infrastructure contracts and U.S. crew growth can offset the completed PREPA work, and the resulting segment margins.
- Oilfield pricing, sand volumes and realized prices, including whether market oversupply or rail-shipment changes affect sales.
- Cash conversion, revolver usage and availability, covenant headroom, and funding for the $80 million capital spending plan and dividend.
- Progress and potential exposure in the Puerto Rico lawsuits, municipal tax disputes and overtime action; the filing does not provide a clear estimate of the possible loss.