Mammoth Energy Services, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Mammoth provides electric infrastructure services and oilfield services, including well completion, sand, drilling, and other services. Unless otherwise indicated, amounts are in U.S. dollars; financial statement amounts below are in millions.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $47.4 | $60.1 | $114.2 | $157.5 |
| Operating loss | $(35.2) | $(26.5) | $(58.5) | $(115.5) |
| Net loss | $(34.8) | $(15.2) | $(47.2) | $(99.2) |
| Loss per diluted share | $(0.75) | $(0.33) | $(1.02) | $(2.18) |
| Adjusted EBITDA, non-GAAP | $(5.5) | $6.9 | $0.9 | $20.3 |
| Operating cash flow | $(9.8) | $5.3 | $4.5 | $6.8 |
Q2 cost of revenue before depreciation and similar charges was $50.4 million, exceeding revenue by $2.9 million. The resulting operating loss was larger than in Q2 2020; a $15.0 million other expense, including a $25.0 million legal settlement charge partly offset by other income items, also weighed on pretax results. The Q2 income tax benefit was $16.6 million.
At June 30, cash was $11.0 million and current assets and liabilities were $445.0 million and $146.8 million, respectively. Total debt was $64.2 million, including $60.2 million outstanding on the revolving facility. The company reported $51.1 million of available revolver capacity after letters of credit and said it was compliant with the facility’s financial covenants. Total assets were $765.9 million and equity was $517.2 million. Six-month capital expenditures were $1.7 million; management estimated 2021 capex of up to $4.5 million.
Changes and operating trends
- Q2 revenue fell 21% year over year; six-month revenue declined 27%. Q2 infrastructure revenue fell 43%, primarily amid management and crew turnover. The company reported an average 88 infrastructure crews in the first half, down from 100 in Q4 2020.
- Q2 well completion revenue rose 5%, but the number of stages completed fell 21% and an average of 0.9 pressure-pumping fleets operated, versus 1.9 a year earlier. Six-month well completion revenue declined 33%.
- Q2 sand revenue increased 11%, supported by higher sales volume and price, while shortfall revenue declined. Six-month sand revenue decreased 5%.
- Six-month drilling and other-services revenue declined 65% and 49%, respectively. Several operations, including contract drilling, rig hauling, coil tubing and full-service transportation, remained temporarily shut down; only about one of six pressure-pumping fleets was operating.
- Debt under the revolver fell from $78.0 million at year-end 2020 to $60.2 million at June 30. The first-half cash decrease was $3.8 million, to $11.0 million.
- Compared with first-half 2020, the 2021 net loss was smaller, but the comparison is affected by $67.9 million of goodwill and long-lived asset impairments recorded in 2020.
Outlook, risks and unusual items
- Management expected oilfield-service pricing and utilization to remain competitive and market conditions challenging through 2021. It said customer budgets were cautious despite improved commodity prices and that OPEC+ production increases added uncertainty. No specific revenue or earnings guidance was provided.
- Management believed cash, operating cash flow and available borrowing capacity would fund operations and settlement obligations for at least 12 months, but emphasized dependence on customer collections, particularly PREPA and Gulfport.
- PREPA owed approximately $227 million for services, plus $91.9 million of billed interest. PREPA is in bankruptcy and payment depends substantially on FEMA or other funding. FEMA had deemed approximately $47 million of costs unauthorized under a contract; PREPA appealed that determination. Non-collection could materially harm results and liquidity.
- Net Gulfport receivables were approximately $33 million. Gulfport emerged from bankruptcy in May 2021 and rejected relevant contracts; Mammoth recorded reserves, including a $27.1 million reduction to revenue and $3.8 million of bad-debt expense on contract damages during the first half. Claims and recovery remained subject to proceedings.
- The $25 million legal settlement charge related to the MasTec matter. The August 2, 2021 settlement required payments of $6.5 million, $9.25 million in August 2022 and $9.25 million in December 2022, with interest and an acceleration clause tied to collection of specified receivables.
- As of June 30, the aviation note’s minimum debt-coverage covenant was not met; Bank7 waived the default on July 26, 2021. The waiver also extended a minimum cash requirement to November 15, 2021.
- Other material uncertainties include ongoing government investigations related to Puerto Rico contracts, litigation, commodity and pandemic-related volatility, customer concentration, and the risk that suspended oilfield operations may not return to profitability.
Investor verification priorities
- Track PREPA collections, the FEMA appeal and any further contract-compliance determinations; assess the collectability of the large PREPA balance and accrued interest.
- Review Gulfport claim rulings and recoveries against the $33 million net receivable, including related reserves and contract-modification revenue.
- Confirm the settlement payment schedule and any impact of its acceleration clause on liquidity.
- Monitor operating cash flow, borrowing availability and covenant compliance, including the aviation-note waiver conditions.
- Assess whether infrastructure crew levels recover and whether oilfield fleet utilization, service margins and suspended operations improve.