Mammoth Energy Services, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Mammoth provides oilfield services, natural sand proppant, electric utility infrastructure services and other services. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior year-end |
|---|---|---|
| Revenue | $43.2 | $116.3 |
| Operating income (loss) | $(12.0) | $6.3 |
| Net income (loss) | $(11.8), or $(0.25) per diluted share | $8.4, or $0.17 per diluted share |
| Adjusted EBITDA, non-GAAP | $4.5 | $30.7 |
| Cash from operations | $47.3 | $3.2 |
| Cash and cash equivalents | $22.0 at March 31 | $16.6 at December 31 |
| Debt under term facility, including PIK interest before unamortized costs | $47.7 | $45.0 at December 31 |
| Revolver | No borrowings; $21.0 available at March 31 after letters of credit | No borrowings; $20.7 available at December 31 |
Cost of revenue excluding depreciation, depletion, amortization and accretion was $40.6 million, or 94% of revenue, versus $89.0 million, or 77%, a year earlier. The resulting gross profit proxy before those charges was $2.6 million (about 6% of revenue), versus $27.3 million (about 23%). Interest expense and financing charges were $8.1 million, including a $5.5 million charge related to the PREPA receivable assignment. Other income was $10.1 million, largely reflecting $10.5 million of interest charged on delinquent PREPA receivables.
At March 31, total assets were $628.1 million, total liabilities $179.8 million, and equity $448.3 million. Current assets were $433.9 million and current liabilities $123.3 million. The company reported working capital of $310.6 million, including substantial PREPA receivables and related liabilities. Operating cash flow benefited from $64.0 million of PREPA collections; investing activities used $1.1 million and financing activities used $48.5 million, including $46.8 million of payments on financing transactions. Cash, cash equivalents and restricted cash decreased $2.3 million during the quarter.
Material changes versus the prior comparable period
- Revenue fell 63% to $43.2 million, primarily due to sharply lower well completion activity. Well completion revenue declined 88% to $8.3 million; active fleets averaged 0.6 versus 3.6, and completed stages fell 81% to 380.
- Infrastructure revenue declined 12% to $25.0 million, reflecting fewer crews and less storm restoration work. Average crew count was 75 versus 88.
- Sand revenue declined 66% to $4.3 million as tons sold fell 63% and average price per ton declined 21% to $24.38. Drilling revenue declined 64% to $0.5 million as utilization fell to 13% from 30%.
- Cost of revenue fell less quickly than revenue, worsening cost ratios in several businesses. Excluding depreciation and similar charges, well completion costs were 104% of segment revenue, sand costs 135%, and drilling costs 220%.
- Operating results shifted from $6.3 million of income to a $12.0 million loss; net results shifted from $8.4 million of income to an $11.8 million loss. Adjusted EBITDA fell to $4.5 million.
- Operating cash flow increased substantially, chiefly because of PREPA collections, while cash used in financing increased following settlement of the assignment arrangement.
Outlook, risks and unusual items
- Outlook: Management expects weak oilfield activity and natural-gas basin conditions to continue into Q2 2024. It sees indications of potentially higher activity in the second half of 2024 as natural-gas demand increases, but this is uncertain. Sand demand and pricing improved from Q4 2023, though management expects subdued conditions to persist into Q2.
- Capital spending: 2024 capital expenditure estimate was reduced to approximately $9 million from a prior plan of $15 million, primarily due to softer demand and lower commodity prices. Q1 capital expenditures were $4.2 million.
- PREPA collection exposure: PREPA owed approximately $348.8 million at March 31, including $140.8 million for services and $208.0 million of accrued interest. PREPA is in bankruptcy, and collection depends substantially on FEMA or other funding. PREPA was withholding approximately $18.2 million of FEMA-approved funds over municipal and construction excise tax claims. The company believes the receivables are collectible and recorded no allowance, but says it cannot estimate the range of loss in the ongoing disputes and mediation.
- Assignment settlement: In Q1, PREPA paid $64.0 million on the receivable. Of that amount, $54.4 million went to SPCP Group and extinguished the assignment obligations; $9.6 million went to Cobra. The company recorded a $5.5 million financing charge related to termination of the arrangement.
- Debt and liquidity: The term loan is with Wexford, an affiliate, and bore interest at 12.8% at March 31; interest may be paid in kind through April 16, 2025. The revolver is secured and subject to a borrowing base, reserves and covenants. As of April 30, cash was $15.5 million and available revolver capacity was $13.6 million. Management believes available liquidity and expected operating cash flow will meet funding needs, while noting that customer collections and PREPA recovery are important uncertainties.
- Legal matters: PREPA litigation and mediation, Puerto Rico municipal tax lawsuits, Foreman litigation and related claims, employment arbitrations, and a Department of Justice investigation remain relevant uncertainties. The company reports that the SEC concluded its investigation as to Mammoth without intending to recommend enforcement action. Foreman’s motion to appoint a receiver was denied on April 29, 2024.
- Other risks and operations: Oil and gas price and activity volatility, inflation and labor costs, customer concentration, weather, interest-rate exposure and foreign exchange risk could affect results. Several oilfield services and the Wisconsin sand facility remain temporarily shut down or idled. Management is monitoring market conditions before restarting them.
Important facts for investors to verify
- Whether PREPA pays the remaining receivable, including the $18.2 million of FEMA-approved funds being withheld, and the ultimate outcome of PREPA mediation, bankruptcy proceedings and tax disputes.
- Whether weak well completion and sand activity continues into Q2, and whether management’s anticipated second-half 2024 recovery materializes.
- Cash conversion excluding PREPA collections, given the quarter’s operating cash flow was substantially supported by the $64.0 million payment.
- The term loan’s high interest cost, use of payment-in-kind interest, covenant compliance, and the amount of borrowing capacity actually available under the borrowing-base revolver.
- Progress against the revised $9 million capital expenditure plan and whether equipment utilization and segment cost ratios improve.
- Developments in the disclosed litigation, tax claims and investigations, including any resulting cash obligations or effects on PREPA collections.