Mammoth Energy Services, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless otherwise noted.
Business context and reporting period
Mammoth provides electric infrastructure services and oilfield services, including well completion, frac sand and drilling, alongside aviation, rentals and other services. It is shifting toward a broader industrial focus. Results remain exposed to utility project activity, oilfield customer spending, commodity prices and the collection of large Puerto Rico receivables.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $57.5 | $70.5 | $171.7 | $228.0 |
| Operating loss | $(57.7) | $(10.7) | $(116.1) | $(126.2) |
| Net loss | $(40.9) | $3.4 | $(88.1) | $(95.7) |
| Diluted loss per share | $(0.88) | $0.07 | $(1.90) | $(2.10) |
| Adjusted EBITDA, non-GAAP | $(29.7) | $22.1 | $(28.8) | $42.4 |
| Operating cash flow | $(20.2) | $(5.1) | $(15.8) | $1.8 |
Management reported Q3 revenue up 21% sequentially from Q2, but down 18% year over year. For the nine-month period, revenue fell 25%. Q3 cost of revenue excluding depreciation and related charges was 93% of revenue, versus 65% a year earlier; the comparable nine-month ratios were 89% and 77%. These figures indicate substantial pressure on operating economics.
At September 30, cash was $8.0, current assets were $426.0 and current liabilities were $146.1. Total debt was $80.6, including $77.0 outstanding on the revolving facility; reported availability was $43.2 after letters of credit. Net cash used in investing activities was $5.1 for the first nine months, including $4.5 of capital expenditures. Cash declined $6.9 over that period.
Working capital was $280 million, but included approximately $328.2 million due from PREPA, comprising $227.0 million for services and $101.2 million of accrued interest. The filing says the company believes the receivable is collectible, while warning it may not be collected. PREPA was in bankruptcy proceedings, and collection depended substantially on FEMA or other funding.
Material changes versus comparable periods
- Q3 infrastructure revenue declined 46% to $23.5 million, mainly from lower storm-restoration work. Nine-month infrastructure revenue fell 30%, with crew departures following management changes also contributing.
- Q3 well completion revenue rose 44% to $22.7 million, while nine-month revenue declined 17% to $63.1 million. The nine-month decline reflected fewer completed stages and lower utilization; management said an average of 1.0 of six fleets was active in the period.
- Sand revenue rose 40% in Q3 and 7% for nine months, supported by higher volumes and average selling prices. The sand segment nevertheless recorded operating losses and continued to face depressed market pricing.
- Drilling and other-services revenue declined over the nine-month period. Several oilfield operations remained suspended, including contract drilling, rig hauling, coil tubing and full-service transportation; crude oil hauling was suspended in July 2021.
- Q3 SG&A rose to $41.9 million from $12.2 million, largely because of a $31.4 million bad-debt provision. For nine months, SG&A was $74.7 million versus $36.7 million.
- Net loss improved for nine months versus 2020, but the comparison benefited from the prior-year $55.0 million goodwill impairment and $12.9 million other asset impairment. Adjusted EBITDA deteriorated from positive $42.4 million to negative $28.8 million.
Outlook, financing, risks and unusual items
- Credit amendment after quarter-end: On November 3, 2021, Mammoth amended its revolving facility after projecting a likely covenant breach for Q3. The amendment waived leverage and fixed-charge coverage tests for Q3 and Q4 2021, reduced the maximum revolving advance to $120 million, required minimum adjusted EBITDA of $6 million for Q4, and required at least $10 million of revolver availability during the waiver period. Availability was approximately $24.1 million as of November 3, after specified reserves and letters of credit. The waiver period may end by May 15, 2022, earlier compliance, or an event of default. The amendment also requires engagement of an advisor. The company stated that an uncured default could permit acceleration and enforcement against substantially all assets.
- Other debt covenant: Mammoth did not meet the aviation note’s 1.25-to-1.0 minimum debt coverage ratio at September 30; Bank7 granted a waiver on November 3 and extended a minimum cash requirement through February 15, 2022.
- Gulfport settlement and credit loss: Mammoth reached a settlement with Gulfport on September 21, subject to bankruptcy court approval. It wrote off the remaining Stingray pressure-pumping receivable, recording $31.0 million of bad-debt expense and $1.3 million of other expense in Q3, plus $0.2 million of additional bad-debt expense on the sand claim. Mammoth reported only $0.1 million of net Gulfport receivables at quarter-end.
- PREPA/FEMA and investigations: FEMA determined that approximately $47 million of costs under the first PREPA contract were unauthorized; PREPA appealed the determination. The court continued the stay on Cobra’s recovery motion through a further status process. The filing also describes ongoing government investigations related to Puerto Rico contracts; neither Mammoth nor its subsidiaries was charged in the cited indictment. Outcomes and financial effects remain uncertain.
- MasTec settlement: Cobra paid $6.5 million in August 2021 and guaranteed two additional payments of $9.25 million, due in 2022. The agreement bears interest of 6% to 12% and includes an acceleration provision tied to collection of specified receivables. The filing recorded an approximately $25 million settlement expense; $18.5 million was accrued at quarter-end.
- Management outlook: Management cited persistent competitive oilfield markets, uncertain commodity prices and customer spending, and limited near-term increases in producer budgets. It expects capital expenditures of up to $5.0 million in 2021, of which $4.5 million had been spent in the first nine months. Management said available cash, operating cash flow and revolver capacity should fund operations and settlement obligations for at least twelve months, but qualified this assessment based on customer payments, particularly PREPA. No specific revenue or earnings guidance was provided.
- Additional risks include customer concentration, continued COVID-19 and supply-chain effects, workforce impacts from vaccination requirements, seasonal weather, potential litigation outcomes, and foreign-exchange and interest-rate exposure. The company reported effective disclosure controls as of September 30, 2021.
Important facts for investors to verify
- Progress and timing of PREPA collections, the status of its bankruptcy funding, the appeal of FEMA’s $47 million determination and the recoverability of the $328.2 million receivable.
- Compliance with the amended credit facility’s Q4 adjusted EBITDA and minimum-availability requirements, remaining borrowing capacity, and covenant status when the waiver period ends.
- Final bankruptcy court approval and realized recovery under the Gulfport settlement, alongside whether oilfield operations can achieve positive margins and utilization.
- Cash payments, interest and any acceleration triggers under the MasTec settlement, and final approval of other disclosed legal settlements.
- Whether infrastructure crew levels, project wins and revenue recover from 2021 declines, and whether sand pricing and volumes can restore segment profitability.
- Cash conversion and liquidity: receivables are a substantial portion of current assets, operating cash flow was negative, and reported working capital depends heavily on disputed or delayed collections.