Mammoth Energy Services, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Mammoth provides oilfield, electric infrastructure, sand proppant, drilling and other services. Comparisons are with Q1 2022 unless noted. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $116.3 | $62.3 |
| Operating income (loss) | $6.3 | $(17.8) |
| Net income (loss) | $8.4 | $(14.8) |
| Diluted earnings (loss) per share | $0.17 | $(0.32) |
| Cash from (used in) operating activities | $3.2 | $(2.4) |
| Capital expenditures | $6.0 | $1.2 |
- Revenue rose 87%, primarily on higher well-completion utilization and pricing. Cost of revenue before depreciation and amortization was 77% of revenue, versus 87% a year earlier. Operating margin was approximately 5.5%, compared with a loss-making prior period.
- Adjusted EBITDA, a non-GAAP measure, was $30.7 million, up from $9.3 million. It includes an $11.1 million adjustment for interest on trade receivables; do not treat it as a substitute for operating cash flow or GAAP earnings.
- Net other income was $8.6 million and included $11.2 million of interest charged on delinquent PREPA receivables. Interest expense increased 43% to $3.3 million, principally due to a higher revolving-credit-facility rate.
- Cash declined to $11.7 million from $17.3 million at year-end. Accounts receivable was $475.6 million. Working capital was $270.6 million, but included substantial PREPA-related receivables and related liabilities.
Segments and notable changes
- Well completion: Revenue increased 182% to $67.3 million. Stages completed rose to 2,018 from 699; average active fleets were 3.6 versus 1.6. Segment operating income was $7.5 million, compared with a $7.4 million loss.
- Infrastructure: Revenue increased 23% to $28.3 million, attributed to execution, pricing, crew count and storm restoration activity. Average crews were 88 versus 85. Segment reported a $1.7 million operating loss, improved from a $4.8 million loss.
- Natural sand: Revenue rose 36% to $12.5 million, with average selling price up 45% to $31.02 per ton and volume up 19% to 391,439 tons.
- Drilling: Revenue declined 38% to $1.8 million as directional-drilling utilization fell to 30% from 48%; the segment reported a $1.9 million operating loss.
- Depreciation, depletion, amortization and accretion fell 24% to $13.0 million, primarily because some equipment was fully depreciated. SG&A was broadly stable at $8.4 million.
Liquidity, debt and outlook
- At March 31, $84.6 million was outstanding under the revolving facility, with $17.4 million of available capacity after letters of credit and the required $10.0 million reserve. The facility matures October 19, 2023. Mammoth was covenant-compliant at quarter-end and said it was exploring extension, refinancing or repayment alternatives; it gave no assurance of obtaining them on acceptable terms.
- At April 26, the company reported $9.5 million cash, $76.0 million revolver borrowings and $26.0 million available capacity. These later figures are not quarter-end balances.
- Management reduced its 2023 capital-expenditure estimate to approximately $24 million from a previously planned $64 million, citing lower commodity prices, softer oilfield-services demand and market volatility. The estimate includes $21 million for well completion.
- Management said demand across its three largest segments remained strong in Q1, while crude oil and natural gas prices had declined from 2022 levels and could slow customer activity. It planned pressure-pumping fleet upgrades, subject to market conditions, supply-chain availability and liquidity. The filing provides no quantified revenue or earnings guidance.
- Several oilfield services remain temporarily shut down, and the Muskie sand facility remains idled. Management continues to assess whether and when to restart suspended operations.
Material risks, contingencies and unusual items
- PREPA collections: PREPA owed approximately $227.0 million for services, plus $163.2 million in accrued interest, totaling $390.2 million in receivables at March 31. The company recorded no allowance, but PREPA is in bankruptcy and collection depends substantially on FEMA or other funding. FEMA approved $233 million in invoices under a determination concerning the second contract; $210 million (the 90% federal share) was made available for drawdown. Approximately $99 million was represented as intended for Cobra’s outstanding invoices; $111 million was reimbursement to PREPA for prior payments. These approvals do not establish that Mammoth has collected the amounts.
- Cobra’s $379 million certified claim to FEMA was rejected on the stated basis that no contract existed between FEMA and Cobra. Cobra appealed; FEMA subsequently moved to dismiss that appeal for lack of jurisdiction. PREPA-related court proceedings remain stayed, with a further status report due by July 31, 2023. FEMA determinations had also identified costs it deemed unauthorized, including $5.6 million and $68.1 million relating to portions of the second contract.
- Other legal matters include Foreman’s $250 million allegations, related litigation, Puerto Rico municipal tax suits—including an approximately $8.5 million construction-excise-tax judgment under appeal—and employment arbitrations. Mammoth cannot predict certain outcomes; it recorded an estimated liability for employment matters. The SEC said in July 2022 it did not intend to recommend enforcement against the company; a separate DOJ investigation was described as ongoing, with the company cooperating.
- Additional risks include customer and PREPA concentration, oil and gas price and activity volatility, inflation, supply-chain constraints, interest-rate exposure and potential weather-related disruptions. The revolving facility bears a floating rate; its March 31 weighted-average rate was 11.5%, and the company does not hedge that exposure.
Important facts for investors to verify
- Actual cash collections from PREPA, the status and availability of FEMA funding, and any changes to the $390.2 million receivable or its collectability assessment.
- Progress toward extending, refinancing or repaying the October 2023-maturing revolver, including borrowing capacity and covenant compliance.
- Whether operating-cash generation supports planned capital spending, debt service and any restart or fleet-upgrade plans.
- Whether lower commodity prices affect well-completion utilization, pricing and the company’s reduced 2023 capital plan.
- Developments in PREPA, FEMA, tax and employment matters, as well as the status of the DOJ investigation.