Mammoth Energy Services, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Dollar amounts are in millions unless stated otherwise. The 2017 comparison was recast to include Sturgeon under common-control accounting; infrastructure operations were added in 2017 and generated no reported revenue in Q1 2017.
Business context and results
Mammoth provides oilfield services, frac sand and electric utility infrastructure services. Q1 results were dominated by storm restoration work in Puerto Rico following Hurricane Maria, alongside growth in pressure pumping and sand sales.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $494.2 | $75.0 |
| Operating income (loss) | $102.7 | $(7.5) |
| Net income (loss) | $55.5 | $(5.0) |
| Diluted EPS | $1.24 | $(0.13) |
| Adjusted EBITDA (non-GAAP) | $130.8 | $11.5 |
| Cash from operations | $101.3 | $14.4 |
| Capital expenditures | $35.8 | $31.1 |
Financial position and cash flow
- Revenue increased 559%; $325.5 million came from infrastructure services, including $318.4 million from PREPA. Pressure pumping revenue rose 149% to $101.1 million, while sand revenue rose 227% to $51.0 million.
- Operating margin was approximately 20.8%; net margin was approximately 11.2%. Cost of revenue excluding depreciation, depletion, amortization and accretion was 66% of revenue, versus 78% a year earlier.
- Operating cash flow of $101.3 million less $35.5 million of investing cash outflow implies approximately $65.8 million of cash flow after investing, before financing. Financing used $61.0 million, primarily to repay revolving-credit borrowings. Cash increased by $4.8 million to $10.4 million.
- At March 31, cash was $10.4 million, current assets $326.0 million and current liabilities $258.9 million (current ratio approximately 1.26). Working capital was $67.1 million.
- Long-term debt was $39.0 million, down from $99.9 million at year-end. The revolver had $123.7 million of availability after letters of credit; the company reported covenant compliance. The facility matures November 2019.
- Income tax expense was $45.9 million, a 45% effective rate, primarily reflecting income generated in higher-tax Puerto Rico. The company also recorded a $34.4 million change in valuation allowance for foreign tax credits expected not to be used.
Changes, outlook and risks
- PREPA contract and receivables: Amendments raised the contract value to $945.4 million from $200.0 million. Management estimated approximately $745 million of 2018 work through mid-year. PREPA was in bankruptcy proceedings, and payment depends substantially on FEMA or other funding. A $25.4 million Q1 bad-debt provision was largely related to PREPA; the allowance for doubtful accounts reached $47.3 million.
- Concentration: PREPA accounted for 98% of infrastructure revenue. One third-party customer represented 64% of consolidated revenue and 52% of accounts receivable. Related-party revenue was $60.6 million (12% of total); substantially all of the Gulfport pressure-pumping and sand contracts were due to expire in September 2018, with extensions under discussion but not finalized.
- Operating constraints: Rail-system congestion disrupted sand deliveries; management estimated Taylor facility production was 28% below the level absent constraints and said it expected constraints to ease later in 2018. Pressure-pumping utilization was also affected by idle time awaiting sand deliveries.
- Investment plans: Management estimated 2018 capital expenditures of approximately $125 million, including equipment for 68 additional infrastructure crews and sand-facility expansion. After the Taylor expansion, rated sand capacity was 5.2 million tons annually; planned Piranha upgrades were expected to raise company-wide rated capacity to 5.7 million tons.
- Liquidity and commitments: Management said cash, operating cash flow and revolver availability should fund operations for at least 12 months, while noting cash-flow and capital-spending uncertainty. At quarter-end, disclosed future obligations included $71.2 million of operating leases, $20.2 million of capital-spend commitments and $37.1 million of minimum purchase commitments; additional commitments were entered into after quarter-end.
- Other risks and unusual items: Exposure includes oil-and-gas activity and commodity-price cycles, sand oversupply and transport costs, weather, and dependence on utility and government spending. The filing describes employment and injury litigation and an Ohio tax appeal; outcomes were uncertain. Management reported disclosure controls effective and no material change in internal control during the quarter.
Most important facts for investors to verify
- PREPA funding, payment timing, collection of the large receivable balance, and any further credit-loss provisions.
- Whether the PREPA restoration work continues or is replaced by additional contracted work after the estimated mid-2018 phase.
- Renewal or replacement of Gulfport contracts expiring in September 2018 and the related-party customer exposure.
- Whether rail capacity improves as expected, and the effect of logistics constraints, sand pricing and new industry supply on margins.
- Execution and funding of the $125 million capital plan, infrastructure crew expansion and remaining post-quarter commitments.
- Reconciliation of reported profit and non-GAAP Adjusted EBITDA, particularly the impact of tax expense and the PREPA-related bad-debt charge.