Mammoth Energy Services, Inc. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Mammoth provides electric-infrastructure services and oilfield services, including well completion, frac sand, drilling and other services. Management described an ongoing shift toward industrial and infrastructure work; about 66% of fourth-quarter revenue came from the industrial sector.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $313.1 million | $625.0 million |
| Gross profit and margin | $81.1 million; 25.9% | $81.2 million; 13.0% |
| Operating loss | $149.3 million | $128.4 million |
| Net loss | $107.6 million; $2.36 per diluted share | $79.0 million; $1.76 per diluted share |
| Adjusted EBITDA (non-GAAP) | $50.0 million | $77.3 million |
| Operating cash flow | $7.0 million | $(95.3) million |
| Capital expenditures | $6.8 million | $35.8 million |
| Cash and cash equivalents at year-end | $14.8 million | $5.9 million |
| Total debt at year-end | $82.5 million | $80.0 million |
Fourth-quarter 2020 revenue was $85.1 million and net loss was $11.9 million, compared with fourth-quarter 2019 revenue of $67.6 million and net loss of $60.8 million. Fourth-quarter results included $85.1 million in revenue, but the filing does not provide a standalone fourth-quarter adjusted EBITDA figure.
At December 31, 2020, the company reported working capital of $336 million and $38.7 million of borrowing capacity under its revolving facility after letters of credit. Working capital included substantial customer receivables, including amounts due from PREPA and Gulfport; it should not be read as equivalent to available cash. The company reported compliance with its credit-facility covenants at year-end. At February 24, 2021, borrowings were $75 million and available capacity was approximately $41.7 million.
Material changes versus the prior comparable period
- Revenue fell 50%, reflecting declines across business lines, lower oilfield activity and the end of PREPA restoration work in March 2019. Infrastructure revenue declined 27%; well completion declined 64%; sand declined 65%; drilling declined 75%; and other services declined 65%.
- Oilfield utilization and pricing weakened amid COVID-19, lower commodity prices and customer budget cuts. Completed fracturing stages fell 46%, to 2,880, while average active pressure-pumping fleets declined to 1.5 from 2.4.
- Sand sales volume fell 75%, to about 0.5 million tons, and average selling price declined 51%, to $14.58 per ton. The company recognized $24.8 million of sand shortfall revenue in 2020, versus $2.8 million in 2019.
- Operating loss widened despite gross profit remaining approximately flat. The company recorded $55.0 million of goodwill impairment, $12.9 million of other long-lived-asset impairment and $22.0 million of bad-debt expense in SG&A.
- Operating cash flow improved to positive $7.0 million from negative $95.3 million, while capital spending was reduced to $6.8 million from $35.8 million. The filing attributes much of the cash-flow improvement to timing of receivable inflows and income-tax payments in 2019.
Outlook, risks and unusual items
- Management expected challenging oilfield conditions to persist at least through the first half of 2021, with depressed pricing and utilization for the foreseeable future. It provided no earnings or revenue guidance.
- Estimated 2021 capital expenditures were $9 million, subject to industry conditions and financial results. The company said cash, operating cash flow and facility availability should fund operations for at least 12 months, while noting that collections from PREPA and Gulfport could affect liquidity.
- PREPA owed approximately $227 million for services plus $74.3 million of accrued interest at year-end. Collection depends substantially on PREPA’s bankruptcy process and FEMA or other funding. The court had stayed the company’s recovery motion and directed PREPA to file a status motion by June 7, 2021.
- Gulfport, which filed for Chapter 11 in November 2020, was Mammoth’s largest customer in 2020, accounting for 16% of revenue. Gulfport sought to terminate the pressure-pumping contract, and Mammoth also pursued unpaid sand-contract amounts. Mammoth recorded reserves on Gulfport pre-petition receivables; the reported net related-party receivable was $28.4 million at year-end.
- Government investigations and litigation related to PREPA contracts remained unresolved. The former president of a subsidiary was indicted; Mammoth and its subsidiaries were not charged, and the company said it was cooperating with the SEC and DOJ. The filing also describes securities, shareholder-derivative and other litigation, including a securities case in which a motion to dismiss was granted in part and denied in part in January 2021.
- Several oilfield services were temporarily shut down. Only one of six pressure-pumping fleets was staffed at year-end; the company continued to monitor conditions before restarting suspended operations.
- The board suspended the quarterly dividend in 2019. The independent auditor issued an unqualified opinion; its critical audit matters included PREPA receivable collectability and impairment fair-value measurements. Management reported effective disclosure controls and internal control over financial reporting, with no material weaknesses identified.
Most important facts for investors to verify
- Expected timing, amount and collectability of PREPA’s principal and interest balances, including the status of the stayed recovery proceedings and potential effects of investigations or litigation.
- Gulfport bankruptcy treatment of Mammoth’s claims and contracts, including likely recoveries, potential contract termination and replacement customer demand.
- Revolving-credit borrowing base, covenant compliance and usable availability, particularly if receivables remain uncollected or operating cash flow weakens.
- Whether the reported improvement in gross margin and operating cash flow is sustainable, given shortfall revenue, lower capital spending and elevated credit-loss provisions.
- Actual 2021 infrastructure growth and capital spending, alongside utilization, pricing and restart prospects for suspended oilfield operations.