Mammoth Energy Services, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results; amounts below are in millions unless stated otherwise. Mammoth provides electric infrastructure and oilfield services, including pressure pumping, frac sand and drilling.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $60.1 | $181.8 | $157.5 | $444.0 |
| Operating income (loss) | $(26.5) | $(25.8) | $(115.5) | $1.4 |
| Net income (loss) | $(15.2) | $(10.9) | $(99.2) | $17.4 |
| Diluted earnings (loss) per share | $(0.33) | $(0.24) | $(2.18) | $0.39 |
| Adjusted EBITDA, non-GAAP | $6.9 | $8.6 | $20.3 | $91.3 |
| Cash from operating activities | $5.3 | $1.1 | $6.8 | $(101.9) |
- Q2 cost of revenue excluding depreciation, depletion, amortization and accretion was $48.8 million, or 81% of revenue, versus $168.0 million, or 92%, a year earlier. The resulting margin before those expenses was approximately 19%, versus 8%; operating margin was approximately negative 44% versus negative 14%.
- Six-month results included $55.0 million of goodwill impairment and $12.9 million of impairment of other long-lived assets. Excluding these charges, the company reported non-GAAP adjusted net loss of $31.3 million, or $0.69 per diluted share, for the half year.
- At June 30, cash was $18.0 million, working capital was $307 million, and revolving-credit borrowings were $89.3 million. Reported available borrowing capacity was $18.5 million after applicable constraints and letters of credit. Total assets were $838.5 million and total liabilities $268.4 million.
- Six-month capital expenditures were $4.4 million; operating cash flow was positive, while financing cash flow included $9.3 million of net revolver borrowings. No dividends were paid in the first half; the quarterly dividend had been suspended in July 2019.
Material changes and operating trends
- Q2 revenue fell 67% year over year; first-half revenue declined 65%. The reductions reflected weaker oilfield activity and the end of major PREPA restoration work in March 2019.
- Q2 pressure-pumping revenue fell 80% to $16.6 million; stages completed declined 62%. Sand revenue fell 85% to $6.2 million, with tons sold down 90% and average price per ton down 50%. Six-month sand cost of revenue exceeded revenue before depreciation and depletion.
- Infrastructure revenue was $30.6 million in Q2, including steady continental U.S. activity. Management said U.S. demand and pricing had not been materially affected by COVID-19; crew count was about 120 at quarter-end.
- The company recorded the impairment charges after the sharp March 2020 oil-price decline and COVID-19 disruption. Property, plant and equipment, net, declined to $293.2 million from $352.8 million at year-end 2019; goodwill declined to $12.6 million from $67.6 million.
- Oilfield operations were substantially curtailed: management said only one of six pressure-pumping fleets was then operating. Cementing, acidizing and flowback had been suspended since July 2019; contract land drilling since December 2019; rig hauling since April 2020; and coil tubing and full-service transportation beginning July 2020.
Outlook, risks and unusual items
- Management expected weak demand for oilfield products and services to continue through the remainder of 2020 and gave no earnings or revenue guidance. It estimated 2020 capital expenditures of up to $10 million, subject to industry conditions and results, and said cash, operating cash flow and facility availability should fund operations for at least 12 months, subject to customer collections and other uncertainties.
- COVID-19, oil-price volatility, reduced customer spending and uncertain recovery present significant risks to oilfield utilization and pricing. Management reported cost-reduction steps including headcount and pay adjustments and restricted spending.
- Collection concentration is material. PREPA owed approximately $227 million for services plus $57.7 million of billed interest; PREPA is in bankruptcy proceedings and payment depends substantially on FEMA or other funding. The court denied Cobra’s request to pursue approximately $61.7 million of tax gross-up claims and continued a stay until a December 2020 hearing.
- Gulfport, a related party, owed $26.6 million under a disputed pressure-pumping contract, including $1.1 million interest. Gulfport seeks contract termination and damages; Mammoth disputes the claims and filed a counterclaim. The contract is stated to expire in December 2021.
- The company is cooperating with SEC and DOJ investigations related to matters involving a former Cobra president, who was indicted; Mammoth and its subsidiaries were not charged. The filing says outcomes and potential impacts cannot be predicted. Other disclosed matters include securities and derivative litigation, Puerto Rico employment and tax disputes, and a lawsuit by Mastec alleging wrongful interference and seeking unspecified damages.
- The revolver amendment reduced the maximum advance amount from $185 million to $130 million, increased pricing margins, and changed financial covenants. Minimum excess availability applied through September 2020; leverage and fixed-charge covenants were scheduled to apply beginning with the quarter ending September 30, 2020. Mammoth reported compliance at June 30.
Key facts for investors to verify
- Timing, amount and collectability of PREPA receivables and interest, including the December 2020 court hearing and availability of FEMA funding.
- Collection of Gulfport’s $26.6 million balance and the outcome of the contract dispute, including effects on pressure-pumping revenue.
- Liquidity headroom, borrowing-base availability and compliance with the amended credit-facility covenants as the 2020 tests begin.
- Whether oilfield utilization and sand pricing recover, and whether suspended operations can restart without further impairments or liquidity pressure.
- Developments in the SEC and DOJ investigations and the disclosed litigation; the filing provides no clear estimate of potential losses.
- Interpretation of adjusted EBITDA and adjusted net loss: these are company-defined non-GAAP measures and should be considered alongside GAAP results and cash flow.