Mammoth Energy Services, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited; amounts below are in U.S. dollars. Mammoth provides electric-infrastructure and oilfield services, including pressure pumping, sand, drilling and other services.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $97.4 million | $262.1 million |
| Operating income (loss) | $(89.0) million | $27.2 million |
| Net income (loss) | $(84.0) million; $(1.85) per diluted share | $28.3 million; $0.63 per diluted share |
| Adjusted EBITDA (non-GAAP) | $13.5 million | $82.8 million |
| Cash from operating activities | $1.5 million | $(103.0) million |
| Cash from investing activities | $(0.9) million | $(19.3) million |
| Cash from financing activities | $6.9 million | $75.9 million |
- Revenue less cost of revenue before depreciation, depletion, amortization and accretion was $15.5 million, or approximately 15.9% of revenue, versus $73.1 million, or 27.9%, a year earlier. These are calculated figures, not company-presented GAAP gross margins.
- Q1 2020 included $55.0 million of goodwill impairment and $12.9 million of other long-lived asset impairment. Excluding those charges, adjusted net loss was $16.1 million, or $0.36 per diluted share; these are non-GAAP measures.
- Cash and cash equivalents were $13.2 million at quarter-end, compared with $5.9 million at December 31, 2019. Working capital was $298 million. Accounts receivable totaled $371.8 million.
- Revolving-credit-facility borrowings were $88.4 million, with $19.4 million of available capacity at March 31. As of May 6, borrowings had increased to $94.0 million, with $13.8 million available capacity and $17 million of cash.
- Capital expenditures were approximately $1.5 million. No dividend was declared in Q1 2020; the quarterly dividend had been suspended in July 2019.
Changes versus the prior comparable period
- Revenue fell 63%, chiefly reflecting the end of PREPA hurricane-restoration work in March 2019, weaker oilfield activity and lower sand volumes and prices.
- Infrastructure revenue declined 76% to $25.7 million; pressure-pumping revenue declined 52% to $43.6 million; sand revenue declined 73% to $10.2 million; drilling revenue declined 65% to $4.8 million; and other-services revenue declined 40% to $14.9 million.
- Sand tons sold fell 64% to 239,284, while average realized price per ton declined 58% to $13.67. Pressure-pumping stages fell 22% to 1,482.
- Operating results moved from income to a substantial loss, including $68 million of impairment charges. Other income also decreased, primarily because interest recognized on delinquent PREPA receivables fell to $7.7 million from $25.7 million.
- Operating cash flow improved from a $103.0 million use to $1.5 million provided, which management attributed primarily to timing of receivable collections and income-tax payments in the prior-year period.
Outlook, risks and unusual items
- Market outlook: Management said COVID-19, reduced customer spending, oil-market oversupply and sharply lower oil prices had further weakened oilfield demand and pricing. Depressed activity was expected to continue for the foreseeable future. No earnings or revenue guidance was provided.
- Cost and capital plans: Management cited workforce reductions, pay adjustments, spending limits and liquidity preservation. It estimated 2020 capital expenditures of up to $20 million, but expected materially lower spending if conditions remained the same or weakened.
- Credit facility: The February 2020 amendment reduced the maximum revolving advance to $130 million, raised pricing margins and revised covenants. The company reported covenant compliance at March 31, but future compliance and limited borrowing headroom are risks. The filing says leverage and fixed-charge covenants begin in Q3 2020, alongside a 10% minimum availability covenant through September 30.
- PREPA collections: PREPA owed approximately $227 million for services, plus $49.7 million of billed interest. PREPA is in bankruptcy, and recovery depends substantially on external funding. Collection proceedings were stayed; a motion concerning approximately $61.7 million of asserted undisputed tax claims was pending.
- Gulfport contract dispute: Gulfport, a related party, sued to terminate the pressure-pumping agreement and sought damages. Mammoth recognized $17.8 million of Q1 revenue under the contract; approximately $17.0 million remained unpaid at March 31. Mammoth filed a counterclaim and said it would defend the contract.
- Investigations and litigation: The company and subsidiaries were not charged in the criminal case involving Cobra’s former president, but the company said it was cooperating with SEC and DOJ investigations. The filing also describes securities, derivative, employment, Puerto Rico-related and other lawsuits; outcomes and potential impacts were uncertain.
- Other exposures: Approximately $425 million of infrastructure backlog was reported, but about $419 million related to agreements without minimum purchase commitments and could be canceled or delayed. Sand shortfall-payment revenue included $4.9 million in Q1, with $8.3 million of deferred revenue outstanding. The company also disclosed a Nasdaq notice over its share price below the $1 minimum; the stated compliance deadline was December 28, 2020.
Investor verification priorities
- Track PREPA’s ability and timing to pay the approximately $277 million of receivables, including interest, and the court’s decisions on recovery claims.
- Review subsequent Gulfport payments, the status and terms of the pressure-pumping dispute, and the collectability of the related receivable.
- Monitor cash use, borrowing levels, available credit, borrowing-base capacity and compliance with amended facility covenants.
- Assess the pace of oilfield demand and pricing changes, fleet utilization, sand pricing and the recoverability of remaining asset values.
- Follow developments in SEC/DOJ investigations, material litigation and the company’s Nasdaq listing compliance.