Mammoth Energy Services, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Mammoth provides electric infrastructure services, pressure pumping, natural sand proppant and other oilfield services. Amounts below are in millions of dollars, except per-share data.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $113.4 | $384.0 | $557.4 | $1,411.9 |
| Operating income (loss) | ($48.5) | $145.2 | ($47.1) | $345.6 |
| Net income (loss) | ($35.7) | $69.5 | ($18.3) | $167.8 |
| Diluted EPS | ($0.79) | $1.54 | ($0.41) | $3.73 |
| Adjusted EBITDA (non-GAAP) | ($3.8) | $183.6 | $87.6 | $463.0 |
| Cash from operations | $9.6 | $56.1 | ($92.2) | $282.6 |
Revenue fell 70% in Q3 and 61% for the nine-month period. The comparison reflects the end, on March 31, 2019, of major Puerto Rico grid-restoration work, alongside lower oilfield activity and pricing. Q3 operating loss equaled approximately 43% of revenue; cost of revenue before depreciation and similar charges was 98% of revenue, versus 64% in Q3 2018. For the nine months, operating loss was approximately 8% of revenue.
At September 30, cash was $9.6, total assets $1,023.1, current assets $413.1 and current liabilities $127.5. Long-term debt was $80.0; the revolving facility had $96.1 of availability after letters of credit. The company reported $286 million of working capital. Total liabilities were $294.7 and equity $728.4. Cash declined $58.0 during the first nine months. Investing cash outflow was $33.1, including $34.9 of capital expenditures; financing cash inflow was $67.2, primarily net revolver borrowings.
Material changes and business trends
- Infrastructure: Q3 revenue was $37.3, down 84%; nine-month revenue was $187.8, down 80%. PREPA work drove much of the prior-year business. U.S. continental infrastructure revenue rose to $37.3 in Q3 and $91 in the nine-month period. The company reported approximately $510 million of infrastructure backlog, but $496 million was under agreements without minimum purchase commitments and often cancelable on short or no notice.
- Pressure pumping: Q3 revenue fell 52% to $44.6; nine-month revenue fell 26% to $221.4. Q3 completed stages declined 51%, and an average of 1.2 fleets was active versus 3.5 a year earlier. Gulfport accounted for 31% of Q3 pressure-pumping revenue and 38% for the nine months; the customer contract expires in December 2021.
- Sand: Q3 revenue declined 51% to $18.4; nine-month revenue fell 31% to $96.6. Nine-month average price per ton decreased 29% to $30.08, while tons sold fell 8%. Two operating facilities ran at only 10%–20% capacity and another had been idled since September 2018.
- Other services and impairments: Management temporarily shut cementing, acidizing and flowback operations in Q3 due to market conditions. The company recorded $6.5 of long-lived asset impairment and $1.3 of obsolete inventory write-offs. Sand blended production costs declined 28% year over year for the nine-month period.
The prior-year comparisons also include unusual items: Q3 2018 SG&A included a $69.5 million net bad-debt recovery, materially boosting reported results. In 2019, other income included $34.9 million of accrued interest on delinquent PREPA receivables for the nine-month period; this is not equivalent to cash collection.
Outlook, liquidity, risks and unusual items
- Management expected oilfield customers to remain cautious in Q4 2019, citing oil-price volatility, budget limits and investor pressure to keep spending within cash flow; it did not anticipate material near-term pricing changes. Utilization and pricing pressure continued through Q3.
- The 2019 capital-expenditure budget was reduced from approximately $80 million to $41 million; $34.9 million had been spent through September. The company said cash, operating cash flow and available revolver borrowings should fund operations for at least 12 months, while noting that future cash flows depend in part on PREPA collections.
- The quarterly dividend was suspended in July 2019. The company had paid $11.2 million of dividends during the first nine months, relating to earlier declarations.
- PREPA owed approximately $227 million for services, plus $34.9 million of accrued interest. PREPA is in bankruptcy proceedings; a court stayed Mammoth’s recovery motion pending further proceedings. Management warned nonpayment could materially harm financial condition, results and cash flows.
- A September 2019 indictment charged Cobra’s former president and two other individuals; neither Mammoth nor its subsidiaries was charged. The company is cooperating with the investigation. PREPA has suggested the allegations could affect Cobra’s entitlement to payment.
- Other disclosed matters include a Puerto Rico putative class action seeking at least $300 million, municipal tax suits, wage-and-hour claims and securities and derivative lawsuits. The company disputes several claims but says outcomes and potential impacts cannot currently be predicted.
- The revolver matures in October 2023 and includes financial and minimum-availability covenants. Mammoth reported covenant compliance at September 30 and amended the facility on November 5, 2019, including a change to the interest-coverage-ratio treatment of certain cash taxes.
- Management cited oil and gas spending and commodity prices, sand-market oversupply, PREPA payment and funding uncertainty, customer concentration, litigation, and weather and regulatory factors as risks. It also formed an infrastructure engineering company and began oilfield equipment manufacturing, initially to support internal needs.
Key facts for investors to verify
- Whether and when PREPA pays the approximately $227 million principal balance and accrued interest, and the effect of the court stay and investigation on recovery.
- Receivables quality and concentration: accounts receivable totaled $369.3 million; one infrastructure customer represented 69% of receivables at September 30.
- Whether infrastructure backlog converts to revenue, particularly the $496 million that is not contractually committed and may be canceled.
- Oilfield utilization, pricing, fleet activity, sand prices and facility utilization, including the risk of further impairments or operating shutdowns.
- Cash generation, revolver availability and covenant compliance, as operating cash flow was negative $92.2 million for the first nine months and cash was $9.6 million at quarter end.
- Developments in the disclosed PREPA-related, employment, securities, derivative and other litigation, and any related financial exposure.