Mammoth Energy Services, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Mammoth provides oilfield services, natural sand proppant, electric utility infrastructure services, and other services. Financial amounts below are in millions unless stated otherwise.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $65.0 | $107.2 | $256.7 | $259.2 |
| Operating income (loss) | $(8.9) | $3.8 | $(9.9) | $(15.9) |
| Net income (loss) | $(1.1) | $7.7 | $2.8 | $(5.4) |
| Adjusted EBITDA, non-GAAP | $13.4 | $29.8 | $60.5 | $62.1 |
| Operating cash flow | $(7.7) | $(5.4) | $25.0 | $(6.1) |
- Q3 cost of revenue excluding depreciation and related charges was $52.8 million, or 81% of revenue, versus $78.5 million, or 73%, a year earlier. The resulting gross contribution before those charges was $12.1 million (19% of revenue), compared with $28.7 million (27%).
- Nine-month cost of revenue excluding depreciation and related charges was $202.1 million, or 79% of revenue, versus $201.7 million, or 78%. Nine-month depreciation, depletion, amortization and accretion declined to $36.8 million from $50.5 million.
- At September 30, cash was $10.5 million; current assets were $482.3 million and current liabilities were $132.4 million. Total assets were $686.0 million and equity was $465.6 million.
- Debt at September 30 was $69.0 million, with $11.0 million of available borrowing capacity under the then-existing revolver after reserves and letters of credit. Nine-month interest expense was $9.4 million, up from $8.3 million.
- Nine-month investing cash outflow was $7.7 million, including $15.3 million of capital expenditures; financing cash outflow was $24.0 million. Cash declined $6.8 million from year-end 2022.
- The nine-month effective tax rate was 76%; Q3’s was 146%, reflecting, among other factors, earnings mix between the U.S. and Puerto Rico, valuation allowance changes, and goodwill impairment.
Changes versus the comparable period
- Q3 revenue fell 39%, driven primarily by well completion revenue down 61% and infrastructure revenue down 20%. Well completion stages declined 70% to 577, and average active fleets fell to 1.2 from 3.5. Infrastructure average crew count declined to 81 from 96.
- Q3 net results moved from $7.7 million income to a $1.1 million loss; Adjusted EBITDA fell 55%. Lower utilization raised cost ratios in well completion, infrastructure, drilling, and other services.
- For the first nine months, revenue was down 1%. Higher infrastructure and other-services revenue partly offset declines in well completion and sand. Sand volumes rose 11% and average price per ton rose 16%, while sand revenue still declined 7%.
- Nine-month net income improved from a $5.4 million loss to $2.8 million income, while operating loss narrowed largely because depreciation and related charges were lower. Other income remained substantial and included interest recognized on PREPA receivables.
- Mammoth sold its ARS aviation subsidiary in July for $3.3 million cash plus a possible $0.3 million contingent payment and recognized a $2.1 million gain. It recorded a separate $1.8 million goodwill impairment associated with aviation.
Liquidity, outlook, risks and unusual items
- Credit refinancing after quarter-end: On October 16, 2023, Mammoth refinanced its prior revolver with a new revolving facility of up to $75 million and a $45 million term facility from Wexford Capital, an affiliate. The term loan bears interest at SOFR plus 7.50%, with an option to pay some interest in kind through April 16, 2025. At November 7, total liquidity was $16.6 million: $9.7 million cash and $6.9 million revolver availability. Up to 50% of defined PREPA claim proceeds must be remitted to Wexford to reduce term debt. The company reported covenant compliance under its old facility at September 30.
- PREPA collection exposure: PREPA owed approximately $399.4 million at September 30, including $186.0 million of interest; the company recorded no allowance and believes the balance collectible. PREPA is in bankruptcy, payment depends substantially on FEMA or other funding, and disputes, administrative appeals, mediation, and court proceedings remain ongoing. FEMA had approved $233 million of invoices; about $99 million of the related federal share was represented as intended for Cobra, while $111 million reimburses PREPA for prior payments. PREPA paid $13.6 million during the first nine months, with additional payments after quarter-end. Collection timing and ultimate recovery remain uncertain.
- Operating outlook: Management said lower commodity prices slowed customer completion activity, especially in the Utica and Marcellus, and expected these conditions to continue through year-end 2023. Mammoth was operating one of six pressure-pumping fleets at the time of the filing, but saw indications activity could ramp in 2024. It anticipated infrastructure bidding to increase in late 2023 and 2024, supported by utility spending and federal infrastructure funding. No formal earnings or revenue guidance was provided.
- Management cited commodity-price volatility, customer spending, labor and input costs, weather, supply-chain issues, interest rates, and customer concentration as risks. Some oilfield services and facilities remain idled; restarting them could require additional liquidity. The 2023 capital expenditure budget was $18 million, with $15.3 million spent through September.
- Other contingencies include RICO-related and employment claims, Puerto Rico municipal tax suits, and a DOJ investigation in which Cobra is cooperating. The company said it could not predict certain outcomes or their financial effect. The SEC had stated in 2022 that it did not intend to recommend enforcement action against the company.
- The board authorized a repurchase program of up to the lesser of $55 million or 10 million shares, subject to market, liquidity, legal and contractual constraints; the program does not require purchases. The filing reports no repurchases under this authorization during the quarter.
Most important facts for investors to verify
- PREPA receivable composition, FEMA funding and invoice approval status, litigation and mediation developments, actual subsequent collections, and the collectability of principal and accrued interest.
- Current borrowing availability, total debt and cash interest cost under the new facilities; covenant headroom, related-party loan terms, and required use of PREPA proceeds.
- Whether oilfield activity and fleet utilization recover in 2024, and whether infrastructure crew levels, project margins, and bidding convert into revenue.
- Whether the company achieves its capital spending plan while maintaining liquidity, and whether any stock repurchases occur under the authorization.
- Potential exposure from pending litigation, Puerto Rico tax matters, and employment claims, including whether any amounts exceed recorded estimates.