Mammoth Energy Services, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Mammoth provides oilfield services, natural sand proppant and electric utility infrastructure services. Results are unaudited; amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $533.6 million | $98.3 million | $1,027.8 million | $173.2 million |
| Operating income (loss) | $97.7 million | ($6.7 million) | $200.4 million | ($14.2 million) |
| Net income (loss) | $42.7 million | ($1.2 million) | $98.2 million | ($6.2 million) |
| Diluted EPS | $0.95 | ($0.03) | $2.18 | ($0.16) |
| Operating cash flow | $125.1 million | $9.6 million | $226.5 million | $24.0 million |
Operating margin was approximately 18.3% in Q2 and 19.5% for the first half; net margin was approximately 8.0% and 9.6%, respectively. Q2 Adjusted EBITDA, a non-GAAP measure, was $148.6 million; first-half Adjusted EBITDA was $279.4 million.
Growth was concentrated in infrastructure services: revenue was $360.3 million in Q2 and $685.7 million for the first half, compared with $1.7 million in each prior-year period. PREPA-related work represented $347 million of Q2 infrastructure revenue and $665 million in the first half. Other Q2 revenue included pressure pumping of $101.4 million and sand of $52.8 million.
Balance sheet, cash flow and liquidity
- At June 30, cash was $10.7 million; total assets were $1.03 billion and total liabilities were $403.5 million.
- Working capital was approximately $16 million, down from $94 million at December 31, 2017. Current assets were $381.6 million and current liabilities $365.2 million.
- No borrowings were outstanding under the $170 million revolving credit facility. Availability was approximately $162.7 million after $6.5 million of letters of credit. The facility matures November 2019; the company reported compliance with its covenants.
- Long-term debt was zero, compared with $99.9 million at year-end 2017. Capital lease and equipment-financing obligations totaled $5.7 million, including current amounts.
- First-half investing cash outflow was $121.2 million, including $108.8 million of capital expenditures and $13.4 million for acquisitions. Financing cash outflow was $100.0 million, principally net revolver repayments.
- Accounts receivable, net, rose to $312.9 million from $243.7 million at year-end. The allowance for doubtful accounts reached $73.8 million, including $53.6 million of additional PREPA-specific reserves during the first half.
Changes, outlook and material matters
- Revenue increased sharply year over year, chiefly because of hurricane restoration work in Puerto Rico, as well as added pressure-pumping fleets and higher sand volumes. Management reported first-half sand sales up 146% to approximately 1.51 million tons.
- Despite higher net income and operating cash flow, results include substantial noncash and unusual items: $53.8 million of first-half bad-debt expense and $17.5 million of equity-based compensation triggered by a selling stockholder’s secondary share sale. The latter had no cash or share-dilution impact on Mammoth.
- On May 26, Cobra signed a one-year PREPA contract, ending May 25, 2019, with payments capped at $900 million for restoration and initial reconstruction work. PREPA is in bankruptcy proceedings; its ability to pay depends substantially on FEMA or other funding. The filing also reports the earlier PREPA contract, with payments up to $945.4 million.
- A Puerto Rico lawsuit alleges that defendants’ negligence caused an electrical failure and seeks at least $300 million in damages. Mammoth says it believes the claim is without merit but cannot predict the outcome or its financial impact.
- Management expects demand for oilfield services to depend on commodity prices. It cited potential oversupply and capacity additions in Permian frac sand, and said rail constraints reduced Taylor facility production an estimated 23% in the first half; it expected those constraints to ease later in 2018.
- Management estimated 2018 capital expenditures of approximately $205 million, versus $108.8 million spent in the first half, and stated available liquidity should fund operations for at least 12 months. No earnings or revenue guidance was provided.
- After quarter-end, Mammoth extended Gulfport pressure-pumping and sand-supply agreements through December 2021. The pumping amendment permits suspension of up to one crew and included an initial July–September 2018 suspension period. The amendments increased unsatisfied performance obligations by approximately $88.8 million.
- The board announced a quarterly dividend of $0.125 per share in July 2018. The credit facility amendment permits distributions subject to availability and other conditions. The filing also disclosed additional post-quarter-end lease, equipment and service commitments.
Key investor verification points
- Track PREPA collections, reserve adequacy, funding sources, contract performance and the outcome of the $300 million Puerto Rico lawsuit.
- Separate recurring operating performance from PREPA storm-restoration activity, bad-debt charges, sponsor-level equity compensation and other non-GAAP adjustments.
- Monitor accounts-receivable growth, customer concentration, working capital and cash conversion; Customer A accounted for 59% of receivables at June 30.
- Assess the feasibility and returns of the planned $205 million capital program alongside the dividend and remaining credit-facility availability.
- Review the impact of the Gulfport crew-suspension rights, related-party exposure, frac-sand supply/logistics conditions and oil-and-gas activity on future utilization and margins.