Mammoth Energy Services(TUSK) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The company reported a net loss of $15.2 million in Q2 2020 and $99.2 million for the six months, primarily due to $67.9 million in asset impairments, while operating cash flow improved significantly Condensed Consolidated Balance Sheet Data (in thousands of USD) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $418,702 | $406,980 | | Property, plant and equipment, net | $293,150 | $352,772 | | Goodwill | $12,608 | $67,581 | | Total assets | $838,470 | $952,385 | | Total current liabilities | $111,737 | $130,397 | | Long-term debt | $89,250 | $80,000 | | Total liabilities | $268,405 | $283,644 | | Total equity | $570,065 | $668,741 | Condensed Consolidated Statement of Comprehensive (Loss) Income (in thousands of USD, except per share amounts) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $60,109 | $181,820 | $157,492 | $443,958 | | Operating (loss) income | $(26,486) | $(25,795) | $(115,532) | $1,361 | | Net (loss) income | $(15,205) | $(10,889) | $(99,176) | $17,444 | | Net (loss) income per share (diluted) | $(0.33) | $(0.24) | $(2.18) | $0.39 | - For the six months ended June 30, 2020, the company recorded significant impairment charges, including $55.0 million for goodwill and $12.9 million for other long-lived assets, which were not present in the same period of 2019[21][24] Condensed Consolidated Statement of Cash Flows (in thousands of USD) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $6,834 | $(101,855) | | Net cash used in investing activities | $(1,880) | $(28,435) | | Net cash provided by financing activities | $7,336 | $69,825 | | Net change in cash and cash equivalents | $12,153 | $(60,380) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant revenue decline and net loss to the COVID-19 pandemic and depressed commodity prices, leading to cost reductions, service line shutdowns, and significant credit risks from large receivables, yet liquidity is deemed sufficient Recent Developments and Industry Overview The company's performance was severely impacted by the COVID-19 pandemic and oil price drops, leading to cost-cutting, service line shutdowns, challenges with the PREPA contract, and an oversupplied natural sand proppant market - The company has taken mitigating steps to preserve liquidity in response to the COVID-19 pandemic and depressed commodity markets, including reducing headcount, adjusting pay, and limiting spending[163] - As of June 30, 2020, PREPA owed the company approximately $227 million for services, excluding interest, with collection dependent on FEMA funding due to PREPA's bankruptcy proceedings[166] - In response to adverse market conditions, the company has temporarily shut down several oilfield service lines, including cementing, acidizing, flowback, contract drilling, rig hauling, coil tubing, and full service transportation operations[171] - The natural sand proppant market is oversupplied, causing pricing to fall significantly, with two of the company's three sand facilities idled or running at approximately 10% capacity[175][176] Results of Operations Q2 2020 total revenue plummeted 67% to $60 million, with a $26 million operating loss, while six-month revenue fell 65% to $157 million, resulting in a $116 million operating loss due to significant impairment charges Revenue by Segment - Three Months Ended June 30 (in thousands of USD) | Segment | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Infrastructure services | $30,579 | $41,821 | -27% | | Pressure pumping services | $16,571 | $84,641 | -80% | | Natural sand proppant services | $6,237 | $40,393 | -85% | | Drilling services | $1,275 | $7,657 | -83% | | Total Revenue (Consolidated) | $60,109 | $181,820 | -67% | Revenue by Segment - Six Months Ended June 30 (in thousands of USD) | Segment | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Infrastructure services | $56,285 | $150,542 | -63% | | Pressure pumping services | $60,192 | $176,780 | -66% | | Natural sand proppant services | $16,486 | $78,254 | -79% | | Drilling services | $6,054 | $21,452 | -72% | | Total Revenue (Consolidated) | $157,492 | $443,958 | -65% | - For the six months ended June 30, 2020, the company recorded impairment expenses of $55 million for goodwill and $13 million for other long-lived assets, which significantly contributed to the operating loss of $116 million[218][219][220] Non-GAAP Financial Measures Consolidated Adjusted EBITDA decreased to $6.9 million in Q2 2020 and $20.3 million for the six months, reflecting reduced operational activity, while Adjusted Net Loss for the six months was $31.3 million after excluding impairments Consolidated Adjusted EBITDA Reconciliation (in thousands of USD) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(15,205) | $(10,889) | $(99,176) | $17,444 | | Adjusted EBITDA | $6,897 | $8,573 | $20,349 | $91,329 | Adjusted Net (Loss) Income Reconciliation (in thousands of USD) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net (loss) income, as reported | $(99,176) | $17,444 | | Impairment of goodwill | $54,973 | $— | | Impairment of other long-lived assets | $12,897 | $— | | Adjusted net (loss) income | $(31,306) | $17,444 | Liquidity and Capital Resources As of June 30, 2020, the company had $18.0 million cash and $18.5 million available credit, with operating cash flow improving to $6.8 million and capital expenditures significantly reduced, though future liquidity depends on receivable collections - As of July 29, 2020, the company had $16 million in cash and $20 million of available borrowing capacity under its revolving credit facility[238] - The company has reduced its 2020 capital expenditure estimate to a maximum of $10 million, a significant decrease from prior spending levels[252] - The board of directors suspended the quarterly cash dividend in July 2019 due to market conditions and collection delays from PREPA[236] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to significant market risks from volatile oil and natural gas prices, exacerbated by COVID-19, interest rate risk on its variable-rate debt, foreign currency risk from Canadian operations, and substantial customer credit risk from large receivables with uncertain collectability - The company's business is highly dependent on the volatile oil and natural gas industry, with the COVID-19 pandemic and commodity price drops in 2020 adversely affecting pricing and utilization for its oilfield services[259][260] - The company has interest rate risk on its $89 million of borrowings under its revolving credit facility, where a 1% change in interest rates would affect annual interest expense by approximately $1 million[263] - Significant customer credit risk exists due to large receivable balances from customers involved in legal disputes or bankruptcy proceedings, which could adversely affect financial results if not collected[265] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[268] - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2020[269] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including class action lawsuits, derivative lawsuits, government investigations, and disputes with PREPA and Gulfport, as detailed in Note 18 of the financial statements - The company is involved in various legal proceedings, which are detailed in Note 18 of the financial statements, including disputes with PREPA and Gulfport, class action lawsuits, and government investigations[130][135][137][142] Item 1A. Risk Factors Existing risk factors remain consistent with prior disclosures, but their negative impacts may be heightened or exacerbated by the ongoing COVID-19 pandemic and its economic repercussions - The company states that existing risk factors may be heightened or exacerbated by the COVID-19 pandemic and its economic consequences[272] Item 4. Mine Safety Disclosures The company's sand mining operations are subject to federal mine safety regulations, with required disclosures provided in Exhibit 95.1 of this report - The company's mining operations are subject to federal mine safety regulations, and required disclosures are provided in Exhibit 95.1[274]