Mammoth Energy Services(TUSK) - 2020 Q4 - Annual Report

PART I Business Mammoth Energy Services, Inc. is an integrated company serving North America's electric utility and oil and gas industries, facing 2020 pandemic impacts, customer concentration, and a strategic shift towards broader industrial focus - The company operates four primary reportable segments: infrastructure services, well completion services, natural sand proppant services, and drilling services[27] - The company is strategically shifting towards a broader industrial focus, having commenced infrastructure engineering and equipment manufacturing operations in late 2019[21][303] - For the year ended December 31, 2020, the top five customers accounted for 50% of total revenue, with Gulfport Energy Corporation representing 16%, indicating significant customer concentration risk[22][86] - The company has temporarily shut down several oilfield service lines due to adverse market conditions, including contract land drilling, rig moving, flowback, cementing, acidizing, and coil tubing operations[48][55][56] Our Services The company provides diverse services including infrastructure, well completion, natural sand proppant, and drilling, with past infrastructure revenue heavily reliant on PREPA and most oilfield services idled due to market conditions - A substantial portion of past infrastructure revenue was generated from storm restoration work for the Puerto Rico Electric Power Authority (PREPA) As of December 31, 2020, PREPA owed the company approximately $227 million for services, plus $74 million in interest[29][31] - In Well Completion Services, only one of six pressure pumping fleets was staffed and operating as of December 31, 2020, reflecting depressed market conditions[33] - The company's natural sand proppant facility in Pierce County, Wisconsin, has been temporarily idled since September 2018 due to market conditions[44] - Contract land drilling operations were temporarily shut down in December 2019, and rig moving operations were shut down in April 2020 due to poor market conditions[48][55] Our Industries The company operates in electric infrastructure, oil and natural gas, and natural sand proppant industries, all significantly impacted by utility spending, volatile commodity prices, and market oversupply - Demand in the electric infrastructure industry is driven by utility capital expenditures for repair and maintenance of aging networks, as well as responses to natural disasters[70] - The sharp decline in oil prices starting in March 2020 significantly reduced utilization and pricing for the company's oilfield services, with depressed activity expected to continue[74][75] - The frac sand market became oversupplied in 2019 and 2020 due to industry capacity expansion and reduced oil demand, causing prices to fall significantly and impacting segment profitability[78] Regulation The company's operations are subject to extensive federal, state, and local regulations across worker safety, transportation, environmental protection, and mining, with potential for increased costs from new climate policies - Operations are subject to a wide range of regulations covering worker safety (OSHA), transportation (DOT, FMCSA), environmental protection (EPA), and mine safety (MSHA)[100][102][106][130] - Hydraulic fracturing is regulated by state commissions, but federal agencies like the EPA have asserted authority over aspects such as the use of diesel fluids and wastewater disposal, creating potential for increased costs and restrictions[123] - The Biden administration's executive orders regarding climate change, methane emissions, and leasing on public lands create regulatory uncertainty that could increase costs for the company's oilfield services operations[229] Risk Factors The company faces significant risks from the COVID-19 pandemic, high customer concentration, non-payment from PREPA, Gulfport bankruptcy, government investigations, and oil and gas market volatility, alongside common stock ownership concentration - The business is adversely affected by the COVID-19 pandemic, which has disrupted the economy and reduced demand for oil and natural gas[145] - The company has significant customer concentration, with the top five customers accounting for 50% of revenue in 2020, and potential loss or non-payment from major customers like PREPA (owed ~$301 million including interest) or Gulfport (filed for Chapter 11 bankruptcy) presents a material risk[146][149][150] - The company is subject to ongoing investigations by the SEC and DOJ, as well as multiple lawsuits, related to its contracts with PREPA, which could have a material adverse effect on the business[152][153][154] - Two major stockholders, Wexford (48.2%) and Gulfport (21.5%), control a significant percentage of the common stock, and their interests may conflict with those of other stockholders[246] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[266] Properties The company's headquarters are in Oklahoma City, with 15 owned and 35 leased properties, including Wisconsin sand proppant facilities with a total permitted capacity of 5.7 million tons per year and 62.7 million tons of proven reserves Sand Plant Annual Rated Production Capacity (as of Dec 31, 2020) | Plant Location | Type | Annual Rated Capacity (Thousands of Tons) | | :--- | :--- | :--- | | Taylor, WI | Wet | 2,646 | | Piranha, WI | Wet | 4,704 | | Muskie, WI | Wet | 1,314 | | Taylor, WI | Dry | 2,190 | | Piranha, WI | Dry | 2,628 | | Muskie, WI | Dry | 876 | Estimated Proven Sand Reserves (Thousands of Tons) | Mine Location | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | :--- | | Taylor, WI | 24,691 | 25,121 | 26,325 | | Piranha, WI | 38,050 | 41,001 | 42,358 | | Total | 62,741 | 66,122 | 68,683 | - Production at the Muskie facility in Plum City, Wisconsin has been temporarily idled since September 2018 due to adverse market conditions[272] Legal Proceedings The company is involved in significant investigations and legal proceedings related to PREPA receivables, DOJ and SEC inquiries, and litigation with Gulfport, alongside other routine business disputes - The company is involved in significant legal proceedings and investigations, particularly related to its contracts with PREPA and disputes with Gulfport Energy[281] Mine Safety Disclosures The company's mining operations are subject to the Federal Mine Safety and Health Act of 1977, with detailed safety violation information provided in Exhibit 95.1 - The company's operations are subject to stringent health and safety standards from the Mine Safety and Health Administration (MSHA)[284] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "TUSK," with 39 holders of record as of February 2021, and quarterly dividends suspended in July 2019 due to market conditions - The company's common stock is traded on the Nasdaq Global Select Market under the symbol "TUSK"[286] - The quarterly cash dividend was suspended in July 2019 due to oilfield market conditions and issues with collections from PREPA[289] Selected Financial Data The company presents five years of selected historical financial data, showing a significant revenue decline from $1.69 billion in 2018 to $313 million in 2020, with net losses in 2019 and 2020 Selected Historical Financial Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $313,076 | $625,012 | $1,690,084 | $691,496 | $230,625 | | Operating (loss) income | $(149,317) | $(128,383) | $394,451 | $62,771 | $(34,630) | | Net (loss) income | $(107,607) | $(79,044) | $235,965 | $58,964 | $(92,453) | | Net (loss) income per share (diluted) | $(2.36) | $(1.76) | $5.24 | $1.42 | $(2.94) | | Cash flows from operations | $6,967 | $(95,318) | $386,668 | $57,616 | $29,689 | | Total assets | $824,562 | $952,385 | $1,073,091 | $867,243 | $502,362 | | Long-term debt | $81,338 | $80,000 | $— | $99,900 | $— | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 2020 financial decline to the COVID-19 pandemic and commodity price volatility, resulting in a 50% revenue fall, a $108 million net loss, and $68 million in impairment charges, with a conservative $9 million 2021 capital budget Results of Operations Revenue decreased 50% to $313 million in 2020 due to the PREPA contract conclusion and oilfield activity decline, leading to a wider operating loss of $149 million and $68 million in impairment charges Revenue by Segment (2020 vs. 2019, in thousands) | Segment | 2020 | 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Infrastructure services | $155,241 | $213,264 | $(58,023) | -27% | | Well completion services | $88,325 | $243,802 | $(155,477) | -64% | | Natural sand proppant services | $34,360 | $97,063 | $(62,703) | -65% | | Drilling services | $7,785 | $31,964 | $(24,179) | -76% | | Total Revenue | $313,076 | $625,012 | $(311,936) | -50% | - The company recorded goodwill impairment of $55.0 million and other long-lived asset impairment of $12.9 million in 2020, compared to $33.7 million and $7.4 million, respectively, in 2019[344][345] - Revenue in 2019 decreased by $1.1 billion (63%) compared to 2018, primarily due to an $873 million decline in infrastructure services revenue following the conclusion of the PREPA contract on March 31, 2019[349] Non-GAAP Financial Measures The company uses Adjusted EBITDA and Adjusted Net Loss as non-GAAP measures, with Consolidated Adjusted EBITDA at $50.0 million in 2020 and Adjusted Net Loss at $39.7 million Consolidated Adjusted EBITDA Reconciliation (in thousands) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net (loss) income | $(107,607) | $(79,044) | $235,965 | | Adjustments... | ... | ... | ... | | Adjusted EBITDA | $49,952 | $77,283 | $547,268 | Adjusted Net (Loss) Income Reconciliation (in thousands) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net (loss) income, as reported | $(107,607) | $(79,044) | $235,965 | | Impairment of goodwill | 54,973 | 33,664 | 3,203 | | Impairment of other long-lived assets | 12,897 | 7,358 | 5,652 | | Equity based compensation | — | — | 17,487 | | Adjusted net (loss) income | $(39,737) | $(38,022) | $262,307 | Liquidity and Capital Resources Primary liquidity sources are cash from operations and a revolving credit facility, with $14.8 million cash and $39 million available capacity as of December 2020, and a $9 million capital budget for 2021 - As of December 31, 2020, the company had $14.8 million in cash and $39 million available under its revolving credit facility[383][394] - Capital expenditures were reduced to $6.8 million in 2020, down from $35.8 million in 2019 and $191.9 million in 2018[389] - The capital expenditure budget for 2021 is estimated at $9 million, with $6 million allocated to the infrastructure segment[398] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from oil and natural gas industry volatility, interest rate risk on its revolving credit facility, and significant customer credit risk exacerbated by the pandemic - The company's primary market risk is its exposure to the volatility of the oil and natural gas industry, which is influenced by commodity prices and E&P spending[431] - The company has interest rate risk on its $78 million of borrowings under its revolving credit facility, where a 1% change in interest rates would affect annual interest expense by approximately $1 million[435] - The company is subject to significant customer credit risk, which is enhanced by the COVID-19 pandemic and depressed commodity price environment[437] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and supplementary data which begin on page F-1 of the report - The information required by this item appears beginning on page F-1 of the report[440] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - Not applicable[441] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[444] - Management determined that the company maintained effective internal control over financial reporting as of December 31, 2020, based on the 2013 COSO framework[447] Other Information The company reports no other information for this item - Not applicable[449] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[452] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[454] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and related stockholder matters is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[455] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[456] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[457] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report, with schedules omitted if not applicable - This section contains a list of all exhibits filed with the 10-K, including corporate governance documents, material contracts, and certifications[462] Form 10-K Summary The company did not provide a Form 10-K summary - None[466]