Mammoth Energy Services(US:TUSK)2024-03-01 21:05Part I Business and Operations Mammoth Energy Services' integrated operations across well completion, infrastructure, natural sand proppant, and drilling in North America - The company operates through four primary reportable segments: well completion services, infrastructure services, natural sand proppant services, and drilling services2023 - The company's business strategy focuses on organic growth, accretive acquisitions, cross-selling its complementary services, expanding its infrastructure business, and maintaining a conservative balance sheet7475 - Customer concentration is a key characteristic, with the top five customers accounting for approximately 35% of revenue in 202377 Business Overview Details Mammoth Energy Services' core business segments, North American market presence, and historical revenue drivers, including PREPA contracts Company Services Key services include well completion, infrastructure, natural sand proppant, and drilling, with some lines temporarily idled Key Service Segments and Assets (as of Dec 31, 2023) | Service Segment | Key Offerings | Key Assets | | :--- | :--- | :--- | | Well Completion | Hydraulic fracturing, sand hauling, water transfer | 6 high-pressure fleets (310,000 HHP), 39 sand trucks, 91 miles of water hose | | Infrastructure | Electric T&D engineering, construction, repair, storm restoration | Agreements with IOUs, Co-Ops; significant past work with PREPA | | Natural Sand Proppant | Mining, processing, and selling Northern White frac sand | Wisconsin-based plants, logistics network, new 12-month supply agreement for ~709k tons | | Drilling | Directional drilling rentals (MWD, motors), contract drilling (idled) | 4 MWD kits, 89 mud motors, 11 land drilling rigs (idled) | | Other Services | Aviation, equipment rentals, remote accommodations, manufacturing | 2 helicopters, rental fleet, 878-room accommodation capacity (178 rooms/night avg utilization) | - Several service lines, including contract drilling, rig moving, coil tubing, pressure control, flowback, cementing, and acidizing, were temporarily shut down due to market conditions but are maintained for potential recommencement4155 - A significant portion of infrastructure revenue was historically generated from two contracts with PREPA for hurricane restoration, which ended in March 2019. A substantial receivable remains outstanding33 Industry Overview Industry overview covers volatile oil & gas, natural sand proppant, and energy infrastructure markets - Oil & Gas: The industry is volatile and influenced by commodity prices. Lower crude oil and natural gas prices in 2023 slowed completion activities and reduced demand for the company's well completion services6263 - Natural Sand Proppant: Demand increased through early 2023 but was later adversely impacted by Canadian wildfires and the slowdown in completion activities. The company is seeing an uptick in orders in Q1 202465 - Energy Infrastructure: Demand is driven by repair, maintenance, and expansion of the electrical grid. The Infrastructure Investment and Jobs Act is expected to provide added opportunities and fuel additional projects6971 Regulatory Environment Operations are subject to extensive federal and state regulations, including environmental, safety, and climate change - Operations are subject to extensive regulation by multiple bodies including the Department of Transportation (DOT), EPA, and MSHA, covering worker safety, environmental protection, and transportation standards8889 - Hydraulic fracturing is regulated by state commissions, but federal agencies like the EPA have asserted authority over aspects like diesel fuel use and wastewater disposal. Potential for increased federal regulation remains a key issue109115 - Climate change initiatives, such as the Inflation Reduction Act (IRA), could accelerate the transition away from fossil fuels, potentially decreasing demand for oil and gas services, while also imposing new costs like a methane emissions charge103154 Risk Factors Substantial risks include the PREPA receivable, customer concentration, market volatility, and regulatory changes - A primary risk is the failure by PREPA to pay amounts owed to subsidiary Cobra. As of December 31, 2023, PREPA owed approximately $204.8 million for services, plus $197.5 million in interest. Collection is dependent on funding from FEMA and PREPA's bankruptcy proceedings134136 - The company has a concentrated customer base, with the top five customers accounting for about 35% of revenue in 2023, making it vulnerable to the loss of any single major customer138 - The company's largest stockholder, Wexford, beneficially owns approximately 47.1% of the common stock, allowing it to exercise significant influence over corporate matters and creating potential conflicts of interest233 - The business is exposed to volatility in oil and natural gas prices, which directly impacts customer capital expenditures and demand for oilfield services143 Cybersecurity NIST-informed cybersecurity program is managed in-house with board oversight, reporting no material impacts to date - The cybersecurity program is managed by an in-house team led by the Director of Information Technology, who reports to the CFO, and is informed by the NIST Cybersecurity Framework257259261 - The board of directors receives quarterly updates on the cybersecurity program's status and any security incidents261 - The company states that risks from cybersecurity threats have not materially affected the company's business strategy, results of operations, or financial condition to date262 Properties Primary properties are Wisconsin natural sand proppant facilities with reserves and corporate headquarters Estimated Proven Frac Sand Reserves (as of Dec 31, 2023) | Mine Location | Proven Reserves (Thousands of Tons) | | :--- | :--- | | Taylor (Jackson County, WI) | 23,191 | | Piranha (Barron County, WI) | 36,706 | | Total | 59,897 | - The Muskie facility in Pierce County, Wisconsin, has been temporarily idled since September 2018 due to market conditions and does not have any associated proppant sand reserves269294 - Total sand mined in 2023 was 1.304 million tons, a decrease from 1.396 million tons in 2022273 Legal Proceedings Significant legal proceedings involve collecting $204.8 million from PREPA, and other tax and labor claims - The company is actively pursuing collection of approximately $204.8 million in principal and $197.5 million in interest from PREPA through litigation in PREPA's bankruptcy case666 - Cobra, a subsidiary, faces 13 lawsuits from municipalities in Puerto Rico for alleged failure to pay construction excise and business taxes. Cobra believes it is exempt from these taxes677 - A former employee filed a class and collective action complaint alleging failure to pay overtime wages in compliance with FLSA and Puerto Rico law. The company has reached settlements in principle with some claimants, while arbitrations are pending for others678 Part II Financial Information This section provides an overview of the company's financial performance, liquidity, capital resources, and critical accounting estimates, including details on stock matters and internal controls Financial Highlights (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $309.5 million | $362.1 million | | Net Loss | ($3.2 million) | ($0.6 million) | | Adjusted EBITDA | $71.0 million | $86.1 million | | Debt Reduction | $40.7 million | N/A | | Operating Cash Flow | $31.4 million | $15.3 million | - The company refinanced its debt in October 2023, entering into a new $75 million revolving credit facility and a new $45 million term credit facility with an affiliate, Wexford Capital LP314374 - In December 2023, the company entered into an assignment agreement to sell $54.4 million of its PREPA receivable, receiving $46.1 million in net proceeds. This obligation was fully extinguished subsequent to year-end after PREPA made the required payment to the assignee315383386 [Common Stock and Shareholder Matters](index=62&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C