Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.51M
6: EX-95.1 Mine-Safety Disclosure HTML 35K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 30K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 30K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 28K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 28K
12: R1 Cover Page HTML 79K
13: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 146K
14: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 33K
(Parenthetical)
15: R4 Condensed Consolidated Statements of Comprehensive HTML 119K
Loss (Unaudited)
16: R5 Condensed Consolidated Statements of Comprehensive HTML 34K
Loss (Unaudited) (Parenthetical)
17: R6 Condensed Consolidated Statements of Changes in HTML 69K
Equity (Unaudited)
18: R7 Condensed Consolidated Statements of Cash Flows HTML 121K
(Unaudited)
19: R8 Organization and Nature of Business HTML 31K
20: R9 Basis of Presentation and Significant Accounting HTML 84K
Policies
21: R10 Revenue HTML 54K
22: R11 Inventories HTML 35K
23: R12 Property, Plant and Equipment HTML 65K
24: R13 Goodwill and Intangible Assets HTML 76K
25: R14 Equity Method Investment HTML 29K
26: R15 Accrued Expenses and Other Current Liabilities and HTML 50K
Other Long-Term Liabilities
27: R16 Debt HTML 51K
28: R17 Variable Interest Entities HTML 29K
29: R18 Selling, General and Administrative Expense HTML 49K
30: R19 Income Taxes HTML 30K
31: R20 Leases HTML 221K
32: R21 Earnings (Loss) Per Share HTML 47K
33: R22 Equity Based Compensation HTML 29K
34: R23 Stock Based Compensation HTML 41K
35: R24 Related Party Transactions HTML 99K
36: R25 Commitments and Contingencies HTML 65K
37: R26 Reporting Segments HTML 192K
38: R27 Subsequent Events HTML 27K
39: R28 Basis of Presentation and Significant Accounting HTML 69K
Policies (Policies)
40: R29 Basis of Presentation and Significant Accounting HTML 71K
Policies (Tables)
41: R30 Revenue (Tables) HTML 34K
42: R31 Inventories (Tables) HTML 35K
43: R32 Property, Plant and Equipment (Tables) HTML 64K
44: R33 Goodwill and Intangible Assets (Tables) HTML 81K
45: R34 Accrued Expenses and Other Current Liabilities and HTML 50K
Other Long-Term Liabilities (Tables)
46: R35 Debt (Tables) HTML 36K
47: R36 Selling, General and Administrative Expense HTML 49K
(Tables)
48: R37 Leases (Tables) HTML 102K
49: R38 Earnings (Loss) Per Share (Tables) HTML 47K
50: R39 Stock Based Compensation (Tables) HTML 38K
51: R40 Related Party Transactions (Tables) HTML 96K
52: R41 Commitments and Contingencies (Tables) HTML 34K
53: R42 Reporting Segments (Tables) HTML 195K
54: R43 Basis of Presentation and Significant Accounting HTML 58K
Policies - Narrative (Details)
55: R44 Basis of Presentation and Significant Accounting HTML 47K
Policies - Accounts Receivable (Details)
56: R45 Basis of Presentation and Significant Accounting HTML 50K
Policies - Concentration of Credit Risk and
Significant Customers (Details)
57: R46 Revenue - Narrative (Details) HTML 70K
58: R47 Revenue - Schedule of Contract Liabilities HTML 36K
(Details)
59: R48 Revenue - Performance Obligations and Contract HTML 27K
Balances (Details)
60: R49 Inventories (Details) HTML 36K
61: R50 Property, Plant and Equipment - Schedule of HTML 90K
Property, Plant and Equipment (Details)
62: R51 Property, Plant, and Equipment - Narrative HTML 35K
(Details)
63: R52 Property, Plant and Equipment - Schedule of HTML 35K
Depreciation, Amortization, Accretion, and
Depletion (Details)
64: R53 Goodwill and Intangible Assets - Schedule Of HTML 59K
Changes in Goodwill (Details)
65: R54 Goodwill and Intangible Assets - Narrative HTML 44K
(Details)
66: R55 Goodwill and Intangible Assets - Definite Lived HTML 34K
Intangible Assets (Details)
67: R56 Goodwill and Intangible Assets - Aggregated HTML 40K
Expected Amortization Expense (Details)
68: R57 Equity Method Investment - Narrative (Details) HTML 55K
69: R58 Accrued Expenses and Other Current Liabilities and HTML 55K
Other Long-Term Liabilities (Details)
70: R59 Accrued Expenses and Other Current Liabilities and HTML 41K
Other Long-Term Liabilities - Footnote (Details)
71: R60 Debt - Schedule of Debt (Details) HTML 42K
72: R61 Debt - Narrative (Details) HTML 104K
73: R62 Variable Interest Entities - Narrative (Details) HTML 43K
74: R63 Selling, General and Administrative Expense - HTML 54K
Schedule of Selling, General and Administrative
Expense (Details)
75: R64 Income Taxes - Narrative (Details) HTML 31K
76: R65 Leases - Schedule of Lease Expense (Details) HTML 39K
77: R66 Leases - Supplemental Balance Sheet Information HTML 46K
(Details)
78: R67 Leases - Other Supplemental Information Related to HTML 54K
Leases (Details)
79: R68 Leases - Schedule of Lease Liability Maturity HTML 64K
(Details)
80: R69 Leases - Narrative (Details) HTML 27K
81: R70 Earnings (Loss) Per Share - Schedule of Earnings HTML 60K
Per Unit (Details)
82: R71 Equity Based Compensation - Narrative (Details) HTML 31K
83: R72 Stock Based Compensation - Narrative (Details) HTML 37K
84: R73 Stock Based Compensation - Schedule Of Share-Based HTML 50K
Compensation (Details)
85: R74 Related Party Transactions - Revenues and Accounts HTML 60K
Receivable (Details)
86: R75 Related Party Transactions - Cost of Revenues of HTML 55K
Accounts Payable (Details)
87: R76 Related Party Transactions - Narrative (Details) HTML 41K
88: R77 Commitments and Contingencies - Narrative HTML 216K
(Details)
89: R78 Commitments and Contingencies - Schedule of HTML 37K
Letters of Credit (Details)
90: R79 Reporting Segments (Details) HTML 133K
93: XML IDEA XML File -- Filing Summary XML 172K
91: XML XBRL Instance -- tusk-20220630_htm XML 3.44M
92: EXCEL IDEA Workbook of Financial Reports XLSX 196K
8: EX-101.CAL XBRL Calculations -- tusk-20220630_cal XML 234K
9: EX-101.DEF XBRL Definitions -- tusk-20220630_def XML 723K
10: EX-101.LAB XBRL Labels -- tusk-20220630_lab XML 1.88M
11: EX-101.PRE XBRL Presentations -- tusk-20220630_pre XML 1.14M
7: EX-101.SCH XBRL Schema -- tusk-20220630 XSD 220K
94: JSON XBRL Instance as JSON Data -- MetaLinks 451± 684K
95: ZIP XBRL Zipped Folder -- 0001679268-22-000040-xbrl Zip 538K
(Exact name of registrant as specified in its charter)
iDelaware
i32-0498321
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i14201 Caliber Drive,
iSuite
300
iOklahoma City,
iOklahoma
i(405)
i608-6007
i73134
(Address
of principal executive offices)
(Registrant’s telephone number, including area code)
(Zip Code)
Securities registered pursuant to Section 12(b) of The Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock
iTUSK
iThe Nasdaq Stock Market LLC
iNASDAQ
Global Select Market
______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☒
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
As of July 26, 2022, there were i47,312,270
shares of common stock, $0.01 par value, outstanding.
GLOSSARY
OF OIL AND NATURAL GAS AND ELECTRICAL INFRASTRUCTURE TERMS
The following is a glossary of certain oil and natural gas and natural sand proppant industry terms used in this Quarterly Report on Form 10-Q (this “report” or “Quarterly Report”):
Acidizing
To pump acid into a wellbore to improve a well’s productivity or injectivity.
Blowout
An uncontrolled flow of reservoir fluids into the wellbore, and sometimes catastrophically to the surface. A blowout may consist of salt water, oil, natural gas or a mixture of these. Blowouts can occur in
all types of exploration and production operations, not just during drilling operations. If reservoir fluids flow into another formation and do not flow to the surface, the result is called an underground blowout. If the well experiencing a blowout has significant open-hole intervals, it is possible that the well will bridge over (or seal itself with rock fragments from collapsing formations) down-hole and intervention efforts will be averted.
Bottomhole assembly
The lower portion of the drillstring, consisting of (from the bottom up in a vertical well) the bit, bit sub, a mud motor (in certain cases), stabilizers, drill collar, heavy-weight drillpipe, jarring devices (“jars”) and crossovers for various threadforms. The bottomhole assembly must provide force for the bit to break the rock (weight on bit), survive a hostile mechanical environment and
provide the driller with directional control of the well. Oftentimes the assembly includes a mud motor, directional drilling and measuring equipment, measurements-while-drilling tools, logging-while-drilling tools and other specialized devices.
Cementing
To prepare and pump cement into place in a wellbore.
Coiled tubing
A long, continuous length of pipe wound on a spool. The pipe is straightened prior to pushing into a wellbore and rewound to coil the pipe back onto the transport and storage spool. Depending on the pipe diameter (1 in. to 4 1/2 in.) and the spool size, coiled tubing can range from 2,000 ft. to 23,000 ft. (610 m to 6,096 m) or greater length.
Completion
A
generic term used to describe the assembly of down-hole tubulars and equipment required to enable safe and efficient production from an oil or gas well. The point at which the completion process begins may depend on the type and design of the well.
Directional drilling
The intentional deviation of a wellbore from the path it would naturally take. This is accomplished through the use of whipstocks, bottomhole assembly (BHA) configurations, instruments to measure the path of the wellbore in three-dimensional space, data links to communicate measurements taken down-hole to the surface, mud motors and special BHA components and drill bits, including rotary steerable systems, and drill bits. The directional driller also exploits drilling parameters such as weight on bit and rotary speed to deflect the bit away from the axis of the existing wellbore. In some
cases, such as drilling steeply dipping formations or unpredictable deviation in conventional drilling operations, directional-drilling techniques may be employed to ensure that the hole is drilled vertically. While many techniques can accomplish this, the general concept is simple: point the bit in the direction that one wants to drill. The most common way is through the use of a bend near the bit in a down-hole steerable mud motor. The bend points the bit in a direction different from the axis of the wellbore when the entire drillstring is not rotating. By pumping mud through the mud motor, the bit turns while the drillstring does not rotate, allowing the bit to drill in the direction it points. When a particular wellbore direction is achieved, that direction may be maintained by rotating the entire drillstring (including the bent section) so that the bit does not drill in a single direction off the wellbore axis, but instead sweeps around and its net direction coincides
with the existing wellbore. Rotary steerable tools allow steering while rotating, usually with higher rates of penetration and ultimately smoother boreholes.
Down-hole
Pertaining to or in the wellbore (as opposed to being on the surface).
Down-hole motor
A drilling motor located in the drill string above the drilling bit powered by the flow of drilling mud. Down-hole motors are used to increase the speed and efficiency of the drill bit or can be used to steer the bit in directional drilling operations. Drilling motors have become very popular because of horizontal and directional drilling applications and the day rates for drilling rigs.
Drilling rig
The
machine used to drill a wellbore.
Drillpipe or Drill pipe
Tubular steel conduit fitted with special threaded ends called tool joints. The drillpipe connects the rig surface equipment with the bottomhole assembly and the bit, both to pump drilling fluid to the bit and to be able to raise, lower and rotate the bottomhole assembly and bit.
Drillstring or Drill string
The combination of the drillpipe, the bottomhole assembly and any other tools used to make the drill bit turn at the bottom of the wellbore.
Flowback
The process of allowing fluids to flow from the well following a treatment, either in preparation for a subsequent phase
of treatment or in preparation for cleanup and returning the well to production.
Horizontal drilling
A subset of the more general term “directional drilling,” used where the departure of the wellbore from vertical exceeds about 80 degrees. Note that some horizontal wells are designed such that after reaching true 90-degree horizontal, the wellbore may actually start drilling upward. In such cases, the angle past 90 degrees is continued, as in 95 degrees, rather than reporting it as deviation from vertical, which would then be 85 degrees. Because a horizontal well typically penetrates a greater length of the reservoir, it can offer significant production improvement over a vertical well.
Hydraulic fracturing
A stimulation treatment routinely
performed on oil and gas wells in low permeability reservoirs. Specially engineered fluids are pumped at high pressure and rate into the reservoir interval to be treated, causing a vertical fracture to open. The wings of the fracture extend away from the wellbore in opposing directions according to the natural stresses within the formation. Proppant, such as grains of sand of a particular size, is mixed with the treatment fluid to keep the fracture open when the treatment is complete. Hydraulic fracturing creates high-conductivity communication with a large area of formation and bypasses any damage that may exist in the near-wellbore area.
i
Hydrocarbon
A
naturally occurring organic compound comprising hydrogen and carbon. Hydrocarbons can be as simple as methane, but many are highly complex molecules, and can occur as gases, liquids or solids. Petroleum is a complex mixture of hydrocarbons. The most common hydrocarbons are natural gas, oil and coal.
Mesh size
The size of the proppant that is determined by sieving the proppant through screens with uniform openings corresponding to the desired size of the proppant. Each type of proppant comes in various sizes, categorized as mesh sizes, and the various mesh sizes are used in different applications in the oil and natural gas industry. The mesh number system is a measure of the number of equally sized openings per square inch of screen through which the proppant is sieved.
Mud motors
A
positive displacement drilling motor that uses hydraulic horsepower of the drilling fluid to drive the drill bit. Mud motors are used extensively in directional drilling operations.
Natural gas liquids
Components of natural gas that are liquid at surface in field facilities or in gas processing plants. Natural gas liquids can be classified according to their vapor pressures as low (condensate), intermediate (natural gasoline) and high (liquefied petroleum gas) vapor pressure.
Nitrogen pumping unit
A high-pressure pump or compressor unit capable of delivering high-purity nitrogen gas for use in oil or gas wells. Two basic types of units are commonly available: a nitrogen converter unit that pumps liquid nitrogen at high pressure through a heat
exchanger or converter to deliver high-pressure gas at ambient temperature, and a nitrogen generator unit that compresses and separates air to provide a supply of high pressure nitrogen gas.
Plugging
The process of permanently closing oil and gas wells no longer capable of producing in economic quantities. Plugging work can be performed with a well servicing rig along with wireline and cementing equipment; however, this service is typically provided by companies that specialize in plugging work.
Plug
A down-hole packer assembly used in a well to seal off or isolate a particular formation for testing, acidizing, cementing, etc.; also a type of plug used to seal off a well temporarily while the wellhead is removed.
Pounds
per square inch
A unit of pressure. It is the pressure resulting from a one pound force applied to an area of one square inch.
Pressure pumping
Services that include the pumping of liquids under pressure.
Producing formation
An underground rock formation from which oil, natural gas or water is produced. Any porous rock will contain fluids of some sort, and all rocks at considerable distance below the Earth’s surface will initially be under pressure, often related to the hydrostatic column of ground waters above the reservoir. To produce, rocks must also have permeability, or the capacity to permit fluids to flow through them.
Proppant
Sized
particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment. In addition to naturally occurring sand grains, man-made or specially engineered proppants, such as resin-coated sand or high-strength ceramic materials like sintered bauxite, may also be used. Proppant materials are carefully sorted for size and sphericity to provide an efficient conduit for production of fluid from the reservoir to the wellbore.
Resource play
Accumulation of hydrocarbons known to exist over a large area.
Shale
A fine-grained, fissile, sedimentary rock formed by consolidation of clay- and silt-sized particles into thin, relatively impermeable layers.
Tight oil
Conventional
oil that is found within reservoirs with very low permeability. The oil contained within these reservoir rocks typically will not flow to the wellbore at economic rates without assistance from technologically advanced drilling and completion processes. Commonly, horizontal drilling coupled with multistage fracturing is used to access these difficult to produce reservoirs.
Tight sands
A type of unconventional tight reservoir. Tight reservoirs are those which have low permeability, often quantified as less than 0.1 millidarcies.
Tubulars
A generic term pertaining to any type of oilfield pipe, such as drill pipe, drill collars, pup joints, casing, production tubing and pipeline.
Unconventional
resource/unconventional well
A term for the different manner by which resources are exploited as compared to the extraction of conventional resources. In unconventional drilling, the wellbore is generally drilled to specific objectives within narrow parameters, often across long, lateral intervals within narrow horizontal formations offering greater contact area with the producing formation. Typically, the well is then hydraulically fractured at multiple stages to optimize production.
Wellbore
The physical conduit from surface into the hydrocarbon reservoir.
Well stimulation
A treatment performed to restore or enhance the productivity of a well. Stimulation treatments fall into two main groups,
hydraulic fracturing treatments and matrix treatments. Fracturing treatments are performed above the fracture pressure of the reservoir formation and create a highly conductive flow path between the reservoir and the wellbore. Matrix treatments are performed below the reservoir fracture pressure and generally are designed to restore the natural permeability of the reservoir following damage to the near wellbore area. Stimulation in shale gas reservoirs typically takes the form of hydraulic fracturing treatments.
Wireline
A general term used to describe well-intervention operations conducted using single-strand or multi-strand wire or cable for intervention in oil or gas wells. Although applied inconsistently, the term commonly is used in association with electric logging and cables incorporating electrical conductors.
Workover
The
process of performing major maintenance or remedial treatments on an oil or gas well. In many cases, workover implies the removal and replacement of the production tubing string after the well has been killed and a workover rig has been placed on location. Through-tubing workover operations, using coiled tubing, snubbing or slickline equipment, are routinely conducted to complete treatments or well service activities that avoid a full workover where the tubing is removed. This operation saves considerable time and expense.
ii
The following is a glossary of certain electrical infrastructure
industry terms used in this report:
Distribution
The distribution of electricity from the transmission system to individual customers.
Substation
A part of an electrical transmission and distribution system that transforms voltage from high to low, or the reverse.
Transmission
The movement of electrical energy from a generating site, such as a power plant, to an electric substation.
Various statements contained in this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. In particular, the factors discussed in this report and detailed under Part II, Item 1A. Risk Factors in this report, our Annual Report on Form 10–K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted
or implied in such forward-looking statements.
Forward-looking statements may include statements about:
•the levels of capital expenditures by our customers and the impact of reduced drilling and completions activity on utilization and pricing for our oilfield services;
•the volatility of oil and natural gas prices and actions by OPEC members and other oil exporting nations, or OPEC+, affecting commodity price and production levels;
•any continuing impacts of the COVID-19 pandemic on Mammoth’s results of operations, financial condition or demand for Mammoth’s services;
•operational challenges relating to continuing
efforts to prevent or mitigate the spread of COVID-19, including logistical challenges, remote work arrangements and protecting the health, safety and well-being of Mammoth’s employees;
•employee retention and increasingly competitive labor market;
•the performance of contracts and supply chain disruptions during or following the COVID-19 pandemic;
•general economic, business or industry conditions;
•conditions in the capital, financial and credit markets;
•conditions of U.S. oil and natural gas industry and the effect of U.S. energy, monetary
and trade policies;
•U.S. and global economic conditions and political and economic developments, including the energy and environmental policies;
•inflationary pressure on the cost of services, equipment and other goods in our industries and other sectors;
•our ability to obtain capital or financing needed for our operations on favorable terms or at all;
•our ability to continue to comply with or, if applicable, obtain a waiver of forecasted or actual non-compliance with certain financial covenants from our lenders and comply with other terms and conditions under our recently amended revolving credit facility;
•our ability to execute
our business and financial strategies;
•our ability to continue to grow our infrastructure services segment or recommence certain of our suspended oilfield services;
•any loss of one or more of our significant customers and its impact on our revenue, financial condition and results of operations;
•asset impairments;
•our ability to identify, complete and integrate acquisitions of assets or businesses;
•our ability to receive, or delays in receiving, permits and governmental approvals and/or payments, and to comply with applicable governmental laws and regulations;
•the
outcome of a government investigation relating to the contracts awarded to our subsidiary Cobra Acquisitions LLC, or Cobra, by the Puerto Rico Electric Power Authority, or PREPA, and any resulting litigation;
•the outcome of our ongoing efforts to collect the outstanding amounts owed to us by PREPA for electric grid restoration services performed by Cobra in Puerto Rico;
•the outcome or settlement of our litigation matters discussed in this report, including the adverse impact of the settlement with MasTec Renewables Puerto Rico, LLC (“MasTec”), on our financial condition and cash flows;
•our ability to make the two remaining installments under the litigation settlement
agreement with MasTec discussed in this report;
•any future litigation, indemnity or other claims;
•regional supply and demand factors, delays or interruptions of production, and any governmental order, rule or regulation that may impose production limits on our customers;
•the availability of transportation, pipeline and storage facilities and any increase in related costs;
•extreme weather conditions in areas where we provide well completion, drilling and infrastructure services;
•access to and restrictions on use of sourced or produced water;
•technology;
•civil
unrest, war, military conflicts or terrorist attacks;
iv
•cybersecurity issues as digital technologies may become more vulnerable and experience a higher rate of cyberattacks due to increased use of remote connectivity in the workplace;
•competition within the energy services industry;
•availability of equipment, materials or skilled personnel or other labor resources;
•payment of any future dividends;
•future operating results; and
•capital
expenditures and other plans, objectives, expectations and intentions.
All of these types of statements, other than statements of historical fact included in this quarterly report, are forward-looking statements. These forward-looking statements may be found in the “Business,”“Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections of this quarterly report. In some cases, you can identify forward-looking statements by terminology such as “may,”“will,”“could,”“should,”“would,”“expect,”“plan,”“project,”“budget,”“intend,”“anticipate,”“believe,”“estimate,”“predict,”“potential,”“pursue,”“target,”“seek,”“objective,”“continue,”“will be,”“will benefit,”
or “will continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors, which are difficult to predict and many of which are beyond our control. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, our management’s assumptions about future events may prove to be inaccurate. Our management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be
realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to many factors including those described in our Annual Report on Form 10–K for the year ended December 31, 2021, and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 and Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Common
stock, $ii0.01/ par value, ii200,000,000/
shares authorized, ii47,312,270/ and ii46,684,065/
issued and outstanding at June 30, 2022 and December 31, 2021
i473
i467
Additional
paid in capital
i538,656
i538,221
Accumulated
deficit
(i85,649)
(i72,535)
Accumulated
other comprehensive loss
(i3,181)
(i2,931)
Total
equity
i450,299
i463,222
Total
liabilities and equity
$
i703,130
$
i720,892
The
accompanying notes are an integral part of these condensed consolidated financial statements.
1
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
Services cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $i15,404, $i30,759,
$i17,861 and $i36,850, respectively, for the three
and six months ended June 30, 2022 and three and six months ended June 30, 2021)
i58,433
i43,103
i105,000
i85,165
Services
cost of revenue - related parties (exclusive of depreciation, depletion, amortization and accretion of $i0, $i0, $i0
and $i0, respectively, for the three and six months ended June 30, 2022 and three and six months ended June 30, 2021)
i128
i107
i263
i216
Product
cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $i2,055, $i3,847,
$i2,384 and $i4,521, respectively, for the three and
six months ended June 30, 2022 and three and six months ended June 30, 2021)
i10,225
i7,165
i18,003
i13,074
Selling,
general and administrative (Note 11)
i8,206
i9,668
i16,874
i27,499
Selling,
general and administrative - related parties (Note 11)
i—
i192
i—
i385
Depreciation,
depletion, amortization and accretion
i17,476
i20,265
i34,643
i41,411
Total
cost and expenses
i94,468
i80,500
i174,783
i167,750
Operating
loss
(i4,790)
(i33,060)
(i22,807)
(i53,506)
OTHER
INCOME (EXPENSE)
Interest expense, net
(i2,659)
(i1,169)
(i5,008)
(i2,394)
Other
income (expense), net
i13,087
(i17,121)
i22,324
(i9,998)
Other
expense, net - related parties
i—
i—
i—
(i515)
Total
other income (expense)
i10,428
(i18,290)
i17,316
(i12,907)
Income
(loss) before income taxes
i5,638
(i51,350)
(i5,491)
(i66,413)
Provision
(benefit) for income taxes
i3,935
(i16,560)
i7,623
(i19,183)
Net
income (loss)
$
i1,703
$
(i34,790)
$
(i13,114)
$
(i47,230)
OTHER
COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment, net of tax of $i0, $i0,
$i63 and $(i680),
respectively, for the three and six months ended June 30, 2022 and three and six months ended June 30, 2021
(i448)
i239
(i250)
i407
Comprehensive
income (loss)
$
i1,255
$
(i34,551)
$
(i13,364)
$
(i46,823)
Net
income (loss) per share (basic) (Note 14)
$
i0.04
$
(i0.75)
$
(i0.28)
$
(i1.02)
Net
income (loss) per share (diluted) (Note 14)
$
i0.04
$
(i0.75)
$
(i0.28)
$
(i1.02)
Weighted
average number of shares outstanding (basic) (Note 14)
i47,225
i46,402
i47,036
i46,168
Weighted
average number of shares outstanding (diluted) (Note 14)
i47,634
i46,402
i47,036
i46,168
The
accompanying notes are an integral part of these condensed consolidated financial statements.
2
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
Adjustments
to reconcile net loss to cash (used in) provided by operating activities:
Stock based compensation
i441
i698
Depreciation,
depletion, accretion and amortization
i34,643
i41,411
Amortization
of debt origination costs
i375
i296
Bad
debt (recoveries) expense
(i115)
i10,201
Gain
on disposal of property and equipment
(i3,650)
(i1,599)
Deferred
income taxes
i6,612
(i20,898)
Other
i449
i548
Changes
in assets and liabilities:
Accounts receivable, net
(i22,480)
(i30,386)
Receivables
from related parties, net
(i105)
i28,381
Inventories
i366
i1,808
Prepaid
expenses and other assets
i4,567
i5,923
Accounts
payable
(i2,132)
(i1,546)
Accrued
expenses and other liabilities
(i7,407)
i15,756
Income
taxes payable
i912
i1,107
Net
cash (used in) provided by operating activities
(i638)
i4,471
Cash
flows from investing activities:
Purchases of property and equipment
(i3,968)
(i1,709)
Proceeds
from disposal of property and equipment
i7,447
i4,632
Net
cash provided by investing activities
i3,479
i2,923
Cash
flows from financing activities:
Borrowings on long-term debt
i83,000
i12,000
Repayments
of long-term debt
(i84,241)
(i30,269)
Proceeds
from sale leaseback transaction
i4,589
i9,473
Payments
on sale leaseback transaction
(i2,094)
(i1,278)
Principal
payments on financing leases and equipment financing notes
(i1,197)
(i1,140)
Net
cash provided by (used in) financing activities
i57
(i11,214)
Effect
of foreign exchange rate on cash
(i68)
i36
Net
change in cash and cash equivalents
i2,830
(i3,784)
Cash
and cash equivalents at beginning of period
i9,899
i14,822
Cash
and cash equivalents at end of period
$
i12,729
$
i11,038
Supplemental
disclosure of cash flow information:
Cash paid for interest
$
i3,792
$
i2,134
Cash
paid for income taxes, net of refunds received
$
i98
$
i964
Supplemental
disclosure of non-cash transactions:
Purchases of property and equipment included in accounts payable and accrued expenses
$
i4,733
$
i2,035
The
accompanying notes are an integral part of these condensed consolidated financial statements.
4
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. iOrganization
and Nature of Business
Mammoth Energy Services, Inc. (“Mammoth Inc.”, “Mammoth” or the “Company”), together with its subsidiaries, is an integrated, growth-oriented company serving both the oil and gas and the electric utility industries in North America. Mammoth Inc.’s infrastructure division provides engineering, design, construction, upgrade, maintenance and repair services to various public and private owned utilities. Its oilfield services division provides a diversified set of services to the exploration and production industry including well completion, natural sand and proppant and drilling services. Additionally, the Company provides aviation services, equipment rentals, remote accommodation services and equipment
manufacturing. The Company was incorporated in Delaware in June 2016.
Operations
The Company’s infrastructure services include engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry as well as repair and restoration services in response to storms and other disasters. The Company’s well completion services include equipment and personnel used in connection with the completion and early production of oil and natural gas wells. The
Company’s natural sand proppant services include the distribution and production of natural sand proppant that is used primarily for hydraulic fracturing in the oil and gas industry. The Company’s drilling services provide drilling rigs and directional tools for both vertical and horizontal drilling of oil and natural gas wells. The Company also provides other services, including aviation, equipment rentals, remote accommodations and equipment manufacturing.
The Company’s operations are concentrated in North America. During the periods presented in this report, the
Company provided its infrastructure services primarily in the northeastern, southwestern, midwestern and western portions of the United States. The Company’s infrastructure business depends on infrastructure spending on maintenance, upgrade, expansion and repair and restoration. Any prolonged decrease in spending by electric utility companies, delays or reductions in government appropriations or the failure of customers to pay their receivables could have a material adverse effect on the Company’s results of operations and financial condition. During the periods presented, the Company has operated its oil and natural gas businesses in the Permian Basin, the Utica Shale, the Eagle Ford Shale, the Marcellus Shale,
the Granite Wash, the SCOOP, the STACK, the Cana-Woodford Shale, the Cleveland Sand and the oil sands located in Northern Alberta, Canada. The Company’s oil and natural gas business depends in large part on the conditions in the oil and natural gas industry and, specifically, on the amount of capital spending by its customers. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity, as well as the entire health of the oil and natural gas industry. Continuation of or further decreases in the commodity prices for oil and natural gas would have a material adverse effect on the Company’s results of operations and financial condition.
2. iBasis
of Presentation and Significant Accounting Policies
i
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries and the variable interest entities (“VIE”) for which the
Company is the primary beneficiary. All material intercompany accounts and transactions have been eliminated.
This report has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, and reflects all adjustments, which in the opinion of management are necessary for the fair presentation of the results for the interim periods, on a basis consistent with the annual audited consolidated financial statements. All such adjustments are of a normal, recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures
are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the summary of significant accounting policies and notes thereto included in the Company’s most recent annual report on Form 10-K.
i
Reclassifications
Certain
reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. The Company adopted a new accounting policy related to the classification of certain legal expenses. For matters related to ongoing operations, the Company continues to present legal expense as selling, general and
5
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
administrative. For matters determined to be unrelated to ongoing operations, the
Company classifies the legal expenses according to the nature of the underlying matter. The Company believes that this new accounting policy will more accurately present legal expenses on its consolidated statement of comprehensive income (loss). The adoption of this policy resulted in the reclassification of approximately $i2.1 million and $i4.9
million, respectively, of legal expenses related to a certain legal settlement from Selling, general and administrative into Other, net on the unaudited condensed consolidated statement of comprehensive income (loss) for the three and six months ended June 30, 2021. See Note 18 for additional information related to the Company’s legal matters.
i
Accounts
Receivable
Accounts receivable include amounts due from customers for services performed or goods sold. The Company grants credit to customers in the ordinary course of business and generally does not require collateral. Prior to granting credit to customers, the Company analyzes the potential customer’s risk profile by utilizing a credit report, analyzing macroeconomic factors and using its knowledge of the industry, among other factors. Most areas in the continental United States in which the Company operates provide for a mechanic’s lien against the property on which the service is performed if the lien is filed within the statutorily specified time frame. Customer
balances are generally considered delinquent if unpaid by the 30th day following the invoice date and credit privileges may be revoked if balances remain unpaid. Interest on delinquent accounts receivable is recognized in other income when chargeable and collectability is reasonably assured.
During the period October 2017 through March 2019, the Company provided infrastructure services in Puerto Rico under master services agreements entered into by Cobra Acquisitions LLC (“Cobra”), one of the Company’s subsidiaries, with the Puerto Rico Electric Power Authority (“PREPA”) to perform repairs to PREPA’s electrical
grid as a result of Hurricane Maria. During the three and six months ended June 30, 2022 and the three and six months ended June 30, 2021, the Company charged interest on delinquent accounts receivable pursuant to the terms of its agreements with PREPA totaling $i10.2 million and $i20.0
million, respectively, and $i9.0 million and $i17.7 million, respectively. These amounts are included in “other,
net” on the unaudited condensed consolidated statement of comprehensive income (loss). Included in “accounts receivable, net” on the unaudited condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 were interest charges of $i130.8 million and $i110.8
million, respectively.
The Company regularly reviews receivables and provides for expected losses through an allowance for doubtful accounts. In evaluating the level of established reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of customers changes, circumstances develop, or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. In the event the Company expects that a customer may not be able to make required payments, the
Company would increase the allowance through a charge to income in the period in which that determination is made. If it is determined that previously reserved amounts are collectible, the Company would decrease the allowance through a credit to income in the period in which that determination is made. Uncollectible accounts receivable are periodically charged against the allowance for doubtful accounts once a final determination is made regarding their collectability.
6
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
i
Following
is a roll forward of the allowance for doubtful accounts for the year ended December 31, 2021 and the six months ended June 30, 2022 (in thousands):
The
Company has made specific reserves consistent with Company policy which resulted in additions to allowance for doubtful accounts totaling a inominal amount and $i0.7
million for the six months ended June 30, 2022 and year ended December 31, 2021, respectively. These additions were charged to bad debt expense based on the factors described above. Also, during the year ended December 31, 2021, the Company recorded additions to allowance for doubtful accounts of $i0.3
million related to insurance claim receivables for its directors and officers liability policy. The Company will continue to pursue collection until such time as final determination is made consistent with Company policy.
Gulfport
The Company’s subsidiaries Stingray Pressure Pumping LLC (“Stingray Pressure Pumping”) and Muskie Proppant LLC (“Muskie”) were party to a pressure pumping contract and a sand supply contract,
respectively, with Gulfport Energy Corporation (“Gulfport”). On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. See Notes 3 and 18 for additional information. Following is a roll forward of the allowance for doubtful accounts specifically related to Gulfport (in thousands):
As
of June 30, 2022, PREPA owed Cobra approximately $i227.0 million for services performed, excluding $i130.8 million
of interest charged on these delinquent balances as of June 30, 2022. PREPA is currently subject to bankruptcy proceedings, which were filed in July 2017 and are currently pending in the U.S. District Court for the District of Puerto Rico. As a result, PREPA’s ability to meet its payment obligations is largely dependent upon funding from the Federal Emergency Management Agency (“FEMA”) or other sources. On September 30, 2019, Cobra filed a motion with the U.S. District Court for the District of Puerto Rico seeking recovery of the amounts owed to Cobra by PREPA, which motion was stayed by the Court. On March 25, 2020, Cobra filed an urgent motion to modify the stay order and allow the recovery of approximately $i61.7 million
in claims related to a tax gross-up provision contained in the emergency master
7
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
service agreement, as amended, that was entered into with PREPA on October 19, 2017. This emergency motion was denied on June 3, 2020 and the Court extended the stay of our motion. On December 9, 2020, the Court again extended the stay of our motion and directed PREPA to file a status report by June 7, 2021. On April
6, 2021, Cobra filed a motion to lift the stay order. Following this filing, PREPA initiated discussion with Cobra, which resulted in PREPA and Cobra filing a joint motion to adjourn all deadlines relative to the April 6, 2021 motion until the June 16, 2021 omnibus hearing as a result of PREPA’s understanding that FEMA would be releasing a report in the near future relating to the emergency master service agreement between PREPA and Cobra that was executed on October 19, 2017. The joint motion was granted by the Court on April 14, 2021. On May 26, 2021, FEMA issued a Determination Memorandum related to the first contract between
Cobra and PREPA in which, among other things, FEMA raised itwocontract compliance issues and, as a result, concluded that approximately $i47 million
in costs were not authorized costs under the contract. On June 14, 2021, the Court issued an order adjourning Cobra’s motion to lift the stay order to a hearing on August 4, 2021 and directing Cobra and PREPA to meet and confer in good faith concerning, among other things, (i) the May 26, 2021 Determination Memorandum issued by FEMA and (ii) whether and when a second determination memorandum is expected. The parties were further directed to file an additional status report, which was filed on July 20, 2021. On July 23, 2021, with the aid of Mammoth, PREPA filed an appeal of the entire $i47 million
that FEMA de-obligated in the May 26, 2021 Determination Memorandum. FEMA approved the appeal in part and denied the appeal in part. FEMA found that staffing costs of $i24.4 million are eligible for funding. On August 4, 2021, the Court denied Cobra’s April 6, 2021 motion to lift the stay order, extended the stay of our motion seeking recovery of amounts owed to Cobra and directed
the parties to file an additional joint status report, which was filed on January 22, 2022. On January 26, 2022, the Court extended the stay and directed the parties to file a further status report by July 25, 2022. On June 7, 2022, Cobra filed a motion to lift the stay order. On June 29, 2022 the Court denied Cobra’s motion and extended the stay to January 2023.
The Company believes all amounts charged to PREPA, including interest charged on delinquent accounts receivable, were in accordance with the terms
of the contracts. Further, there have been multiple reviews prepared by or on behalf of FEMA that have concluded that the amounts Cobra charged PREPA were reasonable, that PREPA adhered to Puerto Rican legal statutes regarding emergency situations, and that PREPA engaged in a reasonable procurement process. As noted above, in May 2021 FEMA raised two contract compliance issues and concluded that $i47 million
in costs were not eligible under the contract. PREPA, however, has filed an appeal of the entire $i47 million. FEMA approved the appeal in part and denied the appeal in part. FEMA found that staffing costs of $i24.4 million
are eligible for funding. The Company believes these receivables are collectible and no allowance was deemed necessary at June 30, 2022 or December 31, 2021. However, in the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the amounts owed to the Company or (iii) otherwise does not pay amounts owed to the Company for services performed, the receivable may not be collectible.
iConcentrations
of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents in excess of federally insured limits and trade receivables. iFollowing is a summary of our significant customers based on percentages of total accounts receivable balances at June 30, 2022
and December 31, 2021 and percentages of total revenues derived for the three and six months ended June 30, 2022 and 2021:
a.Customer
A is a third-party customer. Revenues and the related accounts receivable balances earned from Customer A were derived from the Company’s infrastructure services segment. Accounts receivable for Customer A also includes receivables due for interest charged on delinquent accounts receivable.
b.Customer B is a third-party customer. Revenues and the related accounts receivable balances earned from Customer B were derived from the Company’s well completion services segment.
c.Customer C is a third-party customer. Revenues and the related accounts receivable balances earned from Customer C were derived from the
Company’s well completion services segment.
d.Customer D is a third-party customer. Revenues and the related accounts receivable balances earned from Customer D were derived from the Company’s infrastructure services segment.
e.Customer E was a related-party customer until June 29, 2021. Revenues earned from this customer prior to June 29, 2021 are included in services revenue - related parties and product revenue - related parties on the unaudited condensed consolidated statements of comprehensive income (loss).
8
MAMMOTH
ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Revenues and the related accounts receivable balances earned from Customer E were derived from the Company’s well completion services segment, natural sand proppant services segment and other businesses.
i
Fair Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, trade receivables, trade payables, amounts receivable or payable to related parties and long-term debt. The carrying amount of cash and cash equivalents, trade receivables, receivables from related parties and trade payables approximates fair value because of the short-term nature of the instruments. The fair value of long-term debt approximates its carrying value because the cost of borrowing fluctuates based upon market conditions.
3. iiRevenue/
The
Company’s primary revenue streams include infrastructure services, well completion services, natural sand proppant services, drilling services and other services, which includes aviation, equipment rentals, crude oil hauling, remote accommodations and equipment manufacturing. See Note 19 for the Company’s revenue disaggregated by type.
Certain of the Company’s customer contracts include provisions entitling the Company to a termination penalty when the customer invokes its contractual right to terminate prior to the contract’s
nominal end date. The termination penalties in the customer contracts vary, but are generally considered substantive for accounting purposes and create enforceable rights and obligations throughout the stated duration of the contract. The Company accounts for a contract cancellation as a contract modification in the period in which the customer invokes the termination provision. The determination of the contract termination penalty
is based on the terms stated in the related customer agreement. As of the modification date, the Company updates its estimate of the transaction price using the expected value method, subject to constraints, and recognizes the amount over the remaining performance period.
Infrastructure Services
Infrastructure services are typically provided pursuant to master service agreements, repair and maintenance contracts or fixed price and non-fixed price installation contracts. Pricing under these contracts
may be unit priced, cost-plus/hourly (or time and materials basis) or fixed price (or lump sum basis). Generally, the Company accounts for infrastructure services as a single performance obligation satisfied over time. In certain circumstances, the Company supplies materials that are utilized during the jobs as part of the agreement with the customer. The Company accounts for these infrastructure agreements as multiple performance obligations satisfied over time. Revenue is recognized over time as work progresses based on the days completed or as the contract is completed. Under certain customer contracts
in our infrastructure services segment, the Company warranties equipment and labor performed for a specified period following substantial completion of the work.
Well Completion Services
Well completion services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Generally, the Company accounts for well completion services as a single performance obligation satisfied over time. In certain circumstances, the
Company supplies proppant that is utilized for pressure pumping as part of the agreement with the customer. The Company accounts for these pressure pumping agreements as multiple performance obligations satisfied over time. Jobs for these services are typically short-term in nature and range from a few hours to multiple days. Generally, revenue is recognized over time upon the completion of each segment of work based upon a completed field ticket, which includes the charges for the services performed, mobilization of the equipment to the location, consumable supplies and personnel.
Additional revenue is generated through labor charges and the sale of consumable supplies that are incidental to the service being performed. Such amounts are recognized ratably over the period during which the corresponding
goods are consumed and services are performed.
Pursuant to a contract with Gulfport, Stingray Pressure Pumping agreed to provide Gulfport with use of up to itwo pressure pumping fleets for the period covered by the contract. Under this agreement, performance
obligations were satisfied as services were rendered based on the passage of time rather than the completion of each segment of work. Stingray Pressure Pumping had the right to receive consideration from this customer even if circumstances prevent us from performing work. All consideration owed to Stingray Pressure Pumping for services performed during the contractual period was fixed and the right to receive it was unconditional. On December 28, 2019, Gulfport filed a legal action in Delaware state court seeking the termination of this contract and monetary damages. Further, on November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. On March 22, 2021, Gulfport listed the Stingray
Pressure Pumping contract on its master rejection schedule filed with the bankruptcy court. The Company
9
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
determined that these factors changed the scope of the contract, accelerated the duration of, and otherwise changed the rights and obligations of each party to the contract.
As a result, the Company accounted for this as a contract modification during the three months ended March 31, 2021. Stingray Pressure Pumping used the expected value method to estimate unliquidated damages totaling $i37.9 million, which resulted in the recognition of net revenue totaling
$i14.8 million and bad debt expense of $i2.9 million on previously recognized revenue during the three months ended
March 31, 2021. On September 21, 2021, the Company and Gulfport reached a settlement under which all litigation relating to the Stingray Pressure Pumping contract was terminated. Stingray Pressure Pumping released all claims against Gulfport and its subsidiaries with respect to Gulfport’s bankruptcy proceedings and each of the parties released all claims they had against the others with respect to the litigation matters discussed in Note 18. As a result of this settlement agreement, for the three months ended September 30, 2021, the
Company wrote off its remaining receivable related to the Stingray Pressure Pumping claim resulting in bad debt expense and other expense of $i31.0 million and $i1.3 million, respectively.
Gulfport was a related party until June 29, 2021. On June 29, 2021, pursuant to the terms of its plan of reorganization, all of the Company’s shares that Gulfport owned were transferred to a trust for the benefit of certain of Gulfport’s creditors. The revenue recognized related to this agreement is included in “services revenue - related parties” in the accompanying unaudited condensed consolidated statement of comprehensive income (loss). See Notes 11 and 18 below.
Natural Sand Proppant Services
The
Company sells natural sand proppant through sand supply agreements with its customers. Under these agreements, sand is typically sold at a flat rate per ton or a flat rate per ton with an index-based adjustment. The Company recognizes revenue at the point in time when the customer obtains legal title to the product, which may occur at the production facility, rail origin or at the destination terminal.
Certain of the Company’s sand supply agreements contain a minimum volume commitment related to sand purchases whereby the Company charges a shortfall payment if the customer fails to meet the required minimum volume commitment.
These agreements may also contain make-up provisions whereby shortfall payments can be applied in future periods against purchased volumes exceeding the minimum volume commitment. If a make-up right exists, the Company has future performance obligations to deliver excess volumes of product in subsequent months. In accordance with ASC 606, if the customer fails to meet the minimum volume commitment, the Company will assess whether it expects the customer to fulfill its unmet commitment during the contractually specified make-up period based on discussions with the customer and management’s knowledge of the business. If the Company expects the customer will make-up deficient volumes in future periods, revenue related
to shortfall payments will be deferred and recognized on the earlier of the date on which the customer utilizes make-up volumes or the likelihood that the customer will exercise its right to make-up deficient volumes becomes remote. As of June 30, 2022, the Company had deferred revenue totaling $i0.5 million related to shortfall payments. This amount is included in “accrued expenses and other current liabilities” on the unaudited
condensed consolidated balance sheet. If the Company does not expect the customer will make-up deficient volumes in future periods, the breakage model will be applied and revenue related to shortfall payments will be recognized when the model indicates the customer’s inability to take delivery of excess volumes. The Company recognized revenue totaling $ii2.6/
million during the three and six months ended June 30, 2022, respectively, and $i1.0 million and $i6.0
million during the three and six months ended June 30, 2021, respectively, related to shortfall programs.
In certain of the Company’s sand supply agreements, the customer obtains control of the product when it is loaded into rail cars and the customer reimburses the Company for all freight charges incurred. The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the sand. If revenue is recognized for the related product before the shipping and handling activities occur, the
Company accrues the related costs of those shipping and handling activities.
Pursuant to its contract with Gulfport, Muskie agreed to sell and deliver specified amounts of sand to Gulfport. In September 2020, Muskie filed a lawsuit against Gulfport to recover delinquent payments due under this agreement. On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. On March 22, 2021, Gulfport listed the Muskie contract on its master rejection schedule filed with the bankruptcy court. The
Company determined that these factors changed the scope of the contract, accelerated the duration of, and otherwise changed the rights and obligations of each party to the contract. As a result, the Company accounted for this as a contract modification during the three months ended March 31, 2021. Muskie used the expected value method to estimate unliquidated damages totaling $i8.5
million, which resulted in the recognition of net revenue totaling $i2.1 million and bad debt expense of $i1.0 million
on previously recognized revenue during the three months ended March 31, 2021. On September 21, 2021, the Company and Gulfport reached a settlement under which all litigation relating to the Muskie contract was terminated, each of the parties released all claims they had against the others with respect to the litigation matters discussed in Note 18 and Muskie’s contract claim against Gulfport would be allowed under Gulfport’s plan of reorganization in the amount of
10
MAMMOTH
ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
$i3.1 million. As a result of this settlement agreement, Muskie recognized bad debt expense of $i0.2
million during the third quarter of 2021. Gulfport was a related party until June 29, 2021. The revenue recognized related to this agreement is included in “product revenue - related parties” in the accompanying unaudited condensed consolidated statement of comprehensive income (loss) and the related accounts receivable is included in “accounts receivable, net” in the unaudited condensed consolidated balance sheets as of December 31, 2021. See Notes 11 and 18 below.
Drilling Services
Contract drilling services were provided under daywork contracts.
Directional drilling services, including motor rentals, are provided on a day rate or hourly basis, and revenue is recognized as work progresses. Performance obligations are satisfied over time as the work progresses based on the measure of output. Mobilization revenue and costs were recognized over the days of actual drilling. As a result of market conditions, the Company temporarily shut down its contract land drilling operations beginning in December 2019 and rig hauling operations beginning in April 2020.
Other Services
During the periods presented, the Company also provided
aviation, equipment rentals, crude oil hauling, remote accommodations and equipment manufacturing, which are reported under other services. As a result of market conditions, the Company temporarily shut down its cementing and acidizing operations as well as its flowback operations beginning in July 2019, its coil tubing, pressure control and full service transportation operations beginning in July 2020 and its crude oil hauling operations beginning in July 2021. The Company’s other services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Performance obligations for these services are satisfied over time
and revenue is recognized as the work progresses based on the measure of output. Jobs for these services are typically short-term in nature and range from a few hours to multiple days.
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of ione
year or less and (ii) contracts in which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied distinct good or service that forms part of a single performance obligation.
Revenue recognized in the current period from performance obligations satisfied in previous periods was a nominal amount for the three and six months ended June 30, 2022 and 2021. As of June 30, 2022, the Company did inot
have any unsatisfied performance obligations.
11
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. iiInventories/
Inventories
consist of raw sand and processed sand available for sale, chemicals and other products sold as a bi-product of completion and production operations and supplies used in performing services. Inventory is stated at the lower of cost or net realizable value on an average cost basis. The Company assesses the valuation of its inventories based upon specific usage, future utility, obsolescence and other factors. iA summary of the
Company’s inventories is shown below (in thousands):
Property, plant and equipment include the following (in thousands):
June
30,
December 31,
Useful Life
2022
2021
Pressure pumping equipment
i3-i5
years
$
i224,657
$
i220,414
Drilling
rigs and related equipment
i3-i15 years
i111,312
i111,478
Machinery
and equipment
i7-i20 years
i162,312
i166,873
Buildings(a)
i15-i39
years
i43,303
i46,006
Vehicles,
trucks and trailers
i5-i10 years
i103,126
i103,982
Coil
tubing equipment
i4-i10 years
i6,685
i7,592
Land
N/A
i12,717
i13,417
Land
improvements
i15 years or life of lease
i10,133
i10,133
Rail
improvements
i10-i20 years
i13,793
i13,793
Other
property and equipment(b)
i3-i12 years
i18,421
i18,235
i706,459
i711,923
Deposits
on equipment and equipment in process of assembly(c)
i4,024
i3,300
i710,483
i715,223
Less:
accumulated depreciation(d)
i564,578
i538,637
Total
property, plant and equipment, net
$
i145,905
$
i176,586
a. Included
in Buildings at each of June 30, 2022 and December 31, 2021 are costs of $ii7.6/
million related to assets under operating leases.
b. Included in Other property and equipment at each of June 30, 2022 and December 31, 2021 are costs of $ii6.0/
million related to assets under operating leases.
c. Deposits on equipment and equipment in process of assembly represents deposits placed with vendors for equipment that is in the process of assembly and purchased equipment that is being outfitted for its intended use. The equipment is not yet placed in service.
d. Includes accumulated depreciation of $i7.3 million and $i6.6
million at June 30, 2022 and December 31, 2021, respectively, related to assets under operating leases.
/
Disposals
Proceeds from customers for horizontal and directional drilling services equipment damaged or lost down-hole are reflected in revenue with the carrying value of the related equipment charged to cost of service revenues and are reported as cash inflows from investing activities in the unaudited condensed consolidated statement of cash flows. For the three and six months ended June 30, 2022, proceeds and gains from the sale of equipment damaged or
lost down-hole were $i0.1 million and $i0.5 million, respectively. The
Company did iiiino///t
have any proceeds or gains from the sale of equipment damaged or lost down-hole during the three and six months ended June 30, 2021.
12
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Proceeds from assets sold or disposed of as well as the carrying value of the related equipment are reflected in “other income, net” on the unaudited condensed consolidated statement of comprehensive income (loss). For the three and six months ended June 30, 2022 and 2021, proceeds from the sale
of equipment were $i6.7 million, $i7.2 million, $i1.6 million
and $i2.2 million, respectively, and gains from the sale or disposal of equipment were $i2.9 million,
$i3.1 million, $i1.0 million and $i1.6 million,
respectively.
Depreciation, depletion, amortization and accretion
i
A summary of depreciation, depletion, amortization and accretion expense is below (in thousands):
Depreciation,
depletion, amortization and accretion
$
i17,476
$
i20,265
$
i34,643
$
i41,411
/
6. iGoodwill
and Intangible Assets
Goodwill
i
Changes in the net carrying amount of goodwill by reporting segment (see Note 19) for the six months ended June 30, 2022 and year ended December 31, 2021 are presented below (in thousands):
The
Company performed the qualitative assessment described above during the fourth quarter of 2021. Based on this assessment, the Company concluded that it was more likely than not that the fair value of the Stingray Pressure Pumping, Silverback and Aviation reporting units was greater than their carrying value. Accordingly, no further testing was required on these units. Additionally, the Company concluded that the carrying value for its infrastructure reporting unit was greater than its fair value. To determine fair value of the infrastructure reporting unit at December 31, 2021, the Company used the income approach. The income approach estimates the fair value
based on anticipated cash flows that are discounted using a weighted average cost of capital. As a result, the Company impaired goodwill associated with 5 Star and Higher Power, resulting in a $i0.9 million impairment charge for 2021. The Company did iino/t
recognize any goodwill impairment during the three and six months ended June 30, 2022.
13
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
i
The
Company had the following definite lived intangible assets recorded (in thousands):
Amortization
expense for intangible assets was $i0.2 million, and $i0.4 million for the three and six months ended June 30,
2022, respectively, and $i0.2 million and $i0.5 million for the three and six months ended June 30,
2021, respectively. The original life of trade names ranges from i10 to i20 years as of June 30, 2022 with a remaining average useful life of i3.5
years.
iAggregated expected amortization expense for the future periods is expected to be as follows (in thousands):
Remainder of 2022
$
i389
2023
i779
2024
i711
2025
i91
2026
i91
Thereafter
i110
$
i2,171
/
7. iEquity
Method Investment
On December 21, 2018, Cobra Aviation Services LLC (“Cobra Aviation”) and Wexford Partners Investment Co. LLC (“Wexford Investment”), a related party, formed a joint venture under the name of Brim Acquisitions LLC (“Brim Acquisitions”) to acquire all outstanding equity interest in Brim Equipment Leasing, Inc. (“Brim Equipment”) for a total purchase price of approximately $i2.0 million. Cobra Aviation owns a i49% economic
interest and Wexford Investment owns a i51% economic interest in Brim Acquisitions, and each member contributed its pro rata portion of Brim Acquisitions’ initial capital of $i2.0
million. Brim Acquisitions, through Brim Equipment, owns ifour commercial helicopters and leases ifive commercial helicopters for operations, which it uses to provide a
variety of services, including short haul, aerial ignition, hoist operations, aerial photography, fire suppression, construction services, animal/capture/survey, search and rescue, airborne law enforcement, power line construction, precision long line operations, pipeline construction and survey, mineral and seismic exploration, and aerial seeding and fertilization.
The Company uses the equity method of accounting to account for its investment in Brim Acquisitions, which had a carrying value of approximately $i2.9
million and $i3.4 million at June 30, 2022 and December 31, 2021, respectively. The investment is included in “other non-current assets” on the unaudited condensed consolidated balance sheets. The Company recorded equity method adjustments to its investment of $i0.1 million
and ($i0.4) million for the three and six months ended June 30, 2022, respectively, and a inominal
amount and ($i0.6) million for the three and six ended June 30, 2021, respectively, which is included in “other income, net” on the unaudited condensed consolidated statements of comprehensive income (loss).
14
MAMMOTH
ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. iAccrued Expenses and Other Current Liabilities and Other Long-Term Liabilities
iAccrued
expenses and other current liabilities and other long-term liabilities included the following (in thousands):
Total
accrued expenses and other current liabilities
$
i55,484
$
i62,516
Other
Long-Term Liabilities
Financing leases
$
i3,432
$
i4,375
Sale-leaseback
liability(c)
i9,105
i7,318
Total
other long-term liabilities
$
i12,537
$
i11,693
/
a.In
June 2021, the Company reached an agreement to settle a certain legal matter. See Note 18 for additional detail.
b.Financed insurance premiums are due in monthly installments, are unsecured and mature within the twelve-month period following the close of the year. As of June 30, 2022 and December 31, 2021, the applicable interest rate associated with financed insurance premiums ranged from ii1.95/%
to ii2.45/%.
c.On
December 30, 2020, the Company entered into an agreement with First National Capital, LLC (“FNC”) whereby the Company agreed to sell certain assets from its infrastructure segment to FNC for aggregate proceeds of $i5.0 million. Concurrent with the sale of assets, the
Company entered into a i36 month lease agreement whereby the Company agreed to lease back the assets at a monthly rental rate of $i0.1
million. On June 1, 2021, the Company entered into another agreement with FNC whereby the Company sold additional assets from its infrastructure segment to FNC for aggregate proceeds of $i9.5 million and entered into a i42-month
lease agreement whereby the Company agreed to lease back the assets at a monthly rental rate of $i0.2 million. On June 1, 2022, the Company entered into another agreement with FNC whereby the Company sold additional
assets from its infrastructure segment to FNC for aggregate proceeds of $i4.6 million and entered into a i42-month lease agreement whereby the
Company agreed to lease back the assets at a monthly rental rate of $i0.1 million. Under the agreements, the Company has the option to purchase the assets at the end of the lease terms. The Company recorded liabilities for the proceeds received and will continue to depreciate the assets. The
Company has imputed an interest rate so that the carrying amount of the financial liabilities will be the expected repurchase price at the end of the initial lease terms.
15
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. iDebt
i
Long-term
debt included the following (in thousands):
On October 19, 2018, Mammoth Inc. and certain of its direct and indirect subsidiaries, as borrowers, entered into an amended and restated revolving credit and security agreement with the lenders party thereto and PNC Bank, National Association, as a lender and as administrative agent for the lenders, as amended and restated (the “revolving credit facility”). The revolving credit facility matures on October 19, 2023. Borrowings under the revolving credit facility are secured by the assets of Mammoth Inc., inclusive of the subsidiary companies, and are subject to a borrowing base calculation prepared monthly. The revolving credit facility also contains various customary affirmative
and restrictive covenants.
At June 30, 2022, there were outstanding borrowings under the revolving credit facility of $i82.9 million and $i14.3
million of available borrowing capacity under the facility, after giving effect to $i7.5 million of outstanding letters of credit and the requirement to maintain a $i10.0
million reserve out of the available borrowing capacity. At December 31, 2021, there were outstanding borrowings under the revolving credit facility of $i83.4 million and $i16.5
million of borrowing capacity under the facility, after giving effect to $i9.0 million of outstanding letters of credit and the requirement to maintain a $i10.0
million reserve out of the available borrowing capacity.
As a result of the lack of payment from PREPA, the Company projected that it would likely breach the leverage ratio covenant contained in its revolving credit facility for the fiscal quarter ended September 30, 2021. On November 3, 2021, the Company entered into a third amendment to its revolving credit facility (the “Third Amendment”) to, among other things, (i) suspend the leverage ratio and fixed charges coverage ratio covenants for the quarters ending September 30, 2021 and December
31, 2021, (ii) permanently reduce the maximum revolving advance amount from $i130 million to $i120 million,
(iii) add a minimum adjusted EBITDA financial covenant of $i6.0 million for the quarter ending December 31, 2021, (iv) set the applicable margin on all loans at i3.50%
during the limited covenant waiver period, (v) add a requirement to maintain revolver availability of not less than $i10.0 million at all times during the limited covenant waiver period, (vi) permanently reduce the maximum revolving advance amount in an amount equal to fifty percent (i50%)
of any mandatory prepayments made with non-recurring proceeds that are received during the limited covenant waiver period, and (vii) eliminate the declaration of unrestricted subsidiaries during the limited covenant waiver period. The limited covenant waiver period commenced on the effective date of the Third Amendment and was scheduled to end on the earlier to occur of (i) May 15, 2022, (ii) the Company reporting compliance with both the leverage ratio and the fixed charge coverage ratio covenants for either its fiscal quarter ending September 30, 2021 or December 31, 2021, and (iii) the occurrence of any event of default after the effective date
of the Third Amendment. Under the Third Amendment, the Company also agreed to engage an advisor during the limited covenant waiver period to advise the Company and its subsidiaries with regard to, among other things, efforts to achieve certain operation efficiencies, improvement in results of operations, and general business strategy, and provide assistance to the Company and its subsidiaries in the preparation of the supplemental reporting and information required by the Third Amendment.
On
February 28, 2022, the Company entered into a fourth amendment to the revolving credit facility (the “Fourth Amendment”) to, among other things, (i) amend the financial covenants as outlined below, (ii) provide for a conditional increase of the applicable interest margin, (iii) permit certain sale-leaseback transactions, (iv) provide for a reduction in the maximum revolving advance amount in an amount equal to i50%
of the PREPA claims proceeds, subject to a floor equal to the sum of eligible billed and unbilled accounts receivables, and (v) classifies the payments pursuant to the Company’s settlement agreement with MasTec Renewables Puerto Rico, LLC (“MasTec”) as restricted payments and requires $i20.0 million of availability both before
and after making such payments.
16
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial covenants under our revolving credit facility were amended as follows:
•the leverage ratio was eliminated;
•the fixed charge coverage ratio was reduced to i.85
to 1.0 for the six months ended June 30, 2022 and increases to i1.1 to 1.0 for the periods thereafter;
•a minimum adjusted EBITDA covenant of $i4.7 million,
excluding interest on accounts receivable from PREPA, for the five months ending May 31, 2022 was added; and
•the minimum excess availability covenant was reduced to $i7.5 million through March 31, 2022, after which the minimum excess availability covenant increased to $i10.0 million.
The
Fourth Amendment also permanently waived compliance by the borrowers with the leverage ratio and fixed charge coverage ratio covenants in the revolving credit facility for the fiscal quarters ended September 30, 2021 and December 31, 2021, respectively, ending the limited covenant waiver period under the Third Amendment. The Company was in compliance with the applicable financial covenants under the revolving credit facility as of June 30, 2022.
As of July 26, 2022, there were outstanding borrowings under the revolving credit facility of $i84.1
million and $i8.2 million of available borrowing capacity, after giving effect to $i7.5 million
of outstanding letters of credit and the requirement to maintain a $i10.0 million reserve out of the available borrowing capacity.
If an event of default occurs under the revolving credit facility and remains uncured, it could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations. The lenders (i) would not be required
to lend any additional amounts to the Company, (ii) could elect to increase the interest rate by i200 basis points, (iii) could elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, (iv) may have the ability to require the Company to apply all of its available cash to repay outstanding borrowings, and (v) may foreclose on substantially
all of the Company’s assets.
Aviation Note
On November 6, 2020, Leopard Aviation LLC (“Leopard”) and Cobra Aviation entered into a i39-month promissory note agreement with Bank7 (the “Aviation Note”) in an aggregate principal amount of $i4.6
million and received net proceeds of $i4.5 million. The Aviation Note bears interest at a rate based on the Wall Street Journal Prime Rate plus a margin of i1%. Principal
and interest payments of $i0.1 million are due monthly, with a final payment of $i0.2 million due on February
1, 2024. The Aviation Note is collateralized by Leopard and Cobra Aviation’s assets, including a $i1.8 million certificate of deposit. The Aviation Note contains various customary affirmative and restrictive covenants.
As of June 30, 2022, the Company did not meet the minimum debt coverage ratio of i1.25
to 1.0 set forth in the Aviation Note. On July 27, 2022, Bank7 granted the Company a waiver of this event of default. The waiver extended the minimum cash requirement until September 30, 2022.
10. iVariable
Interest Entities
Dire Wolf Energy Services LLC (“Dire Wolf”) and Predator Aviation LLC (“Predator Aviation”), wholly owned subsidiaries of the Company, are party to Voting Trust Agreements with TVPX Aircraft Solutions Inc. (the “Voting Trustee”). Under the Voting Trust Agreements, Dire Wolf transferred i100%
of its membership interest in Cobra Aviation and Predator Aviation transferred i100% of its membership interest in Leopard to the respective Voting Trustees in exchange for Voting Trust Certificates. Dire Wolf and Predator Aviation retained the obligation to absorb all expected returns or losses of Cobra Aviation and Leopard. Prior to the transfer of the membership interest to the Voting Trustee, Cobra Aviation was a wholly owned subsidiary of Dire Wolf and Leopard was a wholly owned subsidiary of Predator Aviation. Cobra Aviation owns itwo
helicopters and support equipment, i100% of the equity interest in Air Rescue Systems Corporation (“ARS”) and i49% of the
equity interest in Brim Acquisitions. Leopard owns ione helicopter. Dire Wolf and Predator Aviation entered into the Voting Trust Agreements in order to meet certain registration requirements.
Dire Wolf’s and Predator Aviation’s voting rights are not proportional to their respective obligations to absorb expected returns or losses of Cobra Aviation and Leopard, respectively, and all of Cobra Aviation’s
and Leopard’s activities are conducted on behalf of Dire Wolf and Predator Aviation, which have disproportionately fewer voting rights; therefore, Cobra Aviation and Leopard meet the criteria of a VIE. Cobra Aviation and Leopard’s operational activities are directed by Dire Wolf’s and Predator Aviation’s officers and Dire Wolf and Predator Aviation have the option to terminate the
17
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Voting Trust Agreements at any time. Therefore, the Company, through
Dire Wolf and Predator Aviation, is considered the primary beneficiary of the VIEs and consolidates Cobra Aviation and Leopard at June 30, 2022.
11. iSelling, General and Administrative Expense
iSelling,
general and administrative (“SG&A”) expense includes of the following (in thousands):
a. Certain
legal expenses totaling $i2.1 million and $i4.9 million were reclassified to Other, net for the three and six months ended June 30, 2021, respectively. The increase in professional fees is
primarily due to an increase in legal expenses for matters related to ongoing operations.
b. Includes travel-related costs, information technology expenses, rent, utilities and other general and administrative-related costs.
c. The bad debt provision for the six months ended June 30, 2021 includes $i10.0 million related to the voluntary petitions for relief filed on November
13, 2020, by Gulfport and its subsidiaries. See Notes 2 and 18.
12. iIncome Taxes
The Company recorded income tax expense of $i7.6 million
for the six months ended June 30, 2022 compared to income tax benefit of $i19.2 million for the six months ended June 30, 2021. The Company’s effective tax rates were (i139%)
and i29% for the six months ended June 30, 2022 and 2021, respectively.
The effective tax rates for the six months ended June 30, 2022 and 2021 differed from the statutory rate of 21% primarily due to the mix of earnings between the United States and Puerto Rico as well as changes in the
valuation allowance.
13. iiiLeases//
Lessee
Accounting
The Company recognized a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases with a term in excess of 12 months. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term, while finance leases include both an operating expense and an interest expense component. For all leases with a term of 12 months or less, the Company has elected the practical expedient to not recognize lease assets and liabilities and recognizes lease expense for these short-term leases on a straight-line basis over the lease term.
The
Company’s operating leases are primarily for rail cars, real estate, and equipment and its finance leases are primarily for machinery and equipment. Generally, the Company does not include renewal or termination options in its assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. The accounting for some of the Company’s leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates to utilize in the net present value calculation of lease payments for lease agreements which do not provide an implicit rate and assessing the likelihood of renewal or termination options.
Lease agreements that contain a lease and non-lease component are generally accounted for as a single lease component.
The rate implicit in the Company’s leases is not readily determinable. Therefore, the Company uses its incremental borrowing rate based on information available at the commencement date of its leases in determining the present value of
18
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
lease payments.
The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
iLease expense consisted of the following for the three and six months ended June 30, 2022 and 2021 (in thousands):
iiMaturities
of lease liabilities as of June 30, 2022 are as follows (in thousands):
Operating Leases
Finance Leases
Remainder of 2022
$
i3,358
$
i1,001
2023
i4,579
i2,262
2024
i2,674
i965
2025
i998
i524
2026
i146
i795
Thereafter
i407
i—
Total
lease payments
i12,162
i5,547
Less:
Present value discount
i667
i247
Present
value of lease payments
$
i11,495
$
i5,300
//
Lessor
Accounting
Certain of the Company’s agreements with its customers for drilling services, aviation services and remote accommodation services contain an operating lease component under ASC 842 because (i) there are identified assets, (ii) the customer obtains substantially all of the economic benefits of the identified assets throughout the period of use and (iii) the customer directs the use of the identified assets throughout the period of use. The Company has elected to apply the practical expedient provided to lessors to combine the lease and non-lease components of a contract where the revenue recognition pattern is the
same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component.
The Company’s lease agreements are generally short-term in nature and lease revenue is recognized over time based on a monthly, daily or hourly rate basis. The Company does not provide an option for the lessee to purchase the rented assets at the end of the lease and the lessees do
not provide residual value guarantees on the rented assets. The Company recognized lease revenue of $i0.9 million and $i0.6 million
during the three months ended June 30, 2022 and 2021, respectively, and $i1.6 million and $i1.0 million
during the six months ended June 30, 2022 and 2021, respectively, which is included in “services revenue” and “services revenue - related parties” on the unaudited condensed consolidated statement of comprehensive income (loss).
20
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. iEarnings
(Loss) Per Share
iReconciliations of the components of basic and diluted net earnings (loss) per common share are presented in the table below (in thousands, except per share data):
Weighted
average common shares, including dilutive effect(a)
i47,634
i46,402
i47,036
i46,168
Diluted
earnings (loss) per share
$
i0.04
$
(i0.75)
$
(i0.28)
$
(i1.02)
/
a. iiiNo//
incremental shares of potentially dilutive restricted stock awards were included for the six months ended June 30, 2022 and three and six months ended June 30, 2021 as their effect was antidilutive under the treasury stock method.
15. iEquity
Based Compensation
Upon formation of certain operating entities by Wexford and Gulfport, specified members of management (the “Specified Members”) and certain non-employee members (the “Non-Employee Members”) were granted the right to receive distributions from the operating entities after the contribution member’s unreturned capital balance was recovered (referred to as “Payout” provision).
On November 24, 2014, the awards were modified in conjunction with the contribution of the operating entities to Mammoth. These awards were not granted in limited or general partner units. The awards are for interests in the distributable earnings of the members of MEH Sub, Mammoth’s majority equity holder.
On
the closing date of Mammoth Inc.’s initial public offering (“IPO”), the unreturned capital balance of Mammoth’s majority equity holder was not fully recovered from its sale of common stock in the IPO. As a result, Payout did not occur and no compensation cost was recorded.
Payout for the remaining awards is expected to occur as the contribution member’s unreturned capital balance is recovered from additional sales by MEH Sub of its shares of the Company’s common stock or from dividend distributions, which is not considered probable until the event occurs. For the Specified Member awards, the unrecognized amount, which represents the fair value of the award as of the modification dates or grant date, was $i5.6
million.
For the Company’s Non-Employee Member awards, the unrecognized amount, which represents the fair value of the awards as of the date of adoption of ASU 2018-07 was $i18.9 million.
16. iStock Based Compensation
The 2016 Plan authorizes the Company’s Board of Directors or the compensation committee of the
Company’s Board of Directors to grant restricted stock, restricted stock units, stock appreciation rights, stock options and performance awards. There are i4.5 million shares of common stock reserved for issuance under the 2016 Plan.
Restricted Stock Units
The fair value of restricted
stock unit awards was determined based on the fair market value of the Company’s common stock on the date of the grant. This value is amortized over the vesting period.
21
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
iA
summary of the status and changes of the unvested shares of restricted stock under the 2016 Plan is presented below.
As
of June 30, 2022, there was $i0.8 million of total unrecognized compensation cost related to the unvested restricted stock. The cost is expected to be recognized over a weighted average period of approximately i0.8
years.
Included in cost of revenue and selling, general and administrative expenses is stock-based compensation expense of $i0.2 million and $i0.4
million for the three and six months ended June 30, 2022, respectively, and $i0.4 million and $i0.7
million for the three and six months ended June 30, 2021, respectively.
17. iRelated Party Transactions
Transactions between the subsidiaries of the
Company, including Stingray Pressure Pumping, Muskie, Stingray Energy Services LLC (“SR Energy”), Panther Drilling Systems LLC (“Panther Drilling”), Anaconda Manufacturing LLC (“Anaconda”), Cobra Aviation, ARS and Leopard and the following companies are included in Related Party Transactions: Gulfport, Wexford, Grizzly Oil Sands ULC (“Grizzly”), El Toro Resources LLC (“El Toro”), Elk City Yard LLC (“Elk City Yard”), Double Barrel Downhole Technologies LLC (“DBDHT”), Caliber Investment Group LLC (“Caliber”) and Brim Equipment.
i
Following
is a summary of related party transactions (in thousands):
a.Stingray
Pressure Pumping provided pressure pumping, stimulation and related completion services to Gulfport. Other amount represents interest charged on delinquent accounts receivable related to these services. On June 29, 2021, Gulfport ceased to be a related party. See Note 3.
/
22
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
b.Muskie agreed to sell and deliver, and Gulfport has agreed to purchase, specified annual and monthly amounts of natural sand
proppant, subject to certain exceptions specified in the agreement, and pay certain costs and expenses. Other amount represents interest charged on delinquent accounts receivable related to this agreement. On June 29, 2021, Gulfport ceased to be a related party. See Note 3.
c.Cobra Aviation, ARS and Leopard lease helicopters to Brim Equipment pursuant to aircraft lease and management agreements.
d.Panther provides directional drilling services for El Toro, an entity controlled by Wexford, pursuant to a master service agreement.
a.Cobra
Aviation, ARS and Leopard lease helicopters to Brim Equipment pursuant to aircraft lease and management agreements.
b.Caliber, an entity controlled by Wexford, leases office space to the Company.
On December 21, 2018, Cobra Aviation acquired all outstanding equity interest in ARS and purchased itwo
commercial helicopters, spare parts, support equipment and aircraft documents from Brim Equipment. Following these transactions, and also on December 21, 2018, Cobra Aviation formed a joint venture with Wexford Investments named Brim Acquisitions to acquire all outstanding equity interests in Brim Equipment. Cobra Aviation owns a i49% economic interest and Wexford Investment owns a i51% economic
interest in Brim Acquisitions, and each member contributed its pro rata portion of Brim Acquisitions’ initial capital of $i2.0 million. Wexford Investments is an entity controlled by Wexford, which owns approximately i48% of
the Company’s outstanding common stock. ARS leases a helicopter to Brim Equipment and Cobra Aviation leases the two helicopters purchased as part of these transactions to Brim Equipment under the terms of aircraft lease and management agreements. See Note 7 for further discussion.
18. iCommitments
and Contingencies
Commitments
The Company has entered into agreements with suppliers that contain minimum purchase obligations and agreements to purchase capital equipment. Aggregate future minimum payments under purchase obligations in effect at June 30, 2022 were approximately $i0.2 million, which are expected to
be paid over the next 12 months. Aggregate future payments to purchase capital equipment at June 30, 2022 were approximately $i18.5 million, which primarily relate to our pressure pumping business. These payments are expected to be made over the next inine
months. Subsequent to June 30, 2022, the Company ordered additional equipment with aggregate commitments of $i0.3 million, primarily for its well completion segment.
Letters of Credit
The
Company has various letters of credit that were issued under the Company’s revolving credit agreement which is collateralized by substantially all of the assets of the Company. iThe letters of credit are categorized below (in thousands):
23
MAMMOTH
ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Company has insurance coverage for physical partial loss to its assets, employer’s liability, automobile liability, commercial general liability, workers’ compensation and insurance for other specific risks. The Company has also elected in some cases to accept a greater amount of risk through increased deductibles on certain insurance policies. At each of June 30, 2022 and December 31, 2021, the workers’ compensation and automobile liability policies require a deductible per occurrence of up to $i0.3
million and $i0.1 million, respectively. As of June 30, 2022 and December 31, 2021, the workers’ compensation and auto liability policies contained an aggregate stop loss of $ii5.4/
million. The Company establishes liabilities for the unpaid deductible portion of claims incurred based on estimates. As of June 30, 2022 and December 31, 2021, accrued claims were $i1.1 million and $i1.4
million, respectively.
The Company also has insurance coverage for directors and officers liability. As of June 30, 2022 and December 31, 2021, the directors and officers liability policy had a deductible per occurrence of $ii1.0/
million and an aggregate deductible of $ii10.0/
million. As of June 30, 2022 and December 31, 2021, the Company did not have any accrued claims for directors and officers liability.
The Company also self-insures its employee health insurance. The Company has coverage on its self-insurance program in the form of a stop loss of $i0.2
million per participant and an aggregate stop-loss of $i5.8 million for the calendar year ending December 31, 2021. As of June 30, 2022 and December 31, 2021, accrued claims were $i1.5
million and $i1.6 million, respectively. These estimates may change in the near term as actual claims continue to develop.
Warranty Guarantees
Pursuant to certain customer contracts in our infrastructure services segment, the Company warrants equipment and labor performed
under the contracts for a specified period following substantial completion of the work. Generally, the warranty is for ione year or less. iiNo/
liabilities were accrued as of June 30, 2022 and December 31, 2021 and iino/
expense was recognized during the six months ended June 30, 2022 or 2021 related to warranty claims. However, if warranty claims occur, the Company could be required to repair or replace warrantied items, which in most cases are covered by warranties extended from the manufacturer of the equipment. In the event the manufacturer of equipment failed to perform on a warranty obligation or denied a warranty claim made by the Company, the Company could be required to pay for the cost of the repair or replacement.
Bonds
In the ordinary course
of business, the Company is required to provide bid bonds to certain customers in the infrastructure services segment as part of the bidding process. These bonds provide a guarantee to the customer that the Company, if awarded the project, will perform under the terms of the contract. Bid bonds are typically provided for a percentage of the total contract value. Additionally, the Company may be required to provide performance and payment bonds for contractual commitments related to projects in process. These bonds provide a guarantee
to the customer that the Company will perform under the terms of a contract and that the Company will pay subcontractors and vendors. If the Company fails to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for expenses or outlays it incurs. As of December 31,
2021, outstanding bid bonds totaled $i0.6 million. There were ino outstanding bid bonds as of June 30, 2022. As of June 30,
2022 and December 31, 2021, outstanding performance and payment bonds totaled $i12.1 million and $i20.3 million, respectively. The estimated
cost to complete projects secured by the performance and payment bonds totaled $i7.1 million as of June 30, 2022.
Litigation
As of June 30, 2022, PREPA owed the Company
approximately $i227.0 million for services performed, excluding $i130.8 million of interest charged on these delinquent balances as of June 30,
2022. The Company believes these receivables are
24
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
collectible. PREPA, however, is currently subject to bankruptcy proceedings, which were filed in July 2017 and are currently pending in the U.S. District Court for the District of Puerto Rico. As a result, PREPA’s ability to meet its payment obligations is largely dependent upon funding from FEMA or other sources. On September 30, 2019, Cobra filed a motion with the U.S. District Court for the District of Puerto Rico seeking recovery
of the amounts owed to Cobra by PREPA, which motion was stayed by the Court. On March 25, 2020, Cobra filed an urgent motion to modify the stay order and allow the recovery of approximately $i61.7 million in claims related to a tax gross-up provision contained in the emergency master service agreement, as amended, that was entered into with PREPA on October 19, 2017. This emergency motion was denied on June
3, 2020 and the Court extended the stay of our motion. On December 9, 2020, the Court again extended the stay of our motion and directed PREPA to file a status motion by June 7, 2021. On April 6, 2021, Cobra filed a motion to lift the stay order. Following this filing, PREPA initiated discussion, which resulted in PREPA and Cobra filing a joint motion to adjourn all deadlines relative to the April 6, 2021 motion until the June 16, 2021 omnibus hearing as a result of PREPA’s understanding that FEMA would release a report in the near future relating to the emergency master service agreement between PREPA and Cobra that was executed on October 19, 2017. The joint motion was
granted by the Court on April 14, 2021. On May 26, 2021, FEMA issued a Determination Memorandum related to the first contract between Cobra and PREPA in which, among other things, FEMA raised two contract compliance issues and, as a result, concluded that approximately $i47 million
in costs were not authorized costs under the contract. On June 14, 2021, the Court issued an order adjourning Cobra’s motion to lift the stay order to a hearing on August 4, 2021 and directing Cobra and PREPA to meet and confer in good faith concerning, among other things, (i) the May 26, 2021 Determination Memorandum issued by FEMA and (ii) whether and when a second determination memorandum is expected. The parties were further directed to file an additional status report, which was filed on July 20, 2021. On July 23, 2021, with the aid of Mammoth, PREPA filed an appeal of the entire $i47 million
that FEMA de-obligated in the May 26, 2021 Determination Memorandum. FEMA approved the appeal in part and denied the appeal in part. FEMA found that staffing costs of $i24.4 million are eligible for funding. On August 4, 2021, the Court extended the stay and directed that an additional status report be filed, which was done on January 22, 2022. On January 26, 2022, the Court
extended the stay and directed the parties to file a further status report by July 25, 2022. On June 7, 2022, Cobra filed a motion to lift the stay order. On June 29, 2022 the Court denied Cobra’s motion and extended the stay to January 2023. In the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the amounts owed to the Company or (iii) otherwise does not pay amounts owed to the Company
for services performed, the receivable may not be collectible.
On December 28, 2019, Gulfport filed a lawsuit against Stingray Pressure Pumping in the Superior Court of the State of Delaware. Pursuant to the complaint, Gulfport seeks to terminate the October 1, 2014, Amended and Restated Master Services Agreement for Pressure Pumping Services between Gulfport and Stingray Pressure Pumping (“MSA”). In addition, Gulfport alleged breach of contract and sought damages for alleged overpayments and audit costs under the MSA and other fees and expenses associated with this lawsuit. On March 26, 2020, Stingray Pressure Pumping filed a counterclaim
against Gulfport seeking to recover unpaid fees and expenses due to Stingray Pressure Pumping under the MSA. In September 2020, Muskie filed a lawsuit against Gulfport to recover delinquent payments due under a natural sand proppant supply contract. These matters were automatically stayed as a result of Gulfport’s bankruptcy filing. On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. Gulfport emerged from bankruptcy on May 17, 2021. As of November 13, 2020, Gulfport owed the Company approximately $i46.9
million, which included interest charges of $i3.3 million and $i1.8 million in attorneys’ fees. FASB ASC 326, Financial Instruments-Credit Losses, requires
companies to reflect its current estimate of all expected credit losses. As a result, the Company recorded reserves on its pre-petition receivables due from Gulfport for products and services, interest and attorneys’ fees of $i19.4 million, $i1.4
million and $i1.8 million, respectively, during the year ended December 31, 2020. On March 22, 2021, Gulfport listed the Stingray Pressure Pumping and Muskie contracts on its master rejection schedule filed with the bankruptcy court. During the first quarter of 2021, the Company recognized unliquidated damages of approximately
$i46.4 million and recorded reserves on these unliquidated damages as a reduction to revenue of $i27.1 million and to bad debt expense of $i3.8
million. Also during the first quarter of 2021, the Company recorded additional reserves on its pre-petition products and services and interest receivables of $i6.1 million and $i0.5
million, respectively. On September 21, 2021, the Company and Gulfport reached a settlement under which all litigation relating to the Stingray Pressure Pumping contract and the Muskie contract was terminated, Stingray Pressure Pumping released all claims against Gulfport and its subsidiaries with respect to Gulfport’s bankruptcy proceedings, each of the parties released all claims they had against the others with respect to the litigation matters discussed above and Muskie will have an allowed general unsecured claim against Gulfport of $i3.1 million.
As a result, during the three months ended September 31, 2021, the Company wrote off its remaining receivable related to the Stingray Pressure Pumping claim resulting in bad debt expense and other expense of $i31.0 million and $i1.3
million, respectively, and recorded additional bad debt expense related to the Muskie claim totaling $i0.2 million. During the three months ended March 31, 2022, Muskie received $i0.3
million from the Gulfport Distribution Trust. See Note 3.
25
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On January 21, 2020, MasTec Renewables Puerto Rico, LLC (“MasTec”) filed a lawsuit against Mammoth Inc. and Cobra, in the U.S. District Court for the Southern District of Florida. Pursuant to its complaint, MasTec asserts claims against the Company and Cobra for violations of the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), tortious interference and violations
Puerto Rico law. MasTec alleged that it sustained injuries to its business and property in an unspecified amount because it lost the opportunity to perform work in connection with rebuilding the energy infrastructure in Puerto Rico after Hurricane Maria under a services contract with a maximum value of $i500 million due to the Company’s and Cobra’s wrongful interference,
payment of bribes, and other inducements to a FEMA official. On April 1, 2020, the defendants filed a motion to dismiss the complaint. On October 14, 2020, the court dismissed the RICO claims, and on November 18, 2020, dismissed the claims arising under the Puerto Rico statute and the cause of action for tortious interference with MasTec’s contract (but not its business relations), and dismissed Mammoth Inc. from the litigation. On August 2, 2021, in order to avoid the risks of further litigation, and with no admission of wrongdoing whatsoever, the Company reached an agreement to settle this matter.
Under the terms of the agreement, Cobra paid $i6.5 million to MasTec on August 2, 2021 and the Company guaranteed payment, by Cobra, of $ii9.25/ million
on both August 1, 2022 and December 1, 2022. Under the agreement, any unpaid amounts will be charged interest at rates between i6% and i12%,
and the agreement includes an acceleration clause that requires Cobra to pay within iten days all unpaid amounts if Cobra collects $i100 million
or more of specified receivables. Neither Cobra nor Mammoth Inc. made the $i9.25 million installment payment due on August 1, 2022, but they expect to make this payment, together with the remaining $i9.25 million
installment due on December 1, 2022 and accrued and unpaid interest on these amounts, on or before December 1, 2022. If Cobra or Mammoth Inc. is unable to make payments on these two installments on or before December 1, 2022, MasTec will have the right to enforce the confessed judgment against Cobra and Mammoth Inc. with respect to these amounts on or after December 2, 2022. As of June 30, 2022, $i19.8 million
was included in “accrued expenses and other current liabilities” in the accompanying unaudited condensed consolidated balance sheet related to the settlement.
On May 13, 2021, Foreman Electric Services, Inc. (“Foreman”) filed a petition against Mammoth Inc. and Cobra in the Oklahoma County District Court (Oklahoma State Court). The petition asserted claims against the Company and Cobra under federal RICO statutes and certain state-law causes of action. Foreman alleged that it sustained injuries to its business and property in the amount of $i250 million
due to the Company’s and Cobra’s wrongful interference, payment of bribes and other inducements to a FEMA official. On May 18, 2021, the Company removed this action to the United States District Court for the Western District of Oklahoma and filed a motion to dismiss on July 8, 2021. On July 29, 2021, Foreman voluntarily dismissed the action without prejudice. On December 14, 2021, Foreman re-filed its petition against Mammoth Inc. and Cobra in the Oklahoma County District Court (Oklahoma State Court). On December 16, 2021, the
Company again removed this action to the United States District Court for the Western District of Oklahoma. Foreman filed a motion to remand this action back to Oklahoma County District Court, which was granted on May 5, 2022. The case will now proceed according to a schedule that will be set by the Oklahoma County District Court. In a related matter, on January 12, 2022, a Derivative Complaint on behalf of nominal defendant Machine Learning Integration, LLC (“MLI”), which alleges it would have served as a sub-contractor to Foreman in Puerto Rico, was filed against the Company and Cobra in the U.S. District Court for the District of Puerto Rico arising from essentially the same facts as Foreman’s action and asserting violations of federal RICO statutes and certain state law
claims. MLI alleges it sustained injuries to its business and property in an unspecified amount because the Company’s and Cobra’s wrongful interference, payment of bribes and other inducements to a FEMA official prevented Foreman from obtaining work, and thereby prevented MLI, as Foreman’s subcontractor, from obtaining work. These matters are still in the early stages and at this time, the Company is not able to predict the outcome of these claims or whether they will have a material impact on the Company’s business, financial condition, results of operations or cash flows.
The
Company is routinely involved in state and local tax audits. During 2015, the State of Ohio assessed taxes on the purchase of equipment the Company believes is exempt under state law. The Company appealed the assessment and a hearing was held in 2017. As a result of the hearing, the Company received a decision from the State of Ohio, which the Company appealed. On February 25, 2022, the Company received an unfavorable decision on the appeal. The
Company intends to appeal the decision and while it is not able to predict the outcome of the appeal, this matter is not expected to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Cobra has been served with ten lawsuits from municipalities in Puerto Rico alleging failure to pay construction excise and volume of business taxes. These matters are in various stages in the Court. At this time, the Company is not able to predict the outcome of these matters or whether they will have a material impact on the Company’s business, financial condition, results of operations
or cash flows.
26
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 16, 2019, Christopher Williams, a former employee of Higher Power Electrical, LLC, filed a putative class and collective action complaint titled Christopher Williams, individually and on behalf of all others similarly situated v. Higher Power Electrical, LLC, Cobra Acquisitions LLC, and Cobra Energy LLC in the U.S. District Court for the District of Puerto Rico. On June 24, 2019, the complaint was amended to replace Mr. Williams with Matthew Zeisset as the named
plaintiff. The plaintiff alleges the defendant failed to pay overtime wages to a class of workers in compliance with the Fair Labor Standards Act and Puerto Rico law. On August 21, 2019, upon request of the parties, the Court stayed proceedings in the lawsuit and administratively closed the case pending completion of individual arbitration proceedings initiated by Mr. Zeisset and opt-in plaintiffs. The arbitrations remain pending. Other claimants have subsequently initiated additional individual arbitration proceedings asserting similar claims. All complainants and the respondents have paid the filing fees necessary to initiate the arbitrations. The parties are currently engaged in discovery. The Company believes these claims are without merit and is vigorously defending the arbitrations. However, at this time, the
Company is not able to predict the outcomes of these proceedings or whether they will have a material impact on the Company’s business, financial condition, results of operations or cash flows.
On September 10, 2019, the U.S. District Court for the District of Puerto Rico unsealed an indictment that charged the former president of Cobra Acquisitions LLC with conspiracy, wire fraud, false statements and disaster fraud. Two other individuals were also charged in the indictment. The indictment is focused on the interactions between a former FEMA official and the former president of Cobra. Neither the Company nor any of its subsidiaries
were charged in the indictment. On April 11, 2022, counsel for the former FEMA official and the former president of Cobra notified the Court that they had reached in principle a plea agreement pursuant to Federal of Criminal Procedures 11(c)(1)(C). On April 19, 2022, the two remaining defendants notified the court that a plea agreement had been finalized, although no details of the terms of the plea agreement were provided to the court. On April 29, 2022, the federal judge overseeing the case recused himself from any further consideration of the matter and the case was assigned to a new judge. The federal judge did not provide an explanation for his recusal. The plea hearing was held on May 18, 2022 where both defendants pled guilty to gratuities. The sentencing is scheduled
for October 19, 2022. Given the uncertainty inherent in the criminal litigation, it is not possible at this time to determine the potential impacts that the plea agreements could have on the Company. PREPA has stated in Court filings that it may contend the alleged criminal activity affects Cobra’s entitlement to payment under its contracts with PREPA. It is unclear what PREPA’s position will be after the terms of the plea agreements become public. Subsequent to the indictment, Cobra received a civil investigative demand (“CID”) from the United States Department of Justice (“DOJ”), which requests certain documents and answers to specific interrogatories relevant to an ongoing investigation it is conducting. The aforementioned DOJ
investigation is in connection with the issues raised in the criminal matter. Cobra is cooperating with the DOJ and is not able to predict the outcome of this investigation or if it will have a material impact on Cobra’s or the Company’s business, financial condition, results of operations or cash flows. With regard to the previously disclosed SEC investigation, on July 6, 2022, the SEC sent a letter saying that it had concluded its investigation as to the Company and that based on information the SEC has as of this date, it does not intend to recommend an enforcement action by the SEC against the Company.
On
September 12, 2019, AL Global Services, LLC (“Alpha Lobo”) filed a second amended third-party petition against the Company in an action styled Jim Jorrie v. Craig Charles, Julian Calderas, Jr., and AL Global Services, LLC v. Jim Jorrie v. Cobra Acquisitions LLC v. ESPADA Logistics & Security Group, LLC, ESPADA Caribbean LLC, Arty Straehla, Ken Kinsey, Jennifer Jorrie, and Mammoth Energy Services, Inc., in the 57th Judicial District in Bexar County, Texas. The petition alleges that the Company should be held vicariously liable under alter ego, agency and respondeat superior theories for Alpha Lobo’s alleged claims against Cobra and Arty
Straehla for aiding and abetting, knowing participation in and conspiracy to breach fiduciary duty in connection with Cobra’s execution of an agreement with ESPADA Caribbean, LLC for security services related to Cobra’s work in Puerto Rico. The case is currently subject to a statutory stay pending a ruling on the appeal of anti-SLAPP motions to dismiss filed by certain defendants. The Company believes these claims are without merit and will vigorously defend the action. However, at this time, the Company is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s business, financial condition, results of operations or cash flows. Additionally, there is a parallel
arbitration proceeding that has been initiated in which certain Defendants are seeking a declaratory judgment regarding Cobra’s rights to terminate the Alpha Lobo contract and enter into a new contract with a third-party. On June 24, 2021, the arbitration panel ruled in favor of Cobra. Subsequently, the trial Court in this action granted Cobra, the Company and Straehla’s motion to compel arbitration. On March 22, 2022, Alpha Lobo filed a petition for writ of mandamus in the Fourth Court of Appeals, San Antonio, Texas, seeking to overturn the order compelling arbitration. The appellate court has not requested
a response or ruled on the Mandamus. On June 28, 2022, Alpha Lobo filed a petition for writ of mandamus with the Texas Supreme Court seeking to overturn the order compelling arbitration.
27
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company is involved in various other legal proceedings in the ordinary course of business. Although the Company cannot predict the outcome of these proceedings, legal matters are subject
to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material impact on the Company’s business, financial condition, results of operations or cash flows.
Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan for the benefit of substantially all employees at their date of hire. The plan allows eligible employees to contribute up to i92%
of their annual compensation, not to exceed annual limits established by the federal government. The Company makes discretionary matching contributions of up to i3% of an employee’s compensation and may make additional discretionary contributions for eligible employees. For each of the six months ended June 30, 2022 and 2021, the
Company paid $ii0.9/
million in contributions to the plan.
19. iReporting Segments
As of June 30, 2022, the Company’s revenues, income before income taxes and identifiable assets are primarily attributable to
ifour reportable segments. The Company principally provides electric infrastructure services to private utilities, public investor-owned utilities and co-operative utilities and services in connection with on-shore drilling of oil and natural gas wells for small to large domestic independent oil and natural gas producers.
The
Company’s Chief Executive Officer and Chief Financial Officer comprise the Company’s Chief Operating Decision Maker function (“CODM”). Segment information is prepared on the same basis that the CODM manages the segments, evaluates the segment financial statements and makes key operating and resource utilization decisions. Segment evaluation is determined on a quantitative basis based on a function of operating loss less impairment expense, as well as a qualitative basis, such as nature of the product and service offerings and types of customers.
As of June 30, 2022, the Company’s ifour
reportable segments include infrastructure services (“Infrastructure”), well completion services (“Well Completion”), natural sand proppant services (“Sand”) and drilling services (“Drilling”). Prior to the year ended December 31, 2021, the Company included Aquawolf in its “All Other” reconciling column. Based on its assessment of FASB ASC 280, Segment Reporting, guidance at December 31, 2021, the Company changed its presentation in 2021 to move Aquawolf to the Infrastructure segment. The results for the three and six months ended June 30, 2021 have been retroactively
adjusted to reflect this change.
The Infrastructure segment provides electric utility infrastructure services to government-funded utilities, private utilities, public investor-owned utilities and co-operative utilities in the northeastern, southwestern, midwestern and western portions of the United States. The Well Completion segment provides hydraulic fracturing and water transfer services primarily in the Utica Shale of Eastern Ohio, Marcellus Shale in Pennsylvania and the mid-continent region. The Sand segment mines, processes and sells sand for use in hydraulic fracturing. The Sand segment primarily services the Utica Shale, Permian Basin, SCOOP, STACK and Montney Shale in British Columbia and Alberta, Canada. During certain of the periods presented, the Drilling segment provided contract
land and directional drilling services primarily in the Permian Basin and mid-continent region.
During certain of the periods presented, the Company also provided aviation services, coil tubing services, equipment rental services, crude oil hauling services, remote accommodation and equipment manufacturing. The businesses that provide these services are distinct operating segments, which the CODM reviews independently when making key operating and resource utilization decisions. None of these operating segments meet the quantitative thresholds of a reporting segment and do not meet the aggregation criteria set forth in ASC 280 Segment Reporting. Therefore, results for these operating segments are included in the column titled “All Other” in the tables
below. Additionally, assets for corporate activities, which primarily include cash and cash equivalents, inter-segment accounts receivable, prepaid insurance and certain property and equipment, are included in the All Other column. Although Mammoth Energy Partners LLC, which holds these corporate assets, meets one of the quantitative thresholds of a reporting segment, it does not engage in business activities from which it may earn revenues and its results are not regularly reviewed by the Company’s CODM when making key operating and resource utilization decisions. Therefore, the Company does not include it as a reportable segment.
Sales from one segment to another are generally priced at estimated equivalent commercial
selling prices. Total revenue and total cost of revenue amounts included in the Eliminations column in the following tables include inter-segment transactions conducted between segments. Receivables due for sales from one segment to another and for corporate allocations to each segment are included in the Eliminations column for total assets in the following tables. All
28
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
transactions conducted between segments are eliminated in consolidation. Transactions conducted by companies within the same reporting segment are eliminated within each reporting segment. iThe
following tables set forth certain financial information with respect to the Company’s reportable segments (in thousands):
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto presented in this Quarterly Report and the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in Item 1A. “Risk Factors” in our Form 10-K for the year ended December
31, 2021, our Quarterly Report on Form 10-Q for the quarterly period ended March 31,2022 and the section entitled “Forward-Looking Statements” appearing elsewhere in this Quarterly Report.
Overview
We are an integrated, growth-oriented energy services company focused on the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through our infrastructure services businesses. We also provide products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserves. Our primary business objective is to grow our operations and create value for stockholders through organic growth opportunities and accretive acquisitions. Our suite of services includes infrastructure services,
well completion services, natural sand proppant services, drilling services and other services. Our infrastructure services division provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. Our well completion services division provides hydraulic fracturing, sand hauling and water transfer services. Our natural sand proppant services division mines, processes and sells natural sand proppant used for hydraulic fracturing. Our drilling services division currently provides rental equipment, such as mud motors and operational tools, for both vertical and horizontal drilling. In addition to these service divisions, we also provide aviation services, equipment rentals, remote accommodations and equipment manufacturing. We believe that the services we offer play a critical role in maintaining and improving electrical infrastructure as well as in increasing the ultimate recovery and present value of production
streams from unconventional resources. Our complementary suite of services provides us with the opportunity to cross-sell our services and expand our customer base and geographic positioning.
Our transformation towards an industrial based company is ongoing. We offer infrastructure engineering services focused on the transmission and distribution industry and also have equipment manufacturing operations and offer fiber optic services. Our equipment manufacturing operations provide us with the ability to repair much of our existing equipment in-house, as well as the option to manufacture certain new equipment we may need in the future. The equipment manufacturing operations have initially served the internal needs for our water transfer, equipment rental and infrastructure businesses, but we expect to expand into third party sales in the future. Our fiber optic services include the installation of both
aerial and buried fiber. We are continuing to explore other opportunities to expand our business lines as we shift to a broader industrial focus.
Overview of Our Services and Industry Conditions
Infrastructure Services
Our infrastructure services business provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. We offer a broad range of services on electric transmission and distribution, or T&D, networks and substation facilities, which include engineering, design, construction, upgrade, maintenance and repair of high voltage transmission lines, substations and lower voltage overhead and underground distribution systems. Our commercial services include the installation, maintenance and repair
of commercial wiring. We also provide storm repair and restoration services in response to storms and other disasters. We provide infrastructure services primarily in the northeast, southwest, midwest and western portions of the United States.We currently have agreements in place with private utilities, public IOUs and Co-Ops.
Although the COVID-19 pandemic and resulting economic conditions have not had a material impact on demand or pricing for our infrastructure services, revenues from our infrastructure services declined in 2021 as a result of certain management changes, which resulted in crew departures, as well as a decline in storm restoration activities. Revenue from our infrastructure services continue to improve quarter-over-quarter in the first and second quarters of 2022, as compared to the fourth quarter of 2021.
Our infrastructure services business has also been adversely impacted by the outstanding amounts owed to us by the Puerto Rico Electric Power Authority, or PREPA, for services performed by our subsidiary, Cobra Acquisitions LLC, or Cobra, in Puerto Rico to restore PREPA’s electrical grid damaged by Hurricane Maria. As of June 30, 2022, PREPA,
31
which is currently subject to bankruptcy proceedings, owed us approximately $227 million for services performed excluding approximately $131 million of interest charged on these delinquent balances as of March 31, 2022. See Note 2. Basis of Presentation and Significant Accounting Policies—Accounts Receivable of our
unaudited condensed consolidated financial statements. We continue to vigorously pursue numerous avenues to collect our receivable from PREPA for work performed by Cobra. In the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the amounts owed to Cobra or (iii) otherwise does not pay amounts owed to Cobra for services performed, the receivable may not be collectible, which may adversely impact our liquidity, results of operations and financial condition. In addition, government contracts are subject to various uncertainties, restrictions and regulations, including oversight audits and compliance reviews by government agencies and representatives. In this regard,
on September 10, 2019, the U.S. District Court for the District of Puerto Rico unsealed an indictment that charged the former president of Cobra with conspiracy, wire fraud, false statements and disaster fraud. Two other individuals were also charged in the indictment. The indictment is focused on the interactions between a former FEMA official and the former President of Cobra. Neither we nor any of our subsidiaries were charged in the indictment. On May 18, 2022, the former FEMA official and the former president of Cobra pled guilty to gratuities. The sentencing is scheduled for October 19, 2022. Given the uncertainty inherent in the criminal litigation, it is not possible at this time to determine the potential impacts that the
plea agreements could have on us. PREPA has stated in Court filings that it may contend the alleged criminal activity affects Cobra’s entitlement to payment under it contracts with PREPA. It is unclear what PREPA’s position will be after the terms of the plea agreements become public. Subsequent to the indictment, Cobra received a civil investigative demand (“CID”) from the United States Department of Justice (“DOJ”), which requests certain documents and answers to specific interrogatories relevant to an ongoing investigation it is conducting. The aforementioned DOJ investigation is in connection with the issues raised in the criminal matter. Cobra is cooperating with the DOJ and is not able to predict the outcome of this investigation or if it will have a material impact on Cobra’s or our business, financial condition, results of operations or cash flows. With regard
to the previously disclosed SEC investigation, on July 6, 2022, the SEC sent a letter saying that it had concluded its investigation as to the Company and that based on information the SEC has as of this date, it does not intend to recommend an enforcement action by the SEC against us. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information regarding these proceedings. Further, our contracts with PREPA have concluded and we have not obtained, and there can be no assurance that we will be able to obtain, one or more contracts with other customers
to replace the level of services that we provided to PREPA.
During the third quarter of 2021, we made leadership changes in our infrastructure group and have focused on cutting costs, improving margins and enhancing accountability across the division.Our crew count increased from approximately 82 crews as of December 31, 2021 to approximately 92 crews as of June 30, 2022. Currently, we have more than 100 crews and we expect to add additional crews in the coming weeks in preparation for the seasonal storm restoration services anticipated in the third and fourth quarter. Funding for projects in the infrastructure space remains strong with added opportunities expected from the Infrastructure Investment and Jobs Act, which was signed into law on November
15, 2021. We anticipate the federal spending to begin fueling this sector later this year and into 2023. We continue to focus on operational execution and pursue opportunities within this sector as we strategically structure our service offerings for growth, intending to increase our infrastructure services activity and expand both our geographic footprint and depth of projects, especially in fiber maintenance and installation projects. In late 2021, we were awarded a fiber installation contract as well as an electric vehicle charging station engineering contract. Both of these projects are currently in process.
We work for multiple utilities primarily across the northeastern, southwestern, midwestern and western
portions of the United States. We believe that we are well-positioned to compete for new projects due to the experience of our infrastructure management team, combined with our vertically integrated service offerings. We are seeking to leverage this experience and our service offerings to grow our customer base and increase our revenues in the continental United States over the coming years.
Well Completion and Drilling Services
In March and April 2020, concurrent with the COVID-19 pandemic and quarantine orders in the U.S. and worldwide, oil prices dropped sharply to below zero dollars per barrel for the first time in history due to factors including significantly reduced demand and a shortage of storage facilities. In 2021, U.S. oil production stabilized as commodity prices increased and demand for crude
oil rebounded, many exploration and production companies set their operating budgets based on the prevailing prices for oil and natural gas at the time. We have seen improvements in the oilfield services industry and in both pricing and utilization of our well completion and drilling services in the first half of 2022 and we expect both pricing and utilization to continue to improve throughout 2022 and into 2023 as a result of an increase in budgets for publicly traded exploration and production companies and elevated activity levels, driven by improved energy demand and strong commodity
32
prices. The ongoing Russian/Ukrainian war and related humanitarian crisis in Ukraine, however, could have an adverse impact on the global energy markets and volatility
of commodity prices.
In response to market conditions, we have temporarily shut down our cementing and acidizing operations and flowback operations beginning in July 2019, our contract drilling operations beginning in December 2019, our rig hauling operations beginning in April 2020, our coil tubing, pressure control and full service transportation operations beginning in July 2020 and our crude oil hauling operations beginning in July 2021. We continue to monitor the market to determine if and when we can recommence these services. As of July 26, 2022, we were operating four of our six pressure pumping fleets. We expect to add one additional pressure pumping fleet into operation during the fourth quarter of 2022. Looking to 2023, we plan to activate our
sixth fleet in the first quarter of 2023, and subject to liquidity requirements, we have plans to acquire or build a new Tier 4, dual-fuel fleet and expect to have a total of seven fleets operating by year-end 2023.
We continue to closely monitor our cost structure in response to market conditions and intend to pursue additional cost savings where possible. Further, a significant portion of our revenue from our pressure pumping business had historically been derived from Gulfport. On December 28, 2019, Gulfport filed a lawsuit alleging our breach of our pressure pumping contract with Gulfport and seeking to terminate the contract and recover damages for alleged overpayments,
audit costs and legal fees. Gulfport did not make the payments owed to us under this contract for any periods subsequent to its alleged December 28, 2019 termination date. Further, on November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. On September 21, 2021, we reached a settlement with Gulfport under which all litigation relating to the Stingray Pressure Pumping contract was terminated, Stingray Pressure Pumping released all claims against Gulfport and its subsidiaries with respect to Gulfport’s
bankruptcy proceedings and each of the parties released all claims they had against the others with respect to the litigation matters discussed above. We have not been able to obtain long-term contracts with other customers to replace our contract with Gulfport. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information.
Natural Sand Proppant Services
In our natural sand proppant services business, we have experienced a significant decline in demand of our sand proppant in the second half of 2019 and throughout 2020 as a result of completion
activity falling due to lower oil demand and pricing, increased capital discipline by our customers, budget exhaustion and the COVID-19 pandemic. Activity rebounded modestly in 2021 and continued to increase during the first half of 2022, as we saw an increase in the volume of sand sold. The increase in activity in the first half of 2022 resulted in an increase in pricing for our sand and we expect that prices will continue to improve throughout the remainder of 2022 and into 2023.
Further, as a result of adverse market conditions, production at our Muskie sand facility in Pierce County, Wisconsin has been temporarily idled since September 2018. Our contracted capacity has provided a baseline of business, which has kept our Taylor and Piranha plants operating and our costs low.
A portion of our revenue from our natural sand
proppant business historically had been derived from Gulfport pursuant to a long-term contract. Gulfport did not make the payments owed to us under this contract for any periods subsequent to May 2020. In September 2020, we filed a lawsuit seeking to recover delinquent payments owed to us under this contract. On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. On September 21, 2021, the Company and Gulfport reached a settlement under which all litigation relating
to the Muskie contract was terminated and a portion of Muskie’s contract claim against Gulfport was allowed under Gulfport’s plan of reorganization. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information.
As the oilfield services and natural sand proppant industries continue to rebound from the significant economic impacts of 2020 and 2021, we expect more momentum in terms of activity, pricing, scheduling and new bidding inquiries in the second half of 2022 and into 2023. We believe our diverse portfolio of services and
ability to adapt quickly to changing environments positions us well in these segments.
Our Response to COVID-19 and Related Market Conditions
We have taken, and continue to take, responsible steps to protect the health and safety of our employees during the COVID-19 pandemic. We are also continuing to monitor the industry and market conditions resulting from the COVID-19 pandemic and have taken mitigating steps in an effort to preserve liquidity, reduce costs and lower capital expenditures. These
33
actions have included reducing headcount, adjusting pay and limiting spending. We will continue to take further actions that
we deem to be in the best interest of the Company and our stockholders if the adverse conditions recur. Given the dynamic nature of these events, we are unable to predict the ultimate impact of the COVID-19 pandemic, the volatility in commodity markets, any changes in the near-term or long-term outlook for our industries or overall macroeconomic conditions on our business, financial condition, results of operations, cash flows and stock price or the pace or extent of any subsequent recovery.
We continue to mitigate the myriad of external challenges in today’s economic environment as we remain disciplined with our spending to continue to improve Mammoth’s cost structure and focus on enhancing value for our stockholders.
Second Quarter 2022
Financial Overview
•Net income for the second quarter of 2022 was $1.7 million, or $0.04 per diluted share, as compared to net loss of $34.8 million, or $0.75 loss per diluted share, for the second quarter of 2021.
•Adjusted EBITDA (as defined and reconciled below) increased to $23.0 million for the second quarter of 2022, as compared to ($3.3) million for the second quarter of 2021 and $9.3 million for the first quarter of 2022. See “Non-GAAP Financial Measures” below for a reconciliation of net income to Adjusted EBITDA.
•Revenue for the second quarter of 2022 increased $42.3 million, or 89%, to $89.7 million from $47.4 million for the second quarter of 2021. The increase
in total revenue is due to an increase in revenue across all of our operating divisions during the second quarter of 2022, driven primarily by increased utilization and, for the well completions and natural sand proppant divisions, by increased pricing.
Infrastructure services (exclusive of depreciation and amortization of $4,206 and $5,887, respectively, for the three months ended June 30, 2022 and 2021)
21,823
21,112
Well
completion services (exclusive of depreciation and amortization of $6,739 and 6,444, respectively, for the three months ended June 30, 2022 and 2021)
33,471
17,062
Natural sand proppant services (exclusive of depreciation, depletion and accretion of $2,055 and $2,384, respectively, for the three months ended June 30, 2022 and 2021)
9,707
7,400
Drilling
services (exclusive of depreciation and amortization of $1,650 and $2,077, respectively, for the three months ended June 30, 2022 and 2021)
2,194
1,568
Other services (exclusive of depreciation and amortization of $2,807 and $3,453, respectively, for the three months ended June 30, 2022 and 2021)
3,854
3,968
Eliminations
(2,263)
(735)
Total
cost of revenue
68,786
50,375
Selling, general and administrative expenses
8,206
9,860
Depreciation, depletion, amortization and accretion
17,476
20,265
Operating
loss
(4,790)
(33,060)
Interest expense, net
(2,659)
(1,169)
Other income (expense), net
13,087
(17,121)
Income (loss) before income taxes
5,638
(51,350)
Provision
(benefit) for income taxes
3,935
(16,560)
Net income (loss)
$
1,703
$
(34,790)
Revenue. Revenue for the three months ended June 30, 2022 increased $42.3 million, or 89%, to $89.7 million from $47.4 million for the three months ended June 30, 2021. The increase in total revenue is attributable to
an increase in revenue across all operating divisions during the three months ended June 30, 2022 primarily due to increased utilization and, for the well completions and natural sand proppant divisions, increased pricing. Revenue derived from related parties was $0.4 million for the three months ended June 30, 2022 and a nominal amount for the three months ended June 30, 2021. Revenue by operating division was as follows:
Infrastructure Services. Infrastructure services division revenue increased $7.2 million, or 39%, to $25.6 million for the three months ended June 30, 2022 from $18.4 million for the three months ended June 30,
2021 primarily due to an increase in storm activity during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, resulting in a $2.9 million increase in storm restoration revenue and a $2.7 million increase in overhead distribution revenue.
35
Well Completion Services. Well completion services division revenueincreased $26.4 million, or 152%, to $43.8 million for the three months ended June 30, 2022 from $17.4 million for the three months ended
June 30, 2021. The increase in our well completion services revenue was primarily driven by a 230% increase in the number of stages completed from 520 for the three months ended June 30, 2021 to 1,716 for the three months ended June 30, 2022 as well as an increase in both pricing as well as sand and chemical materials revenue. An average of 3.5 of our fleets were active for the three months ended June 30, 2022 as compared to an average of 0.9 fleets for the three months ended June 30, 2021.
Natural Sand Proppant Services. Natural sand proppant services division revenue increased $8.6 million, or 125%, to $15.5
million for the three months ended June 30, 2022, from $6.9 million for the three months ended June 30, 2021. Inter-segment revenue, consisting of revenue derived from our pressure pumping segment, was $1.6 million, or 10% of total sand revenue, for the three months ended June 30, 2022. The natural sand proppant services division did not have inter-segment revenues for the three months ended June 30, 2021.
The increase in our natural sand proppant services revenue was primarily attributable to a 70% increase in the average price per ton of sand sold from $15.80 per ton during the three months ended June 30, 2021 to $26.86 per ton during
the three months ended June 30, 2022, and a 37% increase in tons of sand sold from 255,419 tons for the three months ended June 30, 2021 to 349,877 tons for the three months ended June 30, 2022. Additionally, shortfall revenue increased $1.6 million during the three months ended June 30, 2022.
Drilling Services. Drilling services division revenue increased $0.9 million, or 72%, to $2.0 million for the three months ended June 30, 2022 as compared to $1.1 million for the three months ended June 30, 2021. The increase is primarily due to increased utilization for our directional
drilling business from 20% for the three months ended June 30, 2021 to 35% for the three months ended June 30, 2022.
Other Services. Other services revenue, consisting of revenue derived from our aviation, equipment rental, crude oil hauling, remote accommodation and equipment manufacturing businesses, increased approximately $0.7 million, or 16%, to $5.0 million for the three months ended June 30, 2022, from $4.3 million for the three months ended June 30, 2021. Inter-segment revenue, consisting primarily of revenue derived from our well completion segment, was $0.3 million and $0.7 million for the three months ended June 30,
2022 and 2021, respectively.
An average of 244 pieces of equipment was rented to customers during the three months ended June 30, 2022, anincrease of 157% from an average of 95 pieces of equipment rented to customers during the three months ended June 30, 2021, resulting in an increase to revenue of $0.7 million. Additionally, revenue from our accommodations business increased $0.6 million primarily due to an increase in rooms rented during the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Due to market conditions, we have temporarily shut down our crude
oil hauling business beginning in July 2021, resulting in a decline in revenue of approximately $0.5 million.
Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion expense). Cost of revenue, exclusive of depreciation, depletion, amortization and accretion expense, increased $18.4 million from $50.4 million, or 106% of total revenue, for the three months ended June 30, 2021 to $68.8 million, or 77% of total revenue, for the three months ended June 30, 2022. The increase is primarily due to an increase in activity across all operating divisions. Cost of revenue by operating division was as follows:
Infrastructure Services. Infrastructure
services division cost of revenue, exclusive of depreciation and amortization expense, increased $0.7 million, or 3%, to $21.8 million for the three months ended June 30, 2022 from $21.1 million for the three months ended June 30, 2021, primarily due to an increase in activity. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $4.2 million and $5.9 million for the three months ended June 30, 2022 and 2021, respectively, was 85% and 115% for the three months ended June 30, 2022 and 2021, respectively. The decline as a percentage of revenue is primarily due to declines in labor related costs and equipment rental costs as a percentage
of revenue.
Well Completion Services. Well completion services division cost of revenue, exclusive of depreciation and amortization expense, increased $16.4 million, or 96%, to $33.5 million for the three months ended June 30, 2022 from $17.1 million for the three months ended June 30, 2021, primarily due to an increase in both the cost of consumables and activity. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of $6.7 million and $6.4 million for the three months ended June 30, 2022
36
and
2021, respectively, was 76% and 98% for the three months ended June 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to an increase in utilization.
Natural Sand Proppant Services. Natural sand proppant services division cost of revenue, exclusive of depreciation, depletion and accretion expense, increased $2.3 million, or 31%, to $9.7 million for the three months ended June 30, 2022 from $7.4 million for the three months ended June 30, 2021. As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of $2.1 million and $2.4 million for the three months ended June 30,
2022 and 2021, respectively, was 63% and 107% for the three months ended June 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to a 70% increase in price per ton of sand sold.
Drilling Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, increased $0.6 million, or 40%, to $2.2 million for the three months ended June 30, 2022 from $1.6 million for the three months ended June 30, 2021. As a percentage of revenue, our drilling services division cost of revenue, exclusive of depreciation and amortization expense of $1.7 million
and $2.1 million for the three months ended June 30, 2022 and 2021, respectively, was 111% and 137% for the three months ended June 30, 2022 and 2021, respectively. The decline is primarily due to an increase in utilization.
Other Services. Other services division cost of revenue, exclusive of depreciation and amortization expense, decreased $0.1 million, or 3%, to $3.9 million for the three months ended June 30, 2022 from $4.0 million for the three months ended June 30, 2021. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization
expense of $2.8 million and $3.5 million for the three months ended June 30, 2022 and 2021, respectively, was 77% and 91% for the three months ended June 30, 2022 and 2021, respectively. The decrease is primarily due to a decline in labor costs as a percentage of revenue and an increase in utilization.
Selling, General and Administrative Expenses. Selling, general and administrative, or SG&A, expenses represent the costs associated with managing and supporting our operations. The table below presents a breakdown of SG&A expenses for the periods indicated (in thousands):
a. Certain legal expenses totaling $2.1 million were reclassified to Other, net for the three months ended June 30, 2021.
b. Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs.
Depreciation,
Depletion, Amortization and Accretion. Depreciation, depletion, amortization and accretion decreased $2.8 million, or 14%, to $17.5 million for the three months ended June 30, 2022 from $20.3 million for the three months ended June 30, 2021. The decrease is primarily attributable to a decline in property and equipment depreciation expense as a result of lower capital expenditures and existing assets being fully depreciated.
Operating Loss. We reported an operating loss of $4.8 million for the three months ended June 30, 2022 compared to an operating loss of $33.1 million for the three months ended June 30, 2021. The decrease in operating loss is primarily due
to an increase in activity and utilization across all operating divisions.
Interest Expense, Net. Interest expense, net increased $1.5 million, or 127%, to $2.7 million for the three months ended June 30, 2022 from $1.2 million for the three months ended June 30, 2021. The increase is primarily due to an increase in the interest rate and average borrowings outstanding under our revolving credit facility.
37
Other Income (Expense), Net. Other income increased $30.2 million during the three months ended June 30,
2022 compared to the three months ended June 30, 2021. During the three months ended June 30, 2021 we recognized expense of $25.0 million related to an agreement to settle a legal matter and corresponding legal fees totaling $2.1 million.
Income Taxes. We recorded income tax expense of $3.9 million on pre-tax income of $5.6 million for the three months ended June 30, 2022 compared to an income tax benefit of $16.6 million on pre-tax losses of $51.4 million for the three months ended June 30, 2021. Our effective tax rates were 70% and 32% for the three months ended June 30, 2022 and 2021,
respectively. The effective tax rates for the three months ended June 30, 2022 and 2021 differed from the statutory rate of 21% primarily due to the mix of earnings between the United States and Puerto Rico as well as changes in the valuation allowance.
Infrastructure services (exclusive of depreciation and amortization of $8,512 and $12,544, respectively, for the six months ended June 30, 2022 and 2021)
40,726
48,534
Well
completion services (exclusive of depreciation and amortization of $13,176 and $13,123, respectively, for the six months ended June 30, 2022 and 2021)
56,341
26,459
Natural sand proppant services (exclusive of depreciation, depletion and accretion of $3,847 and $4,521, respectively, for the six months ended June 30, 2022 and 2021)
17,495
13,262
Drilling
services (exclusive of depreciation of $3,330 and $4,242, respectively, for the six months ended June 30, 2022 and 2021)
4,727
3,173
Other services (exclusive of depreciation and amortization of $5,740 and $6,941, respectively, for the six months ended June 30, 2022 and 2021)
7,517
8,470
Eliminations
(3,540)
(1,443)
Total
cost of revenue
123,266
98,455
Selling, general and administrative expenses
16,874
27,884
Depreciation, depletion, amortization and accretion
34,643
41,411
Operating
loss
(22,807)
(53,506)
Interest expense, net
(5,008)
(2,394)
Other income (expense), net
22,324
(10,513)
Loss before income taxes
(5,491)
(66,413)
Benefit
for income taxes
7,623
(19,183)
Net loss
$
(13,114)
$
(47,230)
Revenue. Revenue for the six months ended June 30, 2022 increased $37.8 million, or 33%, to $152.0 million from $114.2 million for the six months ended June 30, 2021. The increase in total revenue is primarily attributable to increases
in well completion services and natural sand proppant services revenues. Revenue derived from related parties was $0.7 million, or 0.4% of our total revenue, for the six months ended June 30, 2022 and $17.2 million, or 15% of our total revenue, for the six months ended June 30, 2021. Substantially all of our related party revenue was derived from Gulfport under pressure pumping and sand contracts. For additional information regarding the status of these contracts and the pending litigation related to the pressure pumping contract, see “Industry Overview – Oil and Natural Gas Industry,”“Industry
Overview – Natural Sand Proppant Industry” and Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report. Revenue by operating division was as follows:
Infrastructure Services. Infrastructure services division revenue remained flat at $48.6 million for the six months ended June 30, 2022 and the six months ended June 30, 2021. There was less storm activity during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, resulting in a $6.7 million decrease in storm restoration revenue. This was offset by increases in overhead distribution and engineering services
revenue.
39
Well Completion Services. Well completion services division revenue increased $27.4 million, or 68%, to $67.7 million for the six months ended June 30, 2022 from $40.3 million for the six months ended June 30, 2021. We did not recognize any revenue derived from related parties for the six months ended June 30, 2022 compared to $14.8 million, or 37% of total well completion revenue, for the six months ended June 30, 2021. All of our well completion related party revenue was derived from
Gulfport under a pressure pumping contract. On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. During the six months ended June 30, 2021, we recognized revenue totaling $15 million related to the modification of our pressure pumping contract with Gulfport. For additional information regarding the status of this contract and the pending litigation related to this contract, see “Industry Overview – Oil and Natural Gas Industry” above and notes 2
and 3 to our unaudited condensed consolidated financial statements included elsewhere in this report. Inter-segment revenues, consisting primarily of revenue derived from our sand segment, was $0.5 million and a nominal amount for the six months ended June 30, 2022 and 2021, respectively.
The increase in our well completion services revenue was primarily driven by an increase in pressure pumping services utilization and pricing. The number of stages completed increased 150% to 2,415 for the six months ended June 30, 2022 from 965 for the six months ended June 30, 2021. An average of 2.5 of our six fleets were active for the six months ended June 30,
2022 as compared to an average of 0.9 fleets for the six months ended June 30, 2021.
Natural Sand Proppant Services. Natural sand proppant services division revenue increased $9.0 million, or 58%, to $24.6 million for the six months ended June 30, 2022, from $15.6 million for the six months ended June 30, 2021. We did not recognize any related party revenue for the six months ended June 30, 2022. Revenue derived from related parties was $2.1 million, or 13% of total sand revenue, for the six months ended June 30, 2021. All of our related party revenue was derived from Gulfport under a sand supply contract.
On November 13, 2020, Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. During the three months ended March 31, 2021, we recognized revenue totaling $2 million related to the modification of our sand supply contract with Gulfport. For additional information regarding the status of this contract and the pending litigation related to this contract, see “Industry Overview – Natural Sand Proppant Industry” above and notes 2 and 3 to our unaudited condensed consolidated financial statements included elsewhere in this report. Inter-segment revenue, consisting primarily
of revenue derived from our pressure pumping segment, was $2.4 million, or 10% of total sand revenue, for the six months ended June 30, 2022. The natural sand proppant services division did not have inter-segment revenues for the six months ended June 30, 2021.
The increase in our natural sand proppant services revenue was primarily due to a 111% increase in tons of sand sold from approximately 321,722 tons for the six months ended June 30, 2021 to approximately 678,468 tons for the six months ended June 30, 2022 and a 50% increase in the average sales price per ton of sand sold from $16.21 per ton during the six months ended June 30, 2021
to $24.24 per ton during the six months ended June 30, 2022. This increase was partially offset by an $3.3 million decline in shortfall revenue for the six months ended June 30, 2022.
Drilling Services. Drilling services division revenue increased $2.7 million, or 132%, to $4.8 million for the six months ended June 30, 2022 from $2.1 million for the six months ended June 30, 2021. The increase in our drilling services revenue was primarily attributable to increased utilization and pricing for our directional drilling business from 21% during the six months ended June 30, 2021 to 42% six months ended June 30,
2022.
Other Services. Other services revenue, consisting of revenue derived from our aviation, equipment rental, crude oil hauling, remote accommodation and equipment manufacturing businesses, increased $0.7 million, or 8%, to $9.8 million for the six months ended June 30, 2022 from $9.1 million for the six months ended June 30, 2021. Inter-segment revenue, consisting primarily of revenue derived from our infrastructure and well completion segments, totaled $0.6 million and $1.3 million for the six months ended June 30, 2022 and 2021, respectively.
The increase in our other services
revenue was primarily due to an increase in utilization for our equipment rental business. An average of 233 pieces of equipment was rented to customers during the six months ended June 30, 2022, an increase of 145% from an average of 95 pieces of equipment rented to customers during the six months ended June 30, 2021.Additionally, utilization for remote accommodations business increased. Due to market conditions, we have temporarily shut down our crude oil hauling business beginning in July 2021, resulting in a decline in revenue of approximately $1.2 million.
Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion expense). Cost of revenue, exclusive of depreciation, depletion, amortization and
accretion expense, increased $24.8 million from $98.5 million, or 86% of
40
total revenue, for the six months ended June 30, 2021 to $123.3 million, or 81%of total revenue, for the six months ended June 30, 2022. The increase is primarily due to an increase in cost of revenue for the well completion services division. Cost of revenue by operating division was as follows:
Infrastructure Services. Infrastructure services division cost of revenue, exclusive of depreciation and amortization expense, decreased $7.8 million,
or 16%, to $40.7 million for the six months ended June 30, 2022 from $48.5 million for the six months ended June 30, 2021. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $8.5 million and $12.6 million, respectively, for the six months ended June 30, 2022 and 2021 was 84% and 100% for the six months ended June 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to declines labor related costs and equipment rental costs as a percentage of revenue.
Well Completion Services. Well completion
services division cost of revenue, exclusive of depreciation and amortization expense, increased $29.8 million, or 113%, to $56.3 million for the six months ended June 30, 2022 from $26.5 million for the six months ended June 30, 2021, primarily due to an increase in cost of goods sold as a result of providing sand and chemicals with our service package to customers during the six months ended June 30, 2022. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of $13.2 million and $13.1 million for the six months ended June 30, 2022 and 2021, respectively, was 83% and 66% for the six months ended June 30,
2022 and 2021, respectively. The increase as a percentage of revenue is primarily due to the recognition of more pressure pumping services standby revenue during the six months ended June 30, 2021, of which there was a lower percentage of costs recognized compared to the six months ended June 30, 2022. Additionally, during the six months ended June 30, 2022, we provided sand and chemicals with our service package to customers, resulting in higher cost of goods sold as a percentage of revenue for this period in comparison to the six months ended June 30, 2021.
Natural Sand Proppant Services. Natural sand proppant
services division cost of revenue, exclusive of depreciation, depletion and accretion expense, increased $4.2 million, or 32%, from $13.3 million for the six months ended June 30, 2021 to $17.5 million for the six months ended June 30, 2022. As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of $3.9 million and $4.5 million for the six months ended June 30, 2022 and 2021, respectively, was 71% and 85% for the six months ended June 30, 2022 and 2021, respectively. The decrease in cost as a percentage of revenue is primarily due to a 50% increase is average sales price.
Drilling
Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, increased $1.5 million, or 49%, from $3.2 million for the six months ended June 30, 2021 to $4.7 million for the six months ended June 30, 2022, as a result of increased activity. As a percentage of revenue, our drilling services division cost of revenue, exclusive of depreciation and amortization expense of $3.3 million and $4.2 million, for the six months ended June 30, 2022 and 2021, respectively, was 96% and 152% for the six months ended June 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to increased
utilization.
Other Services. Other services division cost of revenue, exclusive of depreciation and amortization expense, decreased $1.0 million, or 11%, from $8.5 million for the six months ended June 30, 2021 to $7.5 million for the six months ended June 30, 2022. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of $5.7 million and $6.9 million for the six months ended June 30, 2022 and 2021, respectively, was 77% and 93% for the six months ended June 30, 2022 and 2021, respectively. The decrease
as a percentage of revenue is primarily due to an increase in utilization.
Selling, General and Administrative Expenses. Selling, general and administrative expenses represent the costs associated with managing and supporting our operations. The table below presents a breakdown of SG&A expenses for the
a. Certain legal expenses totaling $4.9 million were reclassified to Other, net for the six months ended June 30, 2021.
b. Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs.
c. The
bad debt provision for the six months ended June 30, 2021 includes $10.0 million related to the voluntary petitions for relief filed on November 13, 2020, by Gulfport and its subsidiaries.
Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion, amortization and accretion decreased $6.8 million to $34.6 million for the six months ended June 30, 2022 from $41.4 million for the six months ended June 30, 2021. The decrease is primarily attributable to a decline in property and equipment depreciation expense as a result of lower capital expenditures and existing assets being
fully depreciated.
Operating Loss. We reported an operating loss of $22.8 million for the six months ended June 30, 2022 compared to an operating loss of $53.5 million for the six months ended June 30, 2021. The reduced operating loss was primarily due to a decline in costs as a percentage of revenue as well as increased activity in our well completion, drilling, and natural sand proppant services.
Interest Expense, Net. Interest expense, net increased $2.6 million, or 109%, to $5.0 million for the six months ended June 30, 2022 from $2.4 million for the six months ended June 30, 2021 primarily
due to an increase in the interest rate and average borrowings outstanding under our revolving credit facility.
Other Income (Expense), Net. We recognized other income, net of $22.3 million during the six months ended June 30, 2022 compared to other expense, net of $10.5 million for the six months ended June 30, 2021. During the six months ended June 30, 2021 we recognized expense of $25.0 million related to an agreement to settle a legal matter and corresponding legal fees totaling $4.9 million. We recognized interest on trade accounts receivable of $20.0 million for the six months ended June 30, 2022 compared to $17.2 million for six months ended June 30,
2021.
Income Taxes. We recorded income tax expense of $7.6 million on pre-tax losses of $5.5 million for the six months ended June 30, 2022 compared to an income tax benefit of $19.2 million on pre-tax losses of $66.4 million for the six months ended June 30, 2021. Our effective tax rate was (139%) for the six months ended June 30, 2022 compared to 29% for the six months ended June 30, 2021. The increase compared to the six months ended June 30, 2021 was due to the mix of earnings between the United States and Puerto Rico as well as changes in the valuation allowance.
Non-GAAP
Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as net income (loss) before depreciation, depletion, amortization and accretion, public offering costs, stock based compensation, interest expense, net, other income (expense), net (which is comprised of the gain or loss on disposal of long-lived assets, interest on trade accounts receivable and certain legal expenses) and provision (benefit) for income taxes, further adjusted to add back interest on trade accounts receivable. We exclude the items listed above from net loss in arriving at Adjusted EBITDA because these amounts can vary substantially from company to
company within our industries depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA
42
should not be considered as an alternative to, or more meaningful than, net loss or cash flows from operating activities as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly
titled measures of other companies. We believe that Adjusted EBITDA is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet debt service requirements.
The following tables provide a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income or (loss) for each of our operating segments for the specified periods (in thousands).
Consolidated
Three
Months Ended
Six Months Ended
June 30,
June 30,
Reconciliation of Adjusted EBITDA to net income (loss):
2022
2021
2022
2021
Net income (loss)
$
1,703
$
(34,790)
$
(13,114)
$
(47,230)
Depreciation,
depletion, amortization and accretion expense
17,476
20,265
34,643
41,411
Public
offering costs
—
77
—
77
Stock based compensation
200
354
441
698
Interest
expense, net
2,659
1,169
5,008
2,394
Other (income) expense, net
(13,087)
17,121
(22,324)
10,513
Provision
(benefit) for income taxes
3,935
(16,560)
7,623
(19,183)
Interest on trade accounts receivable
10,160
9,017
20,022
17,175
Adjusted
EBITDA
$
23,046
$
(3,347)
$
32,299
$
5,855
Infrastructure Services
Three
Months Ended
Six Months Ended
June 30,
June 30,
Reconciliation of Adjusted EBITDA to net income (loss):
2022
2021
2022
2021
Net income (loss)
$
572
$
(24,073)
$
695
$
(28,311)
Depreciation
and amortization expense
4,211
5,899
8,525
12,566
Public
offering costs
—
45
—
45
Stock based compensation
74
162
172
301
Interest expense
1,755
664
3,298
1,333
Other
(income) expense, net
(10,925)
18,035
(20,512)
11,548
Provision (benefit) for income taxes
3,708
(8,838)
6,776
(6,409)
Interest
on trade accounts receivable
10,160
9,017
20,022
17,689
Adjusted EBITDA
$
9,555
$
911
$
18,976
$
8,762
43
Well
Completion Services
Three Months Ended
Six Months Ended
June 30,
June 30,
Reconciliation
of Adjusted EBITDA to net income (loss):
2022
2021
2022
2021
Net income (loss)
$
1,450
$
(8,248)
$
(6,351)
$
(12,678)
Depreciation
and amortization expense
6,747
6,447
13,191
13,130
Public
offering costs
—
12
—
12
Stock based compensation
84
75
171
158
Interest
expense
422
219
793
473
Other (income) expense, net
(157)
1
(206)
440
Interest
on trade accounts receivable
—
—
—
(513)
Adjusted EBITDA
$
8,546
$
(1,494)
$
7,598
$
1,022
Natural
Sand Proppant Services
Three Months Ended
Six Months Ended
June 30,
June 30,
Reconciliation of
Adjusted EBITDA to net income (loss):
2022
2021
2022
2021
Net income (loss)
$
2,665
$
(3,930)
$
1,352
$
(4,574)
Depreciation,
depletion, amortization and accretion expense
2,058
2,387
3,852
4,527
Public
offering costs
—
12
—
12
Stock based compensation
26
66
60
130
Interest expense
178
90
340
183
Other
income, net
(19)
(53)
(98)
(847)
Interest on trade accounts receivable
—
—
—
(1)
Adjusted
EBITDA
$
4,908
$
(1,428)
$
5,506
$
(570)
44
Drilling Services
Three
Months Ended
Six Months Ended
June 30,
June 30,
Reconciliation of Adjusted EBITDA to net loss:
2022
2021
2022
2021
Net loss
$
(2,272)
$
(2,825)
$
(4,026)
$
(6,140)
Depreciation
expense
1,651
2,078
3,331
4,243
Public
offering costs
—
2
—
2
Stock based compensation
4
28
9
65
Interest expense
121
58
225
121
Other
income, net
—
(126)
—
(135)
Adjusted EBITDA
$
(496)
$
(785)
$
(461)
$
(1,844)
Other
Services(a)
Three Months Ended
Six Months Ended
June 30,
June 30,
Reconciliation
of Adjusted EBITDA to net (loss) income:
2022
2021
2022
2021
Net (loss) income
$
(788)
$
4,286
$
(4,786)
$
4,473
Depreciation,
amortization and accretion expense
2,809
3,454
5,744
6,945
Public
offering costs
—
6
—
6
Stock based compensation
12
23
29
44
Interest expense, net
183
138
352
284
Other
income, net
(1,986)
(736)
(1,508)
(493)
Provision (benefit) for income taxes
226
(7,722)
846
(12,774)
Adjusted
EBITDA
$
456
$
(551)
$
677
$
(1,515)
a. Includes results for our aviation, equipment rentals, crude oil hauling, remote accommodations and equipment manufacturing and corporate related activities. Our corporate related activities do not generate revenue.
Liquidity
and Capital Resources
We require capital to fund ongoing operations including maintenance expenditures on our existing fleet of equipment, organic growth initiatives, investments and acquisitions, and the litigation settlement obligations described in Note 18 “Commitments and Contingencies” of the Notes to the Unaudited Condensed Consolidated Financial Statements and under “Capital Requirements and Sources of Liquidity” below. Our primary sources of liquidity have been cash on hand, borrowings under our revolving credit facility and cash flows from operations. Our primary uses of capital have been for investing in property and equipment used to provide our services and to acquire complementary businesses.
45
Liquidity
The
following table summarizes our liquidity as of the dates indicated (in thousands):
Less letter of credit facilities (bonding program)
—
(1,000)
Less
letter of credit facilities (insurance programs)
(3,389)
(3,890)
Less letter of credit facilities (environmental remediation)
(3,694)
(3,694)
Less letter of credit facilities (rail car commitments)
(455)
(455)
Net working capital (less cash)(a)
304,043
280,651
Total
$
330,014
$
305,219
a.Net
working capital (less cash) is a non-GAAP measure and is calculated by subtracting total current liabilities of $144.9 million and cash and cash equivalents of $12.7 million from total current assets of $461.7 million as of June 30, 2022. As of December 31, 2021, net working capital (less cash) is calculated by subtracting total current liabilities of $150.2 million and cash and cash equivalents of $9.9 million from total current assets of $440.8 million. Amounts include receivables due from PREPA of $357.8 million at June 30, 2022 and $337.8 million at December 31, 2021 and corresponding liabilities of $43.2 million at June 30, 2022 and $42.3 million at December 31, 2021.
As
of July 26, 2022, we had cash on hand of $9.5 million and outstanding borrowings under our revolving credit facility of $84.1 million, leaving an aggregate of $8.2 million of available borrowing capacity under this facility, after giving effect to $7.5 million of outstanding letters of credit and the requirement to maintain a $10.0 million reserve out of the available borrowing capacity.
Continued prolonged volatility in the capital, financial and/or credit markets due to the COVID-19 pandemic, volatility in commodity prices and/or adverse macroeconomic conditions may further limit our access to, or increase our cost of, capital or make capital unavailable on terms acceptable to us or at all. In addition, if we are unable to comply with the financial covenants under our amended revolving credit facility, or obtain a waiver of forecasted
or actual non-compliance with any such financial covenants from our lenders, and an event of default occurs and remains uncured, our lenders would not be required to lend any additional amounts to us, could elect to increase our interest rate by 200 basis points, could elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, may have the ability to require us to apply all of our available cash to repay our outstanding borrowings and may foreclose on substantially all of our assets.
Cash Flows
The following table sets forth our cash flows at the dates indicated (in thousands):
Net cash provided by (used in) operating activities
$
1,744
$
(9,673)
$
(638)
$
4,471
Net
cash provided by investing activities
3,623
2,614
3,479
2,923
Net cash (used in) provided by financing activities
(680)
3,810
57
(11,214)
Effect
of foreign exchange rate on cash
(76)
11
(68)
36
Net change in cash
$
4,611
$
(3,238)
$
2,830
$
(3,784)
46
Operating
Activities
Net cash used in operating activities was $0.6 million for the six months ended June 30, 2022, compared to net cash provided by operating activities of $4.5 million for the six months ended June 30, 2021.Net cash provided by operating activities was $1.7 million for the three months ended June 30, 2022, compared to net cash used by operating activities of $9.7 million for the three months ended June 30, 2021. The change in operating cash flows was primarily attributable to the timing of cash inflows for accounts receivable.
Investing Activities
Net
cash provided by investing activities was $3.5 million for the six months ended June 30, 2022, compared to net cash provided by investing activities of $2.9 million for the six months ended June 30, 2021. Net cash provided by investing activities was $3.6 million for the three months ended June 30, 2022, compared to $2.6 million for the three months ended June 30, 2021. Cash provided by investing activities was primarily proceeds from the disposal of property and equipment, which was offset by purchases of property and equipment.
The following table summarizes our capital expenditures by operating division for the periods indicated (in thousands):
a. Capital expenditures primarily for tooling and other equipment for the three and six months ended June 30, 2022 and 2021.
b. Capital expenditures primarily for upgrades to our pressure pumping
fleet to reduce greenhouse gas emissions for the three and six months ended June 30, 2022 and 2021.
c. Capital expenditures primarily for maintenance for the three and six months ended June 30, 2021.
d. Capital expenditures primarily for maintenance for the three and six months ended June 30, 2022 and 2021.
e. Capital expenditures primarily for equipment for our rental business for the three and six months ended June 30, 2022 and 2021.
Financing
Activities
Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2022, compared to net cash used in financing activities of $11.2 million for the six months ended June 30, 2021. Net cash provided by financing activities for the six months ended June 30, 2022 was primarily attributable to net proceeds received from sale leaseback transactions of $4.6 million, partially offset by net payments on our revolving credit facility of $1.2 million and principal payments on financing leases and equipment financing notes totaling $3.3 million. Net cash used in financing activities for six months ended June 30, 2021 was primarily attributable to net payments under our revolving credit
facility of $18.2 million, partially offset by net proceeds received from sale leaseback transactions of $9.5 million.
Net cash used in financing activities was $0.7 million for the three months ended June 30, 2022, compared to net cash provided by financing activities of $3.8 million for the three months ended June 30, 2021. Net cash used in financing activities for the three months ended June 30, 2022 was primarily attributable to net payments on our revolving credit facility of $3.5 million, partially offset by net proceeds received from sale leaseback transactions of $3.3 million. Net cash provided by financing activities for the three months ended June 30, 2021 was primarily attributable to net
proceeds received from sale leaseback transaction of $8.5 million, which was partially offset by net repayments under our revolving credit facility of $4.2 million.
Effect of Foreign Exchange Rate on Cash
The effect of foreign exchange rate on cash was ($0.1) million and a nominal amount for the six months ended June 30, 2022 and 2021. The change was driven primarily by a favorable (unfavorable) shift in the weakness (strength) of the Canadian dollar relative to the U.S. dollar for the cash held in Canadian accounts.
On October 19, 2018, we and certain of our direct and indirect subsidiaries, as borrowers, entered into an amended and restated revolving credit facility, as subsequently amended, with the lenders party thereto and PNC Bank, National Association, as a lender and as administrative agent for the lenders. At June 30, 2022, we had outstanding borrowings under our revolving credit facility of $82.9 million and $14.3 million of available borrowing capacity under this facility, after giving effect to $7.5 million of outstanding letters of credit and the requirement to maintain a $10.0 million reserve out of the available borrowing capacity.
On
February 28, 2022, we entered into a fourth amendment to the revolving credit facility (the “Fourth Amendment”) to, among other things, (i) amend our financial covenants as outlined below, (ii) provide for a conditional increase of the applicable interest margin, (iii) permit certain sale-leaseback transactions, (iv) provide for a reduction in the maximum revolving advance amount in an amount equal to 50% of the PREPA claims proceeds, subject to a floor equal to the sum of eligible billed and unbilled accounts receivables, and (v) classifies the payments pursuant to our settlement agreement with MasTec Renewables Puerto Rico, LLC as restricted payments and requires $20.0 million of availability both before and after making such payments.
The financial covenants under our revolving credit facility were amended as follows:
•the
leverage ratio was eliminated;
•the fixed charge coverage ratio was reduced to 0.85 to 1.0 for the six months ended June 30, 2022 and increases to 1.1 to 1.0 for the periods thereafter;
•a minimum adjusted EBITDA covenant of $4.7 million, excluding interest on the accounts receivable from PREPA, for the five months ending May 31, 2022 was added; and
•the minimum excess availability covenant was reduced to $7.5 million through March 31, 2022, after which the minimum excess availability covenant increased to $10.0 million.
We were in compliance with
the applicable financial covenants under our amended revolving credit facility in effect as of June 30, 2022. For additional information regarding our revolving credit facility, see Note 9. Debt to our unaudited condensed consolidated financial statements included elsewhere in this report.
As of July 26, 2022, our outstanding borrowings under our amended revolving credit facility were $84.1 million, leaving an aggregate of $8.2 million of available borrowing capacity, after giving effect to $7.5 million of outstanding letters of credit and the requirement to maintain a $10.0 million reserve out of the available borrowing capacity. If we fail to comply with the financial covenants contemplated by our amended revolving credit facility, or obtain a waiver of forecasted or actual non-compliance with any
such financial covenants from our lenders, and an event of default occurs and remains uncured, it will have a material adverse effect on our business, financial condition, liquidity and results of operations. For additional information regarding our amended revolving credit facility and financial covenants thereunder, see Note 9. Debt to our unaudited condensed consolidated financial statements included elsewhere in this report.
48
Sale Leaseback Transactions
On December 30, 2020, we entered into an agreement with First National Capital, LLC, or FNC, whereby we agreed to sell certain assets from our infrastructure
segment to FNC for aggregate proceeds of $5.0 million. Concurrent with the sale of assets, we entered into a 36 month lease agreement whereby we lease back the assets at a monthly rental rate of $0.1 million. On June 1, 2021, we entered into another agreement with FNC whereby we sold additional assets from our infrastructure segment to FNC for aggregate proceeds of $9.5 million and entered into a 42-month lease agreement whereby we lease back the assets at a monthly rental rate of $0.2 million. On June 1, 2022, we entered into another agreement with FNC whereby we sold additional assets from our infrastructure segment to FNC for aggregate proceeds of $4.6 million and entered into a 42-month lease agreement whereby we lease back the assets at a monthly rental rate of $0.1 million. Under the agreements, we have the option to purchase the assets at the end of the lease term.
We recorded a liability for the proceeds received and will continue to depreciate the assets. We imputed an interest rate so that the carrying amount of the financial liabilities will be the expected repurchase price at the end of the initial lease terms.
Aviation Note
On November 6, 2020, Leopard and Cobra Aviation entered into a 39 month promissory note agreement with Bank7, or the Aviation Note, in an aggregate principal amount of $4.6 million and received net proceeds of $4.5 million. The Aviation Note bears interest at a rate based on the Wall Street Journal Prime Rate plus a margin of 1%. Principal and interest payments of $0.1 million are due monthly beginning on March 1, 2021, with a final payment of $0.2 million due
on February 1, 2024. The Aviation Note is collateralized by Leopard and Cobra Aviation’s assets, including a $1.8 million certificate of deposit. The Aviation Note contains various customary affirmative and restrictive covenants. As of June 30, 2022, we did not meet the minimum debt coverage ratio of 1.25 to 1.0 set forth in the Aviation Note. On July 27, 2022, Bank7 granted us a waiver of this event of default.
Capital Requirements and Sources of Liquidity
As we pursue our business and financial strategy, we regularly consider which capital resources are available to meet our future financial obligations and liquidity requirement. We believe that our cash on hand, operating cash flow and available
borrowings under our credit facility will be sufficient to meet our short-term and long-term funding requirements, including funding our current operations, planned capital expenditures, debt service obligations and known contingencies, except as provided below with respect to our litigation settlement with MasTec. Neither Cobra nor Mammoth Inc. made the scheduled installment payment of $9.25 million plus interest due on August 1, 2022 under Cobra’s litigation settlement agreement with MasTec. Under the terms of this agreement, any unpaid amounts will be charged interest at rates between 6% and 12%. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report. We currently believe that our cash flow from operations, cash on hand and other sources of liquidity will enable Cobra and/or Mammoth Inc. to pay this installment, together with the accrued
and unpaid interest on or before December 1, 2022, and that either Cobra or Mammoth Inc. will be able to pay the remaining $9.25 million installment under this agreement, together with the accrued and unpaid interest, due on December 1, 2022. If Cobra or Mammoth Inc. are unable to make payments on these two installments on or before December 1, 2022, MasTec will have the right to enforce the confessed judgement against Cobra and Mammoth Inc. with respect to these amounts on or after December 2, 2022.
Our liquidity and future cash flows, however, are subject to a number of variables (including receipt of payments from our customers, including PREPA). As of June 30,
2022, PREPA owed Cobra approximately $357.8 million for services performed, including $130.8 million of interest charges. Throughout 2021, we released significant data that we obtained through Freedom of Information Act requests that affirm the work performed by Cobra in Puerto Rico. We believe these documents in conjunction with the current Administration’s focus on the recovery of Puerto Rico and our enhanced lobbying efforts will aid in collecting the outstanding amounts owed to us by PREPA. However, in the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the amounts owed to Cobra or (iii) otherwise does not pay amounts owed to Cobra for services performed, the receivable may not be collectible, which may adversely impact our liquidity.
We
currently estimate that during 2022 our aggregate capital expenditures will be $20.0 million, depending upon industry conditions and our financial results, representing an $8.0 million increase from our previously disclosed capital expenditure budget for 2022.These capital expenditures include $2.5 million in our infrastructure segment for assets for additional equipment, $16.9 million in our well completion segment for conversion of a portion of our fleet to include Dynamic Gas BlendingTM (DGB) or “dual-fuel” capabilities and maintenance to our existing pressure pumping fleet and $0.6 million for our other divisions, primarily for additional equipment for our rental business. During the six months ended June 30, 2022, our capital expenditures totaled $4.0 million.
49
Also,
as noted above in this report, in response to market conditions we have (i) temporarily shut down certain of our oilfield service offerings, including coil tubing, pressure control, flowback, crude oil hauling, cementing, acidizing and land drilling services, (ii) idled certain facilities, including our sand processing plant in Pierce County, Wisconsin and (iii) reduced our workforce across all of our operations. We continue to monitor market conditions to determine if and when we will recommence these services and operations and increase our workforce. Any such recommencement and expansion will further increase our liquidity requirements in advance of revenue generation.
In addition, while we regularly evaluate acquisition opportunities, we do not have a specific acquisition budget for 2022 since the timing and size of acquisitions cannot be accurately forecasted. We continue to evaluate acquisition
opportunities, including those in the renewable energy sector as well as transactions involving entities controlled by Wexford. Our acquisitions may be undertaken with cash, our common stock or a combination of cash, common stock and/or other consideration. In the event we make one or more acquisitions and the amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce the expected level of capital expenditures and/or seek additional capital.
If we seek additional capital for any of the above or other reasons, we may do so through borrowings under our revolving credit facility, joint venture partnerships, sale-leaseback transactions, asset sales, offerings of debt or equity securities or other means. Although we expect that our sources of capital will be adequate to fund our short-term and long-term liquidity requirement,
we cannot assure you that this additional capital will be available on acceptable terms or at all. If we are unable to obtain funds we need, our ability to conduct operations, make capital expenditures, satisfy debt services obligations, pay litigation settlement obligations, fund contingencies and/or complete acquisitions that may be favorable to us will be impaired, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
50
Item
3. Quantitative and Qualitative Disclosures About Market Risk
The demand, pricing and terms for our products and services are largely dependent upon the level of activity for the U.S. oil and natural gas industry, energy infrastructure industry and natural sand proppant industry. Industry conditions are influenced by numerous factors over which we have no control, including, but not limited to: the supply of and demand for oil and natural gas services, energy infrastructure services and natural sand proppant; demand for repair and construction of transmission lines, substations and distribution networks in the energy infrastructure industry and the level of expenditures of utility companies; the level of prices of, and expectations about future prices for, oil and natural gas and natural sand proppant, as well as energy infrastructure services; the cost of exploring for, developing, producing and delivering
oil and natural gas; the expected rates of declining current production; the discovery rates of new oil and natural gas reserves and frac sand reserves meeting industry specifications and consisting of the mesh size in demand; access to pipeline, transloading and other transportation facilities and their capacity; weather conditions; domestic and worldwide economic conditions; political instability in oil-producing countries; environmental regulations; technical advances affecting energy consumption; the price and availability of alternative fuels; the ability of oil and natural gas producers and other users of our services to raise equity capital and debt financing; and merger and divestiture activity in industries in which we operate.
In March and April 2020, concurrent with the COVID-19 pandemic and quarantine orders in the U.S. and worldwide, oil prices dropped sharply to below zero dollars
per barrel for the first time in history due to factors including significantly reduced demand and a shortage of storage facilities. In 2021, U.S. oil production stabilized as commodity prices increased and demand for crude oil rebounded, many exploration and production companies set their operating budgets based on the prevailing prices for oil and natural gas at the time. Despite the recent improvement in the U.S. and global economic activity, easing of the COVID-19 pandemic and related restrictions, rising energy use and improved commodity prices, the budgets for the publicly traded exploration and production companies remained relatively flat throughout 2021, with any excess cash flows used for debt repayment and shareholder returns, rather than to increase production. We have seen improvements in the oilfield services industry and in both pricing and utilization of our well completion and drilling services in the first half of 2022 and we expect both pricing and
utilization to continue to improve throughout the remainder of 2022 and into 2023 as a result of an increase in budgets for publicly traded exploration and production companies and elevated activity levels, driven by strong energy demand and high commodity prices. The current Russian/Ukrainian military conflict and related humanitarian crisis in Ukraine, however, could have an adverse impact on the global energy markets and volatility of commodity prices.
Although the levels of activity in the U.S. oil and natural gas exploration and production, energy infrastructure and natural sand proppant industries continue to improve, they have historically been and continue to be volatile. We are unable to predict the ultimate impact of the COVID-19 pandemic, the volatility in commodity prices, any changes in the near-term or long-term outlook for our industries or overall macroeconomic conditions on our
business, financial condition, results of operations, cash flows and stock price.
Interest Rate Risk
We had a cash and cash equivalents balance of $12.7 million at June 30, 2022. We do not enter into investments for trading or speculative purposes. We do not believe that we have any material exposure to changes in the fair value of these investments as a result of changes in interest rates. Declines in interest rates, however, will reduce future income.
Interest under our credit facility is payable at a base rate, which can fluctuate based on multiple facts, including rates set by the U.S. Federal Reserve (which increased its benchmark interest rate by 0.75 percentage point on July
27, 2022, a fourth interest rate hike this year, and may continue to increase interest rates in an effort to counter the persistent inflation), the supply and demand for credit and general economic conditions, plus an applicable margin. The applicable margin is currently set at 4.0%, which can be reduced to 3.5% under certain circumstances specified in our credit facility. At June 30, 2022, we had outstanding borrowings under our revolving credit facility of $82.9 million with a weighted average interest rate of 8.75%. A 1% increase or decrease in the interest rate at that time would increase or decrease our interest expense by approximately $0.8 million per year. We do not currently hedge our interest rate exposure.
Foreign Currency Risk
Our remote accommodation business, which is included
in our other services division, generates revenue and incurs expenses that are denominated in the Canadian dollar. These transactions could be materially affected by currency fluctuations. Changes in currency exchange rates could adversely affect our consolidated results of operations or financial position. We also maintain cash balances denominated in the Canadian dollar. At June 30, 2022, we had $2.0 million of cash, in Canadian dollars, in Canadian accounts. A 10% increase in the strength of the Canadian dollar versus the U.S. dollar would have resulted in an
51
increase in pre-tax income of approximately $0.01 million as of June 30, 2022. Conversely,
a corresponding decrease in the strength of the Canadian dollar would have resulted in a comparable decrease in pre-tax income. We have not hedged our exposure to changes in foreign currency exchange rates and, as a result, could incur unanticipated translation gains and losses.
Customer Credit Risk
We are also subject to credit risk due to concentration of our receivables from several significant customers. We generally do not require our customers to post collateral. The inability, delay or failure of our customers to meet their obligations to us due to customer liquidity issues or their insolvency or liquidation may adversely affect our business, financial condition, results of operations and cash flows. This risk may be further enhanced by the COVID-19 pandemic, the volatility in commodity prices, the reduction in demand for our services
and challenging macroeconomic conditions.
Specifically, we had receivables due from PREPA totaling $357.8 million, including $130.8 million of interest charges, as of June 30, 2022. PREPA is currently subject to bankruptcy proceedings pending in the U.S. District Court for the District of Puerto Rico. As a result, PREPA’s ability to meet its payment obligations under the contracts is largely dependent upon funding from the FEMA or other sources. See Note 2. Basis of Presentation and Significant Accounting Policies—Accounts Receivable and —Concentrations of Credit Risk and Significant Customers and Note 18. Commitments and Contingencies—Litigation of our unaudited condensed consolidated financial statements.
Seasonality
We
provide infrastructure services in the northeast, southwest and midwest portions of the United States. We provide well completion and drilling services primarily in the Utica, Eagle Ford, Marcellus, Granite Wash, Cana Woodford and Cleveland sand resource plays located in the continental U.S. We provide remote accommodation services in the oil sands in Alberta, Canada. We serve these markets through our facilities and service centers that are strategically located to serve our customers in Ohio, Texas, Oklahoma, Wisconsin, Minnesota, Kentucky and Alberta, Canada. A portion of our revenues are generated in Ohio, Wisconsin, Minnesota, Pennsylvania, West Virginia and Canada where weather conditions may be severe. As a result, our operations may be limited or disrupted, particularly during winter and spring months, in these geographic regions, which would have a material adverse effect on our financial condition and results of operations. Our operations in Oklahoma and Texas
are generally not affected by seasonal weather conditions.
Inflation
Although the impact of inflation has been insignificant on our operations in prior years, inflation in the U.S. has been rising at its fastest rate in over 40 years, creating inflationary pressure on the cost of services, equipment and other goods in our industries and other sectors and contributing to labor and materials shortages across the supply-chain. On July 27, 2022, the Federal Reserve increased its benchmark interest rates by 0.75 percentage point, the fourth hike this year and the largest since 1994 and may continue increasing benchmark interest rates in the future. These measures are aimed at countering the fastest pace of inflation in over 40 years. If the efforts to control inflation are not successful and inflationary
pressures persist, our business, results of operations and financial condition may be adversely affected.
Item 4. Controls and Procedures
Evaluation of Disclosure Control and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we have established disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
52
As
of June 30, 2022, an evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2022, our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the
quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
53
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Due to the nature of our business, we are, from time to time, involved in litigation or subject to disputes or claims related to our business
activities, including breaches of contractual obligations, workers’ compensation claims, employment related disputes, arbitrations, class actions and other litigation. We are also involved, from time to time, in reviews, investigations, subpoenas and other proceedings (both formal and informal) by governmental agencies regarding our business (collectively, “regulatory matters”), which regulatory matters, if determined adversely to us, could subject us to significant fines, penalties, obligations to change our business practices or other requirements resulting in increased expenses, diminished income and damage to our reputation. In the opinion of our management, none of the pending litigation, disputes or claims against us is expected to have a material adverse effect on our financial condition, cash flows or results of operations, except as disclosed in Note 18 “Commitments and Contingencies,” of the Notes to Unaudited Condensed Consolidated Financial
Statements.
Item 1A. Risk Factors
As of the date of this filing, our Company and operations continue to be subject to the risk factors previously disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on March 4, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on May 10, 2022. For a discussion of the recent trends and uncertainties impacting our business, see also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Overview of
Our Services and Industry Conditions”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 4. Mine Safety Disclosures
Our operations are subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including
the training of personnel, operating procedures, operating equipment and other matters. Our failure to comply with such standards, or changes in such standards or the interpretation or enforcement thereof, could have a material adverse effect on our business and financial condition or otherwise impose significant restrictions on our ability to conduct mineral extraction and processing operations. Following passage of The Mine Improvement and New Emergency Response Act of 2006, MSHA significantly increased the numbers of citations and orders charged against mining operations. The dollar penalties assessed for citations issued has also increased in recent years. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit
95.1 to this Report.
Item 5. Other Information
Not applicable.
54
MAMMOTH ENERGY SERVICES, INC.
Item 6. Exhibits
The following exhibits are filed as a part of this report:
XBRL
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Cover
Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
X
55
MAMMOTH ENERGY SERVICES,
INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
