Mammoth Energy Services, Inc. (NASDAQ:TUSK): Diversified Energy Services Provider Navigating Challenging Market Conditions

Published on September 24, 2024 | Ticker: TUSK

Overview

Mammoth Energy Services, Inc. (NASDAQ:TUSK) is an integrated, growth-oriented energy services company focused on providing products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserves, as well as the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through its infrastructure services businesses.

Business Overview

Mammoth Energy Services' suite of services includes well completion services, infrastructure services, natural sand proppant services, drilling services and other services. Mammoth's well completion services division provides hydraulic fracturing, sand hauling and water transfer services. Its infrastructure services division provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. The natural sand proppant services division mines, processes and sells natural sand proppant used for hydraulic fracturing. The 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, Mammoth Energy Services also provides aviation services, equipment rentals, crude oil hauling services, remote accommodations and equipment manufacturing.

Financials

For the full year 2023, Mammoth Energy Services reported annual revenue of $309.5 million, net loss of $3.2 million, annual operating cash flow of $31.4 million and annual free cash flow of $12.0 million. In the first quarter of 2024, Mammoth Energy Services generated revenue of $43.2 million and a net loss of $11.8 million.

Recent Developments

Mammoth Energy Services' well completion services division experienced continued activity softness in the first quarter of 2024 due to lower energy prices, particularly in natural gas, and operators electing to defer activity to later in the year. This resulted in lower utilization of Mammoth's pressure pumping fleets, with an average of 0.6 fleets active in Q1 2024 compared to 0.9 fleets in Q4 2023. Mammoth Energy Services pumped 380 stages in Q1 2024 compared to 669 stages in the prior quarter.

Mammoth Energy Services' infrastructure services division also faced challenges in the first quarter, primarily due to experiencing less storm-related work compared to the prior year. Revenue in the infrastructure segment declined sequentially from $27.2 million in Q4 2023 to $25.0 million in Q1 2024. However, Mammoth Energy Services is seeing an uptick in bidding opportunities related to engineering, fiber, and transmission and distribution projects, which it believes are areas where it has differentiated and specialized capabilities.

In the natural sand proppant services division, Mammoth Energy Services sold approximately 146,000 tons of sand in Q1 2024 at an average sales price of $24.38 per ton, compared to 104,000 tons at $23.62 per ton in the prior quarter. The increase in volumes was primarily driven by stronger demand in Western Canada.

Outlook

Despite the challenges faced in the first quarter, Mammoth Energy Services remains optimistic about the outlook for the remainder of 2024. Mammoth Energy Services is seeing indications of increased activity levels in the back half of the year in anticipation of higher natural gas demand, and it intends to be strategically positioned to capitalize on this anticipated demand. Mammoth Energy Services has also revised its 2024 capital expenditure budget down to approximately $9 million, a $6 million decrease from its previous guidance, as it continues to prudently manage its costs.

Liquidity

Mammoth Energy Services entered the second quarter of 2024 with $22 million in cash and total liquidity of approximately $43 million. Mammoth Energy Services also recently refinanced its debt, entering into a new $75 million revolving credit facility and a $45 million term loan facility. These actions have strengthened Mammoth Energy Services' balance sheet and positioned the company well to navigate the current market environment.

Risks and Challenges

Regarding Mammoth Energy Services' ongoing dispute with the Puerto Rico Electric Power Authority (PREPA), Mammoth Energy Services has continued to make progress in its efforts to collect the outstanding amounts owed. In 2023, an aggregate of $99 million was approved by FEMA for reimbursement to Mammoth's subsidiary, Cobra, for services performed, of which approximately $22.2 million was paid by PREPA in 2023. Additionally, in early 2024, PREPA paid Mammoth Energy Services a total of $64 million, of which $54.4 million was used to fully extinguish the company's obligations under a previous financing arrangement. As of March 31, 2024, PREPA still owes Mammoth Energy Services approximately $349 million, including $208 million in interest charges.

Mammoth Energy Services remains engaged in mediation with PREPA to resolve the remaining open disputes, and Mammoth Energy Services is prepared to litigate the disputed issues if necessary. The outcome of these proceedings could have a material impact on Mammoth Energy Services' financial condition and cash flows.

Conclusion

Looking ahead, Mammoth Energy Services expects its results to improve as the year progresses, with the first quarter serving as the low watermark for 2024. Mammoth Energy Services is encouraged by customer conversations and the anticipated ramp in demand and associated well completions activity in the second half of the year. Mammoth Energy Services' current line of sight gives it confidence that it will generate improved adjusted EBITDA results in each of the remaining quarters of 2024.

Overall, Mammoth Energy Services is navigating a challenging market environment, but Mammoth Energy Services' diversified business model, strengthened balance sheet, and strategic positioning in key growth areas, such as infrastructure services, provide a foundation for potential improvement in the coming quarters. Investors will want to closely monitor Mammoth Energy Services' progress in resolving the PREPA dispute, as well as its ability to capitalize on the anticipated recovery in well completion and natural sand proppant demand.

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