Business Overview and History

Mammoth Energy Services, Inc. (NASDAQ:TUSK) is an integrated, growth-oriented energy services company serving both the oil and gas and the electric utility industries in North America and US territories. The company's suite of services includes well completion services, infrastructure services, natural sand proppant services, drilling services, and other services such as aviation, equipment rentals, remote accommodations, and equipment manufacturing.

Mammoth Energy was incorporated in Delaware in June 2016. The company's operations are concentrated in North America, with a focus on the Permian Basin, Utica Shale, Eagle Ford Shale, Marcellus Shale, Granite Wash, SCOOP, STACK, Cana-Woodford Shale, Cleveland Sand, and the oil sands in Northern Alberta, Canada for its oil and natural gas businesses. On the infrastructure services side, the company operates primarily in the northeastern, southwestern, midwestern, and western portions of the United States.

Mammoth's well completion services division provides hydraulic fracturing, sand hauling, and water transfer services. The infrastructure services division offers 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 primarily for hydraulic fracturing in the oil and gas industry. 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 core business segments, Mammoth also provides aviation services, equipment rentals, remote accommodations, and equipment manufacturing. The company's complementary suite of services provides it with the opportunity to cross-sell its offerings and expand its customer base and geographic positioning.

In October 2017, Mammoth's subsidiary Cobra Acquisitions LLC entered into an emergency master services agreement with the Puerto Rico Electric Power Authority (PREPA) to perform repairs to PREPA's electrical grid as a result of Hurricane Maria. This led to a multi-year engagement between Cobra and PREPA that faced significant challenges, including PREPA's bankruptcy proceedings and disputes over payments owed to Cobra.

In 2019, Mammoth temporarily shut down certain oilfield service offerings, idled facilities, and reduced its workforce across operations in response to market conditions and reduced demand. The company continued to monitor the market to determine if and when it could recommence these services and operations and increase its workforce.

Financial Overview

Mammoth Energy's financial performance has been mixed in recent years, reflecting the cyclical nature of the industries it serves. In 2023, the company reported total revenue of 309.49 million, a decrease from 362.09 million in 2022. Net income in 2023 was a loss of 3.16 million, compared to a loss of 619,000 in 2022. The company's operating cash flow for 2023 was 31.39 million, with free cash flow of 11.99 million.

For the most recent quarter (Q3 2024), Mammoth reported revenue of 40.02 million, a 22% sequential decline primarily due to continued activity softness in the natural gas basins impacting the well completion services division. The company posted a net loss of 24.04 million for the quarter, with operating cash flow of -1.23 million and free cash flow of -3.13 million.

The company's key financial ratios paint a mixed picture. As of the latest quarterly report, Mammoth's current ratio stood at 2.25, with a quick ratio of 2.13, indicating a strong ability to meet short-term obligations. The company's debt-to-equity ratio is 0.18, suggesting a relatively low reliance on debt financing. The company's return on assets and return on equity were -0.45 and -0.54, respectively, in the latest quarter, reflecting the challenges the business has faced.

Financials

Mammoth's liquidity position has improved significantly following the recent settlement agreement with PREPA. As of the latest quarter, the company had 4.17 million in cash and cash equivalents, with an additional 13.7 million in available borrowing capacity under its new 75 million revolving credit facility, which is currently undrawn. Subsequent to the quarter-end, Mammoth received 168.4 million in settlement proceeds from PREPA, which it used to pay off its 50.9 million term credit facility, leaving the company debt-free as of the date of this report. The company now has approximately 86 million in cash, excluding 21 million in restricted cash.

Liquidity

Mammoth's improved liquidity position and debt-free status following the PREPA settlement provide the company with greater flexibility to invest in its core operations and explore strategic growth opportunities. The company's management team is committed to prudent capital allocation and operational efficiency as it works to strengthen Mammoth's competitive positioning and drive long-term value for its shareholders.

Operational Highlights and Challenges

Mammoth's well completion services division has faced persistent challenges in recent quarters due to softness in the natural gas basins where the company operates. Throughout 2023 and the first three quarters of 2024, the division experienced a decline in utilization and reduced demand for its pressure pumping services. In response, the company temporarily shut down certain service offerings, including cementing, acidizing, and coil tubing operations.

In the third quarter of 2024, the well completion services division generated revenue of 2.2 million, a significant decrease of 89% from 20.3 million in the prior-year period. The division's operating loss for the quarter was 8.96 million, reflecting the impact of the industry-wide slowdown. However, the company has recently activated one pressure pumping fleet and expects to activate a second fleet in the coming weeks, signaling a potential rebound in activity.

The company's infrastructure services division, on the other hand, has been a relative bright spot, generating revenue of 26 million in the third quarter of 2024, down 3% from 31.4 million in the prior-year quarter. The division's performance was impacted by a decline in average crew count from 81 in the third quarter of 2023 to 77 in the third quarter of 2024. Despite the year-over-year decrease, the company remains encouraged by the growing bidding opportunities related to engineering, fiber, transmission, and distribution projects.

The natural sand proppant services division also experienced a decline in the third quarter, with revenue of 4.9 million, down 54% from 10.6 million in the prior-year period. The division sold approximately 163,000 tons of sand at an average price of 22.89 per ton, compared to 352,280 tons at 30.18 per ton in the third quarter of 2023. The company's drilling services division saw revenue decline by 30% to 1.6 million in the third quarter, down from 2.3 million in the prior-year period, due to decreased utilization for its directional drilling business.

The company's other services segment, which includes aviation services, equipment rentals, remote accommodations, and equipment manufacturing, showed some resilience with a 17% year-over-year increase in revenue to 7.0 million for the third quarter of 2024. This growth was primarily driven by increased utilization in the remote accommodations and equipment rental businesses.

Settlement Agreement with PREPA and its Impact

One of the most significant events in Mammoth's recent history was the settlement agreement reached with the Puerto Rico Electric Power Authority (PREPA) in July 2024. This agreement resolved all outstanding matters between the company's Cobra subsidiary and PREPA, which had been a significant source of challenges for Mammoth.

Under the terms of the settlement, Cobra was allowed an administrative expense claim against PREPA of 170 million, plus an additional 18.4 million in FEMA funds that PREPA had been holding. The settlement was approved by the U.S. District Court for the District of Puerto Rico in September 2024, and Cobra has since received the first two installment payments totaling 168.4 million. The final 20 million installment is expected upon confirmation of PREPA's plan of adjustment.

The settlement agreement was a major milestone for Mammoth, as it allowed the company to eliminate the substantial uncertainty and risk associated with its outstanding receivables from PREPA. The company used a portion of the settlement proceeds to pay off its 50.9 million term credit facility, leaving Mammoth debt-free as of the date of this report.

With the PREPA matter resolved, Mammoth is now positioned to focus on strengthening its core business segments and pursuing strategic growth initiatives. The company plans to invest the remaining settlement proceeds, estimated at 137.5 million after the final 20 million installment is received, to upgrade its equipment, add scale, and expand its capabilities, particularly in the infrastructure services and well completion services divisions.

Outlook and Growth Strategies

Looking ahead, Mammoth remains cautiously optimistic about the trajectory of its business. While the well completion services division is expected to remain challenged in the near term, the company anticipates a rebound in activity in the second half of 2025 as several macroeconomic tailwinds, such as increased natural gas demand, are expected to materialize.

To capitalize on this anticipated demand, Mammoth plans to invest in upgrading its pressure pumping equipment with more efficient Tier 4 dual-fuel technology over the next 8-10 months. The company believes these investments will better position it to serve its customers as the market improves.

In the infrastructure services division, Mammoth is seeing an uptick in bidding opportunities related to engineering, fiber, transmission, and distribution projects. The company has allocated additional capital for investments in this segment, including the purchase and lease of various equipment to support its growing customer demand. The release of infrastructure investment and job tax funds is expected to provide a tailwind for this business. Mammoth's engineering group has also been a bright spot, securing a strong backlog of business that is expected to drive growth in the coming quarters.

The company's natural sand proppant services and drilling services divisions continue to face headwinds, but Mammoth remains focused on aligning its cost structure and capital expenditures with the current market conditions in these segments.

Mammoth has increased its 2024 capital expenditure guidance from the previously announced 12 million to 23 million, with the incremental spend focused on investments in the infrastructure and well completion services divisions to upgrade equipment, add scale, and grow capabilities.

Overall, Mammoth's improved liquidity position and debt-free status following the PREPA settlement provide the company with greater flexibility to invest in its core operations and explore strategic growth opportunities. The company's management team is committed to prudent capital allocation and operational efficiency as it works to strengthen Mammoth's competitive positioning and drive long-term value for its shareholders.

Risks and Challenges

While Mammoth's outlook appears cautiously optimistic, the company faces several risks and challenges that investors should consider:

1. Cyclical nature of the oil and gas and energy infrastructure industries: Mammoth's business is heavily dependent on the level of activity and spending in the oil and gas and energy infrastructure sectors, which are inherently cyclical and subject to significant volatility.

2. Dependence on a limited number of key customers: A significant portion of Mammoth's revenue is derived from a limited number of large customers, which exposes the company to concentration risk.

3. Regulatory and environmental risks: Mammoth's operations are subject to various federal, state, and local laws and regulations related to environmental protection, worker safety, and other matters, which could lead to increased costs or operational disruptions.

4. Potential for further industry consolidation: The oil and gas and energy infrastructure services industries have experienced significant consolidation in recent years, which could lead to increased competition and pricing pressures for Mammoth.

5. Ongoing litigation and legal proceedings: Mammoth is involved in various legal proceedings, including the ongoing litigation related to its dealings with PREPA, which could result in significant financial liabilities or operational disruptions.

Despite these risks, Mammoth's management team has demonstrated its ability to navigate challenging market conditions and position the company for long-term growth. The company's diversified service offerings, strategic investments, and improved financial flexibility provide reasons for cautious optimism about Mammoth's future prospects.

Conclusion

Mammoth Energy Services has faced its fair share of challenges in recent years, particularly related to its dealings with PREPA and the cyclical nature of the industries it serves. However, the company's recent settlement with PREPA and its debt-free status have provided it with a stronger foundation to focus on strengthening its core business segments and pursuing strategic growth initiatives.

While the well completion services division continues to grapple with softness in the natural gas basins, Mammoth's infrastructure services division has shown resilience, and the company is making strategic investments to capitalize on the growing opportunities in this market. The company's improved liquidity position and commitment to prudent capital allocation and operational efficiency are positive signs for its long-term prospects.

Investors should closely monitor Mammoth's progress as it navigates the challenges and opportunities ahead. The company's ability to effectively execute its growth strategies, manage its risks, and adapt to the evolving market conditions will be critical in determining its future success. With a diversified service offering, a strengthened balance sheet, and a seasoned management team, Mammoth appears positioned to weather the current industry headwinds and emerge as a stronger, more resilient energy services provider.