8-K: Mammoth Energy Services Reports Mixed Q2 Results Amidst PREPA Settlement

Mammoth Energy Services announced its second quarter 2024 results, showing revenue growth but a significant net loss due to a settlement with the Puerto Rico Electric Power Authority (PREPA).

Summary

• Mammoth Energy Services reported a total revenue of $51.5 million for the second quarter of 2024, up from $43.2 million in the first quarter.
• The company experienced a net loss of $156.0 million, or $3.25 loss per diluted share, compared to a net loss of $11.8 million, or $0.25 loss per diluted share, in the previous quarter.
• Adjusted EBITDA was negative $160.7 million for the second quarter, a significant drop from $4.5 million in the first quarter, primarily due to a $170.7 million expense related to the PREPA settlement.
• Excluding the PREPA settlement expense, adjusted EBITDA would have been negative $0.3 million for the second quarter, compared to negative $6.0 million in the first quarter.
• The company expects to receive $188.4 million in total settlement proceeds from PREPA.
• Mammoth plans to use a portion of the settlement proceeds, approximately $49.3 million, to pay off its term credit facility.
• The remaining $139.1 million will be used for business investments and general corporate purposes.
• Well completion services revenue was $10.0 million on 292 stages, compared to $8.3 million on 380 stages in the first quarter.
• Infrastructure services revenue increased to $31.4 million from $25.0 million in the first quarter.
• Natural sand proppant services revenue was $4.7 million, compared to $4.3 million in the first quarter, with 141,000 tons of sand sold at an average price of $22.73 per ton.
• Selling, general, and administrative expenses were $97.5 million, including $89.2 million in credit loss charges related to the PREPA settlement, compared to $8.8 million in the first quarter.
• As of June 30, 2024, Mammoth had $10.3 million in cash on hand and total liquidity of $24.6 million.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the significant net loss and negative adjusted EBITDA, despite some positive aspects like revenue growth and the PREPA settlement. The company faces significant challenges and risks.

Positives

• Total revenue increased sequentially from the first quarter of 2024.
• Infrastructure services showed growth both sequentially and year-over-year.
• The company has an undrawn revolver and cash on the balance sheet.
• The settlement with PREPA is expected to provide $188.4 million in proceeds.
• A portion of the settlement proceeds will be used to pay off the term credit facility, reducing debt.
• The company anticipates improved market fundamentals in 2025.

Negatives

• The company reported a significant net loss of $156.0 million for the second quarter of 2024.
• Adjusted EBITDA was negative $160.7 million for the second quarter of 2024.
• The well completion services division experienced a decrease in fleet utilization.
• Selling, general, and administrative expenses were significantly higher due to the PREPA settlement.
• The company's financial results were negatively impacted by industry activity softness, particularly in natural gas basins.

Risks

• The company faces continued challenges due to industry activity softness, especially in natural gas basins.
• There is a risk of delays in receiving the Title III Court approval relating to the settlement agreement between Cobra, PREPA and the Financial Oversight and Management Board for Puerto Rico.
• The company's financial performance is subject to the volatility of oil and natural gas prices.
• The company is exposed to risks related to economic conditions, including concerns over a potential economic slowdown or recession.
• The company's operations are subject to operating risks, weather, and natural disasters.

Future Outlook

Mammoth anticipates improved market fundamentals in 2025 and plans to use the PREPA settlement proceeds to strengthen its financial position and invest in the business.

Management Comments

• Arty Straehla, Chief Executive Officer of Mammoth, stated that they are pleased to report sequential improvement in second quarter results despite industry challenges.
• Straehla noted that the Infrastructure Services business continues to perform well and is demonstrating growth.
• Management is focused on efficient and effective cost management to align with customer activity levels.
• Straehla believes Mammoth will be better positioned to capitalize on improved market fundamentals in 2025 with the anticipated collection of the PREPA receivable.

Industry Context

The results reflect the ongoing challenges in the oil and gas industry, particularly in natural gas basins, while also highlighting the resilience and growth potential in infrastructure services. The PREPA settlement is a significant event that will impact the company's financial position and future strategy.

Comparison to Industry Standards

• The significant net loss and negative adjusted EBITDA are concerning compared to industry peers, especially those not facing similar one-off settlement expenses.
• Companies like Halliburton and Schlumberger, while also experiencing market fluctuations, generally report more stable financial results due to their diversified service offerings and global presence.
• The growth in Mammoth's infrastructure services is a positive sign, but it needs to be sustained and expanded to offset the volatility in the well completion services sector.
• The PREPA settlement, while providing a cash infusion, also highlights the risks associated with large, complex contracts and the potential for significant financial impacts from disputes.

Legal Proceedings

• The company settled all outstanding matters between its subsidiary Cobra and the Puerto Rico Electric Power Authority (PREPA).

Stakeholder Impact

• Shareholders will be impacted by the significant net loss and the resulting decrease in earnings per share.
• Employees may be affected by cost management measures and potential changes in operational focus.
• Customers may see changes in service offerings and pricing as the company adjusts to market conditions.
• Suppliers may be impacted by changes in the company's purchasing patterns.
• Creditors will be impacted by the company's debt repayment plans and overall financial health.

Next Steps

• Mammoth plans to receive the $188.4 million settlement proceeds from PREPA.
• The company will use a portion of the settlement to pay off its term credit facility.
• The remaining settlement funds will be used for business investments and general corporate purposes.
• Mammoth will continue to focus on cost management and aligning with customer activity levels.
• The company will monitor market conditions and look to capitalize on improved market fundamentals in 2025.

Key Dates

Keywords

Mammoth Energy Services, PREPA, settlement, EBITDA, revenue, net loss, infrastructure services, well completion services, oilfield services, natural gas, liquidity