MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
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ASSETS
|
|
March 31,
|
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December 31,
|
|
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2020
|
|
2019
|
CURRENT ASSETS
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
13,180
|
|
|
$
|
5,872
|
|
Accounts receivable, net
|
|
371,755
|
|
|
363,053
|
|
Receivables from related parties
|
|
17,790
|
|
|
7,523
|
|
Inventories
|
|
13,193
|
|
|
17,483
|
|
Prepaid expenses
|
|
8,250
|
|
|
12,354
|
|
Other current assets
|
|
866
|
|
|
695
|
|
Total current assets
|
|
425,034
|
|
|
406,980
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
316,068
|
|
|
352,772
|
|
Sand reserves
|
|
68,351
|
|
|
68,351
|
|
Operating lease right-of-use assets
|
|
38,838
|
|
|
43,446
|
|
Intangible assets, net - customer relationships
|
|
540
|
|
|
583
|
|
Intangible assets, net - trade names
|
|
4,996
|
|
|
5,205
|
|
Goodwill
|
|
12,608
|
|
|
67,581
|
|
|
|
|
|
|
Other non-current assets
|
|
7,576
|
|
|
7,467
|
|
Total assets
|
|
$
|
874,011
|
|
|
$
|
952,385
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
Accounts payable
|
|
$
|
42,993
|
|
|
$
|
39,220
|
|
Payables to related parties
|
|
82
|
|
|
526
|
|
Accrued expenses and other current liabilities
|
|
39,727
|
|
|
40,754
|
|
Current operating lease liability
|
|
15,484
|
|
|
16,432
|
|
Income taxes payable
|
|
28,699
|
|
|
33,465
|
|
Total current liabilities
|
|
126,985
|
|
|
130,397
|
|
|
|
|
|
|
Long-term debt
|
|
88,350
|
|
|
80,000
|
|
Deferred income tax liabilities
|
|
41,873
|
|
|
36,873
|
|
Long-term operating lease liability
|
|
23,236
|
|
|
27,102
|
|
Asset retirement obligations
|
|
4,586
|
|
|
4,241
|
|
Other liabilities
|
|
4,573
|
|
|
5,031
|
|
Total liabilities
|
|
289,603
|
|
|
283,644
|
|
|
|
|
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COMMITMENTS AND CONTINGENCIES (Note 18)
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EQUITY
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Equity:
|
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Common stock, $0.01 par value, 200,000,000 shares authorized, 45,713,563 and 45,108,545 issued and outstanding at March 31, 2020 and December 31, 2019
|
|
457
|
|
|
451
|
|
Additional paid in capital
|
|
536,140
|
|
|
535,094
|
|
Retained earnings
|
|
52,531
|
|
|
136,502
|
|
Accumulated other comprehensive loss
|
|
(4,720)
|
|
|
(3,306)
|
|
Total equity
|
|
584,408
|
|
|
668,741
|
|
Total liabilities and equity
|
|
$
|
874,011
|
|
|
$
|
952,385
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited)
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Three Months Ended March 31,
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2020
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2019
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REVENUE
|
(in thousands, except per share amounts)
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|
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|
|
|
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Services revenue
|
$
|
68,845
|
|
|
$
|
193,101
|
|
|
|
|
|
Services revenue - related parties
|
18,013
|
|
|
44,073
|
|
|
|
|
|
Product revenue
|
8,650
|
|
|
12,309
|
|
|
|
|
|
Product revenue - related parties
|
1,875
|
|
|
12,655
|
|
|
|
|
|
Total revenue
|
97,383
|
|
|
262,138
|
|
|
|
|
|
|
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COST AND EXPENSES
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Services cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $23,554 and $25,682, respectively, for the three months ended March 31, 2020 and 2019)
|
70,697
|
|
|
158,106
|
|
|
|
|
|
Services cost of revenue - related parties (exclusive of depreciation, depletion, amortization and accretion of $0 and $0, respectively, for the three months ended March 31, 2020 and 2019)
|
101
|
|
|
713
|
|
|
|
|
|
Product cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $2,309 and $2,871, respectively, for the three months ended March 31, 2020 and 2019)
|
11,108
|
|
|
30,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative (Note 11)
|
10,556
|
|
|
16,902
|
|
|
|
|
|
Selling, general and administrative - related parties (Note 11)
|
215
|
|
|
434
|
|
|
|
|
|
Depreciation, depletion, amortization and accretion
|
25,882
|
|
|
28,576
|
|
|
|
|
|
Impairment of goodwill
|
54,973
|
|
|
—
|
|
|
|
|
|
Impairment of other long-lived assets
|
12,897
|
|
|
—
|
|
|
|
|
|
Total cost and expenses
|
186,429
|
|
|
234,982
|
|
|
|
|
|
Operating (loss) income
|
(89,046)
|
|
|
27,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
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|
|
|
|
|
|
|
Interest expense, net
|
(1,638)
|
|
|
(523)
|
|
|
|
|
|
Other, net
|
7,409
|
|
|
24,557
|
|
|
|
|
|
Total other income (expense)
|
5,771
|
|
|
24,034
|
|
|
|
|
|
(Loss) income before income taxes
|
(83,275)
|
|
|
51,190
|
|
|
|
|
|
(Benefit) provision for income taxes
|
696
|
|
|
22,857
|
|
|
|
|
|
Net (loss) income
|
$
|
(83,971)
|
|
|
$
|
28,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of tax of $361 and ($90), respectively, for the three months ended March 31, 2020 and 2019
|
(1,414)
|
|
|
356
|
|
|
|
|
|
Comprehensive (loss) income
|
$
|
(85,385)
|
|
|
$
|
28,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share (basic) (Note 14)
|
$
|
(1.85)
|
|
|
$
|
0.63
|
|
|
|
|
|
Net (loss) income per share (diluted) (Note 14)
|
$
|
(1.85)
|
|
|
$
|
0.63
|
|
|
|
|
|
Weighted average number of shares outstanding (basic) (Note 14)
|
45,314
|
|
|
44,929
|
|
|
|
|
|
Weighted average number of shares outstanding (diluted) (Note 14)
|
45,314
|
|
|
45,063
|
|
|
|
|
|
Dividends declared per share
|
$
|
—
|
|
|
$
|
0.125
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)
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|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Additional
|
Other
|
|
|
Common Stock
|
|
Retained
|
Paid-In
|
Comprehensive
|
|
|
Shares
|
Amount
|
Earnings
|
Capital
|
Loss
|
Total
|
|
(in thousands)
|
|
|
|
|
|
Balance at December 31, 2019
|
45,109
|
|
$
|
451
|
|
$
|
136,502
|
|
$
|
535,094
|
|
$
|
(3,306)
|
|
$
|
668,741
|
|
Stock based compensation
|
605
|
|
6
|
|
—
|
|
1,046
|
|
—
|
|
1,052
|
|
Net loss
|
—
|
|
—
|
|
(83,971)
|
|
—
|
|
—
|
|
(83,971)
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,414)
|
|
(1,414)
|
|
Balance at March 31, 2020
|
45,714
|
|
$
|
457
|
|
$
|
52,531
|
|
$
|
536,140
|
|
$
|
(4,720)
|
|
$
|
584,408
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Additional
|
Other
|
|
|
Common Stock
|
|
Retained
|
Paid-In
|
Comprehensive
|
|
|
Shares
|
Amount
|
Earnings
|
Capital
|
Loss
|
Total
|
|
(in thousands)
|
|
|
|
|
|
Balance at December 31, 2018
|
44,877
|
|
$
|
449
|
|
$
|
226,765
|
|
$
|
530,919
|
|
$
|
(4,081)
|
|
$
|
754,052
|
|
Stock based compensation
|
—
|
|
—
|
|
—
|
|
1,289
|
|
—
|
|
1,289
|
|
Net income
|
—
|
|
—
|
|
28,333
|
|
—
|
|
—
|
|
28,333
|
|
Cash dividends paid ($0.125 per share)
|
—
|
|
—
|
|
(5,610)
|
|
—
|
|
—
|
|
(5,610)
|
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
356
|
|
356
|
|
Balance at March 31, 2019
|
44,877
|
|
$
|
449
|
|
$
|
249,488
|
|
$
|
532,208
|
|
$
|
(3,725)
|
|
$
|
778,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
(in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
Net (loss) income
|
$
|
(83,971)
|
|
|
$
|
28,333
|
|
Adjustments to reconcile net (loss) income to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
Stock based compensation
|
1,049
|
|
|
1,289
|
|
Depreciation, depletion, accretion and amortization
|
25,882
|
|
|
28,576
|
|
Amortization of coil tubing strings
|
237
|
|
|
535
|
|
Amortization of debt origination costs
|
452
|
|
|
82
|
|
Bad debt expense
|
55
|
|
|
4
|
|
(Gain) loss on disposal of property and equipment
|
(673)
|
|
|
94
|
|
Impairment of goodwill
|
54,973
|
|
|
—
|
|
Impairment of other long-lived assets
|
12,897
|
|
|
—
|
|
|
|
|
|
Deferred income taxes
|
5,361
|
|
|
(15,476)
|
|
Other
|
432
|
|
|
41
|
|
Changes in assets and liabilities, net of acquisitions of businesses:
|
|
|
|
Accounts receivable, net
|
(8,569)
|
|
|
(67,093)
|
|
Receivables from related parties
|
(10,267)
|
|
|
(33,868)
|
|
Inventories
|
4,053
|
|
|
1,854
|
|
Prepaid expenses and other assets
|
3,929
|
|
|
2,389
|
|
Accounts payable
|
2,078
|
|
|
(353)
|
|
Payables to related parties
|
(444)
|
|
|
239
|
|
Accrued expenses and other liabilities
|
(1,220)
|
|
|
(4,956)
|
|
Income taxes payable
|
(4,713)
|
|
|
(44,684)
|
|
Net cash provided by (used in) operating activities
|
1,541
|
|
|
(102,994)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchases of property and equipment
|
(1,424)
|
|
|
(20,273)
|
|
Purchases of property and equipment from related parties
|
(76)
|
|
|
—
|
|
|
|
|
|
Contributions to equity investee
|
—
|
|
|
(480)
|
|
Proceeds from disposal of property and equipment
|
558
|
|
|
1,500
|
|
|
|
|
|
Net cash used in investing activities
|
(942)
|
|
|
(19,253)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Borrowings from lines of credit
|
17,300
|
|
|
82,000
|
|
Repayments of lines of credit
|
(8,950)
|
|
|
—
|
|
Principal payments on financing leases and equipment financing notes
|
(452)
|
|
|
(457)
|
|
Dividends paid
|
—
|
|
|
(5,610)
|
|
Debt issuance costs
|
(1,000)
|
|
|
—
|
|
Net cash provided by financing activities
|
6,898
|
|
|
75,933
|
|
Effect of foreign exchange rate on cash
|
(189)
|
|
|
32
|
|
Net change in cash and cash equivalents
|
7,308
|
|
|
(46,282)
|
|
Cash and cash equivalents at beginning of period
|
5,872
|
|
|
67,625
|
|
Cash and cash equivalents at end of period
|
$
|
13,180
|
|
|
$
|
21,343
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
1,285
|
|
|
$
|
294
|
|
Cash paid for income taxes
|
$
|
62
|
|
|
$
|
91,955
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
Purchases of property and equipment included in accounts payable and accrued expenses
|
$
|
4,347
|
|
|
$
|
5,016
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Business
Mammoth Energy Services, Inc. (“Mammoth Inc.” 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 and US territories. Mammoth Inc.'s infrastructure division provides 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 pressure pumping, natural sand and proppant services and drilling services as well as coil tubing, equipment rental, full service transportation, crude oil hauling and remote accommodation services.
The Company was incorporated in Delaware in June 2016 as a wholly-owned subsidiary of Mammoth Energy Partners LP, a Delaware limited partnership (the “Partnership” or the “Predecessor”). The Partnership was originally formed by Wexford Capital LP (“Wexford”) in February 2014 as a holding company under the name Redback Energy Services Inc. and was converted to a Delaware limited partnership in August 2014. On November 24, 2014, Mammoth Energy Holdings LLC (“Mammoth Holdings,” an entity controlled by Wexford), Gulfport Energy Corporation (“Gulfport”) and Rhino Resource Partners LP (“Rhino”) contributed their interest in certain of the entities presented below to the Partnership in exchange for an aggregate of 20 million limited partner units. Mammoth Energy Partners GP, LLC (the “General Partner”) held a non-economic general partner interest.
On October 12, 2016, the Partnership was converted into a Delaware limited liability company named Mammoth Energy Partners LLC (“Mammoth LLC”), and then Mammoth Holdings, Gulfport and Rhino, as all the members of Mammoth LLC, contributed their member interests in Mammoth LLC to Mammoth Inc. Prior to the conversion and the contribution, Mammoth Inc. was a wholly-owned subsidiary of the Partnership. Following the conversion and the contribution, Mammoth LLC (as the converted successor to the Partnership) was a wholly-owned subsidiary of Mammoth Inc. Mammoth Inc. did not conduct any material business operations until Mammoth LLC was contributed to it. On October 19, 2016, Mammoth Inc. closed its initial public offering of 7,750,000 shares of common stock (the “IPO”), which included an aggregate of 250,000 shares that were offered by Mammoth Holdings, Gulfport and Rhino, at a price to the public of $15.00 per share.
At March 31, 2020 and December 31, 2019, Wexford and Gulfport beneficially owned the following shares of outstanding common stock of Mammoth Inc.:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2020
|
|
|
|
At December 31, 2019
|
|
|
|
|
Share Count
|
|
% Ownership
|
|
Share Count
|
|
% Ownership
|
Wexford
|
|
22,045,273
|
|
|
48.2
|
%
|
|
22,045,273
|
|
|
48.9
|
%
|
Gulfport
|
|
9,829,548
|
|
|
21.5
|
%
|
|
9,829,548
|
|
|
21.8
|
%
|
|
|
|
|
|
|
|
|
|
Outstanding shares owned by related parties
|
|
31,874,821
|
|
|
69.7
|
%
|
|
31,874,821
|
|
|
70.7
|
%
|
Total outstanding
|
|
45,713,563
|
|
|
100.0
|
%
|
|
45,108,545
|
|
|
100.0
|
%
|
Operations
The Company's infrastructure services include 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 pressure pumping 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 coil tubing, equipment rentals, crude oil hauling, full service transportation, remote accommodations, oilfield equipment manufacturing and infrastructure engineering and design services.
All of the Company’s operations are in North America. During certain of the periods presented in this report, the Company provided its infrastructure services primarily in the northeast, southwest and midwest portions of the United States and in Puerto Rico. 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
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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. Basis of Presentation and Significant Accounting Policies
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. 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.
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 certain of the periods presented, 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 months ended March 31, 2020 and 2019, the Company charged interest on delinquent accounts receivable pursuant to the terms of its agreements with PREPA totaling $7.7 million and $25.7 million, respectively. These amounts are included in “other, net” on the unaudited condensed consolidated statement of comprehensive (loss) income. Included in “accounts receivable, net” on the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were interest charges of $49.7 million and $42.0 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 uncollectability.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a roll forward of the allowance for doubtful accounts for the year ended December 31, 2019 and the three months ended March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
$
|
5,198
|
|
Additions charged to bad debt expense
|
|
1,771
|
|
Recoveries of receivables previously charged to bad debt expense
|
|
(337)
|
|
Deductions for uncollectible receivables written off
|
|
(1,478)
|
|
Balance, December 31, 2019
|
|
5,154
|
|
Additions charged to bad debt expense
|
|
525
|
|
Recoveries of receivables previously charged to bad debt expense
|
|
(470)
|
|
Deductions for uncollectible receivables written off
|
|
(220)
|
|
Balance, March 31, 2020
|
|
$
|
4,989
|
|
The Company recorded additions to allowance for doubtful accounts totaling $0.5 million and $1.8 million, respectively, for the three months ended March 31, 2020 and year ended December 31, 2019 based on the factors described above. The Company will continue to pursue collection until such time as final determination is made consistent with Company policy.
As of March 31, 2020, PREPA owed Cobra approximately $227.0 million for services performed, excluding $49.7 million of interest charged on these delinquent balances as of March 31, 2020. The Company believes these receivables are 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 the Federal Emergency Management Agency 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. PREPA filed a motion to stay Cobra's motion on the ground that the ongoing criminal proceedings described in Note 18 below against the former president of Cobra and two other individuals may affect the recovery of those amounts. On October 17, 2019, the court granted PREPA’s request to stay Cobra's motion and, on February 3, 2020, extended the stay until an omnibus hearing to be held in June 2020. On March 25, 2020, Cobra filed an urgent motion to modify the stay order and allow the undisputed tax claims. Pursuant to its urgent motion, Cobra seeks to recover approximately $61.7 million in undisputed 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. On April 7, 2020, PREPA filed a response brief to Cobra’s urgent motion, and Cobra filed its reply brief on April 14, 2020. A ruling on Cobra’s urgent motion is pending. 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.
Concentrations 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. Following is a summary of our significant customers based on percentages of total accounts receivable balances at March 31, 2020 and December 31, 2019 and percentages of total revenues derived for the three months ended March 31, 2020 and 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
ACCOUNTS RECEIVABLE
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
At March 31,
|
At December 31,
|
|
2020
|
2019
|
|
|
|
|
2020
|
2019
|
Customer A(a)
|
—
|
%
|
33
|
%
|
|
|
|
|
71
|
%
|
73
|
%
|
Customer B(b)
|
20
|
%
|
21
|
%
|
|
|
|
|
5
|
%
|
2
|
%
|
Customer C(c)
|
14
|
%
|
1
|
%
|
|
|
|
|
2
|
%
|
2
|
%
|
Customer D(d)
|
10
|
%
|
3
|
%
|
|
|
|
|
3
|
%
|
3
|
%
|
Customer E(e)
|
—
|
%
|
14
|
%
|
|
|
|
|
—
|
%
|
—
|
%
|
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.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
b.Customer B is a related party customer. Revenues and the related accounts receivable balances earned from Customer B were derived from the Company's pressure pumping services segment, natural sand proppant services segment and other businesses.
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 pressure pumping services segment and equipment rental business.
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 is a related party customer. Revenues and the related accounts receivable balances earned from Customer E were derived from the Company's pressure pumping segment and equipment rental business.
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.
New Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which amends current guidance on reporting credit losses on financial instruments. This ASU requires entities to reflect its current estimate of all expected credit losses. The guidance affects most financial assets, including trade accounts receivable. This ASU is effective for fiscal years beginning after December 31, 2019, with early adoption permitted. The Company adopted this standard effective January 1, 2020. It did not have a material impact on the Company's condensed consolidated financial statements.
3. Revenue
The Company's primary revenue streams include infrastructure services, pressure pumping services, natural sand proppant services, drilling services and other services, which includes coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, full service transportation, crude oil hauling, remote accommodations, oilfield equipment manufacturing and infrastructure engineering and design services. See Note 19 for the Company's revenue disaggregated by type.
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.
Pressure Pumping Services
Pressure pumping 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 pressure pumping 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.
Pursuant to a contract with one of its customers, the Company has agreed to provide that customer with use of up to two pressure pumping fleets for the period covered by the contract. Under this agreement, performance obligations are satisfied as services are rendered based on the passage of time rather than the completion of each segment of work. The Company has the right to receive consideration from this customer even if circumstances prevent us from performing work. All consideration owed to the Company for services performed during the contractual period is fixed and the right
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
to receive it is unconditional. This customer has filed a legal action in Delaware state court seeking the termination of this contract and monetary damages. During the three months ended March 31, 2020, the Company generated $17.8 million in revenues under the contract from this customer. This customer made payments of $6.8 million to the Company during the three months ended March 31, 2020 related to revenue recognized for services in 2019 prior to the alleged termination date, and owed the Company $17.0 million as of March 31, 2020 under the contract. The revenue recognized and related accounts receivable balance owed to the Company are reflected in “services revenue—related parties” and “accounts receivable—related parties” on the accompanying unaudited condensed consolidated statement of comprehensive (loss) income and unaudited condensed consolidated balance sheets. See Note 18 below.
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 and services are consumed.
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 March 31, 2020, the Company had deferred revenue totaling $8.3 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. During the three months ended March 31, 2020 and 2019, the Company recognized revenue totaling $4.9 million and $1.0 million, respectively, related to shortfall payments.
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.
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 in December 2019.
Other Services
During the periods presented, the Company also provided coil tubing, pressure control, flowback, cementing, equipment rentals, full service transportation, crude oil hauling, remote accommodations, oilfield equipment manufacturing and infrastructure engineering and design services, 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 during the third quarter of 2019. 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
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 one 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.
Contract Balances
Following is a rollforward of the Company's contract liabilities (in thousands):
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
$
|
4,304
|
|
Deduction for recognition of revenue
|
|
(4,827)
|
|
Increase for deferral of shortfall payments
|
|
8,442
|
|
Increase for deferral of customer prepayments
|
|
675
|
|
Deduction of shortfall payments due to contract renegotiations
|
|
(1,350)
|
|
Balance, December 31, 2019
|
|
7,244
|
|
Deduction for recognition of revenue
|
|
(4,915)
|
|
Increase for deferral of shortfall payments
|
|
5,873
|
|
Increase for deferral of customer prepayments
|
|
85
|
|
Balance, March 31, 2020
|
|
$
|
8,287
|
|
The Company did not have any contract assets as of March 31, 2020, December 31, 2019 or December 31, 2018.
Performance Obligations
Revenue recognized in the current period from performance obligations satisfied in previous periods was a nominal amount for the three months ended March 31, 2020 and 2019. As of March 31, 2020, the Company had unsatisfied performance obligations totaling $78.8 million, which will be recognized over the next 1.6 years.
4. Inventories
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 market (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. A summary of the Company's inventories is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Supplies
|
|
$
|
7,851
|
|
|
$
|
9,598
|
|
Raw materials
|
|
997
|
|
|
746
|
|
Work in process
|
|
3,221
|
|
|
4,608
|
|
Finished goods
|
|
1,124
|
|
|
2,531
|
|
Total inventories
|
|
$
|
13,193
|
|
|
$
|
17,483
|
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Property, Plant and Equipment
Property, plant and equipment include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
Useful Life
|
|
2020
|
|
2019
|
Pressure pumping equipment
|
3-5 years
|
|
$
|
216,813
|
|
|
$
|
216,627
|
|
Drilling rigs and related equipment
|
3-15 years
|
|
116,252
|
|
|
117,783
|
|
Machinery and equipment
|
7-20 years
|
|
184,893
|
|
|
190,221
|
|
Buildings(a)
|
15-39 years
|
|
45,352
|
|
|
47,859
|
|
Vehicles, trucks and trailers
|
5-10 years
|
|
129,700
|
|
|
135,724
|
|
Coil tubing equipment
|
4-10 years
|
|
27,462
|
|
|
29,438
|
|
Land
|
N/A
|
|
13,687
|
|
|
13,687
|
|
Land improvements
|
15 years or life of lease
|
|
10,135
|
|
|
10,135
|
|
Rail improvements
|
10-20 years
|
|
13,802
|
|
|
13,802
|
|
Other property and equipment(b)
|
3-12 years
|
|
19,054
|
|
|
18,880
|
|
|
|
|
777,150
|
|
|
794,156
|
|
Deposits on equipment and equipment in process of assembly(c)
|
|
|
4,964
|
|
|
6,627
|
|
|
|
|
782,114
|
|
|
800,783
|
|
Less: accumulated depreciation(d)
|
|
|
466,046
|
|
|
448,011
|
|
Total property, plant and equipment, net
|
|
|
$
|
316,068
|
|
|
$
|
352,772
|
|
a. Included in Buildings at March 31, 2020 and December 31, 2019 are costs of $7.6 million and $6.7 million, respectively, related to assets under operating leases.
b. Included in Other property and equipment at each of March 31, 2020 and December 31, 2019 are costs of $6.5 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 $4.2 million and $3.5 million, respectively, at March 31, 2020 and December 31, 2019 related to assets under operating leases.
Impairment
Oil prices declined significantly in March 2020 as a result of geopolitical events that increased the supply of oil in the market as well as effects of the COVID-19 pandemic. As a result, the Company determined that it was more likely than not that the fair value of certain of its oilfield services assets were less than their carrying value. Therefore, the Company performed an interim impairment test. As a result of the test, the Company recorded the following impairments to its fixed assets during the three months ended March 31, 2020 (in thousands):
|
|
|
|
|
|
Water transfer equipment
|
$
|
4,203
|
|
Crude oil hauling equipment
|
3,275
|
|
Coil tubing equipment
|
2,160
|
|
Flowback equipment
|
1,514
|
|
Rental equipment
|
1,308
|
|
Other equipment
|
437
|
|
Total impairment of other long-lived assets
|
$
|
12,897
|
|
The Company measured the fair values of these assets using significant unobservable inputs (Level 3) based on an income approach. The Company did not record any impairment of other long-lived assets during the three months ended March 31, 2019.
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 statement of cash flows. For the three months ended March 31, 2020 and
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2019, proceeds from the sale of equipment damaged or lost down-hole were $0.4 million and a nominal amount, respectively, and gains on sales of equipment damaged or lost down-hole were $0.4 million and a nominal amount, respectively.
Proceeds from assets sold or disposed of as well as the carrying value of the related equipment are reflected in “other, net” on the unaudited condensed consolidated statement of comprehensive (loss) income. For the three months ended March 31, 2020 and 2019, proceeds from the sale of equipment were $0.6 million and $1.4 million, respectively, and gains (losses) from the sale or disposal of equipment were $0.3 million and ($0.1) million, respectively.
Depreciation, depletion, amortization and accretion
A summary of depreciation, depletion, amortization and accretion expense is below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Depreciation expense
|
$
|
25,600
|
|
|
$
|
28,066
|
|
|
|
|
|
Depletion expense
|
—
|
|
|
212
|
|
|
|
|
|
Amortization expense
|
253
|
|
|
284
|
|
|
|
|
|
Accretion expense
|
29
|
|
|
14
|
|
|
|
|
|
Depreciation, depletion, amortization and accretion
|
$
|
25,882
|
|
|
$
|
28,576
|
|
|
|
|
|
6. Goodwill and Intangible Assets
Goodwill
Changes in the net carrying amount of goodwill by reporting segment (see Note 19) for the three months ended March 31, 2020 and year ended December 31, 2019 are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
|
Pressure Pumping
|
|
Sand
|
|
Other
|
|
Total
|
Balance as of January 1, 2019
|
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
3,828
|
|
|
|
$
|
86,043
|
|
|
|
$
|
2,684
|
|
|
|
$
|
11,893
|
|
|
|
$
|
104,448
|
|
Accumulated impairment losses
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,203)
|
|
|
|
(3,203)
|
|
|
3,828
|
|
|
|
86,043
|
|
|
|
2,684
|
|
|
|
8,690
|
|
|
|
101,245
|
|
Acquisitions
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairment losses
|
(434)
|
|
|
|
(23,423)
|
|
|
|
(2,684)
|
|
|
|
(7,123)
|
|
|
|
(33,664)
|
|
Balance as of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
3,828
|
|
|
|
86,043
|
|
|
|
2,684
|
|
|
|
11,893
|
|
|
|
104,448
|
|
Accumulated impairment losses
|
(434)
|
|
|
|
(23,423)
|
|
|
|
(2,684)
|
|
|
|
(10,326)
|
|
|
|
(36,867)
|
|
|
3,394
|
|
|
|
62,620
|
|
|
|
—
|
|
|
|
1,567
|
|
|
|
67,581
|
|
Acquisitions
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Impairment losses
|
—
|
|
|
|
(53,406)
|
|
|
|
—
|
|
|
|
(1,567)
|
|
|
|
(54,973)
|
|
Balance as of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
3,828
|
|
|
|
86,043
|
|
|
|
2,684
|
|
|
|
11,893
|
|
|
|
104,448
|
|
Accumulated impairment losses
|
(434)
|
|
|
|
(76,829)
|
|
|
|
(2,684)
|
|
|
|
(11,893)
|
|
|
|
(91,840)
|
|
|
$
|
3,394
|
|
|
|
$
|
9,214
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
12,608
|
|
Oil prices declined significantly in March 2020 as a result of geopolitical events that increased the supply of oil in the market as well as effects of the COVID-19 pandemic. As a result, the Company determined that it was more likely than not that the fair value of certain of its reporting units were less than their carrying value. Therefore, the Company performed an interim goodwill impairment test. The Company impaired goodwill associated with Stingray Pressure Pumping LLC (“Stingray Pressure Pumping”), Silverback Energy and WTL Oil LLC, resulting in a $55.0 million
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
impairment charge during the three months ended March 31, 2020. To determine fair value at March 31, 2020, the Company used a combination of the income and market approaches. The income approach estimates the fair value based on anticipated cash flows that are discounted using a weighted average cost of capital. The market approach estimates the fair value using comparative multiples, which involves significant judgment in the selection of the appropriate peer group companies and valuation multiples. The Company did not record any goodwill impairment charges during the three months ended March 31, 2019.
Intangible Assets
The Company had the following definite lived intangible assets recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2020
|
|
2019
|
Customer relationships
|
$
|
1,050
|
|
|
$
|
1,050
|
|
Trade names
|
9,063
|
|
|
9,063
|
|
Less: accumulated amortization - customer relationships
|
(510)
|
|
|
(467)
|
|
Less: accumulated amortization - trade names
|
(4,067)
|
|
|
(3,858)
|
|
Intangible assets, net
|
$
|
5,536
|
|
|
$
|
5,788
|
|
Amortization expense for intangible assets was $0.3 million for each of the three months ended March 31, 2020 and 2019. The original life of customer relationships ranges is 6 years as of March 31, 2020 with a remaining average useful life of 3.1 years. The original life of trade names ranges from 10 to 20 years as of March 31, 2020 with a remaining average useful life of 8.1 years.
Aggregated expected amortization expense for the future periods is expected to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
Remainder of 2020
|
|
$
|
761
|
|
2021
|
|
1,015
|
|
2022
|
|
1,015
|
|
2023
|
|
898
|
|
2024
|
|
771
|
|
Thereafter
|
|
1,076
|
|
|
|
$
|
5,536
|
|
7. Equity 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 $2.0 million. Cobra Aviation owns a 49% economic interest and Wexford Investment owns a 51% economic interest in Brim Acquisitions, and each member contributed its pro rata portion of Brim Acquisitions' initial capital of $2.0 million. Brim Acquisitions, through Brim Equipment, owns one commercial helicopter and leases five 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 $2.2 million and $2.6 million, respectively, at March 31, 2020 and December 31, 2019. The investment is included in “other non-current assets” on the unaudited condensed consolidated balance sheets. The Company recorded an equity method adjustment to its investment of $0.4 million and a nominal amount for its share of Brim Acquisitions' income for the three months ended March 31, 2020 and 2019, which is included in “other, net” on the unaudited condensed consolidated statements of comprehensive (loss) income. The Company made additional
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
investments totaling $0.5 million during the three months ended March 31, 2019. The Company did not make any additional investments during the three months ended March 31, 2020.
8. Accrued Expenses and Other Current Liabilities
Accrued expense and other current liabilities included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
State and local taxes payable
|
|
$
|
14,921
|
|
|
$
|
15,288
|
|
Deferred revenue
|
|
8,287
|
|
|
7,244
|
|
Accrued compensation, benefits and related taxes
|
|
7,088
|
|
|
5,938
|
|
Financed insurance premiums
|
|
3,748
|
|
|
6,463
|
|
Insurance reserves
|
|
2,582
|
|
|
2,906
|
|
Other
|
|
3,101
|
|
|
2,915
|
|
Total
|
|
$
|
39,727
|
|
|
$
|
40,754
|
|
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 March 31, 2020 and December 31, 2019, the applicable interest rate associated with financed insurance premiums ranged from 3.45% to 3.75%.
9. Debt
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. On November 5, 2019, the Company entered into a first amendment to the revolving credit facility to amend the interest coverage ratio definition to give accrual treatment to certain cash taxes included in the ratio calculation. As a result, certain cash tax payments that were made in 2019 were now treated as if they were made in 2018, the year in which the income related to such tax payments was actually received.
As of December 31, 2019, the revolving credit facility contained various customary affirmative and restrictive covenants. Among the covenants are two financial covenants, including a minimum interest coverage ratio (3.0 to 1.0), and a maximum leverage ratio (4.0 to 1.0). On February 26, 2020, the Company entered into a second amendment to the revolving credit facility to, among other things, (i) amend its financial covenants, as outlined below, (ii) decrease the maximum revolving advance amount from $185 million to $130 million, (iii) decrease the amount that the maximum revolving advance can be increased to (the accordion) from $350 million to $180 million, (iv) increase the applicable margin ranges from 2.00% to 2.50% per annum in the case of the alternate base rate and from 3.00% to 3.50% per annum in the case of LIBOR, (v) increase the aggregate amount of permitted asset dispositions, and (vi) permit certain sale-leaseback transactions.
The financial covenants under the revolving credit facility were amended as follows:
•the minimum interest coverage ratio of 3.0 to 1.0 was eliminated;
•the maximum leverage coverage ratio of 4.0 to 1.0 was eliminated for the first two fiscal quarters of 2020 and, beginning with the fiscal quarter ended September 30, 2020, changed to 2.5 to 1.0;
•beginning with the fiscal quarter ended September 30, 2020, a minimum fixed charge coverage ratio of at least 1.1 to 1.0 was added; and
•from the effective date of February 26, 2020 through September 30, 2020, a minimum excess availability covenant of 10% of the maximum revolving advance amount was added.
As of March 31, 2020 and December 31, 2019, the Company was in compliance with its covenants under the revolving credit facility.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 2020, there were outstanding borrowings under the revolving credit facility of $88.4 million and $19.4 million of available borrowing capacity. This available borrowing capacity reflects (i) a minimum excess availability covenant of 10% of the maximum revolving advance amount and (ii) $9.0 million of outstanding letters of credit. At December 31, 2019, there were outstanding borrowings under the revolving credit facility of $80.0 million and $96.1 million of borrowing capacity under the facility, after giving effect to $8.7 million of outstanding letters of credit.
As of May 6, 2020, the Company had $94.0 million in borrowings outstanding under its revolving credit facility, leaving an aggregate of $13.8 million of available borrowing capacity under this facility. This available borrowing capacity reflects (i) a minimum excess availability covenant of 10% of the maximum revolving advance amount and (ii) $9.0 million of outstanding letters of credit. 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, results of operations and cash flows. The lenders (i) would not be required to lend any additional amounts to the Company, (ii) could elect to increase the interest rate by 200 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.
10. Variable 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 100% of its membership interest in Cobra Aviation and Predator Aviation transferred 100% of its membership interest in Leopard Aviation LLC (“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 three helicopters and support equipment, 100% of the equity interest in Air Rescue Systems Corporation (“ARS”) and 49% of the equity interest in Brim Acquisitions. Leopard owns one 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 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 March 31, 2020.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expense includes of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Cash expenses:
|
|
|
|
|
|
|
|
Compensation and benefits
|
$
|
3,969
|
|
|
$
|
9,230
|
|
|
|
|
|
Professional services
|
3,538
|
|
|
3,789
|
|
|
|
|
|
Other(a)
|
2,309
|
|
|
3,244
|
|
|
|
|
|
Total cash SG&A expense
|
9,816
|
|
|
16,263
|
|
|
|
|
|
Non-cash expenses:
|
|
|
|
|
|
|
|
Bad debt provision
|
55
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
900
|
|
|
1,069
|
|
|
|
|
|
Total non-cash SG&A expense
|
955
|
|
|
1,073
|
|
|
|
|
|
Total SG&A expense
|
$
|
10,771
|
|
|
$
|
17,336
|
|
|
|
|
|
a. Includes travel-related costs, information technology expenses, rent, utilities and other general and administrative-related costs.
12. Income Taxes
The Company recorded income tax expense of $0.7 million and $22.9 million for the three months ended March 31, 2020 and 2019, respectively. The Company's effective tax rate was (1%) and 45% for the three months ended March 31, 2020 and 2019, respectively.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted and signed into U.S. law in response to the COVID-19 pandemic, and among other things, permits the carryback of certain net operating losses. As a result of the enacted legislation, the Company recognized a $5.2 million net tax expense during the three months ended March 31, 2020, which consists of a $12.3 million deferred tax expense and a $7.2 million current tax benefit. This impact, along with the rate impact from non-deductible goodwill impairment, was the primary driver for the difference between the statutory rate of 21% and the effective tax rate for the three months ended March 31, 2020.
The effective tax rate for the three months ended March 31, 2019 differed from the statutory rate of 21% primarily due to the mix of earnings between the United States and Puerto Rico.
13. Leases
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, equipment and vehicles 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
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.
Lease expense consisted of the following for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
Operating lease expense
|
$
|
4,802
|
|
|
$
|
6,015
|
|
Short-term lease expense
|
169
|
|
|
214
|
|
Finance lease expense:
|
|
|
|
Amortization of right-of-use assets
|
317
|
|
|
197
|
|
Interest on lease liabilities
|
54
|
|
|
38
|
|
Total lease expense
|
$
|
5,342
|
|
|
$
|
6,464
|
|
Supplemental balance sheet information related to leases as of March 31, 2020 and December 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2020
|
|
2019
|
Operating leases:
|
|
|
|
Operating lease right-of-use assets
|
$
|
38,838
|
|
|
$
|
43,446
|
|
Current operating lease liability
|
15,484
|
|
|
16,432
|
|
Long-term operating lease liability
|
23,236
|
|
|
27,102
|
|
Finance leases:
|
|
|
|
Property, plant and equipment, net
|
$
|
4,794
|
|
|
$
|
5,111
|
|
Accrued expenses and other current liabilities
|
1,360
|
|
|
1,365
|
|
Other liabilities
|
3,565
|
|
|
3,856
|
|
Other supplemental information related to leases for the three months ended March 31, 2020 and 2019 and as of March 31, 2020 and December 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
$
|
4,737
|
|
|
$
|
5,961
|
|
Operating cash flows from finance leases
|
54
|
|
|
34
|
|
Financing cash flows from finance leases
|
296
|
|
|
329
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases
|
$
|
(309)
|
|
|
$
|
955
|
|
Finance leases
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2020
|
|
2019
|
Weighted-average remaining lease term:
|
|
|
|
Operating leases
|
3.2 years
|
|
3.4 years
|
Finance leases
|
3.9 years
|
|
4.1 years
|
Weighted-average discount rate:
|
|
|
|
Operating leases
|
4.4
|
%
|
|
4.4
|
%
|
Finance leases
|
4.3
|
%
|
|
4.3
|
%
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Maturities of lease liabilities as of March 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
Remainder of 2020
|
$
|
12,825
|
|
|
$
|
1,213
|
|
2021
|
13,136
|
|
|
1,254
|
|
2022
|
8,694
|
|
|
1,220
|
|
2023
|
4,284
|
|
|
1,214
|
|
2024
|
1,727
|
|
|
441
|
|
Thereafter
|
881
|
|
|
—
|
|
Total lease payments
|
41,547
|
|
|
5,342
|
|
Less: Present value discount
|
2,827
|
|
|
417
|
|
Present value of lease payments
|
$
|
38,720
|
|
|
$
|
4,925
|
|
Lessor Accounting
Certain of the Company's agreements with its customers for contract land 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 agreements for its contract land drilling services contain a service component in addition to a lease component. The Company has determined the service component is greater than the lease component and, therefore, reports revenue for its contract land drilling services under ASC 606.
The Company's lease agreements are generally short-term in nature and lease revenue is recognized over time based on 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 $0.3 million and $0.6 million, respectively, during the three months ended March 31, 2020 and 2019, which is included in “services revenue” and “services revenue - related parties” on the unaudited condensed consolidated statement of comprehensive (loss) income.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. (Loss) Earnings Per Share
Reconciliations of the components of basic and diluted net (loss) income per common share are presented in the table below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
|
|
Allocation of (loss) earnings:
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(83,971)
|
|
|
$
|
28,333
|
|
|
|
|
|
Weighted average common shares outstanding
|
45,314
|
|
|
44,929
|
|
|
|
|
|
Basic (loss) earnings per share
|
$
|
(1.85)
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
|
|
Allocation of (loss) earnings:
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(83,971)
|
|
|
$
|
28,333
|
|
|
|
|
|
Weighted average common shares, including dilutive effect(a)
|
45,314
|
|
|
45,063
|
|
|
|
|
|
Diluted (loss) earnings per share
|
$
|
(1.85)
|
|
|
$
|
0.63
|
|
|
|
|
|
a. No incremental shares of potentially dilutive restricted stock awards were included for the three months ended March 31, 2020 as their effect was antidilutive under the treasury stock method.
15. Equity Based Compensation
Upon formation of certain operating entities by Wexford, Gulfport and Rhino, 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 IPO closing date, 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 $5.6 million.
The Company adopted ASU 2018-07 as of January 1, 2019. This ASU aligns the accounting for non-employee share-based compensation with the requirements for employee share-based compensation. The standard required non-employee awards to be measured at fair value as of the date of adoption. 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 $18.9 million.
16. Stock 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 4.5 million shares of common stock reserved for issuance under the 2016 Plan.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
A summary of the status and changes of the unvested shares of restricted stock under the 2016 Plan is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Unvested Restricted Shares
|
|
Weighted Average Grant-Date Fair Value
|
Unvested shares as of January 1, 2019
|
|
434,119
|
|
|
$
|
22.78
|
|
Granted
|
|
101,181
|
|
|
6.83
|
|
Vested
|
|
(231,896)
|
|
|
22.45
|
|
Forfeited
|
|
(82,163)
|
|
|
18.55
|
|
Unvested shares as of December 31, 2019
|
|
221,241
|
|
|
22.43
|
|
Granted
|
|
2,000,000
|
|
|
0.93
|
|
Vested
|
|
(605,017)
|
|
|
4.44
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Unvested shares as of March 31, 2020
|
|
1,616,224
|
|
|
$
|
1.74
|
|
As of March 31, 2020, there was $2.0 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 2.3 years.
Included in cost of revenue and selling, general and administrative expenses is stock based compensation expense of $1.0 million and $1.3 million, respectively, for the three months ended March 31, 2020 and 2019.
17. Related Party Transactions
Transactions between the subsidiaries of the Company, including Stingray Pressure Pumping, Muskie Proppant LLC (“Muskie”), Stingray Energy Services LLC (“SR Energy”), Aquahawk Energy LLC (“Aquahawk”), 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”), Everest Operations Management LLC (“Everest”); Elk City Yard LLC (“Elk City Yard”), Double Barrel Downhole Technologies LLC (“DBDHT”), Caliber Investment Group LLC (“Caliber”), Predator Drilling LLC (“Predator”) and Brim Equipment.
Following is a summary of related party transactions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
ACCOUNTS RECEIVABLE
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
At March 31,
|
At December 31,
|
|
|
2020
|
2019
|
|
|
|
|
2020
|
2019
|
Pressure Pumping and Gulfport
|
(a)
|
$
|
17,823
|
|
$
|
37,410
|
|
|
|
|
|
$
|
17,021
|
|
$
|
5,950
|
|
Muskie and Gulfport
|
(b)
|
1,875
|
|
12,655
|
|
|
|
|
|
516
|
|
1,141
|
|
SR Energy and Gulfport
|
(c)
|
108
|
|
5,307
|
|
|
|
|
|
135
|
|
156
|
|
Aquahawk and Gulfport
|
(d)
|
—
|
|
724
|
|
|
|
|
|
—
|
|
—
|
|
Panther Drilling and El Toro
|
(e)
|
—
|
|
369
|
|
|
|
|
|
—
|
|
—
|
|
Cobra Aviation/ARS/Leopard and Brim Equipment
|
(f)
|
82
|
|
263
|
|
|
|
|
|
89
|
|
235
|
|
Other Relationships
|
|
—
|
|
—
|
|
|
|
|
|
29
|
|
41
|
|
|
|
$
|
19,888
|
|
$
|
56,728
|
|
|
|
|
|
$
|
17,790
|
|
$
|
7,523
|
|
a.Pressure Pumping provides pressure pumping, stimulation and related completion services to Gulfport.
b.Muskie has 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.
c.SR Energy provides rental services to Gulfport.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
d.Aquahawk provides water transfer services for Gulfport pursuant to a master service agreement.
e.Panther provides directional drilling services for El Toro, an entity controlled by Wexford, pursuant to a master service agreement.
f.Cobra Aviation, ARS and Leopard lease helicopters to Brim Equipment pursuant to aircraft lease and management agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
At March 31,
|
At December 31,
|
|
|
2020
|
2019
|
|
|
|
|
2020
|
2019
|
|
|
COST OF REVENUE
|
|
|
|
|
|
ACCOUNTS PAYABLE
|
|
Cobra Aviation/ ARS/Leopard and Brim Equipment
|
(a)
|
$
|
13
|
|
$
|
713
|
|
|
|
|
|
$
|
6
|
|
$
|
433
|
|
Anaconda and Caliber
|
(b)
|
62
|
|
—
|
|
|
|
|
|
—
|
|
—
|
|
Other
|
|
26
|
|
—
|
|
|
|
|
|
—
|
|
—
|
|
|
|
$
|
101
|
|
$
|
713
|
|
|
|
|
|
$
|
6
|
|
$
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE COSTS
|
|
|
|
|
|
|
|
The Company and Wexford
|
(c)
|
$
|
—
|
|
$
|
236
|
|
|
|
|
|
$
|
—
|
|
$
|
1
|
|
The Company and Caliber
|
(b)
|
192
|
|
130
|
|
|
|
|
|
62
|
|
7
|
|
Other
|
|
23
|
|
68
|
|
|
|
|
|
14
|
|
9
|
|
|
|
$
|
215
|
|
$
|
434
|
|
|
|
|
|
$
|
76
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES
|
|
|
|
|
|
|
|
Leopard and Brim Equipment
|
(a)
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
$
|
—
|
|
$
|
76
|
|
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
$
|
—
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
$
|
82
|
|
$
|
526
|
|
a.Cobra Aviation, ARS and Leopard lease helicopters to Brim Equipment pursuant to aircraft lease and management agreements.
b.Caliber leases office space to Mammoth.
c.Wexford provides certain administrative and analytical services to the Company and, from time to time, the Company pays for goods and services on behalf of Wexford.
On December 21, 2018, Cobra Aviation acquired all outstanding equity interest in ARS and purchased two 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 49% economic interest and Wexford Investment owns a 51% economic interest in Brim Acquisitions, and each member contributed its pro rata portion of Brim Acquisitions' initial capital of $2.0 million. The Company made additional investments totaling $0.5 million during the three months ended March 31, 2019. The Company did not make any additional investments during the three months ended March 31, 2020. Wexford Investments is an entity controlled by Wexford, which owns approximately 48% of the Company's outstanding common stock.
18. Commitments and Contingencies
Minimum Purchase Commitments
The Company has entered into agreements with suppliers that contain minimum purchase obligations. Failure to purchase the minimum amounts may require the Company to pay shortfall fees. However, the minimum quantities set forth in the agreements are not in excess of currently expected future requirements.
Capital Spend Commitments
The Company has entered into agreements with suppliers to purchase capital equipment.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Aggregate future minimum payments under these obligations in effect at March 31, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
|
|
Capital Spend Commitments
|
|
Minimum Purchase Commitments(a)
|
Remainder of 2020
|
|
|
|
$
|
3,766
|
|
|
$
|
15,834
|
|
2021
|
|
|
|
—
|
|
|
700
|
|
2022
|
|
|
|
—
|
|
|
129
|
|
2023
|
|
|
|
—
|
|
|
8
|
|
2024
|
|
|
|
—
|
|
|
—
|
|
Thereafter
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
$
|
3,766
|
|
|
$
|
16,671
|
|
a. Included in these amounts are sand purchase commitments of $13.8 million. Pricing for certain sand purchase agreements is variable and, therefore, the total sand purchase commitments could be as much as $16.3 million.
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. The letters of credit are categorized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
Environmental remediation
|
|
$
|
4,477
|
|
|
$
|
4,182
|
|
Insurance programs
|
|
4,105
|
|
|
4,105
|
|
Rail car commitments
|
|
455
|
|
|
455
|
|
Total letters of credit
|
|
$
|
9,037
|
|
|
$
|
8,742
|
|
Insurance
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. As of March 31, 2020 and December 31, 2019, the workers' compensation and automobile liability policies require a deductible per occurrence of up to $0.3 million and $0.1 million, respectively. The Company establishes liabilities for the unpaid deductible portion of claims incurred based on estimates. As of March 31, 2020 and December 31, 2019, the workers' compensation and auto liability policies contained an aggregate stop loss of $5.4 million. As of March 31, 2020 and December 31, 2019, accrued claims were $2.6 million and $2.9 million, respectively.
The Company also has insurance coverage for directors and officers liability. As of March 31, 2020 and December 31, 2019, the directors and officers liability policy had a deductible per occurrence of $1.0 million and an aggregate deductible of $10.0 million. As of March 31, 2020 and December 31, 2019, 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 $0.2 million per participant and an aggregate stop-loss of $5.8 million for the calendar year ending December 31, 2019. As of March 31, 2020 and December 31, 2019, accrued claims were $2.7 million and $3.0 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 one year or less. No liabilities were accrued as of March 31, 2020 and December 31, 2019 and no expense was recognized during the three months ended March 31, 2020 or 2019 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.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2020, outstanding bid bonds totaled $0.2 million. The Company did not have any outstanding bid bonds as of December 31, 2019. As of March 31, 2020 and December 31, 2019, outstanding performance and payment bonds totaled $32.1 million and $40.4 million, respectively. The estimated cost to complete projects secured by the performance and payment bonds totaled $5.1 million as of March 31, 2020.
Litigation
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. The Company is appealing 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 financial position, results of operations or cash flows.
On June 19, 2018, Wendco of Puerto Rico Inc. filed a putative class action lawsuit in the Commonwealth of Puerto Rico styled Wendco of Puerto Rico Inc.; Multisystem Restaurant Inc.; Restaurant Operators Inc.; Apple Caribe, Inc.; on their own behalf and in representation of all businesses that conduct business in the Commonwealth of Puerto Rico vs. Mammoth Energy Services Inc.; Cobra Acquisitions, LLC; D. Grimm Puerto Rico, LLC, et al. The plaintiffs allege that the defendants caused power outages in Puerto Rico while performing restoration work on Puerto Rico’s electrical network following Hurricanes Irma and Maria in 2017, thereby interrupting commercial activities and causing economic loss. 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.
Cobra has been served with ten lawsuits from municipalities in Puerto Rico alleging failure to pay construction excise and volume of business taxes. The Government of Puerto Rico's Central Recovery and Reconstruction Office (“COR3”) has noted the unique nature of work executed by entities such as Cobra in Puerto Rico and that taxes, such as those in these matters, may be eligible for reimbursement by the government. Further, COR3 indicated that it is working to develop a solution that will result in payment of taxes owed to the municipalities without placing an undue burden on entities such as Cobra. The Company continues to work with COR3 to resolve these matters. However, 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.
On March 20, 2019, EJ LeJeune, a former employee of ESPADA Logistics and Security Group, LLC and ESPADA Caribbean LLC (together, “ESPADA”) filed a putative collective and class action complaint in LeJeune v. Mammoth Energy Services, Inc. d/b/a Cobra Energy & ESPADA Logistics and Security Group, LLC, Case No. 5:19-cv-00286-JKP-ESC, in the U.S. District Court for the Western District of Texas. On August 5, 2019, the court granted the plaintiff’s motion for leave to amend his complaint, dismissing Mammoth Energy Services, Inc. as a defendant, adding Cobra Acquisitions LLC (“Cobra”) as a defendant, and adding ESPADA Caribbean LLC and two officers of ESPADA—James Jorrie and Jennifer Gay Jorrie—as defendants. The amended complaint alleges that the defendants jointly employed the plaintiff and all similarly situated workers and failed to pay them overtime as required by the Fair Labor Standards Act and Puerto Rico law. The complaint also alleges the following violations of Puerto Rico law: illegal deductions from workers’ wages, failure to timely pay all wages owed, failure to pay a required severance when terminating workers without just cause, failure to pay for all hours worked, failure to provide required meal periods, and failure to pay a statutorily required bonus to eligible workers. Mr. LeJeune seeks to represent a class of workers allegedly employed by one or more defendants and paid a flat amount for each day worked regardless of how many hours were worked. The complaint seeks back wages, including overtime wages owed, liquidated damages equal to the overtime wages owed, attorneys’ fees, costs, and pre- and post-judgment interest. Cobra denies that it employed Mr. LeJeune and the putative class members. The case is stayed until May 31, 2020 in order for the parties to mediate plaintiff’s claims. At this time,
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
On April 16, 2019, Christopher Williams, a former employee of Higher Power Electrical, LLC, filed a putative class and collective action complaint in Christopher Williams, individually and on behalf of all others similarly situated v. Higher Power Electrical, LLC, Cobra Acquisitions LLC, and Cobra Energy LLC, Case No. 3:19-cv-01366-RAM, 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 that the Company 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 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. Arbitrators have not yet been assigned to these matters. 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.
In June 2019 and August 2019, the Company was served with three class action lawsuits filed in the Western District of Oklahoma. On September 13, 2019, the court consolidated the three lawsuits under the case caption In re Mammoth Energy Services, Inc. Securities Litigation. On November 12, 2019, the plaintiffs filed their first amended complaint against Mammoth Energy Services, Inc., Arty Straehla, and Mark Layton. Pursuant to their first amended complaint, the plaintiffs brought a consolidated putative federal securities class action on behalf of all investors who purchased or otherwise acquired Mammoth Energy Services, Inc. common stock between October 19, 2017, and June 5, 2019, inclusive. On January 10, 2020, the defendants filed their motion to dismiss the first amended complaint. On March 9, 2020, the plaintiffs filed a second amended complaint for violation of federal securities laws which contains allegations substantially similar to those contained in the plaintiff’s first amended complaint. On March 30, 2020, the defendants filed their motion to dismiss the second amended complaint. The Company believes the plaintiffs’ 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.
In September 2019, four derivative lawsuits were filed, two in the Western District of Oklahoma and two in the District of Delaware, purportedly on behalf of the Company against its officers and directors. In October 2019, the plaintiffs in the two Oklahoma actions voluntarily dismissed their respective cases, with one plaintiff refiling his action in the District of Delaware. On September 13, 2019, the Delaware court consolidated the three actions under the case caption In re Mammoth Energy Services, Inc. Consolidated Shareholder Litigation. On January 17, 2020, the plaintiffs filed their consolidated amended shareholder derivative complaint on behalf of Nominal Defendant, Mammoth Energy Services, Inc., and against Arty Straehla, Mark Layton, Arthur Amron, Paul V. Heerwagen IV, Marc McCarthy, Jim Palm, Matthew Ross, Arthur Smith, Gulfport Energy Corporation, and Wexford Capital LP. On February 18, 2020, the defendants filed a motion to stay this action. The Company believes the plaintiffs’ 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.
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. The Company is continuing to cooperate with the related investigation. Given the uncertainty inherent in the criminal litigation, it is not possible at this time to determine the potential outcome or other potential impacts that the criminal litigation 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. Subsequent to the indictment, the Company received (i) a preservation request letter from the United States Securities and Exchange Commission (“SEC”) related to documents relevant to an ongoing investigation it is conducting and (ii) 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. Both the SEC and DOJ investigations relate to the same subjects as those at issue in the criminal matter. The Company is cooperating with both the SEC and DOJ and is not able to predict the outcome of these investigations or if either will have a material impact on the Company’s business, financial condition, results of operations or cash flows.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 16, 2019, Cobra filed a lawsuit against Robert Malcom (“Malcom”) and later added claims against BHI Energy I Power Services LLC (“BHI”) in a case styled Cobra Acquisitions v. Robert L. Malcom and BHI Energy I Power Services LLC in the 242nd Judicial District, District Court of Hale County, Texas. Cobra alleges Malcom breached his non-compete and non-solicit obligations contained in the purchase and sale agreement in which Cobra purchased Higher Power from Malcom. On September 16, 2019, the court entered a Temporary Restraining Order enjoining Malcom from competing against Higher Power or soliciting its customers and employees. Subsequently, on October 25, 2019, the court entered a Temporary Injunction enjoining Malcom from competing against Higher Power in three states or soliciting its customers and employees until the time of trial. Cobra is seeking to permanently enjoin Malcom from competing against Higher Power or soliciting its customers and employees, and further seeks damages it incurred as a result of Malcom’s breach of his non-compete agreement. Cobra’s claims against BHI, Malcom’s employer after he left Higher Power, are for tortious interference and misappropriation of trade secrets. On November 3, 2019, Malcom filed his original counter-petition and third-party petition against Cobra, Higher Power, Keith Ellison and Arty Straehla alleging claims for breach of contract, conversion, unjust enrichment, tortious interference, retaliation, violations of the federal Racketeer Influenced and Corrupt Organizations Act, and conspiracy. Cobra and Higher Power moved to dismiss these claims and, on January 24, 2020, after the hearing on the motion to dismiss, Malcom dismissed his claims without prejudice. On December 23, 2019, Malcom filed an appeal of the Temporary Injunction Order enjoining him from competing against Higher Power. On April 20, 2020, the Court of Appeals Seventh District of Texas denied Malcom’s appeal. At this time, the Company is not able to predict the outcome of this lawsuit. However, the Company does not believe it will have a material impact on the Company’s business, financial position, results of operations or cash flows.
As of March 31, 2020, PREPA owed the Company approximately $227.0 million for services performed, excluding $49.7 million of interest charged on these delinquent balances as of March 31, 2020. The Company believes these receivables are 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 the Federal Emergency Management Agency 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. PREPA filed a motion to stay Cobra’s motion on the ground that the ongoing criminal proceedings described above against the former president of Cobra and two other individuals may affect the recovery of those amounts. On October 17, 2019, the court granted PREPA’s request to stay Cobra's motion and, on February 3, 2020, extended the stay until an omnibus hearing to be held in June 2020. On March 25, 2020, Cobra filed an urgent motion to modify the stay order and allow the undisputed tax claims. Pursuant to its urgent motion, Cobra seeks to recover approximately $61.7 million in undisputed 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. On April 7, 2020, PREPA filed a response brief to Cobra’s urgent motion, and Cobra filed its reply brief on April 14, 2020. A ruling on Cobra’s urgent motion is pending. 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 18, 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 alleges breach of contract and seeks damages for alleged overpayments and audit costs under the MSA and other fees and expenses associated with this lawsuit. Further, Gulfport has not made any of the $17.0 million of
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
payments owed to Stingray Pressure Pumping under this contract for any periods subsequent to its alleged December 28, 2019 termination date. During the three months ended March 31, 2020, the Company recognized $17.8 million in revenue under this contract. The Company believes Gulfport’s 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. 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.
On January 21, 2020, Mastec Renewables Puerto Rico, LLC (“Mastec”) filed a lawsuit against Mammoth Inc., and Cobra, in the U.S. District Court in 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, tortious interference and violations of Puerto Rico laws. Mastec seeks unspecified damages based on its claimed deprivation of work under the alleged $500 million contract, including lost profits, mobilization expenses, lost opportunity damages, costs and prejudgment interest because of the Company’s and Cobra’s alleged wrongful interference, payment of bribes, and other inducement to a FEMA official in order to secure two infrastructure contracts to aid in the rebuilding of the energy infrastructure in Puerto Rico after Hurricane Maria. On April 1, 2020, the defendants filed a motion to dismiss the complaint. 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.
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 adverse effect 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 92% of their annual compensation, not to exceed annual limits established by the federal government. The Company makes discretionary matching contributions of up to 3% of an employee’s compensation and may make additional discretionary contributions for eligible employees. For the three months ended March 31, 2020 and 2019, the Company paid $0.4 million and $0.9 million, respectively, in contributions to the plan.
19. Reporting Segments
As of March 31, 2020, the Company's revenues, income before income taxes and identifiable assets are primarily attributable to four 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 income (loss) less impairment expense, as well as a qualitative basis, such as nature of the product and service offerings and types of customers.
Prior to the year ended December 31, 2019, the Company had three reportable segments, including infrastructure services, pressure pumping services and natural sand proppant services. Based on its assessment of FASB ASC 280, Segment Reporting, guidance at December 31, 2019, the Company changed its reportable segment presentation in 2019 to include its drilling services, which includes Bison Drilling and Field Services LLC, Bison Trucking LLC, Panther Drilling Systems LLC, Mako Acquisitions LLC and White Wing Tubular LLC, as its own reportable segment. The results of the entities were previously included in the reconciling column titled “All Other” in the table below for the three months ended March 31, 2019. As of March 31, 2020, the Company’s four reportable segments include infrastructure services (“Infrastructure”), pressure pumping services (“Pressure Pumping”), natural sand proppant services (“Sand”) and drilling services (“Drilling”). The results for the three months ended March 31, 2019 have been retroactively adjusted to reflect his change in reportable segments.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During certain of the periods presented, the Infrastructure segment provided electric utility infrastructure services to government-funded utilities, private utilities, public investor-owned utilities and co-operative utilities in Puerto Rico and the northeast, southwest and midwest portions of the United States. The Pressure Pumping segment provides hydraulic fracturing and water transfer services primarily in the Utica Shale of Eastern Ohio, Marcellus Shale in Pennsylvania, Eagle Ford and Permian Basins in Texas 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 coil tubing services, flowback services, cementing services, acidizing services, equipment rental services, full service transportation, crude oil hauling services, remote accommodation, oilfield equipment manufacturing and infrastructure engineering and design services. 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 labeled "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 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 transactions conducted between segments are eliminated in consolidation. Transactions conducted by companies within the same reporting segment are eliminated within each reporting segment. The following tables set forth certain financial information with respect to the Company’s reportable segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2020
|
Infrastructure
|
Pressure Pumping
|
Sand
|
Drilling
|
All Other
|
Eliminations
|
Total
|
Revenue from external customers
|
$
|
25,705
|
|
$
|
42,686
|
|
$
|
10,154
|
|
$
|
4,723
|
|
$
|
14,115
|
|
$
|
—
|
|
$
|
97,383
|
|
Intersegment revenues
|
—
|
|
936
|
|
95
|
|
55
|
|
775
|
|
(1,861)
|
|
—
|
|
Total revenue
|
25,705
|
|
43,622
|
|
10,249
|
|
4,778
|
|
14,890
|
|
(1,861)
|
|
97,383
|
|
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion
|
26,946
|
|
26,208
|
|
10,657
|
|
5,635
|
|
12,460
|
|
—
|
|
81,906
|
|
Intersegment cost of revenues
|
8
|
|
627
|
|
302
|
|
130
|
|
794
|
|
(1,861)
|
|
—
|
|
Total cost of revenue
|
26,954
|
|
26,835
|
|
10,959
|
|
5,765
|
|
13,254
|
|
(1,861)
|
|
81,906
|
|
Selling, general and administrative
|
4,297
|
|
2,222
|
|
1,251
|
|
1,063
|
|
1,938
|
|
—
|
|
10,771
|
|
Depreciation, depletion, amortization and accretion
|
7,934
|
|
8,492
|
|
2,312
|
|
2,877
|
|
4,267
|
|
—
|
|
25,882
|
|
Impairment of goodwill
|
—
|
|
53,406
|
|
—
|
|
—
|
|
1,567
|
|
—
|
|
54,973
|
|
Impairment of other long-lived assets
|
—
|
|
4,203
|
|
—
|
|
326
|
|
8,368
|
|
—
|
|
12,897
|
|
Operating loss
|
(13,480)
|
|
(51,536)
|
|
(4,273)
|
|
(5,253)
|
|
(14,504)
|
|
—
|
|
(89,046)
|
|
Interest expense, net
|
757
|
|
293
|
|
61
|
|
268
|
|
259
|
|
—
|
|
1,638
|
|
Other (income) expense, net
|
(7,276)
|
|
(109)
|
|
(37)
|
|
27
|
|
(14)
|
|
—
|
|
(7,409)
|
|
Loss before income taxes
|
$
|
(6,961)
|
|
$
|
(51,720)
|
|
$
|
(4,297)
|
|
$
|
(5,548)
|
|
$
|
(14,749)
|
|
$
|
—
|
|
$
|
(83,275)
|
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
Infrastructure
|
Pressure Pumping
|
Sand
|
Drilling
|
All Other
|
Eliminations
|
Total
|
Revenue from external customers
|
$
|
108,721
|
|
$
|
90,595
|
|
$
|
24,964
|
|
$
|
13,576
|
|
$
|
24,282
|
|
$
|
—
|
|
$
|
262,138
|
|
Intersegment revenues
|
—
|
|
1,544
|
|
12,897
|
|
219
|
|
766
|
|
(15,426)
|
|
—
|
|
Total revenue
|
108,721
|
|
92,139
|
|
37,861
|
|
13,795
|
|
25,048
|
|
(15,426)
|
|
262,138
|
|
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion
|
58,965
|
|
64,211
|
|
30,252
|
|
12,652
|
|
22,990
|
|
—
|
|
189,070
|
|
Intersegment cost of revenues
|
—
|
|
13,537
|
|
1,047
|
|
272
|
|
552
|
|
(15,408)
|
|
—
|
|
Total cost of revenue
|
58,965
|
|
77,748
|
|
31,299
|
|
12,924
|
|
23,542
|
|
(15,408)
|
|
189,070
|
|
Selling, general and administrative
|
9,517
|
|
3,213
|
|
1,519
|
|
1,363
|
|
1,724
|
|
—
|
|
17,336
|
|
Depreciation, depletion, amortization and accretion
|
7,719
|
|
9,893
|
|
2,873
|
|
3,578
|
|
4,513
|
|
—
|
|
28,576
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
32,520
|
|
1,285
|
|
2,170
|
|
(4,070)
|
|
(4,731)
|
|
(18)
|
|
27,156
|
|
Interest expense, net
|
39
|
|
198
|
|
30
|
|
127
|
|
129
|
|
—
|
|
523
|
|
Other (income) expense, net
|
(24,824)
|
|
(1)
|
|
—
|
|
(22)
|
|
290
|
|
—
|
|
(24,557)
|
|
Income (loss) before income taxes
|
$
|
57,305
|
|
$
|
1,088
|
|
$
|
2,140
|
|
$
|
(4,175)
|
|
$
|
(5,150)
|
|
$
|
(18)
|
|
$
|
51,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
Pressure Pumping
|
Sand
|
Drilling
|
All Other
|
Eliminations
|
Total
|
As of March 31, 2020:
|
|
|
|
|
|
|
|
Total assets
|
$
|
411,768
|
|
$
|
124,693
|
|
$
|
185,782
|
|
$
|
58,357
|
|
$
|
132,730
|
|
$
|
(39,319)
|
|
$
|
874,011
|
|
As of December 31, 2019:
|
|
|
|
|
|
|
|
Total assets
|
$
|
420,285
|
|
$
|
175,259
|
|
$
|
190,382
|
|
$
|
61,545
|
|
$
|
142,731
|
|
$
|
(37,817)
|
|
$
|
952,385
|
|
20. Subsequent Events
Impact of COVID-19 and Recent Collapse in Commodity Prices
Oil prices, which dropped sharply in early March 2020 and then continued to decline reaching levels below zero dollars per barrel, are expected to remain volatile as a result of the sharp decline in demand due to the ongoing COVID-19 pandemic, oversupply of crude oil and limited pipeline and storage capacity, among other factors. As a result, demand for the Company's oilfield services, which was already under considerable pressure from reductions in its customers' capital expenditure budgets in 2019, declined further at the end of the first quarter of 2020. Depressed levels of oilfield service activity are expected to continue for the foreseeable future. This has had, and will continue to have, an adverse effect on the Company's business, financial condition, results of operations and cash flows. The Company cannot predict if, or when, commodity prices will improve and stabilize. The COVID-19 pandemic, the broad reduction in economic activity, the current conditions in the energy industry and the adverse macroeconomic conditions have also had an adverse effect on pricing for the Company's oilfield services.