MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
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ASSETS
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March 31,
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December 31,
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2019
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2018
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CURRENT ASSETS
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(in thousands)
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Cash and cash equivalents
|
|
$
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21,343
|
|
|
$
|
67,625
|
|
Accounts receivable, net
|
|
404,389
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|
|
337,460
|
|
Receivables from related parties
|
|
45,032
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|
|
11,164
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Inventories
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|
18,913
|
|
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21,302
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|
Prepaid expenses
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|
8,913
|
|
|
11,317
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Other current assets
|
|
706
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|
|
688
|
|
Total current assets
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499,296
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449,556
|
|
|
|
|
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Property, plant and equipment, net
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428,280
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436,699
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Sand reserves
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71,496
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71,708
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Operating lease right-of-use assets
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56,234
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—
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Intangible assets, net - customer relationships
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1,637
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1,711
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Intangible assets, net - trade names
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5,835
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6,045
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Goodwill
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101,245
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101,245
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Other non-current assets
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6,484
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6,127
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Total assets
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$
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1,170,507
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$
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1,073,091
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LIABILITIES AND EQUITY
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CURRENT LIABILITIES
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Accounts payable
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$
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67,542
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$
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68,843
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Payables to related parties
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609
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|
370
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Accrued expenses and other current liabilities
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55,258
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59,652
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Current operating lease liability
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17,533
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—
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Income taxes payable
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60,272
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104,958
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Total current liabilities
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201,214
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233,823
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Long-term debt
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82,037
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—
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Deferred income tax liabilities
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63,923
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79,309
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Long-term operating lease liability
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38,572
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—
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Asset retirement obligation
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3,056
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3,164
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Other liabilities
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3,285
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2,743
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Total liabilities
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392,087
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319,039
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COMMITMENTS AND CONTINGENCIES (Note 19)
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EQUITY
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Equity:
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Common stock, $0.01 par value, 200,000,000 shares authorized, 44,876,649 issued and outstanding at March 31, 2019 and December 31, 2018
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449
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449
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Additional paid in capital
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532,208
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530,919
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Retained earnings
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249,488
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226,765
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Accumulated other comprehensive loss
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(3,725
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)
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(4,081
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)
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Total equity
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778,420
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754,052
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Total liabilities and equity
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$
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1,170,507
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$
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1,073,091
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The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
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Three Months Ended March 31,
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2019
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2018
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REVENUE
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(in thousands, except per share amounts)
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Services revenue
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$
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193,101
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$
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408,659
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Services revenue - related parties
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44,073
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49,088
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Product revenue
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12,309
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25,040
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Product revenue - related parties
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12,655
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11,462
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Total revenue
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262,138
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494,249
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COST AND EXPENSES
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Services cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $25,682 and $24,575 respectively, for the three months ended March 31, 2019 and 2018)
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158,106
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290,979
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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, 2019 and 2018)
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713
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1,792
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Product cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $2,871 and $2,314, respectively, for the three months ended March 31, 2019 and 2018)
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30,251
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33,330
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Selling, general and administrative (Note 12)
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16,902
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38,082
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Selling, general and administrative - related parties (Note 12)
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434
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429
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Depreciation, depletion, amortization and accretion
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28,576
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26,908
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Total cost and expenses
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234,982
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391,520
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Operating income
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27,156
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102,729
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OTHER INCOME (EXPENSE)
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Interest expense, net
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(523
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)
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(1,237
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)
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Other, net
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24,557
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(28
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)
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Total other income (expense)
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24,034
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(1,265
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)
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Income before income taxes
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51,190
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101,464
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Provision for income taxes
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22,857
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45,918
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Net income
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$
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28,333
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$
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55,546
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OTHER COMPREHENSIVE INCOME
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Foreign currency translation adjustment, net of tax of ($90) and $186, respectively, for the three months ended March 31, 2019 and 2018
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356
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(461
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)
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Comprehensive income
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$
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28,689
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$
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55,085
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Net income per share (basic) (Note 15)
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$
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0.63
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$
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1.24
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Net income per share (diluted) (Note 15)
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$
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0.63
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$
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1.24
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Weighted average number of shares outstanding (basic) (Note 15)
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44,929
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44,650
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Weighted average number of shares outstanding (diluted) (Note 15)
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45,063
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44,884
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Dividends declared per share
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$
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0.125
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—
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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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Accumulated
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Additional
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Other
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Common Stock
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Retained
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Paid-In
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Comprehensive
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Shares
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Amount
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Earnings
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Capital
|
Loss
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Total
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(in thousands)
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Balance at December 31, 2018
|
44,877
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|
$
|
449
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|
$
|
226,765
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$
|
530,919
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$
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(4,081
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)
|
$
|
754,052
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Stock based compensation
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—
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|
—
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|
—
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1,289
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—
|
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1,289
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Net income
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—
|
|
—
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28,333
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|
—
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—
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28,333
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Cash dividends paid ($0.125 per share)
|
—
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|
—
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(5,610
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)
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—
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—
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(5,610
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)
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Other comprehensive income
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—
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—
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—
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—
|
|
356
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|
356
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Balance at March 31, 2019
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44,877
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|
$
|
449
|
|
$
|
249,488
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|
$
|
532,208
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$
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(3,725
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)
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$
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778,420
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|
|
|
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Balance at December 31, 2017
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44,589
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|
$
|
446
|
|
$
|
2,001
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|
$
|
508,010
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|
$
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(2,661
|
)
|
$
|
507,796
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|
Stock based compensation
|
125
|
|
1
|
|
—
|
|
1,255
|
|
—
|
|
1,256
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|
Net income
|
—
|
|
—
|
|
55,546
|
|
—
|
|
—
|
|
55,546
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|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
(461
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)
|
(461
|
)
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Balance at March 31, 2018
|
44,714
|
|
$
|
447
|
|
$
|
57,547
|
|
$
|
509,265
|
|
$
|
(3,122
|
)
|
$
|
564,137
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
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Three Months Ended March 31,
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|
2019
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|
2018
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(in thousands)
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
28,333
|
|
|
$
|
55,546
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
Stock based compensation
|
1,289
|
|
|
1,256
|
|
Depreciation, depletion, accretion and amortization
|
28,576
|
|
|
26,908
|
|
Amortization of coil tubing strings
|
535
|
|
|
565
|
|
Amortization of debt origination costs
|
82
|
|
|
100
|
|
Bad debt expense
|
4
|
|
|
25,527
|
|
Loss (gain) on disposal of property and equipment
|
94
|
|
|
(184
|
)
|
Deferred income taxes
|
(15,476
|
)
|
|
(12,117
|
)
|
Other
|
41
|
|
|
—
|
|
Changes in assets and liabilities, net of acquisitions of businesses:
|
|
|
|
Accounts receivable, net
|
(67,093
|
)
|
|
(25,722
|
)
|
Receivables from related parties
|
(33,868
|
)
|
|
(12,550
|
)
|
Inventories
|
1,854
|
|
|
5,060
|
|
Prepaid expenses and other assets
|
2,389
|
|
|
294
|
|
Accounts payable
|
(353
|
)
|
|
8,302
|
|
Payables to related parties
|
239
|
|
|
851
|
|
Accrued expenses and other liabilities
|
(4,956
|
)
|
|
1,636
|
|
Income taxes payable
|
(44,684
|
)
|
|
25,851
|
|
Net cash (used in) provided by operating activities
|
(102,994
|
)
|
|
101,323
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchases of property and equipment
|
(20,273
|
)
|
|
(35,176
|
)
|
Purchases of property and equipment from related parties
|
—
|
|
|
(598
|
)
|
Contributions to equity investee
|
(480
|
)
|
|
—
|
|
Proceeds from disposal of property and equipment
|
1,500
|
|
|
286
|
|
Net cash used in investing activities
|
(19,253
|
)
|
|
(35,488
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Borrowings from lines of credit
|
82,000
|
|
|
31,000
|
|
Repayments of lines of credit
|
—
|
|
|
(91,900
|
)
|
Principal payments on financing leases and equipment financing notes
|
(457
|
)
|
|
(72
|
)
|
Dividends paid
|
(5,610
|
)
|
|
—
|
|
Net cash provided by (used in) financing activities
|
75,933
|
|
|
(60,972
|
)
|
Effect of foreign exchange rate on cash
|
32
|
|
|
(53
|
)
|
Net change in cash and cash equivalents
|
(46,282
|
)
|
|
4,810
|
|
Cash and cash equivalents at beginning of period
|
67,625
|
|
|
5,637
|
|
Cash and cash equivalents at end of period
|
$
|
21,343
|
|
|
$
|
10,447
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
294
|
|
|
$
|
1,442
|
|
Cash paid for income taxes
|
$
|
91,955
|
|
|
$
|
32,184
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
Purchases of property and equipment included in accounts payable and accrued expenses
|
$
|
5,016
|
|
|
$
|
16,558
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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 throughout the US and Puerto Rico. Its oilfield services division provides a diversified set of services to the exploration and production industry including pressure pumping and natural sand and proppant services as well as contract land and directional drilling, coil tubing, flowback, cementing, acidizing, equipment rental, 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
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.
On June 29, 2018, Gulfport and MEH Sub LLC ("MEH Sub"), an entity controlled by Wexford, (collectively, the "Selling Stockholders") completed an underwritten secondary public offering of
4,000,000
shares of the Company’s common stock at a purchase price to the Selling Stockholders of
$38.01
per share. The Selling Stockholders granted the underwriters an option to purchase up to an aggregate of
600,000
additional shares of the Company's common stock at the same purchase price. This option was exercised, in part, and on July 30, 2018, the underwriters purchased an additional
385,000
shares of common stock from the Selling Stockholders at the same price per share. The Selling Stockholders received all proceeds from this offering.
At
March 31, 2019
and
December 31, 2018
, Wexford, Gulfport and Rhino beneficially owned the following shares of outstanding common stock of Mammoth Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2019
|
|
At December 31, 2018
|
|
|
Share Count
|
|
% Ownership
|
|
Share Count
|
|
% Ownership
|
Wexford
|
|
21,988,473
|
|
|
49.0
|
%
|
|
21,988,473
|
|
|
49.0
|
%
|
Gulfport
|
|
9,826,893
|
|
|
21.9
|
%
|
|
9,826,893
|
|
|
21.9
|
%
|
Rhino
|
|
—
|
|
|
—
|
%
|
|
104,100
|
|
|
0.2
|
%
|
Outstanding shares owned by related parties
|
|
31,815,366
|
|
|
70.9
|
%
|
|
31,919,466
|
|
|
71.1
|
%
|
Total outstanding
|
|
44,876,649
|
|
|
100.0
|
%
|
|
44,876,649
|
|
|
100.0
|
%
|
Operations
The Company's infrastructure services include electric utility contracting services focused on the construction, upgrade, maintenance and repair of transmission and distribution networks. The Company’s infrastructure services also provide storm repair and restoration services in response to natural disasters including hurricanes and ice or other storm-related damage. The Company's pressure pumping services include equipment and personnel used in connection with the
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
completion and early production of oil and natural gas wells as well as water transfer services. 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 also provides other services, including contract land and directional drilling, coil tubing, flowback, cementing, aciziding, equipment rentals, crude oil hauling and remote accommodations.
All of the Company’s operations are in North America and in the Caribbean. The Company provides 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 or delays or reductions in government appropriations could have a material adverse effect on the Company’s results of operations and financial condition. During the periods presented, the Company has operated its oil and natural gas businesses in the Permian Basin, the Utica Shale, the Eagle Ford Shale, the Marcellus Shale, the Granite Wash, the SCOOP, the STACK, the Cana-Woodford Shale, the Cleveland Sand and the oil sands located in Northern Alberta, Canada. The Company's oil and natural gas business depends in large part on the conditions in the oil and natural gas industry and, specifically, on the amount of capital spending by its customers. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity, as well as the entire health of the oil and natural gas industry. Changes in the commodity prices for oil and natural gas could have a material 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 entity (“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. Most areas 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. Delinquency fees are recognized in other income when chargeable and collectability is reasonably assured.
During 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, 2019
, the Company charged interest on delinquent accounts receivable pursuant to the terms of its agreements with PREPA totaling
$25.7 million
. This amount is included in other, net on the unaudited condensed consolidated statement of comprehensive income.
The Company regularly reviews receivables and provides for estimated 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 was to determine 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.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Following is a roll forward of the allowance for doubtful accounts for the year ended
December 31, 2018
and the
three
months ended
March 31, 2019
(in thousands):
|
|
|
|
|
|
Balance, January 1, 2018
|
|
$
|
21,737
|
|
Additions (reductions) charged to bad debt expense
|
|
(14,589
|
)
|
Deductions for uncollectible receivables written off
|
|
(1,950
|
)
|
Balance, December 31, 2018
|
|
5,198
|
|
Additions charged to bad debt expense
|
|
4
|
|
Additions charged to other expense
|
|
143
|
|
Deductions for uncollectible receivables written off
|
|
(37
|
)
|
Balance, March 31, 2019
|
|
$
|
5,308
|
|
At December 31, 2017, the Company reviewed receivables due from PREPA and made specific reserves consistent with Company policy which resulted in additions to the allowance for doubtful accounts totaling
$16.0 million
. During 2018, the Company received payment from PREPA for the amount reserved at December 31, 2017. As a result, the Company reversed the 2017 additions to the allowance for doubtful accounts from PREPA during the year ended
December 31, 2018
.
Additionally, the Company has made specific reserves consistent with Company policy which resulted in additions to allowance for doubtful accounts totaling
$0.1 million
and
$1.4 million
, respectively, for the
three
months ended
March 31, 2019
and year ended
December 31, 2018
. The Company will continue to pursue collection until such time as final determination is made consistent with Company policy.
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, 2019
and
December 31, 2018
and percentages of total revenues derived for the
three
months ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
ACCOUNTS RECEIVABLE
|
|
Three Months Ended March 31,
|
|
At March 31,
|
At December 31,
|
|
2019
|
2018
|
|
2019
|
2018
|
Customer A
(a)
|
33
|
%
|
64
|
%
|
|
63
|
%
|
65
|
%
|
Customer B
(b)
|
21
|
%
|
12
|
%
|
|
10
|
%
|
3
|
%
|
Customer C
(c)
|
14
|
%
|
—
|
%
|
|
6
|
%
|
2
|
%
|
|
|
a.
|
Customer A is a third-party customer. Revenues and the related accounts receivable balances earned from Customer A were derived from the Company's infrastructure services segment. Accounts receivable for Customer A also includes receivables due for interest charged on delinquent accounts receivable.
|
|
|
b.
|
Customer B is a 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.
|
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.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02 “Leases (Topic 842)” amending the current accounting for leases. Under the new provisions, all lessees will report a right of use asset and lease liability on the balance sheet for all leases with a term longer than one year, while maintaining substantially similar classifications for financing and operating leases. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. The Company adopted this ASU effective January 1, 2019 utilizing the transition method permitted by ASU No. 2018-11 "Leases (Topic 842): Targeted Improvements", issued in August 2018, which permits an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment made to the comparative periods presented in the consolidated financial statements. See Note 14 for the impact the adoption of this standard had on the Company's financial statements.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Accounting,” which simplifies the accounting for share-based payments granted to non-employees by aligning the accounting with requirements for employee share-based compensation. Upon transition, this ASU requires non-employee awards to be measured at fair value as of the adoption date. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. The Company adopted this ASU effective January 1, 2019 and estimates the fair value of its non-employee awards (see Note 16) was approximately
$18.9 million
as of this date.
The Company's primary revenue streams include infrastructure services, pressure pumping services, natural sand proppant services and other services, which includes contract land and directional drilling, coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, crude oil hauling and remote accommodations services. See Note 20 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). The Company accounts for infrastructure services as a single performance obligation 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 to receive it is unconditional.
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.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2019
, the Company had deferred revenue totaling
$3.0 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, 2019
, the Company recognized revenue totaling
$1.0 million
related to shortfall payments. The Company did not recognize any revenue related to shortfall payments during the three months ended March 31, 2018.
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.
Other Services
The Company also provides contract land and directional drilling, coil tubing, pressure control, flowback, cementing, equipment rentals, crude oil hauling and remote accommodations services, which are reported under other services. These services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Performance obligations for these services are satisfied over time and revenue is recognized as the work progresses based on the measure of output. Jobs for these services are typically short-term in nature and range from a few hours to multiple days.
Practical Expedients
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of
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, January 1, 2018
|
|
$
|
15,000
|
|
Deduction for recognition of revenue
|
|
(15,000
|
)
|
Increase for deferral of shortfall payments
|
|
4,246
|
|
Increase for deferral of customer prepayments
|
|
58
|
|
Balance, December 31, 2018
|
|
4,304
|
|
Deduction for recognition of revenue
|
|
(2,054
|
)
|
Increase for deferral of shortfall payments
|
|
768
|
|
Increase for deferral of customer prepayments
|
|
336
|
|
Balance, March 31, 2019
|
|
$
|
3,354
|
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company did
no
t have any contract assets as of
March 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, 2019
and 2018. As of
March 31, 2019
, the Company had unsatisfied performance obligations totaling
$129.6 million
, which will be recognized over the next
2.5 years
.
Acquisition of Air Rescue Systems and Brim Equipment Assets
On December 21, 2018, Cobra Aviation Services LLC ("Cobra Aviation"), a variable interest entity of the Company, completed a series of transactions that provided for an expansion of its aviation service business. These transactions include (i) the acquisition of all outstanding equity interests in Air Rescue Systems Corporation ("ARS"), (ii) the purchase of
two
commercial helicopters, spare parts, support equipment and aircraft documents from Brim Equipment Leasing, Inc. ("Brim Equipment") (the "Brim Equipment Assets") and (iii) the formation of a joint venture between Cobra Aviation and Wexford Partners Investment Co. LLC ("Wexford Investment"), a related party, under the name of Brim Acquisitions LLC ("Brim Acquisitions"), which acquired all outstanding equity interest 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 acquisition of ARS qualifies under FASB ASC 805,
Business Combinations
, as a business combination. The purchase of the Brim Equipment Assets was negotiated and funded as part of the acquisition. Therefore, the purchase of the Brim Equipment Assets also qualifies as a business combination under ASC 805. Cobra Aviation is able to exercise significant influence over certain aspects of Brim Acquisitions' activities, but is a minority owner and does not have controlling financial interest. As a result, Cobra Aviation's investment in Brim Acquisitions is accounted for as an equity method investment under FASB ASC 323,
Investments-Equity Method and Joint Ventures
. See Note 8 for additional information on our investment in Brim Acquisitions.
Total consideration paid for ARS was
$2.4 million
in cash to the sellers plus
$0.3 million
in consideration to be paid upon completion of certain contractual obligations. Total consideration paid for the Brim Equipment Assets was
$4.2 million
. The Company used cash on hand to fund the acquisitions.
The following table summarizes the fair value of ARS and the Brim Equipment Assets as of December 21, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
ARS
|
|
Brim Equipment Assets
|
Accounts receivable
|
$
|
146
|
|
|
$
|
—
|
|
Property, plant and equipment
|
1,702
|
|
|
1,990
|
|
Identifiable intangible assets - trade name
(a)
|
120
|
|
|
—
|
|
Goodwill
(b)
|
694
|
|
|
2,243
|
|
Other non-current assets
|
5
|
|
|
—
|
|
Total assets acquired
|
$
|
2,667
|
|
|
$
|
4,233
|
|
|
|
a.
|
Trade name was valued using a "Relief-from-Royalty" method and will be amortized over
20 years
.
|
|
|
b.
|
Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to assembled workforces and future profitability expected to arise from the acquired entity.
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
From the acquisition date through
December 31, 2018
and for the
three
months ended
March 31, 2019
, ARS and the Brim Equipment Assets provided the following activity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
ARS
|
|
Brim Equipment Assets
|
|
ARS
|
|
Brim Equipment Assets
|
Revenues
|
$
|
317
|
|
|
$
|
1,511
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net loss
(a)
|
(238
|
)
|
|
(456
|
)
|
|
(25
|
)
|
|
—
|
|
a. Includes depreciation expense of
$0.1 million
and
$0.02 million
, respectively, for ARS for the 2019 and 2018 and
$0.1 million
for the Brim Equipment Assets for 2019.
The following table presents unaudited pro forma information as if the ARS and the Brim Equipment Assets acquisitions had occurred as of January 1, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
ARS
|
|
Brim Equipment Assets
|
Revenues
|
$
|
1,238
|
|
|
$
|
959
|
|
Net income
|
402
|
|
|
532
|
|
The Company recognized
$0.3 million
of transaction related costs during the year ended December 31, 2018 related to these acquisitions.
Acquisition of WTL Oil LLC
On May 31, 2018, the Company completed its acquisition of WTL Oil LLC ("WTL") for total consideration of
$6.1 million
. The Company used cash on hand and borrowings under its credit facility to fund the acquisition. The acquisition of WTL expanded the Company's service offerings into the crude oil hauling business.
The following table summarizes the fair value of WTL as of May 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
WTL
|
Property, plant and equipment
|
|
$
|
2,960
|
|
Identifiable intangible assets - customer relationships
(a)
|
|
930
|
|
Identifiable intangible assets - trade name
(a)
|
|
650
|
|
Goodwill
(b)
|
|
1,567
|
|
Total assets acquired
|
|
$
|
6,107
|
|
|
|
a.
|
Identifiable intangible assets were measured using a combination of income approaches. Trade names were valued using a "Relief-from-Royalty" method. Non-contractual customer relationships were valued using a "Multi-period excess earnings" method. Identifiable intangible assets will be amortized over
10
-
20
years.
|
|
|
b.
|
Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to the assembled workforce and future profitability expected to arise from the acquired entity.
|
From the acquisition date through
December 31, 2018
and for the
three
months ended
March 31, 2019
, WTL provided the following activity (in thousands):
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Revenues
|
$
|
3,379
|
|
|
$
|
7,511
|
|
Net loss
(a)
|
(571
|
)
|
|
(149
|
)
|
a. Includes depreciation and amortization expense of
$0.5 million
and
$1.0 million
, respectively, for the 2019 and 2018 periods.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents unaudited pro forma information as if the acquisition of WTL had occurred as of January 1, 2018 (in thousands):
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
Revenues
|
$
|
1,709
|
|
Net income
|
192
|
|
The Company recognized
$0.1 million
of transaction related costs during the year ended December 31, 2018 related to this acquisition.
Acquisition of RTS Energy Services LLC
On June 15, 2018, the Company completed its acquisition of RTS Energy Services LLC ("RTS") for total consideration of
$8.1 million
. The Company used cash on hand and borrowings under its credit facility to fund the acquisition. The acquisition of RTS expanded Mammoth's cementing services into the Permian Basin and added acidizing to the Company's service offerings.
The following table summarizes the fair value of RTS as of June 15, 2018 (in thousands):
|
|
|
|
|
|
|
|
RTS
|
Inventory
|
|
$
|
180
|
|
Property, plant and equipment
|
|
7,787
|
|
Goodwill
(a)
|
|
133
|
|
Total assets acquired
|
|
$
|
8,100
|
|
a.
Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to the assembled workforce and future profitability expected to arise from the acquired entity.
From the acquisition date through
December 31, 2018
and for the
three
months ended
March 31, 2019
, RTS provided the following activity (in thousands):
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Revenues
|
$
|
1,360
|
|
|
$
|
6,682
|
|
Net loss
(a)
|
(2,095
|
)
|
|
(3,210
|
)
|
a. Includes depreciation expense of
$0.5 million
and
$0.9 million
, respectively, for the 2019 and 2018 periods.
The following table presents unaudited pro forma information as if the acquisition of RTS had occurred as of January 1, 2018 (in thousands):
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
Revenues
|
$
|
5,623
|
|
Net loss
|
(422
|
)
|
The Company recognized
$0.1 million
of transaction related costs during the year ended December 31, 2018 related to this acquisition.
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 and future utility. A summary of the Company's inventories is shown below (in thousands):
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Supplies
|
|
$
|
12,963
|
|
|
$
|
12,571
|
|
Raw materials
|
|
190
|
|
|
199
|
|
Work in process
|
|
1,373
|
|
|
3,273
|
|
Finished goods
|
|
4,387
|
|
|
5,259
|
|
Total inventories
|
|
$
|
18,913
|
|
|
$
|
21,302
|
|
|
|
6.
|
Property, Plant and Equipment
|
Property, plant and equipment include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
Useful Life
|
|
2019
|
|
2018
|
Assets held and used:
|
|
|
|
|
|
Pressure pumping equipment
|
3-5 years
|
|
$
|
214,030
|
|
|
$
|
208,968
|
|
Drilling rigs and related equipment
|
3-15 years
|
|
122,903
|
|
|
122,198
|
|
Machinery and equipment
|
7-20 years
|
|
187,076
|
|
|
173,867
|
|
Buildings
|
15-39 years
|
|
16,887
|
|
|
16,887
|
|
Vehicles, trucks and trailers
|
5-10 years
|
|
135,524
|
|
|
132,337
|
|
Coil tubing equipment
|
4-10 years
|
|
29,701
|
|
|
29,128
|
|
Land
|
N/A
|
|
14,235
|
|
|
14,235
|
|
Land improvements
|
15 years or life of lease
|
|
10,056
|
|
|
9,614
|
|
Rail improvements
|
10-20 years
|
|
13,806
|
|
|
13,806
|
|
Other property and equipment
|
3-12 years
|
|
13,561
|
|
|
13,614
|
|
|
|
|
757,779
|
|
|
734,654
|
|
Deposits on equipment and equipment in process of assembly
(a)
|
|
|
11,522
|
|
|
16,865
|
|
|
|
|
769,301
|
|
|
751,519
|
|
Less: accumulated depreciation
|
|
|
363,458
|
|
|
337,514
|
|
Total assets held and used, net
|
|
|
405,843
|
|
|
$
|
414,005
|
|
|
|
|
|
|
|
Assets subject to operating leases:
|
|
|
|
|
|
Buildings
|
15-30 years
|
|
30,125
|
|
|
29,493
|
|
Helicopters
|
6 years
|
|
4,937
|
|
|
4,937
|
|
|
|
|
35,062
|
|
|
34,430
|
|
Less: accumulated depreciation
|
|
|
12,625
|
|
|
11,736
|
|
Total assets subject to operating leases, net
|
|
|
22,437
|
|
|
22,694
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
|
$
|
428,280
|
|
|
$
|
436,699
|
|
|
|
|
|
|
|
|
|
a.
|
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.
|
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, 2019
and
2018
, proceeds from the sale of equipment damaged or lost down-hole were a nominal amount and
$0.2 million
, respectively, and gains on sales of equipment damaged or lost down-hole were a nominal amount and
$0.2 million
, respectively.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of depreciation, depletion, amortization and accretion expense is below (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Depreciation expense
|
$
|
28,066
|
|
|
$
|
24,398
|
|
Depletion expense
|
212
|
|
|
87
|
|
Amortization expense
|
284
|
|
|
2,408
|
|
Accretion expense
|
14
|
|
|
15
|
|
Depreciation, depletion, amortization and accretion
|
$
|
28,576
|
|
|
$
|
26,908
|
|
|
|
7.
|
Intangible Assets and Goodwill
|
The Company had the following definite lived intangible assets recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Customer relationships
|
|
$
|
2,255
|
|
|
$
|
2,255
|
|
Trade names
|
|
9,063
|
|
|
9,063
|
|
Less: accumulated amortization - customer relationships
|
|
(618
|
)
|
|
(544
|
)
|
Less: accumulated amortization - trade names
|
|
(3,228
|
)
|
|
(3,018
|
)
|
Intangible assets, net
|
|
$
|
7,472
|
|
|
$
|
7,756
|
|
Amortization expense for intangible assets was
$0.3 million
and
$2.4 million
, respectively, for the
three
months ended
March 31, 2019
and
2018
. The original life of customer relationships ranges from
6
to
10
years with a remaining average useful life of
6.7
years. The original life of trade names ranges from
10
to
20
years with a remaining average useful life of
8.8
years.
Aggregated expected amortization expense for the future periods is expected to be as follows (in thousands):
|
|
|
|
|
|
|
|
Amount
|
Remainder of 2019
|
|
$
|
851
|
|
2020
|
|
1,135
|
|
2021
|
|
1,129
|
|
2022
|
|
1,108
|
|
2023
|
|
991
|
|
Thereafter
|
|
2,258
|
|
|
|
$
|
7,472
|
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Goodwill was
$101.2 million
at both
March 31, 2019
and
December 31, 2018
. Changes in the goodwill for the year ended
December 31, 2018
and the
three
months ended
March 31, 2019
are set forth below (in thousands):
|
|
|
|
|
|
Balance, January 1, 2018
|
|
$
|
99,811
|
|
Additions:
|
|
|
WTL
|
|
1,567
|
|
RTS
|
|
133
|
|
ARS
|
|
694
|
|
Brim Equipment Assets
|
|
2,243
|
|
Impairment
|
|
(3,203
|
)
|
Balance, December 31, 2018
|
|
101,245
|
|
Additions
|
|
—
|
|
Balance, March 31, 2019
|
|
$
|
101,245
|
|
During the year ended
December 31, 2018
, the Company moved Cementing's equipment from the Utica shale to the Permian basin. As a result, the Company recognized impairment on Cementing's intangible assets, including goodwill, non-contractual customer relationships and trade name of
$3.2 million
,
$1.0 million
and
$0.2 million
, respectively.
Cementing's goodwill was measured using an income approach, which provides an estimated fair value based on anticipated cash flows that are discounted using a weighted average cost of capital rate.
|
|
8.
|
Equity Method Investment
|
On December 21, 2018, Cobra Aviation and Wexford Investment, a related party, formed a joint venture under the name of Brim Acquisitions to acquire all outstanding equity interest in Brim Equipment for a total purchase price of approximately
$1.4 million
in cash to the sellers plus
$0.6 million
in consideration to be paid upon completion of certain contractual obligations. 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
$1.4 million
at
March 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
($0.7) million
, inclusive of intercompany profit eliminations, for its share of Brim Acquisitions' loss for the
three
months ended
March 31, 2019
, which is included in other, net on the unaudited condensed consolidated statements of comprehensive income. The Company made additional investments totaling
$0.5 million
during the
three
months ended
March 31, 2019
.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
9.
|
Accrued Expenses and Other Current Liabilities
|
Accrued expense and other current liabilities included the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
Accrued compensation, benefits and related taxes
|
|
$
|
17,666
|
|
|
$
|
20,898
|
|
State and local taxes payable
|
|
19,959
|
|
|
18,687
|
|
Insurance reserves
|
|
4,618
|
|
|
4,678
|
|
Deferred revenue
|
|
3,354
|
|
|
4,304
|
|
Financed insurance premiums
|
|
4,832
|
|
|
6,761
|
|
Other
|
|
4,829
|
|
|
4,324
|
|
Total
|
|
$
|
55,258
|
|
|
$
|
59,652
|
|
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, 2019
and
December 31, 2018
, the applicable interest rate associated with financed insurance premiums was
3.45%
.
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, which amended and restated the Company's prior revolving credit and security agreement dated as of November 25, 2014, as amended prior to October 19, 2018. The facility matures on October 19, 2023. Borrowings under this facility are secured by the assets of Mammoth Inc., inclusive of certain of the subsidiary companies. The maximum availability of the facility is subject to a borrowing base calculation prepared monthly.
Outstanding borrowings under this facility bear interest at a per annum rate elected by Mammoth Inc. that is equal to an alternate base rate or LIBOR, in each case plus the applicable margin. The applicable margin ranges from
1.00%
to
1.50%
per annum in the case of the alternate base rate, and from
2.00%
to
2.50%
per annum in the case of LIBOR. The applicable margin depends on the amount of excess availability under this facility.
At
March 31, 2019
, there were outstanding borrowings under the amended and restated revolving credit facility of
$82.0 million
and
$93.5 million
of available borrowing capacity, after giving effect to
$8.7 million
of outstanding letters of credit. At
December 31, 2018
, there were no outstanding borrowings under the amended and restated revolving credit facility and
$175.8 million
of borrowing capacity under the facility, after giving effect to
$8.4 million
of outstanding letters of credit.
The Mammoth Inc. facility also contains various customary affirmative and restrictive covenants. Among the various covenants are specifically identified financial covenants placing requirements of a minimum interest coverage ratio (
3.0
to 1.0), maximum leverage ratio (
4.0
to 1.0), and minimum availability (
$10 million
). As of
March 31, 2019
and
December 31, 2018
, the Company was in compliance with the financial covenants under the facility.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
11.
|
Variable Interest Entity
|
On April 6, 2018, Dire Wolf Energy Services LLC ("Dire Wolf"), a wholly owned subsidiary of the Company, entered into a Voting Trust Agreement with TVPX Aircraft Solutions Inc. (the "Voting Trustee"). Under the Voting Trust Agreement, Dire Wolf transferred
100%
of its membership interest in Cobra Aviation to the Voting Trustee in exchange for Voting Trust Certificates. Dire Wolf retained the obligation to absorb all expected returns or losses of Cobra Aviation. Prior to the transfer of the membership interest to the Voting Trustee, Cobra Aviation was a wholly owned subsidiary of Dire Wolf. Cobra Aviation owns
three
helicopters and support equipment,
100%
of the equity interest in ARS and
49%
of the equity interest in Brim Acquisitions. Dire Wolf entered into the Voting Trust Agreement in order to meet certain registration requirements.
Dire Wolf's voting rights are not proportional to its obligation to absorb expected returns or losses of Cobra Aviation and all of Cobra Aviation's activities are conducted on behalf of Dire Wolf, which has disproportionately fewer voting rights; therefore, Cobra Aviation meets the criteria of a VIE. Cobra Aviation's operational activities are directed by Dire Wolf's officers and Dire Wolf has the option to terminate the Voting Trust Agreement at any time. Therefore, the Company, through Dire Wolf, is considered the primary beneficiary of the VIE and consolidates Cobra Aviation at March 31, 2019.
|
|
12.
|
Selling, General and Administrative Expense
|
Selling, general and administrative ("SG&A") expense includes of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Cash expenses:
|
|
|
|
Compensation and benefits
|
$
|
9,230
|
|
|
$
|
7,699
|
|
Professional services
|
3,789
|
|
|
2,587
|
|
Other
(a)
|
3,244
|
|
|
1,607
|
|
Total cash SG&A expense
|
16,263
|
|
|
11,893
|
|
Non-cash expenses:
|
|
|
|
Bad debt provision
(b)
|
4
|
|
|
25,527
|
|
Stock based compensation
|
1,069
|
|
|
1,091
|
|
Total non-cash SG&A expense
|
1,073
|
|
|
26,618
|
|
Total SG&A expense
|
$
|
17,336
|
|
|
$
|
38,511
|
|
|
|
a.
|
Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs.
|
|
|
b.
|
$25.4 million
of the bad debt expense recognized during the
three
months ended
March 31, 2018
was subsequently reversed during the third quarter of 2018.
|
The Company's effective tax rate was
45%
for each of the
three
months ended
March 31, 2019
and
2018
. The effective tax rates for the
three
months ended
March 31, 2019
and
2018
differ from the statutory rate of 21% due to the mix of earnings between the United States and Puerto Rico. The majority of the Company's earnings for the periods were derived from Puerto Rico, which has a higher statutory rate compared to the United States. The Company recorded income tax expense of
$22.9 million
and
$45.9 million
, respectively, for the
three
months ended
March 31, 2019
and
2018
.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
which supersedes the requirements set forth in ASC 840,
Leases
. The Company adopted this standard effective January 1, 2019 utilizing the transition method which permits an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment made to the comparative periods presented in the consolidated financial statements. Accordingly, the comparative information as of December 31, 2018 and for the three months ended March 31, 2018 has not been adjusted and continues to be reported under the previous lease standard. The new guidance requires lessees to report a right of use asset and lease liability on the balance sheet for all leases with a term longer than one year, while maintaining substantially similar classifications for financing and operating leases. Lessor accounting remains substantially unchanged with the exception that no leases entered into after the effective date will be classified as leveraged leases.
The Company elected the transition practical expedient package whereby an entity was not required to reassess (i) whether any expired or existing contracts are or contained leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. The adoption of ASC 842 resulted in the recognition of approximately
$60.0 million
of operating lease right-of-use assets and operating lease liabilities on our consolidated balance sheet as of January 1, 2019 and did not materially impact our consolidated statement of comprehensive income for the three months ended March 31, 2019.
Lessee Accounting
Beginning January 1, 2019, for all leases with a term in excess of 12 months, 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 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 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.
Lease expense consisted of the following for the three months ended March 31, 2019 (in thousands):
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
Operating lease expense
|
$
|
6,015
|
|
Short-term lease expense
|
214
|
|
Finance lease expense:
|
|
Amortization of right-of-use assets
|
197
|
|
Interest on lease liabilities
|
38
|
|
Total lease expense
|
$
|
6,464
|
|
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental balance sheet information related to leases as of March 31, 2019 is as follows:
|
|
|
|
|
|
March 31, 2019
|
Operating leases:
|
|
Operating lease right-of-use assets
|
$
|
56,234
|
|
Current operating lease liability
|
17,533
|
|
Long-term operating lease liability
|
38,572
|
|
Finance leases:
|
|
Property and equipment, net
|
$
|
3,716
|
|
Accrued expenses and other current liabilities
|
1,797
|
|
Other liabilities
|
1,709
|
|
Other supplemental information related to leases for the three months ended March 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
5,961
|
|
Operating cash flows from finance leases
|
34
|
|
Financing cash flows from finance leases
|
329
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
$
|
955
|
|
Finance leases
|
—
|
|
Weighted-average remaining lease term:
|
|
Operating leases
|
3.8 years
|
|
Finance leases
|
2.7 years
|
|
Weighted-average discount rate:
|
|
Operating leases
|
4.5
|
%
|
Finance leases
|
4.5
|
%
|
Maturities of lease liabilities as of March 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
Remainder of 2019
|
$
|
15,032
|
|
|
$
|
1,754
|
|
2020
|
17,373
|
|
|
737
|
|
2021
|
12,854
|
|
|
428
|
|
2022
|
8,811
|
|
|
394
|
|
2023
|
4,473
|
|
|
387
|
|
Thereafter
|
2,589
|
|
|
32
|
|
Total lease payments
|
61,132
|
|
|
3,732
|
|
Less: Present value discount
|
5,027
|
|
|
226
|
|
Present value of lease payments
|
$
|
56,105
|
|
|
$
|
3,506
|
|
As of December 31, 2018, future minimum payments under noncancellable operating leases were
$66.2 million
in the aggregate, which consisted of the following:
$20.2 million
in 2019,
$16.6 million
in 2020,
$12.6 million
in 2021,
$9.3 million
in 2022,
$5.0 million
in 2023 and
$2.5 million
thereafter.
As of March 31, 2019, the Company was party to
one
additional operating lease for rail cars that had not yet commenced. This agreement provides for fixed lease payments of
$5.4 million
to be paid over the
five
year lease term.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Lessor Accounting
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 agreement 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
$3.1 million
during the
three
months ended
March 31, 2019
, which is included in service revenue on the unaudited condensed consolidated statement of comprehensive income.
|
|
15.
|
Earnings (Loss) Per Share
|
Reconciliations of the components of basic and diluted net income (loss) per common share are presented in the table below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Basic earnings per share:
|
|
|
|
Allocation of earnings:
|
|
|
|
Net income
|
$
|
28,333
|
|
|
$
|
55,546
|
|
Weighted average common shares outstanding
|
44,929
|
|
|
44,650
|
|
Basic earnings per share
|
$
|
0.63
|
|
|
$
|
1.24
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
Allocation of earnings:
|
|
|
|
Net income
|
$
|
28,333
|
|
|
$
|
55,546
|
|
Weighted average common shares, including dilutive effect
|
45,063
|
|
|
44,884
|
|
Diluted earnings per share
|
$
|
0.63
|
|
|
$
|
1.24
|
|
|
|
16.
|
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.
On June 29, 2018, as part of an underwritten secondary public offering, MEH Sub sold
2,764,400
shares of the Company’s common stock at a purchase price to MEH Sub of
$38.01
per share. Additionally, the selling stockholders granted the underwriters an option to purchase additional shares of the Company's common stock at the same purchase
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
price. On July 30, 2018, in connection with the partial exercise of this option, MEH Sub sold an additional
266,026
shares of common stock to the underwriters. MEH Sub received the proceeds from this offering. As a result of the June 29, 2018 offering, a portion of the Non-Employee Member awards reached Payout. During the year ended
December 31, 2018
, the Company recognized equity compensation expense totaling
$17.5 million
related to these non-employee awards. These awards are at the sponsor level and this transaction had no dilutive impact or cash impact to the Company.
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
.
|
|
17.
|
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.
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
|
|
1,549
|
|
|
23.52
|
|
Vested
|
|
(119,989
|
)
|
|
21.10
|
|
Forfeited
|
|
(16,668
|
)
|
|
20.36
|
|
Unvested shares as of March 31, 2019
|
|
299,011
|
|
|
$
|
23.58
|
|
As of
March 31, 2019
, there was
$4.6 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
1.3 years
.
Included in cost of revenue and selling, general and administrative expenses is stock based compensation expense of
$1.3 million
and
$1.3 million
, respectively, for the
three
months ended
March 31, 2019
and
2018
.
|
|
18.
|
Related Party Transactions
|
Transactions between the subsidiaries of the Company, including Stingray Pressure Pumping LLC (“Pressure Pumping”), Muskie Proppant LLC (“Muskie”), Stingray Energy Services LLC (“SR Energy”), Stingray Cementing LLC (“Cementing”), Aquahawk Energy LLC (“Aquahawk”), Panther Drilling Systems LLC (“Panther Drilling”), Cobra Aviation, ARS, Cobra and Higher Power Electrical LLC (“Higher Power”) and the following companies are included in Related Party Transactions: Gulfport; 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”), T&E Flow Services LLC (“T&E”) and Brim Equipment.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of related party transactions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
ACCOUNTS RECEIVABLE
|
|
|
Three Months Ended March 31,
|
|
At March 31,
|
At December 31,
|
|
|
2019
|
2018
|
|
2019
|
2018
|
Pressure Pumping and Gulfport
|
(a)
|
$
|
37,410
|
|
$
|
38,546
|
|
|
$
|
30,867
|
|
$
|
8,175
|
|
Muskie and Gulfport
|
(b)
|
12,655
|
|
11,462
|
|
|
7,714
|
|
1,193
|
|
SR Energy and Gulfport
|
(c)
|
5,307
|
|
6,953
|
|
|
5,317
|
|
1,658
|
|
Cementing and Gulfport
|
(d)
|
—
|
|
2,828
|
|
|
—
|
|
—
|
|
Aquahawk and Gulfport
|
(e)
|
724
|
|
—
|
|
|
724
|
|
—
|
|
Panther Drilling and El Toro
|
(f)
|
369
|
|
345
|
|
|
142
|
|
64
|
|
Cobra Aviation/ARS and Brim Equipment
|
(g)
|
263
|
|
—
|
|
|
207
|
|
—
|
|
Other Relationships
|
|
—
|
|
416
|
|
|
61
|
|
74
|
|
|
|
$
|
56,728
|
|
$
|
60,550
|
|
|
$
|
45,032
|
|
$
|
11,164
|
|
|
|
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.
|
|
|
d.
|
Cementing performed well cementing services for Gulfport.
|
|
|
e.
|
Aquahawk provides water transfer services for Gulfport pursuant to a master service agreement.
|
|
|
f.
|
Panther provides directional drilling services for El Toro, an entity controlled by Wexford, pursuant to a master service agreement.
|
|
|
g.
|
Cobra Aviation and ARS lease helicopters to Brim Equipment pursuant to aircraft lease and management agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
At March 31,
|
At December 31,
|
|
|
2019
|
2018
|
|
2019
|
2018
|
|
|
COST OF REVENUE
|
|
ACCOUNTS PAYABLE
|
Cobra Aviation/ ARS and Brim Equipment
|
(a)
|
$
|
713
|
|
$
|
—
|
|
|
$
|
445
|
|
$
|
—
|
|
Cobra and T&E
|
(b)
|
—
|
|
1,275
|
|
|
—
|
|
—
|
|
Higher Power and T&E
|
(b)
|
—
|
|
509
|
|
|
—
|
|
—
|
|
Other
|
|
—
|
|
8
|
|
|
—
|
|
240
|
|
|
|
$
|
713
|
|
$
|
1,792
|
|
|
$
|
445
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
SELLING, GENERAL AND ADMINISTRATIVE COSTS
|
|
|
|
The Company and Wexford
|
(c)
|
$
|
236
|
|
$
|
183
|
|
|
$
|
118
|
|
$
|
100
|
|
The Company and Caliber
|
(d)
|
130
|
|
201
|
|
|
5
|
|
3
|
|
Other
|
|
68
|
|
45
|
|
|
41
|
|
27
|
|
|
|
$
|
434
|
|
$
|
429
|
|
|
$
|
164
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
CAPITAL EXPENDITURES
|
|
|
|
Cobra and T&E
|
(a)
|
$
|
—
|
|
$
|
374
|
|
|
$
|
—
|
|
$
|
—
|
|
Higher Power and T&E
|
(a)
|
—
|
|
1,198
|
|
|
—
|
|
—
|
|
|
|
$
|
—
|
|
$
|
1,572
|
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
$
|
609
|
|
$
|
370
|
|
|
|
a.
|
Cobra Aviation and ARS lease helicopters to Brim Equipment pursuant to aircraft lease and management agreements.
|
|
|
b.
|
Cobra and Higher Power purchased materials and services from T&E, an entity in which a member of management's family owned a minority interest. T&E ceased to be a related party as of September 30, 2018.
|
|
|
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.
|
|
|
d.
|
Caliber leases office space to Mammoth.
|
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
. Cobra Aviation made additional investments in Brim
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Acquisitions totaling
$0.5 million
during the
three
months ended
March 31, 2019
. Wexford Investments is an entity controlled by Wexford, which owns approximately
49%
of the Company's outstanding common stock.
|
|
19.
|
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 acquire capital equipment.
Aggregate future minimum payments under these obligations in effect at
March 31, 2019
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year ended December 31:
|
|
Capital Spend Commitments
|
|
Minimum Purchase Commitments
(a)
|
Remainder of 2019
|
|
$
|
2,690
|
|
|
$
|
25,594
|
|
2020
|
|
—
|
|
|
19,796
|
|
2021
|
|
—
|
|
|
621
|
|
2022
|
|
—
|
|
|
33
|
|
2023
|
|
—
|
|
|
8
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
|
$
|
2,690
|
|
|
$
|
46,052
|
|
|
|
a.
|
Included in these amounts are sand purchase commitments of
$38.0 million
. Pricing for certain sand purchase agreements is variable and, therefore, the total sand purchase commitments could be as much as
$43.4 million
. The minimum amount due in the form of shortfall fees under certain sand purchase agreements was
$2.9 million
as of
March 31, 2019
.
|
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,
|
|
|
2019
|
|
2018
|
Insurance programs
|
|
$
|
4,105
|
|
|
$
|
4,105
|
|
Environmental remediation
|
|
4,182
|
|
|
3,877
|
|
Rail car commitments
|
|
455
|
|
|
455
|
|
Total letters of credit
|
|
$
|
8,742
|
|
|
$
|
8,437
|
|
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, 2019
and
December 31, 2018
, the policies require a deductible per occurrence of up to
$0.1 million
. The Company establishes liabilities for the unpaid deductible portion of claims incurred relating to physical loss to its assets, employer's liability, automobile liability, commercial general liability and workers’ compensation based on estimates. As of
March 31, 2019
and
December 31, 2018
, the policies contained an aggregate stop loss of
$5.4 million
. As of
March 31, 2019
and
December 31, 2018
, accrued claims were
$4.6 million
and
$4.7 million
, respectively.
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. These estimates may change in the near term as actual claims continue to develop. As of
March 31, 2019
and
December 31, 2018
, accrued claims were
$3.0 million
and
$3.2 million
, respectively.
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2019
and December 31, 2018 and
no
expense was recognized during the three months ended
March 31, 2019
or
2018
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.
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, 2019
and
December 31, 2018
, outstanding bid bonds totaled
$5.9 million
and
$3.6 million
, respectively, and outstanding performance and payment bonds totaled
$22.4 million
and
$22.3 million
, respectively. The estimated cost to complete projects secured by the performance and payment bonds totaled
$13.4 million
as of
March 31, 2019
.
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 27, 2018, the Company's registered agent notified the Company that it had been served with a putative class action lawsuit titled 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; Aseguradoras A, B & C; John Doe; Richard Doe, in the Commonwealth of Puerto Rico Superior Court of San Juan. The plaintiffs allege negligent acts by the defendants caused an electrical failure in Puerto Rico resulting in damages of at least
$300 million
. The Company believes this claim is without merit and will vigorously defend the action. However, the Company continues to evaluate the background facts and at this time is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company's financial position, results of operations or cash flows.
In late 2018 and early 2019, Cobra was served with
four
lawsuits from municipalities in Puerto Rico alleging failure to pay municipal license and construction excise 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, the Company continues to evaluate the facts and circumstances and at this time is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company's financial position, 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
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2019
and
2018
, the Company paid
$0.9 million
and
$1.6 million
, respectively, in contributions to the plan.
As of
March 31, 2019
, our revenues, income before income taxes and identifiable assets are primarily attributable to
three
reportable segments. The Company principally provides electric infrastructure services to government-funded utilities, 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), 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, 2018
, the Company had
four
reportable segments, including infrastructure services, pressure pumping services, natural sand proppant services and contract land and directional drilling services. Based on its assessment of FASB ASC 280,
Segment Reporting
, guidance at December 31, 2018, the Company changed its reportable segment presentation in 2018, as it determined based upon both a quantitative and qualitative basis that the contract land and directional drilling services segment is not of continuing significance for accounting reporting purposes. The Company now includes the results of the entities previously included in the contract land and directional drilling services segment in the reconciling column titled "All Other" in the tables below. The results below for the
three
months ended
March 31, 2018
have been retroactively adjusted to reflect this change. As of
March 31, 2019
, the Company’s
three
reportable segments include infrastructure services ("Infrastructure"), pressure pumping services ("Pressure Pumping") and natural sand proppant services ("Sand").
The infrastructure services segment provides 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 services 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.
The Company also provides contract land and directional drilling services, coil tubing services, flowback services, cementing services, acidizing services, equipment rental services, crude oil hauling services and remote accommodation 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):
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2019
|
Infrastructure
|
Pressure Pumping
|
Sand
|
All Other
|
Eliminations
|
Total
|
Revenue from external customers
|
$
|
108,721
|
|
$
|
90,595
|
|
$
|
24,964
|
|
$
|
37,858
|
|
$
|
—
|
|
$
|
262,138
|
|
Intersegment revenues
|
—
|
|
1,544
|
|
12,897
|
|
658
|
|
(15,099
|
)
|
—
|
|
Total revenue
|
108,721
|
|
92,139
|
|
37,861
|
|
38,516
|
|
(15,099
|
)
|
262,138
|
|
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion
|
58,965
|
|
64,211
|
|
30,252
|
|
35,642
|
|
—
|
|
189,070
|
|
Intersegment cost of revenues
|
—
|
|
13,537
|
|
1,047
|
|
497
|
|
(15,081
|
)
|
—
|
|
Total cost of revenue
|
58,965
|
|
77,748
|
|
31,299
|
|
36,139
|
|
(15,081
|
)
|
189,070
|
|
Selling, general and administrative
|
9,517
|
|
3,213
|
|
1,519
|
|
3,087
|
|
—
|
|
17,336
|
|
Depreciation, depletion, amortization and accretion
|
7,719
|
|
9,893
|
|
2,873
|
|
8,091
|
|
—
|
|
28,576
|
|
Operating income (loss)
|
32,520
|
|
1,285
|
|
2,170
|
|
(8,801
|
)
|
(18
|
)
|
27,156
|
|
Interest expense, net
|
39
|
|
198
|
|
30
|
|
256
|
|
—
|
|
523
|
|
Other (income) expense, net
|
(24,824
|
)
|
(1
|
)
|
—
|
|
268
|
|
—
|
|
(24,557
|
)
|
Income (loss) before income taxes
|
$
|
57,305
|
|
$
|
1,088
|
|
$
|
2,140
|
|
$
|
(9,325
|
)
|
$
|
(18
|
)
|
$
|
51,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
Infrastructure
|
Pressure Pumping
|
Sand
|
All Other
|
Eliminations
|
Total
|
Revenue from external customers
|
$
|
325,459
|
|
$
|
96,579
|
|
$
|
36,503
|
|
$
|
35,708
|
|
$
|
—
|
|
$
|
494,249
|
|
Intersegment revenues
|
—
|
|
4,559
|
|
14,512
|
|
2,417
|
|
(21,488
|
)
|
—
|
|
Total revenue
|
325,459
|
|
101,138
|
|
51,015
|
|
38,125
|
|
(21,488
|
)
|
494,249
|
|
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion
|
194,076
|
|
66,612
|
|
33,330
|
|
32,083
|
|
—
|
|
326,101
|
|
Intersegment cost of revenues
|
1,791
|
|
15,402
|
|
4,286
|
|
267
|
|
(21,746
|
)
|
—
|
|
Total cost of revenue
|
195,867
|
|
82,014
|
|
37,616
|
|
32,350
|
|
(21,746
|
)
|
326,101
|
|
Selling, general and administrative
|
31,851
|
|
2,663
|
|
1,644
|
|
2,353
|
|
—
|
|
38,511
|
|
Depreciation, depletion, amortization and accretion
|
2,407
|
|
13,986
|
|
2,316
|
|
8,199
|
|
—
|
|
26,908
|
|
Operating income (loss)
|
95,334
|
|
2,475
|
|
9,439
|
|
(4,777
|
)
|
258
|
|
102,729
|
|
Interest expense, net
|
76
|
|
504
|
|
80
|
|
577
|
|
—
|
|
1,237
|
|
Other expense (income), net
|
2
|
|
12
|
|
(13
|
)
|
27
|
|
—
|
|
28
|
|
Income (loss) before income taxes
|
$
|
95,256
|
|
$
|
1,959
|
|
$
|
9,372
|
|
$
|
(5,381
|
)
|
$
|
258
|
|
$
|
101,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure
|
Pressure Pumping
|
Sand
|
All Other
|
Eliminations
|
Total
|
As of March 31, 2019:
|
|
|
|
|
|
|
Total assets
|
$
|
433,855
|
|
$
|
276,001
|
|
$
|
227,864
|
|
$
|
193,048
|
|
$
|
39,739
|
|
$
|
1,170,507
|
|
Goodwill
|
$
|
3,828
|
|
$
|
86,043
|
|
$
|
2,684
|
|
$
|
8,690
|
|
$
|
—
|
|
$
|
101,245
|
|
As of December 31, 2018:
|
|
|
|
|
|
|
Total assets
|
$
|
366,457
|
|
$
|
254,278
|
|
$
|
177,870
|
|
$
|
122,442
|
|
$
|
152,044
|
|
$
|
1,073,091
|
|
Goodwill
|
$
|
3,828
|
|
$
|
86,043
|
|
$
|
2,684
|
|
$
|
8,690
|
|
$
|
—
|
|
$
|
101,245
|
|
Subsequent to
March 31, 2019
, the Company borrowed an additional
$26.5 million
under its credit facility. At
April 30, 2019
, outstanding borrowings under the Company's revolving credit facility totaled
$108.6 million
, leaving an aggregate of
$66.9 million
of available borrowing capacity under the facility, which is net of letters of credit of
$8.7 million
.
On April 16, 2019, a putative class and collective action lawsuit alleging that the Company failed to pay a class of workers overtime in compliance with the Fair Labor Standards Act and Puerto Rico law was filed titled Christopher Williams, individually and on behalf of all others similarly situated vs. Higher Power Electrical, LLC, Cobra Acquisitions LLC, and Cobra Energy, LLC in the U.S. District Court for the District of Puerto Rico. The Company is evaluating the
MAMMOTH ENERGY SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
background facts and at this time is not able to predict the outcome of this lawsuit or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.
On April 30, 2019, the Company's board of Directors declared a quarterly cash dividend of
$0.125
per share of common stock to be paid on May 17, 2019 to stockholders of record as of the close of business on May 10, 2019. Based on the number of shares outstanding at April 30, 2019, the total dividend payable to stockholders on May 17, 2019 will be approximately
$5.6 million
.
Subsequent to
March 31, 2019
, the Company ordered additional capital equipment with aggregate commitments of
$3.0 million
. Additionally, the Company's infrastructure services segment entered into equipment financing leases with aggregate commitments of
$3.2 million
.