The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes thereto presented
in this Quarterly Report and the consolidated financial statements and related
notes thereto included in our Annual Report on Form 10-K. This discussion
contains forward-looking statements reflecting our current expectations,
estimates and assumptions concerning events and financial trends that may affect
our future operating results or financial position. Actual results and the
timing of events may differ materially from those contained in these
forward-looking statements due to a number of factors, including those discussed
in Item 1A. "Risk Factors" in our Form 10-K for the year ended December 31,
2021, our Quarterly Report on Form 10-Q for the quarterly period ended March
31,2022 and the section entitled "Forward-Looking Statements" appearing
elsewhere in this Quarterly Report.
Overview
We are an integrated, growth-oriented energy services company focused on the
construction and repair of the electric grid for private utilities, public
investor-owned utilities and co-operative utilities through our infrastructure
services businesses. We also provide products and services to enable the
exploration and development of North American onshore unconventional oil and
natural gas reserves. Our primary business objective is to grow our operations
and create value for stockholders through organic growth opportunities and
accretive acquisitions. Our suite of services includes infrastructure services,
well completion services, natural sand proppant services, drilling services and
other services. Our infrastructure services division provides engineering,
design, construction, upgrade, maintenance and repair services to the electrical
infrastructure industry. Our well completion services division provides
hydraulic fracturing, sand hauling and water transfer services. Our natural sand
proppant services division mines, processes and sells natural sand proppant used
for hydraulic fracturing. Our drilling services division currently provides
rental equipment, such as mud motors and operational tools, for both vertical
and horizontal drilling. In addition to these service divisions, we also provide
aviation services, equipment rentals, remote accommodations and equipment
manufacturing. We believe that the services we offer play a critical role in
maintaining and improving electrical infrastructure as well as in increasing the
ultimate recovery and present value of production streams from unconventional
resources. Our complementary suite of services provides us with the opportunity
to cross-sell our services and expand our customer base and geographic
positioning.
Our transformation towards an industrial based company is ongoing. We offer
infrastructure engineering services focused on the transmission and distribution
industry and also have equipment manufacturing operations and offer fiber optic
services. Our equipment manufacturing operations provide us with the ability to
repair much of our existing equipment in-house, as well as the option to
manufacture certain new equipment we may need in the future. The equipment
manufacturing operations have initially served the internal needs for our water
transfer, equipment rental and infrastructure businesses, but we expect to
expand into third party sales in the future. Our fiber optic services include
the installation of both aerial and buried fiber. We are continuing to explore
other opportunities to expand our business lines as we shift to a broader
industrial focus.
Overview of Our Services and Industry Conditions
Infrastructure Services
Our infrastructure services business provides engineering, design, construction,
upgrade, maintenance and repair services to the electrical infrastructure
industry. We offer a broad range of services on electric transmission and
distribution, or T&D, networks and substation facilities, which include
engineering, design, construction, upgrade, maintenance and repair of high
voltage transmission lines, substations and lower voltage overhead and
underground distribution systems. Our commercial services include the
installation, maintenance and repair of commercial wiring. We also provide storm
repair and restoration services in response to storms and other disasters. We
provide infrastructure services primarily in the northeast, southwest, midwest
and western portions of the United States. We currently have agreements in place
with private utilities, public IOUs and Co-Ops.
Although the COVID-19 pandemic and resulting economic conditions have not had a
material impact on demand or pricing for our infrastructure services, revenues
from our infrastructure services declined in 2021 as a result of certain
management changes, which resulted in crew departures, as well as a decline in
storm restoration activities. Revenue from our infrastructure services continue
to improve quarter-over-quarter in the first and second quarters of 2022, as
compared to the fourth quarter of 2021. Our infrastructure services business has
also been adversely impacted by the outstanding amounts owed to us by the Puerto
Rico Electric Power Authority, or PREPA, for services performed by our
subsidiary, Cobra Acquisitions LLC, or Cobra, in Puerto Rico to restore PREPA's
electrical grid damaged by Hurricane Maria. As of June 30, 2022, PREPA,
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which is currently subject to bankruptcy proceedings, owed us approximately $227
million for services performed excluding approximately $131 million of interest
charged on these delinquent balances as of March 31, 2022. See Note 2. Basis of
Presentation and Significant Accounting Policies-Accounts Receivable of our
unaudited condensed consolidated financial statements. We continue to vigorously
pursue numerous avenues to collect our receivable from PREPA for work performed
by Cobra. In the event PREPA (i) does not have or does not obtain the funds
necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains
the necessary funds but refuses to pay the amounts owed to Cobra or (iii)
otherwise does not pay amounts owed to Cobra for services performed, the
receivable may not be collectible, which may adversely impact our liquidity,
results of operations and financial condition. In addition, government contracts
are subject to various uncertainties, restrictions and regulations, including
oversight audits and compliance reviews by government agencies and
representatives. In this regard, on September 10, 2019, the U.S. District Court
for the District of Puerto Rico unsealed an indictment that charged the former
president of Cobra with conspiracy, wire fraud, false statements and disaster
fraud. Two other individuals were also charged in the indictment. The indictment
is focused on the interactions between a former FEMA official and the former
President of Cobra. Neither we nor any of our subsidiaries were charged in the
indictment. On May 18, 2022, the former FEMA official and the former president
of Cobra pled guilty to gratuities. The sentencing is scheduled for October 19,
2022. Given the uncertainty inherent in the criminal litigation, it is not
possible at this time to determine the potential impacts that the plea
agreements could have on us. PREPA has stated in Court filings that it may
contend the alleged criminal activity affects Cobra's entitlement to payment
under it contracts with PREPA. It is unclear what PREPA's position will be after
the terms of the plea agreements become public. Subsequent to the indictment,
Cobra received a civil investigative demand ("CID") from the United States
Department of Justice ("DOJ"), which requests certain documents and answers to
specific interrogatories relevant to an ongoing investigation it is conducting.
The aforementioned DOJ investigation is in connection with the issues raised in
the criminal matter. Cobra is cooperating with the DOJ and is not able to
predict the outcome of this investigation or if it will have a material impact
on Cobra's or our business, financial condition, results of operations or cash
flows. With regard to the previously disclosed SEC investigation, on July 6,
2022, the SEC sent a letter saying that it had concluded its investigation as to
the Company and that based on information the SEC has as of this date, it does
not intend to recommend an enforcement action by the SEC against us. See Note
18. Commitments and Contingencies to our unaudited condensed consolidated
financial statements included elsewhere in this report for additional
information regarding these proceedings. Further, our contracts with PREPA have
concluded and we have not obtained, and there can be no assurance that we will
be able to obtain, one or more contracts with other customers to replace the
level of services that we provided to PREPA.
During the third quarter of 2021, we made leadership changes in our
infrastructure group and have focused on cutting costs, improving margins and
enhancing accountability across the division. Our crew count increased from
approximately 82 crews as of December 31, 2021 to approximately 92 crews as of
June 30, 2022. Currently, we have more than 100 crews and we expect to add
additional crews in the coming weeks in preparation for the seasonal storm
restoration services anticipated in the third and fourth quarter. Funding for
projects in the infrastructure space remains strong with added opportunities
expected from the Infrastructure Investment and Jobs Act, which was signed into
law on November 15, 2021. We anticipate the federal spending to begin fueling
this sector later this year and into 2023. We continue to focus on operational
execution and pursue opportunities within this sector as we strategically
structure our service offerings for growth, intending to increase our
infrastructure services activity and expand both our geographic footprint and
depth of projects, especially in fiber maintenance and installation projects. In
late 2021, we were awarded a fiber installation contract as well as an electric
vehicle charging station engineering contract. Both of these projects are
currently in process.
We work for multiple utilities primarily across the northeastern, southwestern,
midwestern and western portions of the United States. We believe that we are
well-positioned to compete for new projects due to the experience of our
infrastructure management team, combined with our vertically integrated service
offerings. We are seeking to leverage this experience and our service offerings
to grow our customer base and increase our revenues in the continental United
States over the coming years.
Well Completion and Drilling Services
In March and April 2020, concurrent with the COVID-19 pandemic and quarantine
orders in the U.S. and worldwide, oil prices dropped sharply to below zero
dollars per barrel for the first time in history due to factors including
significantly reduced demand and a shortage of storage facilities. In 2021, U.S.
oil production stabilized as commodity prices increased and demand for crude oil
rebounded, many exploration and production companies set their operating budgets
based on the prevailing prices for oil and natural gas at the time. We have seen
improvements in the oilfield services industry and in both pricing and
utilization of our well completion and drilling services in the first half of
2022 and we expect both pricing and utilization to continue to improve
throughout 2022 and into 2023 as a result of an increase in budgets for publicly
traded exploration and production companies and elevated activity levels, driven
by improved energy demand and strong commodity
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prices. The ongoing Russian/Ukrainian war and related humanitarian crisis in
Ukraine, however, could have an adverse impact on the global energy markets and
volatility of commodity prices.
In response to market conditions, we have temporarily shut down our cementing
and acidizing operations and flowback operations beginning in July 2019, our
contract drilling operations beginning in December 2019, our rig hauling
operations beginning in April 2020, our coil tubing, pressure control and full
service transportation operations beginning in July 2020 and our crude oil
hauling operations beginning in July 2021. We continue to monitor the market to
determine if and when we can recommence these services. As of July 26, 2022, we
were operating four of our six pressure pumping fleets. We expect to add one
additional pressure pumping fleet into operation during the fourth quarter of
2022. Looking to 2023, we plan to activate our sixth fleet in the first quarter
of 2023, and subject to liquidity requirements, we have plans to acquire or
build a new Tier 4, dual-fuel fleet and expect to have a total of seven fleets
operating by year-end 2023.
We continue to closely monitor our cost structure in response to market
conditions and intend to pursue additional cost savings where possible. Further,
a significant portion of our revenue from our pressure pumping business had
historically been derived from Gulfport. On December 28, 2019, Gulfport filed a
lawsuit alleging our breach of our pressure pumping contract with Gulfport and
seeking to terminate the contract and recover damages for alleged overpayments,
audit costs and legal fees. Gulfport did not make the payments owed to us under
this contract for any periods subsequent to its alleged December 28, 2019
termination date. Further, on November 13, 2020, Gulfport filed petitions for
voluntary relief under chapter 11 of the Bankruptcy Code. On September 21, 2021,
we reached a settlement with Gulfport under which all litigation relating to the
Stingray Pressure Pumping contract was terminated, Stingray Pressure Pumping
released all claims against Gulfport and its subsidiaries with respect to
Gulfport's bankruptcy proceedings and each of the parties released all claims
they had against the others with respect to the litigation matters discussed
above. We have not been able to obtain long-term contracts with other customers
to replace our contract with Gulfport. See Note 18. Commitments and
Contingencies to our unaudited condensed consolidated financial statements
included elsewhere in this report for additional information.
Natural Sand Proppant Services
In our natural sand proppant services business, we have experienced a
significant decline in demand of our sand proppant in the second half of 2019
and throughout 2020 as a result of completion activity falling due to lower oil
demand and pricing, increased capital discipline by our customers, budget
exhaustion and the COVID-19 pandemic. Activity rebounded modestly in 2021 and
continued to increase during the first half of 2022, as we saw an increase in
the volume of sand sold. The increase in activity in the first half of 2022
resulted in an increase in pricing for our sand and we expect that prices will
continue to improve throughout the remainder of 2022 and into 2023.
Further, as a result of adverse market conditions, production at our Muskie sand
facility in Pierce County, Wisconsin has been temporarily idled since September
2018. Our contracted capacity has provided a baseline of business, which has
kept our Taylor and Piranha plants operating and our costs low.
A portion of our revenue from our natural sand proppant business historically
had been derived from Gulfport pursuant to a long-term contract. Gulfport did
not make the payments owed to us under this contract for any periods subsequent
to May 2020. In September 2020, we filed a lawsuit seeking to recover delinquent
payments owed to us under this contract. On November 13, 2020, Gulfport filed
petitions for voluntary relief under chapter 11 of the Bankruptcy Code. On
September 21, 2021, the Company and Gulfport reached a settlement under which
all litigation relating to the Muskie contract was terminated and a portion of
Muskie's contract claim against Gulfport was allowed under Gulfport's plan of
reorganization. See Note 18. Commitments and Contingencies to our unaudited
condensed consolidated financial statements included elsewhere in this report
for additional information.
As the oilfield services and natural sand proppant industries continue to
rebound from the significant economic impacts of 2020 and 2021, we expect more
momentum in terms of activity, pricing, scheduling and new bidding inquiries in
the second half of 2022 and into 2023. We believe our diverse portfolio of
services and ability to adapt quickly to changing environments positions us well
in these segments.
Our Response to COVID-19 and Related Market Conditions
We have taken, and continue to take, responsible steps to protect the health and
safety of our employees during the COVID-19 pandemic. We are also continuing to
monitor the industry and market conditions resulting from the COVID-19 pandemic
and have taken mitigating steps in an effort to preserve liquidity, reduce costs
and lower capital expenditures. These
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actions have included reducing headcount, adjusting pay and limiting spending.
We will continue to take further actions that we deem to be in the best interest
of the Company and our stockholders if the adverse conditions recur. Given the
dynamic nature of these events, we are unable to predict the ultimate impact of
the COVID-19 pandemic, the volatility in commodity markets, any changes in the
near-term or long-term outlook for our industries or overall macroeconomic
conditions on our business, financial condition, results of operations, cash
flows and stock price or the pace or extent of any subsequent recovery.
We continue to mitigate the myriad of external challenges in today's economic
environment as we remain disciplined with our spending to continue to improve
Mammoth's cost structure and focus on enhancing value for our stockholders.
Second Quarter 2022 Financial Overview
•Net income for the second quarter of 2022 was $1.7 million, or $0.04 per
diluted share, as compared to net loss of $34.8 million, or $0.75 loss per
diluted share, for the second quarter of 2021.
•Adjusted EBITDA (as defined and reconciled below) increased to $23.0 million
for the second quarter of 2022, as compared to ($3.3) million for the second
quarter of 2021 and $9.3 million for the first quarter of 2022. See "Non-GAAP
Financial Measures" below for a reconciliation of net income to Adjusted EBITDA.
•Revenue for the second quarter of 2022 increased $42.3 million, or 89%, to
$89.7 million from $47.4 million for the second quarter of 2021. The increase in
total revenue is due to an increase in revenue across all of our operating
divisions during the second quarter of 2022, driven primarily by increased
utilization and, for the well completions and natural sand proppant divisions,
by increased pricing.
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Results of Operations
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Three Months Ended
June 30, 2022 June 30, 2021
(in thousands)
Revenue:
Infrastructure services $ 25,587 $ 18,420
Well completion services 43,817 17,373
Natural sand proppant services 15,459 6,886
Drilling services 1,971 1,147
Other services 5,030 4,349
Eliminations (2,186) (735)
Total revenue 89,678 47,440
Cost of revenue:
Infrastructure services (exclusive of depreciation and
amortization of $4,206 and $5,887, respectively, for the
three months ended June 30, 2022 and 2021)
21,823 21,112
Well completion services (exclusive of depreciation and
amortization of $6,739 and 6,444, respectively, for the
three months ended June 30, 2022 and 2021)
33,471 17,062
Natural sand proppant services (exclusive of depreciation,
depletion and accretion of $2,055 and $2,384, respectively,
for the three months ended June 30, 2022 and 2021)
9,707 7,400
Drilling services (exclusive of depreciation and
amortization of $1,650 and $2,077, respectively, for the
three months ended June 30, 2022 and 2021)
2,194 1,568
Other services (exclusive of depreciation and amortization
of $2,807 and $3,453, respectively, for the three months
ended June 30, 2022 and 2021)
3,854 3,968
Eliminations (2,263) (735)
Total cost of revenue 68,786 50,375
Selling, general and administrative expenses 8,206 9,860
Depreciation, depletion, amortization and accretion 17,476 20,265
Operating loss (4,790) (33,060)
Interest expense, net (2,659) (1,169)
Other income (expense), net 13,087 (17,121)
Income (loss) before income taxes 5,638 (51,350)
Provision (benefit) for income taxes 3,935 (16,560)
Net income (loss) $ 1,703 $ (34,790)
Revenue. Revenue for the three months ended June 30, 2022 increased $42.3
million, or 89%, to $89.7 million from $47.4 million for the three months ended
June 30, 2021. The increase in total revenue is attributable to an increase in
revenue across all operating divisions during the three months ended June 30,
2022 primarily due to increased utilization and, for the well completions and
natural sand proppant divisions, increased pricing. Revenue derived from related
parties was $0.4 million for the three months ended June 30, 2022 and a nominal
amount for the three months ended June 30, 2021. Revenue by operating division
was as follows:
Infrastructure Services. Infrastructure services division revenue increased
$7.2 million, or 39%, to $25.6 million for the three months ended June 30, 2022
from $18.4 million for the three months ended June 30, 2021 primarily due to an
increase in storm activity during the three months ended June 30, 2022 compared
to the three months ended June 30, 2021, resulting in a $2.9 million increase in
storm restoration revenue and a $2.7 million increase in overhead distribution
revenue.
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Well Completion Services. Well completion services division revenue increased
$26.4 million, or 152%, to $43.8 million for the three months ended June 30,
2022 from $17.4 million for the three months ended June 30, 2021. The increase
in our well completion services revenue was primarily driven by a 230% increase
in the number of stages completed from 520 for the three months ended June 30,
2021 to 1,716 for the three months ended June 30, 2022 as well as an increase in
both pricing as well as sand and chemical materials revenue. An average of 3.5
of our fleets were active for the three months ended June 30, 2022 as compared
to an average of 0.9 fleets for the three months ended June 30, 2021.
Natural Sand Proppant Services. Natural sand proppant services division
revenue increased $8.6 million, or 125%, to $15.5 million for the three months
ended June 30, 2022, from $6.9 million for the three months ended June 30, 2021.
Inter-segment revenue, consisting of revenue derived from our pressure pumping
segment, was $1.6 million, or 10% of total sand revenue, for the three months
ended June 30, 2022. The natural sand proppant services division did not have
inter-segment revenues for the three months ended June 30, 2021.
The increase in our natural sand proppant services revenue was primarily
attributable to a 70% increase in the average price per ton of sand sold from
$15.80 per ton during the three months ended June 30, 2021 to $26.86 per ton
during the three months ended June 30, 2022, and a 37% increase in tons of sand
sold from 255,419 tons for the three months ended June 30, 2021 to 349,877 tons
for the three months ended June 30, 2022. Additionally, shortfall revenue
increased $1.6 million during the three months ended June 30, 2022.
Drilling Services. Drilling services division revenue increased $0.9 million, or
72%, to $2.0 million for the three months ended June 30, 2022 as compared to
$1.1 million for the three months ended June 30, 2021. The increase is primarily
due to increased utilization for our directional drilling business from 20% for
the three months ended June 30, 2021 to 35% for the three months ended June 30,
2022.
Other Services. Other services revenue, consisting of revenue derived from our
aviation, equipment rental, crude oil hauling, remote accommodation and
equipment manufacturing businesses, increased approximately $0.7 million, or
16%, to $5.0 million for the three months ended June 30, 2022, from $4.3 million
for the three months ended June 30, 2021. Inter-segment revenue, consisting
primarily of revenue derived from our well completion segment, was $0.3 million
and $0.7 million for the three months ended June 30, 2022 and 2021,
respectively.
An average of 244 pieces of equipment was rented to customers during the three
months ended June 30, 2022, an increase of 157% from an average of 95 pieces of
equipment rented to customers during the three months ended June 30, 2021,
resulting in an increase to revenue of $0.7 million. Additionally, revenue from
our accommodations business increased $0.6 million primarily due to an increase
in rooms rented during the three months ended June 30, 2022 compared to the
three months ended June 30, 2021. Due to market conditions, we have temporarily
shut down our crude oil hauling business beginning in July 2021, resulting in a
decline in revenue of approximately $0.5 million.
Cost of Revenue (exclusive of depreciation, depletion, amortization and
accretion expense). Cost of revenue, exclusive of depreciation, depletion,
amortization and accretion expense, increased $18.4 million from $50.4 million,
or 106% of total revenue, for the three months ended June 30, 2021 to $68.8
million, or 77% of total revenue, for the three months ended June 30, 2022. The
increase is primarily due to an increase in activity across all operating
divisions. Cost of revenue by operating division was as follows:
Infrastructure Services. Infrastructure services division cost of revenue,
exclusive of depreciation and amortization expense, increased $0.7 million, or
3%, to $21.8 million for the three months ended June 30, 2022 from $21.1 million
for the three months ended June 30, 2021, primarily due to an increase in
activity. As a percentage of revenue, cost of revenue, exclusive of depreciation
and amortization expense of $4.2 million and $5.9 million for the three months
ended June 30, 2022 and 2021, respectively, was 85% and 115% for the three
months ended June 30, 2022 and 2021, respectively. The decline as a percentage
of revenue is primarily due to declines in labor related costs and equipment
rental costs as a percentage of revenue.
Well Completion Services. Well completion services division cost of revenue,
exclusive of depreciation and amortization expense, increased $16.4 million, or
96%, to $33.5 million for the three months ended June 30, 2022 from $17.1
million for the three months ended June 30, 2021, primarily due to an increase
in both the cost of consumables and activity. As a percentage of revenue, our
well completion services division cost of revenue, exclusive of depreciation and
amortization expense of $6.7 million and $6.4 million for the three months ended
June 30, 2022
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and 2021, respectively, was 76% and 98% for the three months ended June 30, 2022
and 2021, respectively. The decrease as a percentage of revenue is primarily due
to an increase in utilization.
Natural Sand Proppant Services. Natural sand proppant services division cost
of revenue, exclusive of depreciation, depletion and accretion expense,
increased $2.3 million, or 31%, to $9.7 million for the three months ended
June 30, 2022 from $7.4 million for the three months ended June 30, 2021. As a
percentage of revenue, cost of revenue, exclusive of depreciation, depletion and
accretion expense of $2.1 million and $2.4 million for the three months ended
June 30, 2022 and 2021, respectively, was 63% and 107% for the three months
ended June 30, 2022 and 2021, respectively. The decrease as a percentage of
revenue is primarily due to a 70% increase in price per ton of sand sold.
Drilling Services. Drilling services division cost of revenue, exclusive of
depreciation and amortization expense, increased $0.6 million, or 40%, to $2.2
million for the three months ended June 30, 2022 from $1.6 million for the three
months ended June 30, 2021. As a percentage of revenue, our drilling services
division cost of revenue, exclusive of depreciation and amortization expense of
$1.7 million and $2.1 million for the three months ended June 30, 2022 and 2021,
respectively, was 111% and 137% for the three months ended June 30, 2022 and
2021, respectively. The decline is primarily due to an increase in utilization.
Other Services. Other services division cost of revenue, exclusive of
depreciation and amortization expense, decreased $0.1 million, or 3%, to $3.9
million for the three months ended June 30, 2022 from $4.0 million for the three
months ended June 30, 2021. As a percentage of revenue, cost of revenue,
exclusive of depreciation and amortization expense of $2.8 million and $3.5
million for the three months ended June 30, 2022 and 2021, respectively, was 77%
and 91% for the three months ended June 30, 2022 and 2021, respectively. The
decrease is primarily due to a decline in labor costs as a percentage of revenue
and an increase in utilization.
Selling, General and Administrative Expenses. Selling, general and
administrative, or SG&A, expenses represent the costs associated with managing
and supporting our operations. The table below presents a breakdown of SG&A
expenses for the periods indicated (in thousands):
Three Months Ended
June 30, 2022 June 30, 2021
Cash expenses:
Compensation and benefits $ 3,137 $ 3,333
Professional services(a) 2,724 3,683
Other(b) 2,162 2,464
Total cash SG&A expense 8,023 9,480
Non-cash expenses:
Bad debt provision (16) 76
Stock based compensation 199 304
Total non-cash SG&A expense 183 380
Total SG&A expense $ 8,206 $ 9,860
a. Certain legal expenses totaling $2.1 million were reclassified to Other, net
for the three months ended June 30, 2021.
b. Includes travel-related costs, IT expenses, rent, utilities and other
general and administrative-related costs.
Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion,
amortization and accretion decreased $2.8 million, or 14%, to $17.5 million for
the three months ended June 30, 2022 from $20.3 million for the three months
ended June 30, 2021. The decrease is primarily attributable to a decline in
property and equipment depreciation expense as a result of lower capital
expenditures and existing assets being fully depreciated.
Operating Loss. We reported an operating loss of $4.8 million for the three
months ended June 30, 2022 compared to an operating loss of $33.1 million for
the three months ended June 30, 2021. The decrease in operating loss is
primarily due to an increase in activity and utilization across all operating
divisions.
Interest Expense, Net. Interest expense, net increased $1.5 million, or 127%,
to $2.7 million for the three months ended June 30, 2022 from $1.2 million for
the three months ended June 30, 2021. The increase is primarily due to an
increase in the interest rate and average borrowings outstanding under our
revolving credit facility.
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Other Income (Expense), Net. Other income increased $30.2 million during the
three months ended June 30, 2022 compared to the three months ended June 30,
2021. During the three months ended June 30, 2021 we recognized expense of $25.0
million related to an agreement to settle a legal matter and corresponding legal
fees totaling $2.1 million.
Income Taxes. We recorded income tax expense of $3.9 million on pre-tax income
of $5.6 million for the three months ended June 30, 2022 compared to an income
tax benefit of $16.6 million on pre-tax losses of $51.4 million for the three
months ended June 30, 2021. Our effective tax rates were 70% and 32% for the
three months ended June 30, 2022 and 2021, respectively. The effective tax rates
for the three months ended June 30, 2022 and 2021 differed from the statutory
rate of 21% primarily due to the mix of earnings between the United States and
Puerto Rico as well as changes in the valuation allowance.
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Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Six Months Ended
June 30, 2022 June 30, 2021
(in thousands)
Revenue:
Infrastructure services $ 48,596 $ 48,619
Well completion services 67,691 40,328
Natural sand proppant services 24,639 15,592
Drilling services 4,826 2,080
Other services 9,761 9,068
Eliminations (3,537) (1,443)
Total revenue 151,976 114,244
Cost of revenue:
Infrastructure services (exclusive of depreciation and
amortization of $8,512 and $12,544, respectively, for the
six months ended June 30, 2022 and 2021)
40,726 48,534
Well completion services (exclusive of depreciation and
amortization of $13,176 and $13,123, respectively, for the
six months ended June 30, 2022 and 2021)
56,341 26,459
Natural sand proppant services (exclusive of depreciation,
depletion and accretion of $3,847 and $4,521, respectively,
for the six months ended June 30, 2022 and 2021)
17,495 13,262
Drilling services (exclusive of depreciation of $3,330 and
$4,242, respectively, for the six months ended June 30,
2022 and 2021)
4,727 3,173
Other services (exclusive of depreciation and amortization
of $5,740 and $6,941, respectively, for the six months
ended June 30, 2022 and 2021)
7,517 8,470
Eliminations (3,540) (1,443)
Total cost of revenue 123,266 98,455
Selling, general and administrative expenses 16,874 27,884
Depreciation, depletion, amortization and accretion 34,643 41,411
Operating loss (22,807) (53,506)
Interest expense, net (5,008) (2,394)
Other income (expense), net 22,324 (10,513)
Loss before income taxes (5,491) (66,413)
Benefit for income taxes 7,623 (19,183)
Net loss $ (13,114) $ (47,230)
Revenue. Revenue for the six months ended June 30, 2022 increased $37.8
million, or 33%, to $152.0 million from $114.2 million for the six months ended
June 30, 2021. The increase in total revenue is primarily attributable to
increases in well completion services and natural sand proppant services
revenues. Revenue derived from related parties was $0.7 million, or 0.4% of our
total revenue, for the six months ended June 30, 2022 and $17.2 million, or 15%
of our total revenue, for the six months ended June 30, 2021. Substantially all
of our related party revenue was derived from Gulfport under pressure pumping
and sand contracts. For additional information regarding the status of these
contracts and the pending litigation related to the pressure pumping contract,
see "Industry Overview - Oil and Natural Gas Industry," "Industry Overview -
Natural Sand Proppant Industry" and Note 18. Commitments and Contingencies to
our unaudited condensed consolidated financial statements included elsewhere in
this report. Revenue by operating division was as follows:
Infrastructure Services. Infrastructure services division revenue remained flat
at $48.6 million for the six months ended June 30, 2022 and the six months ended
June 30, 2021. There was less storm activity during the six months ended
June 30, 2022 compared to the six months ended June 30, 2021, resulting in a
$6.7 million decrease in storm restoration revenue. This was offset by increases
in overhead distribution and engineering services revenue.
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Well Completion Services. Well completion services division revenue increased
$27.4 million, or 68%, to $67.7 million for the six months ended June 30, 2022
from $40.3 million for the six months ended June 30, 2021. We did not recognize
any revenue derived from related parties for the six months ended June 30, 2022
compared to $14.8 million, or 37% of total well completion revenue, for the six
months ended June 30, 2021. All of our well completion related party revenue was
derived from Gulfport under a pressure pumping contract. On November 13, 2020,
Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy
Code. During the six months ended June 30, 2021, we recognized revenue totaling
$15 million related to the modification of our pressure pumping contract with
Gulfport. For additional information regarding the status of this contract and
the pending litigation related to this contract, see "Industry Overview - Oil
and Natural Gas Industry" above and notes 2 and 3 to our unaudited condensed
consolidated financial statements included elsewhere in this report.
Inter-segment revenues, consisting primarily of revenue derived from our sand
segment, was $0.5 million and a nominal amount for the six months ended June 30,
2022 and 2021, respectively.
The increase in our well completion services revenue was primarily driven by an
increase in pressure pumping services utilization and pricing. The number of
stages completed increased 150% to 2,415 for the six months ended June 30, 2022
from 965 for the six months ended June 30, 2021. An average of 2.5 of our six
fleets were active for the six months ended June 30, 2022 as compared to an
average of 0.9 fleets for the six months ended June 30, 2021.
Natural Sand Proppant Services. Natural sand proppant services division revenue
increased $9.0 million, or 58%, to $24.6 million for the six months ended
June 30, 2022, from $15.6 million for the six months ended June 30, 2021. We did
not recognize any related party revenue for the six months ended June 30, 2022.
Revenue derived from related parties was $2.1 million, or 13% of total sand
revenue, for the six months ended June 30, 2021. All of our related party
revenue was derived from Gulfport under a sand supply contract. On November 13,
2020, Gulfport filed petitions for voluntary relief under chapter 11 of the
Bankruptcy Code. During the three months ended March 31, 2021, we recognized
revenue totaling $2 million related to the modification of our sand supply
contract with Gulfport. For additional information regarding the status of this
contract and the pending litigation related to this contract, see "Industry
Overview - Natural Sand Proppant Industry" above and notes 2 and 3 to our
unaudited condensed consolidated financial statements included elsewhere in this
report. Inter-segment revenue, consisting primarily of revenue derived from our
pressure pumping segment, was $2.4 million, or 10% of total sand revenue, for
the six months ended June 30, 2022. The natural sand proppant services division
did not have inter-segment revenues for the six months ended June 30, 2021.
The increase in our natural sand proppant services revenue was primarily due to
a 111% increase in tons of sand sold from approximately 321,722 tons for the six
months ended June 30, 2021 to approximately 678,468 tons for the six months
ended June 30, 2022 and a 50% increase in the average sales price per ton of
sand sold from $16.21 per ton during the six months ended June 30, 2021 to
$24.24 per ton during the six months ended June 30, 2022. This increase was
partially offset by an $3.3 million decline in shortfall revenue for the six
months ended June 30, 2022.
Drilling Services. Drilling services division revenue increased $2.7 million, or
132%, to $4.8 million for the six months ended June 30, 2022 from $2.1 million
for the six months ended June 30, 2021. The increase in our drilling services
revenue was primarily attributable to increased utilization and pricing for our
directional drilling business from 21% during the six months ended June 30, 2021
to 42% six months ended June 30, 2022.
Other Services. Other services revenue, consisting of revenue derived from our
aviation, equipment rental, crude oil hauling, remote accommodation and
equipment manufacturing businesses, increased $0.7 million, or 8%, to $9.8
million for the six months ended June 30, 2022 from $9.1 million for the six
months ended June 30, 2021. Inter-segment revenue, consisting primarily of
revenue derived from our infrastructure and well completion segments, totaled
$0.6 million and $1.3 million for the six months ended June 30, 2022 and 2021,
respectively.
The increase in our other services revenue was primarily due to an increase in
utilization for our equipment rental business. An average of 233 pieces of
equipment was rented to customers during the six months ended June 30, 2022, an
increase of 145% from an average of 95 pieces of equipment rented to customers
during the six months ended June 30, 2021. Additionally, utilization for remote
accommodations business increased. Due to market conditions, we have temporarily
shut down our crude oil hauling business beginning in July 2021, resulting in a
decline in revenue of approximately $1.2 million.
Cost of Revenue (exclusive of depreciation, depletion, amortization and
accretion expense). Cost of revenue, exclusive of depreciation, depletion,
amortization and accretion expense, increased $24.8 million from $98.5 million,
or 86% of
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total revenue, for the six months ended June 30, 2021 to $123.3 million, or 81%
of total revenue, for the six months ended June 30, 2022. The increase is
primarily due to an increase in cost of revenue for the well completion services
division. Cost of revenue by operating division was as follows:
Infrastructure Services. Infrastructure services division cost of revenue,
exclusive of depreciation and amortization expense, decreased $7.8 million, or
16%, to $40.7 million for the six months ended June 30, 2022 from $48.5 million
for the six months ended June 30, 2021. As a percentage of revenue, cost of
revenue, exclusive of depreciation and amortization expense of $8.5 million and
$12.6 million, respectively, for the six months ended June 30, 2022 and 2021
was 84% and 100% for the six months ended June 30, 2022 and 2021, respectively.
The decrease as a percentage of revenue is primarily due to declines labor
related costs and equipment rental costs as a percentage of revenue.
Well Completion Services. Well completion services division cost of revenue,
exclusive of depreciation and amortization expense, increased $29.8 million, or
113%, to $56.3 million for the six months ended June 30, 2022 from $26.5 million
for the six months ended June 30, 2021, primarily due to an increase in cost of
goods sold as a result of providing sand and chemicals with our service package
to customers during the six months ended June 30, 2022. As a percentage of
revenue, our well completion services division cost of revenue, exclusive of
depreciation and amortization expense of $13.2 million and $13.1 million for the
six months ended June 30, 2022 and 2021, respectively, was 83% and 66% for the
six months ended June 30, 2022 and 2021, respectively. The increase as a
percentage of revenue is primarily due to the recognition of more pressure
pumping services standby revenue during the six months ended June 30, 2021, of
which there was a lower percentage of costs recognized compared to the six
months ended June 30, 2022. Additionally, during the six months ended June 30,
2022, we provided sand and chemicals with our service package to customers,
resulting in higher cost of goods sold as a percentage of revenue for this
period in comparison to the six months ended June 30, 2021.
Natural Sand Proppant Services. Natural sand proppant services division cost of
revenue, exclusive of depreciation, depletion and accretion expense, increased
$4.2 million, or 32%, from $13.3 million for the six months ended June 30, 2021
to $17.5 million for the six months ended June 30, 2022. As a percentage of
revenue, cost of revenue, exclusive of depreciation, depletion and accretion
expense of $3.9 million and $4.5 million for the six months ended June 30, 2022
and 2021, respectively, was 71% and 85% for the six months ended June 30, 2022
and 2021, respectively. The decrease in cost as a percentage of revenue is
primarily due to a 50% increase is average sales price.
Drilling Services. Drilling services division cost of revenue, exclusive of
depreciation and amortization expense, increased $1.5 million, or 49%, from $3.2
million for the six months ended June 30, 2021 to $4.7 million for the six
months ended June 30, 2022, as a result of increased activity. As a percentage
of revenue, our drilling services division cost of revenue, exclusive of
depreciation and amortization expense of $3.3 million and $4.2 million, for the
six months ended June 30, 2022 and 2021, respectively, was 96% and 152% for the
six months ended June 30, 2022 and 2021, respectively. The decrease as a
percentage of revenue is primarily due to increased utilization.
Other Services. Other services division cost of revenue, exclusive of
depreciation and amortization expense, decreased $1.0 million, or 11%, from $8.5
million for the six months ended June 30, 2021 to $7.5 million for the six
months ended June 30, 2022. As a percentage of revenue, cost of revenue,
exclusive of depreciation and amortization expense of $5.7 million and $6.9
million for the six months ended June 30, 2022 and 2021, respectively, was 77%
and 93% for the six months ended June 30, 2022 and 2021, respectively. The
decrease as a percentage of revenue is primarily due to an increase in
utilization.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses represent the costs associated with managing and
supporting our operations. The table below presents a breakdown of SG&A expenses
for the
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periods indicated (in thousands):
Six Months Ended
June 30, 2022 June 30, 2021
Cash expenses:
Compensation and benefits $ 6,120 $ 8,027
Professional services(a) 6,361 4,264
Other(b) 4,068 4,806
Total cash SG&A expenses 16,549 17,097
Non-cash expenses:
Bad debt provision(c) (115) 10,201
Stock based compensation 440 586
Total non-cash SG&A expenses 325 10,787
Total SG&A expenses $ 16,874 $ 27,884
a. Certain legal expenses totaling $4.9 million were reclassified to Other, net
for the six months ended June 30, 2021.
b. Includes travel-related costs, IT expenses, rent, utilities and other
general and administrative-related costs.
c. The bad debt provision for the six months ended June 30, 2021 includes $10.0
million related to the voluntary petitions for relief filed on November 13,
2020, by Gulfport and its subsidiaries.
Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion,
amortization and accretion decreased $6.8 million to $34.6 million for the six
months ended June 30, 2022 from $41.4 million for the six months ended June 30,
2021. The decrease is primarily attributable to a decline in property and
equipment depreciation expense as a result of lower capital expenditures and
existing assets being fully depreciated.
Operating Loss. We reported an operating loss of $22.8 million for the six
months ended June 30, 2022 compared to an operating loss of $53.5 million for
the six months ended June 30, 2021. The reduced operating loss was primarily due
to a decline in costs as a percentage of revenue as well as increased activity
in our well completion, drilling, and natural sand proppant services.
Interest Expense, Net. Interest expense, net increased $2.6 million, or 109%,
to $5.0 million for the six months ended June 30, 2022 from $2.4 million for the
six months ended June 30, 2021 primarily due to an increase in the interest rate
and average borrowings outstanding under our revolving credit facility.
Other Income (Expense), Net. We recognized other income, net of $22.3 million
during the six months ended June 30, 2022 compared to other expense, net of
$10.5 million for the six months ended June 30, 2021. During the six months
ended June 30, 2021 we recognized expense of $25.0 million related to an
agreement to settle a legal matter and corresponding legal fees totaling $4.9
million. We recognized interest on trade accounts receivable of $20.0 million
for the six months ended June 30, 2022 compared to $17.2 million for six months
ended June 30, 2021.
Income Taxes. We recorded income tax expense of $7.6 million on pre-tax losses
of $5.5 million for the six months ended June 30, 2022 compared to an income tax
benefit of $19.2 million on pre-tax losses of $66.4 million for the six months
ended June 30, 2021. Our effective tax rate was (139%) for the six months ended
June 30, 2022 compared to 29% for the six months ended June 30, 2021. The
increase compared to the six months ended June 30, 2021 was due to the mix of
earnings between the United States and Puerto Rico as well as changes in the
valuation allowance.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by
management and external users of our financial statements, such as industry
analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as
net income (loss) before depreciation, depletion, amortization and accretion,
public offering costs, stock based compensation, interest expense, net, other
income (expense), net (which is comprised of the gain or loss on disposal of
long-lived assets, interest on trade accounts receivable and certain legal
expenses) and provision (benefit) for income taxes, further adjusted to add back
interest on trade accounts receivable. We exclude the items listed above from
net loss in arriving at Adjusted EBITDA because these amounts can vary
substantially from company to company within our industries depending upon
accounting methods and book values of assets, capital structures and the method
by which the assets were acquired. Adjusted EBITDA
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should not be considered as an alternative to, or more meaningful than, net loss
or cash flows from operating activities as determined in accordance with GAAP or
as an indicator of our operating performance or liquidity. Certain items
excluded from Adjusted EBITDA are significant components in understanding and
assessing a company's financial performance, such as a company's cost of capital
and tax structure, as well as the historic costs of depreciable assets, none of
which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may
not be comparable to other similarly titled measures of other companies. We
believe that Adjusted EBITDA is a widely followed measure of operating
performance and may also be used by investors to measure our ability to meet
debt service requirements.
The following tables provide a reconciliation of Adjusted EBITDA to the GAAP
financial measure of net income or (loss) for each of our operating segments for
the specified periods (in thousands).
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