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Mammoth Energy Services (NASDAQ:TUSK) is dealing with challenging near-term business conditions. Mammoth’s Q1 2024 results involved negative $6 million in adjusted EBITDA (after excluding interest from its Puerto Rico Electric Power Authority [PREPA] accounts receivable). Although I was expecting 2024 to be relatively weak for Mammoth (with adjusted EBITDA around $5 million for the full year), it now appears that it may generate significantly negative adjusted EBITDA for 2024.
Mammoth’s liquidity appears to be sufficient for now, and it has also reduced its 2024 capex budget by $6 million to reduce its cash burn and preserve its liquidity. However, getting additional funds from PREPA would help Mammoth significantly in weathering this period of weak business demand.
I now estimate Mammoth’s value at $4.00 to $4.50 per share, a $0.75 per share reduction from before, reflecting the deeper than expected downturn in its business and potential for near-term cash burn.
PREPA Accounts Receivable
Mammoth had previously sold $63 million in PREPA accounts receivable to SPCP Group for approximately $55 million in net proceeds. If PREPA didn’t pay back that amount by the end of March 2024, the amount due to SPCP Group would increase at a compounded rate of 1% per month.
Mammoth announced at the start of March 2024 that PREPA had made enough payments to cover the amount due to SPCP Group and that its Cobra subsidiary received another $9.6 million on top of that.
If Mammoth can get additional PREPA payments during 2024 that would help shore up its liquidity.
Q1 2024 Results
Mammoth’s Q1 2024 results saw it deliver $4.5 million in adjusted EBITDA, although that was with the benefit of $10.5 million in interest on its PREPA accounts receivable. Excluding that its adjusted EBITDA would have been negative $6 million during the quarter.
Business was poor for all of its main divisions in Q1 2024. Mammoth’s well completion services division saw its revenue decrease by 88% compared to Q1 2023 as most of its pressure pumping fleets were idle with the continued low natural gas prices and natural gas storage levels at well above typical levels exiting winter. Mammoth indicated that an average of only 0.6 of its 6 pressure pumping fleets were active during Q1 2024. As well, Mammoth typically notes how many of its pressure pumping fleets are operating at the time of its quarterly report. This language was missing from its latest 10-Q indicating that it may have been operating zero pressure pumping fleets at the time of that report.
Mammoth’s infrastructure services division saw its revenues decline by 12% year-over-year due to milder weather resulting in less storm restoration activity. As well, the low natural gas prices contributed to relatively sluggish demand for its natural sand proppant services.
Due to the challenging results in Q1 2024 and the need to preserve liquidity, Mammoth reduced its full-year capital expenditure guidance to $9 million, down $6 million from its initial $15 million budget. Mammoth spent a bit over $4 million in capex in Q1 2024, leaving close to $5 million for the remaining three quarters.
Potential Full Year Results
Mammoth believes that its Q1 2024 results will be its worst quarterly results of the year. However, natural gas strip prices are still below $3 until December 2024. Thus I am now assuming that Mammoth will end up with around negative $15 million adjusted EBITDA for the full year (excluding interest on the PREPA accounts receivable). This would involve negative $3 million in adjusted EBITDA per quarter during the last three quarters of 2024, or a total of negative $9 million over that period.
As noted above, Mammoth has around $5 million in remaining 2024 capex for 2024 with its reduced budget. Mammoth may choose to pay in kind the interest on its Wexford Term Credit Facility, which could add up to around $5 million for the rest of 2024.
Thus Mammoth may end up with around negative $19 million in free cash flow (including the PIK interest) during the last three quarters of the year.
Liquidity
Mammoth reported having $43 million in liquidity at the end of Q1 2024, but this dropped to $29.1 million at the end of April 2024. Mammoth’s cash on hand went down by $6.5 million while its credit facility borrowing base went down by $7.4 million over that month.
The decline in cash is likely partially due to Mammoth paying down some of its accounts payable and other liabilities. Mammoth’s credit facility borrowing base is based on a percentage of certain of its accounts receivable and inventory.
With $14 million in projected cash burn during the rest of 2024 (if the Term Credit Facility interest is paid-in-kind), Mammoth’s liquidity looks okay for the rest of the year, although any additional payments from PREPA would certainly help it. At the end of Q1 2024, PREPA still owed around $140.8 million for services performed, excluding $208 million in interest.
Valuation
I now estimate Mammoth’s value at around $4.00 to $4.50 per share, down from $4.75 to $5.25 per share when I last looked at Mammoth. I still believe that Mammoth’s pressure pumping fleet demand should rebound in 1H 2025. However, the early 2024 downturn in Mammoth’s business was even greater than I expected.
The reduced value accounts for Mammoth’s projected cash burn during 2024 as well as a possibility that it will decide to do an equity offering to boost its liquidity if it doesn’t receive additional PREPA payments during 2024.
Conclusion
Mammoth’s Q1 2024 results were worse than I expected, with its adjusted EBITDA (excluding PREPA interest) at negative $6 million during the quarter. Mammoth’s pressure pumping fleets only saw 10% utilization during the quarter and its other divisions also saw sluggish demand.
While Mammoth’s results during the rest of 2024 may be slightly better, I am now expecting it to generate negative $15 million in adjusted EBITDA (excluding PREPA interest) for the full year.
Mammoth is trying to preserve its liquidity by reducing capex and it should theoretically be okay for 2024. There is the potential for an equity offering though if it doesn’t receive more money from PREPA during 2024.
Due to the poor near-term business environment and projected cash burn, I have reduced my estimate of Mammoth’s value to $4.00 to $4.50 per share.
