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Mammoth Energy Services (NASDAQ:TUSK) followed up a good Q2 2022 report with an even better Q3 2022 report. It has now generated $32 million in adjusted EBITDA during the last two quarters, excluding the interest on its Puerto Rico Electric Power Authority [PREPA] accounts receivables.
Mammoth’s results have improved across multiple divisions since early in 2022, although its well completion services division is the one that is most driving its strong results. Mammoth may not generate much in terms of free cash flow during 2H 2022 due to capex and settlement payments, but there is a positive outlook for its 2023 cash flow.
Mammoth is on track to meet my previous expectations around its oilfield services results, but I had not included potential contributions from its infrastructure services and other services divisions in my prior valuation estimate. Thus I am now boosting Mammoth’s estimated value slightly to $7 to $8 per share, including contributions from those divisions.
Strong Q3 2022 Results
Mammoth has posted excellent results in back to back quarters now. It achieved $29.8 million in adjusted EBITDA for Q3 2022. This does include $10.5 million in interest on its PREPA accounts receivables that it may not be able to collect. Excluding PREPA AR interest, Mammoth would have generated $19.3 million in adjusted EBITDA in Q3 2022 and $12.8 million in adjusted EBITDA in Q2 2022.
Similar to Q2 2022, Mammoth’s Q3 2022 had solid results from its well completion services and natural sand proppant services divisions. Mammoth’s well completion services division reported $13.4 million in adjusted EBITDA during Q3 2022, while its natural sand proppant services division reported $2.7 million in adjusted EBITDA.
Mammoth’s Q3 2022 also included better results from its other business divisions. Mammoth’s infrastructure services division reported $1.9 million in adjusted EBITDA, excluding the PREPA accounts receivable interest. Mammoth’s other services (aviation, equipment rentals, crude oil hailing, equipment manufacturing and remote accommodations) division added another $1.3 million in adjusted EBITDA.
Notes On Cash Flow
Mammoth’s near-term cash flow will be limited by a couple items. It reached a settlement with MasTec Renewables Puerto Rico in August 2021 to avoid the risks of future litigation. As part of that settlement it paid MasTec $6.5 million in August 2021 and $9.25 million in August 2022. It is also expected to pay $10.25 million (including $1 million in interest) in Q4 2022. Thus Mammoth’s 2H 2022 cash flow will be reduced by close to $20 million by this settlement.
As well, Mammoth anticipates the bulk of its 2022 capex (budgeted at $20 million) to occur in Q4 2022. Mammoth reported $9 million in capex to date, including $5 million in Q3 2022. This leaves $11 million for Q4 2022 if it spends $20 million for the full year.
If it ends up generating $40 million in adjusted EBITDA (excluding PREPA accounts receivables interest) in 2H 2022, Mammoth would be around breakeven cash flow for that period due to the MasTec settlement payments, capital expenditures and interest costs. Mammoth’s credit facility debt had an weighted average interest rate of 10.25% at the end of Q3 2022, and that has been increasing during 2022 due to rising benchmark interest rates. Mammoth had $93 million outstanding under its credit facility at the end of Q3 2022.
Mammoth should be able to make significant progress in paying off its credit facility debt in 2023 though. It noted that it has four pressure pumping spreads operating currently (with full schedules through the end of the year) and expects to add a fifth spread in Q4 2022 and a sixth spread in 1H 2023. Each spread currently results in approximately $15 million in annualized adjusted EBITDA.
Notes On Valuation
I am bumping up my estimate of Mammoth’s value to around $7 to $8 per share now. Mammoth’s oilfield services business is tracking in-line with my expectations and should be able to generate a significant amount of positive cash flow next year, helping Mammoth pay down its high-interest credit facility debt. I had not built in contributions from Mammoth’s infrastructure services and other services divisions though, and those are starting to make some positive contributions too.
This estimated value does not include the potential contribution from any PREPA recoveries, but I continue to believe that it is best to not include any value for that.
Conclusion
Mammoth Energy Services has now reported two strong quarters in a row, with Q3 2022 showing an $6.5 million improvement in adjusted EBITDA (excluding PREPA accounts receivables interest) compared to Q2 2022. Mammoth expects to add a fifth spread in Q4 2022, which should help boost its results a bit further. Mammoth’s near-term cash flow is affected by its MasTec settlement payments. The nearly $20 million in 2H 2022 will likely result in it generating around neutral cash flow over that period. However, with that fifth pressure pumping spread in Q4 2022 and no more MasTec payments, it looks set to make substantial progress in paying down its credit facility debt in 2023.
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