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Mammoth Energy Services, Inc. Announces Third Quarter 2018 Operational and Financial Results

October 31, 2018 3:57 PM

OKLAHOMA CITY, Oct. 31, 2018 (GLOBE NEWSWIRE) -- Mammoth Energy Services, Inc. ("Mammoth" or the "Company") (NASDAQ: TUSK) today reported financial and operational results for the three and nine months ended September 30, 2018.

Financial Highlights for the Third Quarter 2018:

Total revenue was $384.0 million for the three months ended September 30, 2018, down 28% sequentially from $533.6 for the three months ended June 30, 2018 and up 157% from $149.3 million for the three months ended September 30, 2017.

Net income for the three months ended September 30, 2018 was $69.5 million, or $1.54 on a fully diluted per share basis, a $26.8 million increase from $42.7 million for the three months ended June 30, 2018 and an improvement of $70.3 million from a net loss of $0.8 million for the three months ended September 30, 2017.

Adjusted EBITDA (as defined and reconciled below) was $183.6 million for the three months ended September 30, 2018, an increase from $148.6 million for the three months ended June 30, 2018 and from $28.0 million for the three months ended September 30, 2017. Excluding the reversal of bad debt provisions of $69.6 million, adjusted EBITDA was $114.0 million for the three months ended September 30, 2018.

Arty Straehla, Mammoth's Chief Executive Officer, stated, "The third quarter marked two full years as a public company and was a record quarter on a net income basis. Over the past two years, we have more than doubled the size of our oil field services business and we have also created a large infrastructure organization that has a bright future that should complement our diversified growth for years to come. While the third quarter was challenging for oil field services, we were pleased with the execution in our infrastructure business. In addition, we finalized our amended and restated $185 million five-year credit facility, which both increases our liquidity and gives us the flexibility to react quickly to identified opportunities. We continue our commitment to a balanced stockholder return through the approval of a regular quarterly dividend to be paid on November 15, 2018."

Pressure Pumping Services

Mammoth's pressure pumping division contributed revenues (inclusive of inter-segment revenues) of $92.4 million on 1,594 stages for the three months ended September 30, 2018, a 9% decrease from $101.4 million on 1,815 stages for the three months ended June 30, 2018, and a 21% increase from $76.7 million on 1,617 stages for the three months ended September 30, 2017.

Infrastructure Services

Mammoth's infrastructure services segment contributed revenues of $237.1 million for the three months ended September 30, 2018, a 34% decrease from $360.3 million for the three months ended June 30, 2018 and a $223.6 million increase from $13.5 million the three months ended September 30, 2017.

Transmission and distribution crews answered the call for mutual aid following Hurricanes Florence and Michael and were deployed to both the eastern seaboard and the gulf coast.

Natural Sand Proppant Services

Mammoth's natural sand proppant division contributed revenues (inclusive of inter-segment revenues) of $37.0 million for the three months ended September 30, 2018, a 30% decrease from $52.8 million for the three months ended June 30, 2018 and up 13% from $32.7 million for the three months ended September 30, 2017. The Company sold 598,438 tons of sand during the three months ended September 30, 2018, a 23% decrease from 777,850 during the three months ended June 30, 2018 and a 26% increase from 474,933 during the three months ended September 30, 2017.

During the third quarter of 2018, the Company completed the upgrade of certain equipment at its Piranha facility, which increased Mammoth's total sand processing capacity to approximately 4.4 million tons per year. Due to market conditions, our Muskie facility was temporarily idled during the third quarter of 2018 and we expect this to lower our blended production costs.

Contract Land and Directional Drilling Services

Mammoth's contract land and directional drilling services division contributed revenues (inclusive of inter-segment revenues) of $15.9 million for the three months ended September 30, 2018, a 7% decrease from $17.2 million for the three months ended June 30, 2018, and a 17% increase from $13.6 million for the three months ended September 30, 2017. The average drilling day rate was $17,170, $17,229 and $14,800, respectively, for the three months ended September 30, 2018, June 30, 2018 and September 30, 2017.

Mammoth anticipates that it will operate, on average, four to five rigs throughout 2018.

Other Services

Mammoth's other services, including coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, crude oil hauling, water transfer and remote accommodations, contributed revenues (inclusive of inter-segment revenues) of $21.5 million for the three months ended September 30, 2018, a 7% increase from $20.2 million for the three months ended June 30, 2018, and a 24% increase from $17.4 million for the three months ended September 30, 2017.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses were a credit of $45.3 million for the three months ended September 30, 2018, compared to $65.1 million for the three months ended June 30, 2018, and $8.0 million for the three months ended September 30, 2017.

Following is a breakout of SG&A expense (in thousands):

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2018 2017 2018 2018 2017
Cash expenses:
Compensation and benefits$14,864 $3,577 $10,978 $33,541 $8,958
Professional services3,267 1,494 2,981 8,835 5,075
Other(a)3,701 1,820 3,935 9,243 5,700
Total cash SG&A expense21,832 6,891 17,894 51,619 19,733
Non-cash expenses:
Bad debt provision(b)(68,333) 103 28,263 (14,543) 78
Equity based compensation(c)— — 17,487 17,487 —
Stock based compensation1,177 1,028 1,483 3,751 2,648
Total non-cash SG&A expense(67,156) 1,131 47,233 6,695 2,726
Total SG&A expense$(45,324) $8,022 $65,127 $58,314 $22,459

a. Includes travel-related costs, IT expenses, rent, utilities and other general and administrative-related costs.b. During the three months ended September 30, 2018, the Company received payment for amounts previously reserved in 2017. As a result, during the three months ended September 30, 2018, the Company reversed bad debt expense of $16.0 million recognized in 2017 and $53.6 million recognized in the first half of 2018. The Company expects to receive payment for the 2018 amounts once the Company files its 2018 Puerto Rico tax return and pays any taxes due as calculated by the return. The Company expects that the Puerto Rico 2018 tax return will be filed in mid-2019.c. Represents compensation expense for non-employee awards, which were issued and are payable by certain affiliates of Wexford (the sponsor level).

SG&A expenses, as a percentage of total revenue, were (12%) for the three months ended September 30, 2018 compared to 12% for the three months ended June 30, 2018 and 5% for the three months ended September 30, 2017. Excluding bad debt and non-employee non-cash equity compensation expenses, SG&A expenses as a percentage of total revenue were 6% for the three months ended September 30, 2018, compared to 4% for the three months ended June 30, 2018 and 5% for the three months ended September 30, 2017.

Liquidity

As of September 30, 2018, Mammoth had cash on hand totaling $19.7 million and no borrowings outstanding under its revolving credit facility. As of September 30, 2018, the Company had approximately $162.5 million of available borrowing capacity under its revolving credit facility, after giving effect to $6.7 million of outstanding letters of credit, resulting in total liquidity of approximately $182.2 million.

On October 19, 2018, Mammoth entered into an amended and restated five-year asset backed revolving credit facility led by PNC Capital Markets with a maximum revolving advance amount at closing of $185 million and the potential to increase the facility by up to an additional $165 million.

Capital Expenditures

The following table summarizes Mammoth's capital expenditures by operating division for the periods indicated (in thousands):

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2018 2017 2018 2018 2017
Pressure pumping services(a)$5,630 $19,581 $8,233 $21,729 $72,983
Infrastructure services(b)21,737 8,055 40,778 78,293 12,013
Natural sand proppant services(c)3,145 4,928 6,958 15,803 7,898
Contract and directional drilling services(d)1,570 2,356 7,083 12,271 8,257
Other(e)8,663 777 9,959 21,434 1,122
Total capital expenditures$40,745 $35,697 $73,011 $149,530 $102,273

a. Capital expenditures primarily for pressure pumping equipment for the periods presented.b. Capital expenditures primarily for trucks and other equipment for the periods presented.c. Capital expenditures primarily for plant upgrades for the periods presented.d. Capital expenditures primarily for upgrades to our rig fleet and real estate purchases for the periods presented.e. Capital expenditures primarily for equipment for our rental and crude oil hauling businesses for periods presented.

Explanatory Note Regarding Financial Information

The financial information contained in this release should be read in conjunction with the financial information contained in Mammoth’s Annual Report filed on Form 10-K with the Securities and Exchange Commission ("SEC") on February 28, 2018, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings.

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.

On June 5, 2017, the Company completed the acquisition of (1) Sturgeon Acquisitions, LLC and its wholly owned subsidiaries Taylor Frac LLC, Taylor RE, LLC and South River, LLC (collectively, "Sturgeon"), (2) Stingray Energy Services and (3) Stingray Cementing (together with Stingray Energy Services, the “Stingray Acquisition”) in exchange for the issuance by Mammoth of an aggregate of 7,000,000 shares of its common stock.

Prior to the acquisition, the Company and Sturgeon were under common control and it is required under accounting principles generally accepted in the Unites States of America ("GAAP") to account for this common control acquisition in a manner similar to the pooling of interest method of accounting. Therefore, the Company's historical financial information has been recast to combine Sturgeon with the Company as if the acquisition had been completed at commencement of Sturgeon's operations on September 13, 2014.

Conference Call Information

Mammoth will host a conference call on Thursday, November 1, 2018 at 10:00 a.m. CDT (11:00 am EDT) to discuss its third quarter 2018 financial and operational results. The telephone number to access the conference call is 844-265-1561 in the U.S. and the international dial in is 216-562-0385. The conference ID for the call is 6888202. The conference call will also be webcast live on www.mammothenergy.com in the “Investors” section.

About Mammoth Energy Services, Inc.

Mammoth is an integrated, growth-oriented company serving both the oil and gas and the electric utility industries in North America and US territories. Mammoth's subsidiaries provide a diversified set of drilling and completion services to the exploration and production industry including pressure pumping, coil tubing, natural sand and proppant services as well as trucking, drilling, cementing, water transfer among others. In addition, its infrastructure division provides transmission, distribution and logistics services to various public and private owned utilities throughout the US and Puerto Rico.

For additional information about Mammoth, please visit its website at www.mammothenergy.com, where Mammoth routinely posts announcements, updates, events, investor information and presentations and recent news releases.

Investor Contact:Don CristDirector of Investor Relations[email protected]405-608-6048

Media Contact:Peter Mirijanian[email protected](202) 464-8803

Forward-Looking Statements and Cautionary Statements

This news release (and any oral statements made regarding the subjects of this release, including on the conference call announced herein) contains certain statements and information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. The words “anticipate,” “believe,” “ensure,” “expect,” “if,” “intend,” “plan,” “estimate,” “project,” “forecasts,” “predict,” “outlook,” “aim,” “will,” “could,” “should,” “potential,” “would,” “may,” “probable,” “likely” and similar expressions, and the negative thereof, are intended to identify forward-looking statements. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include statements, estimates and projections regarding our business outlook and plans, future financial position, liquidity and capital resources, operations, performance, acquisitions, returns, capital expenditure budgets, costs and other guidance regarding future developments. Forward-looking statements are not assurances of future performance. These forward-looking statements are based on management’s current expectations and beliefs, forecasts for our existing operations, experience and perception of historical trends, current conditions, anticipated future developments and their effect on us, and other factors believed to be appropriate. Although management believes that the expectations and assumptions reflected in these forward-looking statements are reasonable as and when made, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all). Moreover, our forward-looking statements are subject to significant risks and uncertainties, including those described in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings we make with the SEC, including those relating to our acquisitions and our contracts, many of which are beyond our control, which may cause actual results to differ materially from our historical experience and our present expectations or projections which are implied or expressed by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: risks relating to economic conditions; volatility of crude oil and natural gas commodity prices; delays in or failure of delivery of current or future orders of specialized equipment; the loss of or interruption in operations of one or more key suppliers or customers; solvency of counterparties to our contracts and their ability to timely pay for our services; oil and gas market conditions; the effects of government regulation, permitting and other legal requirements, including new legislation or regulation of hydraulic fracturing; operating risks; the adequacy of our capital resources and liquidity; weather; litigation; competition in the oil and natural gas and infrastructure industries; and costs and availability of resources.

Investors are cautioned not to place undue reliance on any forward-looking statement which speaks only as of the date on which such statement is made. We undertake no obligation to correct, revise or update any forward-looking statement after the date such statement is made, whether as a result of new information, future events or otherwise, except as required by applicable law.

MAMMOTH ENERGY SERVICES, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

ASSETS September 30, December 31,
2018 2017
CURRENT ASSETS (in thousands)
Cash and cash equivalents $19,692 $5,637
Accounts receivable, net 390,824 243,746
Receivables from related parties 25,335 33,788
Inventories 19,185 17,814
Prepaid expenses 10,969 12,552
Other current assets 652 886
Total current assets 466,657 314,423
Property, plant and equipment, net 434,785 351,017
Sand reserves 72,207 74,769
Intangible assets, net - customer relationships 3,021 9,623
Intangible assets, net - trade names 6,134 6,516
Goodwill 98,308 99,811
Deferred income tax asset — 6,739
Other non-current assets 4,046 4,345
Total assets $1,085,158 $867,243
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $139,374 $141,306
Payables to related parties 1,402 1,378
Accrued expenses and other current liabilities 42,605 40,895
Income taxes payable 172,000 36,409
Total current liabilities 355,381 219,988
Long-term debt — 99,900
Deferred income tax liabilities 33,601 34,147
Asset retirement obligation 3,155 2,123
Other liabilities 1,703 3,289
Total liabilities 393,840 359,447
COMMITMENTS AND CONTINGENCIES
EQUITY
Equity:
Common stock, $0.01 par value, 200,000,000 shares authorized, 44,755,678 and 44,589,306 issued and outstanding at September 30, 2018 and December 31, 2017, respectively 448 446
Additional paid in capital 529,825 508,010
Retained earnings 164,165 2,001
Accumulated other comprehensive loss (3,120) (2,661)
Total equity 691,318 507,796
Total liabilities and equity $1,085,158 $867,243

MAMMOTH ENERGY SERVICES, INC.CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
2018 2017 2018 2018 2017
(in thousands, except per share amounts)
REVENUE
Services revenue$346,368 $63,113 $455,545 $1,210,572 $119,864
Services revenue - related parties18,933 56,861 40,611 108,632 134,426
Product revenue14,955 15,276 27,708 67,703 29,043
Product revenue - related parties3,787 14,055 9,730 24,979 39,200
Total revenue384,043 149,305 533,594 1,411,886 322,533
COST AND EXPENSES
Services cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $27,810, $79,283, $26,898, $24,153 and $57,642, respectively, for the three and nine months ended September 30, 2018, three month ended June 30, 2018 and three and nine months ended September 30, 2017)216,670 89,346 302,283 809,932 191,911
Services cost of revenue - related parties (exclusive of depreciation, depletion, amortization and accretion of $0, $0, $0, $0 and $0, respectively, for the three and nine months ended September 30, 2018, three month ended June 30, 2018 and three and nine months ended September 30, 2017)1,425 9 2,428 5,645 701
Product cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $4,183, $10,376, $3,879, $3,033 and $6,599, respectively, for the three and nine months ended September 30, 2018, three month ended June 30, 2018 and three and nine months ended September 30, 2017)29,470 25,178 35,117 97,917 57,759
Selling, general and administrative(45,761) 7,667 64,595 56,916 21,473
Selling, general and administrative - related parties437 355 532 1,398 986
Depreciation, depletion, amortization and accretion32,015 27,224 30,795 89,718 64,354
Impairment of long-lived assets4,582 — 187 4,769 —
Total cost and expenses238,838 149,779 435,937 1,066,295 337,184
Operating income (loss)145,205 (474) 97,657 345,591 (14,651)
OTHER (EXPENSE) INCOME
Interest expense, net(458) (1,420) (959) (2,654) (2,929)
Bargain purchase gain, net of tax— — — — 4,012
Other, net(400) (320) (486) (914) (707)
Total other (expense) income(858) (1,740) (1,445) (3,568) 376
Income (loss) before income taxes144,347 (2,214) 96,212 342,023 (14,275)
Provision (benefit) for income taxes74,835 (1,413) 53,512 174,265 (7,323)
Net income (loss)$69,512 $(801) $42,700 $167,758 $(6,952)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment, net of tax of ($87), $185, $86, $358 and $812, respectively, for the three and nine months ended September 30, 2018, three month ended June 30, 2018 and three and nine months ended September 30, 2017)327 628 (325) (459) 1,037
Comprehensive income (loss)$69,839 $(173) $42,375 $167,299 $(5,915)
Net income (loss) per share (basic)$1.55 $(0.02) $0.95 $3.75 $(0.17)
Net income (loss) per share (diluted)$1.54 $(0.02) $0.95 $3.73 $(0.17)
Weighted average number of shares outstanding (basic)44,756 44,502 44,737 44,718 40,526
Weighted average number of shares outstanding (diluted)45,082 44,502 45,059 45,012 40,526
Dividends declared per share$0.125 — $— $0.125 —

MAMMOTH ENERGY SERVICES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine Months Ended
September 30,
2018 2017
(in thousands)
Cash flows from operating activities:
Net income (loss)$167,758 $(6,952)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Equity based compensation17,487 —
Stock based compensation4,331 2,648
Depreciation, depletion, accretion and amortization89,718 64,354
Amortization of coil tubing strings1,473 2,144
Amortization of debt origination costs299 299
Bad debt expense(14,543) 117
(Gain) loss on disposal of property and equipment(185) 126
Gain on bargain purchase— (4,012)
Impairment of long-lived assets4,769 —
Deferred income taxes6,418 (8,151)
Changes in assets and liabilities, net of acquisitions of businesses:
Accounts receivable, net(132,553) (37,440)
Receivables from related parties8,453 (12,081)
Inventories(2,665) (7,878)
Prepaid expenses and other assets1,814 2,644
Accounts payable(5,179) 30,445
Payables to related parties24 8
Accrued expenses and other liabilities(405) 14,393
Income taxes payable135,578 (28)
Net cash provided by operating activities282,592 40,636
Cash flows from investing activities:
Purchases of property and equipment(144,898) (102,273)
Purchases of property and equipment from related parties(4,632) —
Business acquisitions(14,456) (42,008)
Proceeds from disposal of property and equipment1,213 782
Business combination cash acquired— 2,671
Net cash used in investing activities(162,773) (140,828)
Cash flows from financing activities:
Borrowings from lines of credit77,000 118,850
Repayments of lines of credit(176,900) (24,850)
Repayments of equipment financing note(219) —
Dividends paid(5,594) —
Repayment of acquisition long-term debt— (8,851)
Net cash (used in) provided by financing activities(105,713) 85,149
Effect of foreign exchange rate on cash(51) 82
Net change in cash and cash equivalents14,055 (14,961)
Cash and cash equivalents at beginning of period5,637 29,239
Cash and cash equivalents at end of period$19,692 $14,278
Supplemental disclosure of cash flow information:
Cash paid for interest$2,726 $2,300
Cash paid for income taxes$32,269 $840
Supplemental disclosure of non-cash transactions:
Purchases of property and equipment included in accounts payable and accrued expenses$21,124 $13,648
Acquisition of Sturgeon, Stingray Cementing LLC and Stingray Energy Services LLC$— $23,091

MAMMOTH ENERGY SERVICES, INC. SEGMENT INCOME STATEMENTS (unaudited) (in thousands)

Three months ended September 30, 2018Pressure PumpingInfrastructureSandDrillingAll OtherEliminationsTotal
Revenue from external customers$91,595 $237,052 $18,742 $15,800 $20,854 $— $384,043
Intersegment revenues815 — 18,268 139 671 (19,893)—
Total revenue92,410 237,052 37,010 15,939 21,525 (19,893)384,043
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion54,023 128,267 29,470 14,104 21,701 — 247,565
Intersegment cost of revenues18,897 37 546 158 245 (19,883)—
Total cost of revenue72,920 128,304 30,016 14,262 21,946 (19,883)247,565
Selling, general and administrative4,335 (54,200)1,618 1,362 1,561 — (45,324)
Depreciation, depletion, amortization and accretion12,665 6,591 4,184 4,327 4,248 — 32,015
Impairment of long-lived assets143 — — — 4,439 — 4,582
Operating income (loss)2,347 156,357 1,192 (4,012)(10,669)(10)145,205
Interest expense, net150 159 37 53 59 — 458
Other expense2 181 199 (5)23 — 400
Income (loss) before income taxes$2,195 $156,017 $956 $(4,060)$(10,751)$(10)$144,347

Three months ended September 30, 2017Pressure PumpingInfrastructureSandDrillingAll OtherEliminationsTotal
Revenue from external customers$75,705 $13,486 $29,332 $13,644 $17,138 $— $149,305
Intersegment revenues950 — 3,401 — 287 (4,638)—
Total revenue76,655 13,486 32,733 13,644 17,425 (4,638)149,305
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion52,961 10,117 25,178 11,598 14,679 — 114,533
Intersegment cost of revenues3,688 — 905 45 — (4,638)—
Total cost of revenue56,649 10,117 26,083 11,643 14,679 (4,638)114,533
Selling, general and administrative2,511 886 1,841 1,374 1,410 — 8,022
Depreciation, depletion, amortization and accretion13,039 1,039 3,034 5,036 5,076 — 27,224
Operating income (loss)4,456 1,444 1,775 (4,409)(3,740)— (474)
Interest expense, net592 68 87 570 103 — 1,420
Other expense120 10 98 39 53 — 320
Income (loss) before income taxes$3,744 $1,366 $1,590 $(5,018)$(3,896)$— $(2,214)

Three months ended June 30, 2018Pressure PumpingInfrastructureSandDrillingAll OtherEliminationsTotal
Revenue from external customers$100,333 $360,250 $37,439 $17,126 $18,446 $— $533,594
Intersegment revenues1,073 — 15,406 84 1,721 (18,284)—
Total revenue101,406 360,250 52,845 17,210 20,167 (18,284)533,594
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion61,593 210,189 35,117 15,280 17,649 — 339,828
Intersegment cost of revenues16,174 754 1,019 (40)129 (18,036)—
Total cost of revenue77,767 210,943 36,136 15,240 17,778 (18,036)339,828
Selling, general and administrative20,822 39,786 1,787 1,591 1,141 — 65,127
Depreciation, depletion, amortization and accretion13,829 4,094 3,881 5,349 3,642 — 30,795
Impairment of long-lived assets— — — 187 — — 187
Operating income (loss)(11,012)105,427 11,041 (5,157)(2,394)(248)97,657
Interest expense, net341 106 76 265 171 — 959
Other expense80 330 36 32 8 — 486
Income (loss) before income taxes$(11,433)$104,991 $10,929 $(5,454)$(2,573)$(248)$96,212

Nine months ended September 30, 2018Pressure PumpingInfrastructureSandDrillingAll OtherEliminationsTotal
Revenue from external customers$288,507 $922,761 $92,684 $48,154 $59,780 $— $1,411,886
Intersegment revenues6,447 — 48,186 225 4,807 (59,665)—
Total revenue294,954 922,761 140,870 48,379 64,587 (59,665)1,411,886
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion182,228 532,532 97,917 43,859 56,958 — 913,494
Intersegment cost of revenues50,473 2,582 5,851 280 479 (59,665)—
Total cost of revenue232,701 535,114 103,768 44,139 57,437 (59,665)913,494
Selling, general and administrative27,820 17,437 5,049 4,206 3,802 — 58,314
Depreciation, depletion, amortization and accretion40,480 13,092 10,381 14,031 11,734 — 89,718
Impairment of long-lived assets143 — — 187 4,439 — 4,769
Operating income (loss)(6,190)357,118 21,672 (14,184)(12,825)— 345,591
Interest expense, net995 341 193 713 412 — 2,654
Other expense94 513 222 67 18 — 914
Income (loss) before income taxes$(7,279)$356,264 $21,257 $(14,964)$(13,255)$— $342,023

Nine months ended September 30, 2017Pressure PumpingInfrastructureSandDrillingAll OtherEliminationsTotal
Revenue from external customers$166,082 $15,195 $68,244 $36,867 $36,145 $— $322,533
Intersegment revenues1,409 — 4,848 — 372 (6,629)—
Total revenue167,491 15,195 73,092 36,867 36,517 (6,629)322,533
Cost of revenue, exclusive of depreciation, depletion, amortization and accretion117,494 11,829 57,760 34,584 28,704 — 250,371
Intersegment cost of revenues5,220 — 1,359 45 5 (6,629)—
Total cost of revenue122,714 11,829 59,119 34,629 28,709 (6,629)250,371
Selling, general and administrative6,691 1,241 6,315 4,102 4,110 — 22,459
Depreciation, depletion, amortization and accretion31,823 1,379 6,603 14,978 9,571 — 64,354
Operating income (loss)6,263 746 1,055 (16,842)(5,873)— (14,651)
Interest expense, net1,023 72 573 1,227 34 — 2,929
Bargain purchase gain— — (4,012)— — — (4,012)
Other expense127 10 252 263 55 — 707
Income (loss) before income taxes$5,113 $664 $4,242 $(18,332)$(5,962)$— $(14,275)

MAMMOTH ENERGY SERVICES, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of the Company's financial statements, such as industry analysts, investors, lenders and rating agencies. Mammoth defines Adjusted EBITDA as net income (loss) before depreciation, depletion, amortization and accretion expense, impairment of long-lived assets, acquisition related costs, public offering costs, equity based compensation, stock based compensation, bargain purchase gain, interest expense, net, other (income) expense, net (which is comprised of the (gain) or loss on disposal of long-lived assets) and provision (benefit) for income taxes. The Company excludes the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within the energy service industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) or cash flows from operating activities as determined in accordance with GAAP or as an indicator of Mammoth's 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. Mammoth's computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company believes that Adjusted EBITDA is a widely followed measure of operating performance and may also be used by investors to measure its ability to meet debt service requirements.

The following tables provide a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income (loss) on a consolidated basis and for each of the Company's segments (in thousands):

Consolidated

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
Reconciliation of Adjusted EBITDA to net income (loss):2018 2017 2018 2018 2017
Net income (loss)$69,512 $(801) $42,700 $167,758 $(6,952)
Depreciation, depletion, accretion and amortization expense32,015 27,224 30,795 89,718 64,354
Impairment of long-lived assets4,582 — 187 4,769 —
Acquisition related costs99 264 77 130 2,455
Public offering costs260 — 731 991 —
Equity based compensation— — 17,487 17,487 —
Stock based compensation1,415 1,028 1,660 4,331 2,648
Bargain purchase gain— — — — (4,012)
Interest expense, net458 1,420 959 2,654 2,929
Other expense, net400 320 486 914 707
Provision (benefit) for income taxes74,835 (1,413) 53,512 174,265 (7,323)
Adjusted EBITDA$183,576 $28,042 $148,594 $463,017 $54,806

Pressure Pumping Services

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
Reconciliation of Adjusted EBITDA to net income (loss):2018 2017 2018 2018 2017
Net income$2,195 $3,744 $(11,433) $(7,279) $5,113
Depreciation and amortization expense12,665 13,039 13,829 40,480 31,823
Impairment of long-lived assets143 — — 143 —
Acquisition related costs6 1 33 39 1
Public offering costs61 — 202 263 —
Equity based compensation— — 17,487 17,487 —
Stock based compensation400 428 453 1,271 1,202
Interest expense150 592 341 995 1,023
Other expense, net2 120 80 94 127
Adjusted EBITDA$15,622 $17,924 $20,992 $53,493 $39,289

Infrastructure Services

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
Reconciliation of Adjusted EBITDA to net income (loss):2018 2017 2018 2018 2017
Net income (loss)$78,405 $1,366 $52,359 $178,064 $664
Depreciation and amortization expense6,591 1,039 4,094 13,092 1,379
Acquisition related costs— 48 4 (4) 90
Public offering costs123 — 360 483 —
Stock based compensation555 29 606 1,618 29
Interest expense159 68 106 341 72
Other expense, net181 10 330 513 10
Provision for income taxes77,612 — 52,632 178,200 —
Adjusted EBITDA$163,626 $2,560 $110,491 $372,307 $2,244

Natural Sand Proppant Services

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
Reconciliation of Adjusted EBITDA to net income (loss):2018 2017 2018 2018 2017
Net income$956 $1,566 $10,929 $21,257 $4,209
Depreciation, depletion, accretion and amortization expense4,184 3,034 3,881 10,381 6,603
Acquisition related costs— 167 — (38) 2,121
Public offering costs49 — 95 144 —
Stock based compensation211 272 205 602 524
Bargain purchase gain— — — — (4,012)
Interest expense37 87 76 193 573
Other expense, net199 98 36 222 252
Provision for income taxes— 24 — — 33
Adjusted EBITDA$5,636 $5,248 $15,222 $32,761 $10,303

Contract Land and Directional Drilling Services

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
Reconciliation of Adjusted EBITDA to net income (loss):2018 2017 2018 2018 2017
Net loss$(4,060) $(5,018) $(5,454) $(14,964) $(18,332)
Depreciation and amortization expense4,327 5,036 5,349 14,031 14,978
Impairment of long-lived assets— — 187 187 —
Acquisition related costs— (16) — — 9
Public offering costs10 — 34 44 —
Stock based compensation132 138 301 540 430
Interest expense, net53 570 265 713 1,227
Other expense, net(5) 39 32 67 263
Adjusted EBITDA$457 $749 $714 $618 $(1,425)

Other Services(a)

Three Months Ended Nine Months Ended
September 30, June 30, September 30,
Reconciliation of Adjusted EBITDA to net income (loss):2018 2017 2018 2018 2017
Net (loss) income$(7,974) $(2,459) $(3,453) $(9,320) $1,394
Depreciation and amortization expense4,248 5,076 3,642 11,734 9,571
Impairment of long-lived assets4,439 — — 4,439 —
Acquisition related costs93 65 40 133 236
Public offering costs17 — 40 57 —
Stock based compensation117 162 94 300 463
Interest expense, net59 103 171 412 34
Other expense, net23 53 8 18 55
Provision (benefit) for income taxes(2,777) (1,437) 880 (3,935) (7,356)
Adjusted EBITDA$(1,755) $1,563 $1,422 $3,838 $4,397

(a) Includes results for our coil tubing, pressure control, flowback, cementing, acidizing, equipment rentals, crude oil hauling, water transfer and remote accommodations services and corporate related activities. Our corporate related activities do not generate revenue.

Adjusted Net Income and Adjusted Earnings per Share

Adjusted net income and adjusted earnings per share are supplemental non-GAAP financial measures that are used by management to evaluate the Company's operating and financial performance. Management believes these measures provide meaningful information about the Company's performance by excluding certain non-cash charges that may not be indicative of the Company's ongoing operating results, such as equity based compensation, that may not be indicative of the Company's ongoing operating results. Adjusted net income and adjusted earnings per share should not be considered in isolation or as a substitute for net income and earnings per share prepared in accordance with GAAP and may not be comparable to other similarly titled measures of other companies. The following tables provide a reconciliation of adjusted net income and adjusted earnings per share to the GAAP financial measures of net income and earnings per share for the periods specified.

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
(in thousands, except per share amounts)
Net income, as reported$69,512 $(801) $167,758 $(6,952)
Equity based compensation— — 17,487 —
Adjusted net income$69,512 $(801) $185,245 $(6,952)
Basic earnings per share, as reported$1.55 $(0.02) $3.75 $(0.17)
Equity based compensation— — 0.39 —
Adjusted basic earnings per share$1.55 $(0.02) $4.14 $(0.17)
Diluted earnings per share, as reported$1.54 $(0.02) $3.73 $(0.17)
Equity based compensation— — 0.39 —
Adjusted diluted earnings per share$1.54 $(0.02) $4.12 $(0.17)

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Source: Mammoth Energy Services, Inc.

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