Mammoth Energy Services Inc (TUSK) (filings) operates along several segments. In its infrastructure segment it provides "construction, upgrade, maintenance and repair services" to utilities. In its oilfield segment it provides a "diversified set of services to the exploration and production industry including well completion, natural sand and proppant services and drilling services". In addition the company provides "aviation services, equipment rentals, crude oil hauling, remote accommodation services, equipment manufacturing and infrastructure engineering and design services". All operations are in North America, mainly in the "northeastern, southwestern, midwestern and western portions of the United States."
At 1.63 USD per share the stock is among the best 34% of my international net-net list and among the best 25% in my international falling knives list. Last price is 1.51 USD, so now it is even cheaper. It is among the best US-listed net-nets but there are many more US-listed falling knives with a better rank than Mammoth.
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In 2020 about half of the revenue was from the infrastructure segment (page F-45 of the annual report). Almost 30% was from the segment "well completion". Sand deliveries were good for about 10% of the revenue. In 2020 energy prices were low because of the corona panic. I expect revenue from well completion to increase much in 2021 and 2022. Also revenue from drilling and sand will increase.
The balance sheet has low leverage (Tangible Assets/Tangible Book = 1.5) and the current ratio is high at 2.9. There is more cash than current debt. Moreover, almost all debt is from the company's revolving credit facility maturing on 19 October 2023. But the problem is 328 million USD of receivables for electrical grid reparations in Puerto Rico after hurricane Marica. This work was carried out from October 2019 through March 2019. This receivable includes 101 million USD of interest. According to page 7 of the quarterly report the company thinks these receivables are collectible despite bankruptcy of the customer.
Without these delinquent receivables the balance sheet looks much worse. Also, the company has negotiated a temporary waiver for its revolving credit covenants for the last quarter of 2021. See page 16 of the quarterly report. Therefore, I consider this company financially distressed, probably even heavily financially distressed.
However, that is just an opinion. Here is another opinion: According to a recent article on Seeking Alpha the risks that it needs to impair these receivables are low. It briefly mentions certain political decisions related to infrastructure spending as reason for this judgement. BTW, the article also mentions a bribery scandal (see below) as a reason for this customer refusing to pay 69 million USD.
Because the liquidation value of 328 million USD of receivables cannot be determined by me the computation of the liquidation value is highly speculative. I imagine these receivables need at least 50% discount. So, the book value of the current assets is 426 million USD, including 328 million USD of questionable receivables. Among non-current assets (page F-22 of annual report) there is 14 million USD of land and 48 million USD of buildings. I discount the buildings to 10 million USD. The book value of the liabilities is 252 million USD.
Therefore, my more than usually speculative estimate of liquidation value = 426 -0.5*328 +14 +10 -252= 34 million USD. Very likely the stock trades above liquidation value.
A search on the company name and keyword "fraud" revealed relevant information. In 2019 a manager of a subsidiary was accused of bribery. See also this article. This resulted also in a class action from investors, which was settled for 11 million USD in 2021. I do not think regulators or the customer will be able to prove that the contract the company allegedly got with bribery had better than market terms. See also this article from 10 June 2020. This is important since without being able to prove damages the customer will lose in court if it refuses to pay because of bribery.
The company is public since October 2016. The company paid dividends in 2018 and 2019. In cash flow statements I have not found any significant dilutions since the IPO. That said, the share count has increased with 2% since 4 quarters ago. I think this can be attributed to insider compensation.
Compared to other US-listed companies the company has a relatively small board of 6 directors including the CEO. Small boards predict higher returns. One of the directors, Dr. Corey Booker, seems to have a busy daytime job. He might not spend enough time for Mammoth Energy Services.
Substantial shareholders: Wexford Capital LP 47.64% and affiliates, GPOR Distribution Trust 21.1%, ValueWorks LLC 7.3%. The CEO, Mr. Arty Straehla (67), owns for about a million USD in shares, almost entirely as restricted shares.
The managing directors of Wexford Capital are not directors of the company. However, according to page 27 of the proxy, Wexford has 2 directors in the board, chairman Mr. Amron and Mr. Jacobi.
Relating party transactions: One of the subsidiaries has a joint venture with an affiliate of Wexford. There have been complex transactions with the leasing of 2 helicopters. Red flag: I do not understand the economic rationale behind these transactions.
According to an agreement with the company Wexford can provide "general financial and strategic advisory services" for 500k USD per year plus expenses. I do not like such an agreement. However in 2019 the company paid only 300k USD under the agreement and in 2020 it did not pay anything.
Wexford also provides "certain technical, administrative and payroll services". An affiliate of Wexford provides "certain administrative and analytical services" and "office and equipment yard space". The amounts involved are small.
In 2020 the CEO earned 849k USD including a bonus of 300k USD. The CFO earned 479k USD including a bonus of 200k USD. In 2019 these 2 people earned much more because of large stock awards they got instead of (part of) their bonus.
My opinion on Mammoth Energy Services
I see the company as a financially distressed oil and infrastructure services play with a good outlook for its core profitability. Cheap based on NCAV/Market cap and EV/Revenue. The big question is whether and when it can collect large receivables related to restoring the grid in Puerto Rico in 2018.
I have not found any major governance issues. There are some small related party transactions that I do not like. However, I do not think they are a good reason to avoid the stock.
So, I think this is a good stock for a small position. But there is also research suggesting financially distressed net-nets have lower returns than other net-nets. I suppose this one is cheap enough to be the exception. And do not forget the positive outlook for its core profitability.
Call me a coward: Because of elevated risk from financial distress and high stock price volatility I will not buy it myself.