TUSK - Mammoth Energy: It Could Go Either Way In 2023 And 2024

2023-03-15 18:20:27 ET

Summary

• After being up over 3x since May 2022, it could be difficult for TUSK to maintain momentum over the next year or two.
• The company is led by its Well Completion and Infrastructure Services segments, and if they can continue to grow in 2023 and 2024, the company could break out.
• Taking into consideration macro-economic conditions and ongoing supply chain constraints, the company will do well if it can grow modestly in the quarters ahead.

Mammoth Energy Services, Inc. ( TUSK ) has made some solid strides over the last year, with revenue increasing significantly year-over-year, although the company is still struggling to turn a profit.

With the company did fairly well in comparison to some of its recent historical performance, but having more than tripled in its share price from when it traded at $1.615 on May 12, 2022, it appears a lot of its performance is already priced in.

It's still being led by its Well Completion segment, and that is poised for ongoing growth if the company is able to upgrade its fleet, which would result in improvement in costs and the overall bottom line, while at the same time boosting revenue in its top-performing unit.

If it can execute on its plans for upgrading its Well Completion division, it does have a chance to moderately surprise to the upside, although a lot of things will have to go right for it to do so.

In this article we'll look at its recent performance, the key to maintaining momentum, and what the next year or so looks like for TUSK.

Some of the numbers

Revenue in the fourth quarter of 2022 was $102.9 million, up 80 percent from revenue of $57.2 million in the fourth quarter of 2021. Revenue for full year 2022 was $362.1 million, up 58 percent from full year revenue of $229.00 million for full year 2021.

While management attributed revenue growth to all its business segments improving, they specifically called out its Well Completions segment as the top performer.

Adjusted EBITDA in the fourth quarter of 2022 was $24.1 million, up 40 percent from adjusted EBITDA of $17.2 million in the fourth quarter of 2021. Adjusted EBITDA for full year 2022 came in at $86.1 million, compared to adjusted EBITDA of -$(11.6) million for full year 2021.

Net income in the reporting period was $4.8 million, or $0.10 per share, compared to a net loss of -$(13.3) million, or -$(0.28) per share in the fourth quarter of 2021. For full year 2022 the company had a net loss of -$(0.06) million, or -$(0.01) per diluted share, compared to a net loss of -$(101.4) million, or -$(2.18) per diluted share.

At the end of calendar 2022 the company had cash and cash equivalents of $17.3 million, compared to cash and cash equivalents of $9.9 million at the end of calendar 2021, with total liquidity of $37.00 million.

The company had debt of $83.5 million at the end of calendar 2022.

With an improvement across a number of its metrics, the company does have some momentum going for it. If demand continues to improve, it has a chance at doing well in 2023, but there remains the macro-economic overhang, as well as uncertainty surrounding the actions of the Federal Reserve, and lack of clarity on supply chain constraints.

Breaking down the segments

Well Completion Services

As mentioned earlier, its Well Completion Services unit was the top-performing segment in the fourth quarter of 2022, generating revenue of $51.4 million in the reporting period, compared to $21.3 million in the fourth quarter of 2021.

For full year 2022, Well Completion Services contributed revenue of $170.7 million to the top line (including inter-segment revenue), compared to $84.3 million in revenue generated in full year 2021.

The increase of utilization of fleets, which was 3.4, more than double the 1.6 fleets in the fourth quarter of 2021, was a key catalyst for the boost in revenue.

Infrastructure Services

The Infrastructure Services unit of TUSK accounted for $29.6 million in revenue for the fourth quarter of 2022, compared to revenue of $19.7 million generated in the fourth quarter of 2021.

For full year 2022 Infrastructure Services generated revenue of $111.5 million, compared to $93.4 million in revenue generated in full year 2021.

The increase in revenue for the unit was attributed to an increase in crew count and improved execution.

Natural Sand Proppant Services

Revenue from its Natural Sand Proppant Services for the fourth quarter of 2022 was $13.8 million, compared to revenue of $10.8 million in the fourth quarter of 2021. Revenue from its Natural Sand Proppant Services for full year 2022 was $51.4 million, compared to revenue of $34.9 million for full year 2021.

Major catalysts there were the 400,000 increases in sand tonnage sold in 2022 in comparison to full year 2021, and the average sales price per ton sold jumped from $16.76 per ton in full year 2021 to an average sales price of $27.11 per ton for full year 2022.

Drilling Services

Revenue from its Drilling Services segment climbed to $2.4 million in the reporting period, compared to $1.0 million in the fourth quarter of 2021. For full year 2022 Drilling Services' revenue came in at $10.4 million, compared to $4.3 million for full year 2021.

The major catalyst for the improvement was an increase in utilization in its directional drilling business.

Other Services

Revenue coming from its Other Services segment, which includes aviation, equipment manufacturing, equipment rentals, and remote accommodations, was $6.4 million in the fourth quarter of 2022, compared to revenue of $4.9 million in the fourth quarter of 2021. For full year 2022, revenue from Other Services was $23.1 million, compared to revenue of $18.5 million for full year 2021.

The improvement in revenue was attributed to an increase in utilization in its equipment rental and remote accommodations businesses.

Taking all the segments into consideration, the key element in growth in all of them was an increase in utilization, adding to its headcount, and in the case of its sand business, an increase in prices. Together, they represent an improvement in demand. If that continues throughout the year, the company has the potential to outperform in my view.

Well Completion and Infrastructure Services

With Well Completion and Infrastructure Services accounting for approximately $282.2 million of the $362 million in total revenue generated for full year 2022, it underscores the fact that how those two segments perform, so will perform the company.

On a year-over-year basis, as shown above, both of these segments had significant improvement in performance, and appear to be continuing to maintain momentum so far in 2023. As of the end of 2022 the company had 4 of its 6 pressure pumping spreads in operation, with a fifth spread added in January 2023. The company has plans in place to upgrade another spread to Tier 4 dual fuel in the latter part of 2023, and upgrade two of its current spread to Tier 2 dual fuel. That's the plan, but whether or not the company can execute on the plan will be determined by supply chain challenges and unfolding market conditions. If the company is able to meet its goals, it would give it 4 dual-fuel fleets.

The importance of that as it relates to the company's performance is it results in a reduction in costs, which should end up improving the bottom line of the company, even as it increases revenue.

In regard to its Infrastructure Services unit, management noted that it has grown the segment organically over the last five years and based upon demand and the Infrastructure Investment and Jobs Act, it should continue to be a growth catalyst for TUSK going forward. A higher utilization rate of its equipment and crews and operational improvements strengthened its performance in 2022, and with a favorable bidding and pricing environment expected to continue, this division should be able to maintain momentum through 2023, assuming the global economy doesn't collapse; something that I believe could happen.

Watching these two segments of TUSK is the key to identifying how well the company is doing, and while they appear to be poised for a decent 2023, we really won't be certain until we have more clarity on the actions of the Fed and how long it and its central bank counterparts will continue to raise interest rates, and/or keep them elevated.

Conclusion

The share price of TUSK has taken a beating over the last five years, falling from a 5-year high of approximately $42.00 per share on 6-18, 2018, to a 5-year low of about $0.31 per share on March 9, 2020. It has rebounded some of the last couple of years, trading at a low of around $1.31 on February 28, 2022, and steadily climbing to trade at a 52-week high of $8.79 per share on December 26, 2022.

As the company stands, the question must be asked as to whether or not the currently visibility of the company is currently priced in, and my answer would be I'm not sure. The reason why is it's a fairly thinly traded company, and it's sometimes harder to get a read when volume is low on a consistent basis.

When measuring profitability against the sector median, the company is far below the average. For example, gross profit margin was 23.06 percent, compared to the sector median of 46.52 percent, down by over 50 percent.

Net income margin is a big concern, when considering it was -(0.17) percent, compared to the sector median of 13.63 percent.

Return on equity was -(0.13), compared to the sector median of 22.42 percent, and lastly, return on capital was -(2.15) percent, compared to the sector median of 9.91 percent.

As for valuation, the company was i n a strong place in regard to Price/Sales ('TTM'), with it at a healthy 0.68, compared to the sector median of 1.14, a difference of 40.11 percent. EV/Sales ('TTM') was 0.98, against a sector median of 1.63, a difference of 40.03 percent.

Taking these offsetting metrics together, I see the company as trading close to its value, possibly a little under it. The company has had a big move over the last year, and I think at best, it's possible it has a little more upside left in it during 2023.

It may have found a bottom at close to the $5.30 mark, so that would be where to watch it in regard to whether it breaks to the downside or upside of that share price in any meaningful and sustainable manner.

Based upon the apparent momentum in its two largest segments, I think the company has a slightly better chance to move up by the end of 2023, but that will be determined by ongoing supply chain constraints and its ability to improve its fleet in Well Completion. If it can do that, and all other things remain equal, it could surprise to the upside.

The bottom line is, there's no clear path to a high-percentage chance at growth in the year ahead, so it would be best for those interested in TUSK to wait for a better entry point.

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