tusk-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-37917

Mammoth Energy Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware

32-0498321

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

14201 Caliber Drive,

Suite 300

Oklahoma City,

Oklahoma

(405)

608-6007

73134

(Address of principal executive offices)

(Registrant’s telephone number, including area code)

(Zip Code)

Securities registered pursuant to Section 12(b) of The Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

TUSK

The Nasdaq Stock Market LLC

NASDAQ Global Select Market

______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 7, 2023, there were 47,941,652 shares of common stock, $0.01 par value, outstanding.

MAMMOTH ENERGY SERVICES, INC.

TABLE OF CONTENTS




		Page
	Glossary of Oil and Natural Gas and Electrical Infrastructure Terms	i
	Cautionary Note Regarding Forward-Looking Statements	iv

PART I. FINANCIAL INFORMATION		1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Comprehensive (Loss) Income	2
	Condensed Consolidated Statements of Changes in Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	52

PART II. OTHER INFORMATION		54
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	54
Item 6.	Exhibits	55

SIGNATURES		56

GLOSSARY OF OIL AND NATURAL GAS AND ELECTRICAL INFRASTRUCTURE TERMS


The following is a glossary of certain oil and natural gas and natural sand proppant industry terms used in this Quarterly Report on Form 10-Q (this “report” or “Quarterly Report”):
Acidizing			To pump acid into a wellbore to improve a well’s productivity or injectivity.
Blowout			An uncontrolled flow of reservoir fluids into the wellbore, and sometimes catastrophically to the surface. A blowout may consist of salt water, oil, natural gas or a mixture of these. Blowouts can occur in all types of exploration and production operations, not just during drilling operations. If reservoir fluids flow into another formation and do not flow to the surface, the result is called an underground blowout. If the well experiencing a blowout has significant open-hole intervals, it is possible that the well will bridge over (or seal itself with rock fragments from collapsing formations) down-hole and intervention efforts will be averted.
Bottomhole assembly			The lower portion of the drillstring, consisting of (from the bottom up in a vertical well) the bit, bit sub, a mud motor (in certain cases), stabilizers, drill collar, heavy-weight drillpipe, jarring devices (“jars”) and crossovers for various threadforms. The bottomhole assembly must provide force for the bit to break the rock (weight on bit), survive a hostile mechanical environment and provide the driller with directional control of the well. Oftentimes the assembly includes a mud motor, directional drilling and measuring equipment, measurements-while-drilling tools, logging-while-drilling tools and other specialized devices.
Cementing			To prepare and pump cement into place in a wellbore.
Coiled tubing			A long, continuous length of pipe wound on a spool. The pipe is straightened prior to pushing into a wellbore and rewound to coil the pipe back onto the transport and storage spool. Depending on the pipe diameter (1 in. to 4 1/2 in.) and the spool size, coiled tubing can range from 2,000 ft. to 23,000 ft. (610 m to 6,096 m) or greater length.
Completion			A generic term used to describe the assembly of down-hole tubulars and equipment required to enable safe and efficient production from an oil or gas well. The point at which the completion process begins may depend on the type and design of the well.
Directional drilling			The intentional deviation of a wellbore from the path it would naturally take. This is accomplished through the use of whipstocks, bottomhole assembly (BHA) configurations, instruments to measure the path of the wellbore in three-dimensional space, data links to communicate measurements taken down-hole to the surface, mud motors and special BHA components and drill bits, including rotary steerable systems, and drill bits. The directional driller also exploits drilling parameters such as weight on bit and rotary speed to deflect the bit away from the axis of the existing wellbore. In some cases, such as drilling steeply dipping formations or unpredictable deviation in conventional drilling operations, directional-drilling techniques may be employed to ensure that the hole is drilled vertically. While many techniques can accomplish this, the general concept is simple: point the bit in the direction that one wants to drill. The most common way is through the use of a bend near the bit in a down-hole steerable mud motor. The bend points the bit in a direction different from the axis of the wellbore when the entire drillstring is not rotating. By pumping mud through the mud motor, the bit turns while the drillstring does not rotate, allowing the bit to drill in the direction it points. When a particular wellbore direction is achieved, that direction may be maintained by rotating the entire drillstring (including the bent section) so that the bit does not drill in a single direction off the wellbore axis, but instead sweeps around and its net direction coincides with the existing wellbore. Rotary steerable tools allow steering while rotating, usually with higher rates of penetration and ultimately smoother boreholes.
Down-hole			Pertaining to or in the wellbore (as opposed to being on the surface).
Down-hole motor			A drilling motor located in the drill string above the drilling bit powered by the flow of drilling mud. Down-hole motors are used to increase the speed and efficiency of the drill bit or can be used to steer the bit in directional drilling operations. Drilling motors have become very popular because of horizontal and directional drilling applications and the day rates for drilling rigs.
Drilling rig			The machine used to drill a wellbore.
Drillpipe or Drill pipe			Tubular steel conduit fitted with special threaded ends called tool joints. The drillpipe connects the rig surface equipment with the bottomhole assembly and the bit, both to pump drilling fluid to the bit and to be able to raise, lower and rotate the bottomhole assembly and bit.
Drillstring or Drill string			The combination of the drillpipe, the bottomhole assembly and any other tools used to make the drill bit turn at the bottom of the wellbore.
Flowback			The process of allowing fluids to flow from the well following a treatment, either in preparation for a subsequent phase of treatment or in preparation for cleanup and returning the well to production.
Horizontal drilling			A subset of the more general term “directional drilling,” used where the departure of the wellbore from vertical exceeds about 80 degrees. Note that some horizontal wells are designed such that after reaching true 90-degree horizontal, the wellbore may actually start drilling upward. In such cases, the angle past 90 degrees is continued, as in 95 degrees, rather than reporting it as deviation from vertical, which would then be 85 degrees. Because a horizontal well typically penetrates a greater length of the reservoir, it can offer significant production improvement over a vertical well.
Hydraulic fracturing			A stimulation treatment routinely performed on oil and gas wells in low permeability reservoirs. Specially engineered fluids are pumped at high pressure and rate into the reservoir interval to be treated, causing a vertical fracture to open. The wings of the fracture extend away from the wellbore in opposing directions according to the natural stresses within the formation. Proppant, such as grains of sand of a particular size, is mixed with the treatment fluid to keep the fracture open when the treatment is complete. Hydraulic fracturing creates high-conductivity communication with a large area of formation and bypasses any damage that may exist in the near-wellbore area.


Hydrocarbon			A naturally occurring organic compound comprising hydrogen and carbon. Hydrocarbons can be as simple as methane, but many are highly complex molecules, and can occur as gases, liquids or solids. Petroleum is a complex mixture of hydrocarbons. The most common hydrocarbons are natural gas, oil and coal.
Mesh size			The size of the proppant that is determined by sieving the proppant through screens with uniform openings corresponding to the desired size of the proppant. Each type of proppant comes in various sizes, categorized as mesh sizes, and the various mesh sizes are used in different applications in the oil and natural gas industry. The mesh number system is a measure of the number of equally sized openings per square inch of screen through which the proppant is sieved.
Mud motors			A positive displacement drilling motor that uses hydraulic horsepower of the drilling fluid to drive the drill bit. Mud motors are used extensively in directional drilling operations.
Natural gas liquids			Components of natural gas that are liquid at surface in field facilities or in gas processing plants. Natural gas liquids can be classified according to their vapor pressures as low (condensate), intermediate (natural gasoline) and high (liquefied petroleum gas) vapor pressure.
Nitrogen pumping unit			A high-pressure pump or compressor unit capable of delivering high-purity nitrogen gas for use in oil or gas wells. Two basic types of units are commonly available: a nitrogen converter unit that pumps liquid nitrogen at high pressure through a heat exchanger or converter to deliver high-pressure gas at ambient temperature, and a nitrogen generator unit that compresses and separates air to provide a supply of high pressure nitrogen gas.
Plugging			The process of permanently closing oil and gas wells no longer capable of producing in economic quantities. Plugging work can be performed with a well servicing rig along with wireline and cementing equipment; however, this service is typically provided by companies that specialize in plugging work.
Plug			A down-hole packer assembly used in a well to seal off or isolate a particular formation for testing, acidizing, cementing, etc.; also a type of plug used to seal off a well temporarily while the wellhead is removed.
Pounds per square inch			A unit of pressure. It is the pressure resulting from a one pound force applied to an area of one square inch.
Pressure pumping			Services that include the pumping of liquids under pressure.
Producing formation			An underground rock formation from which oil, natural gas or water is produced. Any porous rock will contain fluids of some sort, and all rocks at considerable distance below the Earth’s surface will initially be under pressure, often related to the hydrostatic column of ground waters above the reservoir. To produce, rocks must also have permeability, or the capacity to permit fluids to flow through them.
Proppant			Sized particles mixed with fracturing fluid to hold fractures open after a hydraulic fracturing treatment. In addition to naturally occurring sand grains, man-made or specially engineered proppants, such as resin-coated sand or high-strength ceramic materials like sintered bauxite, may also be used. Proppant materials are carefully sorted for size and sphericity to provide an efficient conduit for production of fluid from the reservoir to the wellbore.
Resource play			Accumulation of hydrocarbons known to exist over a large area.
Shale			A fine-grained, fissile, sedimentary rock formed by consolidation of clay- and silt-sized particles into thin, relatively impermeable layers.
Tight oil			Conventional oil that is found within reservoirs with very low permeability. The oil contained within these reservoir rocks typically will not flow to the wellbore at economic rates without assistance from technologically advanced drilling and completion processes. Commonly, horizontal drilling coupled with multistage fracturing is used to access these difficult to produce reservoirs.
Tight sands			A type of unconventional tight reservoir. Tight reservoirs are those which have low permeability, often quantified as less than 0.1 millidarcies.
Tubulars			A generic term pertaining to any type of oilfield pipe, such as drill pipe, drill collars, pup joints, casing, production tubing and pipeline.
Unconventional resource/unconventional well			A term for the different manner by which resources are exploited as compared to the extraction of conventional resources. In unconventional drilling, the wellbore is generally drilled to specific objectives within narrow parameters, often across long, lateral intervals within narrow horizontal formations offering greater contact area with the producing formation. Typically, the well is then hydraulically fractured at multiple stages to optimize production.
Wellbore			The physical conduit from surface into the hydrocarbon reservoir.
Well stimulation			A treatment performed to restore or enhance the productivity of a well. Stimulation treatments fall into two main groups, hydraulic fracturing treatments and matrix treatments. Fracturing treatments are performed above the fracture pressure of the reservoir formation and create a highly conductive flow path between the reservoir and the wellbore. Matrix treatments are performed below the reservoir fracture pressure and generally are designed to restore the natural permeability of the reservoir following damage to the near wellbore area. Stimulation in shale gas reservoirs typically takes the form of hydraulic fracturing treatments.
Wireline			A general term used to describe well-intervention operations conducted using single-strand or multi-strand wire or cable for intervention in oil or gas wells. Although applied inconsistently, the term commonly is used in association with electric logging and cables incorporating electrical conductors.
Workover			The process of performing major maintenance or remedial treatments on an oil or gas well. In many cases, workover implies the removal and replacement of the production tubing string after the well has been killed and a workover rig has been placed on location. Through-tubing workover operations, using coiled tubing, snubbing or slickline equipment, are routinely conducted to complete treatments or well service activities that avoid a full workover where the tubing is removed. This operation saves considerable time and expense.


The following is a glossary of certain electrical infrastructure industry terms used in this report:
Distribution			The distribution of electricity from the transmission system to individual customers.
Substation			A part of an electrical transmission and distribution system that transforms voltage from high to low, or the reverse.
Transmission			The movement of electrical energy from a generating site, such as a power plant, to an electric substation.

iii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in this report that express a belief, expectation, or intention, or that are not statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. In particular, the factors discussed in this report and detailed under Part II, Item 1A. Risk Factors in this report and our Annual Report on Form 10–K for the year ended December 31, 2022 could affect our actual results and cause our actual results to differ materially from expectations, estimates or assumptions expressed, forecasted or implied in such forward-looking statements.

Forward-looking statements may include statements about:

•the levels of capital expenditures by our customers and the impact of reduced drilling and completions activity on utilization and pricing for our oilfield services;

•the volatility of oil and natural gas prices and actions by OPEC members and other oil exporting nations, or OPEC+, affecting commodity price and production levels;

•any continuing impacts of the COVID-19 pandemic on Mammoth’s results of operations, financial condition or demand for Mammoth’s services;

•employee retention and increasingly competitive labor market;

•the performance of contracts and supply chain disruptions during or following the COVID-19 pandemic;

•general economic, business or industry conditions and concerns over a potential economic slowdown or recession;

•conditions in the capital, financial and credit markets;

•conditions of U.S. oil and natural gas industry and the effect of U.S. energy, monetary and trade policies;

•U.S. and global economic conditions and political and economic developments, including the energy and environmental policies;

•inflationary pressure on the cost of services, equipment and other goods in our industries and other sectors;

•our ability to obtain capital or financing needed for our operations on favorable terms or at all;

•our ability to comply with the applicable financial covenants and other terms and conditions under our new revolving credit facility and new term loan;

•our ability to execute our business and financial strategies;

•our plans with respect to any stock repurchases under the board of directors' authorized stock repurchase program;

•our ability to continue to grow our infrastructure services segment or recommence certain of our suspended oilfield services;

•any loss of one or more of our significant customers and its impact on our revenue, financial condition and results of operations;

•asset impairments;

•our ability to identify, complete and integrate acquisitions of assets or businesses;

•our ability to receive, or delays in receiving, permits and governmental approvals and/or payments, and to comply with applicable governmental laws and regulations;

•the results of litigation relating to the contracts awarded to our subsidiary Cobra Acquisitions LLC, or Cobra, by the Puerto Rico Electric Power Authority, or PREPA;

•the outcome of our ongoing efforts to collect the amounts that remain unpaid to us by PREPA for electric grid restoration services performed by Cobra in Puerto Rico;

•any future litigation, indemnity or other claims;

•regional supply and demand factors, delays or interruptions of production, and any governmental order, rule or regulation that may impose production limits on our customers;

•shortages, delays in delivery and interruptions in supply of major components, replacement parts, or other equipment, supplies or materials;

•the availability of transportation, pipeline and storage facilities and any increase in related costs;

•extreme weather conditions, wild fires and other natural disasters in areas where we provide well completion, sand proppant, drilling and infrastructure services;

•access to and restrictions on use of sourced or produced water;

•technology;

•civil unrest, war, military conflicts or terrorist attacks;

•cyberattacks and any resulting loss of information;

•competition within the energy services industry;

•availability of equipment, materials or skilled personnel or other labor resources;

•payment of any future dividends;

•future operating results; and

•capital expenditures and other plans, objectives, expectations and intentions.

All of these types of statements, other than statements of historical fact included in this quarterly report, are forward-looking statements. These forward-looking statements may be found in the “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections of this quarterly report. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “plan,” “project,” “budget,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “seek,” “objective,” “continue,” “will be,” “will benefit,” or “will continue,” the negative of such terms or other comparable terminology.

The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors, which are difficult to predict and many of which are beyond our control. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, our management’s assumptions about future events may prove to be inaccurate. Our management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to many factors including those described in our Annual Report on Form 10–K for the year ended December 31, 2022 and Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

MAMMOTH ENERGY SERVICES, INC.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MAMMOTH ENERGY SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


ASSETS	September 30,		December 31,
	2023		2022
CURRENT ASSETS	(in thousands)
Cash and cash equivalents	$	10,527	$	17,282

Accounts receivable, net	455,349		456,465
Receivables from related parties, net	266		223
Inventories	11,779		8,883
Prepaid expenses	3,717		13,219
Other current assets	616		620

Total current assets	482,254		496,692

Property, plant and equipment, net	119,151		138,066
Sand reserves	58,778		61,830
Operating lease right-of-use assets	11,147		10,656

Intangible assets, net	1,106		1,782
Goodwill	9,214		11,717

Other non-current assets	4,326		3,935
Total assets	$	685,976	$	724,678
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	39,304	$	47,391

Accrued expenses and other current liabilities	30,508		52,297
Current operating lease liability	6,081		5,447
Current portion of long-term debt	—		83,520
Income taxes payable	56,506		48,557
Total current liabilities	132,399		237,212

Long-term debt, net of current portion	69,029		—
Deferred income tax liabilities	401		471
Long-term operating lease liability	4,912		4,913
Asset retirement obligations	4,083		3,981
Other long-term liabilities	9,580		15,485
Total liabilities	220,404		262,062

COMMITMENTS AND CONTINGENCIES (Note 19)

EQUITY
Equity:
Common stock, $0.01 par value, 200,000,000 shares authorized, 47,941,652 and 47,312,270 issued and outstanding at September 30, 2023 and December 31, 2022	479		473
Additional paid in capital	539,340		539,138
Accumulated deficit	(70,361)		(73,154)
Accumulated other comprehensive loss	(3,886)		(3,841)
Total equity	465,572		462,616
Total liabilities and equity	$	685,976	$	724,678

The accompanying notes are an integral part of these condensed consolidated financial statements.

MAMMOTH ENERGY SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
REVENUE	(in thousands, except per share amounts)
Services revenue	$	54,025	$	93,879	$	221,140	$	223,005
Services revenue - related parties	252		355		841		1,024
Product revenue	10,682		12,968		34,729		35,149

Total revenue	64,959		107,202		256,710		259,178

COST AND EXPENSES
Services cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $8,394, $30,426, $12,968, and $43,727, respectively, for the three and nine months ended September 30, 2023 and three and nine months ended September 30, 2022)	45,082		68,821		178,905		173,821
Services cost of revenue - related parties	120		142		360		405
Product cost of revenue (exclusive of depreciation, depletion, amortization and accretion of $2,836, $6,395, $2,863, and $6,711, respectively, for the three and nine months ended September 30, 2023 and three and nine months ended September 30, 2022)	7,615		9,493		22,796		27,496

Selling, general and administrative (Note 12)	10,411		9,685		29,151		26,560

Depreciation, depletion, amortization and accretion	11,233		15,842		36,839		50,485
Gains on disposal of assets, net	(2,450)		(599)		(3,284)		(3,738)
Impairment of goodwill	1,810		—		1,810		—

Total cost and expenses	73,821		103,384		266,577		275,029
Operating (loss) income	(8,862)		3,818		(9,867)		(15,851)

OTHER INCOME (EXPENSE)
Interest expense, net	(2,876)		(3,262)		(9,385)		(8,270)
Other income, net	14,088		10,989		31,051		30,175

Total other income, net	11,212		7,727		21,666		21,905
Income before income taxes	2,350		11,545		11,799		6,054
Provision for income taxes	3,438		3,819		9,006		11,442
Net (loss) income	$	(1,088)	$	7,726	$	2,793	$	(5,388)

OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment, net of tax of $0, $0, ($215), and $(215), respectively, for the three and nine months ended September 30, 2023 and three and nine months ended September 30, 2022	(275)		(601)		(45)		(851)
Comprehensive (loss) income	$	(1,363)	$	7,125	$	2,748	$	(6,239)

Net (loss) income per share (basic) (Note 15)	$	(0.02)	$	0.16	$	0.06	$	(0.11)
Net (loss) income per share (diluted) (Note 15)	$	(0.02)	$	0.16	$	0.06	$	(0.11)
Weighted average number of shares outstanding (basic) (Note 15)	47,942		47,312		47,721		47,129
Weighted average number of shares outstanding (diluted) (Note 15)	47,942		47,843		47,973		47,129

The accompanying notes are an integral part of these condensed consolidated financial statements.

MAMMOTH ENERGY SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)


	Three Months Ended September 30, 2023
								Accumulated
						Additional		Other
	Common Stock			Accumulated		Paid-In		Comprehensive
	Shares	Amount		Deficit		Capital		Loss		Total
	(in thousands)
Balance at June 30, 2023	47,941	$	479	$	(69,273)	$	539,121	$	(3,611)	466,716
Stock based compensation	—	—		—		219		—		219

Net loss	—	—		(1,088)		—		—		(1,088)

Other comprehensive loss	—	—		—		—		(275)		(275)
Balance at September 30, 2023	47,941	$	479	$	(70,361)	$	539,340	$	(3,886)	$	465,572

	Three Months Ended September 30, 2022
								Accumulated
						Additional		Other
	Common Stock			Accumulated		Paid-In		Comprehensive
	Shares	Amount		Deficit		Capital		Loss		Total
	(in thousands)
Balance at June 30, 2022	47,312	$	473	$	(85,649)	$	538,656	$	(3,181)	$	450,299
Stock based compensation	—	—		—		241		—		241
Net income	—	—		7,726		—		—		7,726

Other comprehensive loss	—	—		—		—		(601)		(601)
Balance at September 30, 2022	47,312	$	473	$	(77,923)	$	538,897	$	(3,782)	$	457,665

	Nine Months Ended September 30, 2023
								Accumulated
						Additional		Other
	Common Stock			Accumulated		Paid-In		Comprehensive
	Shares	Amount		Deficit		Capital		Loss		Total
	(in thousands)
Balance at December 31, 2022	47,312	$	473	$	(73,154)	$	539,138	$	(3,841)	$	462,616
Stock based compensation	795	8		—		1,119		—		1,127
Shares repurchased	(166)	(2)		—		(917)		—		(919)
Net income	—	—		2,793		—		—		2,793

Other comprehensive loss	—	—		—		—		(45)		(45)
Balance at September 30, 2023	47,941	$	479	$	(70,361)	$	539,340	$	(3,886)	$	465,572

	Nine Months Ended September 30, 2022
								Accumulated
						Additional		Other
	Common Stock			Accumulated		Paid-In		Comprehensive
	Shares	Amount		Deficit		Capital		Loss		Total
	(in thousands)
Balance at December 31, 2021	46,684	$	467	$	(72,535)	$	538,221	$	(2,931)	$	463,222

Stock based compensation	628	6		—		676		—		682
Net loss	—	—		(5,388)		—		—		(5,388)

Other comprehensive loss	—	—		—		—		(851)		(851)
Balance at September 30, 2022	47,312	$	473	$	(77,923)	$	538,897	$	(3,782)	$	457,665

The accompanying notes are an integral part of these condensed consolidated financial statements.

MAMMOTH ENERGY SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended September 30,
	2023		2022
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	2,793	$	(5,388)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:

Stock based compensation	1,127		682
Depreciation, depletion, accretion and amortization	36,839		50,485

Amortization of debt origination costs	565		588
Change in provision for expected credit losses	(414)		(112)
Gains on disposal of assets	(3,284)		(3,738)
Gains from sales of equipment damaged or lost down-hole	(335)		(607)
Impairment of goodwill	1,810		—

Gain on sale of business	(2,080)		—

Deferred income taxes	(70)		8,557
Other	(273)		104
Changes in assets and liabilities:
Accounts receivable, net	1,489		(55,472)
Receivables from related parties, net	(44)		(298)
Inventories	(2,896)		35
Prepaid expenses and other assets	8,990		7,613

Accounts payable	(7,537)		9,472

Accrued expenses and other liabilities	(19,679)		(20,777)
Income taxes payable	7,950		2,790
Net cash provided by (used in) operating activities	24,951		(6,066)

Cash flows from investing activities:
Purchases of property and equipment	(15,265)		(9,099)


Business divestitures, net of cash transferred	3,276		—

Proceeds from disposal of property and equipment	4,304		8,659

Net cash used in investing activities	(7,685)		(440)

Cash flows from financing activities:
Borrowings on long-term debt	168,800		142,475
Repayments of long-term debt	(183,291)		(134,674)
Proceeds from sale leaseback transaction	—		4,589
Payments on sale leaseback transaction	(3,711)		(3,249)
Principal payments on financing leases and equipment financing notes	(4,872)		(1,753)


Other	(919)		—
Net cash (used in) provided by financing activities	(23,993)		7,388
Effect of foreign exchange rate on cash	(28)		(164)
Net change in cash and cash equivalents	(6,755)		718
Cash and cash equivalents at beginning of period	17,282		9,899
Cash and cash equivalents at end of period	$	10,527	$	10,617

Supplemental disclosure of cash flow information:
Cash paid for interest	$	8,951	$	6,316
Cash paid for income taxes, net of refunds received	$	788	$	97
Supplemental disclosure of non-cash transactions:
Purchases of property and equipment included in accounts payable and accrued expenses	$	4,197	$	3,837
Right-of-use assets obtained for financing lease liabilities	$	507	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

Mammoth Energy Services, Inc. (“Mammoth Inc.”, “Mammoth” or the “Company”), together with its subsidiaries, is an integrated, growth-oriented company serving both the oil and gas and the electric utility industries in North America and US territories. Mammoth Inc.’s infrastructure division provides engineering, design, construction, upgrade, maintenance and repair services to various public and private owned utilities. Its oilfield services division provides a diversified set of services to the exploration and production industry including well completion, natural sand and proppant and drilling services. Additionally, the Company provides aviation services, equipment rentals, remote accommodation services and equipment manufacturing. The Company was incorporated in Delaware in June 2016.

Operations

The Company’s well completion services include equipment and personnel used in connection with the completion and early production of oil and natural gas wells. The Company’s infrastructure services include engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry as well as repair and restoration services in response to storms and other disasters. The Company’s natural sand proppant services include the distribution and production of natural sand proppant that is used primarily for hydraulic fracturing in the oil and gas industry. The Company’s drilling services provide drilling rigs and directional tools for both vertical and horizontal drilling of oil and natural gas wells. The Company also provides other services, including aviation, equipment rentals, remote accommodations and equipment manufacturing.

The Company’s operations are concentrated in North America. The Company operates its oil and natural gas businesses in the Permian Basin, the Utica Shale, the Eagle Ford Shale, the Marcellus Shale, the Granite Wash, the SCOOP, the STACK, the Cana-Woodford Shale, the Cleveland Sand and the oil sands located in Northern Alberta, Canada. The Company’s oil and natural gas business depends in large part on the conditions in the oil and natural gas industry and, specifically, on the amount of capital spending by its customers. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity, as well as the entire health of the oil and natural gas industry. Decreases in the commodity prices for oil and natural gas would have a material adverse effect on the Company’s results of operations and financial condition. During the periods presented in this report, the Company provided its infrastructure services primarily in the northeastern, southwestern, midwestern and western portions of the United States. The Company’s infrastructure business depends on infrastructure spending on maintenance, upgrade, expansion and repair and restoration. Any prolonged decrease in spending by electric utility companies, delays or reductions in government appropriations or the failure of customers to pay their receivables could have a material adverse effect on the Company’s results of operations and financial condition.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries and the variable interest entities (“VIE”) for which the Company is the primary beneficiary. See

Note 11. Variable Interest Entity to our unaudited condensed consolidated financial statements included elsewhere in

this report for additional information regarding these entities. All material intercompany accounts and transactions have been eliminated.

This report has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, and reflects all adjustments, which in the opinion of management are necessary for the fair presentation of the results for the interim periods, on a basis consistent with the annual audited consolidated financial statements. All such adjustments are of a normal, recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the summary of significant accounting policies and notes thereto included in the Company’s most recent annual report on Form 10-K.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable

Accounts receivable include amounts due from customers for services performed or goods sold. The Company grants credit to customers in the ordinary course of business and generally does not require collateral. Prior to granting credit to customers, the Company analyzes the potential customer’s risk profile by utilizing a credit report, analyzing macroeconomic factors and using its knowledge of the industry, among other factors. Most areas in the continental United States in which the Company operates provide for a mechanic’s lien against the property on which the service is performed if the lien is filed within the statutorily specified time frame. Customer balances are generally considered delinquent if unpaid by the 30th day following the invoice date and credit privileges may be revoked if balances remain unpaid. Interest on delinquent accounts receivable is recognized in other income when chargeable and collectability is reasonably assured.

During the period October 2017 through March 2019, the Company provided infrastructure services in Puerto Rico under master services agreements entered into by Cobra Acquisitions LLC (“Cobra”), one of the Company’s subsidiaries, with the Puerto Rico Electric Power Authority (“PREPA”) to perform repairs to PREPA’s electrical grid as a result of Hurricane Maria. During the three and nine months ended September 30, 2023 and the three and nine months ended September 30, 2022, the Company charged interest on delinquent accounts receivable pursuant to the terms of its agreements with PREPA totaling $11.4 million, $33.9 million, $10.5 million and $30.5 million, respectively. These amounts are included in “other income, net” on the unaudited condensed consolidated statements of comprehensive (loss) income. Included in “accounts receivable, net” on the unaudited condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 were interest charges of $186.0 million and $152.0 million, respectively.

The Company regularly reviews receivables and provides for expected losses through an allowance for expected credit losses. In evaluating the level of established reserves, the Company makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of customers changes, circumstances develop, or additional information becomes available, adjustments to the allowance for expected credit losses may be required. In the event the Company expects that a customer may not be able to make required payments, the Company would increase the allowance through a charge to income in the period in which that determination is made. If it is determined that previously reserved amounts are collectible, the Company would decrease the allowance through a credit to income in the period in which that determination is made. Uncollectible accounts receivable are periodically charged against the allowance for expected credit losses once a final determination is made regarding their collectability.

Following is a roll forward of the changes in our allowance for expected credit losses for the year ended December 31, 2022 and the nine months ended September 30, 2023 (in thousands):


Balance, January 1, 2022	$	18,085
Change in provision for expected credit losses	3,550




Recoveries of receivables previously charged to credit loss expense	(161)
Write-offs charged against the provision	(17,887)
Balance, December 31, 2022	3,587
Change in provision for expected credit losses	(377)

Recoveries of receivables previously charged to credit loss expense	(37)
Write-offs charged against the provision	(3,018)
Balance, September 30, 2023	$	155

During the nine months ended September 30, 2023 and 2022, the Company has made specific reserves consistent with Company policy which resulted in nominal additions to allowance for expected credit losses. These additions were charged to credit loss expense based on the factors described above.

PREPA

As of September 30, 2023, PREPA owed Cobra approximately $213.4 million for services performed, excluding $186.0 million of interest charged on these delinquent balances. PREPA is currently subject to bankruptcy proceedings, which were filed in July 2017 and are currently pending in the U.S. District Court for the District of Puerto Rico. As a result, PREPA’s ability to meet its payment obligations is largely dependent upon funding from the Federal Emergency Management Agency (“FEMA”) or other sources. On September 30, 2019, Cobra filed a motion with the U.S. District

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Court for the District of Puerto Rico seeking recovery of the amounts owed to Cobra by PREPA, which motion was stayed by the Court. On March 25, 2020, Cobra filed an urgent motion to modify the stay order and allow the recovery of approximately $61.7 million in claims related to a tax gross-up provision contained in the emergency master service agreement, as amended, that was entered into with PREPA on October 19, 2017. This emergency motion was denied on June 3, 2020 and the Court extended the stay of our motion. On December 9, 2020, the Court again extended the stay of our motion and directed PREPA to file a status report by June 7, 2021. On April 6, 2021, Cobra filed a motion to lift the stay order. Following this filing, PREPA initiated discussion with Cobra, which resulted in PREPA and Cobra filing a joint motion to adjourn all deadlines relative to the April 6, 2021 motion until the June 16, 2021 omnibus hearing as a result of PREPA’s understanding that FEMA would be releasing a report in the near future relating to the emergency master service agreement between PREPA and Cobra that was executed on October 19, 2017. The joint motion was granted by the Court on April 14, 2021. On May 26, 2021, FEMA issued a Determination Memorandum related to the first contract between Cobra and PREPA in which, among other things, FEMA raised two contract compliance issues and, as a result, concluded that approximately $47 million in costs were not authorized costs under the contract. On June 14, 2021, the Court issued an order adjourning Cobra’s motion to lift the stay order to a hearing on August 4, 2021 and directing Cobra and PREPA to meet and confer in good faith concerning, among other things, (i) the May 26, 2021 Determination Memorandum issued by FEMA and (ii) whether and when a second determination memorandum is expected. The parties were further directed to file an additional status report, which was filed on July 20, 2021. On July 23, 2021, with the aid of Mammoth, PREPA filed an appeal of the entire $47 million that FEMA de-obligated in the May 26, 2021 Determination Memorandum. FEMA approved the appeal in part and denied the appeal in part. FEMA found that staffing costs of $24.4 million are eligible for funding. On August 4, 2021, the Court denied Cobra’s April 6, 2021 motion to lift the stay order, extended the stay of our motion seeking recovery of amounts owed to Cobra and directed the parties to file an additional joint status report, which was filed on January 22, 2022. On January 26, 2022, the Court extended the stay and directed the parties to file a further status report by July 25, 2022. On June 7, 2022, Cobra filed a motion to lift the stay order. On June 29, 2022 the Court denied Cobra’s motion and extended the stay to January 2023. On November 21, 2022, FEMA issued a Determination Memorandum related to the 100% federal funded portion of the second contract between Cobra and PREPA in which FEMA concluded that approximately $5.6 million in costs were not authorized costs under the contract. On December 21, 2022, FEMA issued a Determination Memorandum related to the 90% federal cost share portion of the second contract between Cobra and PREPA in which FEMA concluded that approximately $68.1 million in costs were not authorized costs under the contract. PREPA has filed first-level administrative appeals of the November 21, 2022 and December 21, 2022 Determination Memorandums. On January 7, 2023, Cobra and PREPA filed a joint status report with the Court, in which PREPA requested that the Court continue the stay through July 31, 2023 and Cobra requested that the stay be lifted. On January 18, 2023, the Court entered an order extending the stay and directing the parties to file a further status report addressing (i) the status of any administrative appeals in connection with the November and December determination memorandums regarding the second contract, (ii) the status of the criminal case against the former Cobra president and the FEMA official that concluded in December 2022, and (iii) a summary of the outstanding and unpaid amounts arising from the first and second contracts and whether PREPA disputes Cobra’s entitlement to these amounts with the Court by July 31, 2023. On January 20, 2023, Cobra submitted a certified claim for approximately $379 million to FEMA pursuant to the federal Contract Disputes Act. On February 1, 2023, FEMA notified Cobra that it had reviewed the claim and determined that no contract, expressed or implied, exists between FEMA and Cobra. On March 29, 2023, Cobra filed a notice of appeal with the Civilian Board of Contract Appeals related to the certified claim submitted in January 2023. On April 25, 2023, FEMA filed a motion to dismiss Cobra’s appeal alleging lack of jurisdiction. On March 27, 2023, Cobra was notified that FEMA had approved $233 million in Cobra invoices related to the December 21, 2022 Determination Memorandum. The 90% federal cost share of this approved amount was $210 million, which was obligated and made available for draw down on March 27, 2023. Of this $210 million, approximately $99 million has been represented by both PREPA and FEMA as intended to pay Cobra for outstanding invoices and the remaining $111 million is a reimbursement to PREPA for payments already made on Cobra invoices. On May 16, 2023, Cobra filed a motion to lift the stay order. In a June 8, 2023 hearing, the Court ordered PREPA to provide Cobra a detailed report on the status of their review of the invoices that make up the aforementioned $99 million. On June 14, 2023, PREPA paid Cobra approximately $10.8 million, all of which was used to reduce outstanding borrowings under the Company's then existing revolving credit facility, as required under the terms thereof. Additionally, on June 14, 2023, PREPA filed a report noting a portion of the approved, but unpaid invoices would be submitted to COR3 within two weeks of the filing and the remainder of the invoices would be submitted to COR3 within four weeks of the filing. Following the passage of the two-week and four-week periods contained in the June 14, 2023 report, Cobra filed an informative motion with the Court regarding the passage of the respective periods and PREPA’s failure to meet the deadlines. The Court ordered PREPA to respond to Cobra’s informative motion, which PREPA did on July 21, 2023. In this Court ordered response, PREPA informed the Court that an additional $8.4 million of invoices had been submitted for payment and that $72 million in FEMA approved costs were awaiting engineer

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

certification. On August 2, 2023, following submission of a joint status report by Cobra and FEMA on July 31, 2023, in which, among other things, PREPA requested the stay be continued and Cobra requested the stay be lifted, the Court entered an order continuing the stay until October 31, 2023 and requiring another joint status report be filed on October 16, 2023. On August 22, 2023, PREPA paid Cobra approximately $2.0 million, all of which was used to reduce outstanding borrowings under the Company's then existing revolving credit facility. On August 30, 2023, Cobra filed an informative motion with the Court regarding the status of the approved, but unpaid invoices. The Court ordered PREPA to respond to Cobra’s informative motion, which PREPA did on September 18, 2023. In this Court ordered response, PREPA informed the Court that the approved, but unpaid invoices were in the process of being entered into PREPA’s system for payment. On September 22, 2023 and October 10, 2023, PREPA made payments to Cobra of approximately $0.8 million and $5.7 million, respectively, all of which was used to reduce outstanding borrowings under the Company’s then existing revolving credit facility, which the Company refinanced on October 16, 2023. See Note 10. Debt—New Revolving Credit Facility and New Term Credit Facility. On October 16, 2023 and October 25, 2023, PREPA made additional payments to Cobra of approximately $1.7 million and $1.2 million. Also on October 16, 2023, pursuant to Court’s prior order, the parties submitted a further joint status report. In the joint status report, PREPA informed the Court that, among other things, it intended to process and submit to COR3 for reimbursement the remaining approximately $81 million in approved, but unpaid invoices. In addition, the parties informed the Court that the parties were engaged in mediation to resolve open disputes with respect to other unpaid invoices. On October 19, 2023, the Court entered an order continuing the stay through the earlier of January 31, 2024, and the termination of the mediation, directing the parties to file a further status report (i) addressing the status of each approved, but unpaid invoice that has not been submitted to COR3 and the reason(s) for the delay in submission of such invoices, (ii) providing any available information concerning the projected timing of payments of the approved, but unpaid invoices and (iii) proposing any litigation schedule that the parties believe to be necessary with respect to the approved, but unpaid invoices with the Court by December 1, 2023, and if the disputes have not been resolved through payment or mediation by January 15, 2024, directed the parties to file a status report addressing (i) the status of any administrative appeals in connection with the November 2022 and December 2022 Determination Memorandums, (ii) a summary of the outstanding unpaid amounts and (iii) whether the parties are actively engaged in mediation to resolve the outstanding issues by January 16, 2024.

The Company believes all amounts charged to PREPA, including interest charged on delinquent accounts receivable, were in accordance with the terms of the contracts. Further, there have been multiple reviews prepared by or on behalf of FEMA that have concluded that the amounts Cobra charged PREPA were reasonable, that PREPA adhered to Puerto Rican legal statutes regarding emergency situations, and that PREPA engaged in a reasonable procurement process. The Company believes these receivables are collectible and no allowance was deemed necessary at September 30, 2023 or December 31, 2022. However, in the event PREPA (i) does not have or does not obtain the funds necessary to satisfy its obligations to Cobra under the contracts, (ii) obtains the necessary funds but refuses to pay the remaining amounts owed to the Company or (iii) otherwise does not pay amounts owed to the Company, the receivable may not be collectible.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents in excess of federally insured limits and trade receivables. Following is a summary of our significant customers based on percentages of total accounts receivable balances at September 30, 2023 and December 31, 2022 and percentages of total revenues derived for the three and nine months ended September 30, 2023 and 2022:


	REVENUES								ACCOUNTS RECEIVABLE
	Three Months Ended September 30,				Nine Months Ended September 30,				At September 30,		At December 31,
	2023		2022		2023		2022		2023		2022
Customer A(a)	—	%	—	%	—	%	—	%	88	%	83	%
Customer B(b)	8	%	9	%	11	%	12	%	—	%	—	%

a.Customer A is a third-party customer. Revenues and the related accounts receivable balances earned from Customer A were derived from the Company’s infrastructure services segment. Accounts receivable for Customer A also includes receivables due for interest charged on delinquent accounts receivable.

b.Customer B is a third-party customer. Revenues and the related accounts receivable balances earned from Customer B were derived from the Company’s well completion services segment.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, trade receivables, trade payables, amounts receivable or payable to related parties and debt. The carrying amount of cash and cash equivalents, trade receivables, receivables from related parties and trade payables approximates fair value because of the short-term nature of the instruments. The fair value of debt approximates its carrying value because the cost of borrowing fluctuates based upon market conditions.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Revenue

The Company’s primary revenue streams include infrastructure services, well completion services, natural sand proppant services, drilling services and other services, which includes aviation, equipment rentals, remote accommodations and equipment manufacturing. See Note 20 for the Company’s revenue disaggregated by type.

Certain of the Company’s customer contracts include provisions entitling the Company to a termination penalty when the customer invokes its contractual right to terminate prior to the contract’s nominal end date. The termination penalties in the customer contracts vary, but are generally considered substantive for accounting purposes and create enforceable rights and obligations throughout the stated duration of the contract. The Company accounts for a contract cancellation as a contract modification in the period in which the customer invokes the termination provision. The determination of the contract termination penalty is based on the terms stated in the related customer agreement. As of the modification date, the Company updates its estimate of the transaction price using the expected value method, subject to constraints, and recognizes the amount over the remaining performance period.

Well Completion Services

Well completion services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Generally, the Company accounts for well completion services as a single performance obligation satisfied over time. In certain circumstances, the Company supplies proppant that is utilized for pressure pumping as part of the agreement with the customer. The Company accounts for these pressure pumping agreements as multiple performance obligations satisfied over time. Jobs for these services are typically short-term in nature and range from a few hours to multiple days. Generally, revenue is recognized over time upon the completion of each segment of work based upon a completed field ticket, which includes the charges for the services performed, mobilization of the equipment to the location and personnel.

Additional revenue is generated through labor charges and the sale of consumable supplies that are incidental to the service being performed. Such amounts are recognized ratably over the period during which the corresponding goods and services are consumed.

Infrastructure Services

Infrastructure services are typically provided pursuant to master service agreements, repair and maintenance contracts or fixed price and non-fixed price installation contracts. Pricing under these contracts may be unit priced, cost-plus/hourly (or time and materials basis) or fixed price (or lump sum basis). Generally, the Company accounts for infrastructure services as a single performance obligation satisfied over time. In certain circumstances, the Company supplies materials that are utilized during the jobs as part of the agreement with the customer. The Company accounts for these infrastructure agreements as multiple performance obligations satisfied over time. Revenue is recognized over time as work progresses based on the days completed or as the contract is completed. Under certain customer contracts in our infrastructure services segment, the Company warranties equipment and labor performed for a specified period following substantial completion of the work.

Natural Sand Proppant Services

The Company sells natural sand proppant through sand supply agreements with its customers. Under these agreements, sand is typically sold at a flat rate per ton or a flat rate per ton with an index-based adjustment. The Company recognizes revenue at the point in time when the customer obtains legal title to the product, which may occur at the production facility, rail origin or at the destination terminal.

Certain of the Company’s sand supply agreements contain a minimum volume commitment related to sand purchases whereby the Company charges a shortfall payment if the customer fails to meet the required minimum volume commitment. These agreements may also contain make-up provisions whereby shortfall payments can be applied in future periods against purchased volumes exceeding the minimum volume commitment. If a make-up right exists, the Company has future performance obligations to deliver excess volumes of product in subsequent months. In accordance with ASC 606, if the customer fails to meet the minimum volume commitment, the Company will assess whether it expects the customer to fulfill its unmet commitment during the contractually specified make-up period based on discussions with the customer and management’s knowledge of the business. If the Company expects the customer will make-up deficient volumes in future periods, revenue related to shortfall payments will be deferred and recognized on the earlier of the date on which the customer utilizes make-up volumes or the likelihood that the customer will exercise its right to make-up deficient volumes becomes remote. If the Company does not expect the customer will make-up deficient volumes in

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

future periods, the breakage model will be applied and revenue related to shortfall payments will be recognized when the model indicates the customer’s inability to take delivery of excess volumes. The Company did not recognize any shortfall revenue during the three and nine months ended September 30, 2023 and did not have any deferred revenue related to shortfall payments. The Company recognized shortfall revenue totaling $0.5 million and $3.1 million during the three and nine months ended September 30, 2022, respectively.

In certain of the Company’s sand supply agreements, the customer obtains control of the product when it is loaded into rail cars and the customer reimburses the Company for all freight charges incurred. The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the sand. If revenue is recognized for the related product before the shipping and handling activities occur, the Company accrues the related costs of those shipping and handling activities.

Drilling Services

Contract drilling services were provided under daywork contracts. Directional drilling services, including motor rentals, are provided on a day rate or hourly basis, and revenue is recognized as work progresses. Performance obligations are satisfied over time as the work progresses based on the measure of output. Mobilization revenue and costs were recognized over the days of actual drilling. As a result of market conditions, the Company temporarily shut down its contract land drilling operations beginning in December 2019 and rig hauling operations beginning in April 2020.

Other Services

The Company also provided aviation, equipment rentals, remote accommodations and equipment manufacturing, which are reported under other services. The Company’s other services are typically provided based upon a purchase order, contract or on a spot market basis. Services are provided on a day rate, contracted or hourly basis. Performance obligations for these services are satisfied over time and revenue is recognized as the work progresses based on the measure of output. Jobs for these services are typically short-term in nature and range from a few hours to multiple days.

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts in which variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied distinct good or service that forms part of a single performance obligation.

Contract Balances

Following is a rollforward of the Company’s contract liabilities (in thousands):


Balance, December 31, 2021	$	3,250
Deduction for recognition of revenue	(3,207)
Deduction for rebate credit recognized	(140)
Increase for deferral of customer prepayments	7,647
Balance, December 31, 2022	7,550
Deduction for recognition of revenue	(7,042)
Deduction for rebate credit recognized	(375)

Increase for deferral of customer prepayments	617
Balance, September 30, 2023	$	750

The Company did not have any contract assets as of September 30, 2023 or December 31, 2022.

Performance Obligations

Revenue recognized in the current period from performance obligations satisfied in previous periods was a nominal amount for the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023, the Company had unsatisfied performance obligations totaling $13.4 million, which will be recognized over the next 16 months.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Divestitures

On July 13, 2023, the Company sold all of the equity interest in its subsidiary Air Rescue Systems Corporation ("ARS") for $3.3 million in cash plus $0.3 million to be paid one year after closing if certain conditions are met. The Company recognized a gain of $2.1 million on the sale, which is included in “other income, net” on the unaudited condensed consolidated statements of comprehensive (loss) income.

5. Inventories

Inventories consist of raw sand and processed sand available for sale, chemicals and other products sold as a bi-product of completion and production operations and supplies used in performing services. Inventory is stated at the lower of cost or net realizable value on an average cost basis. The Company assesses the valuation of its inventories based upon specific usage, future utility, obsolescence and other factors. A summary of the Company’s inventories is shown below (in thousands):


	September 30,		December 31,
	2023		2022
Supplies	$	5,945	$	5,167
Raw materials	1,004		974
Work in process	3,748		2,221
Finished goods	1,082		521
Total inventories	$	11,779	$	8,883

6. Property, Plant and Equipment

Property, plant and equipment include the following (in thousands):


		September 30,		December 31,
	Useful Life	2023		2022
Pressure pumping equipment	3-5 years	$	251,359	$	230,760
Drilling rigs and related equipment	3-15 years	110,828		110,724
Machinery and equipment	7-20 years	160,214		162,634
Buildings(a)	15-39 years	40,243		40,316
Vehicles, trucks and trailers	5-10 years	96,421		101,580
Coil tubing equipment	4-10 years	6,884		6,908
Land	N/A	12,393		12,393
Land improvements	15 years or life of lease	10,066		10,053
Rail improvements	10-20 years	13,793		13,793
Other property and equipment(b)	3-12 years	16,652		18,296
		718,853		707,457
Deposits on equipment and equipment in process of assembly(c)		6,039		13,885
		724,892		721,342
Less: accumulated depreciation(d)		605,741		583,276
Total property, plant and equipment, net		$	119,151	$	138,066

a. Included in Buildings at each of September 30, 2023 and December 31, 2022 are costs of $7.6 million related to assets under operating leases.

b. Included in Other property and equipment are costs of $4.4 million and $6.0 million at September 30, 2023 and December 31, 2022, respectively, related to assets under operating leases.

c. Deposits on equipment and equipment in process of assembly represents deposits placed with vendors for equipment that is in the process of assembly and purchased equipment that is being outfitted for its intended use. The equipment is not yet placed in service.

d. Includes accumulated depreciation of $7.8 million and $8.0 million at September 30, 2023 and December 31, 2022, respectively, related to assets under operating leases.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Disposals

Proceeds from customers for horizontal and directional drilling services equipment damaged or lost down-hole are reflected in revenue with the carrying value of the related equipment charged to cost of service revenues and are reported as cash inflows from investing activities in the unaudited condensed consolidated statements of cash flows. For the three and nine months ended September 30, 2023 and 2022, proceeds from the sale of equipment damaged or lost down-hole were $0.4 million, $0.4 million, a nominal amount, and $0.6 million, respectively, and gains from the sale of equipment damaged or lost down-hole were $0.3 million, $0.3 million, $0.1 million, and $0.6 million, respectively.

Proceeds from assets sold or disposed of as well as the carrying value of the related equipment are reflected in “gains on disposal of assets, net” on the unaudited condensed consolidated statements of comprehensive (loss) income. For the three and nine months ended September 30, 2023 and 2022, proceeds from the sale of equipment were $3.1 million, $4.0 million, $0.8 million and $8.0 million, respectively, and gains from the sale or disposal of equipment were $2.4 million, $3.3 million, $0.6 million and $3.7 million, respectively.

Depreciation, depletion, amortization and accretion

A summary of depreciation, depletion, amortization and accretion expense is below (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Depreciation expense	$	9,240	$	14,031	$	33,097	$	47,716
Amortization expense	193		195		583		584
Accretion and depletion expense	1,800		1,616		3,159		2,185
Depreciation, depletion, amortization and accretion	$	11,233	$	15,842	$	36,839	$	50,485

7. Goodwill and Intangible Assets

Goodwill

Changes in the net carrying amount of goodwill by reporting segment (see Note 20) for the nine months ended September 30, 2023 and year ended December 31, 2022 are presented below (in thousands):


	Well Completions		Other		Total
Balance as of January 1, 2022
Goodwill	$	86,043	$	14,830	$	100,873
Accumulated impairment losses	(76,829)		(12,327)		(89,156)
	9,214		2,503		11,717
Acquisitions	—		—		—
Impairment losses	—		—		—
Balance as of December 31, 2022
Goodwill	86,043		14,830		100,873
Accumulated impairment losses	(76,829)		(12,327)		(89,156)
	9,214		2,503		11,717
Acquisitions	—		—		—
Impairment losses	—		(1,810)		(1,810)
Dispositions	—		(693)		(693)
Balance as of September 30, 2023
Goodwill	86,043		14,137		100,180
Accumulated impairment losses	(76,829)		(14,137)		(90,966)
	$	9,214	$	—	$	9,214

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Impairment of Goodwill

As a result of the ARS sale, we performed an impairment assessment of our goodwill as of September 30, 2023. Under GAAP, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one or more of its reporting units is greater than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, there is no need to perform any further testing. However, if the Company concludes otherwise, then it is required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded based on that difference.

Based on the qualitative assessment, the Company concluded that it was more likely than not that the carrying value of the Aviation reporting unit was greater than its fair value at September 30, 2023. To determine fair value of the Aviation reporting unit at September 30, 2023, the Company used the income approach. The income approach estimates the fair value based on anticipated cash flows that are discounted using a weighted average cost of capital. As a result, the Company impaired goodwill associated with Cobra Aviation, resulting in a $1.8 million impairment charge for the three and nine months ended September 30, 2023.

Intangible Assets

The Company had the following finite lived intangible assets recorded (in thousands):


	September 30,		December 31,
	2023		2022
Trade names	7,730		7,850
Less: accumulated amortization - trade names	(6,624)		(6,068)
Intangible assets, net	$	1,106	$	1,782

Amortization expense for intangible assets was $0.2 million and $0.6 million for each of the three and nine months ended September 30, 2023 and 2022, respectively. The original life of trade names is 10 years as of September 30, 2023 with a remaining average useful life of 1.9 years.

Aggregated expected amortization expense for the future periods is expected to be as follows (in thousands):


Remainder of 2023	$	193
2024	704
2025	85
2026	85
2027	39
Thereafter	—
	$	1,106

8. Equity Method Investment

On December 21, 2018, Cobra Aviation Services LLC (“Cobra Aviation”) and Wexford Partners Investment Co. LLC (“Wexford Investment”), a related party, formed a joint venture under the name of Brim Acquisitions LLC (“Brim Acquisitions”) to acquire all outstanding equity interest in Brim Equipment Leasing, Inc. (“Brim Equipment”) for a total purchase price of approximately $2.0 million. Cobra Aviation owns a 49% economic interest and Wexford Investment owns a 51% economic interest in Brim Acquisitions, and each member contributed its pro rata portion of Brim Acquisitions’ initial capital of $2.0 million. Brim Acquisitions, through Brim Equipment, owns three commercial helicopters and leases five commercial helicopters for operations, which it uses to provide a variety of services, including short haul, aerial ignition, hoist operations, aerial photography, fire suppression, construction services, animal/capture/survey, search and rescue, airborne law enforcement, power line construction, precision long line operations, pipeline construction and survey, mineral and seismic exploration, and aerial seeding and fertilization.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company uses the equity method of accounting to account for its investment in Brim Acquisitions, which had a carrying value of approximately $3.8 million and $3.5 million at September 30, 2023 and December 31, 2022, respectively. The investment is included in “other non-current assets” on the unaudited condensed consolidated balance sheets. The Company recorded equity method adjustments to its investment of $0.7 million and $0.3 million for the three and nine months ended September 30, 2023, respectively, and $0.3 million and ($0.1) million for the three and nine months ended September 30, 2022, respectively, which is included in “other income, net” on the unaudited condensed consolidated statements of comprehensive (loss) income.

9. Accrued Expenses and Other Current Liabilities and Other Long-Term Liabilities

Accrued expenses and other current liabilities and other long-term liabilities included the following (in thousands):


	September 30,		December 31,
	2023		2022
State and local taxes payable	$	13,289	$	13,336
Sale-leaseback liability(a)	4,401		4,501
Accrued compensation and benefits	3,889		6,743
Equipment financing note	2,506		2,329
Financing leases	1,863		4,003
Insurance reserves	1,357		1,509
Deferred revenue	750		7,550
Financed insurance premiums(b)	402		10,136
Other	2,051		2,190


Total accrued expenses and other current liabilities	$	30,508	$	52,297

Other Long-Term Liabilities
Equipment financing note(c)	$	4,239	$	6,047
Sale-leaseback liability(a)	3,352		6,836
Financing leases	1,989		2,602


Total other long-term liabilities	$	9,580	$	15,485

a.On December 30, 2020, the Company entered into an agreement with First National Capital, LLC (“FNC”) whereby the Company agreed to sell certain assets from its infrastructure segment to FNC for aggregate proceeds of $5.0 million. Concurrent with the sale of assets, the Company entered into a 36 month lease agreement whereby the Company agreed to lease back the assets at a monthly rental rate of $0.1 million. On June 1, 2021, the Company entered into another agreement with FNC whereby the Company sold additional assets from its infrastructure segment to FNC for aggregate proceeds of $9.5 million and entered into a 42-month lease agreement whereby the Company agreed to lease back the assets at a monthly rental rate of $0.2 million. On June 1, 2022, the Company entered into another agreement with FNC whereby the Company sold additional assets from its infrastructure segment to FNC for aggregate proceeds of $4.6 million and entered into a 42-month lease agreement whereby the Company agreed to lease back the assets at a monthly rental rate of $0.1 million. Under the agreements, the Company has the option to purchase the assets at the end of the lease terms. The Company recorded liabilities for the proceeds received and will continue to depreciate the assets. The Company has imputed an interest rate so that the carrying amount of the financial liabilities will be the expected repurchase price at the end of the initial lease terms.

b.Financed insurance premiums are due in monthly installments, are unsecured and mature within the twelve-month period following the close of the year. As of September 30, 2023, the applicable interest rates associated with financed insurance premiums ranged from 5.13% to 6.75%. As of December 31, 2022, the applicable interest rates associated with financed insurance premiums ranged from 1.95% to 5.13%.

c.In December 2022, the Company entered into a 42 month financing arrangement with FNC for the purchase of seven new pressure pumping units for an aggregate value of $9.7 million. Under this arrangement, the Company has agreed to make monthly principal and interest payments totaling $0.3 million over the term of the agreement. This note is secured by the seven pressure pumping units and bears interest at an imputed rate of approximately 15.0%.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. Debt

PNC Revolving Credit Facility

On October 19, 2018, Mammoth Inc. and certain of its direct and indirect subsidiaries, as borrowers, entered into an

amended and restated revolving credit and security agreement with the lenders party thereto and PNC Bank, National

Association, as a lender and as administrative agent for the lenders, as subsequently further amended (the “existing

revolving credit facility”).

As of September 30, 2023, the applicable financial covenants under the existing revolving credit facility were as

follows:

• the fixed charge coverage ratio was 1.1 to 1.0; and

• the minimum excess availability covenant was $10.0 million.

The Company was in compliance with the applicable financial covenants under its revolving credit facility in effect as of

September 30, 2023 and December 31, 2022.

At September 30, 2023, there were outstanding borrowings under the existing revolving credit facility of $69.0 million,

the borrowing base was $96.4 million and there was $11.0 million of available borrowing capacity under the facility, after

giving effect to $6.4 million of outstanding letters of credit and the requirement to maintain a $10.0 million reserve out of

the available borrowing capacity. At December 31, 2022, there were outstanding borrowings under the existing revolving

credit facility of $83.5 million, the borrowing base was $119.8 million and there was $19.7 million of borrowing capacity

under the facility, after giving effect to $6.5 million of outstanding letters of credit and the requirement to maintain a

$10.0 million reserve out of the available borrowing capacity.

New Revolving Credit Facility and New Term Credit Facility

On October 16, 2023, the Company entered into the new revolving credit facility and the new term credit facility (each as defined below), which refinanced in full the Company’s indebtedness outstanding under the existing revolving credit facility. On October 16, 2023, the Company, as borrower, and certain of its direct and indirect subsidiaries, as guarantors, entered into a revolving credit agreement with the lenders party thereto and Fifth Third Bank, National Association, as a lender and as administrative agent for the lenders (“Fifth Third”), as may be subsequently amended (the “new revolving credit facility”). The new revolving credit facility provides for revolving commitments in an aggregate amount of up to $75 million. Borrowings under the new revolving credit facility are secured by the Company's assets, inclusive of the subsidiary companies, and are subject to a borrowing base calculation prepared monthly which includes a requirement to maintain certain reserves as specified in the new revolving credit facility. The new revolving credit facility also contains various affirmative and restrictive covenants. Interest under the new revolving credit facility equals the Tranche Rate (as defined in the new revolving credit facility) plus (i) 1.75%, if the Average Excess Availability Percentage (as defined in the new revolving credit facility) is greater than 66 2/3%, (ii) 2.00% if the Average Excess Availability Percentage is greater than 33 1/3% and less than or equal to 66 2/3%, and (iii) 2.25% if the Average Excess Availability Percentage is less than or equal to 33 1/3%.

As of October 16, 2023, the financial covenant under the new revolving credit facility was the fixed coverage ratio of 1.0 to 1.0 which applies only during a Financial Covenant Period (as defined in the new revolving credit facility).

On October 16, 2023, the Company, as borrower, and certain of its direct and indirect subsidiaries, as guarantors, also entered into a loan and security agreement with the lenders party thereto and Wexford Capital LP, an affiliate of the Company, as administrative agent for the lenders (“Wexford”), as may be subsequently amended (the “new term credit facility”). The new term credit was approved by the audit committee of the Company’s board of directors, consisting entirely of independent directors, as a transaction with a related party. The new term credit facility provides for term commitments in an aggregate amount equal to $45 million. Borrowings under the new term credit facility are secured by the Company’s assets, inclusive of the subsidiary companies. The new term credit facility also contains various affirmative and restrictive covenants. Interest under the new term credit facility equals the SOFR Interest Rate (as defined in the new term credit facility) plus 7.50%, as such margin may be increased pursuant to the terms of the new term credit facility; provided that the Company may elect to pay all or a portion of the accrued interest due with respect to any

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Interest Period (as defined in the new term credit facility) ending on or before April 16, 2025, in kind by adding such accrued interest to the principal amount of the outstanding loans thereunder.

In particular, under the new term credit facility, the Company is required, among other things, to mandatorily remit to Wexford up to 50% of all amounts that constitute PREPA Claim Proceeds, as such term is defined in the new term credit facility, which will be used to reduce outstanding borrowings under the new term credit facility, as required under the terms thereof.

At October 16, 2023, there were outstanding borrowings under (i) the new revolving credit facility of approximately $28.1 million and the borrowing base was approximately $35.1 million, leaving $7.0 million for future borrowings (after giving effect to the requirement to maintain the reserves specified in the new revolving credit facility out of the available borrowing capacity) and (ii) the new term credit facility of $45 million.

If an event of default occurs under the new revolving credit facility or the new term credit facility, as applicable, and remains uncured, it could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations. The lenders, as applicable, (i) would not be required to lend any additional amounts to the Company, (ii) could elect to increase the interest rate by (x) 200 basis points in connection with an event of default under the new revolving credit facility or (y) 300 basis points with respect to an event of default under the new term credit facility, (iii) could elect to declare all outstanding borrowings, together with accrued and unpaid interest and fees, to be due and payable, (iv) may have the ability to require the Company to apply all of its available cash to repay outstanding borrowings, and (v) may foreclose on substantially all of the Company’s assets. The new revolving credit facility is currently scheduled to mature on the earlier of (x) July 17, 2028, unless the indebtedness under the new term credit facility is refinanced in accordance with terms of the intercreditor agreement, and (y) October 16, 2028. The new term credit facility is currently scheduled to mature on October 16, 2028.

Aviation Note

On November 6, 2020, Leopard and Cobra Aviation entered into a 39 month promissory note agreement with Bank7 (the “Aviation Note”) in an aggregate principal amount of $4.6 million and received net proceeds of $4.5 million. The Aviation Note bore interest at a rate based on the Wall Street Journal Prime Rate plus a margin of 1%. The Aviation Note was paid off on September 30, 2022.

11. Variable Interest Entities

Dire Wolf Energy Services LLC (“Dire Wolf”) and Predator Aviation LLC (“Predator Aviation”), wholly owned subsidiaries of the Company, are party to Voting Trust Agreements with TVPX Aircraft Solutions Inc. (the “Voting Trustee”). Under the Voting Trust Agreements, Dire Wolf transferred 100% of its membership interest in Cobra Aviation and Predator Aviation transferred 100% of its membership interest in Leopard to the respective Voting Trustees in exchange for Voting Trust Certificates. Dire Wolf and Predator Aviation retained the obligation to absorb all expected returns or losses of Cobra Aviation and Leopard. Prior to the transfer of the membership interest to the Voting Trustee, Cobra Aviation was a wholly owned subsidiary of Dire Wolf and Leopard was a wholly owned subsidiary of Predator Aviation. Cobra Aviation owns two helicopters and support equipment and 49% of the equity interest in Brim Acquisitions. Leopard owns one helicopter. Dire Wolf and Predator Aviation entered into the Voting Trust Agreements in order to meet certain registration requirements.

Dire Wolf’s and Predator Aviation’s voting rights are not proportional to their respective obligations to absorb expected returns or losses of Cobra Aviation and Leopard, respectively, and all of Cobra Aviation’s and Leopard’s activities are conducted on behalf of Dire Wolf and Predator Aviation, which have disproportionately fewer voting rights; therefore, Cobra Aviation and Leopard meet the criteria of a VIE. Cobra Aviation and Leopard’s operational activities are directed by Dire Wolf’s and Predator Aviation’s officers and Dire Wolf and Predator Aviation have the option to terminate the Voting Trust Agreements at any time. Therefore, the Company, through Dire Wolf and Predator Aviation, is considered the primary beneficiary of the VIEs and consolidates Cobra Aviation and Leopard at September 30, 2023.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense includes of the following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cash expenses:
Compensation and benefits	$	3,392	$	3,676	$	11,665	$	9,796
Professional services	4,684		3,706		10,889		10,067
Other(a)	2,105		2,059		5,884		6,127
Total cash SG&A expense	10,181		9,441		28,438		25,990
Non-cash expenses:
Change in provision for expected credit losses	11		3		(414)		(112)

Stock based compensation	219		241		1,127		682
Total non-cash SG&A expense	230		244		713		570
Total SG&A expense	$	10,411	$	9,685	$	29,151	$	26,560

a. Includes travel-related costs, information technology expenses, rent, utilities and other general and administrative-related costs.

13. Income Taxes

The Company recorded income tax expense of $9.0 million for the nine months ended September 30, 2023 compared to income tax expense of $11.4 million for the nine months ended September 30, 2022. The Company’s effective tax rates were 76% and 189% for the nine months ended September 30, 2023 and 2022, respectively.

The effective tax rates for the nine months ended September 30, 2023 and 2022 differed from the statutory rate of 21% primarily due to the mix of earnings between the United States and Puerto Rico, changes in the valuation allowance and interest and penalties.

14. Leases

Lessee Accounting

The Company recognizes a lease liability equal to the present value of the lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases with a term in excess of 12 months. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term, while finance leases include both an operating expense and an interest expense component. For all leases with a term of 12 months or less, the Company has elected the practical expedient to not recognize lease assets and liabilities and recognizes lease expense for these short-term leases on a straight-line basis over the lease term.

The Company’s operating leases are primarily for rail cars, real estate, and equipment and its finance leases are primarily for machinery and equipment. Generally, the Company does not include renewal or termination options in its assessment of the leases unless extension or termination of certain assets is deemed to be reasonably certain. The accounting for some of the Company’s leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates to utilize in the net present value calculation of lease payments for lease agreements which do not provide an implicit rate and assessing the likelihood of renewal or termination options. Lease agreements that contain a lease and non-lease component are generally accounted for as a single lease component.

The rate implicit in the Company’s leases is not readily determinable. Therefore, the Company uses its incremental borrowing rate based on information available at the commencement date of its leases in determining the present value of lease payments. The Company’s incremental borrowing rate reflects the estimated rate of interest that it would pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Lease expense consisted of the following for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease expense	$	1,928	$	1,668	$	5,568	$	5,189
Short-term lease expense	37		14		476		72
Finance lease expense:
Amortization of right-of-use assets	445		447		1,579		1,252
Interest on lease liabilities	38		44		135		138
Total lease expense	$	2,448	$	2,173	$	7,758	$	6,651

Supplemental balance sheet information related to leases as of September 30, 2023 and December 31, 2022 is as follows (in thousands):


	September 30,		December 31,
	2023		2022
Operating leases:
Operating lease right-of-use assets	$	11,147	$	10,656
Current operating lease liability	6,081		5,447
Long-term operating lease liability	4,912		4,913
Finance leases:
Property, plant and equipment, net	$	4,133	$	7,267
Accrued expenses and other current liabilities	1,863		4,003
Other liabilities	1,989		2,602

Other supplemental information related to leases for the three and nine months ended September 30, 2023 and 2022 and as of September 30, 2023 and December 31, 2022 is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,826	$	1,416	$	5,419	$	5,011
Operating cash flows from finance leases	38		44		135		138
Financing cash flows from finance leases	869		456		3,547		1,365
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	1,338	$	339	$	5,554	$	3,158
Finance leases	201		—		507		—

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	September 30,		December 31,
	2023		2022
Weighted-average remaining lease term:
Operating leases	2.5 years		2.9 years
Finance leases	2.4 years		2.0 years
Weighted-average discount rate:
Operating leases	8.2	%	4.1	%
Finance leases	4.6	%	4.3	%

Maturities of lease liabilities as of September 30, 2023 are as follows (in thousands):


	Operating Leases		Finance Leases
Remainder of 2023	$	1,986	$	880
2024	6,185		1,316
2025	2,725		809
2026	725		1,067
2027	174		—
Thereafter	450		—
Total lease payments	12,245		4,072
Less: Present value discount	1,252		220
Present value of lease payments	$	10,993	$	3,852

Lessor Accounting

Certain of the Company’s agreements with its customers for drilling services, aviation services and remote accommodation services contain an operating lease component under ASC 842 because (i) there are identified assets, (ii) the customer obtains substantially all of the economic benefits of the identified assets throughout the period of use and (iii) the customer directs the use of the identified assets throughout the period of use. The Company has elected to apply the practical expedient provided to lessors to combine the lease and non-lease components of a contract where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. The practical expedient also allows a lessor to account for the combined lease and non-lease components under ASC 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component.

The Company’s lease agreements are generally short-term in nature and lease revenue is recognized over time based on a monthly, daily or hourly rate basis. The Company does not provide an option for the lessee to purchase the rented assets at the end of the lease and the lessees do not provide residual value guarantees on the rented assets. The Company recognized lease revenue of $0.8 million and $0.7 million during the three months ended September 30, 2023 and 2022, respectively, and $2.4 million for each of the nine months ended September 30, 2023 and 2022, respectively, which is included in “services revenue” and “services revenue - related parties” on the unaudited condensed consolidated statements of comprehensive (loss) income.

MAMMOTH ENERGY SERVICES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15. (Loss) Earnings Per Share

Reconciliations of the components of basic and diluted net (loss) earnings per common share are presented in the table below (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Basic (loss) earnings per share:
Allocation of (loss) earnings:
Net (loss) income	$	(1,088)	$	7,726	$	2,793	$	(5,388)
Weighted average common shares outstanding	47,942		47,312		47,721		47,129
Basic (loss) earnings per share	$	(0.02)	$	0.16	$	0.06	$	(0.11)

Diluted (loss) earnings per share:
Allocation of (loss) earnings: