Mammoth Energy Services, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

Acquisitions

6 Months Ended

Jun. 30, 2019

Acquisition of Air Rescue Systems and Brim Equipment Assets

On December 21, 2018, Cobra Aviation Services LLC ("Cobra Aviation"), a variable interest entity of the Company, completed a series of transactions that provided for an expansion of its aviation service business. These transactions include (i) the acquisition of all outstanding equity interests in Air Rescue Systems Corporation ("ARS"), (ii) the purchase of two commercial helicopters, spare parts, support equipment and aircraft documents from Brim Equipment Leasing, Inc. ("Brim Equipment") (the "Brim Equipment Assets") and (iii) the formation of a joint venture between Cobra Aviation and Wexford Partners Investment Co. LLC ("Wexford Investment"), a related party, under the name of Brim Acquisitions LLC ("Brim Acquisitions"), which acquired all outstanding equity interest in Brim Equipment. 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.

The acquisition of ARS qualifies under FASB ASC 805, Business Combinations, as a business combination. The purchase of the Brim Equipment Assets was negotiated and funded as part of the acquisition. Therefore, the purchase of the Brim Equipment Assets also qualifies as a business combination under ASC 805. Cobra Aviation is able to exercise significant influence over certain aspects of Brim Acquisitions' activities, but is a minority owner and does not have controlling financial interest. As a result, Cobra Aviation's investment in Brim Acquisitions is accounted for as an equity method investment under FASB ASC 323, Investments-Equity Method and Joint Ventures. See Note 8 for additional information on our investment in Brim Acquisitions.

Total consideration paid for ARS was $2.4 million in cash to the sellers plus $0.3 million in consideration to be paid upon completion of certain contractual obligations. Total consideration paid for the Brim Equipment Assets was $4.2 million. The Company used cash on hand to fund the acquisitions.

The following table summarizes the fair value of ARS and the Brim Equipment Assets as of December 21, 2018 (in thousands):



	ARS		Brim Equipment Assets
Accounts receivable	$	146	$	—
Property, plant and equipment	1,702		1,990
Identifiable intangible assets - trade name^(a)	120		—
Goodwill^(b)	694		2,243
Other non-current assets	5		—
Total assets acquired	$	2,667	$	4,233


a.	Trade name was valued using a "Relief-from-Royalty" method and will be amortized over 20 years.


b.	Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to assembled workforces and future profitability expected to arise from the acquired entity.

From the acquisition date through December 31, 2018 and for the six months ended June 30, 2019, ARS and the Brim Equipment Assets provided the following activity (in thousands):



	2019						2018
	ARS			Brim Equipment Assets			ARS			Brim Equipment Assets
Revenues	$	906		$	1,912		$	—		$	—
Net loss^(a)	(238		)	(885		)	(25		)	—

a. Includes depreciation expense of $0.1 million and $0.02 million, respectively, for ARS for the 2019 and 2018 and $0.2 million for the Brim Equipment Assets for 2019.

The following table presents unaudited pro forma information as if the ARS and the Brim Equipment Assets acquisitions had occurred as of January 1, 2018 (in thousands):



	Six Months Ended June 30, 2018
	ARS		Brim Equipment Assets
Revenues	$	1,473	$	1,971
Net income	141		1,059

The Company recognized $0.3 million of transaction related costs during the year ended December 31, 2018 related to these acquisitions.

Acquisition of WTL Oil LLC

On May 31, 2018, the Company completed its acquisition of WTL Oil LLC ("WTL") for total consideration of $6.1 million. The Company used cash on hand and borrowings under its credit facility to fund the acquisition. The acquisition of WTL expanded the Company's service offerings into the crude oil hauling business.

The following table summarizes the fair value of WTL as of May 31, 2018 (in thousands):



	WTL
Property, plant and equipment	$	2,960
Identifiable intangible assets - customer relationships^(a)	930
Identifiable intangible assets - trade name^(a)	650
Goodwill^(b)	1,567
Total assets acquired	$	6,107


a.	Identifiable intangible assets were measured using a combination of income approaches. Trade names were valued using a "Relief-from-Royalty" method. Non-contractual customer relationships were valued using a "Multi-period excess earnings" method. Identifiable intangible assets will be amortized over 10-20 years.

Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to the assembled workforce and future profitability expected to arise from the acquired entity.

From the acquisition date through December 31, 2018 and for the six months ended June 30, 2019, WTL provided the following activity (in thousands):



	2019			2018
Revenues	$	6,210		$	7,511
Net loss^(a)	(808		)	(149		)

a. Includes depreciation and amortization expense of $1.1 million and $1.0 million, respectively, for the 2019 and 2018 periods.

The following table presents unaudited pro forma information as if the acquisition of WTL had occurred as of January 1, 2018 (in thousands):



	Six Months Ended June 30, 2018
Revenues	$	3,354
Net income	90

The Company recognized $0.1 million of transaction related costs during the year ended December 31, 2018 related to this acquisition.

Acquisition of RTS Energy Services LLC

On June 15, 2018, the Company completed its acquisition of RTS Energy Services LLC ("RTS") for total consideration of $8.1 million. The Company used cash on hand and borrowings under its credit facility to fund the acquisition. The acquisition of RTS expanded Mammoth's cementing services into the Permian Basin and added acidizing to the Company's service offerings.

The following table summarizes the fair value of RTS as of June 15, 2018 (in thousands):



	RTS
Inventory	$	180
Property, plant and equipment	7,787
Goodwill^(a)	133
Total assets acquired	$	8,100

a. Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill recorded in connection with the acquisition is attributable to the assembled workforce and future profitability expected to arise from the acquired entity.

From the acquisition date through December 31, 2018 and for the six months ended June 30, 2019, RTS provided the following activity (in thousands):



	2019			2018
Revenues	$	2,286		$	6,682
Net loss^(a)	(4,134		)	(3,210		)

a. Includes depreciation expense of $1.1 million and $0.9 million, respectively, for the 2019 and 2018 periods.

The following table presents unaudited pro forma information as if the acquisition of RTS had occurred as of January 1, 2018 (in thousands):



	Six Months Ended June 30, 2018
Revenues	$	10,160
Net loss	(848		)

The Company recognized $0.1 million of transaction related costs during the year ended December 31, 2018 related to this acquisition.