Annual report pursuant to Section 13 and 15(d)

Acquisitions

v3.19.3.a.u2
Acquisitions
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Acquisition of Air Rescue Systems and Brim Equipment Assets
On December 21, 2018, 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 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 Brim Acquisitions, 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 9 for additional information on our investment in Brim Acquisitions.

Total consideration paid for ARS and the Brim Equipment Assets was $2.7 million and $4.2 million, respectively. 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, 2019, ARS and the Brim Equipment Assets provided the following activity (in thousands):
 
2019
 
2018
 
2019
 
2018
 
ARS
 
Brim Equipment Assets
Revenues
$
2,153

 
$

 
$
2,616

 
$

Net loss(a)
(546
)
 
(25
)
 
(1,056
)
 

a.    Includes depreciation expense of $0.3 million and $0.02 million, respectively, for ARS for 2019 and 2018 and $0.4 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, 2017 (in thousands):
 
Years Ended December 31,
 
Years Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
ARS
 
Brim Equipment Assets
Revenues
$
3,055

 
$
2,641

 
$
4,478

 
$
1,448

Net income (loss)
207

 
(39
)
 
2,410

 
459



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

On May 31, 2018, the Company completed its acquisition of 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.
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 the assembled workforce and future profitability expected to arise from the acquired entity.

From the acquisition date through December 31, 2019, WTL provided the following activity (in thousands):
 
2019
 
2018
Revenues
$
8,413

 
$
7,511

Net loss(a)
(2,719
)
 
(149
)
a.    Includes depreciation and amortization expense of $2.2 million and $1.0 million, respectively, for 2019 and 2018.

The following table presents unaudited pro forma information as if the acquisition of WTL had occurred as of January 1, 2017 (in thousands):
 
Years Ended December 31,
 
2018
 
2017
Revenues
$
10,270

 
$
4,229

Net (loss) income
(64
)
 
165



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

On June 15, 2018, the Company completed its acquisition of 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 Inc.'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, 2019, RTS provided the following activity (in thousands):
 
2019
 
2018
Revenues
$
2,456

 
$
6,682

Net loss(a)
(6,458
)
 
(3,210
)
a.    Includes depreciation expense of $2.3 million and $0.9 million, respectively, for 2019 and 2018.

The following table presents unaudited pro forma information as if the acquisition of RTS had occurred as of January 1, 2017 (in thousands):
 
Years Ended December 31,
 
2018
 
2017
Revenues
$
16,212

 
$
20,877

Net (loss) income
(4,066
)
 
1,141



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

As a result of market conditions, the Company temporarily shut down its cementing and acidizing operations during the third quarter of 2019. As a result, the Company impaired the balance of RTS's goodwill totaling $0.1 million. In addition, the Company wrote-off obsolete inventory totaling $0.2 million.

Acquisition of 5 Star

On July 1, 2017, the Company completed its acquisition of 5 Star for total consideration of $2.4 million in cash to the sellers. The Company funded the purchase price for 5 Star with cash on hand and borrowings under its credit facility. The acquisition of 5 Star added to the infrastructure component of the Company's business and provided expansion of the infrastructure segment into the eastern United States.

The Company recognized $0.1 million of transaction related costs during the year ended December 31, 2017 related to this acquisition.

The following table summarizes the fair value of 5 Star as of July 1, 2017 (in thousands):
 
 
5 Star
Accounts receivable
 
$
2,440

Property, plant and equipment
 
1,863

Identifiable intangible assets - trade names (a)
 
300

Goodwill (b)
 
248

Total assets acquired
 
$
4,851

 
 
 
Long-term debt and other liabilities
 
$
2,413

Total liabilities assumed
 
$
2,413

Net assets acquired
 
$
2,438

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 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 its acquisition date through December 31, 2019, 5 Star has provided the following activity (in thousands):
 
2019
 
2018
 
2017
Revenues(a)
$
55,205

 
$
143,302

 
$
25,216

Net (loss) income (b)
(17,281
)
 
4,149

 
4,191

a.Includes intercompany revenues of $7.6 million, $112.6 million and $16.0 million, respectively, for 2019, 2018 and 2017.
b.Includes depreciation and amortization expense of $6.1 million, $3.5 million and $0.8 million, respectively, for 2019, 2018 and 2017.

The following table presents unaudited pro forma information as if the acquisition of 5 Star had occurred as of January 1, 2017 (in thousands):
 
 
Year Ended
 
 
December 31, 2017
Revenues
 
$
31,548

Net income
 
3,910



Acquisition of Higher Power

On April 21, 2017, the Company completed its acquisition of Higher Power for total consideration of $4.0 million. The Company funded the purchase price for Higher Power with cash on hand and borrowings under its credit facility. The acquisition of Higher Power added an energy infrastructure component to the Company's business, helping to diversify its service offerings.

The Company recognized $0.1 million of transaction related costs during the year ended December 31, 2017 related to this acquisition.

The following table summarizes the fair value of Higher Power as of April 21, 2017 (in thousands):
 
 
Higher Power
Property, plant and equipment
 
$
1,744

Identifiable intangible assets - customer relationships
 
1,613

Goodwill (a)
 
643

Total assets acquired
 
$
4,000

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 assembled workforces and future profitability expected to arise from the acquired entity.
From its acquisition date through December 31, 2019, Higher Power has provided the following activity (in thousands):
 
2019
 
2018
 
2017
Revenues(a)
$
93,379

 
$
220,281

 
$
39,571

Net (loss) income (b)
(33,195
)
 
(5,868
)
 
5,127

a.Includes intercompany revenues of $26.5 million, $191.2 million and $27.4 million, respectively, for 2019, 2018 and 2017.
b.Includes depreciation and amortization of $10.5 million, $7.1 million and $2.0 million, respectively, for 2019, 2018 and 2017.
The following table presents unaudited pro forma information as if the acquisition of Higher Power had occurred as of January 1, 2017 (in thousands):
 
 
Year Ended
 
 
December 31, 2017
Revenues
 
$
42,343

Net income
 
5,004



Acquisition of Sturgeon

On March 20, 2017, and as amended on May 12, 2017, the Company entered into a definitive contribution agreement with MEH Sub, Wexford Offshore Sturgeon Corp., Gulfport, Rhino and Mammoth Energy Partners LLC (the “Sturgeon Contribution Agreement”). Under the Sturgeon Contribution Agreement, the Company agreed to acquire all outstanding membership interests, through its wholly-owned subsidiary Mammoth LLC, in Sturgeon, which owns all of the membership interests in Taylor Frac, Taylor RE and South River (collectively, the “Sturgeon subsidiaries”). The acquisition added sand reserves, increased our production capacity and provided access to the Canadian National Railway, which affords access to the Appalachian basin in support of the Company’s pressure pumping services as well as to western Canada.

The acquisition of Sturgeon closed on June 5, 2017. Pursuant to the Sturgeon Contribution Agreement, Mammoth Inc. issued 5,607,452 shares of its common stock, par value $0.01 per share, for all outstanding equity interests in Sturgeon. Based upon a closing price of Mammoth Inc.'s common stock of $18.50 per share on June 5, 2017, the total purchase price was $103.7 million.

As a result of this transaction, the Company's historical financial information has been recast to combine the consolidated statements of comprehensive income (loss) and the consolidated balance sheets of the Company for all periods included in the accompanying financial statements with those of Sturgeon as if the combination had been in effect since Sturgeon commenced operations on September 13, 2014. Any material transactions between the Company and Sturgeon were eliminated. Sturgeon's financial results were incorporated into the Company's natural sand proppant services division.

The Company recognized $1.3 million of transaction related costs during the year ended December 31, 2017 related to this acquisition.

Acquisition of Chieftain

On March 27, 2017, as amended as of May 24, 2017, the Company entered into a purchase agreement with the Chieftain Sellers, following the Company's successful bid in a bankruptcy court auction for substantially all of the assets of the Chieftain Sellers (the “Chieftain Assets”). The Chieftain acquisition closed on May 26, 2017. The Company funded the purchase price for the Chieftain Assets with cash on hand and borrowings under its revolving credit facility. The Chieftain Assets are held by the Company's wholly owned subsidiary Piranha and are included in the Company's natural sand proppant services segment. The Chieftain acquisition added sand reserves, increased our production capacity and provided access to the Union Pacific railroad, which affords access to both the Mid-Continent and Permian basins in support of the Company’s pressure pumping services.

The following table summarizes the fair value of the Chieftain Acquisition as of May 26, 2017 (in thousands):
 
 
Total
Property, plant and equipment (a)
 
$
23,373

Sand reserves (b)
 
20,910

Total assets acquired
 
$
44,283

 
 
 
Asset retirement obligation
 
1,732

Total liabilities assumed
 
$
1,732

Total allocation of purchase price
 
$
42,551

Bargain purchase price (c, d)
 
(6,231
)
Total purchase price
 
$
36,320

a.
Property, plant and equipment fair value measurements were prepared by utilizing a combined fair market value and cost approach. The market approach relies on comparability of assets using market data information. The cost approach places emphasis on the physical components and characteristics of the asset. It places reliance on estimated replacement cost, depreciation and economic obsolescence.
b.
The fair value of the sand reserves was determined based on the excess cash flow method, a form of the income approach. The method provides a value based on the estimated remaining life of sand reserves, projected financial information and industry projections.
c.
Amount in consolidated statements of comprehensive (loss) income reflected net of income taxes of $2.2 million.
d.
The fair value of the business was determined based on the excess cash flow method, a form of the income approach.
Since the acquisition date, the Chieftain Assets have provided the following activity (in thousands):
 
2019
 
2018
 
2017
Revenues(a)
$
27,617

 
$
52,628

 
$
22,847

Net (loss) income(b)
(3,513
)
 
8,379

 
5,520

a.Includes intercompany revenues of $3.7 million, $14.8 million and $12.3 million, respectively, for 2019, 2018 and 2017.
b.Includes depreciation and amortization of $5.0 million, $4.9 million and $2.8 million, respectively, for 2019, 2018 and 2017.
The following table presents unaudited pro forma information as if the acquisition of the Chieftain Assets had occurred as of January 1, 2017 (in thousands):
 
 
Year Ended
 
 
December 31, 2017
Revenues
 
$
22,847

Net income
 
5,655



The Company's historical financial information was adjusted to give pro forma effect to the events that were directly attributable to the Chieftain Acquisition. The Company recognized $0.8 million of transaction related costs related to this acquisition.
Acquisition of Stingray

On March 20, 2017, and as amended on May 12, 2017, the Company entered into two definitive contribution agreements, one such agreement with MEH Sub, Wexford Offshore Stingray Energy Corp., Gulfport and Mammoth LLC and the other with MEH Sub, Wexford Offshore Stingray Pressure Pumping Corp., Gulfport and Mammoth LLC (collectively, the “Stingray Contribution Agreements”). Under the Stingray Contribution Agreements, the Company agreed to acquire all outstanding membership interests, through its wholly-owned subsidiary Mammoth LLC, in Cementing and SR Energy (the “2017 Stingray Acquisition”). The addition of their water transfer, equipment rentals and cementing services further expanded and vertically integrated the Company’s service offerings.

The 2017 Stingray Acquisition closed on June 5, 2017. Pursuant to the Stingray Contribution Agreements, Mammoth Inc. issued 1,392,548 shares of its common stock, par value $0.01 per share, for all outstanding equity interests in SR Energy and Cementing. Based upon a closing price of Mammoth Inc.'s common stock of $18.50 per share on June 5, 2017, the total purchase price was $25.8 million.

At the acquisition date, the components of the consideration transferred were as follows (in thousands):
Consideration attributable to Cementing (a)
 
$
12,975

Consideration attributable to SR Energy (a)
 
12,787

Total consideration transferred
 
$
25,762

a.    See summary of acquired assets and liabilities below

 
 
SR Energy
Cementing
 
Total
 
 
(in thousands)
Cash and cash equivalents
 
$
1,611

$
1,060

 
$
2,671

Accounts receivable, net
 
3,913

495

 
4,408

Receivables from related parties
 
3,684

1,418

 
5,102

Inventories
 

306

 
306

Prepaid expenses
 
35

32

 
67

Property, plant and equipment(a)
 
13,061

7,459

 
20,520

Identifiable intangible assets - customer relationships(b)
 

1,140

 
1,140

Identifiable intangible assets - trade names(b)
 
550

270

 
820

Goodwill(c)
 
3,929

6,264

 
10,193

Other assets
 
7


 
7

Total assets acquired
 
$
26,790

$
18,444

 
$
45,234

 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
5,890

$
2,063

 
$
7,953

Long-term debt (d)
 
5,074

2,000

 
7,074

Deferred tax liability
 
3,039

1,406

 
4,445

Total liabilities assumed
 
$
14,003

$
5,469

 
$
19,472

Net assets acquired
 
$
12,787

$
12,975

 
$
25,762

a.
Property, plant and equipment fair value measurements were prepared by utilizing a combined fair market value and cost approach. The market approach relies on comparability of assets using market data information. The cost approach places emphasis on the physical components and characteristics of the asset. It places reliance on estimated replacement cost, depreciation and economic obsolescence.
b.
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 5-10 years.
c.
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 based on the synergies expected to arise from the acquired entities.
d.
Long-term debt assumed was paid off subsequent to the acquisition.
Since the acquisition date, the businesses acquired have provided the following activity (in thousands):
 
2019
 
2018
 
2017
 
SR Energy
Cementing
 
SR Energy
Cementing
 
SR Energy
Cementing
Revenues(a)
$
36,600

$
618

 
$
29,287

$
6,426

 
$
11,572

$
7,500

Net loss(b, c)
(3,975
)
(2,449
)
 
(2,539
)
(5,869
)
 
(1,626
)
(1,963
)
a.
Includes intercompany revenues of $2.3 million, $3.0 million and $0.6 million, respectively, for SR Energy for 2019, 2018 and 2017 and $0.6 million, $0.3 million and a nominal amount, respectively, for Cementing for 2019, 2018 and 2017.
b.
Includes depreciation and amortization of $4.9 million, $5.4 million and $3.4 million, respectively, for SR Energy for 2019, 2018 and 2017 and $0.8 million, $1.5 million and $4.1 million, respectively, for Cementing for 2019, 2018 and 2017.
c.
Includes non-cash impairment expense of $3.9 million for SR Energy in 2019 and $3.1 million and $4.4 million, respectively, for Cementing in 2019 and 2018.
The following table presents unaudited pro forma information as if the acquisition of SR Energy and Cementing had occurred on January 1, 2017 (in thousands):
 
 
Year Ended
 
 
December 31, 2017
Revenues
 
$
35,142

Net loss
 
(4,066
)


The historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the 2017 Stingray Acquisition. For the year ended December 31, 2017, there were $0.2 million transaction related costs expensed. The unaudited pro forma consolidated results are not necessarily indicative of what the consolidated results of operations actually would have been had the 2017 Stingray Acquisition been completed on January 1, 2017. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the Company.