The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes thereto presented in this Quarterly Report and the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K. This discussion contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in Item 1A. "Risk Factors" in our Form 10-K for the year endedDecember 31, 2021 , our Quarterly Report on Form 10-Q for the quarterly period endedMarch 31,2022 and the section entitled "Forward-Looking Statements" appearing elsewhere in this Quarterly Report.
Insight
We are an integrated, growth-oriented energy services company focused on the construction and repair of the electric grid for private utilities, public investor-owned utilities and co-operative utilities through our infrastructure services businesses. We also provide products and services to enable the exploration and development of North American onshore unconventional oil and natural gas reserves. Our primary business objective is to grow our operations and create value for stockholders through organic growth opportunities and accretive acquisitions. Our suite of services includes infrastructure services, well completion services, natural sand proppant services, drilling services and other services. Our infrastructure services division provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. Our well completion services division provides hydraulic fracturing, sand hauling and water transfer services. Our natural sand proppant services division mines, processes and sells natural sand proppant used for hydraulic fracturing. Our drilling services division currently provides rental equipment, such as mud motors and operational tools, for both vertical and horizontal drilling. In addition to these service divisions, we also provide aviation services, equipment rentals, remote accommodations and equipment manufacturing. We believe that the services we offer play a critical role in maintaining and improving electrical infrastructure as well as in increasing the ultimate recovery and present value of production streams from unconventional resources. Our complementary suite of services provides us with the opportunity to cross-sell our services and expand our customer base and geographic positioning. Our transformation towards an industrial based company is ongoing. We offer infrastructure engineering services focused on the transmission and distribution industry and also have equipment manufacturing operations and offer fiber optic services. Our equipment manufacturing operations provide us with the ability to repair much of our existing equipment in-house, as well as the option to manufacture certain new equipment we may need in the future. The equipment manufacturing operations have initially served the internal needs for our pressure pumping, water transfer, equipment rental and infrastructure businesses, but we expect to expand into third party sales in the future. Our fiber optic services include the installation of both aerial and buried fiber. We are continuing to explore other opportunities to expand our business lines as we shift to a broader industrial focus.
Overview of our services and industry conditions
Infrastructure services
Our infrastructure services business provides engineering, design, construction, upgrade, maintenance and repair services to the electrical infrastructure industry. We offer a broad range of services on electric transmission and distribution, or T&D, networks and substation facilities, which include engineering, design, construction, upgrade, maintenance and repair of high voltage transmission lines, substations and lower voltage overhead and underground distribution systems. Our commercial services include the installation, maintenance and repair of commercial wiring. We also provide storm repair and restoration services in response to storms and other disasters. We provide infrastructure services primarily in the northeast, southwest, midwest and western portions ofthe United States . We currently have agreements in place with private utilities, public IOUs and Co-Ops. Although the COVID-19 pandemic and resulting economic conditions have not had a material impact on demand or pricing for our infrastructure services, revenues from our infrastructure services declined in 2021 as a result of certain management changes, which resulted in crew departures, as well as a decline in storm restoration activities. Revenue from our infrastructure services have continuously improved throughout 2022, as compared to the fourth quarter of 2021. Our infrastructure services business has also been adversely impacted by the outstanding amounts owed to us by thePuerto Rico Electric Power Authority , or PREPA, for services performed by our subsidiary,Cobra Acquisitions LLC , or Cobra, in Puerto 32 -------------------------------------------------------------------------------- Rico to restore PREPA's electrical grid damaged by Hurricane Maria. As ofSeptember 30, 2022 , PREPA, which is currently subject to bankruptcy proceedings, owed us approximately$227.0 million for services performed excluding approximately$141.3 million of interest charged on these delinquent balances as ofSeptember 30, 2022 . See Note 2. Basis of Presentation and Significant Accounting Policies-Accounts Receivable of our unaudited condensed consolidated financial statements. We continue to vigorously pursue numerous avenues to collect our receivable from PREPA for work performed by Cobra. 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 amounts owed to Cobra or (iii) otherwise does not pay amounts owed to Cobra for services performed, the receivable may not be collectible, which may adversely impact our liquidity, results of operations and financial condition. In addition, government contracts are subject to various uncertainties, restrictions and regulations, including oversight audits and compliance reviews by government agencies and representatives. In this regard, onSeptember 10, 2019 , theU.S. District Court for the District of Puerto Rico unsealed an indictment that charged the former president of Cobra with conspiracy, wire fraud, false statements and disaster fraud. Two other individuals were also charged in the indictment. The indictment is focused on the interactions between a former FEMA official and the former President of Cobra. Neither we nor any of our subsidiaries were charged in the indictment. OnMay 18, 2022 , the former FEMA official and the former president of Cobra pled guilty to gratuities. The sentencing hearing is scheduled forNovember 28, 2022 . Given the uncertainty inherent in the criminal litigation, it is not possible at this time to determine the potential impacts that the plea agreements could have on us. PREPA has stated in Court filings that it may contend the alleged criminal activity affects Cobra's entitlement to payment under its contracts with PREPA. It is unclear what PREPA's position will be after the terms of the plea agreements become public. Subsequent to the indictment, Cobra received a civil investigative demand ("CID") from theUnited States Department of Justice ("DOJ"), which requests certain documents and answers to specific interrogatories relevant to an ongoing investigation it is conducting. The aforementioned DOJ investigation is in connection with the issues raised in the criminal matter. Cobra is cooperating with the DOJ and is not able to predict the outcome of this investigation or if it will have a material impact on Cobra's or our business, financial condition, results of operations or cash flows. With regard to the previously disclosedSEC investigation, onJuly 6, 2022 , theSEC sent a letter saying that it had concluded its investigation as to the Company and that based on information theSEC has as of this date, it does not intend to recommend an enforcement action by theSEC against us. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information regarding these proceedings. Further, our contracts with PREPA have concluded and we have not obtained, and there can be no assurance that we will be able to obtain, one or more contracts with other customers to replace the level of services that we provided to PREPA. During the third quarter of 2021, we made leadership changes in our infrastructure group and have focused on cutting costs, improving margins and enhancing accountability across the division. During the third quarter of 2022, operational improvements combined with increased crew count drove enhanced results. Our crew count increased from approximately 82 crews as ofDecember 31, 2021 to approximately 96 crews as ofSeptember 30, 2022 , and we continue to add crew capacity for a sector that has a healthy bidding environment. Funding for projects in the infrastructure space remains strong with added opportunities expected from theInfrastructure Investment and Jobs Act, which was signed into law onNovember 15, 2021 . We anticipate the federal spending to begin fueling this sector in 2023. We continue to focus on operational execution and pursue opportunities within this sector as we strategically structure our service offerings for growth, intending to increase our infrastructure services activity and expand both our geographic footprint and depth of projects, especially in fiber maintenance and installation projects. In late 2021, we were awarded a fiber installation contract as well as an electric vehicle charging station engineering contract. Both of these projects are currently in process. We work for multiple utilities primarily across the northeastern, southwestern, midwestern and western portions ofthe United States . We believe that we are well-positioned to compete for new projects due to the experience of our infrastructure management team, combined with our vertically integrated service offerings. We are seeking to leverage this experience and our service offerings to grow our customer base and increase our revenues in the continentalUnited States over the coming years.
Well Completion and Drilling Services
In March andApril 2020 , concurrent with the COVID-19 pandemic and quarantine orders in theU.S. and worldwide, oil prices dropped sharply to below zero dollars per barrel for the first time in history due to factors including significantly reduced demand and a shortage of storage facilities. In 2021,U.S. oil production stabilized as commodity prices increased and demand for crude oil rebounded, many exploration and production companies set their operating budgets based on the prevailing prices for oil and natural gas at the time. We have seen improvements in the oilfield services industry and in both pricing and utilization of our well completion and drilling services during the first nine months of 2022 and we expect both pricing and utilization to continue to improve in the fourth quarter of 2022 and into 2023 as a result of an increase in budgets 33 --------------------------------------------------------------------------------
for publicly traded exploration and production companies and high activity levels, driven by improving energy demand and high commodity prices. The ongoing Russian-Ukrainian war and related humanitarian crisis in
In response to market conditions, we have temporarily shut down our cementing and acidizing operations and flowback operations beginning inJuly 2019 , our contract drilling operations beginning inDecember 2019 , our rig hauling operations beginning inApril 2020 , our coil tubing, pressure control and full service transportation operations beginning inJuly 2020 and our crude oil hauling operations beginning inJuly 2021 . We continue to monitor the market to determine if and when we can recommence these services. During the third quarter of 2022, our well completion services division exhibited strong performance, fueled by the robust demand in the pressure pumping industry. We are currently operating four of our six pressure pumping fleets. We expect to add one additional pressure pumping fleet into operation during the fourth quarter of 2022. Looking to 2023, we plan to activate our sixth fleet in the first half of 2023, and subject to liquidity requirements, we have plans to upgrade one of our existing spreads to Tier 4, dual fuel. This would give us a total of three dual fuel fleets. We are analyzing whether there might be greater returns for converting and upgrading an existing spread compared to adding a seventh spread. We continue to closely monitor our cost structure in response to market conditions and intend to pursue additional cost savings where possible. Further, a significant portion of our revenue from our pressure pumping business had historically been derived from Gulfport. OnDecember 28, 2019 , Gulfport filed a lawsuit alleging our breach of our pressure pumping contract with Gulfport and seeking to terminate the contract and recover damages for alleged overpayments, audit costs and legal fees. Gulfport did not make the payments owed to us under this contract for any periods subsequent to its allegedDecember 28, 2019 termination date. Further, onNovember 13, 2020 , Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. OnSeptember 21, 2021 , we reached a settlement with Gulfport under which all litigation relating to theStingray Pressure Pumping contract was terminated,Stingray Pressure Pumping released all claims against Gulfport and its subsidiaries with respect to Gulfport's bankruptcy proceedings and each of the parties released all claims they had against the others with respect to the litigation matters discussed above. We have not been able to obtain long-term contracts with other customers to replace our contract with Gulfport. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information.
Natural sand retaining services
In our natural sand proppant services business, we experienced a significant decline in demand of our sand proppant in the second half of 2019 and throughout 2020 as a result of completion activity falling due to lower oil demand and pricing, increased capital discipline by our customers, budget exhaustion and the COVID-19 pandemic. Activity rebounded modestly in 2021 and has continued to increase during the first nine months of 2022, as we saw an increase in the volume of sand sold. The increase in activity in 2022 resulted in an increase in demand and pricing for our sand and we expect that prices will continue to increase in the fourth quarter of 2022 and into 2023. Further, as a result of adverse market conditions, production at our Muskie sand facility inPierce County, Wisconsin has been temporarily idled sinceSeptember 2018 . Our contracted capacity has provided a baseline of business, which has kept our Taylor and Piranha plants operating and our costs low. A portion of our revenue from our natural sand proppant business historically had been derived from Gulfport pursuant to a long-term contract. Gulfport did not make the payments owed to us under this contract for any periods subsequent toMay 2020 . InSeptember 2020 , we filed a lawsuit seeking to recover delinquent payments owed to us under this contract. OnNovember 13, 2020 , Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. OnSeptember 21, 2021 , the Company and Gulfport reached a settlement under which all litigation relating to the Muskie contract was terminated and a portion of Muskie's contract claim against Gulfport was allowed under Gulfport's plan of reorganization. See Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report for additional information. As the oilfield services and natural sand proppant industries continue to rebound from the significant economic impacts of 2020 and 2021, we expect momentum to continue in terms of activity, pricing, scheduling and new bidding inquiries in the fourth quarter of 2022 and into 2023. We believe our diverse portfolio of services and ability to adapt quickly to changing environments positions us well in these segments. 34 --------------------------------------------------------------------------------
Our response to COVID-19 and related market conditions
We have taken, and continue to take, responsible steps to protect the health and safety of our employees during the COVID-19 pandemic. We are also continuing to monitor the industry and market conditions resulting from the COVID-19 pandemic and have taken mitigating steps in an effort to preserve liquidity, reduce costs and lower capital expenditures. These actions have included reducing headcount, adjusting pay and limiting spending. We will continue to take further actions that we deem to be in the best interest of the Company and our stockholders if the adverse conditions recur. Given the dynamic nature of these events, we are unable to predict the ultimate impact of the COVID-19 pandemic, the volatility in commodity markets, any changes in the near-term or long-term outlook for our industries or overall macroeconomic conditions on our business, financial condition, results of operations, cash flows and stock price or the pace or extent of any subsequent recovery. Although demand across our three largest segments has improved during the nine months endedSeptember 30, 2022 and remained strong in the third quarter of 2022, we continue to mitigate the myriad of external challenges in today's economic environment as we remain disciplined with our spending to continue to improve Mammoth's cost structure and focus on enhancing value for our stockholders.
Financial overview for the third quarter of 2022
• Net profit for the third quarter of 2022 was
•Adjusted EBITDA (as defined and reconciled below) increased to$29.8 million for the third quarter of 2022, as compared to($29.3) million for the third quarter of 2021 and$23.0 million for the second quarter of 2022. See "Non-GAAP Financial Measures" below for a reconciliation of net income to Adjusted EBITDA. •Total revenue for the third quarter of 2022 increased$49.7 million , or 86%, to$107.2 million from$57.5 million for the third quarter of 2021. The increase in total revenue is due to an increase in revenue across all of our operating divisions during the third quarter of 2022, driven primarily by increased utilization and pricing. 35
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Operating results
Three Months EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 Three Months EndedSeptember 30 ,
2022
(in thousands) Revenue: Infrastructure services $ 33,296 $ 25,070 Well completion services 51,532 22,732 Natural sand proppant services 12,910 8,419 Drilling services 3,118 1,207 Other services 6,968 4,572 Eliminations (622) (4,515) Total revenue 107,202 57,485
Cost of revenues: infrastructure services (excluding depreciation of
26,512 21,898
Well completion services (excluding depreciation and amortization of
35,817 21,329
Natural sand support services (excluding depreciation, depletion and accretion of
9,206 9,368
Drilling services (excluding amortization of
2,804 1,566
Other services (excluding amortization of
4,739 3,938 Eliminations (622) (4,515) Total cost of revenue 78,456 53,584 Selling, general and administrative expenses 9,685 41,429 Depreciation, depletion, amortization and accretion 15,842 19,148 Gains on disposal of assets, net (599) (3,033) Impairment of other long-lived assets - 547 Operating income (loss) 3,818 (54,190) Interest expense, net (3,262) (1,484) Other income, net 10,989 7,586 Income (loss) before income taxes 11,545 (48,088) Provision (benefit) for income taxes 3,819 (7,187) Net income (loss) $ 7,726 $ (40,901) Revenue. Revenue for the three months endedSeptember 30, 2022 increased$49.7 million , or 86%, to$107.2 million from$57.5 million for the three months endedSeptember 30, 2021 . The increase in total revenue is attributable to an increase in revenue across all operating divisions during the three months endedSeptember 30, 2022 primarily due to increased utilization and pricing. Revenue derived from related parties was$0.4 million for the three months endedSeptember 30, 2022 and$0.6 million for the three months endedSeptember 30, 2021 . Revenue by operating division was as follows: Infrastructure Services. Infrastructure services division revenue increased$8.2 million , or 33%, to$33.3 million for the three months endedSeptember 30, 2022 from$25.1 million for the three months endedSeptember 30, 2021 primarily due to improved operational execution, coupled with an increase in crew count and improved pricing. 36 --------------------------------------------------------------------------------
Average crew count increased to 96 crews for the three months ended
Well Completion Services. Well completion services division revenue increased$28.8 million , or 127%, to$51.5 million for the three months endedSeptember 30, 2022 from$22.7 million for the three months endedSeptember 30, 2021 . The increase in our well completion services revenue was primarily driven by a 176% increase in the number of stages completed from 688 for the three months endedSeptember 30, 2021 to 1,897 for the three months endedSeptember 30, 2022 as well as an increase in both pricing and sand and chemical materials revenue. An average of 3.5 of our fleets were active for the three months endedSeptember 30, 2022 as compared to an average of 1.2 fleets for the three months endedSeptember 30, 2021 . Natural Sand Proppant Services. Natural sand proppant services division revenue increased$4.5 million , or 54%, to$12.9 million for the three months endedSeptember 30, 2022 , from$8.4 million for the three months endedSeptember 30, 2021 primarily due to an 81% increase in the average price per ton of sand sold from$16.58 per ton during the three months endedSeptember 30, 2021 to$29.95 per ton during the three months endedSeptember 30, 2022 , and an 8% increase in tons of sand sold from 315,066 tons for the three months endedSeptember 30, 2021 to 341,272 tons for the three months endedSeptember 30, 2022 . Additionally, we recognized shortfall revenue of$0.5 million during the three months endedSeptember 30, 2022 . Drilling Services. Drilling services division revenue increased$1.9 million , or 158%, to$3.1 million for the three months endedSeptember 30, 2022 as compared to$1.2 million for the three months endedSeptember 30, 2021 . The increase is primarily due to increased utilization for our directional drilling business from 23% for the three months endedSeptember 30, 2021 to 46% for the three months endedSeptember 30, 2022 . Other Services. Other services revenue, consisting of revenue derived from our aviation, equipment rental, crude oil hauling, remote accommodation and equipment manufacturing businesses, increased approximately$2.4 million , or 52%, to$7.0 million for the three months endedSeptember 30, 2022 , from$4.6 million for the three months endedSeptember 30, 2021 . Inter-segment revenue, consisting primarily of revenue derived from our well completion segment, was$0.5 million for each of the three months endedSeptember 30, 2022 and 2021, respectively. An average of 255 pieces of equipment were rented to customers during the three months endedSeptember 30, 2022 , an increase of 57% from an average of 162 pieces of equipment rented to customers during the three months endedSeptember 30, 2021 , resulting in an increase to revenue of$0.9 million . Additionally, revenue from our accommodations business increased$1.6 million primarily due to an increase in rooms rented during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion expense). Cost of revenue, exclusive of depreciation, depletion, amortization and accretion expense, increased$24.9 million from$53.6 million , or 93% of total revenue, for the three months endedSeptember 30, 2021 to$78.5 million , or 73% of total revenue, for the three months endedSeptember 30, 2022 . The increase is primarily due to an increase in activity across all operating divisions. Cost of revenue by operating division was as follows: Infrastructure Services. Infrastructure services division cost of revenue, exclusive of depreciation and amortization expense, increased$4.6 million , or 21%, to$26.5 million for the three months endedSeptember 30, 2022 from$21.9 million for the three months endedSeptember 30, 2021 , primarily due to an increase in activity. As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of$4.0 million and$4.9 million for the three months endedSeptember 30, 2022 and 2021, respectively, was 80% and 87% for the three months endedSeptember 30, 2022 and 2021, respectively. The decline as a percentage of revenue is primarily due to improved pricing as well as a decline in labor related costs as a result of improved efficiency of our crews. Well Completion Services. Well completion services division cost of revenue, exclusive of depreciation and amortization expense, increased$14.5 million , or 68%, to$35.8 million for the three months endedSeptember 30, 2022 from$21.3 million for the three months endedSeptember 30, 2021 , primarily due to an increase in both the cost of consumables and activity. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of$4.8 million and$6.5 million for the three months endedSeptember 30, 2022 and 2021, respectively, was 70% and 94% for the three months endedSeptember 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to an increase in utilization as well as improved pricing. 37 -------------------------------------------------------------------------------- Natural Sand Proppant Services. Natural sand proppant services division cost of revenue, exclusive of depreciation, depletion and accretion expense, decreased$0.2 million , or 2%, to$9.2 million for the three months endedSeptember 30, 2022 from$9.4 million for the three months endedSeptember 30, 2021 . As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of$2.9 million and$2.5 million for the three months endedSeptember 30, 2022 and 2021, respectively, was 71% and 112% for the three months endedSeptember 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to an 81% increase in price per ton of sand sold. Drilling Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, increased$1.2 million , or 75%, to$2.8 million for the three months endedSeptember 30, 2022 from$1.6 million for the three months endedSeptember 30, 2021 . As a percentage of revenue, our drilling services division cost of revenue, exclusive of depreciation and amortization expense of$1.6 million and$1.9 million for the three months endedSeptember 30, 2022 and 2021, respectively, was 90% and 130% for the three months endedSeptember 30, 2022 and 2021, respectively. The decline is primarily due to an increase in utilization. Other Services. Other services division cost of revenue, exclusive of depreciation and amortization expense, increased$0.8 million , or 20%, to$4.7 million for the three months endedSeptember 30, 2022 from$3.9 million for the three months endedSeptember 30, 2021 . As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of$2.6 million and$3.2 million for the three months endedSeptember 30, 2022 and 2021, respectively, was 68% and 85% for the three months endedSeptember 30, 2022 and 2021, respectively. The decrease is primarily due to a decline in labor costs as a percentage of revenue and an increase in utilization.
Selling, general and administrative expenses. Selling, general and administrative, or SG&A, expenses represent the costs associated with managing and supporting our operations. The table below provides a breakdown of SG&A fees for the periods indicated (in thousands):
Three Months Ended
September 30, 2022 September 30, 2021
Cash expenses:
Compensation and benefits $ 3,676 $ 3,353
Professional services(a) 3,706 4,134
Other(b) 2,059 2,252
Total cash SG&A expense 9,441 9,739
Non-cash expenses:
Bad debt provision(c) 3 31,449
Stock based compensation 241 241
Total non-cash SG&A expense 244 31,690
Total SG&A expense $ 9,685 $ 41,429
a. Certain legal expenses totaling $0.4 million were reclassified to Other, net
for the three months ended September 30, 2021 .
b. Includes travel-related costs, IT expenses, rent, utilities and other
general and administrative-related costs.
c. The bad debt provision for the three months ended September 30, 2021
includes $31.2 million related to the Stingray Pressure Pumping and Muskie
contracts with Gulfport.
Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion,
amortization and accretion decreased $3.3 million , or 17%, to $15.8 million for
the three months ended September 30, 2022 from $19.1 million for the three
months ended September 30, 2021 . The decrease is primarily attributable to a
decline in property and equipment depreciation expense as a result of lower
capital expenditures and existing assets being fully depreciated.
Gains on disposal of assets, net. Gains on disposal of assets primarily related to the sale of trucking assets during the three months ended
Depreciation of long-lived assets. In the three months ended
Operating Income (Loss). We reported operating income of$3.8 million for the three months endedSeptember 30, 2022 compared to an operating loss of$54.2 million for the three months endedSeptember 30, 2021 . The decrease in operating loss is primarily due to an increase in activity and utilization across all operating divisions. 38 -------------------------------------------------------------------------------- Interest Expense, Net. Interest expense, net increased$1.8 million , or 120%, to$3.3 million for the three months endedSeptember 30, 2022 from$1.5 million for the three months endedSeptember 30, 2021 . The increase is primarily due to an increase in the interest rate and average borrowings outstanding under our revolving credit facility. Other Income (Expense), Net. Other income increased$3.4 million during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to an increase in interest on trade accounts receivable from$8.0 million for the three months endedSeptember 30, 2021 to$10.5 million for the three months endedSeptember 30, 2022 , as well as a decline in legal fees unrelated to ongoing operations. Income Taxes. We recorded income tax expense of$3.8 million on pre-tax income of$11.5 million for the three months endedSeptember 30, 2022 compared to an income tax benefit of$7.2 million on pre-tax losses of$48.1 million for the three months endedSeptember 30, 2021 . Our effective tax rates were 33% and 15% for the three months endedSeptember 30, 2022 and 2021, respectively. The effective tax rates for the three months endedSeptember 30, 2022 and 2021 differed from the statutory rate of 21% primarily due to the mix of earnings betweenthe United States andPuerto Rico as well as changes in the valuation allowance. 39
-------------------------------------------------------------------------------- Nine Months EndedSeptember 30, 2022 Compared to Nine Months EndedSeptember 30, 2021 Nine Months EndedSeptember 30 ,
2022
(in thousands) Revenue: Infrastructure services $ 81,892 $ 73,690 Well completion services 119,223 63,059 Natural sand proppant services 37,548 24,011 Drilling services 7,944 3,288 Other services 16,730 13,640 Eliminations (4,159) (5,958) Total revenue 259,178 171,730
Cost of revenues: infrastructure services (excluding depreciation of
67,239 70,432
Well completion services (excluding depreciation and amortization of
92,159 47,788
Natural sand support services (excluding depreciation, depletion and accretion of
26,701 22,631
Drilling services (excluding amortization of
7,530 4,739
Other services (excluding amortization of
12,256 12,407 Eliminations (4,163) (5,958) Total cost of revenue 201,722 152,039 Selling, general and administrative expenses 26,560 69,313 Depreciation, depletion, amortization and accretion 50,485 60,559 Gains on disposal of assets, net (3,738) (4,632) Impairment of long-lived assets - 547 Operating loss (15,851) (106,096) Interest expense, net (8,270) (3,878) Other income (expense), net 30,175 (4,527) Income (loss) before income taxes 6,054 (114,501) Provision (benefit) for income taxes 11,442 (26,370) Net loss $ (5,388) $ (88,131) Revenue. Revenue for the nine months endedSeptember 30, 2022 increased$87.5 million , or 51%, to$259.2 million from$171.7 million for the nine months endedSeptember 30, 2021 . The increase in total revenue is primarily attributable to increases in revenue across all operating divisions. Revenue derived from related parties was$1.0 million , or 0.4% of our total revenue, for the nine months endedSeptember 30, 2022 and$17.8 million , or 10% of our total revenue, for the nine months endedSeptember 30, 2021 . Substantially all of our related party revenue was derived from Gulfport under pressure pumping and sand contracts. For additional information regarding the status of these contracts and the pending litigation related to the pressure pumping contract, see "Industry Overview - Oil and Natural Gas Industry," "Industry Overview - Natural Sand Proppant Industry" and Note 18. Commitments and Contingencies to our unaudited condensed consolidated financial statements included elsewhere in this report. Revenue by operating division was as follows: 40 -------------------------------------------------------------------------------- Infrastructure Services. Infrastructure services division revenue increased$8.2 million , or 11%, to$81.9 million for the nine months endedSeptember 30, 2022 from$73.7 million for the nine months endedSeptember 30, 2021 . There was less storm activity during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , resulting in a$13.3 million decrease in storm restoration revenue. This was offset by increases in overhead distribution as a result of an increase in our crew count, improved efficiency of our crews, improved pricing for our services as well as an increase in engineering services revenue. Well Completion Services. Well completion services division revenue increased$56.1 million , or 89%, to$119.2 million for the nine months endedSeptember 30, 2022 from$63.1 million for the nine months endedSeptember 30, 2021 . We did not recognize any revenue derived from related parties for the nine months endedSeptember 30, 2022 compared to$14.8 million , or 23% of total well completion revenue, for the nine months endedSeptember 30, 2021 . All of our well completion related party revenue was derived from Gulfport under a pressure pumping contract. OnNovember 13, 2020 , Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. During the nine months endedSeptember 30, 2021 , we recognized revenue totaling$14.8 million related to the modification of our pressure pumping contract with Gulfport. For additional information regarding the status of this contract and the pending litigation related to this contract, see "Industry Overview - Oil and Natural Gas Industry" above and notes 2 and 3 to our unaudited condensed consolidated financial statements included elsewhere in this report. Inter-segment revenues, consisting primarily of revenue derived from our sand segment, was$0.6 million and$0.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in our well completion services revenue was primarily driven by an increase in pressure pumping services utilization and pricing. The number of stages completed increased 161% to 4,312 for the nine months endedSeptember 30, 2022 from 1,653 for the nine months endedSeptember 30, 2021 . An average of 2.9 of our six fleets were active for the nine months endedSeptember 30, 2022 as compared to an average of 1.0 fleets for the nine months endedSeptember 30, 2021 . Natural Sand Proppant Services. Natural sand proppant services division revenue increased$13.5 million , or 56%, to$37.5 million for the nine months endedSeptember 30, 2022 , from$24.0 million for the nine months endedSeptember 30, 2021 . We did not recognize any related party revenue for the nine months endedSeptember 30, 2022 . Revenue derived from related parties was$2.1 million , or 9% of total sand revenue, for the nine months endedSeptember 30, 2021 . All of our related party revenue was derived from Gulfport under a sand supply contract. OnNovember 13, 2020 , Gulfport filed petitions for voluntary relief under chapter 11 of the Bankruptcy Code. During the three months endedMarch 31, 2021 , we recognized revenue totaling$2.1 million related to the modification of our sand supply contract with Gulfport. For additional information regarding the status of this contract and the pending litigation related to this contract, see "Industry Overview - Natural Sand Proppant Industry" above and notes 2 and 3 to our unaudited condensed consolidated financial statements included elsewhere in this report. Inter-segment revenue, consisting primarily of revenue derived from our pressure pumping segment, was$2.4 million , or 7% of total sand revenue, for the nine months endedSeptember 30, 2022 and$4.0 million , or 17% of total sand revenue, for the nine months endedSeptember 30, 2021 . The increase in our natural sand proppant services revenue was primarily due to a 60% increase in the average sales price per ton of sand sold from$16.37 per ton during the nine months endedSeptember 30, 2021 to$26.15 per ton during the nine months endedSeptember 30, 2022 and a 38% increase in tons of sand sold from approximately 741,458 tons for the nine months endedSeptember 30, 2021 to approximately 1,019,740 tons for the nine months endedSeptember 30, 2022 . These increases were partially offset by a$3.3 million decline in shortfall revenue for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . 41 -------------------------------------------------------------------------------- Drilling Services. Drilling services division revenue increased$4.6 million , or 139%, to$7.9 million for the nine months endedSeptember 30, 2022 from$3.3 million for the nine months endedSeptember 30, 2021 . The increase in our drilling services revenue was primarily attributable to increased utilization for our directional drilling business from 20% during the nine months endedSeptember 30, 2021 to 43% nine months endedSeptember 30, 2022 as well as increased pricing. Other Services. Other services revenue, consisting of revenue derived from our aviation, equipment rental, crude oil hauling, remote accommodation and equipment manufacturing businesses, increased$3.1 million , or 23%, to$16.7 million for the nine months endedSeptember 30, 2022 from$13.6 million for the nine months endedSeptember 30, 2021 . Inter-segment revenue, consisting primarily of revenue derived from our infrastructure and well completion segments, totaled$1.0 million and$1.8 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in our other services revenue was primarily due to an increase in utilization for our equipment rental business. An average of 240 pieces of equipment was rented to customers during the nine months endedSeptember 30, 2022 , an increase of 105% from an average of 117 pieces of equipment rented to customers during the nine months endedSeptember 30, 2021 . Additionally, utilization for remote accommodations business increased. Due to market conditions, we have temporarily shut down our crude oil hauling business beginning inJuly 2021 , resulting in a decline in revenue of approximately$1.3 million . Cost of Revenue (exclusive of depreciation, depletion, amortization and accretion expense). Cost of revenue, exclusive of depreciation, depletion, amortization and accretion expense, increased$49.7 million from$152.0 million , or 89% of total revenue, for the nine months endedSeptember 30, 2021 to$201.7 million , or 78% of total revenue, for the nine months endedSeptember 30, 2022 . The increase is primarily due to an increase in cost of revenue for the well completion services division. Cost of revenue by operating division was as follows: Infrastructure Services. Infrastructure services division cost of revenue, exclusive of depreciation and amortization expense, decreased$3.2 million , or 5%, to$67.2 million for the nine months endedSeptember 30, 2022 from$70.4 million for the nine months endedSeptember 30, 2021 . As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of$12.5 million and$17.5 million , respectively, for the nine months endedSeptember 30, 2022 and 2021 was 82% and 96% for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to declines in labor related costs associated with improved efficiency of our crews and equipment rental costs as a percentage of revenue. Well Completion Services. Well completion services division cost of revenue, exclusive of depreciation and amortization expense, increased$44.4 million , or 93%, to$92.2 million for the nine months endedSeptember 30, 2022 from$47.8 million for the nine months endedSeptember 30, 2021 , primarily due to an increase in cost of goods sold as a result of providing sand and chemicals with our service package to customers during the nine months endedSeptember 30, 2022 as well as an increase in activity. As a percentage of revenue, our well completion services division cost of revenue, exclusive of depreciation and amortization expense of$18.0 million and$19.7 million for the nine months endedSeptember 30, 2022 and 2021, respectively, was relatively flat at 77% and 76% for the nine months endedSeptember 30, 2022 and 2021, respectively. Natural Sand Proppant Services. Natural sand proppant services division cost of revenue, exclusive of depreciation, depletion and accretion expense, increased$4.1 million , or 18%, from$22.6 million for the nine months endedSeptember 30, 2021 to$26.7 million for the nine months endedSeptember 30, 2022 . As a percentage of revenue, cost of revenue, exclusive of depreciation, depletion and accretion expense of$6.7 million and$7.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively, was 71% and 94% for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease in cost as a percentage of revenue is primarily due to a 60% increase in average sales price. Drilling Services. Drilling services division cost of revenue, exclusive of depreciation and amortization expense, increased$2.8 million , or 60%, from$4.7 million for the nine months endedSeptember 30, 2021 to$7.5 million for the nine months endedSeptember 30, 2022 , as a result of increased activity. As a percentage of revenue, our drilling services division cost of revenue, exclusive of depreciation and amortization expense of$4.9 million and$6.2 million , for the nine months endedSeptember 30, 2022 and 2021, respectively, was 95% and 142% for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to increased pricing and utilization. 42 -------------------------------------------------------------------------------- Other Services. Other services division cost of revenue, exclusive of depreciation and amortization expense, decreased$0.1 million , or 1%, from$12.4 million for the nine months endedSeptember 30, 2021 to$12.3 million for the nine months endedSeptember 30, 2022 . As a percentage of revenue, cost of revenue, exclusive of depreciation and amortization expense of$8.4 million and$10.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively, was 73% and 91% for the nine months endedSeptember 30, 2022 and 2021, respectively. The decrease as a percentage of revenue is primarily due to an increase in utilization.
Selling, general and administrative expenses. Selling, general and administrative expenses represent the costs associated with managing and supporting our operations. The table below provides a breakdown of SG&A fees for the periods indicated (in thousands):
Nine Months Ended
September 30, 2022 September 30, 2021
Cash expenses:
Compensation and benefits $ 9,796 $ 11,379
Professional services(a) 10,067 8,399
Other(b) 6,127 7,058
Total cash SG&A expenses 25,990 26,836
Non-cash expenses:
Bad debt provision(c) (112) 41,650
Stock based compensation 682 827
Total non-cash SG&A expenses 570 42,477
Total SG&A expenses $ 26,560 $ 69,313
a. Certain legal expenses totaling $5.4 million were reclassified to Other, net
for the nine months ended September 30, 2021 .
b. Includes travel-related costs, IT expenses, rent, utilities and other
general and administrative-related costs.
c. The bad debt provision for the nine months ended September 30, 2021 includes
$41.2 million related to the Stingray Pressure Pumping and Muskie contracts with
Gulfport.
Depreciation, Depletion, Amortization and Accretion. Depreciation, depletion,
amortization and accretion decreased $10.1 million to $50.5 million for the nine
months ended September 30, 2022 from $60.6 million for the nine months ended
September 30, 2021 . The decrease is primarily attributable to a decline in
property and equipment depreciation expense as a result of lower capital
expenditures and existing assets being fully depreciated.
Gains on Disposal of Assets, Net. Gains on the disposal of assets is primarily
related to the sale of trucks, land and buildings during the nine months ended
September 30, 2022 and trucking assets for the nine months ended September 30,
2021 .
Depreciation of long-lived assets. In the three months ended
Operating Loss. We reported an operating loss of$15.9 million for the nine months endedSeptember 30, 2022 compared to an operating loss of$106.1 million for the nine months endedSeptember 30, 2021 . The reduced operating loss was primarily due to a decline in costs as a percentage of revenue as well as increased activity across all operating divisions. Interest Expense, Net. Interest expense, net increased$4.4 million , or 113%, to$8.3 million for the nine months endedSeptember 30, 2022 from$3.9 million for the nine months endedSeptember 30, 2021 primarily due to an increase in the interest rate and average borrowings outstanding under our revolving credit facility. Other Income (Expense), Net. We recognized other income, net of$30.2 million during the nine months endedSeptember 30, 2022 compared to other expense, net of$4.5 million for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 we recognized expense of$25.0 million related to an agreement to settle a legal matter and corresponding legal fees totaling$5.4 million . We recognized interest on trade accounts receivable of$30.5 million for the nine months endedSeptember 30, 2022 compared to$25.1 million for nine months endedSeptember 30, 2021 . Income Taxes. We recorded income tax expense of$11.4 million on pre-tax income of$6.1 million for the nine months endedSeptember 30, 2022 compared to an income tax benefit of$26.4 million on pre-tax losses of$114.5 million for the nine months endedSeptember 30, 2021 . Our effective tax rate was 189% for the nine months endedSeptember 30, 2022 compared to 23% for the nine months endedSeptember 30, 2021 . The increase compared to the nine months ended 43 --------------------------------------------------------------------------------
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDA as net income (loss) before depreciation, depletion, amortization and accretion, gains on disposal of assets, impairment of other long-lived assets, public offering costs, stock based compensation, interest expense, net, other income (expense), net (which is comprised of interest on trade accounts receivable and certain legal expenses) and provision (benefit) for income taxes, further adjusted to add back interest on trade accounts receivable. We exclude the items listed above from net income (loss) in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industries depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net loss or cash flows from operating activities as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDA. Our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. We believe that Adjusted EBITDA is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet debt service requirements. The following tables provide a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income or (loss) for each of our operating segments for the specified periods (in thousands).
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