MAMMOTH ENERGY SERVICES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K) - Marketscreener.com

  The following discussion and analysis should be read in conjunction with the  consolidated financial statements and related notes included elsewhere in this  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" and the section entitled  "Forward-Looking Statements" appearing elsewhere in this annual report.    

Overview

      We are an integrated, growth-oriented energy services company focused on  providing products and services to enable the exploration and development of  North American onshore unconventional oil and natural gas reserve as well as the  construction and repair of the electric grid for private utilities, public  investor-owned utilities and co-operative utilities through our infrastructure  services businesses. 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 well completion services,  infrastructure services, natural sand proppant services, drilling services and  other services. Our well completion services division provides hydraulic  fracturing, sand hauling and water transfer services. Our infrastructure  services division provides engineering, design, construction, upgrade,  maintenance and repair services to the electrical infrastructure industry. 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, crude oil hauling services,  remote accommodations and equipment manufacturing. We believe that the services  we offer play a critical role in increasing the ultimate recovery and present  value of production streams from unconventional resources as well as in  maintaining and improving electrical infrastructure. Our complementary suite of  services provides us with the opportunity to cross-sell our services and expand  our customer base and geographic positioning.      The growth of our industrial businesses 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. Our fiber optic services include the  installation of both aerial and buried fiber. We are continuing to explore other  opportunities to expand our industrial business lines.    Our revenues, operating (loss) income and identifiable assets are primarily  attributable to four reportable segments: well completion services;  infrastructure services; natural sand proppant services; and drilling services.  Since the dates presented below, we have conducted our operations through the  following entities:    Well Completion Services Segment  •Stingray Pressure Pumping LLC-March 2012  •Silverback Energy LLC-November 2012  •Redback Pump Down Services LLC-January 2015  •Mr. Inspections LLC-January 2015  •Mammoth Equipment Leasing LLC-November 2016  •Bison Sand Logistics LLC-January 2018  •Aquahawk Energy LLC-June 2018    Infrastructure Services Segment  •Cobra Acquisitions LLC, or Cobra-January 2017  •Lion Power Services LLC, formerly Cobra Energy LLC-January 2017  •Higher Power Electrical LLC-April 2017  •5 Star Electric LLC-July 2017  •Python Equipment LLC-December 2018  •Aquawolf LLC-September 2019  •Falcon Fiber Solutions LLC-May 2021    Natural Sand Proppant Services Segment  •Muskie Proppant LLC-September 2011  •Barracuda Logistics LLC-October 2014  •Piranha Proppant LLC-May 2017                                         54  --------------------------------------------------------------------------------    •Sturgeon Acquisitions LLC-June 2017  •Taylor Frac, LLC-June 2017  •Taylor Real Estate Investments, LLC-June 2017  •South River Road, LLC-June 2017    Drilling Services Segment  •Bison Drilling and Field Services, LLC-November 2010  •Panther Drilling Systems LLC-December 2012  •Bison Trucking LLC-August 2013    

Other

  •Great White Sand Tiger Lodging Ltd.-October 2007  •Redback Energy Services, LLC-October 2011  •Redback Coil Tubing, LLC-May 2012  •Anaconda Rentals LLC, formerly White Wing Tubular Services LLC-September 2014  •WTL Oil LLC, or WTL, formerly Silverback-June 2016  •Mammoth Energy Services Inc.-June 2016  •Mammoth Energy Partners, LLC-October 2016  •Mako Acquisitions LLC-March 2017  •Stingray Energy Services LLC, or Stingray Energy Services-June 2017  •Stingray Cementing LLC-June 2017  •Tiger Shark Logistics LLC-October 2017  •Cobra Aviation Services LLC-January 2018  •Black Mamba Energy LLC-March 2018  •Stingray Cementing and Acidizing LLC, formerly RTS Energy Services LLC-June  2018  •Ivory Freight Solutions LLC-July 2018  •IFX Transport LLC-December 2018  •Air Rescue Systems LLC-December 2018  •Leopard Aviation LLC-April 2019  •Anaconda Manufacturing LLC-September 2019      

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, inflationary pressures, rising interest rates, 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 2022 and  remained strong in the fourth quarter of 2022, we continue to address the  external challenges in today's economic environment as we remain disciplined  with our spending and are focused on continuing to improve our operational  efficiencies and cost structure and on enhancing value for our stockholders.    

2022 Highlights

•Net loss of $0.6 million, or $0.01 per diluted share, for the year ended December 31, 2022 as compared to net loss of $101.4 million, or $2.18 per diluted share, for the year ended December 31, 2021.

    •Adjusted EBITDA of $86.1 million for the year ended December 31, 2022, a $97.7  million increase compared to ($11.6) million for the year ended December 31,  2021. See "Non-GAAP Financial Measures" below for a reconciliation of net income  (loss) to Adjusted EBITDA.                                           55  --------------------------------------------------------------------------------    •Doubled our active frac fleet count from two at the beginning of 2022 to four  active fleets to close out the year and have added an additional fleet  subsequent to December 31, 2022 for a total of five of our six fleets active  currently    •Executed two sand supply agreements with third-party service providers with  terms of 12 months and 21 months, respectively, beginning on January 1, 2023.  Under the terms of the agreements, we have agreed to supply, in aggregate,  approximately 1.75 million tons of sand over the contract periods.    •As part of our environmental and social responsibility initiatives, we  previously converted one of our pressure pumping fleets to a dual fuel spread  and, subject to market conditions, supply chain constraints and liquidity  requirements, have plans to convert our sixth pressure pumping fleet to Tier 4,  dual fuel, which we expect will be put into operation in the second half of  2023, as well as upgrade two of our existing fleets to Tier 2, dual fuel, giving  us a total of four dual fuel fleets by year-end 2023.    

Overview of Our Industries

Oil and Natural Gas Industry

       The oil and natural gas industry has traditionally been volatile and is  influenced by a combination of long-term, short-term and cyclical trends,  including the domestic and international supply and demand for oil and natural  gas, current and expected future prices for oil and natural gas and the  perceived stability and sustainability of those prices, production depletion  rates and the resultant levels of cash flows generated and allocated by  exploration and production companies to their drilling, completion and related  services and products budgets. The oil and natural gas industry is also impacted  by general domestic and international economic conditions, political instability  in oil producing countries, government regulations (both in the United States  and elsewhere), levels of customer demand, the availability of pipeline  capacity, storage capacity, shortages of equipment and materials and other  conditions and factors that are beyond our control.    Demand for most of our oil and natural gas products and services depends  substantially on the level of expenditures by companies in the oil and natural  gas industry. The levels of capital expenditures of our customers are  predominantly driven by the prices of oil and natural gas. In March and April  2020, concurrent with the COVID-19 pandemic and quarantine orders in the U.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. We saw  improvements in the oilfield services industry and in both pricing and  utilization of our well completion and drilling services during 2022 and we  expect both pricing and utilization to remain at these levels throughout 2023 as  a result of an increase in budgets for publicly traded exploration and  production companies and elevated activity levels, driven by improved energy  demand and strong commodity prices. The ongoing war and related humanitarian  crisis in Ukraine, however, could have an adverse impact on the global energy  markets and volatility of commodity prices.    In response to market conditions, we have temporarily shut down our cementing  and acidizing operations and flowback operations beginning in July 2019, our  contract drilling operations beginning in December 2019, our rig hauling  operations beginning in April 2020, our coil tubing, pressure control and full  service transportation operations beginning in July 2020 and our crude oil  hauling operations beginning in July 2021. We continue to monitor the market to  determine if and when we can recommence these services.    During 2022, our well completion services division exhibited strong performance,  fueled by the increase in demand in the pressure pumping industry. We are  currently operating five of our six pressure pumping fleets. Subject to market  conditions, supply chain constraints and liquidity requirements, we have plans  to upgrade our sixth spread to Tier 4, dual fuel to be put into operation in the  second half of 2023, as well as upgrade two of our existing fleets to Tier 2,  dual fuel, giving us a total of four dual fuel fleets by year-end 2023. However,  strong demand in the pressure pumping industry and continuing supply chain  disruptions have resulted in backlogs of equipment and replacement parts for our  and our competitors' pressure pumping fleets, which we expect to persist through  at least the first half of 2023. Any of these factors may result in the delay of  our plans to convert or activate our sixth pressure pumping fleet, or upgrade  two of our existing fleets, in the second half of 2023, which may adversely  impact our business, financial condition and cash flow.    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. On December 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 alleged December 28, 2019                                         56  --------------------------------------------------------------------------------    termination date. Further, on November 13, 2020, Gulfport filed petitions for  voluntary relief under chapter 11 of the Bankruptcy Code. On September 21, 2021,  we reached a settlement with Gulfport under which all litigation relating to the  Stingray 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 19. Commitments and  Contingencies to our consolidated financial statements included elsewhere in  this report for additional information.    

Natural Sand Proppant Industry

      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 continued to  increase throughout 2022 as we saw an increase in the volume of sand sold.  Supply constraints from labor shortages have negatively affected West Texas  in-basin mine operations and increased demand for Northern White frac sand for  the region in 2022. Demand from oil and gas companies in Western Canada and the  Marcellus Shale has also being strong in 2022. The increase in activity in 2022  resulted in an increase in demand and pricing for our sand and we expect that  prices will remain at these levels throughout 2023.      As a result of adverse market conditions, production at our Muskie sand  facility in Pierce County, Wisconsin has been temporarily idled since September  2018. Our contracted capacity has provided a baseline of business, which has  kept our Taylor and Piranha plants operating and our costs competitive.    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 made the payments owed to us under this contract for any periods subsequent  to May 2020. In September 2020, we filed a lawsuit seeking to recover delinquent  payments owed to us under this contract. On November 13, 2020, Gulfport filed  petitions for voluntary relief under chapter 11 of the Bankruptcy Code. On  September 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 19. Commitments and Contingencies to our consolidated  financial statements included elsewhere in this report for additional  information.    

Energy Infrastructure Industry

      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 northeastern, southwestern,  midwestern and western portions of the United States.      We currently have agreements in place with private utilities, public IOUs and  Co-Ops. Since we commenced operations in this line of business, a substantial  portion of our infrastructure revenue has been generated from storm restoration  work, primarily from PREPA, due to damage caused by Hurricane Maria. On  October 19, 2017, Cobra and PREPA entered into an emergency master services  agreement for repairs to PREPA's electrical grid. The one-year contract, as  amended, provided for payments of up to $945 million (the "first contract"). On  May 26, 2018, Cobra and PREPA entered into a second one-year master services  agreement, which provided for payments of up to $900 million, to provide  additional repair services and begin the initial phase of reconstruction of the  electrical power system in Puerto Rico (the "second contract"). Our work under  each of the contracts with PREPA ended on March 31, 2019.      As of December 31, 2022, PREPA owed us approximately $227 million for services  we performed, excluding $152.0 million of interest charged on these delinquent  balances as of December 31, 2022. See Note 2. Summary of Significant Accounting  Policies-Accounts Receivable to our consolidated financial statements included  elsewhere in this report. 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 under the contracts is largely dependent upon funding from  the Federal Emergency Management Agency, or FEMA, or other sources. On September  30, 2019, we filed a motion with the U.S. District Court for the District of  Puerto Rico seeking recovery of the amounts owed to us by PREPA, which motion  was stayed by the Court. On March 25, 2020, we filed an urgent motion to modify  the stay order and                                         57  --------------------------------------------------------------------------------    allow our recovery of approximately $62 million in claims related to a tax  gross-up provision contained in the first contract. 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, we 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 first contract. 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 our aid, 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 filed a first-level administrative  appeal of the November 21, 2022 Determination Memorandum and has indicated that  they will review the December 21, 2022 Determination Memorandums and, to the  extent they feel plausible, file a first-level administrative appeal of the  unauthorized amounts. 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 proceedings 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. Therefore, no  final decision will be issued in response to Cobra's claim. Cobra has 90 days  from the February 1, 2023 decision to file a notice of appeal.    We believe all amounts charged to PREPA were in accordance with the terms of the  contracts. Further, we believe these receivables are collectible. 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 amounts owed to us or (iii) otherwise does not pay  amounts owed to us for services performed, the receivable may not be collected  and our financial condition, results of operations and cash flows would be  materially and adversely affected. 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, on September 10, 2019, the U.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 was 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. On  May 18, 2022, the former FEMA official and the former president of Cobra each  pled guilty to one-count information charging gratuities related to a project  that Cobra never bid upon and was never awarded or received any monies for. On  December 13, 2022, the Court sentenced the former Cobra president to custody of  the Bureau of Prisons for six months and one day, a term of supervised release  of six months and a fine of $25,000. The Court sentenced the FEMA official to  custody of the Bureau of Prisons for six months and one day, a term of  supervised release of six months and a fine of $15,000. The Court also dismissed  the indictment against the two defendants. We do not expect any additional  activity in the criminal proceeding. Given the uncertainty inherent in the  criminal litigation, however, it is not possible at this time to determine the  potential impacts that the sentencings 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 going forward. See Note 19. Commitments and  Contingencies to our consolidated financial statements included elsewhere in  this report for additional information regarding these investigations and  proceedings. Further, as noted above, our                                         58  --------------------------------------------------------------------------------    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.    Although the COVID-19 pandemic and resulting economic conditions have not had a  material impact on demand or pricing for our infrastructure services, revenues  for our infrastructure services declined in 2021 as a result of certain  management changes throughout the year, which resulted in crew departures, and a  decline in storm restoration activities. 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 2022, operational improvements combined with increased crew count drove  enhanced results. Our average crew count increased from approximately 82 crews  as of December 31, 2021 to approximately 91 crews as of December 31, 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 the Infrastructure Investment and Jobs Act, which  was signed into law on November 15, 2021. We anticipate the federal spending to  begin fueling additional projects in this sector beginning in late 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 of the 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 continental United  States over the coming years.                                             59  --------------------------------------------------------------------------------

Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Years Ended

                                                               December 31, 2022           December 31, 2021  Revenue:                                                                    (in thousands)  Well completion services                                   $          170,663          $           84,334  Infrastructure services                                               111,452                      93,403  Natural sand proppant services                                         51,391                      34,860  Drilling services                                                      10,368                       4,321  Other services                                                         23,114                      18,510  Eliminations                                                           (4,902)                     (6,466)  Total revenue                                                         362,086                     228,962  

Cost of revenue: Well completion services (exclusive of depreciation and amortization of $22,080 and $26,356, respectively, for 2022 and 2021)

                                                        128,742                      64,552  

Infrastructure services (exclusive of depreciation and amortization of $16,149 and $21,841, respectively, for 2022 and 2021)

                                                         91,649                      90,559  

Natural sand proppant services (exclusive of depreciation, depletion and accretion of $8,725 and $8,993, respectively, for 2022 and 2021)

                                       36,783                      27,232  

Drilling services (exclusive of depreciation and amortization of $6,466 and $7,995, respectively, for 2022 and 2021)

                                                               9,797                       6,102  

Other services (exclusive of depreciation and amortization of $10,850 and $13,209, respectively, for 2022 and 2021)

16,518                      16,347  Eliminations                                                           (4,902)                     (6,466)  Total cost of revenue                                                 278,587                     198,326  Selling, general and administrative expenses                           39,554                      78,246  Depreciation, depletion, amortization and accretion                    64,271                      78,475  Gains on disposal of assets, net                                       (3,908)                     (5,147)  Impairment of goodwill                                                      -                         891  Impairment of other long-lived assets                                       -                       1,212  Operating loss                                                        (16,418)                   (123,041)  Interest expense, net                                                 (11,506)                     (6,406)  Other income, net                                                      40,912                       5,154  Income (loss) before income taxes                                      12,988                    (124,293)  Provision (benefit) for income taxes                                   13,607                     (22,863)  Net loss                                                   $             (619)         $         (101,430)          Revenue. Revenue for 2022 increased $133.1 million, or 58%, to $362.1 million  from $229.0 million for 2021. The increase in total revenue is primarily  attributable to increases in utilization across all operating divisions. Revenue  derived from related parties was $1.1 million for 2022 compared to $17.9 million  for 2021. Substantially all of our related party revenue for 2021 was derived  from Gulfport under pressure pumping and sand contracts which have since ended.  Revenue by division was as follows:      Well Completion Services. Well completion services division revenue increased  $86.4 million, or 102%, to $170.7 million for 2022 from $84.3 million for 2021.  Revenue derived from related parties was $14.8 million, or 18% of total well  completion revenue, for 2021. All of our related party revenue for 2021 was  derived from Gulfport under a pressure pumping contract which has ended.  Intersegment revenue, consisting primarily of revenue derived from our other  services and sand segment, totaled $0.8 million and $0.1 million, for 2022 and  2021, respectively.                                           60  --------------------------------------------------------------------------------    The increase in our well completion services revenue was primarily driven by an  increase in both utilization and pricing. The number of stages completed  increased 142% to 6,149 for 2022 from 2,544 for 2021. An average of 3.0 of our  six fleets were active throughout 2022 compared to 1.1 fleets for 2021.    Infrastructure Services. Infrastructure services division revenue increased  $18.1 million, or 19%, to $111.5 million for 2022 from $93.4 million for 2021  primarily due to an increase in average crew count from 82 crews during the year  ended December 31, 2021 to an average of 91 crews during the year ended  December 31, 2022 as well as improved operational efficiency. This was partially  offset by a decline in storm restoration activity during the year ended  December 31, 2022 compared to the year ended December 31, 2021, resulting in an  $11.0 million decrease in storm restoration revenue.    Natural Sand Proppant Services. Natural sand proppant services division revenue  increased $16.5 million, or 47%, to $51.4 million for 2022, from $34.9 million  for 2021. Revenue derived from related parties was $2.1 million, or 6% of total  sand revenue, for 2021. All of our related party revenue for 2021 was derived  from Gulfport under a sand supply contract which has ended. Intersegment  revenue, consisting primarily of revenue derived from our well completion  segment, was $2.5 million, or 5% of total sand revenue, for 2022 and $4.0  million, or 11% of total sand revenue, for 2021.    The increase in our natural sand proppant services revenue was primarily  attributable to a 62% increase in average price per ton of sand sold from $16.76  in 2021 to $27.11 in 2022 coupled with a 40% increase in tons of sand sold from  approximately 1.0 million tons in 2021 to 1.4 million tons in 2022. Included in  natural sand proppant services revenue is shortfall revenue of $3.1 million and  $12.0 million, for 2022 and 2021, respectively.    Drilling Services. Drilling services division revenue increased $6.1 million, or  142%, to $10.4 million for 2022, from $4.3 million for 2021. Revenue derived  from related parties, consisting primarily of directional drilling revenue from  El Toro Resources LLC, was $0.8 million for 2022 and $0.6 million for 2021. The  increase in our drilling services revenue was primarily attributable to  increased utilization for our directional drilling business from 21% for 2021 to  44% for 2022 as well as a 44% increase in the average day rate from 2021 to  2022.    Other Services. Revenue from other services, consisting of revenue derived from  our aviation, equipment rental, remote accommodation and equipment  manufacturing, increased $4.6 million, or 25%, to $23.1 million for 2022 from  $18.5 million for 2021. Revenue derived from related parties, consisting  primarily of aviation revenue from Brim Equipment Leasing, Inc., or Brim, was  $0.3 million, or 1% of total other services revenue, for 2022 and $0.4 million,  or 2% of total other services revenue, for 2021. Intersegment revenue,  consisting primarily of revenue derived from our infrastructure and well  completion segments, totaled $1.6 million and $2.2 million, for 2022 and 2021,  respectively.    The increase in our other services revenue was primarily due to improved  utilization for our equipment rental business. We rented an average of 249  pieces of equipment to customers during 2022, an increase of 84% from an average  of 135 pieces of equipment rented to customers during 2021. Additionally,  utilization for remote accommodations business increased. On average, 172 rooms  were utilized per night during 2022, a 91% increase from an average of 90 rooms  utilized per night in 2021.      Cost of Revenue (exclusive of depreciation, depletion, amortization and  accretion expense). Cost of revenue, exclusive of depreciation, depletion,  amortization and accretion expense, increased $80.3 million from $198.3 million,  or 87% of total revenue, for 2021 to $278.6 million, or 77% of total revenue,  for 2022. The increase was primarily due to an increase in cost of revenue  across all divisions as a result of improved utilization. Cost of revenue by  operating division was as follows:    Well Completion Services. Well completion services division cost of revenue,  exclusive of depreciation and amortization expense, increased $64.1 million, or  99%, from $64.6 million for 2021 to $128.7 million for 2022 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 2022 as well as an increase in labor  costs as a result of additional fleets in service. As a percentage of revenue,  our well completion services division cost of revenue, exclusive of depreciation  and amortization expense of $22.1 million in 2022 and $26.4 million in 2021, was  75% and 77%, for 2022 and 2021, respectively.    Infrastructure Services. Infrastructure services division cost of revenue,  exclusive of depreciation and amortization expense, increased $1.0 million from  $90.6 million for 2021 to $91.6 million for 2022. As a percentage of revenue,  cost of revenue, exclusive of depreciation and amortization expense of $16.2  million in 2022 and $21.9 million in 2021, was 82% and 97%, for 2022 and 2021,  respectively. The decline as a percentage of revenue is                                         61  --------------------------------------------------------------------------------

primarily due to improved pricing as well as a decline in labor related costs as a result of improved efficiency of our crews.

    Natural Sand Proppant Services. Natural sand proppant services division cost of  revenue, exclusive of depreciation, depletion and accretion expense, increased  $9.6 million, or 35%, from $27.2 million for 2021 to $36.8 million for 2022. As  a percentage of revenue, cost of revenue, exclusive of depreciation, depletion  and accretion expense of $8.7 million in 2022 and $9.0 million in 2021, was 72%  and 78%, for 2022 and 2021, respectively. The decrease in cost as a percentage  of revenue is primarily due to a 62% increase in average sales price and a 37%  increase in tons sold.    Drilling Services. Drilling services division cost of revenue, exclusive of  depreciation and amortization expense, increased $3.7 million, or 61%, from $6.1  million for 2021 to $9.8 million for 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 $6.5 million in 2022 and  $8.0 million in 2021, was 94% and 141%, for 2022 and 2021, respectively. The  decline in 2022 is primarily due to increases in utilization and pricing.    Other Services. Other services cost of revenue, exclusive of depreciation and  amortization expense, increased $0.2 million, or 1%, from $16.3 million for 2021  to $16.5 million for 2022. As a percentage of revenue, cost of revenue,  exclusive of depreciation and amortization expense of $10.8 million in 2022 and  $13.2 million in 2021, was 71% and 88%, for 2022 and 2021, respectively. The  decrease as a percentage of revenue in 2022 is primarily due to an increase in  utilization.      Selling, General and Administrative Expenses. Selling, general and  administrative expenses, or SG&A, represent the costs associated with managing  and supporting our operations. The following is a breakout of SG&A expenses for  the periods indicated (in thousands):                                                Years Ended                                 December 31, 2022       December 31, 2021  Cash expenses:  Compensation and benefits     $           13,729      $           15,064  Professional services                     13,501                  11,400  Other(a)                                   8,012                   9,052  Total cash SG&A expense                   35,242                  35,516  Non-cash expenses:  Bad debt provision(b)                      3,389                  41,662    Stock based compensation                     923                   1,068  Total non-cash SG&A expense                4,312                  42,730  Total SG&A expense            $           39,554      $           78,246      a.  Includes travel-related costs, IT expenses, rent, utilities and other  general and administrative-related costs.  b.  The bad debt provision for the year ended December 31, 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 $14.2 million, or 18%, to $64.3 million for  2022 from $78.5 million in 2021. The decrease is primarily due to a decline in  property and equipment depreciation expense as a result of lower capital  expenditures and existing assets being fully depreciated or impaired.    Gains on Disposal of Assets, Net. Gains on the disposal of assets decreased $1.2  million, or 24%, to $3.9 million for 2022 from $5.1 million in 2021. Gains on  the disposal of assets is primarily related to the sale of trucks, land and  buildings for the year ended December 31, 2022 and trucking assets for the year  ended December 31, 2021.      Impairment of Goodwill. We recorded impairment of goodwill of $0.9 million in  2021. As a result of our annual assessment of goodwill, we determined that the  carrying value of goodwill for certain of our entities exceeded their fair  values at December 31, 2021, resulting in impairment expense of $0.9 million. We  did not recognize any impairment of goodwill in 2022.                                           62  --------------------------------------------------------------------------------      Impairment of Other Long-lived Assets. We recorded impairments of other  long-lived assets of $1.2 million for 2021. Beginning in 2021, we temporarily  shut down our crude oil hauling operations, resulting in impairment of trade  names of $0.5 million. Additionally, as a result of a review of intangible asset  balances as of December 31, 2021, we determined the fair value of Higher Power's  trade names and customer relationships was less than their carrying value,  resulting in impairment expense of $0.7 million. We did not recognize any  impairment of other long-lived assets in 2022.      Operating Loss. We reported an operating loss of $16.4 million for 2022  compared to an operating loss $123.0 million for 2021. The reduced operating  loss in 2022 was primarily due to a decline in costs as a percentage of revenue  as well as increased activity across all operating divisions as described above.      Interest Expense, net. Interest expense, net increased $5.1 million to $11.5  million for 2022 from $6.4 million for 2021, primarily due to an increase in the  interest rate and average borrowings outstanding under our revolving credit  facility.      Other Income, net. Other income, net increased $35.7 million during 2022  compared to 2021. During 2021, we recognized expense of $25.0 million related to  an agreement to settle a legal matter and legal fees related to the matter  totaling $5.4 million. We recognized interest on trade accounts receivable of  $41.3 million in 2022 compared to $34.7 million in 2021.      Income Taxes. During 2022, we recorded an income tax expense of $13.6 million  on pre-tax income of $13.0 million compared to an income tax benefit of $22.9  million