Mitchell Services Ltd (ASX: MSV) shares are in freefall today after the company released its quarterly investor update around an hour after market open. At the time of writing, the Mitchell Services share price has plummeted 19.3% to 46 cents.
At one point during morning trade, shares in the drilling services company were down more than 22% before recovering slightly.
What was announced?
The Mitchell Services share price has hit the skids today despite the company reporting strong underlying operating performance for the second quarter of the 2021 financial year (FY21 Q2).
However, earnings before interest, tax, depreciation and amortisation (EBITDA) was hit hard by the recognition of a $7.3 million impairment of trade receivables.
On 15 July 2019, Mitchell Services released an ASX announcement confirming it had been awarded a major 5-year contract with a new client. Today, the company revealed it has terminated that contract due to the client not having paid its invoices.
Andrew Elf, CEO of Mitchell Services, wrote that "In the absence of other contract wins, the termination will result in a monthly revenue reduction of approximately $1.2 million in the short term. Alternatively, the company may determine to sell the relevant rigs."
Mitchell Services is owed around $8.5 million in outstanding receivables. Elf noted that despite the take up of the provision for impairment, the company still aims to recover the full amount it is owed.
Looking at the figures, the company reported a 19.5% increase in its average number of operating rigs over the previous corresponding period. Revenue of $46.8 million was up 18.4% from FY20 Q2. But EBITDA of $2.06 million was down 73.9% while operating cash flow of $6.27 million fell 24.8%.
The company said it would release its FY21 revenue and EBITDA guidance along with a capital management update following the release of its half-year financial statement later this month.
Mitchell Services share price snapshot
Incorporating today's intraday losses, the Mitchell Services share price is down nearly 18% in 2021. By comparison, the All Ordinaries Index (ASX: XAO) is up just over 2% in that same time.
Over the pasts 12 months, Mitchell Services shares are down around 24% but have gained 66% from their March 2020 lows.
