INVESTORS

For additional information or materials, please contact ir@emergelp.com.

Emerge Energy Services Investors

News Release

Printer Friendly Version  View printer-friendly version
<< Back
Emerge Energy Services Announces Third Quarter 2018 Results

Fort Worth, Texas -November 6, 2018 - Emerge Energy Services LP ("Emerge Energy") today announced third quarter 2018 financial and operating results.

Highlights

·         Total volumes sold decreased 32% sequentially to 1,073 thousand tons in the third quarter.

·         Net loss of $3.9 million and diluted earnings per unit of $(0.12) for the third quarter.

·         Adjusted EBITDA decreased to $7.9 million for the third quarter.

Overview

Emerge Energy reported a net loss of $3.9 million, or $(0.12) per diluted unit, for the three months ended September 30, 2018, compared to net income of $5.0 million, or $0.16 per diluted unit for the three months ended September 30, 2017.  For the three months ended June 30, 2018, net income was $9.4 million, or $0.30 per diluted unit.

Net revenues were $63.0 million for the three months ended September 30, 2018, compared to $103.2 million for the three months ended September 30, 2017, and $101.8 million for the three months ended June 30, 2018.  Net revenues decreased due to lower northern white volumes sold, shift in mix away from higher priced terminal sales and a decline in northern white prices.  Volumes sold through our terminals totaled 23% of volume in the third quarter of 2018, compared to 45% in the third quarter of 2017, and 26% in the second quarter of 2018.

Adjusted EBITDA was $7.9 million for the three months ended September 30, 2018, compared to $18.7 million for the three months ended September 30, 2017, and $23.4 million for the three months ended June 30, 2018.

Emerge Energy generated Distributable Cash Flow of $1.7 million for the three months ended September 30, 2018.  Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures that Emerge Energy uses to assess its performance on an ongoing basis.  Emerge Energy will not make a cash distribution on its common units for the three months ended September 30, 2018, as the board of directors of its general partner did not approve a cash distribution.

"We experienced disappointing results in the third quarter driven by the short-term challenging market conditions and a delay in ramping up our new San Antonio plant," noted Ted W. Beneski, Chairman of the board of directors of the general partner of Emerge Energy.  "The slowdown in oil and gas completion activity has been well documented by notable industry participants.  Leading oilfield services companies were surprised by the speed in which many of their Exploration and Production customers began to pull back completion programs starting in August.  As a result, the market conditions for frac sand changed rapidly in the second half of the third quarter.  The market quickly turned from a state of short supply in the first half of the year to oversupply in the last two months as the demand pullback coincided with an increase in production from new in-basin mines across West Texas, South Texas, and the Mid-Continent regions.  Consequently, the entire industry has experienced pricing pressure, primarily on northern white product.  We are responding to these market conditions by reducing costs and idling over 50% of our northern white capacity."

"Despite the limited visibility for fourth quarter activity, our customers are signaling that 2019 should be a high growth year as budgets are reset and the midstream issues in West Texas are resolved.  Customer sentiment for next year is upbeat, giving us confidence that the current demand softness is a temporary state."

"We remain excited about our two new in-basin plants - San Antonio, Texas and Kingfisher, Oklahoma.  We made progress in the third quarter ramping up San Antonio, as sequential frac sand production doubled in the third quarter.  However, weather and contractor delays impacted the final portion of construction.  We now expect the plant to achieve the full four million tons per year run-rate at the end of November.  We also expect to significantly reduce our production costs in the coming months when our new wet plant phases out purchasing third party wet sand and our new permanent utilities displace higher cost temporary electricity and natural gas sources. We are over 60% contracted for the plant's full capacity and are projecting to achieve 80% by year end.  For our Oklahoma project, we broke ground in September, and we expect to be producing sand as early as January next year if the permitting process goes smoothly.  We have worked hard to reposition Emerge Energy into a balanced producer of both northern white and in-basin frac sand, and we are confident that we will reap the benefits of this repositioning in 2019."

"Due to the short-term market softness and lower in-basin production, we are lowering our full year 2018 Adjusted EBITDA guidance to a range of $50 million to $65 million.  We are currently engaged in negotiations with several customers to resolve contracted volume shortfalls on our take or pay contracts for northern white product.  Enforcing these minimum volume contracts will help to mitigate the anticipated market weakness in the fourth quarter."

Conference Call

Emerge Energy will host its 2018 third quarter results conference call on Tuesday, November 6, 2018 at 3:00 p.m. CT. Callers may listen to the live presentation, which will be followed by a question and answer segment, by dialing (855) 850-4275 or (720) 634-2898 and entering pass code 1475479. An audio webcast of the call will be available at www.emergelp.com within the Investor Relations portion of the website under the Webcasts & Presentations section. A replay will be available by audio webcast and teleconference for seven days following the conclusion of the call. The replay teleconference will be available by dialing (855) 859-2056 or (404) 537-3406 and the reservation number 1475479.


Operating Results

The following table summarizes Emerge Energy's operating results for the three and nine months ended September 30, 2018, and 2017, and three months ended June 30, 2018:

  Three Months Ended   Nine Months Ended September 30,  
  September 30, 2018   June 30, 2018   September 30, 2017   2018   2017  
                     
  ($ in thousands)  
Revenues:                    
Frac sand revenues $ 61,597     $ 100,788     $ 101,795     $ 268,356     $ 258,055    
Non-frac sand revenues 1,364     1,054     1,420     3,197     3,106    
Total revenues 62,961     101,842     103,215     271,553     261,161    
Operating expenses:                    
Cost of goods sold (excluding depreciation, depletion and amortization) 52,337     72,650     80,239     205,229     223,978    
Depreciation, depletion and amortization 5,316     5,355     6,078     15,532     16,409    
Selling, general and administrative expenses 3,693     7,390     7,302     19,654     20,030    
Contract and project terminations -     -     -     1,689     -    
Total operating expenses 61,346     85,395     93,619     242,104     260,417    
Operating income (loss) 1,615     16,447     9,596     29,449     744    
Other expense (income):     -     -            
Interest expense, net 6,907     6,736     5,073     24,135     13,353    
Other (1,472 )   230     (901 )   (1,930 )   (3,218 )  
Total other expense 5,435     6,966     4,172     22,205     10,135    
Income (loss) from continuing operations before provision for income taxes (3,820 )   9,481     5,424     7,244     (9,391 )  
Provision (benefit) for income taxes 33     53     (58 )   183     (58 )  
Net income (loss) from continuing operations (3,853 )   9,428     5,482     7,061     (9,333 )  
Income (loss) from discontinued operations, net of taxes -     -     (468 )   -     (3,125 )  
Net income (loss) $ (3,853 )   $ 9,428     $ 5,014     $ 7,061     $ (12,458 )  
                     
Adjusted EBITDA (a) $ 7,927     $ 23,362     $ 18,743     $ 48,675     $ 26,345    
                     
Volume of frac sand sold (tons in thousands) 985   1,519   1,361   3,941   3,890  
Volume of non-frac sand sold (tons in thousands) 88   70   119   224   233  
Total volume of sand sold (tons in thousands) 1,073   1,589   1,480   4,165   4,123  
                     
Terminal sand sales (tons in thousands) 247   415   671   1,249   1,803  
                     
Volume of frac sand produced by plant (tons in thousands):                    
Arland, Wisconsin facility 161   493   463   1,061   1,339  
Barron, Wisconsin facility 353   509   497   1,360   1,547  
New Auburn, Wisconsin facility 210   310   346   865   965  
San Antonio, Texas facility (b) 223   109   16     391   16    
Kosse, Texas facility 95   108   53   302   165  
Total volume of frac sand produced 1,042   1,529   1,375   3,979   4,032  

(a)   See section entitled "Adjusted EBITDA and Distributable Cash Flow" that includes a definition of Adjusted EBITDA and provides reconciliation to GAAP net income and cash flows.

(b)   Emerge Energy commenced frac sand production at the San Antonio facility in July 2017.

Continuing operations

Net income (loss) decreased $13.3 million for the third quarter of 2018, compared to the second quarter of 2018, mainly due to a 32% decrease in volumes sold and lower prices for northern white sand.  Volumes sold decreased mainly due to a slow down in well completion activity along with an increase in production from competitors' new in-basin mines, which led to pricing pressures, primarily on northern white sand.  Volumes sold through our terminals totaled 23% of volume in the third quarter of 2018, compared to 26% in the second quarter of 2018.

Adjusted EBITDA declined $15.4 million for the third quarter of 2018, compared to the second quarter of 2018, mainly due to decreased volumes, lower sand prices in the third quarter, and unabsorbed fixed costs for idled railcars.

Net income (loss) decreased $8.9 million and Adjusted EBITDA declined $10.8 million for the third quarter of 2018, compared to same quarter in 2017, mainly due to a decrease in total volumes sold and a shift in mix between direct FOB plant sales and terminal sand sales.  Volumes sold through our terminals totaled 23% of volume in the third quarter of 2018, compared to 45% in the third quarter of 2017.  This was offset by lower selling, general and administrative expenses due to reduced incentive compensation accruals.

Discontinued operations

During the three months ended September 30, 2017, we recorded a non-cash charge of $0.5 million related to the August 2016 sale of the Fuel business.

Capital Expenditures

For the three months ended September 30, 2018, Emerge Energy's capital expenditures totaled $8.3 million.

About Emerge Energy Services LP

Emerge Energy Services LP (NYSE: EMES) is a growth-oriented limited partnership engaged in the businesses of mining, producing, and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells.  Emerge Energy operates its Sand business through its subsidiary Superior Silica Sands LLC.  Emerge Energy also processed transmix, distributed refined motor fuels, operated bulk motor fuel storage terminals, and provided complementary fuel services through its fuel division which was sold on August 31, 2016.

Forward-Looking Statements

This release contains certain statements that are "forward-looking statements." These statements can be identified by the use of forward-looking terminology including "may," "believe," "will," "expect," "anticipate," or "estimate." These forward-looking statements involve risks and uncertainties, and there can be no assurance that actual results will not differ materially from those expected by management of Emerge Energy Services LP.  When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Emerge Energy's Annual Report on Form 10-K filed with the SEC. The risk factors and other factors noted in the Annual Report could cause actual results to differ materially from those contained in any forward-looking statement.  Except as required by law, Emerge Energy Services LP does not undertake any obligation to update or revise such forward-looking statements to reflect events or circumstances that occur after the date hereof.

PRESS CONTACT

Investor Relations
(817) 618-4020


EMERGE ENERGY SERVICES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per unit data)

  Three Months Ended September 30,   Nine Months Ended September 30,  
  2018   2017   2018   2017  
Revenues $ 62,961     $ 103,215     $ 271,553     $ 261,161    
Operating expenses:                
Cost of goods sold (excluding depreciation, depletion and amortization) 52,337     80,239     205,229     223,978    
Depreciation, depletion and amortization 5,316     6,078     15,532     16,409    
Selling, general and administrative expenses 3,693     7,302     19,654     20,030    
Contract and project terminations -     -     1,689     -    
Total operating expenses 61,346     93,619     242,104     260,417    
Operating income (loss) 1,615     9,596     29,449     744    
Other expense (income):                
Interest expense, net 6,907     5,073     24,135     13,353    
Other (1,472 )   (901 )   (1,930 )   (3,218 )  
Total other expense 5,435     4,172     22,205     10,135    
Income (loss) from continuing operations before provision for income taxes (3,820 )   5,424     7,244     (9,391 )  
Provision (benefit) for income taxes 33     (58 )   183     (58 )  
Net income (loss) from continuing operations (3,853 )   5,482     7,061     (9,333 )  
Income (loss) from discontinued operations, net of taxes -     (468 )   -     (3,125 )  
Net income (loss) $ (3,853 )   $ 5,014     $ 7,061     $ (12,458 )  
                 
Earnings (loss) per common unit                
Basic:                
Earnings (loss) per common unit from continuing operations $ (0.12 )   $ 0.19     $ 0.23     $ (0.31 )  
Earnings (loss) per common unit from discontinued operations -     (0.02 )   -     (0.10 )  
Basic earnings (loss) per common unit $ (0.12 )   $ 0.17     $ 0.23     $ (0.41 )  
                 
Diluted:                
Earnings (loss) per common unit from continuing operations $ (0.12 )   $ 0.18     $ 0.23     $ (0.42 )  
Earnings (loss) per common unit from discontinued operations -     (0.02 )   -     (0.10 )  
Diluted earnings (loss) per common unit $ (0.12 )   $ 0.16     $ 0.23     $ (0.52 )  
                 
Weighted average number of common units outstanding - basic 31,034,186     30,270,572     31,233,523     30,120,216    
Weighted average number of common units outstanding - diluted 31,034,186     30,400,584     31,371,152     30,183,091    


Adjusted EBITDA and Distributable Cash Flow

We calculate Adjusted EBITDA, a non-GAAP measure, in accordance with our current Credit Agreement as: net income (loss) plus consolidated interest expense (net of interest income), income tax expense, depreciation, depletion and amortization expense, non-cash charges and losses that are unusual or non-recurring less income tax benefits and gains that are unusual or non-recurring and other adjustments allowable under our existing credit agreement.  We report Adjusted EBITDA to our lenders under our revolving credit facility in determining our compliance with certain financial covenants.  Adjusted EBITDA should not be considered as an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with GAAP.  Moreover, our Adjusted EBITDA as presented may not be comparable to similarly titled measures of other companies.  The following table reconciles net income (loss) to Adjusted EBITDA for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017:

  Continuing   Discontinued   Consolidated   Consolidated  
                             
  Three Months Ended September 30,   June 30, 2018  
  2018   2017   2018   2017   2018   2017    
                             
  ($ in thousands)      
Net income (loss) $ (3,853 )   $ 5,482     $ -     $ (468 )   $ (3,853 )   $ 5,014     $ 9,428    
Interest expense, net 6,907     5,073     -     -     6,907     5,073     6,736    
Depreciation, depletion and amortization 5,316     6,078     -     -     5,316     6,078     5,355    
Provision (benefit) for income taxes 33     (58 )   -     -     33     (58 )   53    
EBITDA 8,403     16,575     -     (468 )   8,403     16,107     21,572    
Equity-based compensation expense 364     343     -     -     364     343     426    
Reduction in escrow receivable -     -     -     468     -     468     -    
Provision for doubtful accounts 287     -     -     -     287     -     20    
Accretion expense 30     25     -     -     30     25     31    
Retirement of assets 123     -     -     -     123     -     318    
Other state and local taxes 395     477     -     -     395     477     395    
Non-cash deferred lease expense (208 )   2,223     -     -     (208 )   2,223     355    
Unrealized loss (gain) on fair value of warrant (1,467 )   (900 )   -     -     (1,467 )   (900 )   245    
Adjusted EBITDA $ 7,927     $ 18,743     $ -     $ -     $ 7,927     $ 18,743     $ 23,362    

The following table present a reconciliation of net income (loss) to Adjusted EBITDA for the nine months ended September 30, 2018, and 2017:

  Continuing   Discontinued   Consolidated  
                         
  Nine Months Ended September 30,  
  2018   2017   2018   2017   2018   2017  
                         
  ($ in thousands)  
Net income (loss) $ 7,061     $ (9,333 )   $ -     $ (3,125 )   $ 7,061     $ (12,458 )  
Interest expense, net 24,135     13,353     -     -     24,135     13,353    
Depreciation, depletion and amortization 15,532     16,409     -     -     15,532     16,409    
Provision (benefit) for income taxes 183     (58 )   -     -     183     (58 )  
EBITDA 46,911     20,371     -     (3,125 )   46,911     17,246    
Equity-based compensation expense 1,224     1,020     -     -     1,224     1,020    
Contract and project terminations 1,689     -     -     -     1,689     -    
Reduction in escrow receivable -     -     -     3,125     -     3,125    
Provision for doubtful accounts 310     -     -     -     310     -    
Accretion expense 92     83     -     -     92     83    
Retirement of assets 443     60     -     -     443     60    
Other state and local taxes 1,185     1,357     -     -     1,185     1,357    
Non-cash deferred lease expense (2,429 )   6,453     -     -     (2,429 )   6,453    
Unrealized (gain) loss on fair value of warrant (1,899 )   (3,212 )   -     -     (1,899 )   (3,212 )  
Other adjustments allowable under our Credit Agreement 1,149     213     -     -     1,149     213    
Adjusted EBITDA $ 48,675     $ 26,345     $ -     $ -     $ 48,675     $ 26,345    

The following table reconciles Consolidated Adjusted EBITDA to our operating cash flows for the three and nine months ended September 30, 2018, and 2017, and June 30, 2018:

  Three Months Ended   Nine Months Ended September 30,  
  September 30, 2018   June 30, 2018   September 30, 2017   2018   2017  
                     
  ($ in thousands)  
Adjusted EBITDA $ 7,927     $ 23,362     $ 18,743     $ 48,675     $ 26,345    
Interest expense, net (5,852 )   (5,722 )   (4,169 )   (17,538 )   (10,828 )  
Income tax expense (429 )   (447 )   (419 )   (1,369 )   (1,299 )  
Other adjustments allowable under our Credit Agreement -     -     -     (1,149 )   (213 )  
Cost to retire assets (19 )   -     -     (19 )   19    
Non-cash deferred lease expense 208     (355 )   (2,223 )   2,429     (6,453 )  
Change in other operating assets and liabilities 10,453     8,520     (18,646 )   17,361     (21,458 )  
Cash flows from operating activities: $ 12,288     $ 25,358     $ (6,714 )   $ 48,390     $ (13,887 )  
                     
Cash flows from investing activities: $ (7,544 )   $ (25,683 )   $ (2,036 )   $ (63,320 )   $ (25,658 )  
                     
Cash flows from financing activities: $ (3,035 )   $ (7,248 )   $ 9,110     $ 12,026     $ 40,090    

We define Distributable Cash Flow generally as net income plus (i) non-cash net interest expense, (ii) depreciation, depletion and amortization expense, (iii) non-cash charges, and (iv) selected losses that are unusual or non-recurring; less (v) selected principal repayments, (vi) selected gains that are unusual or non-recurring, and (vii) maintenance capital expenditures.  We believe that the presentation of Distributable Cash Flow in this report provides information useful to investors in assessing our financial condition and results of operations.  In addition, our Board of Directors utilizes reserves for future capital expenditures, compliance with law or debt agreements, and to provide funds for distributions to unitholders in respect to any one or more of the next four quarters.  However, our Distributable Cash Flow may not be comparable to similarly-titled measures that other companies use.  Distributable Cash Flow does not reflect changes in working capital balances.  The following table (in thousands) reconciles net income to Distributable Cash Flows:

    Three Months Ended September 30, 2018  
       
Net income (loss)   $ (3,853 )  
       
Add (less) reconciling items:      
Add depreciation, depletion and amortization expense   5,316    
Add amortization of deferred financing costs   1,055    
Add equity-based compensation, net   364    
Add allowance for doubtful accounts   287    
Add loss on disposal of assets   142    
Add income taxes accrued, net of payments   63    
Add accretion expense   30    
Less non-cash deferred lease expense   (208 )  
Less unrealized gain on fair value of warrants   (1,467 )  
Distributable cash flow   $ 1,729    




This announcement is distributed by West Corporation on behalf of West Corporation clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Emerge Energy Services LP via Globenewswire